SWEPI LP v. RAILROAD COM'N OF TEXAS

• Decision Date: 11 May 2010
• Docket Number: No. 03-09-00425-CV.,03-09-00425-CV.
• Citation: 314 S.W.3d 253
• Parties: SWEPI LP, Appellant, v. RAILROAD COMMISSION OF TEXAS and Hidalgo County, Appellees.
• Court: Texas Court of Appeals

314 S.W.3d 253

SWEPI LP, Appellant, v. RAILROAD COMMISSION OF TEXAS and Hidalgo County, Appellees.

No. 03-09-00425-CV.

Court of Appeals of Texas, Austin.

May 11, 2010.

COPYRIGHT MATERIAL OMITTED

Dan Miller, McElroy, Sullivan & Miller, L.L.P., Austin, for Appellant.

Laura E. Miles-Valdez, Asst. Atty. Gen., Jamie Nielson, Austin, for Appellees.

Before Justices PATTERSON, PURYEAR and HENSON.

OPINION

JAN P. PATTERSON, Justice.

SWEPI LP appeals from the district court's judgment affirming final orders of appellee the Railroad Commission of Texas and granting the Commission's plea to the jurisdiction on SWEPI's declaratory claims.¹ In its final orders, the Commission approved two applications for "qualified subdivisions" pursuant to chapter 92 of the natural resources code and the Commission's companion rule 76. See Tex. Nat. Res.Code Ann. §§ 92.001-.007 (West 2001) ("chapter 92"); 16 Tex. Admin. Code § 3.76 (2009) (Tex.R.R. Comm'n, Commission Approval of Plats for Mineral Development) ("rule 76"). Because we conclude that the district court did not err in affirming the Commission's final orders and granting its plea to the jurisdiction, we affirm the district court's judgment.

BACKGROUND

Chapter 92 and Rule 76

We begin by providing a brief overview of the relevant statutory scheme and common law to give context to the parties' arguments. Under the common law, the mineral estate is dominant, and a mineral estate owner's right to develop includes an implied right to use the surface estate in ways reasonably necessary to carry out its operations as long as the operations are consistent with the common law requirement to reasonably accommodate the current uses of the surface. See Getty Oil Co. v. Jones, 470 S.W.2d 618, 621 (Tex.1971); Texas Genco, LP v. Valence Operating Co., 187 S.W.3d 118, 121-22 (Tex.App.-Waco 2006, pet. denied) (discussion of "accommodation doctrine"); Davis v. Devon Energy Prod. Co., 136 S.W.3d 419, 423-24 (Tex. App.-Amarillo 2004, no pet.) (discussion of common law balance between the mineral and surface estates of the use of the surface and the accommodation doctrine).

In 1983, the Texas Legislature enacted chapter 92. See Tex. Nat. Res.Code Ann. §§ 92.001-.007 ("Mineral Use of Subdivided Land"). Chapter 92 provides a statutorily granted exception to the common law. It provides a procedure for owners of surface estates to limit mineral estate owners' use of the surface based upon the surface's future development, delegating administration of the procedure to the Commission. See id. § 92.004. The commission has jurisdiction over oil and gas wells in Texas and persons owning or engaged in drilling or operating oil and gas wells in Texas. See id. § 81.051 (West 2001) ("Jurisdiction of Commission").

Section 92.003 provides that "surface owners of a parcel of land may create a qualified subdivision on the land if a plat of the subdivision has been approved by the railroad commission and filed with the clerk of the county in which the subdivision is to be located." See id. § 92.003. Section 92.002(3) defines a "qualified subdivision" as follows:

(3) "Qualified subdivision" means a tract of land of not more than 640 acres:

(A) that is located in a county having a population in excess of 400,000, or in a county having a population in excess of 140,000 that borders a county having a population in excess of 400,000 or located on a barrier island;

(B) that has been subdivided in a manner authorized by law by the surface owners for residential, commercial, or industrial use; and

(C) that contains an operations site for each separate 80 acres within the 640-acre tract and provisions for road and pipeline easements to allow use of the operations site.

Id. § 92.002(3).

Within an approved qualified subdivision, the mineral estate owner's use of the surface is limited to "designated operations sites for exploration, development, and production of minerals and the designated easements only as necessary to adequately use the operations sites." Id. § 92.005. "`Operations site' means a surface area of two or more acres located in whole or in part within a qualified subdivision, designated on the subdivision plat, that an owner of a possessory mineral interest may use to explore for and produce minerals." Id. § 92.002(1).² An application to create a qualified subdivision "must be accompanied by a plat of the subdivision showing the applicant's proposed location of operations sites and road and pipeline easements." Id. § 92.004(a).

After notice to the applicant and owners of possessory mineral interests, the Commission must hold a hearing on the application to "consider the adequacy of the number and location of operations sites and road and pipeline easements." See id. § 92.004(b). "After considering the evidence, the commission shall approve, reject, or amend the application to ensure that the mineral resources of the subdivision are fully and effectively exploited." Id. An applicant or owner of a possessory mineral interest may appeal the Commission's order "as provided by law." Id.; see also Tex. Gov't Code Ann. § 2001.171 (West 2008) (judicial review of state agency decisions).

The Commission adopted rule 76 to implement chapter 92. See 16 Tex. Admin. Code § 3.76; see also Tex. Nat. Res.Code Ann. § 92.004(a) (commission charged with adopting rules). The subsections of rule 76 at issue substantively track the language in the corresponding sections in chapter 92. With this context, we turn to the parties' dispute.

The Controversy

In 2004, Betty Eyhorn acquired the surface estate of 1,280 contiguous acres of dry farm land in Hidalgo County. Boston Texas Land and Trust owns the mineral estate of the 1,280 acres, and SWEPI is the owner and operator of an oil and gas lease with Boston Texas Land and Trust that encompassed this acreage. SWEPI has operational wells producing gas on portions of the acreage.

In 2006, Eyhorn recorded plats in the real property records of Hidalgo County³ and filed two applications accompanied by the recorded plats with the Commission for "qualified subdivisions" of 640 acres each on her land. See Tex. Nat. Res.Code Ann. §§ 92.002(3), .004; 16 Tex. Admin. Code § 3.76(a)(4), (c). The plats show proposed locations for oil and gas operations sites and road and pipeline easements. See Tex. Nat. Res.Code Ann. § 92.004(a); 16 Tex. Admin. Code § 3.76(c)(4). At that time, Hidalgo County had an option to purchase the 1,280 acres from Eyhorn and planned to use the acreage for constructing and operating a landfill. The Commission notified SWEPI as an owner of possessory mineral interests, and SWEPI opposed approval of both applications. See Tex. Nat. Res.Code Ann. § 92.004(b); 16 Tex. Admin. Code § 3.76(d). The two applications were considered in consolidated hearings.⁴

In September 2006, SWEPI filed this cause, requesting that the district court enjoin the Commission from holding the hearings because the Commission did not have authority to approve the applications. After a hearing, the district court denied SWEPI's request and abated this cause until the Commission entered its final orders.⁵

The consolidated hearings were resumed and heard on January 21 and February 22, 2007.⁶ The hearing examiners issued a proposal for decision on November 1, 2007, recommending approval of both applications. The evidence was then reopened in January 2008 to receive evidence of a new well that SWEPI drilled after the proposal for decision was issued. The new well was at a surface location outside of the proposed operations sites on one of the subdivisions. Eyhorn provided a revised plat for that subdivision which was admitted into the record. The revised plat provided an additional operations site around the location of the new well.

The hearing examiners thereafter issued an amended proposal for decision, addressing the new well and continuing to recommend approval of both applications. In February 2008, the Commission adopted and incorporated the examiners' conclusions of law and relevant findings of fact and entered separate final orders approving the two applications. The final order for each qualified subdivision attached and incorporated a metes and bounds description of the subdivision and the revised plat depicting the location of the oil and gas operations sites and easements. SWEPI filed a motion for rehearing on both applications, which motions the Commission overruled.

In May 2008, SWEPI filed an amended petition in this cause, seeking judicial review of the Commission's final orders under the Texas Administrative Procedure Act. See Tex. Gov't Code Ann. §§ 2001.001-.902 (West 2008 & Supp. 2009) (the "APA"). SWEPI also sought declarations that the Commission's final orders were in excess of the Commission's statutory authority and interfered with and impaired a legal right or privilege of SWEPI or, in the alternative, declarations construing SWEPI's rights under the Commission's final orders. See id. § 2001.038 (West 2008); Tex. Civ. Prac. & Rem.Code Ann. §§ 37.001-.011 (West 2008) (Texas Uniform Declaratory Judgments Act) (the "Act"). After Eyhorn sold her land to Hidalgo County, Hidalgo County intervened and Eyhorn withdrew as a party to this cause.

In March 2009, the Commission filed a plea to the jurisdiction on SWEPI's claims for declaratory relief and, in April 2009, the district court held a hearing on the administrative appeal and the Commission's plea to the jurisdiction. Following the hearing, the district court affirmed the Commission's final orders and granted its plea to the jurisdiction. This appeal followed.

ANALYSIS

In five issues, SWEPI contends that the district court erred by affirming the Commission's final orders and by granting the Commission's plea to the jurisdiction. SWEPI urges that the Commission exceeded its statutory authority because chapter 92's plain language does not authorize the Commission to consider or approve two contiguous 640-acre...