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June 10, 2013

Mineral Law West of the Pecos

A friend recently made me aware of a publication by the Real Estate Center at Texas A&M called "Mineral Law West of the Pecos," written by Judon Fambrough, a lawyer who is with the Center. Judon has written much good stuff about land and mineral law in Texas, and this publication is no exception. (The Center has many good articles and publications on its website of interest to land and mineral owners.) Judon's article contains a good summary of the history of land grants in West Texas, mineral reservations, the Relinquishment Act and "mineral-classified" land, what constitutes a "mineral," and recent litigation over State ownership of minerals in West Texas. His article is well written and informative and should be in every oil and gas lawyer's library. The law of Texas land grants in West Texas (and South Texas) is complex and fascinating.

Judon provides this link to maps online at the Texas General Land Office, which show tracts in West Texas subject to any mineral classification or reservation by the State:

http://gisweb.glo.texas.gov/glomap/index.html

Another good resource.

September 29, 2011

State of Texas v. Cemex - the meaning of "minerals"

The Eighth Court of Appeals in El Paso has issued its opinion in State of Texas v. Cemex Construction Materials South, LLC. The court reversed a summary judgment for Cemex and granted the State's summary judgment, returning the case to the trial court to assess damages. The State is seeking damages of $558 million.

Cemex is the world's leading supplier of ready-mix concrete, and one of the world's largest producers of White Portland Cement. Cemex is based in Monterrey, Mexico, and has operations across North and South America, Europe, Africa, the Middle East and Asia. It has annual sales of more than $14 billion.

Cemex operates a quarry for sand, gravel and caliche in El Paso County. According to the State's petition, Cemex and its predecessors have mined about 100 million tons of materials from the quarry since 1940. Cemex bought the quarry from the British group RMC in 2005.

The State claims to own the rights to the materials mined from the quarry because the sand, gravel and caliche are "minerals" reserved by the State when the lands were originally granted in 1900, 1906 and 1912. The El Paso court held that the lands were classified as "mineral" at the time of the original grants and are therefore "mineral-classified lands," and that the sand, gravel and caliche consitute "minerals" and are therefore owned by the State as a matter of law. (See my previous article on mineral-classified lands here.)

The Court of Appeals relied on the opinion of the Texas Supreme Court in Schwarz v. State, 703 S.W.2d 187 (Tex. 1986), which held that the State owns all coal and lignite under mineral-classified lands in Texas. Schwarz is notable because it applies a different rule in determining what substances are "minerals" for purposes of minerals reserved to the State than the rule it has adopted for construction of instruments reserving "minerals" between private parties. Some substances are not considered "minerals" in a private transaction if the removal of those substances would destroy the surface estate. But the Court in Schwarz rejected this rule for classification of "minerals" reserved to the State. So, according to the El Paso court's opinion, the State owns all sand, gravel and caliche in mineral-classified lands even if mining of those substances would destroy the surface estate.

The El Paso court's opinion in Cemex does not discuss what test should be applied under Schwarz to determine whether a substance is a "mineral" and therefore owned by the State. For conveyances and reservations between private parties after June 8, 1983, whether a substance is a "mineral" is determined by the "ordinary-and-natural-meaning" test. Under this test, "other minerals" includes "all substances within the ordinary and natural meaning of that word" regardless of how they are extracted. Moser v. U.S. Steel Corp., 676 S.W.2d 99 (Tex. 1984). Limestone, building stone, sand, gravel and caliche have been held not  to be "other minerals" under this test. The court in Schwarz appears to be applying the ordinary-and-natural-meaning test in classifying lignite as a "mineral": "It is clear that the sovereign in Texas has always claimed all of the substances commonly classified as 'minerals' and only gives away those substances by an express release or conveyance." 703 S.W.2d at 191 (emphasis added). Clearly, the El Paso court did not apply this test to the State's mineral reservation:

[B]ecause the State did not unequivocally grant to the original purchasers in clear and explicit terms the dirt, caliche, sand, gravel, limestone and other minerals and materials to which Cemex now claims ownership, those items were withheld from the State's conveyances of the ... lands and any ambiguity or obscurity in the terms of the statute, such as the terms "the minerals," "stones valuable for ornamental or building purposes," and "other valuable building material," must be interpreted in favor of the State.

The El Paso court appears to be holding that any substance of economic value that can be removed from the land is a "mineral" for purposes of the State's title.

Cemex will undoubtedly be asking the Texas Supreme Court to review the case.

April 27, 2009

The Meaning of "Other Minerals."

Conveyances of minerals in Texas usually describe the interest conveyed or reserved as an interest in "oil, gas or other minerals." Texas courts have struggled mightily to try to discern what the parties meant by the term "other minerals." If the parties did not specifically name a particular mineral, such as coal or uranium, did they intend that substance to be included in their reference to "other minerals"?

Making the matter more complicated, the Texas Supreme Court has changed its mind on how to approach the problem. At one point, the Court adopted a "surface destruction test" to determine whether a substance was intended to be a "mineral." Under this rule, the Court reasoned that the parties would not intend to sever ownership of a substance from the surface estate if the commercial way to mine the mineral was by strip mining, so a near-surface substance would not be considered a "mineral." Then the Court decided that such a test was not workable, and it adopted (but only for reservations or conveyances of "other minerals" after the date of its opinion) a different test, the "ordinary and natural meaning" test. Under this test, a substance is a mineral if it is within the "ordinary and natural meaning" of the word "mineral." In effect, each substance must be tested by litigation to determine if it is a "mineral" within the ordinary and natural meaning of that term. Once a court has decided that a particular substance is a mineral under this test, it is a mineral for all reservations and conveyances of "oil, gas and other minerals" to which the test applies..

Because of all of the confusion about the term, I have created a short-hand decision tree to use when looking at a conveyance or reservation, to help me remember how to apply these tests.  My decision tree is below.

 

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