The Accommodation Doctrine Revisited: A Question of "Fairness to Both Parties"

more+
less-

As Texas holds tight to its position as the nation's number one oil and natural gas producing state1, the Texas Supreme Court's decision to revisit the over forty-year-old accommodation doctrine, which requires oil and gas operators to accommodate existing surface uses under certain circumstances, is especially relevant. The oil and gas resurgence in the state is largely attributable to advanced drilling technology, such as hydraulic fracturing, or "fracking," and horizontal drilling, which together have unlocked huge reservoirs of previously inaccessible, or uneconomic, underground resources in all four corners of the state – as seen with the proliferation of the Eagle Ford in the south, the reinvigoration of the Permian Basin in the west, the reintroduction of the Barnett Shale in the north, and the continued production in the Haynesville in the east.

As Texas' oil and gas production continues its upward trajectory, it is a certainty that many more oil and gas wells will be drilled throughout the state. It is equally predictable that those wells will continue to be drilled on surface estates that are located in more heavily populated areas than in the past. This trend is exemplified by the Barnett Shale, which is in an urban area, and is equally true in all producing regions in the state. Increased drilling activity, and its accompanying infrastructure, will continue to drive people and production even closer making the accommodation doctrine even more important for both producers and surface owners.

The Merriman decision offers something to both surface and mineral estate owners: it solidly reaffirms the dominance of the mineral estate, but also narrows the accommodation inquiry to a particular use and reiterates that coexistence is a question of fairness to both parties.

In Merriman v. XTO Energy, Inc., 407 S.W.3d 244 (Tex. 2013), the Texas Supreme Court revisited the accommodation doctrine for the first time in twenty years. The court started by reaffirming that, in Texas, the mineral estate is still king. Specifically, the mineral estate is dominant and the owner of that estate may use as much of the surface as is reasonably necessary to extract and produce the minerals. Id. at 248-49. The court then cited its last opinion concerning the accommodation doctrine by reiterating that, "[i]f 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." Id. at 249 (citing Tarrant County Water Control & Improvement Dist. No. 1 v. Haupt, Inc., 854 S.W.2d 909, 911 (Tex. 1993)).

However, the accommodation doctrine, first articulated by the Texas Supreme Court in Getty Oil Co. v. Jones, during the oil boom of the early 1970s, recognizes that this right to use the surface is not without limit. Getty Oil Co. v. Jones, 470 S.W.2d 618, 621 (Tex. 1971). Under the accommodation doctrine, "if the mineral owner has reasonable alternative uses of the surface, one of which allows the surface owner to continue to use the surface in the manner intended . . . and one of which would preclude that use by the surface owner, the mineral owner must use that alternative that allows continued use of the surface by the surface owner." Haupt, 854 S.W.2d at 911-12 (emphasis in original). In the Haupt situation, there was an existing surface use which would have been precluded by the mineral owner and the mineral owner had alternative methods to accomplish its mineral development.

In Merriman, the surface owner claimed that mineral lessee XTO failed to accommodate his existing surface use when it drilled a gas well on his property that interfered with his ongoing cattle operation. Id. at 247. The Supreme Court began its analysis by clearly articulating three elements of the accommodation doctrine. Specifically, to obtain relief on a claim that the mineral lessee has failed to accommodate an existing use of the surface, the surface owner must demonstrate the following: (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. Merriman, 407 S.W.3d at 249. If the surface owner carries the burden on the first two, then he must prove a third element: (3) "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." Id.

The Merriman decision turned on the second element: whether the surface owner had a reasonable alternative method by which to continue his existing use of the surface. Id. at 249. In making its decision, the court clarified the "existing use" requirement and made clear that the characterization of any existing use was a question of "fairness to both parties." Id. at 250. In so doing, the court stated, "[t]he issue is one of fairness to both parties in light of the particular existing use by the surface owner and the principle underlying the accommodation doctrine: balancing the rights of surface and mineral owners to use their respective estates while recognizing and respecting the dominant." Id.

In Merriman, the question was whether to characterize the existing use as any agricultural use (as suggested by the court of appeals) or to narrow it to the surface owner's specific use of the land for a cattle operation and its essential parts. Id. at 251. The court determined that the more narrow use, Merriman's cattle operation, was the one that must be considered in balancing the surface owner's rights with those of XTO. Id. Thus, although the surface owner's burden remains high, Merriman supports a surface owner's concentration of his evidence on a narrow, specific existing use of the surface, rather than a broad category of use.

Ultimately, the court held that the surface owner had not presented enough evidence to show that he had no reasonable alternative method by which to continue his cattle operation. The court noted that the surface owner's evidence that the well placement would result in inconvenience to him, as well as some reduction in profitability and additional expense, was not enough to "rise to the level of evidence that the surface owner has no reasonable alternative method to maintain the existing use." Id. at 252.

The Merriman decision offers something to both surface and mineral estate owners: it solidly reaffirms the dominance of the mineral estate, but also narrows the accommodation inquiry to a particular use and reiterates that coexistence is a question of fairness to both parties. As the new technology of the day continues to spur oil and gas production and drive surface owners and mineral lessees into situations requiring consideration of accommodation, Merriman will serve as a guide to the resolution of any resulting disputes.

1 According to information provided by the U.S. Energy Information Administration. See www.eia.gov/state/print.cfm?sid=TX.

Topics:  Barnett Shale, Duty to Accommodate, Existing Use, Fracking, Horizontal Wells, Mineral Leases, Mineral Rights, Oil & Gas, Surface Use, Well Drilling

Published In: Civil Procedure Updates, General Business Updates, Energy & Utilities Updates, Residential Real Estate 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.

© Jackson Walker | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »