Tuesday, August 23, 2016

Texas Mineral Estates, Groundwater Rights, Surface Usage and the “Accommodation Doctrine”

Land ownership includes two separate estates in land – the surface estate and the mineral estate.  The mineral estate can be severed from the surface estate with the result that ownership of the separate estates is in different parties.  In some states, the mineral estate is dominant.  That means that the mineral estate owner can freely use the surface estate to the extent reasonably necessary for the exploration, development and production of the minerals beneath the surface.  If the owner of the mineral estate has only a single method for developing the minerals, many courts will allow that method to be utilized without consideration of its impact on the activities of the surface estate owner.  See., e.g., Merriman v. XTO Energy, Inc., 407 S.W.3d 244 (Tex. 2013).  But, under the accommodation doctrine, if alternative means of development are reasonably available that would not disrupt existing activities on the surface those alternative means must be utilized.  For example, in Getty Oil co. v. Jones, 470 S.W.2d 618 (Tex. 1971), a surface estate owner claimed that the mineral estate owner did not accommodate existing surface use.  To prevail on that claim, the Texas Supreme Court, determined that the surface owner must prove that the mineral estate owner’s use precluded or substantially impaired the existing surface use, that the surface estate owner had no reasonable alternative method for continuing the existing surface use, and that the mineral estate owner has reasonable development alternatives that would not disrupt the surface use.  A question left unanswered in the 1971 decision was whether the accommodation doctrine applied beyond subsurface mineral use to the exercise of groundwater rights.  Recently, the Texas Supreme Court answered the question.

The recent case involved a 26,000-acre cattle ranch with some irrigated cropland as the plaintiff. The ranch sits atop the Ogallala aquifer in northwest Texas. The defendant, the city of Lubbock, Texas, bought groundwater rights from the plaintiff in 1953 and the plaintiff deeded its groundwater to the defendant with the reserved right in the plaintiff to use groundwater for domestic wells, livestock watering, oil and gas production and irrigation for agricultural purposes. The defendant had the right of ingress and egress to drill water wells and test existing wells. The defendant also had the right to use as much of the ranch as necessary to take, produce, treat, transmit or deliver groundwater. The defendant also had the right to construct water lines, fuel lines, power lines, access roads and anything else incidental to accessing and making use of its water right. For those rights, the defendant was to pay rent for any surface area that its facilities occupied. The defendant also was required to pay for surface property damages it caused and was required to install gates and cattle guards for roads.

In 2012 the defendant announced its intent to drill 20 test wells and up to 60 additional wells on the ranch. Until that time, the defendant had only drilled seven wells. The plaintiff sought to enjoin the defendant from drilling more wells on the basis that, under common law, the defendant could only use so much of the surface that was reasonably necessary to its operations and then only with due regard to the plaintiff’s rights with respect to the surface – the “accommodation” doctrine. The defendant asserted that its rights under the deed language controlled and that the accommodation doctrine only applied to mineral owners (e.g., oil and gas) as opposed to water. The trial court applied the accommodation doctrine and issued the injunction. The result was that the defendant had to stop drilling test wells without going over potential negative impacts on the ranch with the plaintiff. The defendant was also enjoined from erecting power lines to proposed well fields. On appeal, the court of appeals reversed, noting that the accommodation doctrine had never been extended to groundwater. The plaintiff appealed.

The Texas Supreme Court reversed the appellate court and held that the accommodation doctrine applied to groundwater. Thus, the doctrine would apply in situations where the owner of the groundwater impairs an existing surface use, the surface owner has no reasonable alternative to continue surface use, and the groundwater owner has a reasonable way to access and produce water while simultaneously allowing the surface owner to use the surface. The Court held that the deed language governed the rights of the parties, but that the deed didn’t address the core issues presented in the case. For example, the Court determined that the deed was silent on the issue of where drilling could occur and the usage of overhead power lines and facilities associated with water development. The Court determined that water and minerals were sufficiently similar such that the accommodation doctrine should also apply to water – both disappear, can be severed, subject to the rule of capture, etc. The court also concluded that groundwater estates severed from the surface estate enjoy an implied right to use as much of the surface as is reasonably necessary for the production of groundwater. The Court also extended the accommodation doctrine to the owner of the groundwater right. Thus, unless the parties have a written agreement detailing all of the associated rights and responsibilities of the parties, the accommodation doctrine would apply to resolve disputes and sort out rights. The Court lifted the injunction that had been imposed against the defendant.

A concurring opinion believed that the deed language was clear as to the location of well drilling and the accommodation doctrine would not apply as to well location. However, as to access roads and power lines, the concurrence opined that the deed was unclear and the accommodation doctrine would apply.

I asked David Pierce, a professor of law at Washburn School of Law to add his thoughts on the Texas case for today’s blog post.  David is the Norman R. Pozez Chair in Business and Transactional Law and is the Director of the Oil and Gas Center.

Here are Professor Pierce’s comments:

Although something called accommodation doctrine sounds fair and reasonable, the Texas oil and gas version of the doctrine has been used to simply take rights away from the easement owner and give them back to the servient estate owner. Two aspects of the doctrine cause the problem. First, "existing" use is a moving target. In Texas surface owners have been able to assert new uses to further reduce the mineral developer's rights. Second, "accommodate" means the dominant estate owner must pay to accomplish the accommodation. For example, it was the oil and gas lessee in the Getty Oil Co. v. Jones case that had to pay the cost of putting its pump jacks into concrete cellars to accommodate the center pivot irrigation system.

As one looks for fairness in this area they should consider the Restatement (Third) of Property: Servitudes where a limited accommodation right is recognized -- but it is the servient estate owner that must pay for the extra expense associated with the accommodation.

The accommodation doctrine is not designed to substitute for common sense reasonableness when the dominant estate owner has two clear options for doing something that involve the same cost. If one option is more disruptive to the surface owner, inherent limits of reasonable use dictate use of the less disruptive option.

These issues typically arise with "floating easements" where the mineral owner has an easement to use the surface to develop without any further specification. Accommodation is less likely an issue when the easement holder has more precise rights. For example, if it would have been specified in the Coyote document that the water owner could drill one well in the center of each acre of land the accommodation doctrine would not have been triggered -- as to the number of wells.

When the mineral owner is required to accommodate -- at the servient estate owner's expense (as required by the Restatement) -- it avoids having the servient estate owner triggering accommodation claims merely to get back some of the rights it sold when the easement was created.

The case is Coyote Lake Ranch, LLC v. City of Lubbock, No. 14-0572, 2016 Tex. LEXIS 415 (Tex. Sup. Ct. May 27, 2016).


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