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Oil & Gas Chapter 4: Property Concepts in Mineral Estates Professors Wells
Presentation:
September 25, 2017
2
Seismic Trespass: Phillips Petroleum Co. v. Cowden
Phillips Petroleum Co. v. Cowden, 241 F.2d 586: 1. Facts
2. Court reasoning
“It appears, however, that Texas belongs to the minority of states that permit a landowner to waive the trespass and sue in assumpsit for the reasonable value of the use and occupation.”
Cowden (Mineral Estate)
Phillips Petroleum
Permits E
ntry
Moss (Surface Estate)
Seismic
Seismic
Seismic
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Seismic Trespass: Kennedy v. General Geophysical Co.
Kennedy v. General Geophysical Co., 213 S.W.2d 707: 1. Facts
2. Court reasoning
“On the other hand, the general rule is that one engaged in blasting on his own property is not liable for mere concussion of the air not resulting in actual injury.”
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Seismic Trespass: Villareal v. Grant Geophysical, Inc.
Villareal v. Grant Geophysical, Inc.., 136 S.W.3d 265: 1. Facts
2. Court reasoning
“However, since a trespass did not occur under current Texas law, Grant and Millennium did not wrongfully secure a benefit nor did they passively receive one which would be unconscionable to retain. Although the facts according to the Villarreals may seem unfair, "unjust enrichment is not a proper remedy merely because it 'might appear expedient or generally fair that some recompense be afforded for an unfortunate loss' to the claimant" or because the other person received a windfall Here is the key caveat in the disposition of the unjust enrichment claim. No benefit that “is unconscionable to retain” was received.”
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Trespass: The Hydraulic Fracturing Dilemma Coastal v. Garza
Ccoastal v. Garza, 268 S.W.3d 1: 1. Facts
2. Court reasoning
“We do not decide the broader issue here. In this case, actionable trespass requires injury, and Salina’s only claim of injury- that Coastal’s fracing operation made it possible for gas to flow from beneath Share 13 to the Share 12 wells- is precluded by the rule of capture. That rule gives a mineral rights owner title to the oil and gas produced from a lawful well bottomed on the property, even if the oil and gas flowed to the well from beneath another owner’s tract.”
BS1 3 2V 6
7 8 5 10 11
9
1 28 14 15 20
16
18
2 3
4 P1
C1
Share 13
Share 12 C2
Share 15
Fracturing Treatment
Polymer Concentrated within Proppant-Pack
Filter Cake
Proppant Suspended in Fluid
Fracture Extension - Proppant Placement
Proppant Placed - Pumping Halted - Fracture Closure
Fracturing Demonstration
Hydraulic Fracturing Footprint on Location
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Seismic Trespass: Coastal v. Garza (in appendix)
1. How many judges agreed with the analysis in Part II.B regarding whether hydraulic fracturing is a trespass for which the value of the gas drained may be recovered as damages?
2. What is the majority holding of the case? 3. Did Coastal have a conflict of interest with the Salinas lessors? Explain. 4. If so, how was this conflict demonstrated in Coastal’s decisions as to where and when to pool and drill
wells? 5. How does the majority distinguish slantwell drilling from fracturing? 6. What 4 reasons are advanced in favor of the rule of capture? 7. Why did J. Willett concur? In what respect does he differ from the majority on the issue of fracing as a
trespass? 8. Why has this issue not been litigated earlier given fracturing has been done since 1949? 9. Could the RRC regulate fracturing if correlative rights are being abused? What might it do? Why does
the dissent worry about small tract owners? 10. What is the dissent’s view of fracking as a trespass? 11. What does Coastal v. Garza say about using nuisance as a tort to govern fracturing? How might
Tidewater v. Jackson Bros. be relevant to this question? 12. Does negligence still apply as a possible tort in fracturing cases? 14. What can a lessor do if he/she believes that she is being harmed by a fracturing operation on nearby land? 15. Dissent worries that MIPA cannot be used to help lessors like Salinas, citing Sec. 102.012. What is the
problem? 16. Coastal had an implied covenant to protect its lessor from drainage. How could it have done this? How
are damages measured for breach of an implied covenant?
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Trespass Damages: Swiss Oil Corp. V. Hupp
Gillem (Mineral Estate)
Hupp O
&G
Lease
Co-Tenants (Mineral Estate)
Swiss Oil Corp
O&
G L
ease
Swiss Oil Corp. v. Hupp, 69 S.W.2d 1037: 1. Facts
2. Court reasoning
“[Wilful trespassers] are held to a strict accountability. Complete restitution without credit for expenses incurred or deduction of costs of production is required. But those who invade the property of another inadvertently or under a bona fide belief or claim of right and extract minerals are allowed credit for proper expenditures in obtaining or producing them. While not allowed any profit, they are not to be penalized.”
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Trespass Damages: Houston Production Co. v. Mecom Oil Co.
Houston Production Co. v. Mecom Oil Co., 62 S.W.2d 75: 1. Facts
2. Court reasoning
“We are inclined to adhere to the well-established rule that, where one enters into possession of land and makes improvements thereon with full knowledge of the pendency of an action to enforce an adverse claim to the premises, he cannot be considered a trespasser in good faith so as to entitle him to recover the cost of his improvements.”
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Slander of Title: Kidd v. Hoggett
Kidd v. Hoggett, 331 S.W.2d 515: 1. Facts
2. Court reasoning
“Malice as a basis for recovery of actual damages, as distinguished from punitive damages should mean that the act or refusal was deliberate conduct without reasonable cause . . . . Malice as a basis for recovery of punitive damages should mean actual malice, that is, ill will, bad or evil motive, or such gross indifference to or reckless disregard of the rights of others as will amount to a willful or wanton act.”
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Surface Accommodation 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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Cotenants: Law v. Heck Oil Co.
Law v. Heck Oil Co., 145 S.E. 601: 1. Facts
2. Court reasoning
“To permit the defendant to proceed with its proposed development of the oil and gas underlying the land in question without the plaintiff’s consent, even though the company should faithfully turn over to the plaintiff’s his full proportionate share of such minerals, or account to him therefore, without cost of production, would be a compelling of the plaintiff to exchange his real estate for personal property. This the law will not require on a showing such as is here presented.”
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Cotenants: Prairie Oil & Gas Co. v. Allen
Prairie Oil & Gas Co. v. Allen, 2 F.2d 566: 1. Facts
2. Court reasoning
“In cases of willful trespasser the rule seems to be well settled, as will be seen from the authorities, supra, that the plaintiff is entitled to recover, in a suit for an accounting, the value of the mineral without deducting any expense incurred in mining it. But we do not understand that this same rule should be applied in cases where a cotenant operates the mine with the knowledge of his cotenant’s interest. Especially should this rule not be applied against a cotenant where the mineral involves is of a fugacious nature and liable to be exhausted by adjacent operators. In such case if one tenant is able and willing to develop the mine and extract the oil before it is entirely lost and his cotenant is not, he should be allowed to do so without incurring the penatly of accounting to his cotenant for the gross amount of oil produced, but since he may not convert, to any extent, his cotenant’s interest, he must account to the latter for his proportion of the net value of the oil produced, which is its market value, less the cost of extracting and marketing.”
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Cotenants: Texas Pacific Coal & Oil Co. v. Kirtley
Texas Pacific Coal & Oil Co. v. Kirtley, 288 S.W.2d 619: 1. Facts
2. Court reasoning
“Appellees have so far as humanly possible ratified and confirmed the act of their tenant in common in leasing the land for oil and gas, and the act of lessees, appellants herein, in producing the oil under such instrument. Having thus ratified the lease executed by Hill and wife, appellees are so much bound thereby as though they had joined in the execution thereof.”
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Cotenants: Proportionate Reduction Clause (page L-5)
Clause 10: Proportionate Reduction clause language: * * * * “Without impairment of Lessee’s rights under the warranty in event of failure of title, it is agreed that if Lessor owns an interest in the oil, gas, or other minerals on, in or under said land less than the entire fee simple estate, whether or not this lease purports to cover the whole or a fractional interest, then the royalties and rentals to be paid Lessor shall be reduced in the proportion that his interest bears to the whole and undivided fee and in accordance with the nature of the estate of which Lessor is seized. Should any one or more of the parties named above as Lessors fail to execute this lease, it shall nevertheless be binding upon the party or parties executing same. Failure of Lessee to reduce rental paid hereunder shall not impair the right of the Lessee to reduce royalties.”
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Cotenants: Humble Oil & Refining Co. v. Kishi
Humble Oil & Refining Co. v. Kishi, 276 S.W. 190: 291 S.W. 538
1. Facts
2. Court reasoning
“The value of Kishi’s three-fourths undivided interest in the leasehold estate was the amount of the damages he was entitled to recover. . . . The amount of his damages is measured by the loss in the value of his leasehold interest caused by the wrongful conduct of which complaint is made.”
22
Cotenants: Byrom v. Pendley
Byrom v. Pendley, 717 S.W.2d 602:
1. Facts
2. Court reasoning
“We hold that Byrom had the legal right, as a cotenant of Pendley, to proceed to drill and produce oil and gas from the land, subject only to his duty to account to Pendley for Pendley’s proportionate part of the value of the oil and gas produced, less Pendley’s proportionate part of the drilling and operating expenses.”
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Review Question: Enron Oil and Gas Co. v. Worth p.4-54
Enron Oil and Gas Co. v. Worthy, 947 P.2d 610:
1. Facts Enron secured a seismic contract to perform geophysical operations from a mineral interest owner who owned less than 100 percent of the minerals. The surface owner, Worth, who was growing crops, denied Enron access to the surface unless Enron paid a surface fee plus paid for any incidental damage to crops. Enron sought declaratory and injunctive relief against the surface owner.
2. Question: who will win this case? Is the permission of all fractional interest owners necessary for such a seismic contract to be effective?
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Partition: Mosely v. Hearrell
Moseley v. Hearrell, 171 S.W.2d 337:
1. Facts
2. Court Reasoning:
“The above statutes confer the right to compel partition in the broadest terms. There is no requirement for the showing of equitable grounds as a prerequisite to the exercise of the right, nor is there any provision that the right may be defeated by the showing of inequities.”
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Partition: Henderson v. Chesley
Henderson v. Chesley, 273 S.W. 299:
1. Facts
2. Court Reasoning:
“The law favors a partition in kind, rather than a sale with partition of the proceeds. Since there has been no development or exploration for minerals of any kind in, on, or under the land in question, we think that the court should assume for the purpose of partition that each acre of the land contains an equal amount of minerals, and partition by dividend the surface.”
26
Partition: Fortney v. Tope
Fortney v. Tope, 273 S.W. 299:
1. Facts
2. Court Reasoning:
“Where it is known that the land bears oil and gas, following a similar rule applicable to solid minerals, it is generally held that there can be no partition of the land by metes and bounds; that partition must be made by sale and division of the proceeds. And the same rule has been applied to partition of oil and gas leases.”
27
Partition Review Questions p.4-62
1. A cotenant’s right to partition is absolute. True? False?
2. Equity plays no role in partition. True? False?
3. A royalty owner can sue for partition. True? False?
4. Can parties expressly contract against partition? Yes? No?
5. Can courts find that cotenants impliedly agreed not to partition. What kind of a contract might have this effect?
6. Partition of oil producing land is done by _____________.
7. Partition of undeveloped land is done by ______________.
8. Which kind of partition best encourages oil and gas development?
9. Extra Credit Question: How would you partition potentially productive land which has no wells or lease on it, but is located in the midst of a big oil play? Can you think of some alternative to the standard rules announced in the three short cases?
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Adverse Possession: Broughton v. Humble Oil & Refining Co.
Broughton v. Humble Oil & Refining Co., 105 S.W.2d 408:
1. Facts
2. Court Reasoning:
“At the time plaintiffs made their adverse entry upon the land there had been no severance of the mineral estate; therefore, plaintiffs’ adverse entry upon the surface extended downward and drew to it title to the underlying minerals.”
29
Adverse Possession: Diedrich v. Ware
Diedrich v. Ware, 288 S.W.2d 643:
1. Facts
2. Court Reasoning:
“After such several, title to the minerals cannot be gained through adverse possession without a penetration of the mineral estate. Instead, the presumption prevails that the owner and holder of the surface is trustee of the minerals for the use and benefit of the owner of the mineral rights.”
30
Adverse Possession: Study Questions p.4-67
1. O owns an unsevered tract of land. T enters and adversely possesses the surface only for 10 years. Does T get limitation title to the minerals as well as the surface?
2. O severs the mineral estate from the surface estate by conveying the surface to X. T enters and adversely possesses the surface only. Does T get limitation title to the minerals?
3. O owns a tract of land and conveys an undivided ½ mineral interest in it to X. Thereafter, T enters and takes adverse possession of the surface. Can T perfect limitation title against O’s interest in the surface? In O’s interest in the minerals? In X’s ½ mineral interest? How may a cotenant successfully show adverse possession against cotenant.
4. T is in adverse possession of land when O, the record owner, severs the minerals by Oil and Gas lease. O’s lessee does not drill any wells up to the time that T perfects a limitation title to the surface. Does T get title to the minerals also?
5. O is the record owner of land. T enters and takes adverse possession. Before the statutory period has run, T conveys the minerals (by deed or lease) to X. T remains in possession of the surface for the statutory period and acquires title to the surface. Does X get limitation title to the minerals?
6. O is record owner of land. T enters as an adverse possessor in 1914. T conveys the land to F in 1916, reserving the minerals. F continues adverse possession of the surface through 1924. Does T get limitation title to the minerals?
7. O owns a 2-acre tract of land. Little Oil company (the lessee of all of the adjoining tracts) pools O’s 2 acres into a 40 acre drilling unit under the state’s compulsory pooling statute. Little drills a well within 300 feet of O’s 2 acres, but not on the 2 acres, and produces from this unit well for 10 years. Little never pays a penny to O for any proceeds from the unit well. After ten years, O finally complains and demands a share of the proceeds from the well. Can Little successfully claim adverse possession?
31
Adverse Possession: Natural Gas Pipeline Co. of America v. Pool
Natural Gas Pipeline Co. of America v. Pool, 124 S.W.3d 188:
1. Facts
2. Court Reasoning:
“The lessees acquired the same interest that they adversely and peaceably possessed, that is, the oil and gas leasehold estates as defined by the original lease.”
32
Adverse Possession: Note BP America Production Co. v. Marshall
BP America Production Co. v. Marshall, 342 S.W.3d 59:
1. Facts
2. Court Reasoning: By paying a royalty, Wagner asserted a lessor-lessee relationship in which Wagner, not Vaquillas, owned the leasehold…. Accordingly, we hold that Wagner’s payment of a royalty and Vaquillas’s acceptance of it establish as a matter of law that Vaquillas was on notice that Wagner claimed to own the leasehold—an unmistakably hostile and unequivocal assertion of title inconsistent with the existence of a cotenant relationship.
33
Life Tenant and Remainderman p. 4-78
Husband dies and his will leaves a life estate in Blackacre to Wife, remainder to Son. a. Can Wife grant a valid oil and gas lease? b. Can Son grant a valid oil and gas lease? c. If Wife leases, can Son enjoin development as waste? d. If both Wife and Son join in executing a lease, is it valid? e. Would the results be different if the will provided that the life tenant has the right to lease and
development without the joinder of the remainderman?
How are lease benefits divided? General Rule:
Life Tenant: 100% of delay rentals plus interest on bonus and royalty. Remainderman: Bonus and Royalty.
Exception: Open Mine Doctrine Exception: Trust Act
34
Open Mine Doctrine: Youngman v. Shular
Youngman v. Shular, 288 S.W.2d 495:
1. Facts
2. Court Reasoning:
“In determining whether the ‘open mines’ doctrine applies, no distinction is made between a life tenant who holds a conventional life estate and one who holds a legal life estate.”
35
Life Tenant Rights: Welborn v. Tidewater Associated Oil Co.
Welborn v. Tidewater Associated Oil Co, 217 S.W.2d 509:
1. Facts
2. Court Reasoning:
“It is well settled that a remainderman may not make an oil and gas lease to permit immediate exploration and production without the consent of the life tenant. Likewise, a life tenant cannot drill new oil or gas wells, or lease the land to others for that purpose. A life tenant and the remainder man may lease the land by a joint lease and they may agree as to the division of the rents and royalties. In the absence of such agreement, the life tenant is not entitled to any part of the royalties, but is entitled only to the income from such royalties.”
36
Review Question: Life Tenant and Cotenancy p. 4-83
Wife owns an undivided ¾ interest and a life estate in the other ¼ undivided interest. Her children own the remainder interest in the ¼ undivided mineral interest. Wife leases all of Blackacre (all 4/4). Is this lease valid? Court Reasoning in MCZ v. Smith, 707 S.W.2d 672: 1. Lease effective as to Wife’s undivided ¾ and her ¼ life interest 2. Lease is not effective as to the children’s remainderman interest 3. Production is causing waste of the remainder interest. 4. Children cannot enjoin the waste because Wife owns the other ¾ interest in fee as a cotenant and has
every right to lease and develop as a cotenant. 5. Because the production is a waste to the remainderman, they are entitled to ¼ of the profits from the
producing wells.
What modification to point #5 would be better reasoning?
37
Prior Surface Lessee Interest is Still Subservient: Ball v. Dillard (page 4-84)
Ball v. Dillard, 602 S.W.2d 521: Surface lessee blocks the entrance for the subsequent lessee of the mineral estate. Court held that the surface lease is the subservient estate and that the mineral estate is entitled to reasonable access.
Robinson
Surface Lease
Mineral Lease Oil
Reservoir
38
Prior Mortgages: Subordination Agreements and Subrogation Clauses
Paragraph 10 Subrogation Clause: “Lessor . . . agrees that Lessee at its option may discharge any tax, mortgage, or other lien upon said land, either in whole or in part, and in event Lessee does so, it shall be subrogated to such lien with right to enforce same and apply rentals and royalties according hereunder toward satisfying same.”
