Know How: Alert

Title

TX Court of Appeals Rules Anadarko Can Drill through Competitor’s Leasehold Estate

GET KNOW HOW

Subscribe

Stay up-to-date with industry knowledge!

Pursuant to a recent Texas court of appeals decision, mineral lessees in Texas might find that their subsurface rights are not as extensive as once thought. On August 19, 2015, the Fourth Court of Appeals held in Lightning Oil Co. v. Anadarko E&P Onshore LLC that, under an agreement executed by the surface owner, Anadarko had the right to drill through Lightning Oil Co.’s leasehold estate to access the oil and gas under an adjacent property. 2015 WL 4933439 (Tex. App. – San Antonio 2014).

Background
Lightning owned an oil and gas lease covering the severed minerals underlying a portion of the Briscoe Ranch. Anadarko owned an oil and gas lease covering an adjacent property which was being operated as a wildlife sanctuary by the Texas Parks and Wildlife Department. Unable to obtain a surface use agreement to drill on the land owned by the TPWD, Anadarko obtained a surface use and subsurface easement agreement allowing it to place wells on the surface of the Briscoe Ranch and drill through the mineral estate leased by Lightning, in order to access the mineral estate underlying the TPWD surface acreage. Lightning sued Anadarko alleging that drilling would constitute a trespass through its mineral estate. Lightning also argued that Anadarko needed its permission, not the surface owner, to drill through its mineral estate. Additionally, Lightning argued that Anadarko’s drilling constituted a tortious interference with its oil and gas lease. Anadarko moved for summary judgment on Lightning’s claims for trespass and tortious interference, and the motion was granted by the trial court. Lightning then appealed, contending the trial court erred in granting the summary judgment.

Holding
The Court held that “the surface estate owner controls the earth beneath the surface estate” and that “absent the grant of a right to control the subterranean structures in which the oil and gas molecules are held,” the mineral estate owner has no right to exclude another from accessing those structures.

Unless Anadarko intended to produce oil and gas from the minerals covered by Lightning’s lease, it did not need Lightning’s permission to access the lands surrounding the minerals covered by its lease, and “[a]s the surface estate owner, Briscoe Ranch controls the surface and subsurface; it may grant Anadarko permission to site a well on its ranch, drill down through the earth within the boundaries of [the Lightning leasehold], and directionally alter its wellbore” into the formations covered by the Anadarko oil and gas lease. Because Anadarko had Briscoe Ranch’s permission, the Court held that Anadarko committed no trespass.

The Court then addressed Lightning’s tortious interference claim. Because Anadarko had already established that it had permission to drill pursuant to the surface use and subsurface easement agreement, the Court confirmed that “Anadarko acted within its own legal rights granted by Briscoe Ranch, and its justification defense is established as a matter of law.”

Conclusion
Because its lease covered a mineral estate which had been severed from the surface prior to leasing, Lightning could not claim to have a right of control that the mineral estate owner did not own. One should keep in mind, however, that, depending on lease terms, a different holding may result in the case of a lease executed by the owner of both the surface and mineral estates.

Contributors

(281) 203-5732
The Woodlands, TX
(281) 203-5755
The Woodlands, TX