You Own the Oil. Do You Own the Rock?

Originally published by Charles Sartain.

Posted by Charles Sartain

Riddle: What’s the difference between a hydrocarbon molecule and the underground structure which the molecule inhabits?

Answer: In Texas, you can own one and not the other, according to Lightning Oil Co. v. Anadarko E&P Onshore LLC.

Dueling Estates

This was a subsurface trespass case between lessees on two adjacent mineral estates. The Cutlass lease, owned by Lightning, is a severed mineral estate under a portion of the Briscoe Ranch. Anadarko leased the mineral estate under the Chaparral Wildlife Management Area, adjacent to the Briscoe Ranch. Anadarko had a Surface Use and Subsurface Easement Agreement with the surface owner Briscoe Ranch to place a drilling rig on the surface estate and drill vertically under the Briscoe Ranch before deviating to go horizontal to bottom the well on the CWMA lease.

Flawed Arguments

Lightning argued, first: Anadarko had no right to drill through the Cutlass lease to the CWMA lease. Lightning’s mineral estate included the right to exclude others from the estate and thus, Anadarko was committing an ongoing trespass. Lightning’s leasehold interest is a separate, real interest amounting to a defeasible title to the oil and gas in the ground. The court construed that to mean that Lightning claiming to own the oil and gas and the ground. The court then asked: Who owns the earth in which the mineral estate is contained?

Second: An oil and gas lease typically entitles the lessee to the “exclusive right” to drill wells on the leasehold. Yes, but the authorities cited by Lightning did not convey to the lessee the exclusive right to control the subterranean structures within the boundaries circumscribing the lease.

Third: What about trespass from subsurface seismographic surveys? What about it? That could be a trespass, except that there was no evidence that Anadarko conducted a seismographic survey of Lightning’s mineral estate.

Lightning had other arguments, which were dismissed.

Here’s the Point

Texas law construes a surface estate to mean portions of the earth over which the surface estate owner holds dominion after severance of a mineral estate. Ownership of hydrocarbons does not give ownership of the earth surrounding them. Conveyance of mineral rights does not convey the entirety of the subsurface. Because Lightning did not own the structure under the earth in which the hydrocarbon molecules may lay, it did not own or control the earth surrounding those molecules.

Lightning had no legal right to prevent Anadarko from drilling through the earth within the boundaries of the Cutlass lease. Anadarko needed only Briscoe Ranch’s permission to drill.

Another Claim Going Nowhere

Lightning also sued for tortious interference with its lease. One defense to such a claim is that a defendant may justify its actions based on the exercise of either its own legal rights or a good faith claim to a colorable legal right. Proving that a claim for tortious interference sounds a lot scarier than it really is, the court believed that Anadarko was justified in drilling through the Cutlass lease to get to the CWMA lease. As a matter of law Anadarko could not commit a trespass by traversing subterranean structures in which Lightning’s hydrocarbon molecules may lie.

Anadarko’s musical tribute to the court

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.

from Texas Bar Today http://ift.tt/1IIPQq8
via Abogado Aly Website