Hunting for Resolution: The Surface and Mineral Estates - Part II
Welcome back to the OG Energy Blog presented by Childers Hewett Slagle PLLC! I hope everyone had an enjoyable Labor Day weekend, and, for those of you who took to the fields to hunt dove, I hope you got your limits!
Last week in Part I of this series, we took a broad look at the inherent conflict between the rights of the surface owner and the rights of the severed mineral owner in Texas. For those of you who need a refresher, a summary of Part I might be something like this: “The severed mineral owner and its lessee may use as much of the surface as is reasonably necessary to extract the underlying oil and gas, surface owner be damned, but best practice is to be a good neighbor and, if at all possible, get a surface use agreement.” Another summary could be something like: “You likely have the right to enter and operate, but it’s not an unlimited right, and don’t be a dick if you can avoid it.” This week in Part II, we’ll be digging into three specific cases that show this conflict in action and provide some context as to what the hell “reasonably necessary” even means (spoiler alert: it’s fact-based).
Also known as the favorite answer of attorneys everywhere: “It depends!”
The first case we will look at, Getty Oil Co. v. Jones, 470 S.W.2d 618 (Tex. 1971), is the case where the Texas Supreme Court first articulated what we know as the Accommodation Doctrine. The second case is Merriman v. XTO Energy, Inc., 407 S.W.3d 244 (Tex. 2013), where the Texas Supreme Court fleshed out the ground rules for the back-and-forth between the surface and mineral owners. The third and final case is VirTex Operating Co., Inc. v. Bauerle, No. 04-16-00549-CV, 2017 WL 5162546 (Tex. App.—San Antonio 2017, pet. denied), which, though unreported and denied review by the Texas Supreme Court, gives us a good look at the evidentiary burden imposed on the surface owner and gives us an idea of how these types of cases might play out in the future on appeal.
Note the weasel word “might”—it depends!
Before we get into the cases, let’s review the framework that we are working with here. The line of cases leading up to Getty established and reinforced the mineral estate as the dominant estate, with the owner of such having an implied right to use as much as the surface as reasonably necessary to extract the minerals. Under these holdings, there was no regard for the surface owner’s use of the surface. The surface owner was SOL if whatever the mineral owner wanted to use the surface for was reasonably necessary (and most uses were found to fall under that standard). Enter Getty and the Accommodation Doctrine.
You done messed up, M-Mineral Estate. Kind of. Not Really. The mineral estate is super dominant, y’all.
Under the Accommodation Doctrine, if there is a preexisting use of the surface by the surface owner that will be precluded or impaired by the mineral owner’s use of the surface AND there are alternatives available to the mineral owner that are established industry practices, the mineral owner may be precluded from using the surface in such a manner. WOW. That must have been devastating for mineral lessees across the state! Wait, it wasn’t? Oh, here’s the part of the test that matters from a litigation standpoint: The surface owner bears the burden to prove that (1) its existing surface use is the “only reasonable means” of productively using the surface and (2) the alternatives available to the mineral owner are reasonable. Oh, for the love of … back to that reasonableness standard. What should come as no surprise to any reasonable person, the battles between the surface and mineral owners raged on after Getty.
Those subsequent cases refine and add to the framework set out in Getty and give us some clues of how the Accommodation Doctrine should be applied. Note I say “clues”—like any good modern appellate court case, the reviewing court will limit the holding to the specific facts as reviewed on appeal. That means if the parties didn’t bring it up at trial, it can’t be considered on appeal. This can get frustratingly technical at times. As we will see with the cases below, how the parties frame their arguments, what evidence they present at trial, and what is specifically appealed can play a big part in determining whether the surface or mineral owners prevail.
Getty Oil Co. v. jones - pivot irrigation and pumpjacks
The facts in Getty revolve around the obstruction of a pivot irrigation system by pumpjacks. When Jones purchased the surface of the land at issue, it was already under an oil and gas lease owned by Getty Oil Co. In 1963, Jones installed a pivot irrigation system that had lateral arms capable of clearing obstructions no taller than approximately seven feet off of the ground. In 1967, Getty Oil Co. drilled two wells on the property and later installed pumpjacks on each well, with one pumpjack being 17 feet tall and the other 34 feet tall, thus obstructing the pivot irrigation system used by Jones. Jones requested that Getty Oil Co. install shorter pumpjacks or install cellars to reduce the total height to accommodate his pivot irrigation system. Getty Oil Co. declined to make any changes on the basis of its implied right of reasonable use of the surface. This is what we would professionally describe in the legal community as a “dick move”.
Not sure if that term of art has been used in any reported case in Texas. If not, it totally should be.
To be fair to Getty Oil Co., up until this point, the body of law supported their dickery. Regardless, Jones sued seeking an injunction that Getty Oil Co. accommodate his existing pivot irrigation system and presented evidence at trial of the use of smaller hydraulic pumps and cellars on other leases in the area not operated by Getty Oil Co. Getty Oil Co. countered with expert testimony that the installed pumpjacks were more economical that the ones proposed by Jones. The Texas Supreme Court was not swayed by the economic argument made by Getty Oil Co. but was swayed by evidence of existing alternative uses employed nearby by other operators. Special attention was given to the evidence Jones was able to present at trial—he made his case and he made it well, which will prove important in the Merriman and VirTex cases discussed below. Getty was remanded with explicit direction from the Texas Supreme Court for how the conflict should be resolved giving “due regard” to the rights of the surface owner. Thus, the Accommodation Doctrine was born.
Merriman v. xto - prove your damned case!
With the advent of the Accommodation Doctrine in Getty, the rights of the surface owners now had some teeth. So, surely operators were now on notice that their reign of terror had ended! Not so fast, says subsequent caselaw—despite the developments in Getty, surface owners largely continued to gum at the disputed uses of the surface by the mineral owners. The flipside of Getty and subsequent cases is that the surface owner must prove every prong of the Accommodation Doctrine to prevail. The heavily fact-based nature of these conflicts means that the manner in which the issues are pursued at the trial level, both in pleadings and in submitted evidence, can cause problems at the appellate level. This is painfully obvious in the Merriman case. Homer Merriman owned the surface of a 40-acre parcel on which he maintained working pens and corrals for his cattle operation. Once a year, Homer would bring his cattle onto the 40 acres and into the corrals for sorting. XTO decided to drill a well on the 40-acre tract in the same location as where Homer worked his cattle. Homer unsurprisingly requested that XTO instead drill elsewhere on the 40-acre tract so as to not interfere with his cattle operations, but XTO refused.
Shown: Artist’s representation of XTO’s plans to drill on Homer’s 40-acre tract.
Seems like this should be pretty similar to Getty, and Homer’s cattle should be safe from disruption, right? Not quite. Homer sued seeking an injunction but lost at trial. XTO obtained summary judgment at trial on the basis that Homer could not raise a fact issue as to whether he had no “reasonable” alternative for his existing surface use. On appeal, Homer lost again, but then appealed to the Texas Supreme Court. The reported case shows where Homer messed up: he failed to present any evidence at trial that he had no reasonable alternative to conduct his preexisting cattle operation somewhere else on the 40-acre tract. His claim focused on the inconvenience and added cost of moving his operation—both of which are not considered under the Accommodation Doctrine. He failed to show what would stop him from placing the corrals and pens elsewhere on the property and presented no evidence of how moving the operation would be detrimental to the cattle or would restrict the size and type such that it would preclude reasonable and safe operation.
VirTex Operating Co., Inc. v. Bauerle - HELICOPTERS. HUNTING. GUUUUUUNS!
Enter VirTex. Keep in mind that this is an unreported appellate case, and so its precedential value is nil. With that said, VirTex shows us how Merriman may have turned out with proper evidence submitted by the surface owner, and the case can be a roadmap for how future litigation may play out. The facts in VirTex revolve around the 8,500-acre Todos Santos Ranch in Frio and Zavala Counties, owned by the Bauerles family (who owned 100% of the surface). The Ranch was used for cattle and commercial hunting operations, with the main source of income for the Ranch coming from the commercial hunting. The hunting outfit used helicopters regularly for brush and predator control, game surveys, and deer captures. From the reported case, the operation is described as follows:
In an effort to manage the number of Whitetail deer on the ranch, hunters use helicopters to locate and capture deer quickly. Once pilots locate a deer, they are able to push the deer into an open area, where the deer can be captured with a net gun. The operation requires pilots to fly alongside the deer — approximately 4 to 5 feet above ground — weaving in and out of brush, while at the same time, dodging trees and other obstacles. The process has been described as one of ‘the most extreme [forms of] flying that you can possibly do.’ According to several hunters, this method of deer capture is less stressful for the deer and more cost efficient for hunters. Additionally, this method has, to date, eliminated injuries to the deer. Ultimately, the captured deer are relocated to a fenced enclosure for breeding or to another nearby ranch in the event the Bauerles’ ranch has a surplus of deer.
Sounds exhilarating. But have the helicopter pilots ever experienced title examination?
How I imagine the helicopter operations looked after reading the description in the reported case.
About 3,000 acres of the Ranch were covered by an oil and gas lease, and VirTex operated nine wells on 2,000 acres of the lands under the lease. All of the VirTex wells were powered by generators, and only one powerline was situated on the leased acreage, which ran along a paved road to a hunting lodge and other facilities on the Ranch. VirTex planned on expanding its operations on the 2,000 acres, drilling 45 additional oil and gas wells and connecting all 54 wells by powerlines. In 2012, VirTex asked the Bauerles for an easement to construct powerlines for that purpose. Unsurprisingly, the Bauerles refused and requested that VirTex postpone any construction of overhead powerlines under the authority of the existing oil and gas lease. While VirTex surprisingly agreed to postpone construction, the Bauerles filed a declaratory judgment action requesting a judgment from the trial court that the proposed overhead powerlines would result in a “spiderweb” that would substantially impair their preexisting use of the “lateral surface and super-adjacent airspace”, which of course necessarily included their badass use of helicopters.
What I imagine the helicopter pilots said before, during, and after each flight.
The Bauerles presented evidence and testimony showing that the proposed power grid would preclude safe flying of helicopters on the Ranch, that the Ranch was too rough to be operated by vehicles on the ground, and that the hunting operation would be shut down without the use of helicopters. The Bauerles prevailed at the trial level and VirTex appealed. On appeal, Bauerles again prevailed, with the reviewing court noting that the surface owners presented sufficient evidence showing that the operators proposed use would either completely preclude or substantially impair the existing surface use. Of note here, the court held that the surface owners only had to prove that the existing use would be substantially impaired or completely precluded by the proposed use of the mineral owner or lessee—the court rejected the argument made by VirTex that there must be existing impairment before the surface owners could satisfy the first prong of the Accommodation Doctrine. The Bauerles were also able to show that VirTex had reasonable alternatives to overhead powerlines that were industry custom, including continued use of the generators, the fueling of pumpjacks by diesel or natural gas (which VirTex was doing elsewhere), and the use of existing buried natural gas lines on the Ranch. Much like in Getty, any potential increase in cost to employ one of the alternative methods was not material if the Bauerles could show that the alternatives were reasonable and industry accepted.
How I imagine the hunting operations would have looked had the powerlines been constructed.
Conclusion
It’s evident that the Bauerles succeeded where Homer failed: The Bauerles presented considerable evidence that convinced a jury that the various prongs of the Accommodation Doctrine were satisfied. But even if Homer had presented all possible evidence, there’s no guarantee he would have prevailed. Do not be deceived by the selection of cases in this post—there is a multitude of other cases out there where the surface owner does not prevail. And remember that the burden is initially always on the surface owner to prove the various prongs of the Accommodation Doctrine. It is undeniably an uphill battle. The point I’m trying to make here is that these types of disputes are always moving targets when litigated. The variables are many. Appeals are likely, given there’s enough money involved. Betting the viability or profitability of your operations on nebulous and ever-shifting definitions of “reasonableness” is a fool’s game. And let’s be honest here—from the operator’s perspective of getting value out of their legal representation, having their counsel tell them to be “reasonable” in so many words is the pinnacle of practically useless attorney-speak.
Okay, well, “filibuster”.
But it is what it is. The facts will always be different. The parties will most likely be different, as will the trial court. The appellate court may differ if it gets that far. The geology will differ. The surface topography, hydrology, flora, and fauna will likely differ. The severing instrument, title history of the land at issue, and any oil and gas lease will differ. The surface and mineral owners and their existing or intended use of either estate will likely differ. The prospective money to be made or lost by either estate will differ in amount and means of gain or loss. A smattering of variables will be shoved through the sieve of “reasonableness” at trial and on appeal, with no way of knowing what comes out the other end until the court renders its decision. You can see where I’m going with this—there’s a reason why many attorneys want to paper everything with detailed agreements and will advise clients to avoid litigation if at all possible.
Unless they’re “real” lawyers and make their money in the court room, not from silly contracts.
So, what’s the solution? It depends! The best first step is a solid strategy for your surface use. Get out in front of any conflicts whenever you can. Explore your own alternatives before you have to deal with a hostile surface owner trying to pin down your alternatives for you. When necessary and possible, negotiate a surface use agreement with the surface owner before they get pissed off. Surface use agreements aren’t silver bullets, but they sure can avoid headaches down the road. That’s why, in upcoming Part IV of this series, we’ll be looking at the utility and structure of surface use agreements.
In Part III of this series next week, we will take a look at current trends and how the entry of new contenders—solar, wind, and water—has changed the game. Be sure to come back next Tuesday to check it out!
