Operating v. Hegar

• Decision Date: 07 March 2013
• Docket Number: No. 01–10–00350–CV.,01–10–00350–CV.
• Citation: 403 S.W.3d 318
• Parties: KEY OPERATING & EQUIPMENT, INC., Appellant v. Will HEGAR and Loree Hegar, Appellees.
• Court: Texas Court of Appeals

403 S.W.3d 318

KEY OPERATING & EQUIPMENT, INC., Appellant

v.Will HEGAR and Loree Hegar, Appellees.

No. 01–10–00350–CV.

Court of Appeals of Texas, Houston (1st Dist.).

Jan. 7, 2013.

Dissenting Opinion on Rehearing March 7, 2013.

Bryan Franklin Russ Jr., Molly A. Hedrick, Palmos, Russ, McCullough & Russ, L.L.P., Hearne, TX, for Appellant.

Mark C. Harwell, Cotham, Harwell & Evans, Houston, TX, for Appellees.

Panel consists of Chief Justice RADACK and Justices SHARP and BROWN.

OPINION ON REHEARING ¹

HARVEY BROWN, Justice.

A mineral estate owner has an implied easement for reasonable use of the surface estate in developing and extracting the minerals below. In this appeal, we decide what happens when a mineral estate owner, Key Operating & Equipment, Inc., wants to use that easement to extract minerals from several mineral estates that it pooled together after the surface estate was severed from the mineral estate. Key Operating appeals from the trial court's injunction in favor of Will and Loree Hegar, the current owners of the surface estate, which prohibits Key Operating from using the road on their property to produce oil from a neighboring property. We affirm.

BACKGROUND

Key Operating ² operates wells and produces oil in and around Washington County,Texas, including two neighboring tracts of land referred to as the Richardson tract and the Rosenbaum–Curbo tract. Since 1987, Key Operating ³ has operated wells on the Richardson tract pursuant to an oil and gas lease. From 1987 through 1994, Key Operating used a road on land owned by the Ullrich family to access its operations on the Richardson tract. In 1994, Key Operating obtained an oil and gas lease on the Rosenbaum–Curbo tract—which abuts the Richardson tract—from Randy Boatright. After acquiring the lease on the Rosenbaum–Curbo tract, Key Operating built a road across the Curbo tract, which is a subpart of the larger Rosenbaum–Curbo tract, ⁴ and began using the road to operate the wells located on both the Curbo and Richardson tracts. Key Operating has used that road for its oil production on these tracts from 1994 until the present.

When the well on the Curbo tract stopped producing around 2000,⁵ Key Operating's lease on the Rosenbaum–Curbo tract terminated. At that time, Key Operating's owners, brothers Thomas and Kenneth Key, acquired Randy Boatright's one-sixteenth interest in the Curbo tract mineral estate. The Key brothers then leased their interest in the Curbo tract to Key Operating.⁶ The Key brothers' lease allowed for pooling, and in 2000, Key Operating pooled its mineral interests in the Richardson and Curbo tracts. The 40–acre pooled unit (the Richardson–Curbo pool) is comprised of 30 acres from the Richardson tract and 10 acres from the Curbo tract. Key Operating produces from the Richardson–Curbo pool via wells located on the Richardson tract, which it accesses using the road across the Curbo tract.

In 2002, the Hegars purchased the surface estate and a one-fourth mineral interest in the Curbo tract from Charles Curbo. The Hegars knew when they bought the property that it was subject to oil and gas leases and that Key Operating used the road on the tract to service wells on the adjoining Richardson tract. The Hegars themselves currently use the road to access the home they built on the property. They tolerated Key Operating's use of the road until Key Operating drilled a new well on the Richardson tract that increased its use of the road. Will Hegar testified, “We're trying to raise a family and we can't do it with a highway going through our property.”

In December 2007, the Hegars sued Key Operating for trespass and sought a permanent injunction against Key Operating's continued use of the road. The parties contested the nature of Key Operating's operations at trial. According to the Hegars, none of the oil Key Operating produces from the Richardson–Curbo pool is actually from the Curbo tract. They assert that Key Operating merely pooled the Curbo and Richardson leases to provide a basis for continuing to use the road on the Curbo tract to access its wells on the Richardson tract. According to Key Operating, the oil under the Curbo tract is migrating toward the Richardson tract as a result of the slope of a salt dome and the push of water below the surface, and this is the reason Key Operating pooled the leases and produces from both tracts via wells on the Richardson tract.

After a bench trial, the court permanently enjoined Key Operating from using the Hegars' surface, including the roadway, “for any purpose relating to the extraction, development, production, storage, transportation, or treatment of minerals produced from an adjoining” tract. The trial court filed findings of fact and conclusions of law at Key Operating's request, and this appeal ensued.

Standing

In its second issue, Key Operating argues that the Hegars lack standing to complain about the formation of the Richardson–Curbo pool because they are not parties to the Curbo lease. The Hegars, however, are not challenging the formation of the pool. Rather, they contend that Key Operating has no right to use the surface of their tract to benefit another tract, even if all or a portion of those tracts are pooled together. As the surface estate owners, the Hegars have standing to bring this action for trespass on their property.

Key Operating's Surface Rights

In its first issue, Key Operating contends that the trial court erred by enjoining Key Operating from using the surface of the Curbo tract. Key Operating contends that it has the right to full use of the road across the Hegars' property to access its wells on the Richardson tract by virtue of its lease and pooling agreement, and therefore it cannot be a trespasser and the court's order enjoining it from use of the road is in error. More specifically, Key Operating argues that because its lease not only authorizes it to create pooled units, but also expressly recites that the acreage constituting such units shall be treated as if those acres were included in the lease, the lease terms allow Key Operating to use the surface of the Curbo tract to produce and remove minerals from that tract, as well as adjacent properties, so long as those other properties have been pooled with all or some of the Curbo tract.⁷

The Hegars do not dispute that Key Operating has the right to use the road across their property to produce minerals from the Curbo tract alone, but they dispute that Key Operating may use the road to produce from the pool. They further contend that Key Operating's surface rights would extend to the pooled area only if the lease authorizing pooling had been executed on or before the date the mineral estate was severed from the surface estate, but Key Operating's lease and pooling agreement was executed after the mineral estate was severed from the surface.⁸ Specifically, they assert that the Keys' lease to Key Operating is not in their chain of title; thus, they did not take their title subject to the lease and their interest in the surface is not limited by it. According to the Hegars, Key Operating's use of the surface estate “is limited to those rights that existed whenever the Boatright mineral estate was first severed, which was before [their] purchase [of the surface estate] and before the creation of the Key oil and gas lease and pooling agreement.”

We agree in part and disagree in part. Specifically, we agree that Key Operating's lease and pooling agreements, which are not part of the Hegars' chain of title and to which they did not agree, cannot contractually expand Key Operating's right to use the Hegars' surface. But we disagree that Key Operating's surface rights necessarily exclude production from other tracts that have been pooled with the Curbo tract. We conclude that Key Operating has the same surface rights it has always had: the right to use the surface of the Curbo tract to produce oil from beneath the surface, regardless of whether that oil is comingled with oil from other tracts. Thus, Key Operating's right to use the road depends on the outcome of its third issue on appeal: whether the evidence is sufficient to support the trial court's finding that Key Operating is not producing any oil from the Curbo tract.

A. The Hegars are not bound by Key Operating's lease or pooling agreement

The pooling of an oil and gas lease is a matter of contract, and the terms of a pooling agreement are interpreted according to general contract law. See Wagner & Brown, Ltd. v. Sheppard, 282 S.W.3d 419, 424 (Tex.2008); Tittizer v. Union Gas Corp., 171 S.W.3d 857, 860 (Tex.2005). “The primary legal consequence of pooling is that production and operations anywhere on the pooled unit are treated as if they have taken place on each tract within the unit.” Se. Pipe Line Co. v. Tichacek, 997 S.W.2d 166, 170 (Tex.1999); see Southland Royalty Co. v. Humble Oil & Ref. Co., 151 Tex. 324, 249 S.W.2d 914, 916 (1952). When mineral interests are properly pooled, all interest holders in the pool are entitled to their proportionate share of the pool's production, regardless of where the well is drilled. Samson Lone Star, Ltd. P'ship v. Hooks, 389 S.W.3d 409, 431 (Tex.App.-Houston [1st Dist.] 2012, no pet.) (op. on reh.) (citing London v. Merriman, 756 S.W.2d 736, 739 (Tex.App.-Corpus Christi 1988, writ denied)).

Generally, a mineral lessee's implied surface easement extends to the surface of a pooled area. Prop. Owners of Leisure Land v. Woolf & Magee, Inc., 786 S.W.2d 757, 760 (Tex.App.-Tyler 1990, no writ) (citing Delhi Gas Pipeline Corp. v. Dixon, 737 S.W.2d 96 (Tex.App.-Eastland 1987, writ denied); Miller v. Crown Cent. Petroleum Corp., 309 S.W.2d 876 (Tex.Civ.App.-Eastland 1958, writ dism'd by agr.)). The Hegars contend that this principle does not apply here, however, because the pooling agreement was entered into after the surface and mineral estates were severed and because they are not parties to the pooling...