Earlier this year I wrote about a case pending in front of the Supreme Court of Texas, Key Operating & Equipment, Inc., v. Hegar. The appeal centered around the following question, as set forth in the recent Supreme Court opinion: When parts of two mineral leases have been pooled but production is from only one lease, does the mineral lessee have the right to use a road across the surface of the lease without production in order to access the producing lease? Both the trial court and Court of Appeals answered that questions in the negative. However, the Texas Supreme Court reversed the decision and held that the lessee does have that right.

To recap the facts of the case, in 1994, Key built a road across a tract of land in Washington County that it had leased (the “Curbo Tract”). It used this road to access wells on two separate tracts: the Curbo Tract and the Richardson Tract. In 2000, after the wells on the Curbo Tract stopped producing, the owners of Key (who also owned a small mineral interest in the tract), re-leased it to Key. Key then pooled portions of the Curbo Tract and the Richardson Tract, and used the road on the Curbo Tract to access the wells on the Richardson Tract.

In 2002, the Hegars purchased the surface estate and a one-fourth mineral interest in the Curbo Tract. After several years, Key drilled a new well on the Richardson Tract. It was then that the Hegars brought suit, asking the court to enjoin Key’s use of the road. They argued that none of the oil produced by Key was actually produced from the Curbo Tract. Instead, the Hegars claimed that Key pooled simply to have continued use of the road. The lower court found for the Hegars, and permanently enjoined Key from using the road “for any purpose relating to the extraction, development, production, storage, transportation, or treatment of minerals produced from an adjoining” tract. The Court of Appeals agreed with the lower court, and affirmed their decision. Key appealed to the Texas Supreme Court.

Key argued to the high court that it had the “right to use the Hegars’ surface estate in producing minerals from any part of the pooled unit.” The Hegar’s countered that “a mineral owner has an implied easement to use the surface of a property only if production is from that property.” The Supreme Court noted that “[t]he owner of the dominant mineral estate in a tract has the right to go upon the surface of that land to produce and remove the minerals, and also the incidental rights necessary for that production and removal. […] The mineral lessee’s incidental rights include the right to use as much of the surface as is reasonably necessary to produce the minerals.” The Court determined that because production was from the Richardson Tract, which was pooled with the Curbo Tract, production is legally considered production from all tracts in the unit. Therefore, Key had the right to use the road to access the wells producing from the pooled unit.

The Hegars also argued that Key had no right to use the road to produce from a pooled unit because the lease that authorized pooling had been executed after the mineral and surface rights were severed, thus was not in the Hegars’ chain of title. The Supreme Court, though, disagreed. They concluded that because production anywhere on a pooled unit is treated as production on every tract in the unit, “the pooled parts of the Richardson and Hegar Tracts no longer maintained separate identities insofar as where production from the pooled interests was located. So the legal consequence of production from the pooled part of the Richardson Tract is that it is also production from the pooled part of the Hegar Tract, and the Hegars do not contend that Key did not have the right to use the road to produce minerals from their acreage. Because 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 Tract.”

Good news for oil and gas operators, as the opposite outcome could have meant an oilfield scramble to figure out alternative access issues. What this evidences is the continuing struggle between surface owners and operators regarding the rights, and limitations, of the use of the surface.