Regency Field Servs., LLC v. Swift Energy Operating, LLC, No. 19-0545

• Court: Supreme Court of Texas
• Writing for the Court: Justice Boyd delivered the opinion of the Court.
• Citation: 622 S.W.3d 807
• Docket Number: No. 19-0545
• Decision Date: 07 May 2021
• Parties: REGENCY FIELD SERVICES, LLC, et al., Petitioners, v. SWIFT ENERGY OPERATING, LLC, Respondent

622 S.W.3d 807

REGENCY FIELD SERVICES, LLC, et al., Petitioners,
v.
SWIFT ENERGY OPERATING, LLC, Respondent

No. 19-0545

Supreme Court of Texas.

Argued December 3, 2020
Opinion delivered: May 7, 2021

William J. Boyce, Geraldine Young, Houston, Alan Dabdoub, Dallas, April Lynn Farris, Joy M. Soloway, Darryl Wade Anderson, Reagan W. Simpson, Houston, Roger D. Bellows, Robert D. Woods, Bryce L. Callahan, R. Paul Yetter, Houston, Kent Krabill, Dallas, for Petitioners Regency Field Services LLC.

Alan Dabdoub, Dallas, Darryl Wade Anderson, Geraldine Young, Houston, Roger D. Bellows, R. Paul Yetter, Bryce L. Callahan, Reagan W. Simpson, April Lynn Farris, Joy M. Soloway, Robert D. Woods, Houston, William J. Boyce, for Petitioners Regency Energy Partners LP, La Grange Acquisition.

Reagan W. Simpson, Robert D. Woods, Darryl Wade Anderson, Geraldine Young, Houston, William J. Boyce, Bryce L. Callahan, Joy M. Soloway, Houston, for Petitioners Regency GP LP, Regency GP LLC.

Robert D. Daniel, Jeanie Tate Goodwin, Joshua S. Smith, Houston, Charles ‘Chad’ R. Flores, David M. Gunn, Houston, Karen Ann Conticello, Anjali P. Gillette, Glenn Richard Legge, for Respondent.

Justice Boyd delivered the opinion of the Court.

622 S.W.3d 811

Upon the wicked he shall rain snares, fire and brimstone, and an horrible tempest: this shall be the portion of their cup.¹

Brimstone—more commonly (but perhaps less captivatingly) known as sulfur² —has long been associated with death, destruction, and devastation. Yet the element, used in chemical weapons as early as ancient Greece,³ exists naturally with the gas and petroleum that lay in abundance below the surface of our state. As natural gas is drawn to the surface, sulfur—in the form of hydrogen sulfide—often arrives with it. In this case, a mineral estate lessee alleges that hydrogen sulfide an operator injected back into the earth has migrated beneath the surface and injured the lessee's interests in the minerals underlying nearby properties.

This appeal concerns the specific issue of when, for purposes of the statute of limitations, the lessee's claims accrued. More specifically, the issue is whether the pleadings and summary-judgment evidence conclusively established that the lessee's claims accrued at least two years before the lessee first filed them. The trial court held they did. The court of appeals reversed in part, holding that limitations bars the lessee's claims for injuries to its interests in one of its nine separate leases, but does not bar the lessee's claims for injuries to its interests in the other eight leases.

We conclude that the pleadings and evidence did not conclusively establish whether or when the lessee sustained any legal injury as a result of the defendant's alleged wrongful conduct. Because of this conclusion, and in light of the lessee's arguments in this Court, we need not decide whether the lessee's claims accrued separately on a lease-by-lease basis. Even assuming they all accrued when the defendant's alleged wrongful conduct first caused the lessee to suffer a legal injury, the pleadings and evidence do not conclusively establish that the first legal injury occurred more than two years before the lessee filed its claims. We thus reverse the court of appeals' judgment in part and remand the case to the trial court for further proceedings.

I.

Background

Natural gas is either "sweet" or "sour." Sour gas, which contains high levels of

622 S.W.3d 812

hydrogen sulfide, is "unfit for use in generating light or fuel for domestic purposes." TEX. NAT. RES. CODE § 86.002(8).⁴ Often described as smelling like rotten eggs, hydrogen sulfide is extremely "poisonous, corrosive, flammable, and explosive." French v. Occidental Permian Ltd. , 440 S.W.3d 1, 6 n.14 (Tex. 2014). Among other things, it contaminates hydrocarbons and destroys wells and equipment used to produce them.

Natural gas producers can treat sour gas to remove the hydrogen sulfide. But then they must carefully dispose of it. Sometimes they burn (or "flare") it off or haul it away to a disposal site. But they may also dispose of it by injecting it through a well into a depleted subsurface reservoir. See 16 TEX. ADMIN. CODE § 3.9(1) ; R.R. Comm'n of Tex. v. Tex. Citizens for a Safe Future & Clean Water , 336 S.W.3d 619, 621 (Tex. 2011). Those who plan to operate such an injection well must first obtain a permit from the Texas Railroad Commission. See TEX. WATER CODE § 27.031. To obtain a permit, the operator must give notice of its application to all "interested" and "affected" persons, including the "operator of any well located within one-half mile of the proposed disposal well" and the "owners of record of each surface tract that adjoins the proposed disposal tract." See 16 TEX. ADMIN. CODE § 3.9(5).

Regency Field Services owns and operates a disposal injection well in McMullen County, known as the Tilden Acid Gas Injection Well. The permit Regency first received in 2007 allowed it to inject a particular amount of a hydrogen-sulfide/carbon-dioxide mix (called "injectate") into the Wilcox geological formation, a long-depleted gas field that runs horizontally around 5,800 feet beneath the surface. Above the Wilcox formation, around 5,000 feet beneath the surface, lies the Carrizo aquifer, one of the state's largest water sources. Below the Wilcox lie the Olmos formation (around 9,400 feet deep) and the Eagle Ford formation (around 11,000 feet deep), two of the state's highest-producing natural-gas fields. Impermeable layers of shale separate the Wilcox from the formations above and below it, but injectate placed into the Wilcox will spread horizontally away from the injection point over time. The Railroad Commission granted Regency a permit to operate the Tilden injection well based on models predicting that the injectate "plume" would take forty years to migrate 2,220 feet.

In 2011, Regency applied for an amended permit allowing it to increase the amount of injectate it placed into the Tilden injection well. Regency's application included new models predicting that, at the increased disposal rate, the plume would take thirty years to migrate 2,900 feet from the injection point. The Commission granted the application and issued the amended permit in February 2012.

About six months later, Layline Petroleum discovered hydrogen sulfide in one of its wells located 3,300 feet from Regency's injection well. Layline's well—the JCB Horton #1—was located on the Quintanilla Ranch, a 4,200-acre tract adjacent to the land on which the injection well is located. The Horton #1 well produced gas from the Olmos formation, so its wellbore necessarily traveled through the Wilcox formation. Studies confirmed that the hydrogen sulfide discovered in the Horton #1 well came from Regency's injection well. As a result of the contamination, Layline had to cap and plug the Horton #1 well and

622 S.W.3d 813

perform other remedial measures. Regency temporarily shut in the injection well while it performed its own remedial measures. The Railroad Commission then authorized Regency to resume operating the injection well, but at reduced injection rates and pressure.

Swift Energy Operating holds nine mineral leases covering different depths underlying separate tracts near Regency's injection well. One lease—the PCQ lease—covers all of the Quintanilla Ranch except for certain areas previously leased to others, including the area on which the Horton #1 well was located. The PCQ lease gives Swift the right to explore and produce all of the minerals under and around the Horton #1 well, which already existed when Swift obtained the PCQ lease in 2009. So to reach the Horton #1 well, the hydrogen sulfide injectate necessarily had to physically migrate through some area under the Quintanilla Ranch where Swift holds the mineral lease. Swift's other eight leases cover various depths under separate tracts located north and east of Regency's injection well. On October 23, 2012, Layline notified Swift that Layline had to plug the Horton #1 well because of the hydrogen sulfide contamination. A revised modeling study that Regency obtained in 2013 showed that the hydrogen sulfide may have crossed under the surface boundary of the Quintanilla Ranch as early as April 2009.

In July 2014, the Quintanilla family and others filed this suit against Regency. Other nearby property owners intervened as plaintiffs that same month. Swift intervened on September 24, 2015, more than three years after Layline first discovered hydrogen sulfide at the Horton #1 well. After settling with the Quintanillas and the other claimants, Regency moved for summary judgment on Swift's claims based on limitations. The trial court granted Regency's motion and dismissed Swift's claims. Swift appealed, and the court of appeals affirmed in part and reversed in part. Swift Energy Operating, LLC v. Regency Field Servs., LLC , 608 S.W.3d 214 (Tex. App.—San Antonio 2019).

The court of appeals held that Regency was entitled to summary judgment to the extent Swift's claims are based on its interests under the PCQ lease because the evidence established that "the injectate plume had crossed the PCQ lease's western border and into Swift's PCQ...