EllifCriswell

Elliff v. Texon Drilling Co

Theruleofcaptureisnotanabsoluterule.Oneexceptionappliestonaturalgasoroilthathas
alreadybeenharvested.Naturalgasisstoredbyinjectingitintoundergroundstorageareas.When
itisinjected,thisgasisnotsubjecttothecapturerule.Thisgas,whenitisalreadycaptured,
remainsthepropertyofthepersonwhocapturedituntilthatpersonabandonsthegas.
Anotherlimitationontheruleofcaptureisthedoctrineofcorrelativerights,whichwasfirst
announcedinElliffv.TexonDrillingCompany.

TexonoperatedoilwellsonitspropertyandalsodrainedoilfromElliffsproperty.

Texonwasnegligentintheoperationofoneofthesewells,causingthewelltoblowout
andburn.

Theburningoftheoilandnaturalgascausedlargequantitiesoftheoilandgasunder
Elliffspropertytobedrainedawayanddestroyed.

Thedoctrineofcorrelativerightsstatesthattherighttotakeoilandgasfromanother
personspropertyundertheruleofcapturedoesnotapplywhentheremovaloftheoilor
gasisdonenegligentlyorcauseswaste.

InElliffv.TexonDrilling,TexonwasliablebecauseitsnegligencecausedEllifftosuffer
aloss.IfTexonhadnotbeennegligentandtheoilwellhadnotblownoutandcaughtfire,
thenTexoncouldhaveremovedoilandgasfromElliffspropertyandnotfacedliability.
Acorrelativerightistherightthelandownerhastoproduceoilandgasfromhisorher
ownpropertyaslongasheorsheisnotnegligentduringtheproduction.

F: After a well blew out, neighboring gas & oil escaped

underground
o Mabel & Frank Elliff (Petitioners) own a parcel of land upon
a producing well
They had a royalty interest in oil and gas leases on
their land
o Clara Driscoll owned the land adjoining theirs
o Texon Drilling Co (Respondents) were drilling on Ds
property near Petitioners land
o During drilling, a well blew out, causing wells on Ps land to
blow out
o The 1st blow out also caused large quantities of gas & oil to
drain from under Petitioners land and escape into the air
I: Will a party be liable for the negligent waste/destruction of
anothers oil and gas when that waste and destruction occurred

after the minerals had been drained from beneath the persons
land? Yes
ROL: the negligent waste & destruction of a persons gas & oil
will permit that person to recover DAS because he has been
deprived of his rights in that property
H: In TX, the LL is regarded as having absolute title to the oil and
gas beneath his land. Negligently wasting natural resources
deprives a person of his property rights in those
resources, including the right to profit from them. So, the
waster should compensate the injured party for his loss
o The only limit to the rule is that it must be considered in
connection w/the law of capture and is subject to police
regs.
o Each owner of land owns the O&G under his land & is
accorded the usual remedies against trespassers who
appropriate the minerals or destroy their market value
o Law of Capture (LoC) states that the owner of a tract of
land acquires title to the O/G which he produces from wells
on his land, though part of the O/G may have migrated
from adjoining lands. There is no liability for reasonable &
legitimate drainage from the common pool of minerals.
Each owner is given a reasonable opportunity to produce
his share of O&G from the common poolbut this
immunity doesnt extend to the negligent waste or
destruction of O&G the negligent waste and
destruction of Petitioners O&G was neither a
legitimate drainage of the minerals from beneath
their lands nor a lawful appropriation of them.
Petitioners didnt lose their right, title, and interest
in the minerals under the rule of capture. The
minerals belonged to Petitioners at the time they
were wasted, so they should be able to recover DAS
o He may take those minerals w/o the consent of the owners
of those lands
The rule doesnt conflict w/the rule of absolute
ownership of minerals: if the owners of adjacent
lands have the right to appropriate the minerals from
their neighbors lands, the neighbors have the same
right to appropriate minerals from adjacent lands

Coastal Oil & Gas Corp. v. Garza Energy Trust

The rule of capture greatly limits trespass claims in oil & gas law.
Even if a lessee drills next to the land of another, he will still not be in violation of
any law due to the rule of capture.

This changes if someone is using a slant drilling method (where the drill itself
would go under the land of the other party), but this is quite uncommon. An
owner of neighboring land cannot sue for the value of oil or gas removed (Kelly).

There is also no trespass under the ground when hydraulic fracturing techniques are
used (Coastal Oil and Gas Corp. v. Garza Energy Trust).
(Salina) Plaintiff argued that drainage caused by hydraulic fracturing (by Coastal)
was analogous to trespass by a slant or deviated well.
The Texas Supreme Court held that drainage caused by hydraulic fracturing is not
a form of trespass, but is sanctioned by the rule of capture. 268 S.W.3d at 14 ("the
rule of capture determines title to gas that drains from property owned by one
person onto property owned by another."
Trespass will require a showing of actual, permanent harm to the property. None shown
in Coastal. Injury of simply taking oil and gas below you is not injury enough to sustain a
suit due to the rule of capture.

I: whether subsurface hydraulic fracturing of a natural gas well

that extends into anothers property is a trespass for which the
value of gas drained as a result may be recovered as DAS
H: The Rule of Capture bars recovery of such DAS
Concurrence: urged broader no trespass ruling based on
public policy
Dissent: viewed hydraulic fracturing as similar to a slant well,
which constitutes a physical sub surface trespass

Cherokee Water Co. v. Forderhouse

The oil and gas lease, creates an interest in real property

TX, the OGL creates a corporeal (possessory) interst in real property

classified as a fee simple determinable

InCherokeeWaterCo.v.Forderhouse,641S.W.2d
522(Tex.1982),theTexasSupremeCourtheldthat
theexecutionofanoilandgasleasetoathirdparty
wasasaleofaninterestinland.

Whereas an AMI clause relates to the acquisition of property, a preferential

right to purchase creates an obligation on a seller to give the right holder
notice of a proposed sale and the opportunity to exercise the right to
purchase. The preferential right to purchase is sometimes referred to as a
"preferential purchase right", "right of first refusal", "first privilege to
purchase" or "preemptive right" and does not have a particular legal
meaning. Frequently, the courts seek to ascertain the objective intent as

expressed or apparent in the language of the preferential purchase right

provision, not the subjective intent of the parties, and analyze the provision
or agreement on a case by case basis
Texas courts distinguish a preferential purchase right from a standard
option. Whether a Texas court determines a right is a preferential right or an
option appears to influence whether a court applies the Rule against describe
an option as giving the optionee the right to compel a sale of property,
generally at a stipulated price. The preferential purchase right, on the
other hand, does not give the optionee any right to compel or prevent a sale
and is only a right to be offered the property at a fixed price or at a price
offered by a bona fide purchaser, if and when the owner decides to sell. As
such, the preferential purchase right holder must remain passive
unless and until the owner receives a bona fide offer and decides to
sell on the terms of the offer. Texas courts are less inclined to apply the
Rule Against Perpetuities to a preferential purchase right than an option,
because the preferential purchase right holder's inability to compel or
prevent a sale prevents or lessens the holder's ability to unreasonably
restrain alienability.
Preferential purchase rights appear in a variety of oil and gas documents,
including deeds reserving or conveying minerals, oil and gas leases, and
farmout, participation and operating agreements. Texas courts have generally
upheld preferential purchase rights as to interests in oil and gas against a
claim that the right violates the Rules Against Perpetuities. For example,
Texas courts have upheld a preferential right to purchase minerals

Example. The Forderhause v. Cherokee Water Co. Case. Cherokee could

exercise its preferential right to acquire minerals when Forderhause executed an oil
and gas lease to a 3rd party because the lease functioned as a sale.

The appellate court in Forderhause v. Cherokee Water Co. discusses that

there are two views in the United States as to the applicability of the Rule
Against Perpetuities to a (1) preferential purchase view is that the right, if

unlimited in time, violates the Rule and will not be enforced. (2) The other
view is that the Rule is designed to prevent unreasonable restraints on
alienation of property. If the preferential right does not operate to restrain
alienation, but only states who will have the first right to acquire the property
when and if the seller

decides to sell it, the Rule does not apply. The Forderhouse appellate court
stated this latter view appeared to be the rule in Texas and that it would
follow the rule in that case. In the deed presented to the court, the grantor

conveyed the surface of

the land to the grantee, reserving the minerals and giving the grantee a "first
option or preferential right" to purchase the minerals, exercisable within five
days after notice, should the mineral owners ever desire and agree to sell
them. The

court held the preferential right to purchase did not violate the Rule. The
court reasoned that the purchase right did not place an unreasonable
restraint on alienation because it contained no absolute option unlimited in
time, and the grantee could not force or prevent a sale or fix a price for the
sale. In these

circumstances, the court found the restraint on alienation of the property

was not enough to violate the Rule. The Texas Supreme Court agreed with
the reasoning of

the appellate court.

Concord Oil Co. v. Pennzoil Exploration and Production Co

1. Facts. Grantor owned a 1/12 MI and subject to O&G lease that
paid 1/8 royalty. Granting clause purported to convey 1/96 MI.
Subject to clause purported to convey 1/12 in all rents &
royalties
No future lease clause.
That I A.B. Crosby . . . Grant, Sell, and Convey unto Southland . . . an
undivided one-ninety sixth (1/96) interest in and to all of the oil, gas
and other minerals in and under, and that may be produced from
Survey Sixty-four . . . .
While the estate hereby conveyed does not depend upon the validity
thereof, neither shall it be affected by the termination thereof, this
conveyance is made subject to the terms of any valid subsisting oil,
gas and or mineral lease or mineral lease or leases on above described
land or any part thereof, but covers and included one-twelfth (1/12) of
all rentals and royalty of every kind and character that may be payable
by the terms of such lease or leases insofar as the same pertain to the
above described land, or any part thereof.

2. Issue: Must any inconsistencies in a conveying instrument be

harmonized, if possible, by looking at the doc as a whole to
determine the parties intent? Yes
1. The primary objective in constuing mineral and other
grants is to deterimine the intent of the parites from all the
language in the instrument, read as a whole
2. In other cases considered by the court in which the fraction
in the granting clause was smaller than those in
subsequent parts of the conveyance, the conveyance
contained explicit, unambiguous provisions that directed
what interst the grantee was to receive uner various
circumstances
3. In each of those cases, the fraction was consisten in all
clauses except the granting clause, and the court found
that the grantee had received an estate larger than that
indicated by the granting clause
4. This doesnt mean that no conveying instrument should be
construed to convey mineral and royalty intersts of
different magnitudes, but the intent to do so must be
discerned from the 4 corners of the document
1. Here, the Concord eed did not give as much
guidance as the conveyances considered by the
court in other cases
2. One of the primary issues is whether the 1/12 rental
and royalt provision applies only to leases in
existence at the time the grant was made or whether
it applies to all leases
3. However, whether the deed contained a future lease
clause is not necessarily dispositive of what interest
was conveyed
4. Looking to the doc as a whole, a preliminary question
that must be answered is whether the intent was for
2 different interest to be conveyed
5. The answer is that only a signle este is being
conveyed b/c the eed refers only to an estate and
because if the state were ony a 1/96 interst in the
minerals, it would cover an dinclude only 1/96 of the
rents and royalty
6. This is also true bc the deed provides that the estate
does not epend on the validty or termination of
leases
7. If the estate conveyed was a 1/12 mineral interest
only for the life of the lease that was in existence at
the time of the grant and became a 1/96 interest
upon expiration of that lease, the estate would be
affected by the termination of that lease

8. The CTA concluded that the grant of a 1/96 mineral

interst and the grant of a 1/12 interset in the existing
lease took effect at the same time. However if this
were the case, the 2 interests together would
mathematically add up to more than 1/12 of the
rents and royalty. Thus contrary to that courts
holding the outcome of this case does not epend on
the presence or absence of a future lease clause
9. Additionally, the eed should be construed to include
future leases in addition to the one existing at the
time of the grant b/c it references mineral lease or
leases
5. CONCORD AND OTHERS HAVE URGED THAT THE CT ADOPT
A BRIGHT LINE RULE FOR CONSTRUING MINERAL AND
ROYALTY CONVEYANCES THAT CONTAIN DIFFERING
FRACTIONS. HOWEVER, ANY SUCH RULE WOULD B
ARBITRARY AND NOT ALWAYS GIVE EFFECT TO WHAT THE
CONVEYANCE PROVIDES AS A WHOLE
3. Court holding is that a 1/12 mineral interest was conveyed, using
four corners approach, and rejecting Two Grant Theory in the
context of the facts in that specific case. But, the court was
deeply divided
Getty Oil Co. v. Jones
Theapplicationoftheaccommodation doctrine is best demonstrated in the Texas Supreme
Court case of Getty Oil Co. v. Jones.

In Getty Oil, the surface owner, Jones, used a self-propelled sprinkler irrigation
system known as a Valley System to irrigate his farmland.

The sprinklers hovered seven feet off the ground as they moved across the
surface.

Getty Oil then drilled two wells, installing pumping units (17 feet and 34 feet
high) that interfered with the irrigation system.

Evidence showed that there were reasonable alternatives for Getty Oil being used
on adjacent land placing pumping units in sunken concrete cellars to provide
clearance and using shorter hydraulic pumping units.

In the alternative, evidence showed that a labor shortage in the area made Jones
sprinkler system his only reasonable method for irrigating his land.

Under circumstances such as these, the surface estate may be entitled to an

accommodation from the dominant mineral estate.

o Getty must accommodate jones competing surface use

o Since Jones was using the irrigation system prior to the Getty lease
and Getty had reasonable alternatives (by putting pump jacks in
cellars) Getty must use the alternative operating technique so as not to
interfere with Jones surface use
The accommodation doctrine is not applicable if there are no reasonable alternatives
available to the mineral owner. In Haupt, Inc. v. Tarrant County Water after the
surface owner had flooded the surface, the mineral owner could nodrill from a vertical
platform on dry land. The mineral owner had alternatives available to it, such as
directional drilling from offsite or drilling from a platform over water; however, evidence
showed that these methods were not economical due to vastly increased costs and risks.
Therefore, the mineral estate did not have to accommodate the surface estate and, as the
flooding of the surface had already taken place, the surface owner was seen as having
damaged the mineral estate.
Sun Oil Co. v. Whitaker
[w]here there is an existing use by the surface owner which will
otherwise be precluded or impared and where under the established
practices in the industry there are alternatives available to the lessee
whereby the minerals can be recovered, the rules of reasonable usage
of the surface may require the adoption of an alternative by the
lessee.
Under the accommodation doctrine, most states view the mineral estate as the dominant estate w/the
surface estate being servient to the mineral estate. TX recognizes a limited obligation to accommodate
the surface owners interests when it can be done without unduly burdening the owner of the mineral
interest. This accommodation doctrine only applies when the lessees proposed use unduly impairs
lessors preexisting use of the land & reasonable alternatives exist for the lesee

Court had to determine whether Sun was obligated to seek alternative supplies of water for its
secondary recovery operation

Court held that since Sun was entitled to use water from the leased land (under its implied surface
use easement) it could not be required to seek alternative supplies from sources OFF the leased
premises, to accommodate the farmers competing surface use

The rule was further refined in Sun Oil Co. v. Whitaker. In this case, the surface owner protested the
use of massive amounts of groundwater in a waterflood project being conducted on the property. The
owners maintained that the project significantly affected water flowing to the surface, which in turn
reduced the amount of groundwater available for irrigation and shortened the life of the irrigated farmland.
The surface owner claimed the accommodation of the estates doctrine required the lessee to take water
from sources located off the leased premises. This was a reasonable alternative, according to Whitaker.
The high court disagreed, limiting the doctrine to reasonable alternatives that exist on the premises, not
off.

c. Sun Oil v. Whitaker KNOW!!! (Added

another
requirement to Accommodation doctrine).
1. Sun was mineral ownerand used
water from
Whitakers well to inject into his oil
well.
Whitaker argued that he had
preexisting use that
would be harmed if Sun used the well.
2. HELD: Mineral owner has dominant
estate.
3. RULE: The 2 elements of
Accommodation
doctrine have to be met + the
reasonable
alternative must be available on the
leasehold
premises
4. Cant require mineral owner to get
alternative
from source that is off the leasehold
premises.
Cheyenne Resources, Inc. v. Criswell
Cheyenne v. Criswell: Repudiation by lessor tolls the lease - relieves
the lessee from any obligation to conduct any operation until the
matter is settled.

Darrell Criswell, Freda Criswell, and Elsie Criswell sued

Cheyenne Resources, Inc. seeking a declaration that an oil and gas
lease had expired due to the failure of Cheyenne to commence
drilling operations prior to the expiration of its primary term.