Operators May Use the Surface On A Tract to Produce Oil and Gas From Another Tract in the Pooled Unit
The Texas Supreme Court in Key Operating & Equipment v. Hegar, No. 13-0156, 2014 Tex. LEXIS 504 (Tex. June 20, 2014) concluded that a lessee in a pooled unit has the right to utilize the entire surface acreage of the pooled unit regardless of where the well will be drilled or where actual production occurs. The dispute in Key Operating arose from the use of a road across one tract of land to access the producing well within the pooled unit on another tract of land. Typically, pursuant to the accommodation doctrine, the mineral lessee has the right to use the surface of that land to produce and removal minerals from that land. Merriman v. XTO Energy, Inc., 407 S.W.3d 244, 248-49 (Tex. 2013).
In Key Operating, Key Operating and Equipment, Inc. (“Key”) operated the Richardson No. 1 well on the Richardson Tract. In 1994, Key also acquired oil and gas leases covering a contiguous tract (the Curbo Tract) and reworked the Rosenbaum No. 2 on the Curbo tract. Key Operating, 2014 Tex. LEXIS 504, at *1-2. Also, in 1994 Key built a road on the Curbo Tract to access both the Richardson No. 1 and Rosenbaum No. 2 wells. Id., at *2. Subsequently, the Rosenbaum No. 2 stopped producing and Key’s lease expired; however, in 2000, Key’s owners purchased an undivided interest in the mineral estate of the Curbo Tract and leased that interest to Key, which lease authorized Key to pool the Curbo Tract. Id. Key then pooled the 10 acres of the Curbo Tract with 30 adjoining acres of the Richardson Tract. Id.
In 2002, Will and Loree Hegar bought 85 acres of the Curbo Tract, which acreage included the road Key used to access the Richardson No. 1 well. The Hegars did not dispute Key’s use of the road until Key drilled the Richardson No. 4 well, which greatly increased the traffic on the road across the Curbo Tract. Id. The Hegars filed suit and argued that Key’s use of the road constituted a trespass and that Key could not use the road across the Curbo Tract to produce minerals from another tract. Id. at *3. The trial court and appellate court concluded that “Key had no right to use the Hegars’ surface to produce minerals exclusively from the Richardson Tract [and that] Key’s lease and pooling agreements, which were not part of the Hegar’s chain of title, could not contractually expand Key’s right to use the Hegar’s surface.” Id. at *4.
The Texas Supreme Court reversed and concluded that Key did have the right to use the road across the Curbo Tract to produce minerals from the Richardson Tract. First, the Court addressed the fact that the lease covering the Curbo Tract was pooled with the lease covering the Richardson Tract. The Court explained that “[t]he 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.’” Key Operating, 2014 Tex. LEXIS 504, at *8 (quoting Se. Pipe Line Co. v. Tichacek, 997 S.W.2d 166, 170 (Tex. 1999)). Thus, because “[b]ecause production from the pooled part of the Richardson Tract was legally also production from the pooled part of the Hegar Tract, Key had the right to use the road to access the pooled part of the Richardson [T]ract.” Id. at *10.
Next, the Court explained that because Key’s owners owned a portion of the mineral estate under the Hegar Tract, they “had the right to use the surface of the tract to develop and remove minerals from it, including the right of ingress and egress to do so.” Id. at *14. The Court explained that the right of ingress and egress was not limited for the purpose of producing minerals from the leased tract, but included the right of ingress and egress to access any pooled acreage and produce minerals from the pooled acreage. Id. at *14-15. “Accordingly, Key’s owners did not increase the burdens on the surface estate by leasing their mineral interest to Key, nor did Key increase the burdens by pooling the Richardson and [Curbo] tract minerals.” Id. at *15. Additionally, as Key’s owners had owned mineral rights in the Curbo Tract, they had implied property rights to use the surface; thus, it was not necessary for the Court to determine whether the lease covering the Curbo Tract was required to be in the Hegar’s chain of title in order to bind them. Id. at *9.
The Texas Supreme Court’s decision in Key Operating is significant because it allows a lessee to pool acreage and utilize the surface of any tract within the pooled unit regardless of whether there is production of minerals from that tract.