A recent Amarillo Court of Appeals opinion in Unitex WI. LLC v. CT Land and Cattle Co., LLC, raises important questions of the enforceability of surface protections in an oil and gas lease.
Background
CT Land and Cattle Co., LLC (“CT”) owns the surface interest in a ranch. It purchased this interest in 2013. There were a number of oil and gas wells and corresponding pipelines on the ranch at this time. Unitex WI, LLC and Unitex Oil and Gas, LLC (collectively “Unitex) maintains at least some of the wells and pipelines on the ranch.
CT sought to require Unitex to bury the pipeline pursuant to a provision of an oil and gas lease entered into on the property in 1948. The lease was entered into between the Fullers (then owners of the land) and Humble Oil and Refining Company (the mineral lessee). The lease stated that “when required by Lessor, the lessee will bury all pipelines below ordinary plow depth.” Sometime later, the Fullers deeded the land to the Senns with a deed stating that the conveyance was “subject to” the mineral lease.
CT filed suit for breach of lease and declaratory relief when Unitex refused to comply with the provision.
The court held a bench trial and found in favor of CT on the merits issues but denied CT’s request for attorney’s fees. Both parties appealed the ruling.
Amarillo Court of Appeals Opinion
The Amarillo Court of Appeals reversed. [Read Opinion here.] The court addressed two issues.
Right to Enforce
CT argued that because the Fullers conveyed the land to the Senns (his predecessor in interest) “subject to” the mineral lease, that means that the Senns and eventually CT was assigned the rights of the lessor that pertain to the surface estate under the lease. The court disagreed.
First, the court noted that the deed expressed nothing about the Fullers assigning any mineral lease to the Senns. Had it wanted to transfer the rights and obligations of the lessor under the lease, it should have included language doing so. The Court found it did not.
Second, the “subject to” language of the deed did not remedy the first issue. The court noted that “subject to” generally means subordinate to or limited by. Thus, this clause actually limited the estate and rights transferred by the deed. It does not create any affirmative rights. “Simply put, property granted ‘subject to’ certain conditions is burdened by those conditions.” Thus, the conveyance to the Senns was limited by the existing mineral leases, but the lease and rights of the lessor pursuant to the lease were not transferred to the Senns or their successors.
Running with the Land
CT next argued that the clause about burying the pipeline ran with the land and, thus, was enforceable by subsequent surface owners. Generally, a burial provision runs with the land. Here, the question is whether the burial provision passed to CT. The 1948 lease expressly listed the category of people entitled to require the burial of pipelines as the Lessor (Fuller) and their assigns, successors, or heirs. Had the parties intended these rights to extend to future owners of the surface, they could have said it applied to “surface owners” rather than “Lessor.”
The fact that they did not do so, the court reasoned, comports with the other conveyance provisions. For example, Fullers conveyed the “surface and surface only” to Senns, “less and except the interests reserved…” One of these reserved interests, because of the “subject to” language, included the 1948 lease. This means the Senns were granted the property less and except the rights under the mineral lease.
Additionally, another provision weighed in favor of Unitex. In the deed, the Fullers also reserved from conveyance all substances of value in the property and so much of the surface as may be required to permit the Grantor to mine, drill, develop, explore, operate, handle, transport, and market them. The pipeline is necessary to allow the mineral owner to transport the mineral. Were CT entitled to enforce the burial covenant, Fuller could not have utilized the surface to transport the substances produced despite expressly reserving that right.
Thus, the court held that the burial provision detached through the “subject to” provision. Although the deed did not say something as clear as “the pipeline burial provision is retained by the Grantor,” the court found that looking at all the puzzle pieces in this case, it could see what the Fullers intended. That was to prevent the Senns and their successors from gaining interests under the 1948 mineral lease.
Conclusion
Thus, the Amarillo Court of Appeals held the trial court erred in declaring CT had the right to enforce the burial covenant, holding Unitex breached the covenant by refusing to comply with CT’s attempt to enforce it, and enjoining Unitex from retaining or placing pipelines on the property when CT insisted otherwise.
Petition for Review
In August 2024, a Petition for Review was filed with the Texas Supreme Court. Briefing was completed in December 2024. The Court has not acted on the petition at this time. The Petition argues that the court’s decision is contrary to a case from the Ft. Worth Court of Appeals in 2021 and, CT argues, contrary to the understanding of most oil and gas practitioners.
Key Takeaways
This is very complex and raises some technical issues related to contract interpretation and oil and gas law. There are, however, a couple of important, practical considerations to take away.
First, the case illustrates the importance of having surface damage provisions in an oil and gas lease. The reason CT is relying on the provisions in the 1948 lease is that without those provisions protecting the surface of the land, CT cannot require the oil and gas operator to bury the pipelines below plow depth. When entering into an oil and gas lease, particularly if the mineral owner owns some portion of the surface estate, it is critical to consider the need to include provisions to protect the surface of the land in the mineral lease.
Second, this case shows how careful parties must be with language included in a deed. Even language as seemingly simple as “subject to” can completely change the meaning of a provision. This is why I always recommend working with an attorney to review any legal documents, including any deeds.
Third, this case serves as a reminder of the importance of clearly spelling out any reservations when conveying property. Here, the court noted, had the deed expressly said something like “the pipeline burial provision is retained by the Grantor,” it likely could have saved the parties years of litigation and tens of thousands of dollars in attorney’s fees. It is critical to ensure that any rights reserved when property is conveyed are clearly spelled out. This is for the benefit of both the person selling the land and the person purchasing.
