Aug 22 2016

August 22, 2016 (Houston)

By James Smith – “Environmental Alert” (Schirrmeister, Diaz-Arrastia, Brem LLP)

Damage to an oil well is injury to real property.  The measure of damages depends on if the injury to the real property was temporary or permanent.

In Premium Valve Services v. Comstock Oil & Gas, the First Court of Appeals, a mid-level Texas appellate court, reversed a multi-million dollar award for Comstock.  The Court ordered a new trial, because the jury was not allowed to determine if damage to Comstock’s oil well could have been economically repaired, a key issue in determining temporary or permanent injury.

Well Head Equipment Damaged the Well Bore

A “frac stack” provided by Premium Valve Services (“PVS”) failed, and caused damage to Comstock’s oil well.  The jury awarded Comstock $7.6 million for the decreased value of the well and $5.1 million for repair costs.  The trial court entered a judgment for Comstock for $12.7 million, plus interest and court costs.

On appeal, PVS argued that the trial court should have had the jury decide if the well could have been repaired.  The appellate Court agreed and ordered a new trial.

Possibility of Repair Can be Key

Injury is permanent when:

1. The damage cannot be economically repaired, or
2. Even though repair is possible, the damage is substantially certain to recur, such that future injury can be reasonably evaluated.

Injury is temporary when:

1. The damage can be economically repaired, and
2. Any anticipated recurrence would be only occasional and not reasonably predictable

As for any Real Property, Measure of Damages to a Well Bore Depends on if the Injury Was Temporary or Permanent

A well bore is real property.  In cases involving injury to real property, the measure of damages for permanent injury is the difference in market value before and after the damage.  The measure for temporary injury is generally the cost of repair.  Determining if the injury was temporary or permanent is necessary to assess the proper damages.

Jury Must Resolve Disputed Factual Issues

While the ultimate determination of temporary or permanent injury is a question of law for the court, any disputed issue of fact must be resolved by the jury.  In this case, the jury should have determined if the well could have been economically repaired, in order for the trial court to determine if the injury was temporary or permanent.

Evaluate if the Injury Was Temporary or Permanent

In bringing or defending claims of real property damage, it is important to evaluate, as early as possible, if the injury will be deemed temporary or permanent.  Real property includes not only land, but also oil and gas production facilities, homes, commercial buildings, and other fixtures.  Determining if the injury is temporary or permanent is a required step for determining the measure of damages when injury to real property is claimed.

For a copy of the Court’s decision click here.