The Texas Supreme Court issued three opinions last week of interest to Texas land and mineral owners: one dealing with the duties of holders of executive rights, one limiting the condemnation powers of pipelines, and one addressing whether injection well operators can be held liable for trespass if the injected substances migrate onto adjacent lands.
Leslie v. Veteran's Land Board - The duty of the executive rights holder
The Supreme Court again considered what duty the holder of the right to lease ("executive right") minerals owned by another has to the non-executive mineral interest owner. The court significantly weakened its prior decision in In re: Bass, and increased the duties of the holder of the executive right. The right to lease is often separated from the mineral interest. For example, if I sell a tract to a developer, but want to keep part of the mineral interest, the developer may object, worried that I, as a mineral interest owner, might lease my interest and allow a company to drill wells on the property he intends to develop for a residential subdivision. A common solution to this problem is for me to retain a part of the mineral interest (or a part of the royalty interest) but convey to the developer the exclusive right to lease the minerals. The developer is then protected, because no mineral development can take place without his consent. Whenever the right to lease is separated from the mineral or royalty interest, the holder of the leasing right is called the holder of the "executive right," and the other mineral or royalty owner without any leasing right is called the owner of the "non-executive" interest.
In the Leslie case, a developer named Bluegreen purchased 4,100 acres of land in southwest Tarrant County, outside of Fort Worth, to develop a large residential subdivision, Mountain Lakes, of over 1700 lots. Bluegreen acquired some of the minerals in the 4,100 acres and all of the executive rights to the minerals. Bluegreen then imposed restrictive covenants on its development to govern what kinds of homes could be built, what uses of the property could be made, etc. One of those restrictive covenants prohibited "commercial oil drilling, oil development operations, oil refining, quarrying or mining operation." Later, development of the Barnett Shale formation in Tarrant County occurred, and companies sought to lease the 4,100 acres to drill Barnett wells, but found that the restrictive covenant prohibited development. Evidence in the case showed that "Mountain Lakes is sitting on $610 million worth of minerals that, in large part, cannot be reached from outside the subdivision." So the non-executive mineral owners sued, seeking to have the restrictive covenants declared void. Their theory was that, by imposing the restrictive covenant prohibiting mineral development, Bluegreen had breached its duty as the holder of the executive rights. The trial court declared the restrictive covenant void, but the Eastland Court of Appeals upheld it. The Supreme Court agreed with the trial court, holding that "Bluegreen breached its duty to [the non-executive mineral owners] by filing the restrictive covenants. The remedy, we think, should be the ... cancellation of the restrictive covenants."