Court Allows Discovery To Proceed on Fracking Practices For Reserve Pits

Regulators are increasingly focusing on management of the wastewater and other chemicals used in fracking operations. The recent case of Kartch v EOG, 2011 U.S. Dist. LEXIS 130711 (D.N.D 11/10/11) illustrates the legal issues that property owners and drillers are increasingly having to face when negotiating drilling leases.

In this case, the plaintiffs purchased agricultural land located in North Dakota in 2004 but the seller retained the rights to the mineral estate to the land. The seller subsequently entered into an oil and gas lease that was assigned to EOG who commenced drilling operations in 2008. The lease did not contain any provisions about the use of reserve pits. Plaintiffs then purchased additional land that contained a residence which was located only 1/2 mile from the well site.

Under North Dakota law, the mineral estate is considered the “dominant” estate and has the right to use the surface as reasonably necessary to explore, develop and transport minerals in what is known as the “accommodation doctrine”. The reasonableness of the use of the surface will be based on the specific circumstances and the surface estate owner has the burden of establishing that the mineral lessee acted unreasonably. The doctrine is not a balancing test where the harm or inconvenience of the surface right owner is weighed against those of the mineral estate. Instead, the surface owner has the burden of showing that there were reasonable alternatives available to the mineral rights holder. In addition, a North Dakota law also requires developers of mineral rights to provide a “modicum of compensation” for damages caused by the oil and gas production. Prior to commencing drilling operations, EOG offered the plaintiffs $8K to pay for anticipated damages. Plaintiffs rejected the offer and instituted the lawsuit.

The plaintiffs sought an order requiring EOG to remove a waste disposal pit known as a reserve pit that had been placed on their property or, alternatively, damages for the costs to remove the pit and restore the land. Regulations adopted by the state Industrial Commission allows the use of reserve pits to ensure adequate quantity of drilling mud and to hold well cuttings. The regulations provide that the reserve pit is to be constructed, used and reclaimed in a matter that will prevent pollution of land and surface waters. While drill cuttings may be placed in the reserve pits, the regulations prohibit disposal or dumping of other fluids, waste and debris used or recovered during well drilling and completion.

EOG used a synthetic liner when it constructed the reserve pit though it stated this was simply a precautionary measure and was not required because of the relatively impervious clay soils. When drilling was completed, EOG removed the liquid waste from the pit, and left the well cuttings and other solid wastes in place as permitted by state regulations. A tear had occurred in the liner during the use of reserve pit and  EOG excavated soil from either side of the tear as a precautionary measure under state supervision, and then covered the pit with a four foot cap and regarded the surface.

Plaintiffs argued that EOG’s use of a reserve pit and leaving waste was was per se unreasonable and that instead of using a reserve pit, EOG should have used an alternative such as a “closed loop” system to recycle of the drilling mud and capture well cuttings in tanks for later off-site disposal. At the very least, plaintiffs contended, EOG should have completely removed the wastes and the pit liner for offsite disposal prior to reclaiming the pit.

The specific motion before the court involved a dispute over the plaintiffs’ discovery request but the opinion discussed the nature of obligations of gas drillers in deciding what discovery was warranted.  The court rejected EOG’s claim that it had no obligation under common law to reclaim the pit. Moreover, the court noted that the Commission is considering amending its rules to further restrict the use of test pits. Because EOG’s use of the surface estate had to be reasonable, the court allowed some of the discovery requested by plaintiffs on industry practices on use of reserve pits, closed loop systems and the synthetic liner but deferred or denied other requests pending a decision on the merits of the case.