Key Operating & Equipment, Inc. (“Key”) leased and operated a well on the 191-acre contiguous Curbo/Rosenbaum (C/R) tract from 1994 until 2000, when the well stopped producing and Key’s lease expired. Key’s owners subsequently purchased an interest in the mineral estate of the C/R tract and leased it to Key. Key then pooled minerals from the C/R tract and the adjoining Richardson tract and continued to access its well on the Richardson tract via the C/R tract.
In 2002, Will and Loree Hegar purchased 85 acres of the C/R tract through which Key’s access road passed. After several years, Key drilled an additional well on the Richardson tract, and the resulting increase in traffic on the C/R road led the Hegars to take legal action. They sought a declaratory judgment that Key had no right to access their land in order to produce minerals solely from an adjacent tract.
The Court first noted that ownership of the dominant mineral estate in a tract of land carries with it an implied right to use the surface in a reasonably necessary manner to retrieve those minerals. However, the Court previously held that this right does not extend to use for the benefit of other, un-pooled tracts. Robinson v. Robbins Petroleum Corp. 501 S.W.2d 865 (Tex. 1973). In Robinson, a wellbore that had stopped producing was used to benefit waterflood units that were not a part of the original mineral lease. The Court there held that the surface owner on whose land the well was located was entitled to protection from the use of his land to benefit unrelated outside units.
However, pooling allows for mineral rights on multiple tracts to be combined in order to simplify the recovery process by avoiding potential legal complications, and the Key Court noted that pooling serves the Texas public policies of encouraging the recovery of minerals and avoiding waste. The primary legal consequence of pooling is that production or recovery activity on any part of the pooled unit is treated as if it takes place on each tract within that unit.
The Dispute and its Resolution
After resolving a procedural issue with the appeal, the Court in Key turned to the arguments. The Hegars had convinced both the trial court and First Court of Appeals in Houston that, like the landowner in Robinson, their land should not be burdened solely to access production on an adjacent tract. However, the Supreme Court of Texas rejected that argument in favor of Key’s pooling argument, reasoning that pooling precluded differentiating production by individual tract. In effect, the Court held that the C/R and Richardson tracts were to be treated as one, not only concerning recovery activity but in order to determine associated access rights.
The Court also pointed out that the Hegars did not claim the pooling was done in bad faith. That this fact merited discussion indicates that bad faith pooling may be an exception to the holding in this case. Lastly, the Court recognized Key’s implied property rights despite there being no documentation of the pooled rights in the Hegar’s chain of title. Thus, a surface title search alone may not protect surface owners from the rights of lessees like Key.
This post was written by Barclay Nicholson (email@example.com or 713.651.3662) from Norton Rose Fulbright's Energy Practice Group.