Key Operating & Equipment, Inc. v. Will Hegar and Loree Hegar ( 2011 )

Opinion issued October 13, 2011.

In The

Court of Appeals

For The

First District of Texas

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NO. 01-10-00350-CV

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Key Operating & Equipment, Inc., Appellant

V.

Will Hegar and Loree Hegar, Appellees

On Appeal from the 21st District Court

Washington County, Texas

Trial Court Case No. 33,968

MEMORANDUM OPINION

Key Operating & Equipment, Inc. appeals from a final judgment enjoining it from using a road that crosses Will and Loree Hegar’s property.  We reverse and render judgment in favor of Key Operating & Equipment, Inc.

Background

Key Operating & Equipment, Inc., an oil and gas exploration company owned by brothers Thomas and Kenneth Key, operates and produces oil in and around Washington County, Texas.  In 1987, Key Operating[1] leased a sixty-acre parcel in Washington County known as the Richardson Tract and began operating the C. F. Richardson No. 1 Well thereon.  

In 1994, Key Operating acquired oil and gas leases covering the Rosenbaum/Curbo Tract, a 191-acre tract contiguous with the Richardson Tract. After reworking the Rosenbaum No. 2 Well located there, Key Operating acquired production from this tract.  In 1994 or 1995, Key Operating built a road across the tract that it has used to access its operations on both tracts since.[2]  To date, Key Operating has spent approximately $150,000 on the construction and maintenance of the roadway. 

In December 2000, Thomas and Kenneth Key, individually, acquired an undivided twelve and one-half percent interest in the mineral estate underlying the Rosenbaum/Curbo Tract.[3]  The brothers then leased their interest in the Rosenbaum/Curbo Tract to their exploration and production company, Key Operating, with a voluntary pooling provision that allows Key Operating to pool the acreage covered by the Key brother’s lease with other lands.  Three days after acquiring the lease, Thomas Key, as president of Key Operating, executed a Declaration of Pooled Unit that pooled ten acres from the Rosenbaum/CurboTract with thirty acres from the adjoining Richardson Tract.  Both the lease and the declaration were recorded in the public records of Washington County.

In May 2002, the Hegars purchased eighty-five acres of the Rosenbaum/Curbo Tract from Charles Curbo (Hegar Tract).[4]  Both the Rosenbaum No. 2 Well and the road Key Operating built are on the Hegar Tract.  Will Hegar testified that they knew at the time of purchase (1) that the property was subject to various oil and gas leases, and (2) that Key Operating used the road to service a well on the adjoining Richardson Tract.  He also testified that the Hegars’ themselves currently use the road to access the home they built in 2003 or 2004 some 300 feet from the roadway.  Hegar and his wife tolerated Key Operating’s use of the roadway until Key Operating drilled a new well on the Richardson Tract that dramatically increased traffic.  As Hegar notes, “We’re trying to raise a family and we can’t do it with a highway going through our property.” 

In December 2007, the Hegars filed suit against Key Operating for trespass and sought a permanent injunction against Key Operating’s continued use of the roadway.  Although it began as a jury trial, the parties agreed to withdraw the case from the jury before the defense rested and the balance of the case was tried to the bench. At the trial’s conclusion, the court permanently enjoined Key Operating from using the Hegar’s property surface, including the roadway, “for any purpose relating to the extraction, development, production, storage, transportation, or treatment of minerals produced from an adjoining” tract.  The trial court filed findings of fact and conclusions of law at Key Operating’s request and this appeal ensued.

Discussion

In three issues, Key Operating contends that (1) the trial court erred when it enjoined Key Operating from using the surface of the Hegars’ property; (2) the Hegars do not have standing to challenge the validity of the pooling agreement; and (3) assuming that it was necessary for the Hegars to prove that no oil was being produced from the Hegars’ property through the wells on the adjoining property, the Hegars’ evidence was insufficient.

Standing

We begin by addressing the Hegars’ standing.  Key Operating argues that the Hegars do not have standing to complain about the formation of the pooled unit because they are not a party to the agreement. The Hegars, however, are not challenging the formation of the pooling unit.  Rather, they contend that Key Operating has no right to use the surface of their tract to benefit the tract of another, even if all or a portion of those tracts are pooled together.  As surface estate owners, the Hegars unquestionably have standing to bring this action for trespass to real property.  We overrule Key Operating’s second issue.

Key Operating’s Right to Use the Surface Estate

Key Operating contends that, because it has the right to full use of the road to access its operations by virtue of the pooling agreement, it cannot be a trespasser and thus, the court’s order enjoining it from use of the road is error.

Texas law is well-established that owners of a dominant mineral estate have a right to use as much of the servient surface estate as is reasonably necessary to produce and remove the minerals from the property.  See Ball v. Dillard, 602 S.W.2d 521, 523 (Tex. 1980) (citing Harris v. Currie, 142 Tex. 93, 176 S.W.2d 302 (1943) (noting that grant of minerals would be worthless to grantee if he could not enter upon the land for exploration and extraction of minerals granted)).  This necessarily includes the rights of ingress and egress upon the land for the exploration and production of oil and gas.  See id. (holding surface lessee unreasonably interfered with mineral lessee’s right to access to land for mineral development purposes by locking gate to only usable road into property).[5] 

The Hegars and the Key brothers, as owners of an undivided interest in the minerals under the Hegar Tract, are co-tenants and, as such, have the right to extract minerals from common property without first obtaining the consent of their co-tenants.  See Byrom v. Pendley, 717 S.W.2d 602, 605 (Tex. 1986).  This includes the right to lease their mineral interests.  Id.[6]

Here, the Key brothers leased their interest in the mineral estate to Key Operating.  The terms of the lease not only give Key Operating the rights of ingress and egress with respect to the leasehold, but it also expressly allows Key Operating to pool acreage under the lease with lands in the immediate vicinity.  The lease further provides that “production of oil or gas from any part of a pooled unit which includes all or a portion of the land covered by this lease, . . . shall be considered . . . production of oil or gas from land covered by this lease whether or not the well or wells be located on the premises covered by this lease,” and “the entire acreage constituting such unit or units . . . shall be treated for all purposes. . . as if the same were included in this lease.”  Thus, under the terms of the lease, Key Operating’s use of the surface of the Hegar Tract to benefit a pooled unit, which includes a portion of that tract, necessarily benefits the mineral estate of the Hegar Tract, regardless of where the wells are located. 

As the mineral lessee, Key Operating has a right to use the road across the Hegar Tract to produce and remove minerals from under the Hegar Tract. Because the lease not only allows Key Operating to create pooling units, but also expressly recites that the acreage constituting such units shall be treated as if those acres were included in the lease, the lease terms allow Key Operating to use the surface of the Hegar Tract for the production of oil and gas from the property, even if the use also benefits another tract, provided that other tract has been pooled with all or some of the Hegar Tract.  See Miller v. Crown Cent. Petrol. Corp., 309 S.W.2d 876, 878–79 (Tex. Civ. App.—Eastland 1958, writ dism’d by agr.) (holding lessee had right to lay pipeline across leased property even though pipeline also benefited other land because other land was pooled with leased property).

Notably, the Hegars do not dispute Key Operating’s right to use the road to produce and extract minerals from under their tract.  Rather, citing to Robinson v. Robbins Petrol. Corp., 501 S.W.2d 865, 867 (Tex. 1973), they contend that Key Operating cannot use the Hegar tract surface to produce minerals from the adjoining Richardson Tract, notwithstanding the pooling agreement. The Robinson court held that a mineral lessee could not use the surface of an eighty-acre tract to operate a waterflood unit that included acreage outside the mineral lease covering the tract. Id. at 868.

In Robinson, however, the unit was created after the surface owner obtained his title.  The court noted that although the surface owner obtained his title subject to a mineral lease and, therefore, subject to the implied right to use his surface to produce minerals covered by that lease, nothing in his chain of title indicated that the surface of the property could be used to support oil and gas production beyond the boundaries of the lease, and the surface owner never consented to this increased burden.  See id. at 867−68.  Here, however, both the lease and the pooling declaration, which pooled ten acres of the Hegar Tract, were in place and recorded in the county records prior to the Hegars’ 2002 purchase of the property.  As such, the Hegars acquired title to the Hegar Tract subject to the existing oil and gas lease between the Key brothers and Key Operating, and the declaration of pooling executed by Key Operating, as allowed under the lease.  See Amoco Prod. Co. v. Alexander, 622 S.W.2d 563, 572 (Tex. 1981) (stating that oil and gas lease creates interest in real property); MCZ, Inc., v. Triolo, 708 S.W.2d 49, 52 (Tex. App.—Houston [1st Dist.] 1986, writ ref’d n.r.e.) (stating that pooling results in cross conveyance of interests in land).  Whether or not the Hegars had actual knowledge of the lease or the pooling agreement is immaterial. See Cooksey v. Sinder, 682 S.W.2d 252, 253 (Tex. 1984) (noting that purchasers are charged with knowledge of contents of recorded instruments and terms of deeds in chain of title); Westland Oil Dev. Corp. v. Gulf Oil Corp., 637 S.W.2d 903, 908 (Tex. 1982) (noting that purchaser is bound by every recital, reference, and reservation contained in, or fairly disclosed by, any instrument which forms essential link in chain of title). 

Because Key Operating has the legal right to use the roadway across the Hegar Tract for purposes of exploration and production of oil and gas from the pooled unit, which includes a portion of the Hegar Tract, Key Operating’s use of the road cannot constitute trespass and the trial court erred in enjoining Key Operating from its use.  We sustain Key Operating’s first issue.

Having determined that the trial court erred in enjoining Key Operating from using the roadway, we need not address Key Operating’s remaining issue.

conclusion

We reverse the judgment of the trial court and render judgment in Key Operating’s favor.

                                                                   Jim Sharp

                                                                   Justice

Panel consists of Chief Justice Radack and Justices Sharp and Brown.

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[1]           The lease was executed by Key Operating’s predecessor in interest.  However, for the sake of simplicity, we will refer to both entities as Key Operating.

[2]           The Richardson Tract is only accessible through an adjoining property.  Prior to 1994/1995, Key Operating had been accessing the Rosenbaum No. 2 Well and the Richardson Tract by way of a road, traversing property owned by the Ullrich family. After the roadway across the Rosenbaum/Curbo Tract was completed, Key Operating allowed its easement across the Ullrich property to expire. 

[3]           The Key brothers acquired their interest from Randy Boatright who, according to Kenneth Key, approached him in 2000 and was looking to sell the twelve and one-half percent interest which he acquired in the Rosenbaum/Curbo property’s mineral estate in 1994.

[4]           In addition to purchasing the entire surface estate, the Hegars also purchased an undivided one-fourth interest in the mineral estate. 

[5]           A mineral lessee’s use of the surface estate should be exercised with due regard for the rights of the surface estate’s owner.  Getty Oil Co. v. Jones, 470 S.W.2d 618, 621 (Tex. 1971).  This concept of “due regard,” known as the accommodation doctrine, was first articulated in Getty Oil and balances the rights of the surface owner and the mineral owner in the use of the surface.  Id. at 622.  The Hegars do not dispute Key Operating’s right to use the roadway to produce and remove minerals from under the Hegar Tract nor do they argue that Key Operating’s use of the road is unreasonable pursuant to the accommodation doctrine.  Rather, they contend that Key Operating has no right to use the road to extract minerals from an adjoining property. 

[6]           Collectively, the Hegars and the Key brothers hold an undivided interest in a little over one-third of the mineral estate.  The remaining two-thirds is held by various other cotenants—each of whom also has the unilateral right to use as much of the surface estate as is reasonably necessary to produce and remove the minerals from the property.