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Case Study: Can an Oil Company use the road from one tract of land to produce oil from another tract?

Posted 9:45 AM, June, 2nd 2014 by Manning Wolfe & filed under Blog, Case Studies, Legal

Issue:

Will and Loree Hegar filed suit to permanently enjoin Key Operating & Equipment, Inc. from continued use of a road located on their surface estate. The road was used to facilitate production of oil from a neighboring property.

Background:

In 1994, Key obtained an oil and gas lease covering a tract of land, the Curbo Tract, that abutted a second tract of land, the Richardson Tract, on which Key had been operating wells since 1987. As the Curbo Tract and the Richardson Tract were themselves contiguous, Key built a road across the Curbo Tract to access its wells on both tracts from 1994 on. In 2000, when the wells on the Curbo Tract stopped producing, Key pooled its mineral interests from both tracts.

In 2002, Hegar became the surface estate owner of the Curbo Tract. When Hegar acquired the surface interest, Hegar had actual notice of the oil and gas leases and the access to the Richardson Tract via the Curbo Tract. In December 2007, after Key drilled a new well on the Richardson Tract that significantly increased the use of the road by Key, Hegar brought a lawsuit against Key for trespass and sought to enjoin Key from use of the road.

Finding:

The trial court permanently enjoined Key from using the road on the Curbo Tract to produce oil on the Richardson tract. Key appealed.

Appeal:

The court of appeals affirmed the trial court’s judgment. The court first addressed whether Hegar was bound by Key’s lease or pooling agreements. Because both agreements were outside of Hegar’s chain of title and could not contractually expand Key’s right to use Hegar’s surface estate, the court held that Hegar was not bound by either of the agreements. After considering the accommodation doctrine, the court then held that Key had the right to use Hegar’s road so long as the oil that was produced from the pooled Richardson-Curbo Tract included oil produced from the Curbo Tract individually.

Bottom Line:

Key could not use the road from one mineral estate to produce oil only from another mineral estate.

Remand:

The court of appeals remanded to the trial court the issue of whether Key was producing oil from the Curbo Tract. As the trial court found that Key was not currently producing oil from the Curbo Tract, the court of appeals confirmed.

Note:

Key Operating & Equip., Inc. v. Hegar: Opinion No. 01-10-00350-CV, 403 S. W. 3rd 318 (Tex.App.—Houston [1st Dist.] 2013), review granted (Dec. 13, 2013), 2013 WL 103633, 2013 Tex. App. LEXIS 140. The Houston Court of Appeals released the opinion of the appeal from the 21st District Court in Washington County.

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