## Facts

- Mineral owners (Garza Energy Trust and members of the Salinas family) owned minerals in a 748-acre tract in Hidalgo County, Texas (“Share 13”).
- Coastal Oil & Gas (and affiliates) held the lease on Share 13 and controlled adjacent tracts, later acquiring the mineral estate in neighboring “Share 12.”
- The tracts overlaid the same gas-bearing reservoir (the Vicksburg T formation).
- Coastal drilled and hydraulically fractured a gas well on Share 12 (“Anna No. 1”).
- The mineral owners alleged Coastal’s fractures and proppant extended beneath Share 13, drained gas that otherwise would have been produced from Share 13, and reduced their royalties.
- The mineral owners sued for (1) subsurface trespass based on hydraulic fracturing, (2) breach of the implied covenant to protect against drainage, (3) breach of the implied covenant to develop, and (4) bad-faith pooling.
- A jury found for the mineral owners and awarded damages; the court of appeals largely affirmed.

## Issues

1. Whether the rule of capture bars recovery of damages measured by the value of gas allegedly drained by hydraulic fracturing that extends into another’s property.
2. Whether mineral lessors with a reversionary interest have standing to sue for subsurface trespass causing actual injury.
3. What proof is required to recover damages for breach of the implied covenant to protect against drainage.
4. Whether legally sufficient evidence supported findings of breach of the implied covenant to develop and bad-faith pooling.
5. Whether admission of a memorandum containing a racial slur required reversal and a new trial.

## Decision

- The Texas Supreme Court reversed the court of appeals’ judgment and remanded for further proceedings.
- The Court held the rule of capture bars damages based on the value of gas allegedly drained as a result of hydraulic fracturing, even if fractures extend across property lines.
- The Court held mineral lessors with a reversionary interest have standing to bring an action for subsurface trespass causing actual injury.
- The Court held the evidence did not support damages for breach of the implied covenant to protect against drainage because there was no evidence of the value of minerals lost due to the lessee’s failure to act as a reasonably prudent operator.
- The Court held there was some evidence supporting the jury’s findings on breach of the implied covenant to develop and bad-faith pooling, permitting retrial of those claims on remand.
- The Court held admission of a memorandum containing a racial slur was reversible error, supporting remand for a new trial.
- The Court held the trial court did not abuse its discretion by refusing to abate the case in favor of related litigation.

## Legal Principles

- Under Texas’s rule of capture, a producer generally is not liable in damages for producing oil or gas from a lawful well on its tract, even if the hydrocarbons migrated from beneath neighboring land.
- The rule of capture bars recovery of damages measured by the value of gas allegedly drained due to hydraulic fracturing operations, notwithstanding allegations that fractures or proppant crossed into another tract.
- A mineral lessor with a reversionary interest has standing to sue for subsurface trespass if the lessor can show actual injury.
- Damages for breach of the implied covenant to protect against drainage require proof of the value of minerals lost because the lessee failed to act with reasonable prudence (commonly assessed by offset-well type evidence and related valuation proof).
- Evidentiary error that injects unfair prejudice into the trial can require reversal and remand even where some liability theories have supporting evidence.

## Conclusion

The Texas Supreme Court held that damages measured by the value of gas allegedly drained by cross-boundary hydraulic fracturing are barred by the rule of capture, rejected drainage-covenant damages for lack of proof, left development and pooling claims for retrial, and remanded for a new trial due to reversible evidentiary error.


Coastal Oil & Gas Corp. v. Garza Energy Trust, 268 S.W.3d 1 (Tex. 2008)