Oil and Gas Lawyer Blog
Unitex WI, LLC v. CT Land and Cattle Co., decided by the Amarillo Court of Appeals, petition for review pending in Texas Supreme Court.
CT Land and Cattle owns the surface estate of 4,000 acres in Scurry and Kent Counties. The land is subject to an oil and gas lease signed in 1948 to Humble Oil & Refining Company. Unitex is the operator of some 200 wells on the property. The oil and gas lease provides: “When required by Lessor, Lessee will bury all pipelines below ordinary plow depth.” Multiple pipelines serving those wells lie on the surface of the land.
CT Land wrote Unitex, requesting that all pipelines be buried, per the burial covenant in the lease. Unitex refused; CT Land sued; and the district court in Lubbock County entered an order requiring Unitex to bury its lines. Unitex appealed.
The Amarillo Court of Appeals held that CT Land is not entitled to enforce the burial covenant. The court recognized that such a covenant ordinarily “runs with the land” and is enforceable by subsequent owners of the surface estate. But the court concluded that language in the deed to the Senns, predecessor to CT Land, by which the land was conveyed and minerals reserved, changed this presumption. That deed provided that it was made “subject to all valid and subsisting oil, gas and mineral leases … which may have been granted by Grantor or Grantor’s predecessors in title …” The court reasoned that, because of this subject-to clause, “the lease and rights of the lessor thereunder were not transferred to” the grantee.
The deed also reserved all minerals, and “so much of the surface … as may be required to permit Grantor … to mine, drill, develop, explore, operate, handle, transport, and market” the minerals. The court thought this language important:
If the Senns and their successor CT Land were entitled to enforce the burial covenant, then the Trust could not utilize the surface to transport the substances produced despite having expressly reserved it for that purpose.
The court reasoned that this language “clearly revealed its intent to prevent the Senns and their successors from gaining interest in or rights under the 1948 mineral lease.”
CT Land’s petition for review to the Supreme Court points out that the court’s decision is directly contrary to the decision in Henry v. Smith, 637 S.W.3d 226 (Tex.App.–Fort Worth 2021, pet. denied). The court’s decision is also contrary to the understanding of most oil and gas practitioners. The subject-to clause does not reserve any rights, but only makes the conveyance subject to the oil and gas lease. The mineral reservation reserves the right to use the surface estate for exploration and production, which is a right that in any event is appurtenant to the mineral estate. The surface owner’s right to enforce the pipeline burial covenant does not, as the court contends, prevent the mineral owner or its lessee from using the surface estate to explore for and produce minerals; it only requires that pipelines be buried.
Another case to watch in the Supreme Court.