Oil & Gas Chapter 3: Surface versus Mineral Estate Professors Wells

Presentation:

September 18, 2017

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Dominate Mineral Estate and Accomodation Doctrine: Stradley v. Magnolia Petroleum Co.

Stradley v. Magnolia Petroleum Co., 155 S.W.2d 649: 1.  Facts

2.  Court reasoning

“It is unnecessary for us to determine whether water is a mineral since we believe that the reservation in the deeds by implication retained to the Southwest the right to use the amount of water from the land reasonably necessary to enable it to develop the mineral rights.”

Hawk Southwest Surface Rights Surface Rights

Mineral Rights

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Dominate Mineral Estate and Accomodation Doctrine: Brown v. Lundell

Brown v. Lundell, 344 S.W.2d 863: 1.  Facts

2.  Court reasoning

“The operator did not obtain the right to permit the salt to drain and seep down into the subsoil and the resultant damage. The use of the lessor’s land is limited. In other words the lessor has granted and leased to the lessee only so much of his land as will be reasonably necessary to effectuate the purpose of the lease, and to be used in a non-negligent manner.”

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Dominate Mineral Estate and Accomodation Doctrine: Jones v. Getty Oil Co.

Jones v. Getty Oil Co., 458 S.W.2d 93: 1.  Facts

2.  Court reasoning

Getty

JONES

W ½ of §4 E ½ of §4

17’

34’

Bice #1

Bice #2

120 acres 200 acres

Getty Amerada Adobe

320 acres

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Dominate Mineral Estate and Accomodation Doctrine: Getty Oil Co. v. Jones

Getty Oil Co. v. Jones, 470 S.W.2d 618: 1.  Facts

2.  Court reasoning “The evidence and circumstances here are such that a proper initial inquiry would be whether Jones had reasonable means of developing his land for agricultural purposes other than by use of the sprinkler system in question. *** If such is not found to be the case, Jones is under the burden of a second showing that Getty's present manner and method of use on this land is unreasonable because there are alternative methods used in the industry on this type of property which are available to Getty whereby it can produce its wells without interfering with the existing uses of the servient estate being made by Jones. If this is found to be the case, Getty is bound to convert to a noninterfering use.

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Getty

JONES

W ½ of §4 E ½ of §4

17’

34’

Bice #1

Bice #2

120 acres 200 acres

Getty Amerada Adobe

320 acres

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Sample Lease Accomodation Provisions

¶1. “Grants, leases and lets exclusively unto Lessee for the purpose of investigation, exploring, prospecting, drilling and mining for and producing oil, gas <and all other minerals>, laying pipe lines, building roads, tanks, power stations, telephone lines and other structures thereon and on, over and across lands owned or claimed by Lessor, adjacent and contiguous thereto, to produce, save, take care of, treat, transport, and own said products and housing its employees, the following described land in _____ County, Texas ¶3 Lessee shall have free use of oil, gas, coal, and water from said land, except water from Lessor’s wells, for all operations hereunder . . . . ¶7 When required by Lessor, Lessee will bury all pipe lines below ordinary plow depth, and no well shall be drilled within two hundred (200) feet of any residence or barn now on said land without Lessor’s consent.

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Surface Owner’s Perspective

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Dominate Mineral Estate and Accomodation Doctrine: Sun Oil Co. v. Whitaker

Sun Oil Co. v. Whitaker, 483 S.W.2d 808: 1.  Facts

2.  Court reasoning

“We have concluded that there is no evidence to support the jury's finding that it is not 'reasonably necessary' for Sun to use the water underlying the Whitaker farm for its waterflood project. As pointed out above, efforts to use available salt water for the waterflood project have failed, and there is no other source of usable water on the leased Whitaker tract which is available to Sun. To hold that Sun can be required to purchase water from other sources or owners of other tracts in the area, would be in derogation of the dominant estate”

GANN Surface Rights 1/16th L.O.

Royalty

267 acres

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Subsequent Developments to Sun Oil Co. v. Whitaker: Texas Water Code §27.0511 p. 3-21

1.  §27.0511(a) Requires submission of information on water usage

2.  §27.0511(b) Texas Water Commission has right to be notified of a well permit request and given an opportunity to comment on the application.

3.  §27.0511(c) Railroad Commission must specifically consider economic feasibility of alternatives to injection of freshwater such as other solids, liquid, or gaseous substances that are available and economically and technically feasible.

4.  §27.0511(d) Railroad Commission must condition permit on usage of alternative methods if other alternative substance are found to be available and economically and technically feasible.

5.  §27.0511(e) Grandfather rule for well permits as of September 1, 1983

Also, consider the creation of Water Conservation Districts

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Surface Waste

1.  Rule 8: Regulates pits, discharges of oil and gas field waste into water.

2.  Rule 9: Regulates underground injection wells used for disposal

3.  Rule 13: Governs casing, cementing, drilling, and completion requirements to ensure that all usable-quality water zones are isolated and sealed off to effectively present contamination or hamr and all potentially productive zones are isolated and sealed off to present vertical migration of fluids or gases behind the casing.

4.  Rule 14: Contains cementing requirements for plugging and abandoning wells.

5.  Rule 15: Requires freshwater sands to be protected with surface casing which has been cemented and which may not be removed from the well at abandonment.

6.  Rule 20: Requires operator to immediately notify Railroad Commission of a fire, leak, spill, or break.

7.  Rule 21: Contains additional regulations to prevent fires such as a prohibition against storing crude oil in open pits

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Surface Accomodation of Horizontal Wells

Horizontal Drainhole Displacement

Kick-Off Point

> <

> <

>

<

> <

Horizontal Drilling Deviated Drilling

Terminus

Correlative Interval

Penetration Point

A B C

Horizontal Well Diagram #1 (Overview of a Horizontal Well)

Surface: Able Surface: Brown Surface: Brown

Mineral: Bigg Oil Mineral: Bigg Oil Mineral: Bigg Oil

> <

> <

>

<

> <

> <

>

<

“Take-Points” (Perforations)

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Surface Accomodation of Horizontal Wells

Horizontal Drainhole Displacement

Kick-Off Point

> <

> <

> <

> <

> <

>

<

> <

Horizontal Drilling Deviated Drilling

> <

Correlative Interval

Penetration Point

A B C

Horizontal Well Diagram #2 (Penetration Point on Tract A)

> <

> <

Terminus

Surface: Able Surface: Brown Surface: Brown

Mineral: Bigg Oil Mineral: Bigg Oil Mineral: Bigg Oil

“Take-Points” (Perforations)

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Review Problem p.3-27

Review Problem: In Hunt Oil Co. v. Kerbaugh, 283 N.W.2d 131 (N.D. 1979), Ivan and Shirley Kerbaugh, as grantees, owned the surface estate under a warranty deed which reserved in the grantors all the minerals under the land, together “with such easement for ingress, egress, and use of the surface which may be incidental or necessary to use such rights.” An oil company leased the land from the mineral owner and conducted seismic operations on the tract. The process interfered with the Kerbaughs’ wheat operations and also, in their opinion, destroyed a natural spring of water on their tract. When the company sought to enter upon the wheat fields a second time to do another seismic survey, the Kerbaughs sought an injunction against the lessee. Question: Assuming Texas law applied, what must the Kerbaughs prove to win this lawsuit?

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Ownership of Hard Minerals: Anderson & Kerr Drilling Co. v. Bruhlmeyer

Anderson & Kerr Drilling Co. v. Bruhlmeyer, 136 S.W.2d 800: 1.  FACTS

2.  Issue: What was conveyed in this clause? And the said N.J. and M.E. Johnson reserves ½ interest in all Minerells Paint Rock &c found or will be found on said described tract of land,”

3.  Court reasoning

“When the comma is inserted and the erroneous spelling corrected, the clause is as follow: ‘and the said N J and M E Johnson reserves one-half interest in all Minerals, Paint Rock, etc. found or will be found on said described tract of land.’ In our opinion it is well settled by the decision in this state that this reservation includes oil and gas.”

J.R. Cother Johnson Surface Rights plus what?

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Ownership of Hard Minerals: Acker v. Guinn

Acker v. Guinn, 464 S.W.2d 348: 1.  Issue: Is iron ore a mineral?

“An undivided ½ interest in and to all of the oil, gas, and other minerals in and under, in that may be produced”

2.  Court reasoning

“It is not ordinarily contemplated, however, that the utility of the surface for agriculture or grazing purposes will be destroyed or substantially impaired. Unless the contrary intention is affirmatively and fairly expressed, therefore, a grant or reservation of ‘minerals’ or ‘mineral rights’ should not be construed to include a substance that must be removed by methods that will, in effect, consume or deplete the surface estate.”

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Ownership of Hard Minerals: Reed v. Wylie

Reed v. Wylie, 597 S.W.2d 743: 1.  Issue: Is lignite a mineral?

Conveyance of “oil, gas, and other minerals” to mineral estate

2.  Court reasoning

“The rule for near surface lignite, iron, or coal, therefore, is that if the deposit lies near the surface, the substance will not be granted or retained as a mineral if it is shown that any reasonable method of production would destroy or deplete the surface.”

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Ownership of Hard Minerals: Moser v. United States Steel Corp

Moser v. United States Steel Corp, 676 S.W.2d 99: 1.  Issue: Is uranium a mineral?

Conveyance of “oil, gas, and other minerals” to mineral estate

2.  Court reasoning

“We now hold a severance of minerals in an oil, gas, and other minerals clause includes all substances within the ordinary and natural meaning of that word, whether their presence or value is known at the time.”

3.  Surface: (1) Building stone, (2) limestone, (3) caliche, (4) surface shale, (5) sand, (6) gravel, (7)

near surface lignite, (8) near surface iron, and (9) near surface coal. Fresh water also part of surface estate. Salt water?

4.  Mineral Estate: Uranium, oil, and gas, sulfur, deep coal, salt and deep lignite. Probably also gold, silver, and other metallic substances.

5.  Unknown: gypsum? Other minerals?

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Problems p.3-41

A.  Conveyance after June 8, 1983 and issue is coal

B.  Pre-June 8, 1983 severance but post-June 8, 1983 lease for uranium

C.  Pre-June 8, 1983 severance but post-June 8, 1983 lease for uranium

D.  Post-June 8, 1983 severance and lease of lignite

E.  Post-June 8, 1983 severance and lease for uranium

F.  Deep lignite

G.  Royalty owner, post-June 8, 1983 severance and uranium

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Problems p.3-44

Review Problem: In 1930, Friedman owned Blackacre. In 1937, he sold two royalty deeds (deeds to NPRI interests) to Roy Associates on “all oil royalty, and royalty in other minerals.” In 1939, Friedman conveyed a lease to Mobil of “all the oil, gas, and other minerals” on Blackacre. In 1959, Friedman sold Blackacre to Sam by general warranty deed, reserving “oil, gas and other minerals” to Friedman. In 1977, Sam, the surface owner conveyed a uranium lease to Texaco. The facts show the following:

•  Uranium deposits begin at a depth of 20 feet from the surface •  Uranium can be strip mined and this is economically and technically feasible •  Strip mining would destroy the surface.

Question: Who owns what rights to uranium and uranium royalties?