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Tilting the Scales Business Issues with a Legal Slant

Differences Between Surface & Mineral Estate Ownership

Posted in Property Issues

Can Oil & Gas Companies Place a Pump Jack in Your Front YardSeldon Wright, an accountant, searched for years to find the perfect piece of property to open his tax preparation business, Many Happy Returns.  At long last, Wright finally located and purchased an ideal parcel from Molly Kuehl, a physicist at the local university.  Several months after Wright finished construction of his office and opened for business, Kuehl stopped by and informed Wright that natural gas had been found in the area and, as she still owned the mineral rights, that she intended to enter into a lease to allow drilling on the property.  Wright tells Kuehl that her right to the natural gas was terminated when she sold the property and that any exploration or drilling would be a trespass.  Is Wright right?

Probably not.  In Texas, land is divided into a “surface estate” and a “mineral estate.”  A seller can sell the entire estate (both the surface and mineral) or just the surface or mineral estate.  When Wright purchased the land, his concern was for the surface estate where he intended to build his office.  Wright didn’t care (or even realize) that Kuehl had retained the mineral estate because natural gas and/or oil had never been drilled in the area.  This is all very bad news for Wright.  In Texas, where oil and gas have been so critically instrumental to the state’s economy, case law has developed greatly favoring the estate of the mineral owner.  When the estate has been severed (as in this case), the mineral estate always dominates so that the minerals (e.g. oil and gas) may be produced.  Despite Wright’s protests, if Kuehl enters into a mineral lease with a natural gas company, the company may use as much of the surface as is reasonably necessary for its operations.  Kuehl’s ability to drill is subject, however, to municipal ordinances and the prior use doctrine, which protects land owners from damage or disruption to their business. 

Tilting the Scales in Your Favor – When purchasing or selling property pay close attention to whether the surface and mineral estate will remain united or are being severed.  Looper Reed has seen a resurgence in certain oil and gas legal work as a result of new drilling technologies.  These recent advances have permitted oil and gas companies in North Texas to drill in areas where once there was no drilling (including residential neighborhoods), but have also moved drilling operations closer to residential neighborhoods.  What drilling activities may take place and where they may take place is ultimately governed by the municipality in which the land is situated.