A jury in McMullen County recently hit Energy Transfer with a nearly $42 million damages award in a lawsuit that alleged the company had interfered with the drilling rights of two other oil and gas companies via underground contamination linked to an injection well.
The jury heard testimony from more than a dozen experts over two weeks and deliberated for about five hours before returning the unanimous verdict Wednesday in favor of SilverBow Resources Operating and El Dorado Oil & Gas Inc. SilverBow and El Dorado had argued that the hydrogen sulfide and carbon dioxide gas that Energy Transfer put in an underground injection well had migrated beyond what Energy Transfer’s modeling showed was possible, trespassing on the leases they owned and interfering with their drilling plans.
Hydrogen sulfide is flammable, poisonous and corrosive enough to eat through steel. Its presence requires oil and gas companies to use different, more robust and more expensive equipment and materials to drill safely.
The case has a nearly decade-long history — including two trips to the Texas Supreme Court — and saw Houston-based law firms Yetter Coleman and Ahmad Zavitsanos & Mensing go head-to-head.
Todd Mensing, who represents SilverBow, told the Texas Lawbook there were two big moments in the trial that tipped the scales in favor of the plaintiffs.
“The first big crack was when we got their experts to admit that their models do not reflect the real world. And it was that stark,” he said of the courtroom testimony. “It was a lot of work, but we got them to admit they do not reflect the real world.”
The second moment, he said, came during a cross examination of an Energy Transfer expert by his AZA partner. Energy Transfer had argued that even if the jury agreed the acid gas could have migrated to where SilverBow and El Dorado alleged it had, the companies could still drill around it.
“Cameron Byrd pointed out on cross that that’s admitting interference, because it’s making us do something differently than we have the right to do, which is drill the way we want,” Mensing said. “It was very crystalized in that moment, he pointed out even those measures would cost money.”
The jury found Energy Transfer interfered with the rights of SilverBow and El Dorado to “explore, obtain, produce and possess minerals.” It awarded about $24.5 million in damages for SilverBow to cover the lost net revenues of the company’s future wells, and the cost to plug and abandon existing wells.
El Dorado was awarded about $17.3 million in damages for the cost of plugging and abandoning its existing wells and for the lost net revenue from future recompletions of existing wells, court documents show.
But the jury rejected a claim that the harm done to SilverBow and El Dorado was the result of Energy Transfer’s gross negligence.
The case dates back to 2014, when surface mineral rights owners sued Regency Field Services, which is now Energy Transfer. Swift Energy, now known as SilverBow, intervened in 2015, alleging trespass and tort claims.
The first time the case went to the Texas Supreme Court was in June 2017, when Energy Transfer filed a petition for writ of mandamus, challenging rulings from the trial court and the Fourth Court of Appeals declining its request to transfer venue out of McMullen County.
“The claimants’ case is founded on assertions that relator Regency is responsible for creating an ongoing life-and-death health risk to every member of the county’s tiny jury pool, as well as their children,” the petition argued. “Both sides agree that due to the nature of the case and the claimants’ allegations all prospective county jurors will have an ‘interest’ in the outcome of the litigation. Yet the trial court denied Regency’s motion and declined to explain why.”
A month later, Regency moved to withdraw its request, telling the court “all members of two of the three groups of real parties in interest, plaintiffs and/or intervenors … resolved their dispute with relators and settled all of their claims pursuant to confidential settlements.”
The claims of the remaining party, SilverBow, were dismissed by the trial court via summary judgment, Regency explained, after it argued SilverBow brought suit too late, outside the two-year statute of limitations.
The fight to revive those claims meant the case would take a second trip to the Texas Supreme Court.
In June and August 2019, respectively, Energy Transfer and SilverBow each filed petitions for review with the state’s high court.
SilverBow argued at the early stage of the case that the record had no evidence establishing a definitive date for its legal injury and that the trial court and the court of appeals got it wrong by tossing its claims. It argued the date of its legal injury wasn’t when “one molecule of hydrogen sulfide” migrated into its lease space, as the lower courts found.
It urged the court to announce a new rule: “In a case of migrating contamination beneath the ground, a mineral lessee does not suffer a legal injury merely from the contamination crossing a lease border into the space associated with the lease, but rather from a substantial interference with the lessee’s ability to exercise its rights.”
Energy Transfer argued the Fourth Court of Appeals had wrongly revived some of SilverBow’s claims for certain leases allegedly affected by the plume by undertaking a “lease-by-lease analysis” to conclude limitations only foreclosed some of the claims.
“Under the Fourth Court majority’s erroneous approach, [SilverBow] has enough legal injury to seek damages now for future impacts to all of its mineral leases from an underground plume’s threatening expansion, but not enough legal injury to start the limitations clock,” Energy Transfer argued. “The Texas Supreme Court should take this case to fix this disconnect and maintain coherence in accrual principles.”
The Texas Supreme Court issued an opinion in May 2021 reviving SilverBow’s claims against Energy Transfer.
“Because the pleadings and evidence do not conclusively establish that [Energy Transfer’s] alleged wrongful conduct caused [SilverBow] to sustain a legal injury before Sept. 24, 2013, we conclude that [Energy Transfer] did not establish a right to summary judgment based on limitations,” the court said in rejecting the statute of limitations argument.
It was after remand that Ahmad Zavitsanos & Mensing got involved with the case.
Mensing said he presented the case to the jury as a matter of taking responsibility for your actions and doing business the right way.
“We said we were taking responsibility by identifying the risk and doing the right thing by coming up with a plan that allowed minerals to still be produced out of this county,” he said. “We were the responsible ones, we worked through a problem. They, on the other hand, were treating it like someone else’s problem even though they were the ones creating the risk.”
The McMullen County jury that decided the case Wednesday was also asked whether Energy Transfer interfered with SilverBow’s rights to “explore, obtain, produce and possess minerals before Sept. 24, 2013,” and answered no.
Attorneys for Energy Transfer deferred to the company for comment Thursday. Energy Transfer said the company doesn’t comment “on issues related to current or pending legal matters.”
McMullen County District Judge Janna K. Whatley presided over the trial.
SilverBow is represented by Todd Mensing, Taylor Freeman, Cameron Byrd, Hilary Greene, Harrison Scheer, Thomas Cooke and Jane Robinson of Ahmad Zavitsanos & Mensing.
El Dorado is represented by Christopher M. Hogan, Jonathan Mondel, James Schuelke and Allie Hale of Hogan Thompson.
Energy Transfer is represented by Paul Yetter, Bryce L. Callahan, Robert Woods, Heriberto R. Montalvo, Reagan W. Simpson, David Gutierrez, J. Reid Simpson and Katie Tipper-McWhorter of Yetter Coleman.
The case number is M-14-0029-CV.