by Thomas G. Ciarlone, Jr.
The first six months of 2017 have been chock full of major developments in the law surrounding oil and gas in Texas. In summary format, this article brings together a convenient digest of everything important that has happened so far this year.
Davis v. Mueller, No. 16-0155 (Tex. May 26, 2017). Here, the Texas Supreme Court considered an appeal that challenged, as ambiguous, a mineral conveyance that had been made on a county-wide basis (in other words, a mineral deed providing for the transfer of all the seller’s oil-and-gas interests in a specific county). Industry insiders had been closely monitoring the case. After all, to the extent it were held that all-encompassing, county-wide conveyances are invalid as a matter of law, the floodgates would open and unleash a torrent of mineral title litigation. Mercifully, the Texas Supreme Court ruled that county-wide mineral deeds are valid and enforceable. Leaving no room for doubt, Chief Justice Nathan Hecht wrote that, on its face, a county-wide conveyance “could not be clearer.” Justice Hecht then added, simply enough, that “all means all.”
Lightening Oil Co. v. Anadarko E&P Onshore, LLC, No. 15-0910 (Tex. May 19, 2017). In this case, the Texas Supreme Court decided whether drilling through a mineral estate—one which is not under lease by the driller—to access a reservoir beneath a bordering tract constitutes a form of trespass. The operator, Anadarko Petroleum, secured permission from the surface owner (of a tract adjacent to the company’s leasehold) to spud a well and drill directionally into the mineral estate “next door.” The owner of the mineral rights under the surface of the spud site, Lightning Oil, argued that Anadarko trespassed when it bored through Lightning’s mineral estate. The Texas high court affirmed decisions from the appellate and trial courts that had rejected Lightning’s claims. As the Texas Supreme Court sees it, the surface owner is presumptively the master of “the mass of earth undergirding the surface.” The Court did acknowledge that the appropriate test is nevertheless fact intensive, involving a careful balancing of the competing interests of all the involved parties. The fundamental inquiry is the extent to which the horizontal drilling will cause the unleased mineral owner to suffer a loss of oil and gas. In Lightning’s case, only a “small amount of minerals [was] lost through that process,” and, according to the justices, this is not enough to rise to the level of mineral trespass.
Denbury Green Pipeline-Texas, LLC v. Texas Rice Land Partners, Ltd., No. 15-0225 (Tex. Jan. 6, 2017). The Denbury Court clarified the standards under which a pipeline company can qualify as a common carrier for purposes of exercising eminent domain powers to seize private property to build a gas pipeline. Historically, a pipeline company would qualify as a common carrier simply by self-identifying on a Texas Railroad Commission form. That all changed in 2012, when the Texas Supreme Court handed down an opinion involving a Denbury Resources affiliate and a landowner defendant, Texas Riceland Partners. At that time, the Court held that “unadorned assertions of public use are constitutionally insufficient”; so, for example, the Court explained that merely registering as a common carrier does not conclusively convey the extraordinary power of eminent domain. The complicating factor with the 2012 decision was that the Court did not go so far as to articulate, affirmatively, the kind of conduct that would, in fact, allow a pipeline company to identify itself as a common carrier for purposes of condemnation.
Fast forward to 2017, and Denbury and Texas Riceland again found themselves in front of the Texas Supreme Court on the same issue. This time around, however, the justices did articulate a positive test for the kind of evidence that would allow a pipeline company to rise to the level of a common carrier in the context of exercising eminent domain powers. In particular, the Court concluded that the essential hurdle is whether the pipeline can show that it would serve the public interest by transporting gas “for one or more customers who will either retain ownership of their own gas or sell it parties other than the carrier.” It is important to note that in its 2017 decision, the Texas Supreme Court was clear that a pipeline company can make the required evidentiary showing after condemning private land and after constructing a gas pipeline. Put another way, the required showing of a public interest does not have to occur prior to the exercise of eminent domain powers, but can instead take place afterward—self-evidently a very positive development for the industry.
Tom Ciarlone, Jr. is a litigation partner at Kane Russell Coleman Logan PC. He can be reached at email@example.com.