On June 20, 2014, the Texas Supreme Court held that a mineral lessee has the right to use a road to cross the surface of non-producing pooled tracts. This decision is critical for oil and gas producers, as it clarifies the ability to access oil and gas operations within pooled units. Mineral lessees do not have a burden to show that there is actual production under a landowner’s property in order to use a road across part of a pooled unit.
The Court was faced with the question of “whether, when parts of two mineral leases have been pooled but production is from only one lease, the mineral lessee has the right to use a road across the surface of the lease without production in order to access the producing lease.” The trial court determined the lessee does not and granted declaratory and injunctive relief. The court of appeals affirmed. The Texas Supreme Court, however, found that the mineral lessee has such a right and reversed the trial and appellate courts’ decisions.
Key Operating and Equipment, Inc., the mineral lessee, (“Key”) pooled part of a 191 acre tract (the Curbo tract) with an adjoining tract (the Richardson tract) to form a single unit. Pooling was allowed pursuant to a provision in a lease covering the Curbo tract between Key’s owner (who had a mineral interest in the Curbo tract) and Key. Key regularly used a road across the Curbo tract to reach oil and gas operations occurring on the Richardson tract.
In 2002, the Hegar family purchased the surface estate and part of the mineral interest to the Curbo tract, which included the road Key used to access the Richardson tract. They were aware that Key used the road in its mineral operations at the time of purchase and continued to allow Key to use the road for several years. When traffic increased on the road due to Key drilling a new well on the Richardson tract, the Hegars filed suit claiming that Key was trespassing by using the road. They sought declaratory judgment that Key had no legal right to “access or use the surface [of their property] in order to produce minerals from the Richardson Tract.”
The trial court enjoined Key from using the part of the road that was on the Hegars’ property for any purpose related to producing minerals from the adjoining Richardson tract. It relied on expert testimony finding that there was no oil being produced from the Curbo tract, only the Richardson tract. Key appealed. The appellate court held that Key had the right to use the Hegars’ surface to produce oil only from beneath the Curbo tract.
Supreme Court’s Decision
The Texas Supreme Court began its analysis by providing that a mineral lessee has incidental rights to use as much surface as reasonably necessary to produce and remove minerals. It then noted Texas lessees may pool multiple tracts, provided that pooling is authorized by the leases. Texas policy encourages the recovery of minerals and pooling prevents waste. “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.’” Accordingly, because the Richardson tract was producing, the Curbo tract was also considered producing. The pooled tracts lost their separate identity, and therefore Key had the right to use the road to access the pooled part of the Richardson tract.
Why is it Significant?
Key had the right to use the road across the pooled Curbo tract for production of minerals from all the acreage with which it is pooled. This decision confirms that a lessee may use a road across non-producing tracts in a pooled unit and is an important reminder to ensure a proper pooling provision is included in a Texas oil and gas lease.