Last summer, a case from the El Paso Court of Appeals, Harrison v. Rosetta Resources Operating, raised interesting arguments regarding water use and the accommodation doctrine.

Photo via MHogue on Pixabay

Background

The Harrison Trust owns 320 acres in Reeves County.  Mr. Harrison is the trustee of the Harrison Trust.  The minerals beneath the land are owned by the State of Texas.

In 2009, Harrison executed an oil and gas lease on behalf of the State with Eagle Oil & Gas, as is allowed by the Natural Resources Code on certain lands.  Eventually, the land was assigned to Comstock Oil and Gas and finally to Rosetta.

The original lease contained a clause related specifically to the use of water, which stated:  USE OF WATER. Lessee shall have the right to use use water produced on said land necessary for operations under this lease except for water from wells or tanks of the owner of the soil; provided, however, Lessee shall not use potable water or water suitable for livestock or irrigation purposes for waterflood operations without the prior consent of the owner of the soil.

Shortly after the assignment, Harrison sued Eagle for negligence.  Harrison claims that Eagle destroyed Harrison’s irrigation ditch.  As a result, Comstock and Harrison entered into a settlement agreement that provided Comstock would make repairs to a water well on Harrison’s land and would purchase 120,000 barrels of water from the Harrison Trust at a rate of $.50/barrel.  Comstock complied with the agreement.

Then, after drilling two wells and with construction underway on a third, Comstock assigned the lease to Rosetta.   Rosetta continued to drill additional wells, but did not purchase water from Harrison.  Instead, they purchased water from a neighbor and brought temporary water lines across Harrison’s property to fill storage tanks near the wells.

Lawsuit

Harrison filed suit against Rosetta for breach of contract, claiming a Rosetta employee orally agreed to continue the same water arrangement with the trust as Comstock.  He also claimed Rosetta violated a local custom he referred to as “The West Texas Rule,” claiming that it was customary for mineral companies to only purchase water from the surface owner of the tract it was operation on and not pump in water from neighboring landowners unless it was necessary.  He also asserted claims for trespass, negligence, and gross negligence because it would have been unnecessary to bring the temporary water lines and extra equipment on the property had Rosetta purchased water from Harrison.  Finally, he sought an injunction preventing Rosetta from using his neighbor’s water and cancelling the oil and gas lease.

After Rosetta filed summary judgment motions, Harrison added a claim that Rosetta violated the accommodation doctrine by not purchasing his water, thereby rendering his well and the frac pit on his property useless, causing unnecessary damage.  Rosetta filed a summary judgment motion on that claim as well.

The trial court granted summary judgment to Rosetta on all claims and dismissed the case.  Harrison appealed.

Opinion

The El Paso Court of Appeals sided with Rosetta. [Read full opinion here.]

Accommodation Doctrine 

First, the court addressed the accommodation doctrine claim.  Under the accommodation doctrine, a surface owner must prove: (1) lessee’s use of the surface substantially impairs the existing surface use; (2) the surface owner has no reasonably alternative method available to continue his existing use of the surface; and (3) there are alternative, reasonable, customary, and industry-accepted methods available to the lessee which will allow recovery of minerals that will also allow the surface owner to continue the existing use.  Here, Harrison essentially argued that because the former operator built a frac pit on his land that was an existing surface use, so when Rosetta refused to continue purchasing water from Harrison and using the pond, that substantially interfered with that use.

The court explained its rejection of this argument.  “While creative, categorizing a refusal to buy goods produced from the land as “interference” with the land for purposes of the accommodation doctrine would stretch the doctrine beyond recognition.”  Here, it may have been less financially beneficial for the Trust if Rosetta had purchased water, but their failure to do so did not substantially impair an existing surface use, nor could Harrison show no reasonable alternative to maintain the existing surface use.  Further, the court stated “were we to hold for Harrison on these facts, we would, in effect, be holding that all mineral leases must use and purchase water from the surface owner under the accommodation doctrine if his water is available for use.  The accommodation doctrine does not require such a holding, and we decline Harrison’s invitation to stretch it to do so.”

Negligent Injury to Land

To succeed, Harrison had to introduce evidence that Rosetta acted negligently or used more of the land than was reasonably necessary.  The court held that he failed to do so.

Here, the lease authorized, but did not require, Rosetta to use Harrison’s surface water.  Further, the lease allowed Rosetta to use the land for the purpose of laying pipe lines, building tanks and building stations and structures to store, treat, and transport gas.   Harrison did not argue that Rosetta used more of the land than was necessary to bring the water in.  Harrison did not argue that Rosetta performed the tasks of pumping water in in a negligent manner.  Thus, he failed to prove his claims.

It does not appear that Harrison appealed to the Texas Supreme Court.

Take Aways

First, this case offers a good reminder that most oil and gas leases drafted by the lessee contain clauses allowing for assignments, which means the landowner may be dealing with a much different company that he or she leased to.

Second, remember never to rely on any oral representations or promises during negotiations of an oil or gas lease (or any contractual agreement, for that matter).  Here, Harrison claimed that a Rosetta employee said the company would continue purchasing water from Harrison, but that was apparently never reduced to writing.

Third, this case shows that the accommodation doctrine, nor Harrison’s so-called “West Texas Rule” require a lessee to purchase water from the surface owner of the tract upon which operations occur, absent some contractual agreement to do so.  If this is a term that a surface owner wants included in a lease, it should be negotiated and included in the lease.