The End of Accommodation

For years, the accommodation doctrine in Texas worked to provide a framework for beneficial negotiations between mineral lessees and surface owners in the state.  It maximized the benefits to each party, while incentivizing each to use the property to maximum extent possible.  Recent decisions, however, have cast doubt on the continued efficacy of this once efficient system.

HISTORY:

The accommodation doctrine was first outlined by the Texas Supreme Court in the seminal case of Getty Oil v. Jones, 470 S.W.2d 608 (Tex. 1971).  There, the Court promulgated the following test: “(w)here there is an existing use by the surface owner which will otherwise be precluded or impaired, and where under the established practices in the industry there are alternatives available to the lessee whereby the minerals can be recovered, the rules of reasonable usage of the surface may require the adoption of an alternative by the lessee.”

CLASSIC INTERPRETATION:

Under the classical analysis of this decision, a complaining surface owner was subject to a three-factor analysis: (1) there must be an existing use of the surface; (2) the mineral lessee’s proposed use of the surface must preclude or impair the existing use of the surface; and (3) the mineral lessee must have a reasonable alternative available. John S. Lowe, et al., Cases and Materials on Oil and Gas Law pp. 320-21 (5th ed. 2008).

In 1973, The Texas Supreme Court appeared to further support their ruling when they held that water could not be taken off a landowner’s property to drive oil through secondary recovery operations, including lands not pooled with the surface owner’s property, without the surface owner’s consent. Robinson v. Robbins Petroleum Corp., 501 S.W.2d 865 (Tex. 1973).

Interestingly, while the classic interpretation did appear to adhere to the intent of the opinion in Getty Oil, it departed just a bit from the actual language of the decision. The actual language used by the Court in Getty Oil indicated that, if the surface owner was able to overcome the three-factor test, the mineral lessee holder may (emphasis added) have to adopt an alternative production method.  Getty Oil, 470 S.W.2d at 608.  The Court used no language that mandated the adoption of alternatives as a matter of right for the surface owner.

The parsing of this language did not occur for many years, however.  In fact, even through the 1990s, the classic interpretation of the doctrine was the order of the day in Texas courts.  For example, the Haupt decision stated that “if the mineral surface owner has a reasonable alternative” use of the surface that would not substantially impair the use by the surface owner, then the mineral lessee was required to use that reasonable alternative in order to accommodate the use by the surface owner.” Tarrant Cnty. Water Control & Improvement Dist. No. One v. Haupt, Inc., 854 S.W. 2d 909, 911 (Tex. 1993).  This decision seemed to clearly indicate that the onus was on the mineral lessee to show that it had no reasonable alternative that would not impair the surface owner before beginning operations that would affect the surface use on a given tract of land.

MODERN TREND:

Such was the way of the world until 2004, when a Texas Appellate Court held that the accommodation doctrine only provided protection for surface owners upon the surface owner’s meeting of an additional two-part test.  The aggrieved surface owner was thereafter required to show that the use would (1) completely preclude or substantially impair the existing use and (2) there was no reasonable alternative by which the existing use could be continued by the surface owner.  Davis v. Devon Energy Production Co., L.P., 136 S.W.3d 419 (Tex. App. 2004).  For the first time, it was incumbent on the surface owner to prove that the mineral lessee both had reasonable alternatives and that they (the surface owner) suffered the impairment of their use.

Furthermore, as noted by Lowe, et al. 004, the Court in Davis held that the interference with the surface must be unduly burdensome in order to trigger the accommodation doctrine. Not only was this a different interpretation than the traditional analysis of the doctrine, but Davis articulated for the first time that it was the surface owner who was required to show the possible alternatives and carried the burden of proving substantial interference with its existing use.

Yet, Texas courts were not done rolling back the classic interpretation of the accommodation doctrine.  In 2013, the Texas Supreme Court held that, in addition to the required Davis test, the substantial hardship must be proven as something more than “inconvenience or financial burden” (Merriman v. XTO Energy, Inc., 407 S.W.3d 244 (Tex. 2013).  Therefore, merely alleging (much less proving) that the landowner would suffer significant financial hardship by the intended use of the surface was insufficient to trigger the protections of the doctrine.  Going one step further, the holding in Merriman seems to indicate that the testimony of the aggrieved landowner may be insufficient, without corroboration, that the hardship was significant! Merriman 407 S.W.3d at 251-52.

The final nail in the coffin of the accommodation doctrine, however, was not hammered home until the Texas Supreme Court’s rendered its decision in Key Operating & Equipment, Inc. v. Hegar (435 S.W. 3d 794). There the Court stated, citing its decision in Merriman a year earlier, that, because any production within any part of a given pooled unit is legally treated as production from each tract within that unit, then “(the mineral lessee) has the right to use the surface of any of the units’ pooled tracts in its production activities”.  Hegar, 435 S.W.3d at 798.  Thus, if a surface owner owns the surface of a tract where minerals have been pooled with neighboring tracts, even in the absence of operations on their own tract, the surface owner must accommodate the surface use relating to the neighboring property unless they are able to meet the Davis test as modified by the Merriman decision.

EFFECT:

The practical effect of this is easy to see.  The recent decisions by the Texas Supreme Court strip the accommodation doctrine of virtually all protection for surface owners in the state.  A surface owner, even one that has no oilfield operations on their tract, may have to show, through expert testimony, that they have (1) been substantially impaired, without alternatives, by the operation of a mineral lessee, while (2) the mineral lessee had alternative operations available to it, and that (3) would not substantially impair the use of the mineral estate.

Therefore, in order to be sure they have adequately grounded their claim, a surface owner must find an expert to testify to the availability of alternatives for the mineral lessee.  The surface owner must then hire an expert on surface use to show that the surface owner lacks alternatives and will suffer substantial hardship beyond mere financial loss.   Hiring two subject matter experts to testify at a previously unforeseeable trial is likely to prove cost prohibitive for the majority of surface owners.   Remember that these cases may now even arise when the surface owner does not have production on his or her own tract!

Meanwhile, instead of promoting a doctrine with clearly defined terms, and thereby lending predictability to court decisions, the Texas Supreme Court has promulgated a Kafkaesque system in which the judiciary must be queried each time there is a dispute between a surface owner and the mineral lessee to find out who must accommodate whom.  There is no predictability in the decision of a given court, or even what information can be expected to be decisive in a given matter.  Under this type of regime, the only people who benefit are the attorneys and the subject matter experts.

From an economic standpoint, the classic interpretation of the accommodation doctrine was the superior model.  To be protected by the doctrine, surface owners were required to actually use the surface.  For mineral lessees to gain their preferred access to the minerals, then they had to negotiate with the surface owners.  The efficient price (that is one that was fair to the mineral lessee and the surface owner) was reached through an arm’s length transaction.  If the surface owner’s price was too high, the mineral lessee still had the alternative of choosing another method to access the minerals or seeking redress in court.

Under the current system, there is no incentive to use the surface beyond that minimally necessary to ground a claim under the accommodation doctrine.  Indeed, due to the inherent unpredictability of court decisions, the surface owner is disincentivized from using the property in any way that might be actually impaired by petroleum production.  In some parts of this state, that precludes virtually all surface use at all.  There is also very little incentive for either party to negotiate with the other.

Inefficient outcomes are, therefore, inevitable.  Either the surface owner in an area where production occurs will not use the property to its maximum potential (a case of deadweight loss).  Perhaps the owner’s rights will be limited in some manner without compensation (a deadweight loss).   Perhaps the surface owners will fight, hiring experts and lawyers, where negotiations between the parties were previously fruitful (a deadweight loss).  Finally, perhaps the mineral lessee will suffer the expense of court adjudication and then be forced into the more expensive alternative (a deadweight loss).  In the case of any of these alternatives, there is only one constant – deadweight loss.  A court of such prominence should do better.

In short, recent decisions by the Texas Supreme Court have amended the accommodation doctrine to the breaking point – with no actual benefit to anyone except those whose income depends on their skill in the courthouse.  The recent decisions are a fix to a problem that never existed to a doctrine that was not broken in the first place.

About Sennoma Civitano

You can trust me. I'm a law-yuh. Oh, and I have a Master's in Public Affairs. I read books. About things.
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