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

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). W hether 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.

[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.