Clients with property damaged by oil and gas drilling and exploration often ask about what they can expect to receive in settlement. Although we seek to negotiate a win for our clients, accounting for the costs and risks of litigation, there are certain terms generally expected in the settlement environmental damage lawsuits.
Settlement of Oil and Gas Exploration and Production Civil Suits
Owners of property primarily want pollution removed from their property and reasonable compensation for the damages they suffered. Oil companies want to pay as little as possible while eliminating their risk of a large damage verdict and exorbitant property restoration.
Because trials present uncertainty and risk of loss for all parties, a negotiated resolution in the best interest of everyone. This article describes some of the terms that may be negotiated in a settlement of a property damage lawsuit against an oil company that polluted the property (a.k.a. legacy lawsuit settlements).
Cleanup and Remediation of Oil and Gas Sites
Landowners with oil and gas operations on their property primarily seek to restore their property to the condition it was in before the oil companies started work. Oil and gas activities can leave behind many harmful and toxic substances. Some of these include chlorides, arsenic, hydrocarbons, heavy metals, and radioactive materials that not only present danger to public health but can also impair property rights.
Farmers and ranchers want to remove abandoned equipment and pollution from the land to allow them to safely grow crops and graze cattle. They also want the groundwater clean, so it is safe for all uses, including drinking. Oil and gas pollution can prevent property owners from developing their land for residential purposes because of the pollution oil companies leave behind. Therefore, one of the most important terms in any settlement concerning environmental damages is the extent to which the property will be cleaned up by the defendants.
Cash Payments to Compensate Property Owners
A large cash payment to the landowners is typically part of any settlement. The amount of money paid in settlement depends on many variables. Some of the variables impacting the dollar amount paid in settlements include the costs of litigation, the nature and extent of the damages, the legal claims and defenses, the venue where the case is pending, and the likelihood of a favorable ruling at trial for the landowner.
If the oil company defendant agrees to pay for a cleanup, then this money may be paid to contractors directly for the costs of cleanup per agreed terms or a sum certain could be paid into an escrow account to fund the costs of cleanup with an agreement as to who will receive the benefit of any residual amounts not expended to restore the property.
Indemnity for Future Pollution Liability
Because landowners retain potential liability to cleanup their property if it is not restored by the polluting company, indemnification to protect against future legal and regulatory actions is an important term to any legacy lawsuit settlement.
Federal or State environmental regulators can take future action at their discretion requiring cleanup of pollution. Owners of land may be considered responsible parties for purposes of paying to fund cleanups of pollution on their property even if they did not create the pollution.
Third parties may also have claims against owners of polluted property. A third party exposed to pollution on the property can sue for injuries. A neighbor can sue if pollution migrates to their neighboring land. Therefore, an agreement to financially protect the landowner in the future should any of these events arise in the future is often included in legacy lawsuit settlements.
Increased Oil and Gas Mineral Royalty Payments
Sometimes the landowner and the settling oil company are parties to a mineral contract that provides a royalty payment to the owner of the minerals. Because these terms may have been negotiated a long time ago, the percentage paid to the landowner may be far below modern-day standards. This presents an opportunity for the parties to include an increase of the mineral royalty payments as a settlement term. Increased monthly income may be important to the landowner and the oil company may be willing to increase the royalty paid in the future to avoid litigation costs and reduce the amount of upfront cash paid to settle.
Other Settlement Terms
Settlement agreements, like any other contractual legal agreement, require detailed legal terms to bind the parties and resolve all disputes. In addition to the terms discussed above, many other details will be part of the settlement agreement. There may be other terms important to the parties settling. Therefore, landowners should hire a lawyer with experience in settling claims for pollution and other property damages caused by oil and gas E&P.
Contact our office for a free consultation to determine if you have a case for damages due to oil and gas operations on your property at 504-593-9600.