Texas Supreme Court Holds that Mineral Lessee Has the Right to Use a Road across Non-Producing Pooled Tracts

06/23/2014

The Texas Supreme Court has held that a mineral lessee enjoys surface rights over a pooled tract even if that tract is not producing oil or gas. Key Operating & Equip., Inc. v. Hegar, No. 01-10-00350-CV, 2014 WL 2789933 (Tex. Jun. 20, 2014). Mineral lessee Key pooled part of a 191-acre tract (the Curbo tract) with an adjoining tract (the Richardson tract) to form a single unit. Key used a road across the Curbo tract to reach oil and gas operations on the Richardson tract. The trial court relied on expert testimony to find that no oil produced from the Richardson tract came from the Curbo tract. Although Hegar, the Curbo tract surface owner, acquired his acreage after the road was built and being used for mineral operations, Hegar nonetheless sued Key for trespass and sought to enjoin Key’s traffic across his property claiming that “Key had no legal right to ‘access or use [his surface] in order to produce minerals from the Richardson Tract.’” The trial court granted Hegar declaratory and injunctive relief and the Court of Appeals affirmed.

On appeal, Hegar argued that a mineral estate’s implied surface easement is contingent on production coming from the mineral estate. Hegar reasoned that Key could not use Hegar’s surface because the pooled unit’s production came only from the Richardson tract. The Texas Supreme Court squarely rejected Hegar’s argument.

The court began its analysis by noting that in Texas lessees may pool multiple tracts, provided the mineral leases allow it. Texas public policy disfavors waste, pooling generally prevents waste, and both the Richardson and Curbo leases permitted pooling. The Court then reiterated that the “primary legal consequence of pooling is that ‘production and operations anywhere on the pooled unit are treated as if they have taken place on each tract within the unit.’” In this case, production from the Richardson tract was, therefore, also considered production from the Curbo tract underlying Hegar’s surface acreage. The pooled tracts having lost their separate identities, the mineral estate owner could use the Hegar tract to reach the Richardson tract. The Court of Appeals’ erroneous conclusion that Key’s right to use the Hegar surface existed only to serve mineral operations under the Hegar tract itself conflicted with the pooled tracts’ merged identities.

The Supreme Court also rejected Hegar’s argument that Robinson v. Robbins Petroleum Corp. supported his position. 510 S.W.2d 865 (Tex. 1973). In Robinson, the mineral owner took salt water from a well on Robinson’s surface estate to waterflood adjacent units. Robinson’s surface estate was subject to the Wagoner mineral lease, but the units formed did not include the Wagoner lease. The Supreme Court held that nothing in the lease authorized the lessee to “increase the burden of the surface estate for the benefit of additional lands.” The Key court noted that the minerals under Robinson’s surface were not pooled with tracts where the water was used. The court in Key therefore held that Robinson was distinguishable and not controlling.

Key puts to rest the issue of the lessee’s right to use a road across a non-producing track in a pooled unit and, for leases without pooling restrictions, should help lessees avoid thorny proof problems involving the underground flow of oil. The court’s reasoning may also apply to disputes with surface owners over other rights enjoyed by a pooled unit mineral owner.

If you have any questions, please feel free to contact one of the attorneys listed below or visit our Oil and Gas Litigation page.

Donald D. Jackson
713.547.2026
donald.jackson@haynesboone.com

 

Pierre Grosdidier, Ph.D.
713.547.2272
pierre.grosdidier@haynesboone.com

 

Email Disclaimer