Humble Oil & Refining Co. v. West

• Decision Date: 24 April 1974
• Docket Number: No. B--4132,B--4132
• Citation: 508 S.W.2d 812
• Parties: HUMBLE OIL AND REFINING COMPANY, Petitioner, v. Wesley WEST et al., Respondents.
• Court: Texas Supreme Court

Page 812

508 S.W.2d 812

HUMBLE OIL AND REFINING COMPANY, Petitioner, v. Wesley WEST et al., Respondents.

No. B--4132.

Supreme Court of Texas.

April 24, 1974.

Rehearing Denied June 5, 1974.

McGinnis, Lochridge & Kilgore, Robert C. McGinnis, Austin, Walter B. Morgan, Dillard W. Baker, Talbert J. Fox and J. Lamar Hart, Houston, for petitioner.

Stayton, Maloney, Black, Hearne & Bobb, John W. Stayton, Austin, for respondents.

STEAKLEY, Justice.

This is a suit by West, et al., Respondents, who are royalty owners, for injunction and, in the alternative, for declaratory judgment. The action is brought against Humble Oil and Refining Company, Petitioner, the fee owner of the gas field and mineral rights, subject to the royalty interests. The problem arises from Humble's action of injecting extraneous gas into the underground reservoir, for purposes of storage, prior to production of all the recoverable native gas. The history of the matter will be recited in some detail.

The Wests, by fee simple conveyance dated December 28, 1938, deeded all lands owned by them in the West Clear Lake (Frio) gas field in Harris County, Texas, to Humble. Each conveyance recited that the Wests 'except from this conveyance and retain unto themselves, their heirs, successors and assigns, those certain royalties on oil, gas and other minerals which may be produced and saved from the lands hereby conveyed.' Insofar as gas is concerned, the retained royalty was described as 'a royalty equal to the market value at the well of one-sixth (1/6) of the dry gas so sold or used; provided that on such dry gas sold at the wells the royalties shall be one-sixth (1/6) of the amount realized from such sale.'

The West Clear Lake Field, a water drive field, has been producing gas since 1938. In 1969, Humble concluded that the reservoir was approaching depletion and that the injection of extraneous gas was necessary to preserve the reservoir from destruction by water encroachment. In response to Humble's application, and after a hearing on September 23, 1969, at which the Wests appeared in opposition, the Railroad Commission of Texas, under date of January 20, 1970, authorized use of the reservoir for the storage of gas. There was no appeal from this order.

On March 26, 1970, the Wests instituted this suit against Humble for permanent injunction, i.e., 'that upon final trial hereof defendant be enjoined from using the Clear Lake, W. (Frio) Field, Harris County, Texas, as a gas storage reservoir until all the native gas therein has been produced.' In the alternative, the Wests sought a 'declaratory judgment decreeing that if defendant uses said reservoir as a gas storage reservoir, defendant must account to plaintiffs for their royalty interests in all gas produced from said reservoir irrespective of whether said produced gas be native gas or stored gas.'

Humble commenced the injection of extraneous gas on September 1, 1970. In response to the Wests' suit, Humble's first amended answer, filed June 2, 1972, alleged that before commencement of the gas storage project, it had produced 89% Of the recoverable gas reserves in the reservoir and that production of the remaining recoverable gas would have resulted in destruction of the reservoir's gas storage capability. Further, in answer, Humble committed itself to continue to pay royalties on production from the reservoir 'until, but only until, the total volume of all gas so produced from the particular tract is equal to the volume of gas in place in the reservoir in such tract above the gas-water contact as of January 1, 1969, terminating all royalty payments as to such tract in such reservoir when such production has occurred.'

Under date of September 18, 1972, and after a trial before the Court, judgment was entered denying the prayer of the Wests for permanent injunction but decreeing (t)hat defendant must account to plaintiffs for their royalty interests in all gas produced from the tracts in which they own royalty interests in the Clear Lake W. (Frio) Field, Harris County, Texas, irrespective of whether said produced gas be native gas or stored gas.'

Upon appeal by all parties, the Court of Civil Appeals reversed the judgment of the trial court and remanded the cause, with instructions 'to enter a permanent injunction restraining defendant from further injecting the field and using same as a gas storage reservoir until all native gas has been produced therefrom.' 496 S.W.2d 212. Writ of error was granted at the instance of Humble. We reverse and remand.

The initial and underlying problem to be solved is whether, under the contract between the parties and the existing circumstances, the Wests are entitled to enjoin Humble from injecting gas in the reservoir until all recoverable native gas has been produced. If not, we must then determine the rights of the parties under the Wests' alternative prayer that Humble account to them in royalty payments on all gas produced from the reservoir, whether native or stored.

As to the first issue, the Wests argue that prior writings of this Court establish principles which entitle them to injunctive relief. They cite Sheffield v. Hogg, 124 Tex. 290, 77 S.W.2d 1021 (1934), where this Court determined that in the context of property taxation, a royalty interest, whether payable in money or in kind, should be denominated an interest in land. See also Brown v. Smith, 141 Tex. 425, 174 S.W.2d 43 (1943); Watkins v. Slaughter, 144 Tex. 179, 189 S.W.2d 699 (1945). They emphasize that one in the position of Humble is required not only to produce and market gas from the tract found in paying quantities, W. T. Waggoner Estate v. Sigler Oil Co., 118 Tex. 509, 19 S.W.2d 27 (1929); Knight v. Chicago Corp., 144 Tex. 98, 188 S.W.2d 564 (1945), but also to accurately measure such production and sales in order to accurately account to the royalty owner. French v. George, 159 S.W.2d 566 (Tex.Civ.App.--Amarillo 1942, writ ref'd); Brown v. Smith, Supra. Thus, the Wests contend that the proprietary and contractual rights arising from their royalty interest translate into certain absolute rights in the native gas now in the reservoir, under which they are entitled to total production of all native gas prior to utilization of the reservoir for storage of extraneous gas. Otherwise stated, it is their position that the nature of their royalty interest, coupled with their right to royalties on all native gas produced at market demand and sold at prevailing market prices, precludes any right in Humble to commingle gas in the reservoir, and that Humble's actions so impaired the rights of the Wests as to entitle them to enjoin further commingling. Additionally, they argue by analogy the applicability of the principle of awarding injunctive relief when one intentionally appropriates another's property interest by encroachment, Bickler v. Bickler, 403 S.W.2d 354 (Tex.1966), or when one is acting in violation of building restrictions. Weltol v. 40 East Oak Street Building Corp., 70 F.2d 377 (7th Cir. 1934) cert. denied 293 U.S. 590, 55 S.Ct. 105, 79 L.Ed. 685 (1934).

The nature of the respective property interests of the parties should first be noted. As stated, the Wests conveyed fee title to the lands but reserved 'royalties on oil, gas and other minerals which may be produced and saved from the lands hereby conveyed,' payable in money. Humble, on the other hand, owns the lands in fee simple, and this includes not only the surface and mineral estates, but also the matrix of the underlying earth, i.e., the reservoir storage space, subject only to the reserved right of the Wests to the payment of royalties on minerals that are produced and saved. See Emeny v. United States, 412 F.2d 1319, 188 Ct.Cl. 1024 (1969), where it was said that the surface of the leased lands remaining as the property of the respective landowners included the geological structures beneath the surface, together with any such structure that might be suitable for the underground storage of extraneous gas produced elsewhere. Indeed, the Wests do not challenge Humble's ownership of the reservoir and its right to utilize it for storage; instead, they direct their argument to the time at which, they say, the storage right accrues. They argue, in essence, that the exercise of such right by Humble is postponed by the royalty reservation until total depletion of all recoverable native gas from the reservoir.

It is manifest that the interests of the parties have come into conflict and are not fully compatible. Thus, we have again the recurring problem of adjusting correlative rights. The factual context is unique and there is no directly controlling precedent; however, this Court has led the way in conciliating conflicts between owners of the surface and of the mineral rights, and in requiring reasonable accommodations between them. See Robinson v. Robbins Petroleum Corp., 501 S.W.2d 865 (Tex.1973); Sun Oil Co. v. Whitaker, 483 S.W.2d 808 (Tex.1972); Acker v. Guinn, 464 S.W.2d 348 (Tex.1971); Getty Oil Co. v. Jones, 470 S.W.2d 618 (Tex.1971); Humble Oil & Refining Co. v. Williams, 420 S.W.2d 133 (Tex.1967); Railroad Commission v. Manziel, 361 S.W.2d 560 (Tex.1962); Brown v. Lundell, 162 Tex. 84, 344 S.W.2d 863 (1961); Warren Petroleum Corp. v. Monzingo, 157 Tex. 479, 304 S.W.2d 362 (1957); Warren Petroleum Corp. v. Martin, 153 Tex. 465, 271 S.W.2d 410 (1954). These writings and the principles which they establish are instructive here.

In Acker v. Guinn, Supra, we affirmed that it is not ordinarily contemplated in mineral leases or deeds that the utility of the surface will be destroyed or substantially impaired by the uses made of the surface for the production of minerals.

In Getty Oil Co. v. Jones, Supra, a dispute arose between the surface owner and the oil and gas lessee over rights to exclusive use of air space above the surface area occupied by oil pumping units required for production of the minerals. This...