March 30, 2011 Articles

Texas Surface Damages Law Basics

Part of practicing energy litigation is understanding the delicate balance between the rights of mineral owners and surface owners.

By Eugene M. Nettles – March 30, 2011

Texas has long recognized the right of a landowner to sever the surface and mineral estates.See Cowan v. Hardeman, 26 Tex. 217 (1862). Where these estates have been severed, the mineral estate is the dominant estate, and the surface estate is the servient estate. Id.Harris v. Currie, 176 S.W.2d 302 (Tex. 1944). However, a corollary to this logic is that the surface estate would also be worthless if the mineral owner could occupy and completely destroy the surface at a whim.

Recognizing the respective rights of each party, Texas courts have, over time, developed boundaries defining the mineral owner’s right to use the surface:

1. The mineral owner may only use the surface as reasonably necessary to develop the underlying minerals.

2. In using the surface, the mineral owner must act with due regard for the rights of the surface owner.

3. The mineral owner must act non-negligently in the way and manner of use.

Brown v. Lundell, 344 S.W.2d 863, 866–67 (Tex. 1961); General Crude Oil Co. v. Aiken, 344 S.W.2d 668, 671 (Tex. 1961); Sun Oil Co. v. Whitaker, 483 S.W.2d 808 (Tex. 1972).

The first two limitations together can be understood as the “reasonable use” requirement.See Gulf Production Co. v. Continental Oil Co., 144 S.W.2d 488 (Tex. 1942) (articulating the concepts of reasonable necessity and due regard). A failure to act as “reasonably necessary” or with “due regard” gives rise to a trespass cause of action, that is, use of the surface beyond the implied right needed to access the minerals. See Gregg v. Caldwell-Guadalupe Pick-Up Stations, 286 S.W. 1083, 1084 (Tex. 1926). Thus, reasonable use centers on theamount of land used and thetype of use. Although reasonable necessity and due regard are intertwined concepts, courts usually focus on one or the other based on the factual scenario presented. David E. Jackson develops these concepts in his article on surface use, Surface Use: The Dominant Estate, Reasonable Use and Due Regard, State Bar of Texas, 24th Annual Advanced Oil, Gas and Energy Resources Law Course (October 5, 2006). 

Separately, a surface owner may claim negligence if the way or manner of the mineral owner’s use is unreasonable. Brown v. Lundell, 344 S.W.2d 863, 866–67 (Tex. 1961). Although courts sometimes conflate reasonable use and negligence, the distinction is important. Reasonable use considers the amount or type of use, while negligence considers the way and manner in which that use is carried out. As such, a mineral owner may be held liable to the surface owner for either or both. Compare Brown, 344 S.W.2d at 866–67 (holding surface use of slush pits was reasonably necessary but carried out negligently when pits polluted fresh groundwater) with Oryx Energy Co. v. Shelton, 942 S.W.2d 637 (Tex. App.—Tyler 1996, no writ) (holding that salt water and oil spills supported jury finding of unreasonable use, without a finding of negligence). Despite these limitations, Texas courts have historically granted mineral owners wide latitude to utilize the surface.

Case Law on Liability of Mineral Owners
A surface owner’s cause of action for excessive use of the surface estate is rooted in trespass, as the plaintiff is alleging a use of land beyond the scope of an implied right. Gregg v. Caldwell-Guadalupe Pick-Up Stations, 286 S.W. 1083, 1084 (Tex. 1926). However, because “unreasonable use” of the surface has evolved as a distinct variety of trespass, the plaintiff might not label his cause of action as “trespass,” opting instead to specifically claim “unreasonable use” or “excessive use.” In cases focusing specifically on conflicting use between a mineral rights owner and a surface owner, a surface owner might frame her claim against the mineral owner as a “breach of the duty to accommodate” or “breach of the accommodation doctrine.” In any case, the surface owner’s claim is essentially for trespass, i.e., the use of the land beyond an implied right.

As noted, “reasonable use” is a general term used to encompass the two requirements that the mineral owner’s surface use is (1) reasonably necessary to develop the minerals, and (2) employed with due regard for the surface owner’s rights. Disputes between mineral and surface owners can be roughly categorized into two types of cases: conflicting rights cases and conflicting use cases. See Surface Use: The Dominant Estate, Reasonable Use and Due Regard, State Bar of Texas, 24th Annual Advanced Oil, Gas and Energy Resources Law Course (October 5, 2006). These two scenarios are discussed in turn.

Conflicting Rights (Reasonable Necessity)
Where the mineral owner’s use of the surface does not conflict with an existing use by the surface owner, the only issue concerns the rights of each party to use the surface. This inquiry focuses on whether the use by the mineral owner is reasonably necessary to effectuate mineral development.

Ingress and Egress. A mineral owner has a right of ingress and egress upon the surface tract as is reasonably necessary for the exploration and production of oil and gas. Ball v. Dillard, 602 S.W.2d 521, 523 (Tex. 1980); see also Davis v. Devon Energy Prod. Co., 136 S.W.3d 419 (Tex. App.—Amarillo 2004, no pet.); Parker v. Texas Co., 326 S.W.2d 579 (Tex. Civ. App.—El Paso 1959, writ ref’d n.r.e.); Phillips Petroleum Co. v. Cargill, 340 S.W.2d 877 (Tex. Civ. App.—Amarillo 1960, no writ). In Ball, the surface owner denied the mineral lessee access to the land by locking the gate. The court enjoined the surface owner from denying ingress and egress and awarded the lessee consequential damages resulting from the delay caused by the surface owner. See alsoDevon Energy, 326 S.W.2d at 425–26 (affirming jury finding that surface owner unreasonably interfered with mineral operations and mineral lessee was entitled to damages); Parker, 326 S.W.2d at 582 (holding that mineral owner has right to enter surface as reasonably necessary to develop minerals);Cargill, 340 S.W.2d at 879–80 (denying surface owner recovery of surface damages where mineral owner’s ingress and egress was reasonably necessary).

Moreover, at least one case has held that, absent a contractual provision to the contrary, the mineral owner need not provide the surface owner with notice of entry. Parker, 326 S.W.2d at 583. However, the Texas legislature has recently enacted a statute that requires a person who receives a permit to drill or re-enter a well to give notice to the surface owner of the tract within 15 days of the permit’s issuance. Tex. Nat. Res. Code. Ann. §§ 91.701–91.705 (2008).

Although a mineral owner may enter the surface estate as reasonably necessary, courts have allowed the surface owner to install fences or require the mineral owner to use a key to enter locked gates. Getty Oil Co. v. Royal, 422 S.W.2d 591, 593 (Tex. Civ. App.—Beaumont 1958, writ ref’d n.r.e.) (holding that surface owner’s installation of fences and unlocked gates did not unreasonably interfere with mineral lessee’s right of entry); Texaco, Inc. v. Parker, 373 S.W.2d 870, 874 (Tex. Civ. App.—El Paso 1963, writ ref’d n.r.e.) (affirming jury’s determination that surface owner requiring mineral lessee to use a key to enter through locked gates did not unreasonably interfere with mineral lessee’s right of ingress and egress).

Location of Wells, Facilities, and Pipeline. A mineral owner has the right to select the location for drill sites and facilities. Ottis v. Haas, 569 S.W.2d 508, 513 (Tex. Civ. App.—Corpus Christi 1978, writ ref’d n.r.e.); Gulf Oil Corp. v. Walton, 317 S.W.2d 260, 262 (Tex. Civ. App.—El Paso 1958, no writ); Joyner v. R. H. Dearing & Sons, 134 S.W.2d 757, 759(Tex. Civ. App.—El Paso 1939, error dism’d judg. cor.); Grimes v. Goodman Drilling Co., 216 S.W. 202, 204 (Tex. Civ. App.—Fort Worth 1919, writ dism’d). In a 1919 case, the Fort Worth appeals court provided an extreme example of this rule. In Grimes, the court held the surface owner could not compel the mineral lessee to move the well location from the front yard to the back yard when the lessee produced evidence that the front yard was a more effective location.Grimes, 216 S.W. at 204. Similarly, in Walton, the mineral lessee showed that the well locations it had selected were reasonably necessary to effectuate mineral recovery. Walton, 317 S.W.2d at 262.

The mineral lessee is also entitled to use so much of the land immediately surrounding the well as is reasonably necessary for his operations including the installations of tanks, other surface equipment, and slush pits. Brown v. Lundell, 344 S.W.2d 863, 866–67 (Tex. 1961);Ottis, 569 S.W.2d at 513. Moreover, the mineral owner or lessee may construct production, storage, transportation, and housing facilities as reasonably necessary to develop the mineral estate. Joyner,134 S.W.2d at 759–60. The Joyner court held that the housing facilities could be understood to be reasonably necessary to protect the production equipment at night. Id. at 760.

In contrast, at least one case illustrates a fact-finding that a well location was unreasonable.Reading & Bates Offshore Drilling Co. v. Jergenson, 453 S.W.2d 853, 855–56 (Tex. Civ. App.—Eastland 1970, writ ref’d n.r.e.). In Jergenson, a mineral lessee drilled a well on the edge of an ensilage pit used for cattle feeding purposes. The location also breached an express lease provision prohibiting drilling within 200 feet of existing structures, and was drilled despite the protests of the surface owner. The proximity to the pit and existing structures ruined the cattle feeding operation and devalued the surface estate. Not only did a jury find the well location to be unreasonable use, but it found the choice of location to be made “wilfully and deliberately, over plaintiffs’ protest, and in utter disregard of plaintiffs’ property rights.” 855–56. It awarded both economic and exemplary damages to the surface owner. As reasonableness of a surface use is a fact question, the appeals court found the trial evidence sufficient to affirm the jury finding.

Additionally, a number of cases specifically address the construction and use of pipeline across the surface, usually involving pooling situations. Compare Delhi Gas Pipeline Corporation v. Dixon, 737 S.W.2d 96 (Tex. App.—Eastland 1987, writ denied) and Miller v. Crown Cent. Petroleum Corp., 309 S.W.2d 876 (Tex. Civ. App.—Eastland 1958, writ dism’d by agr.)(each holding that surface pipeline was reasonably necessary to develop mineral estate, even in pooling situations) withRobinson v. Robbins Petroleum Corp., 501 S.W.2d 865, 867–68 (Tex. 1973) (holding that to the extent pipeline benefited other pooled tracts, it was unreasonable use). Another issue related to pooling situations that, to the author’s knowledge, has not yet been addressed in Texas law is whether a mineral owner may store production from other tracts on the surface. For a thorough discussion of pooling issues, see Rick D. Davis, Jr., Accommodation Doctrine, University of Texas School of Law’s 32nd Annual Ernest E. Smith Oil, Gas & Mineral Law Institute Conference 51–53 (March 31, 2006).

Seismic and Geophysical Operations. The right to conduct seismic or geophysical operations is implied within the mineral owner’s right to use the surface as reasonably necessary to develop the minerals. Wilson v. Texas Co., 237 S.W.2d 649, 650 (Tex. Civ. App.—Fort Worth 1951, writ ref’d n.r.e.); Yates v. Gulf Oil Corp., 182 F.2d 286, 289 (5th Cir. 1950);Phillips Petroleum Co. v. Cowden, 241 F.2d 586, 590 (5th Cir. 1957).When the estates are severed, the right to conduct seismic and geophysical exploration is solely that of the mineral estate and may not be conducted or transferred by the surface owner. Wilson, 237 S.W.2d at 650; Phillips, 241 F.2d at 590. Most modern leases contain provisions addressing seismic and geophysical operations; so, as always, it is important to review the documents to determine any contractual modifications to this right. See, e.g. Wilson, 237 S.W.2d at 650.

Timing and Notice of Drilling. In Robinson Drilling Co. v. Moses, a mineral lessee was not liable to the surface owner for damages caused by beginning drilling operations before the surface owner could harvest his crop. Robinson Drilling Co. v. Moses, 256 S.W.2d 650, 652 (Tex. Civ. App.—Eastland 1953, no writ). Another court has also held that a mineral owner does not need to provide the surface owner with advanced notice of drilling operations.Parker v. Texas Co., 326 S.W.2d 579, 583 (Tex. Civ. App.—El Paso 1959, writ ref’d n.r.e.). Of course, to avoid disputes, it is advisable to notify the surface owner of any planned surface use.

Use of Surface Water. A mineral owner has the right to take water as reasonably necessary to develop the mineral estate. Stradley v. Magnolia Petroleum Co., 155 S.W.2d 649 (Tex. Civ. App.—Amarillo 1941, error ref’d). Although reasonable use of surface water may include its use for secondary recovery, Sun Oil Co. v. Whitaker, 483 S.W.2d 808 (Tex. 1972), this right has been regulated by statute. See Texas Water Code Ann. § 27.0511. Moreover, the use of water to benefit the mineral estates of other tracts has been found unreasonable. Robinson v. Robbins Petroleum Corp., 501 S.W.2d 865, 867–68 (Tex. 1973).

Conflicting Use (Due Regard)
In scenarios where the surface owner has an existing use of the surface and the mineral owner’s use or proposed use interferes with that existing use, the accommodation doctrine applies. In contrast to the focus on reasonable necessity in the conflicting rights cases, the accommodation doctrine cases emphasize the “due regard” aspect of reasonable use. This section is particularly relevant in the present litigation climate, as surface owners often claim an existing use or a planned existing use, regardless of whether an actual use of the surface exists.

Overview of the Accommodation Doctrine. Cases dealing with conflicting use employ a particular judicially created standard to determine reasonable use that goes beyond the simple reasonable use inquiry of conflicting rights cases. The accommodation doctrine, also known as the “alternative means” doctrine, places the burden of proof on the surface owners to demonstrate that (1) their use preexisted the mineral owner’s conflicting use; (2) the preexisting use is their only reasonable means of developing the surface; and (3) the mineral owner has other options that (a) would not interfere with the surface owner’s preexisting use, (b) are reasonable (including economic reasonableness), (c) are practiced in the industry on similar lands put to similar uses, and (d) are available on the premises.Getty Oil Co. v. Jones, 470 S.W.2d 618 (Tex. 1971); Sun Oil Co. v. Whitaker, 483 S.W.2d 808 (Tex. 1972); Tarrant County Water Control & Improvement Dist. No. One v. Haupt, Inc., 854 S.W.2d 909 (Tex. 1993).

Case Law on the Accommodation Doctrine. The Texas Supreme Court first articulated the accommodation doctrine in Getty Oil Co. v. Jones, 470 S.W.2d 618, 621 (Tex. 1971).Few cases dealing with conflicting use have been decided by the Texas Supreme Court since. Therefore, it is instructive to examine these cases in detail as well as certain cases at the appellate level.

In Getty, 470 S.W.2d at 621, 628, the surface owner, Jones, purchased land subject to a mineral lease held by Getty. Jones installed a self-propelling irrigation system, which consisted of numerous pivot heads, to aid his surface use of farming the tract. These pivot heads could only clear surface obstructions at a height of seven feet. Four years later, Getty, which had been previously exploring a different area of the tract, drilled two wells and installed pumping units in the vicinity of Jones’s farming operation. These units were 17 and 34 feet high, respectively, and blocked the trajectory of many of the irrigation pivot heads. Jones sought an injunction barring Getty from its use of the pumping units, arguing that it was not reasonably necessary for Getty to use those types of units.

In its decision to require Getty to replace the pumping units to accommodate Jones, the Texas Supreme Court emphasized the concept of due regard for the rights of the surface owner. Id. at 622. The court acknowledged that often “[t]here may be only one manner of use of the surface whereby the minerals can be produced. The lessee has the right to pursue this use, regardless of surface damage.” Id. However, the court found that where there is an existing use by the surface owner that would otherwise be precluded or impaired, and where under the established practices in the industry there are alternatives available to the lessee whereby the minerals can be recovered, the rules of reasonable usage of the surface may require the adoption of an alternative by the lessee. Id.

The opinion on rehearing included a “postscript” reaffirming the dominance of the mineral estate. After noting the fact-intensive nature of the “reasonable use” inquiry, the court clarified the accommodation doctrine test. Id. at 627–28. First, the surface owner must prove that his existing use is the only reasonable means of developing the tract. Id. at 628. Second, the surface owner must prove that reasonable, non-interfering alternatives are available to the mineral owner. Id. If the surface owner cannot prove each of these, the mineral owner is not required to accommodate surface owner’s use. Id.

Just one year after its decision in Getty v. Jones, the Texas Supreme Court further limited the scope of the accommodation doctrine. See Sun Oil Co. v. Whitaker, 483 S.W.2d 808 (Tex. 1972).In Sun Oil, the court held that only alternatives available to the mineral owner or lessee on the leased premises could be considered reasonable for the purpose of accommodation. Id. at 812.The decision limits the applicability of the accommodation doctrine and reaffirms the dominance of the mineral estate.

The Waco Court of Appeals recently applied the test of economic reasonableness, first set out in Tarrant County Water Control & Improvement District No. One v. Haupt, Inc., 870 S.W.2d 350 (Tex. App.—Waco 1994, no writ) (Haupt II), to determine a mineral owner’s duty to accommodate by directional drilling. Texas Genco, LP v. Valence Operating Co., 187 S.W.3d 118 (Tex. App.—Waco 2006, pet. denied) (Genco I). In Genco I, the appeals court considered whether a mineral lessee was required to accommodate the existing surface use of landfill operations by an energy company. The energy company, Genco, had established a plan to use a tract of land as a landfill, which it filed in the county deed records. 120. The tract had been divided into cells, which were variously used as actual landfills. 121. The mineral lessee, Valence, obtained a permit to drill a straight hole well on one of the cells from which Genco was mining clay and in which it was storing topsoil for the landfill operation. Id.According to Genco’s plan, the cell would soon be put to use as a landfill.Id.Genco presented evidence that if Valence drilled in the cell it proposed, the remaining lifespan of the entire landfill operation would be reduced from 11 years to just 7 years. Id.

At trial, the jury considered three questions rather than a broad-form jury charge. 123. The first question asked whether Genco, the surface owner, had an existing use, to which the jury answered affirmatively. Id.The jury also answered the second question affirmatively, which asked whether Valence had a reasonable, industry-accepted alternative. Id.However, the jury answered no to the final question, which asked whether the straight hole well proposed by Valence would be an unreasonable use. Id.Based on this last answer, the trial court found for Valence, the lessee. Id.

On appeal, however, the court found that the third question was a superfluous question seeking a legal conclusion. 125. The appeals court held that the jury’s affirmative answers to the first two questions established a duty for the mineral owner to accommodate the existing surface use. To determine that directional drilling was a reasonable alternative, the court looked to a number of factors, emphasizing economic reasonableness. Id.First, the court noted its statement in Haupt that directional drilling was a “generally established” method of production. Id.Second, the court found Genco’s evidence that Valence’s cost estimates for directional drilling were too high sufficiently supported the jury finding. Id. at 125. Finally, the court looked at the costs relative to the estimated value of the reserve.Id.The court reversed the lower court and rendered judgment for Genco, the surface owner.Id.

Two years later, in 2008, the same court considered a similar appeal between the same parties based on the same underlying facts. Valence Operating Co. v. Texas Genco, LP, 255 S.W.3d 210 (Tex. App.—Waco 2008, no pet.)(Genco II). Two points in Genco II are particularly notable. First, the court upheld the jury finding of a duty to accommodate Genco’s “existing use” of a cell that was arguably not actually being used at the time of proposed drilling. Id. at 218–19. Second, Valence argued that the offered accommodations were off the premises and, pursuant to Sun Oil, were necessarily unreasonable. Id. at 216–17. The court declined to address the issue of whether accommodations off the premises are per se unreasonable, as it found that Genco had offered reasonable accommodation on the premises. Id. at 217. However, the court suggested in dicta that Sun Oil might be distinguishable where the question concerned drilling off the premises, as opposed to importing water from off the premises. Id. at 217 n.7. If a court were to read Sun Oil as narrowly concerning the use of water, it would dangerously broaden the scope of the accommodation doctrine for mineral owners.

As the most recent example of conflicting use, it is impossible not to turn back to the Gencocases. Although the cases may have some negative implications for mineral owners and lessees, they also encompass many of the issues facing the industry in the future. TheGenco cases also illustrate how drilling technology affects the test of reasonableness. Directional drilling is less expensive than it was at the time Haupt was decided. If Haupt took place today, it is likely that, even with present energy prices, directional drilling would have been reasonable. Also, remember in Haupt that directional drilling was, in fact, attempted, but failed. Today, it is much more likely that technology would have made such drilling possible. How will improvements over the next 25 years affect the determination of reasonableness?

Technology has also aided surface owners’ ability to prosecute claims. Information on the law and the rights of surface owners is readily available on the Internet. Additionally, many surface owners have found each other over the Internet and inexpensively organized with websites dedicated to helping other surface owners in their community. Knowledge and numbers have given surface owners more leverage in negotiation and litigation. Certainly, this has and will continue to affect mineral development.

A final point that has not been fully discussed thus far regards negotiation. Sometimes, but not always, it is in a mineral owner’s best interest to settle early with the surface owner. More often than not, a mineral owner has a right to use the surface without liability. Nonetheless, an early offer for a small but reasonable amount goes a long way in terms of keeping everyone happy. The price is likely to be lower at an early stage, and settling early allows the mineral owner to assess the cost of drilling without an uncertain variable. Besides, in Texas, people appreciate good neighbors.

Eugene M. Nettles is a partner with Porter & Hedges LLP, Houston, Texas. He thanks Sanjay K. Minocha for his assistance in the preparation of this article.

Copyright © 2011, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).