Texas Oil and Gas Attorney Blog

Texas mineral owners contact me from time to time and ask why an oil company is drilling on their land when they haven’t signed an oil and gas lease. The answer to these questions lies in the Texas law regarding co-tenants. An interesting opinion was recently issued in the case of Radcliffe v. Tidal Petroleum, Inc. that addresses Texas co-tenancy law and how it relates to oil and gas leases.

Law of Co-Tenants

With respect to oil, gas, and minerals, the law of co-tenancy in Texas strongly favors exploitation and extraction of the natural resources. As a result, it has long been the law that a co-tenant has the right to extract minerals from property owned jointly by one or more co-tenants without first obtaining the consent of all co-tenants. The rule goes back to a case decided in 1912 and affirmed by the Texas Supreme Court in 1917.  The oft-quoted rationale is this:

The staff of the Texas Railroad Commission is proposing amendments to the pipeline safety rules for oil and gas and other pipelines in Texas. These amendments will affect rules 18.1, 18.4 and 18.11. The amendments remove a reference to “intrastate” pipelines to make clear that the Commission now has safety jurisdiction over interstate (between states) as well as intrastate (within the state of Texas) pipelines. Additional amendments to bring the rules into compliance with federal law are new requirements that required excavator who damages a pipeline to notify the pipeline operator at the “earliest practical moment” but not later than one hour after the damage, and a requirement that the excavator must report any release of product from a damage pipeline by calling 911. The full text of the amendments can be viewed here.

The amendments are expected to appear in the Texas Register on November 24, 2017 and there will be a two week public comment period.

The Commission has been especially attentive to pipeline safety in Texas, given the highly publicized pipeline breaks in Texas and other states over the past few years.

Given the increase in production of natural gas in Texas, some residents end up living close to a gas compressor stations. These stations are necessary to pump natural gas under pressure over long distances, but they can be large, noisy and produce offensive odors. Some Texans who live close to these stations have sued the oil and gas producers claiming nuisance or trespass.

In Texas, the elements of a trespass cause of action are: (1) the claimant has a lawful right to possess the property, (2) the defendant physically enters the property, (3) the entry was intentional and voluntary, and (4) the defendant‟s trespass causes an injury to the claimant‟s right of possession.  The Texas Supreme Court has noted a trespass of aerial space above the complainant‟s property may be committed by causing something to physically enter or crossover the land, such as the discharge of pollutants, soot, or carbon.

A cause of action for nuisance requires evidence of  a regularly recurring condition that “substantially interferes with the use and enjoyment of land by causing unreasonable discomfort or annoyance to a person of ordinary sensibilities.”

Collecting royalties from oil and gas production is one of the ways that a Texas landowner can generate revenue from their real estate.  Texas property owners who own their minerals can sign an oil and gas lease so that oil and gas can be produced from the land, in exchange for regular monetary payments, or royalties. However, oil and gas reservoirs are not often confined to just a single individual’s property, but instead  often stretch across multiple surface boundaries. When disputes arise over royalty payments, there is a sometimes an issue as to whether a lawsuit can be brought by just one individual landowner, or if neighboring owners who are also collecting royalties from the same oil and gas producer must necessarily be a part of the lawsuit as well. The Texas Supreme Court considered this very issue in the case of Crawford v. XTO Energy which was been appealed from the Amarillo Court of Appeals.

Why Must All Necessary Parties Be Joined in a Lawsuit?

The problem with not joining all necessary parties to a lawsuit is that a defendant could be exposed to conflicting judgements. For instance, if landowner A sues oil and gas producer X, and there is a specific outcome, and later adjacent landowner B sues oil and gas producer X, but there is a different second outcome, and the two outcomes may be inconsistent. Failure to join all necessary parties in a lawsuit can also be judicially wasteful since the court has to revisit the same issues in more than one case.

As we discussed recently regarding the Texas Supreme Court case of Hysaw v. Dawkins, 483 SW 3d 1 (2016), old deeds, oil and gas leases, and other documents containing “1/8th royalty” clauses continue to be the source of confusion among the public, lawyers, and sometimes courts.

For decades, the standard oil royalty in Texas was one-eighth of the total royalty. The standard was so prevalent that the words “one-eighth” or “one-eighth royalty” came to be synonymous with — and a proxy for — “the total royalty interest.” In the Hysaw case, decided in 2016, the Texas Supreme Court held that the words “1/8 royalty” was used in this historical manner to mean the “total of the royalty.”

The San Antonio Court of Appeals reached a similar result in the case of Kardell v. Acker, 492 S.W.3d 837 (Tex. App.-San Antonio 2016).

The question of “fractional royalty” vs “fraction of royalties” has historically been the source of enormous confusion for Texas mineral owners and oil and gas attorneys. The Texas Supreme Court recently provided more guidance on the question in the case of Hysaw v. Dawkins, 483 SW 3d 1 (2016). This case involved a will written in 1947, but the lessons of the case apply equally to deeds, oil and gas leases and other forms of conveyance.

The teaching provided by Hysaw concerning these “1/8th royalty” clauses is that courts and lawyers must use a case-by-case and fact specific approach to resolving questions of fractional vs. fraction of royalty questions. The courts are to effectuate the intent of the drafters; not apply a mechanistic “multiplication of double fractions” formula.

Why is This an Issue?