Published on:

The Texas Supreme Court recently granted petitions for review regarding the ownership of salt caverns created by salt extraction in Myers-Woodward, LLC v. Underground Servs. Markham, LLC, ___ S.W.3d ___, 2025 WL ___ (Tex. May 16, 2025).

In this case, the lessee, Underground Services (“USM”) owned the mineral estate, and Myers owned the surface and a 1/8 royalty in all the minerals. Salt caverns had been created where USM had been extracting salt. USM used the caverns to store hydrocarbons. USM sued Myers, seeking declaratory relief regarding the royalty’s calculation and the right to use the underground salt caverns. The Corpus Christi Court of Appeals reversed the trial court judgment and held that the salt caverns belonged to the surface owner and affirmed the portion of the trial court judgment that the surface owner was due a 1/8 royalty on the market value of the salt at the wellhead.

The Supreme Court held that USM owned the salt under the tract, however the subsurface voids encased in salt and created by the production of salt belonged to Myers. USM, as the owner of the dominant mineral estate, had a qualified right to use the salt caverns, but that use was limited to uses that are reasonably necessary to recover USM’s minerals. USM could not use the caverns for storage of hydrocarbons or off-site minerals. The Supreme Court reversed regarding the royalty issue and remanded that issue back to the trial court.

 

Published on:

In Scout Energy Management, LLC v. Taylor Properties, 704 S.W.3d 544 (2024), the Texas Supreme Court addressed a case where the Plaintiff claimed that two leases had terminated because a shut in royalty payment was made late.

The leases in question had a pretty standard shut in royalty clause that allowed a payment of $50.00 per well per year to maintain the leases when there was neither sale nor use of produced gas. Production on the only well ceased in September 2017. Scout’s predecessor, ConocoPhillips, made shut in royalty payments for each lease to the Lessor in September 2017. Then in October 2017, Scout made second shut in royalty payments to the Lessor on both leases.

Scout next made shut in royalty payments to the Lessor in December 2018. The Lessor sued and requested declaratory judgment that the leases had terminated.

Published on:

In Premcor Pipeline Co. v. Wingate, No. 09-22-00117-CV (Tex. Civ. App. Apr. 11, 2024), the Court considered a dispute regarding Premcor’s use of Wingate’s roads and bridges to service its pipelines. Wingate filed suit for injunctive relief and for a declaratory judgment to limit Premcor’s access to a fixed width adjacent to the pipelines. The pipeline easements did not set a width for the easements and did not contain any limitation on the use of the land crossed by the pipelines.

The trial court issued an injunction restraining Premcor from using any of Wingate’s property located more than ten feet on either side of the centerline of the route of its pipelines.

The Beaumont Court of Appeals reversed and held that because the grants of Premcor’s easements were not limited to a fixed width, the trial court’s supplying a width based on extrinsic evidence was erroneous. The Court of Appeals held that the grant of a general easement without a fixed width does not render the easement ambiguous, and that the easements had to be interpreted as a matter of law without considering extrinsic evidence that would contradict, vary, or add to the terms of the unambiguous easements. The Court noted that Premcor’s use was limited to what was reasonably necessary.

Published on:

A somewhat unsettled question in Texas law is just who owns the water that is produced in some wells along with the oil and gas. Produced water has usually been considered a waste product, and the operator/lessee had to pay to have it hauled away. However, some operators are selling the produced water to a company that recycles it and then sells it for use in fracking. That means produced water may become a valuable commodity and so the question of who owns it becomes critical.

In Cactus Water Servs., LLC v. COG Operating, LLC, 676 S.W.3d 733 (Tex. Civ. App.—El Paso 2023), pet. granted, the El Paso Court of Appeals addressed this question. COG Operating LLC (“COG”) was operating a lease in which water was produced. The surface owner, believing he owned the water, sold the rights to the produced water to Cactus Water Services LLC (“Cactus”). When Cactus served notice on COG that Cactus owned the water, COG sued Cactus.

The Court of Appeals declared that COG owned the produced water that was part of COG’s product stream. The petition for review filed by Cactus in the Supreme Court was granted. It will be interesting to see how the Texas Supreme Court rules on this question.

Published on:

I recently caught up with my stack of reading material, and one article that I found especially interesting is an article by Dr.Iddo Wernick entitled “The Many Problems with Batteries”. It is an analysis well worth your time. Dr. Wernick is a senior research associate at The Rockefeller University’s Program for the Human Environment and was nominated for a Nobel Prize in 2013 and 2014. Some of the problems with batteries he notes are:

  • batteries store energy less efficiently than hydrocarbon fuels, meaning that batteries require much more mass and volume than hydrocarbon fuels. Batteries are far less energy dense than other fuels. For example, the energy density of biomass fuels such as straw and cow dung is 20 times greater than lithium ion batteries, and the energy density of gasoline is 50 times greater than lithium ion batteries.
  • half the power of the batteries in an EV go to moving the batteries themselves. (There will be increased highway wear and tear due to the weight of EVs that we as taxpayers will have to pay for).
Published on:

In 2022, in a case decided by the Corpus Christi Court of Appeals, the issue was who owns the right to use underground salt caverns: the mineral owner or the surface owner? In this case, Myers-Woodward, LLC v. Underground Services Markham, LLC and United Brine Pipeline Co., ___ S.W.3d ___, 2022 WL 2163857 (Tex.Civ.App.—Corpus Christi–Edinburgh 2022), pet. granted (Aug. 30, 2024), the Court also considered how a salt royalty should be calculated.

Underground Services Markham, LLC (“USM”) owns the minerals as well as a right of ingress/egress to mine the salt. Myers owns the surface and a 1/8 royalty in the minerals. The underground caverns were created by a salt extraction process by USM. USM is currently using the salt caverns to store hydrocarbons.

The Court of Appeals held that: 1) the surface owner owns the subsurface caverns; 2) since the deed to USM specified the caverns’ use, USM could not use the caverns to store hydrocarbons; and 3) the royalty due Myers is 1/8 of the value of salt production at the wellhead. The Court specifically declined to follow an earlier case by the Beaumont Court of Appeals, Mapco, Inc. v. Carter, 808 S.W.2d 262, 278 (Tex.Civ.App.-Beaumont 1991), rev’d in part on other grounds, 817 S.W.2d 686 (Tex. 1991) that held that the salt (i.e., mineral) owner owns and is entitled to compensation for the use of an underground storage cavern.

Published on:

Whether a royalty granted or reserved in a deed is a “fixed” or “floating” royalty has resulted in a lot of litigation in Texas. The Corpus Christi Court of Appeals considered the issue again in Hahn v. ConocoPhillips Co., ___ S.W.3d ___, 2022 WL 17351596 (Tex.Civ.App.—Corpus Christi 2022, pet. granted).

The Plaintiff sold land to a third party and reserved a 1/8 royalty nonparticipating royalty interest (fixed royalty language). Years later, the third party leased to the Defendant, ConocoPhillips. The Plaintiff then signed a ratification of that lease to allow pooling. In addition, the Plaintiff and third party signed a stipulation of interest in which the Plaintiff agreed he owned a 1/8 of royalty (floating royalty language).

The question is: does the stipulation of interest change the original fixed royalty into a floating royalty? If the royalty is floating, the Plaintiff’s interest would be decreased by the 25% royalty in the lease between the third party and ConocoPhillips. The trial court found for ConocoPhillips and the third party. The Court of Appeals reversed and held that the stipulation of interest should not be considered, and that the Plaintiff owned a 1/8 fixed royalty. ConocoPhillips has appealed the case to the Texas, on the grounds that: 1) the stipulation changed the royalty from fixed to floating, and 2) when the Plaintiff ratified the third-party lease, he was ratifying the whole lease (including the 25% royalty) and not just the pooling clause in the lease.

Published on:

Earlier this year, the Corpus Christi Court of Appeals was called on to interpret the rights provided by a production sharing agreement. A production sharing agreement is an agreement between an oil company-lessee and the lessor mineral owners setting out how a horizontal well’s production will be allocated to the various mineral owners. In Hamilton v. Conoco Phillips, the Plaintiff and Defendant had signed a production sharing agreement.

The production sharing agreement contained the following language:

5. Surface Use, To the extent Owner may own any interest in the surface estate within the Lease, Owner giants Burlington easements (including subsurface easements) and rights-of-way (including all reasonable ingress and egress rights) on, in, and under the Leases associated with any Sharing Well, including easements and rights-of-way for:

Published on:

In a recent case, the Texas Supreme Court considered whether interest on late royalty payments was supposed to be simple or compound interest.

In Samson Exploration, LLC v. Bordages, 662 S.W.3d 501, 2024 (Tex. June 7, 2024), the Plaintiff’s oil and gas leases had a late charge provision that provided for interest on unpaid royalties at a rate of 18% and said the charge was due and payable on the last day of each month. When Samson paid previously unpaid royalties to the Plaintiff, it included simple interest. The Plaintiff claimed that the interest should be compounded.

The Court looked at cases and laws in other states and said that there is a modern-day general rule that compound interest will not be imposed absent clear and specific contractual or statutory authorization. The Court stated that compound interest is disfavored, and that interest on late royalties should not be compounded absent an express, clear, and specific provision for compound interest. The Court went on to say that language such as “per annum”, “annually”, or “monthly”, by themselves, are insufficient to sustain the assessment of compound interest.

 

Published on:

Lithium mining is apparently becoming the next boom activity in Northeast Texas, particularly in Cass, Franklin, Morris and Titus Counties. There are a few things to know about lithium leasing.

First, be aware that Northeast Texas is becoming Ground Zero for lithium production. It is estimated that the lithium contained in brine from the Smackover Formation that underlies Southwest Arkansas and Northeast Texas contains some of the highest lithium concentrations in the country.

Historically, lithium mining involved pumping the brine into huge evaporation ponds on the leased property and retrieving the lithium once the brine evaporated. Brine is much more saline than saltwater, and these ponds were incredibly destructive of property. However, there is a new technique called Direct Lithium Extraction in which the brine is processed in small tanks, either on the property or at another site, to remove the lithium. The leftover brine water is then pumped back into the formation. It is critical that lithium leases prohibit the evaporation pond technique and require the newer Direct Lithium Extraction technique in order to prevent irreparable damage to the property. It is also critical that your lease contain appropriate language that helps prevent other damage to your property and that contains indemnities by the lessee for any damage that does occur.