Taylor Family Ltd. P'ship "B" v. XTO Energy, Inc.

Decision Date14 December 2022
Docket NumberCV-20-704
Citation2022 Ark. App. 521,658 S.W.3d 455
Parties TAYLOR FAMILY LIMITED PARTNERSHIP "B", Appellant v. XTO ENERGY, INC., Appellee
CourtArkansas Court of Appeals

Brett D. Watson, Attorney at Law, PLLC, by: Brett D. Watson, for appellant.

C. Michael Daily and Thomas A. Daily, Fort Smith, for appellee.

WAYMOND M. BROWN, Judge

This is an appeal of the Faulkner County Circuit Court's order granting summary judgment to the appellee, XTO Energy, Inc. (XTO). The court determined the appellant, Taylor Family Limited Partnership "B" (Taylor), failed to demonstrate a genuine issue of material fact as to whether XTO, its oil and gas lessee, fulfilled its implied duty to restore the surface of Taylor's land after XTO had abandoned two of its natural-gas wells. Taylor now appeals the order granting summary judgment, arguing that the circuit court erred when it determined that the scope of XTO's implied duty to restore the property was limited to the measures set forth in administrative regulations or a "reasonably prudent operator" standard. For the reasons that follow, we reverse and remand.

I. Factual Background

This case focuses on two natural-gas wells that XTO leased from Taylor. The wells at issue—both named for the original parties to the oil and gas leases—are "Taylor FLB 2" and "EY Hill 1-32."

A. Taylor FLB 2

On August 4, 1960, Carolyn and Jeta Taylor, the appellant's predecessors in interest, executed an oil and gas lease (the "Taylor Lease") that covered a tract of land (the Taylor FLB Tract) they owned in Cecil Field in Lincoln County. The lease was executed in favor of Stephens Production Company and Arkansas Louisiana Gas Company, and it continued for a term of one year. The lease also contained a secondary term that allowed it to be extended for a period "as long thereafter as oil or gas is or can be produced from [the Taylor land] or lands with which [the Taylor land] is pooled hereunder."

The Taylor lease further granted its oil and gas lessees "the right to explore and produce oil and gas," specifically including the rights to lay pipelines; to build tanks, power stations, and other structures; and to construct roads and bridges. The lease also granted the general right to build "any other structures, equipment, servitudes, and privileges which may be necessary, useful, or convenient to or in connection with [their] operations" on the Taylor FLB Tract.

Shortly after the parties executed the Taylor lease, the Arkansas Oil and Gas Commission (AOGC) pooled the Taylor FLB Tract with other leased tracts that were located in Cecil Field. The pooled tracts were collectively named the Taylor FLB natural gas unit ("Taylor FLB Unit"), and the first well in the unit, the Taylor FLB 1 well, was drilled in 1961 and produced for over fifty years until XTO plugged and abandoned the well in 2012.

XTO's predecessor in interest, Arkla Exploration Company, began drilling the Taylor FLB 2 well—one of the wells at issue in this case—in 1989. Taylor FLB 2 produced natural gas until 2017, when it was plugged and abandoned. Two of the remaining wells in the Taylor FLB natural gas unit, including Taylor FLB 3 and Taylor FLB 4, are still operating.

B. EY Hill 1-32

Taylor's predecessors in interest also executed an oil and gas lease in favor of E.Y. Hill and Maggie Hill concerning a tract of land in an adjoining township. The terms of the lease, including the surface rights granted to the lessee, were similar to the Taylor lease. Drilling at the EY Hill 1-32 well site began in 1958. Taylor acquired the surface rights to the EY Hill tract several years later.

The EY Hill 1-32 well produced natural gas for sixty years. XTO plugged and abandoned that well in 2017.

C. The Litigation

On October 19, 2018, Taylor filed a complaint seeking compensatory damages, injunctive relief, and attorney's fees. The complaint alleged that XTO had not fulfilled its implied duty to restore the property at each well "as nearly as practicable to the same condition as it was before the drilling commenced." Specifically, Taylor alleged that the land suffered unrepaired surface damage from roads, shale pads, and pipelines that were installed during the drilling operation and that underground pipelines were left behind. Further, Taylor asserted that XTO failed to remove a meter shed that served the Taylor FLB 2 well.

As a result of these alleged failures, Taylor argued that it had incurred "surface damages upon its real property," and it sought damages including "the expense [associated with] the removal of the roadway traversing its property," as well as "the cost[s] to remove the existing shale, restore the original contour [of the land], apply topsoil, apply mulch and re-seed the ground to establish a desirable grass cover to prevent erosion." Taylor also sought an injunction ordering XTO to "remove the meter shed at the Jeta Taylor well site [and] all abandoned pipelines traversing [its] properties" and to "restore the ... property to is pre-drilling condition after removal of the pipelines."

XTO filed an answer on November 26, 2019. The answer admitted the location of the abandoned wells but otherwise denied the material allegations in the complaint. XTO also affirmatively pleaded, among other things, that Taylor has "suffered no surface damage."

XTO followed with a motion for summary judgment on February 3, 2020. The motion asserted that "while an [oil and gas] operator has a duty to restore, this duty does not require the operator to improve [Taylor's] land to a subjectively better condition, nor does it impose liability on an operator who otherwise engaged in prudent, reasonable, and ordinary drilling operations[.]" Summary judgment was appropriate, XTO said, "because at all times, [it] followed Arkansas Oil and Gas Commission Regulations, including General Rule B-9(e), in cleaning up the former well sites."1 Further, XTO argued that it "acted as a reasonably prudent operator at all times," and Taylor made "no factual allegation about XTO violating an AOGC rule or committing a single unreasonable or negligent act in the conduct of its drilling operations." In fact, according to XTO, "[a]bsent an allegation of unreasonable conduct or negligence, [it] is simply not liable for any harm to [Taylor's] property because any deterioration caused by XTO's ordinary and reasonable drilling operations is allowed as natural wear and tear and is excepted from its duty to restore."

Regarding its efforts to restore the property, XTO contended that it performed "extensive work" and "returned the property to [Taylor] in nearly as good a condition as it was prior to drilling, normal wear and tear excepted." In particular, XTO said it had "removed all well pads and left behind no concrete, tools, pits, trash, or debris." In addition, XTO "employed a contractor to apply topsoil, seed, mulch, and fertilizer to the former well sites."

XTO additionally argued that it had no obligation to remove the roads or the meter shed that remained on Taylor's property. The first road, which extended from Highway 41 to the FLB 2 well, "is also used by XTO to access other producing wells in the Taylor FLB Unit," and therefore, XTO had no duty to remove the road until its oil and gas leases expired. XTO also claimed that it did not install the second road that traversed the EY Hill tract. Rather, the road "existed long before [Taylor] acquired the property, and evidence indicates that [Taylor] or its predecessors used the road in its cattle farming operations or to reach the house [at the end of the road]."

XTO offered the affidavit of Jamie Sorrells, its senior land and surface coordinator, in support of its motion for summary judgment. Mr. Sorrells testified that the FLB 2 well site and the meter shed are located at the end of the road leading from Highway 41. The meter shed, according to Mr. Sorrells, houses gas meters that monitor the natural gas produced at other wells in the Taylor FLB Unit, and "one must use the same road that leads to the former Taylor FLB 2 well site to access the meter shed" and other well sites in the Taylor FLB Unit. Regarding the road that crossed the EY Hill tract, Mr. Sorrells testified as follows:

To reach the EY Hill 1-32 well site, one must enter the EY Hill Tract from West Anice Road, and traverse to the south approximately one hundred (100) feet. The road then naturally continues southwest past the well site, until it terminates at a house located on the EY Hill tract, also owned by [Taylor]. Neither XTO nor its predecessors constructed the road that led to the house. The house appears to be serviced by utilities, and has a running electric meter, and a satellite dish. There is no other apparent road access to the house.

Mr. Sorrells also testified about XTO's efforts to restore the surface of the land near the abandoned wells. He explained that XTO "began plugging, abandoning, and remediating" the Taylor FLB 2 and EY Hill 1-32 well sites in 2017. "In each instance, he said, "XTO followed the rules imposed by the Arkansas Oil and Gas Commission[.]" In particular, XTO hired a contractor to "complete the plugging process" and a second contractor to "remove the wellhead, connected pipelines, and all other well equipment from the well site." Mr. Sorrells also stated that "after all the well equipment was removed, [the contractor] broke up and removed the materials that made up the former well pads at each location" and "applied topsoil, seed, fertilizer, and mulch in order to encourage vegetation at each well site." According to Mr. Sorrells, the total cost of plugging and remediating the wells was over $70,000, and he estimated "that the former well sites have established over 80% - 85% vegetation as of the end of the growing season in 2019." Mr. Sorrells also declared that "[n]either XTO, nor its contractors, left behind any equipment, well materials, tools, trash, debris, ponds, pits, or anything...

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