Face Challenges Confidently

256 DSTJ, L.L.P. v. M & M Res., Inc.

Thursday, September 3rd, 2015

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
DSTJ, L.L.P. v. M&M Resources, Inc., No. 09-07-559 CV, 2008 WL 659571 (Tex. App.—Beaumont March 13, 2008, pet. denied) (Memorandum opinion), holds that a temporary injunction prohibiting production on a tract with disputed ownership could be extended to enjoin production by the same parties from an adjoining tract. The Quail No. 1 and Quail No. 2 were drilled on the Blackman tract to produce from the Frio 2 Formation. Before production commenced, M&M obtained a temporary injunction prohibiting DSTJ from producing from the Blackman tract. After the temporary injunction was granted, DSTJ drilled the Quail No. 3 on the neighboring Gilliland tract to produce from the common reservoir, the Frio 2 Formation. The court then modified the temporary injunction to also prohibit DSTJ from producing the Quail No. 3 from the Frio 2 Formation.
The issue in the case was whether the Rule of Capture permitted DSTJ to produce its minerals form the Gilliland tract. “That rule [Rule of Capture] simply is that the owner of a tract of land acquires title to the oil or gas which he produces from wells on his land, though part of the oil or gas may have migrated from adjoining lands. He may thus appropriate the oil and gas that have flowed from adjacent lands without the consent of the owner of those lands, and without incurring liability to him for drainage.” The oil and gas beneath the surface are subject both to capture and administrative regulation, with other owners having the correlative right to capture the oil and gas underlying adjacent tracts. Each land owner thus has a reasonable opportunity to produce his fair share of the oil and gas, which is the landowner’s common law right under the Texas theory of absolute ownership of the minerals in place.
Nevertheless, the court of appeals was more interested in preserving the status quo. “The purpose of a temporary injunction is to preserve the status quo of the litigation’s subject matter pending a trial on the merits.” The court held that the status quo was no production from the Frio 2 Formation, the standard of review was “abuse of discretion,” and there was some evidence to support the decision of the trial court. The principal concern seemed to be that the trial court had determined that the status quo was non-production, ordered DSTJ not to produce, and DSTJ had circumvented that order by drilling the Quail No. 3. The court of appeals justified the extension of the scope of the injunction as an exercise of the court’s “power to protect and control the pending litigation.”
The only evidence on drainage was from one of the owners of M&M, who was not qualified as either a geological or engineering expert, and who admitted that he could not testify as to the operations a reasonably prudent operator should or should not do on the Quail No. 3. Nevertheless, in his opinion, the Quail No. 3 would drain the Blackman tract. The court held that the evidence required to prove damages for drainage at trial was not the same as the evidence required for the trial court to conclude that the Quail No. 3 represented a threat of irreparable injury.
The significance of the case is that it enjoins production from a tract as to which there is no dispute as to ownership, because there is a dispute as to the ownership of an adjoining tract, even though there is almost no credible evidence of drainage.