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Texas Co-Tenancy Law and Oil And Gas Leases: Radcliffe v Tidal Petroleum

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:

“Oil is a fugitive substance and may be drained from the land by well on adjoining property. It must be promptly taken from the land for it to be secured to the owners. If a co-tenant owning a small interest in the land had to give his consent before the others could move towards securing the oil, he could arbitrarily destroy the valuable quality of the land.”

Texas courts have reaffirmed this principal many times over the past 100 years. As a result, a co-tenant has the legal right to proceed to drill and produce oil and gas from the land, subject only to his or her duty to account to the other co-tenant(s) for their proportionate part of the value of the oil and gas produced, less their proportionate part of the drilling and operating expenses. In particular, the law states:

“Each co-tenant may enter upon the premises for the purpose of exploring for oil and gas and may drill and develop the premises. In the absence of a joint agreement, upon discovery of oil and gas, the producing co-tenant must account to the non-consenting or non-producing co-tenant for his pro rata share of the net profits, that is, the market value of the oil or gas produced, less necessary and reasonable expenses incurred in producing and marketing same; and if a co-tenant drills a dry hole, he does so at his own risk and without right to reimbursement from his co-tenant (in the absence of an agreement therefor) for the drilling costs.”

Holders of Mineral Leases Become Co-Tenants Too

The oil and gas company who leases from a co-tenant also becomes a co-tenant with respect to the tenancy-in-common property. This is important because it prevents a recalcitrant co-tenant who does not sign a lease from suing the lessee for trespass, trespass being the legal cause of action that would prevent the lessee from extracting the oil, gas, and minerals.

Application To Radcliff v. Tidal Petroleum

Radcliffe v. Tidal Petroleum is a factually complicated case involving claims of partial ownership and/or non-possessory royalty rights flowing from a 1945 deed to certain lands in La Salle County, Texas. Everyone in the case agrees that in 1945, Emma Simmons Radcliffe conveyed the entire surface estate and at least half of the mineral estate of those lands to certain persons and since then, through various transactions, title now resides with the Basham family. In 2010, the Bashams leased the lands to Tidal Petroleum. Tidal drilled wells that began producing in paying quantities.

In 2011, the heirs of Emma Radcliffe contacted Tidal and asserted that Emma had reserved half of the mineral interest via the 1945 deed. They further asserted that they were the holders of that reserved interest and that Tidal was extracting oil and gas without their permission. Tidal rejected the Radcliffe’s claim of ownership and so the Radcliffes sued Tidal for trespass to try title, bad faith trespass, and other intentional torts. Tidal asserted affirmative defenses including the law of co-tenancy.

Cross motions for summary judgment were filed. Tidal contended that there is a gap in the chain of title and that there was no summary judgment evidence that the Radcliffes own any mineral interest in the tract. Tidal also asserted their affirmative defenses and many other legal theories. The trial court ruled in favor of Tidal on all counts including the trespass to try title count.

Court of Appeals Decision

The Court of Appeals issued three opinions in the case; one in May 2016, one in August 2016 and the final opinion in February 2017. In the end, the Court of Appeals affirmed the trial court except on the trespass to try title count. While the summary judgment evidence of ownership was rather weak, there WAS still just enough evidence that the Court of Appeals determined Radcliffes were entitled to a trial on the fact issue regarding their ownership.

For summary judgment purposes, the Court indicated that the Radcliffes might be owners. It was undisputed that Tidal had, in fact, entered onto the lands and had taken — was continuing to extract — oil and gas from the lands. Consequently, the Court of Appeals held that, for purposes of summary judgment, the Radcliffes may have a claim for trespass to try title against Tidal. The Court dismissed Radcliffes’ bad faith trespass, common law fraud, fraud by nondisclosure, civil conspiracy to defraud, conversion, misapplication of trust funds, breach of fiduciary duty, breach of operator’s duty, theft under the Theft Liability Act, money had and received, and unjust enrichment claims.

However, the Court of Appeals also held that Tidal had submitted uncontroverted evidence showing its entitlement to summary judgment on its affirmative defense related to co-tenancy law. It was/is undisputed that the Basham family was — at minimum — a co-tenant and that the Basham family entered into a mineral lease with Tidal. Under co-tenancy law, Tidal thereby became a co-tenant. Assuming that the Radcliffes had some ownership interest, they could not sue for intentional trespass because a co-tenant is entitled to enter onto the lands in question and extract oil, gas and mineral. Thus, the Court of Appeals held in favor of Tidal on its affirmative defense.

Petition To Review: Trespass to an NPRI?

The Radcliffes have filed a Petition For Review, that you can review here. An additional issue being raised in the review is whether you can trespass against a non-possessory royalty interest (“NPRI”). At the trial level, Tidal argued that the Radcliffes had no interests at all flowing from the 1945 deed, but in the alternative, argued that if the 1945 deed reserved any interest, it was only an NPRI. An NPRI does not involve ownership of land or an interest in land; it is only a right to royalties. Tidal asserted that you cannot trespass against a non-possessory interest.

In responding to that argument, the Court of Appeals stated that it WAS possible to trespass against a non-possessory interest and cited the Texas Supreme Court case of Coastal Oil & Gas Corp. v. Garza Energy Trust, 268 S.W.3d 1 (Tex. Supreme Court 2008). Garza did indeed hold that trespass can lie against non-possessory interests, but the examples cited in Garza were cases where the interest owner had a potential right of actual possession, such as a landlord’s eventual right to have the leased property revert to them. By contrast, an NPRI is always only a non-possessory interest.

It will be interesting to see how the Texas Supreme Court resolves this issue.

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