Background: Permian Basin Wastewater Disposal Operations

NGL Water Solutions Permian, LLC operates saltwater disposal (SWD) wells in the Permian Basin, including the Colt McCoy SWD No. 3 well in Loving County, Texas. LRR Pecos Valley, LLC holds leasehold mineral rights and operates oil and gas wells in proximity to NGL's disposal operations. In October 2024, Pecos Valley sent a demand letter alleging that NGL's injected wastewater had escaped confinement and migrated into the upper portion of the Bone Spring formation, "watering out" the formation and causing a "complete loss of hydrocarbons that would otherwise have been produced." After settlement negotiations under a mutual standstill agreement failed, NGL preemptively filed a declaratory judgment action seeking a declaration that a damages waiver provision in a "Shut In Agreement" between the parties shielded it from liability.

The Venue Dispute: Contractual Forum Selection vs. Mandatory Real Property Venue

NGL filed its declaratory judgment action relying on three venue grounds: (1) a venue-selection clause in the Shut In Agreement designating Harris County courts as the exclusive forum, (2) Defendants' principal office location in Harris County, and (3) the occurrence of substantial events in Harris County. The Shut In Agreement, effective from May 10, 2023 through December 31, 2023, contained language stating that "Operator [NGL] shall have no responsibility or liability for damages to a Well" and defined "Well" as "certain oil and gas wells ... within a one-half mile of the Colt McCoy No. 3 SWD well" in Loving County. Defendants moved to transfer venue to Loving County under Section 15.011 of the Texas Civil Practice and Remedies Code, the mandatory venue provision for actions involving real property.

The Court's Analysis: Essence of the Dispute Controls

Judge Grant Dorfman applied the "essence" test, examining the facts alleged, rights asserted, and relief sought rather than how parties labeled their claims. The court noted that NGL's petition expressly sought a declaration that "NGL is not liable to [Defendants] for any purported damages to the [Defendants'] Wells and/or the surrounding formation." Citing In re M3P Directional Services, Ltd., the court held that a dispute "for alleged damage to the allegedly failed wellbores" involved damages to real property triggering mandatory venue. The court reasoned:

NGL's declaratory judgment action can only "terminate the controversy or remove an uncertainty," TEX. CIV. PRAC. & REM. CODE § 37.003(c), if it impinges upon Pecos Valley's right to develop its Loving County leasehold interest without unlawful interference by NGL. The immunity from liability that NGL espies in the Shut In Agreement plainly affects Pecos Valley's interest in real property in Loving County.

The court further held that NGL's suit involved an effort to recover an interest in real property within Section 15.011's meaning, noting the Texas Supreme Court's construction in In re Applied Chemical that the Legislature intended Section 15.011 "to be more inclusive regarding the types of real property suits subject to mandatory venue." The court rejected NGL's attempt to recast the action as purely contractual, holding that where a declaratory judgment claim involves alleged rights under a mineral lease, the essence of the dispute arises from an interest in real property governed by mandatory venue.

Venue-Selection Clause Unenforceable

The court addressed NGL's reliance on the Shut In Agreement's venue-selection clause committing parties to "the exclusive jurisdiction of the courts of the State of Texas and of the United States sitting in Harris County, Texas." Applying Texas Civil Practice and Remedies Code Section 15.020(a), the court held that venue-selection clauses are generally unenforceable in Texas unless the contract constitutes a "major transaction"—defined as a written agreement with consideration having an aggregate stated value equal to or greater than $1 million. The Shut In Agreement stated no value and imposed no monetary obligation on either party, with any potential consideration conditioned on events that never occurred. Consequently, the venue-selection clause could not override Section 15.011's mandatory venue provision.

Implications for Oil and Gas Practitioners

This decision provides critical guidance on venue strategy in Permian Basin environmental contamination disputes. Operators facing wastewater migration claims cannot rely on venue-selection clauses in operational agreements to avoid litigation in the county where the affected property is located unless those agreements qualify as major transactions under Section 15.020(a). The ruling demonstrates that Texas courts will look past declaratory judgment pleading strategies to identify the true nature of real property disputes. For disposal well operators, the decision underscores the risk that damages waiver provisions in shut-in or operational agreements may not provide the procedural advantages of litigating in preferred forums. The court's analysis also confirms that leasehold interests in oil and gas properties constitute "interests in real property" triggering mandatory venue, even when the dispute is framed as a contract interpretation question. Practitioners should carefully evaluate whether operational agreements meet the $1 million threshold for major transaction status if forum selection is strategically important, and should anticipate that environmental contamination claims affecting subsurface formations will be subject to mandatory venue in the county where the minerals are located.