The San Antonio Court of Appeals, in Lightning Oil Co. v. Anadarko E&P Onshore, LLC, [1] Opinion not yet published, San Antonio Court of Appeals (4th Dist.), August 19, 2014. held that a Texas oil and gas lease does not inherently convey a right for the lessee to control the “subterranean structures” from which hydrocarbons may be produced. As a result, the court held that the mineral lessee of a severed mineral estate did not have the right to exclude third-parties from constructing surface facilities on the surface overlying the lessee’s mineral estate and/or exclude third-parties from drilling wells through (but was not producing from) the lessee’s mineral estate. The Lightning court identified the “central question” as being the nature of Lightning Oil Co.’s (“Lightning”) interest as a mineral lessee. After reviewing cases from its own court and the Texas Supreme Court, among others, the Lightning court concluded that the surface estate owner, not the mineral estate owner, controls the earth beneath the surface estate.
Facts
Lightning owned an oil and gas lease which covered minerals underlying the Briscoe Ranch. In this case, Lightning filed suit to prevent Anadarko E&P Onshore, LLC (“Anadarko”) from constructing well pads on the Briscoe Ranch and from drilling through the earth within the boundaries of Lightning’s leasehold estate. Anadarko owned a lease adjoining Lightning’s lease; however, Anadarko had initially been unable to obtain a surface use agreement permitting it to construct well pads on the surface overlying its own mineral estate. Therefore, Anadarko sought out and obtained a surface use agreement from the neighboring Briscoe Ranch so that Anadarko could construct off-lease well sites on the Briscoe Ranch and then drill horizontally to its own mineral estate. Anadarko would not be permitted to produce the minerals under the Briscoe Ranch, which had already been leased to Lightning.
Anadarko’s plan included construction of surface facilities on the Briscoe Ranch and then drilling approximately 8,000 feet vertically before deviating its wellbores to travel horizontally to Anadarko’s own mineral estate. Lightning objected to Anadarko’s plans, arguing that Anadarko’s wellbores would be trespassing through Lightning’s mineral estate, asserting that Anadarko needed Lightning’s permission, not the surface owner’s permission, to drill wellbores through Lightning’s mineral estate.
Analysis and Holding
In the trial court, Anadarko moved for summary judgment on Lightning’s claims for trespass and tortious interference with contract. Its motion was granted by the 365th District Court in Webb County, Texas and final judgment was entered against Lightning. On appeal, the Lightning court affirmed the trial court’s judgment against Lightning, concluding that “Lightning does not own or control the earth surrounding any hydrocarbon molecules that may lie within the boundaries” of its lease. Further, the court found that, “[a]s the surface owner, Briscoe Ranch controls the surface and subsurface; it may grant Anadarko permission to site a well on its ranch, drill though the earth within the Boundaries of [Lightning’s leasehold estate], and directionally alter its wellbore into” Anadarko’s leasehold estate. While reaffirming that Anadarko may not lawfully produce minerals from Lightning’s mineral estate without Lightning’s permission, the Lightning court concluded that Anadarko, with Briscoe Ranch’s permission, may lawfully “penetrate the earth under the Briscoe Ranch to access Anadarko’s mineral estate . . . .” Finding that Anadarko obtained permission from the Briscoe Ranch, the Lightning court concluded that there was no evidence Anadarko committed a trespass and that any interference with Lightning’s lease was justified by the rights Anadarko acquired from Briscoe Ranch.
Notably, the Lightning court pointed out that the mineral estate leased by Lightning was severed prior to the execution of the lease. Based on the court’s reasoning, the owner of a severed mineral estate (in general) would not have the authority to control the subsurface geologic formations. Applying this reasoning, the Lightning court concluded that a lessee could not claim to have a right of control that the owner of a severed mineral estate did not own. The analysis may be different however where the surface and minerals are owned by the same party. Depending on the lease terms, if the owner of the surface and minerals executes a lease as lessor, an argument could potentially be available that the right to control the subsurface formations was conveyed to the lessee by the lease.
Chris Halgren
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Footnotes
