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Texas Court Addresses Damages When Plugging of an Oil Well Fails

When an oil and gas well is no longer producing (or if it needs major repairs but the production is not sufficient to justify the cost of repairs), Texas Railroad Commission rules require that the well must be plugged. The plugging procedure (which you can read about here) involves cementing the wellbore and is designed to be permanent. The plugging is designed specifically to protect against leaks into aquifers. Unfortunately, occasionally a production or waste water well gets plugged improperly or negligently, and salt water from these wells leaks out over time and on to the adjacent property, resulting in very unhappy property owners. Salt water leakage can cause damage to the surface of the property, such as contaminating the land so that crops can no longer be grown, or can seep through the ground to contaminate aquifers beneath the surface. Of course, plugged wells should not leak, and if they do, the property owner may have an actionable claim against the company that plugged the well.

The case of Ranchero Esperanza, Ltd. v. Marathon Oil Co. addressed a number of issues that arise in this kind of case. Some of these issues, such as standing (i.e., the right to sue), the statute of limitations, the applicability of the discovery rule and when a cause of action accrues, were addressed by the Texas Eighth Court of Appeals in El Paso in the Ranchero Esperanza case.

In connection with standing, the Court repeated the well-known legal precept that a cause of action for injury to land is a personal right belonging to the person owning the property at the time of the injury. A subsequent owner can’t recover for an injury committed before their ownership unless they received an express assignment of the cause of action from the former owner. In this case, the injury did not occur until saltwater was released from the plugged well onto the surface of the property in July 2008. Since Ranchero Esperanza was the owner of the property at that time, it had standing.

Timing Is Key

In the Ranchero Esperanza case, the well was located on a property in Crockett County, Texas and was plugged and abandoned by Marathon Oil Company in 1989. Later, Ranchero Esperanza, Ltd. purchased the land in 2004 and discovered surface damage indicative of a salt water leak on July 20, 2008. Ranchero Esperanza did not file suit until July 27, 2010. The petition asserted claims of negligence, trespass and nuisance. The Court found that the landowner’s cause of action accrued when signs of salt water damage were known to the landowner on July 20, 2008, and that this date marked the beginning of the statute of limitations for the landowner to file a claim. Because the landowner waited more than two years to file a claim, the landowner’s action was time-barred. Unfortunately, the landowner missed the statutory window for filing a claim by just one week.

Discovery Rule Does Not Apply

The discovery rule is a legal mechanism by which the statute of limitations can be extended in certain situations. Specifically, the discovery rule stops the statute of limitations clock from running on a claim until the injured party knows or has reason to know that he or she has suffered some sort of harm. To say this another way, if the injury was inherently undiscoverable, then the statute of limitations abates until knowledge of the injury is known.

In the Ranchero Esperanza case, the landowner was made aware of the harm, i.e., surface damage from salt water leaking out of the negligently plugged well, on July 20, 2008, and on that day the statute of limitations began to run. At the first signs of salt water damage, the landowner had sufficient knowledge that there was a problem, and thus had plenty of time before filing suit to conduct due diligence into the salt water leak on the property. As a result, although Ranchero Esperanza prevailed on the standing issue, the Court held that the statute of limitations had run out before their lawsuit was filed and so they were unable to recover from Marathon.

The moral of this case is clear: if you have any indication of damage to your property from a plugged well, you must seek redress promptly. If you don’t, you may find that the statute of limitations in Texas bars your claim.


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