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Texas Railroad Commission May Be Liable for Plugging the Wrong Well

Texas oil companies, mineral owners and oil and gas attorneys are all familiar with the Texas Railroad Commission. The Commission regulates oil and gas drilling and production and oil and gas pipelines in Texas. The Commission is pretty diligent in making sure abandoned wells are properly plugged. Unfortunately, on one occasion, they apparently plugged the wrong well!

The well was located on a tract owned and operated by American Coastal Energy. American Coastal Energy filed for bankruptcy. Gulf Energy held a lease on the area containing  the well and reached an agreement with the Commission to take over the well. In exchange, Gulf Energy provided $400,000 to cover the cost of eventually plugging the well if and when Gulf Energy decided to abandon the well. The Commission agreed to postpone plugging the well.

The Commission hired Superior Energy Services, LLC to plug other abandoned wells in the same tract as the Gulf Energy well. While plugging the other wells in the area, Superior Energy also plugged the Gulf Energy well, apparently at the specific instruction of the Commission staff. Due to a clerical error, someone at the Commission transposed the coordinates for the Gulf Energy well with another well.

Gulf Energy presented evidence that Superior Energy Services and the Commission were both informed of the error prior to the plugging of the well but the Commission and Superior Energy Services went ahead with the plugging anyway. Gulf Energy also presented evidence that the plugging crew ignored a couple of obvious indicators that they were at the wrong well. Gulf Energy filed suit against the Railroad Commission and Superior Energy for damages.

At the trial court, the jury returned a verdict for Gulf Energy after determining that the Commission had violated its agreement to postpone the plugging of the well and that the Commission’s negligence was the cause of the well being improperly plugged. The Railroad Commission appealed.

In the Court of Appeals, the Railroad Commission claimed that the trial court abused its discretion and acted arbitrarily by refusing to issue jury instructions regarding the good faith statutory standard of care for plugging operations under Chapter 89 of the Texas Natural Resources Code. The Railroad Commission also asserted for the first time on appeal that it had statutory immunity even though the Legislature consented that the Railroad Commission could be sued over issues like this. The Court of Appeals found for Gulf Energy, holding the Railroad Commission had failed to preserve its right to a jury charge error during trial regarding statutory immunity. The Railroad Commission appealed again to the Texas Supreme Court.

Chapter 89.045 of the Natural Resources Code provides a defense to liability for “any damages that may occur as a result of acts done or omitted to be done by the Railroad Commission in a good-faith effort to carry out this chapter.”  The statute itself does not define either “good faith” or “good-faith effort”.

The Texas Supreme Court reviewed four definitions of good faith from dictionaries and case law, and decided that “a good-faith effort” as required by Chapter 89 of the Natural Resources Code requires “only conduct that is honest in fact and is free of both improper motive and willful ignorance of the facts at hand.”

In the decision by the Supreme Court, the Court determined that the initial error transposing the coordinates was mere negligence; however, the evidence regarding the inaction of the Railroad Commission and Superior Energy after learning of the error and ignoring the obvious indicators that the crew was at the wrong well could constitute willful ignorance. As a result, the Supreme Court decided that the trial court erred by refusing to submit a jury question on the good faith defense and whether the Commission and Gulf Energy entered into a binding contract before the well was plugged. Thus, case was reversed and sent back to the trial court for a new trial.