robert park

GROUNDWATER OWNERSHIP:MINERAL v. SURFACE

Robert M. ParkUhl, Fitzsimons, Jewett & Burton, PLLC

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Introduction

• Nature of Estates• Surface v. Mineral v. Groundwater• Relationship Between Estates• Dominant and servient estates• Priority• Regulation of Estates• Oil and gas exception • Regulatory takings

Nature of Estates

•Unsevered fee ownership includes surface, groundwater and minerals•All estates may be severed, but until

severance groundwater part of surface estate•Once severed, estates are separate

fee simple estates of equal dignity

Nature of Estates

•Mineral owner’s absolute ownership is subject to the “Rule of Capture”•Doctrine of non-liability to

neighboring mineral owners for drainage • Encourages production, as remedy

is to “drill your own well” • Subject to the State’s police power

Nature of Estates

• EAA v. Day 369 S.W.3d 814 (Tex. 2012):• Landowner has absolute title in severalty to

the groundwater in place subject to rule of capture and State’s police power• Incorporated holding from Elliff v. Texon

Drilling Co. 210 S.W.2d 558 (Tex. 1949) to Groundwater• How far does incorporation of oil and gas

law go?

Relationship Between Estates

•Mineral estate is “dominant” and carries “implied easement” to use the surface estate: • Mineral owner may use as much of the

surface as is “reasonably necessary” to develop the minerals• Includes right to use groundwater (at least

when still part of surface estate)• Sun Oil Company v. Whitaker, 483 S.W.2d 808

(Tex. 1972)


• Limitations to the implied easement:•Use cannot benefit other lands• Robinson v. Robbins Petroleum Corp, 501

S.W.2d 856 (Tex. 1973)• But see Key Operating & Equip., Inc. v.

Hegar, 435 S.W.3d 794 (Tex. 2014)•Use cannot be negligent or wasteful• Accommodation Doctrine •GCD regluation


• Accommodation Doctrine:Where there is an existing use by the surface owner which would otherwise be precluded or impaired, and where under established practices in the industry there are alternatives available to the lessee whereby minerals can be recovered, the rules of reasonable usage of the surface may require the adoption of an alternative by the lessee


• Accommodation doctrine requires that reasonable alternative be available to Lessee on the leased premises•May offer little help to landowners fighting

water use by oil and gas operators


•Does a severed groundwater estate have an implied easement to use the surface? •City of Lubbock v. Coyote Lake Ranch,

LLC 440 S.W.3d 267 (Tex.App.—Amarillo, 2014 pet filed)


• In 1953, the Purtell family conveyed groundwater under subject tract to City of Lubbock• Surface of the property later acquired by

Coyote Lake Ranch, LLC• In 2012, City of Lubbock proposed a “well field

plan” and began operations on the property• Coyote Lake sought an injunction, which the

trial court granted; City appealed


• Temporary injunction granted on the basis that the City had failed to comply with the Accommodation Doctrine• Appellate Court reversed and remanded:• “Nowhere in Day . . . does the court speak

to the implied rights of a severed groundwater estate owner to use the surface in production of groundwater”


• Should the groundwater estate have an implied easement to use the surface?•Without implied easement, severed

groundwater owner may be unable to develop groundwater estate


• Does the mineral estate have an implied easement to use a severed groundwater estate? •Would order of severance have any

bearing? •Which estate would have priority to use

the surface?

Regulation

• Groundwater regulated by Groundwater Conservation Districts; the “state’s preferred method of groundwater management”• Article 16, Sec. 59 Texas Constitution:

“The preservation and conservation of all such natural resources of the State are each and all hereby declared public rights and duties; and the Legislature shall pass all such laws as may be appropriate thereto”

Regulation

• GCDs • All non-exempt wells must be permitted • Permits may impose limits on spacing and

production • Section 36.117(b)(2):• A district shall provide a [permitting]

exemption for: drilling a water well used solely to support water for a rig that is actively engaged in drilling or exploration operations

Regulation

• Used “solely” for rig engaged in “drilling” or “exploration” • Water from well cannot be used for any

other purpose, and cannot be shared with landowner• Is Fracing “drilling” or “exploration”?• Evergreen UWCD and High Plains UWCD No.

1 say “No”

Regulation-Regulatory Takings

• When does GCD regulation become a “taking”? • Day:• “Today we have decided that landowners do have

a constitutionally compensable interest in groundwater”• 3 categories of regulatory takings:• Physical Invasion (per se)• Complete deprivation of all economically

beneficial use (per se) • Penn Central Transp. Co. v. New York City taking


• Penn Central through Sheffield Development Co. v. City of Glenn Heights 140 S.W.3d 660 (Tex. 2004)• Three pronged test:• 1. Economic impact on the claimant• Inconclusive from summary judgment record

• 2. Interference with investment-backed expectations• Little in record to illuminate what expectations were

• 3. Nature of regulation• “A landowner cannot be deprived of all beneficial use of

the groundwater below his property merely because he did not use it during an historical period”

• Held: Summary judgment for EAA was improper


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• EAA v. Bragg 421 S.W.3d 118 (Tex.App.—San Antonio 2013, pet denied)• Bragg acquired 2 tracts in 1979 and 1983• Planted pecan orchards and drilled EA well in

1995 under permit from Medina GCD• In 1993 EAA was enacted• Bragg applied for initial regular permits in 1996• EAA renders decision in 2004 and 2005• Granted 120.2 acre feet on “Home Place” tract

and permit was denied on “D’Hanis” tract


• Bragg sued in 2006• Trial court granted Bragg’s MSJ:• Awarded $134,918.40 for D’Hanis tract• Awarded $597,575.00 for Home Place tract

• EAA appealed:• EAA not liable party• Statute of limitations• No taking occurred • If taking occurred, incorrect damages awarded


•Was there a taking?• Held:• Court reiterated three types of Regulatory

Takings• Case governed by Penn Central test• “in regulatory takings issues, we consider all

of the surrounding circumstances in applying a fact-sensitive test of reasonableness”


• Prong 1: Economic Impact• The proper inquiry considers the diminution

in the value of the properties brought on by the regulation in question• Highest and best use of both properties was

as pecan orchards• As a result of EAA regulation, Braggs reduced

number of trees 30%-50% and reduced watering; resulted in the Braggs’ inability to raise commercially viable crops


• Prong 2: Investment-Backed Expectations• Has the landowner taken legitimate risks

with the reasonable expectation of being able to use the property?• Braggs spent more than $2,000,000 on two

tracts since they were acquired• Planted trees and drilled wells before EA

Act was implemented in 1996• Bragg’s expectations were reasonable


• Prong 3: Nature of Regulation• EA Act was enacted for the purpose of

“protecting terrestrial and aquatic life, domestic and municipal water supplies, the operation of existing industries, and the economic development of the state”• These important goals weigh heavily in

favor of the EAA


• Held:• EAA’s actions against Bragg resulted in a

regulatory taking• Adequate Compensation• Time of Valuation• EAA’s actions constituted an inverse

condemnation, therefor time of valuation was time of taking in 2004 and 2005


• Value of Property Taken• Trial Court valued Home Place tract on basis

of value of water taken• Trial Court valued D’Hanis tract on value of

farm with irrigation rights vs. farm without irrigation rights • Great difference in value between the two

approaches


•What is the “property” actually taken?• First Category: Value of land with and

without access to subsurface minerals (decrease in market value of property)• Second Category: Value of subsurface

estate as property separate from land (actual value of subsurface minerals)


• “The water beneath the Braggs’ land is not the source of their business—they do not buy, sell, or lease water as a commodity.”• “Compensation should be determined by highest and

best use of property, which here are as commercial pecan orchards.”• Held:• Reversed and remanded• Compensation should have been difference in market

value of the properties before and after the permits were issued/denied


• Conclusions• Reasonable investment-backed expectations

may be a difficult hurdle for some owners• If groundwater is used for surface operations,

valuation will be diminution in market value • Compensation for severed groundwater?• Can a mineral owner claim GCD regulations

have resulted in a taking of the mineral estate?• Answer seems to be Maybe?

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