Texas Supreme Court Discusses Rights Conveyed by a Mineral Lease

The recent Lightning Oil Company v. Anadarko E&P Onshore, LLC F/K/A Andarko E&P Company, LP, decision of the Texas Supreme Court, which clarified the rights and obligations of owners of the surface property and the mineral interests below, is very important to oil and gas law practitioners in Texas. The Court’s reasoning, and its measured opinion, may nevertheless be of interest to many lawyers in practicing in other areas. The Texas Supreme Court affirmed the ruling of the Fourth Court of Appeals sitting in San Antonio. The question before the Court was: “[W]hose permission is necessary for an oil and gas operator to drill through a mineral estate it does not own to reach minerals under an adjacent tract of land.” Is the mineral estate, through which the company wished to drill, the dominant estate whose permission is required before such directional drilling can begin?

Anadarko E&P Onshore, LLC (Andarko) entered into an oil and gas lease that restricted its use of the surface estate and required it to drill from off-site locations “when prudent and feasible.” Anadarko, as a result, planned to locate well sites on the surface of adjacent tracts and use horizontal drilling to produce minerals from its lease. The owner of an adjacent surface estate (the Ranch), Briscoe Ranch, Inc. (Briscoe), agreed that Anadarko could drill from the surface of the Ranch. Lightning Oil Company (Lightening), the lessee of the minerals underlying the Ranch, was not a party to the agreement between Anadarko and Briscoe. Lightning  sued Anadarko for trespass and tortious interference with its mineral lease.

The District Court dismissed Lightning’s complaint and the Court of Appeals affirmed the dismissal.

Upon review, the Court’s recognized that “[w]hile the mineral estate is dominant…, the rights of a surface owner are in many ways more extensive than those of the mineral lessee.” With respect to Lightning’s rights, the Court confirmed that

the rights conveyed by a mineral lease generally encompass the rights to explore, obtain, produce, and possess the minerals subject to the lease; they do not include the right to possess the specific place or space where the minerals are located. Thus, an unauthorized interference with the place where the minerals are located constitutes a trespass as to the mineral estate only if the interference infringes on the mineral lessee’s ability to exercise its rights.

The Court went on to recognize that

Lightning speculates that Anadarko’s proposed well sites, drilling activities, and underground well structures will interfere with both the surface and subsurface spaces necessary for it to exercise its right to develop the minerals in the future. But speculation is not enough. To obtain injunctive relief, Lightning must have proved that absent such relief, it will suffer imminent, irreparable harm.

In balancing the relevant interests of Lightning and Anadarko, the Court weighed “the interests of society and the interest of the oil and gas industry as a whole against the interest of the individual focused on the individual operator.” It concluded that “the loss of minerals Lightning will suffer by a well being drilled through its mineral estate is not a sufficient injury to support a  claims for tress pass” and “such a loss will not support injunctive relief.”