Texas Supreme Court Asked to Re-examine NGPL v. Pool


September 8, 2010
A case now before the Texas Supreme Court that addresses issues important to Texas mineral owners. The case, BP America Production Company, et al., v. Stanley G. Marshall, Jr., et al., No. 09-0399, asks the Texas Supreme Court to address the applicability of the laws of adverse possession to mineral interests for the first time since the Court's decision in the Pool case, Natural Gas Pipeline Co. of America v. Pool, decided in 2003. To understand the importance of BP v. Marshall, it is necessary to first review the Pool case.

In Pool, the Texas Supreme Court decided for the first time that a mineral lessee could acquire title by adverse possession to a mineral leasehold estate by continuing to produce from a lease that had expired. It was the first case to so hold, and the case surprised and confounded mineral owners when it was decided in 2003. Pool has made it more difficult for mineral owners to assert that leases have terminated for gaps in production that occurred several years prior to the mineral owners' suit. Under the State's adverse possession statutes, the lessee may now claim that the lease has been revived by the lessee's continued operations on the lease under the five and ten-year statutes of limitation. In other words, the court held in Pool that, if an oil and gas lease expires for some reason but the lessee continues to operate wells on the lease and pay royalties, the lessee can re-acquire the lease under the adverse possession statutes. In BP v. Marshall, BP and Wagner Oil Company have asked the Court to extend the applicability of the adverse possession statutes to a situation very different from the facts in Pool.

 

The mineral owners who sued in BP v. Marshall own one-half of the minerals under 17,700 acres in Webb and Zapata Counties known as the Slator Ranch. The other one-half minerals are owned by Tenneco. In the 1970's, BP obtained oil and gas leases from on the Slator Ranch from Tenneco and the other mineral owners, who I will refer to as the Marshalls. The leases from the Marshalls were set to expire in 1980. Two weeks before the leases were to expire, BP spudded a well. It continued to work on that well through 1980, telling the mineral owners that it was testing additional zones in the well. In early 1981, BP finalized a farmout agreement with Sanchez-O'Brien and Sanchez commenced a new well on the Ranch that proved to be productive. From that point until the present, there has been continuous production from the Ranch. The mineral owners later discovered that BP had abandoned any real effort to complete its well in early January 1981. Since Sanchez O'Brien's well was not commenced until April 13, 1981, the mineral owners contended that their leases had expired. The jury found that the lease had expired and that BP had fraudulently misled the Marshalls into believing that the lease was maintained by operations on the well. The trial court cancelled the lease, and the court of appeals in Corpus Christi affirmed. BP has asked the Texas Supreme Court to hear the case, and the Court has asked the parties to submit briefs. (The Texas Supreme Court has discretionary jurisdiction - that is, it does not have to hear a case. Parties dissatisfied with the result of an appeal to a lower Court of Appeals petition the Supreme Court to hear their case; the Court may decide to hear the appeal, in which event the parties submit briefs, or the Court may ask the parties to submit briefs without deciding whether it will accept the case.)

The fact that distinguishes this case from Pool is that BP had a lease on Tenneco's ½ mineral interest in the Slator Ranch, and Tenneco's lease never expired. So BP always undisputedly had a lease on a ½ interest in the Ranch which gave it the right to be present and operate on the Ranch even if the leases on the other ½ mineral interest did expire. In Pool, the lease being challenged covered 100% of the mineral estate, and if it had expired the lessee would have no right to continue operations on the lease. The distinction is important because of long-standing case law interpreting adverse possession statutes in cases where there are multiple landowners and one of them claims adverse possession against the title of his co-tenants.

Texas courts have long held that, in order for one co-tenant of land to claim adverse possession title to the land against his other co-tenant, the co-tenant claiming title must prove that he has given notice to the non-possessing co-tenant of his intent to claim adversely to the non-possessing co-tenant's title. For example: if Joe Cain and John Able each own a ½ interest in Blackacre, and Joe lives on the land and fences and cultivates it but John lives in town and never goes on the land, Joe is presumed to be on the land with John's consent. Joe and John are co-tenants, and the law grants either of them the right to live on and enjoy the land. Possession by Joe cannot be adverse to John's title unless the John is given clear notice that Joe is claiming to own 100% of the land, and that his possession is "hostile" to John's interest.

In BP v. Marshall, the trial court and the Corpus Christi Court of Appeals held that the rule in Pool did not apply because BP had never given notice to the Marshalls that their possession of the lease after the termination of the Marshalls' leases was adverse to the Marshalls' interest. When the Marshall leases expired, BP became co-tenant with the Marshalls, since BP continued to hold the mineral title leased from Tenneco. BP had to give unequivocal notice to the Marshalls that it was claiming adversely to their title, and it failed to do so. BP has asked the Texas Supreme Court to reverse this holding.

BP v. Marshall has attracted a lot of attention in the oil and gas legal community. Friend-of-the-court briefs have been filed by Texas Oil & Gas Association and Kelly Hart & Hallman (a Fort Worth law firm who represent oil and gas producers), supporting BP's arguments. Texas Land and Mineral Owners' Association filed a brief supporting the Marshalls' arguments. (My firm prepared the brief of TLMA.) The Court has not yet decided whether to hear the case, but has asked the parties to file briefs of their arguments. To view all briefs in the case, go here.