Duty to Protect Against Drainage
One of the integral implied duties of an oil and gas company upon signing a lease with a property owner is the duty to protect against drainage. This is an essential duty of the oil and gas company and is a way for property owners to ensure that their land is not subject to drainage by an adjacent property well. If you believe that a common reservoir underneath your land is being drained, you may wish to consult an experienced oil and gas attorney.
An oil and gas company is held to the standard of the reasonably prudent operator. Therefore, if the company fails to act in the manner which a court believes to be the standard of a reasonably prudent operator, the company can be held liable for any damages that result from their actions.
Breach of the duty to protect against drainage may occur when an oil and gas company signs a lease with two adjacent property owners. In this situation, if the oil and gas company drills a well in property number 1 and discovers oil, although geological tests indicate a common reservoir underneath both properties, the oil and gas company may be breaching their duty to protect against drainage.
Texas law also has found that the duty to protect against drainage exists in the instance of field wide drainage. For example, if a royalty owner owns only 1/6 of the land in question, but is experiencing a drainage due to “up-dip” wells, this owner may have the ability to bring a claim that the oil and gas company is breaching their duty to protect against drainage.
Damages for Failure to Protect Against Drainage
A royalty interest holder may be able to bring a claim for damages against the oil and gas company in the case of breach of duty to protect. However, the royalty interest holder must be able to prove substantial drainage, specific damages, and probability of profit. Probability of profit includes the probability that production from a new well drilled on their property would cover the costs of drilling the well and yield a reasonable profit. In so many words, the royalty interest holder must be able to prove that drilling of a well is a feasible undertaking. You must be able to prove that there is a potential for an oil and gas company to turn a profit in order to bring a claim that the company breached its duty to protect from drainage.
Malley Law Firm | Houston Oil and Gas Attorney
If you believe an oil and gas company has stepped over its implied duties, do not hesitate to contact the Malley Law Firm. Tony Malley has years of experience in handling oil and gas leases and the implied covenants that emerge from these leases. Royalty interest holders and property owners are entitled to the benefits they agreed to within the lease, as well as the duties which were implied through the signing of the lease. Contact our Beaumont or Houston office today for your initial free consultation.