DISPUTE RESOLUTION: Oil & Gas: Litigation Texas Supreme Court Reaffirms Minerals Estate's Superior Rights

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It has long been a rule in Texas that the mineral estate is dominant over the surface estate. This rule has taken on increased importance recently with the shale boom driving increased E&P activity in the state.

It is very often the case—likely more so than in the past—that the surface owner does not own the mineral estate. This is important because a surface owner will probably tolerate more disruptions from drilling activity if the surface owner also owns the minerals and stands to profit from the drilling activity. In contrast, a mere surface owner has no reason to tolerate the disruption caused by drilling activity. This was the situation in Merriman v. XTO Energy Inc., decided by the Texas Supreme Court in June. Merriman owned 40 acres of land, but did not own the mineral rights. Merriman ran cattle as one of his businesses and once a year used the 40 acres to round up and work his cattle inside permanent and portable pens.

XTO had acquired the drilling rights for the acreage from the mineral owner. When it informed Merriman that it intended to drill a well on his tract, he objected to the well's location, arguing it would interfere with his cattle operations. A lawsuit followed and the case eventually came before the Texas Supreme Court.

The Court first emphasized the superiority enjoyed by the mineral estate: "If the mineral owner or lessee has only one method for developing and producing the minerals, that method may be used regardless of whether it precludes or substantially impairs an existing use of the servient surface estate." But if there is more than one reasonable way to produce the minerals, the surface owner is entitled to some relief. Where the mineral owner has a reasonable alternative, it has a duty to allow the continued use by the surface owner under the "accommodation" doctrine.

But the XTO decision shows how difficult it can be for a surface owner to make out a claim that a mineral owner failed to accommodate his use of the land. "To obtain relief on a claim that the mineral lessee has failed to accommodate an existing use of the surface, the surface owner has the burden to prove that (1) the lessee's use completely precludes or substantially impairs the existing use, and (2) there is no reasonable alternative method available to the surface owner by which the existing use can be continued. If the surface owner carries that burden, he must further prove that given the particular circumstances, there are alternative reasonable, customary, and industry-accepted methods available to the lessee which will allow recovery of the minerals and also allow the surface owner to continue the existing use." Thus, the burden is on the surface owner, not the mineral owner. Further, "the surface owner has the burden to prove that the inconvenience or financial burden of continuing the existing use by the alternative method is so great as to make the alternative method unreasonable."

On the facts of the case, the Supreme Court determined that Merriman's evidence "did not explain why corrals and pens could not be constructed and used somewhere else on the tract; and if they reasonably could be, then his existing use was not precluded." Just because his existing use of the tract made working his cattle easier and less expensive, was insufficient. "Evidence that the mineral lessee's operations result in inconvenience and some unquantified amount of additional expense to the surface owner does not rise to the level of evidence that the surface owner has no reasonable alternative method to maintain the existing use."

Thus, while the Court did hold that a mineral owner cannot simply run roughshod over a surface owner, surface owners certainly face an uphill fight to demonstrate that a mineral owner has left them with no reasonable alternative to use their land. Of course, mineral owners are often wise to try to make accommodations to surface owners, even if they are not strictly required to do so (and it may well be that XTO tried to do that in this case). Making some accommodation to the surface owner can certainly be cheaper than protracted litigation, even if the mineral owner is legally in the right.


 

Topics:  Energy, Mineral Rights, Minerals, Oil & Gas

Published In: Civil Procedure Updates, General Business Updates, Energy & Utilities Updates, Residential Real Estate Updates, Zoning, Planning & Land Use Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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