pjc-oil-and-gas-2022-lib

PJC 313.12

D AMAGES

Vertical vs. horizontal wells. Oil and gas wells may be drilled “vertically,” gen erally meaning the surface location of the well is at or near the bottom hole location of the well, or “horizontally,” where the wellbore traverses a long distance horizontally with multiple drain holes along its horizontal axis. A pooling dispute may involve a pooled unit formed for either a vertical or horizontal well, and the measure of damages is different depending on which type of well is at issue. See Browning Oil Co. , 38 S.W.3d at 642–47 (measure of damages when lessee lacked pooling authority). Usu ally, in a pooling case involving a vertical well, the lessor owns the royalty under the drillsite lease where the well is located. Thus, if that lessor prevails, the pooled unit is void and “held for naught,” and under the rule of capture, a drillsite lessor is entitled to the amount of additional royalty that would have been paid had there been no pooled unit, less that already received for pooled unit production. In that event, because the pooled unit is void, royalties thereafter also are paid on a lease basis, and this takes care of the lessor as to future damages. However, if the plaintiff is not a drillsite owner, presumably that plaintiff would be required to prove past and future damages on a different basis or ask for other remedies depending on the factual circumstances of each case. If a horizontal well is involved, the damages instruction should be based on the legal principles set out in Browning Oil Co. , 38 S.W.3d 625. The Browning court gave consideration to the effect of horizontal drilling on traditional concepts of oil and gas ownership and held that a pooled unit formed without authority was invalid with respect to the drillsite lease but that the drillsite lessor’s damages were limited to the royalty value of production from the land covered by the lease. Browning Oil Co. , 38 S.W.3d 625 . The traditional rule of capture did not apply, because in a horizontal drain hole situation, each tract through which the drain hole traverses is in essence a “drill site” tract even though production may not come to the surface at that location. Submission of separate answers. If there are multiple plaintiffs or lessees, it will normally be necessary to require an answer for each. It may also be necessary to require an answer for each well and each month in issue in the dispute if the plaintiff is seeking to recover prejudgment interest from multiple wells or sales or if the statute of limitations is in issue. Tex. Nat. Res. Code §§91.401–.406; Tex. Fin. Code §§ 304.101–.107. Prejudgment interest. Instructing the jury not to add interest is suggested because prejudgment interest, if recoverable, will be calculated by the court at the time of judgment. If interest paid on an obligation is claimed as an element of damages, it may be necessary to modify the instruction on interest.

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