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TEXAS'S SURFACE RIGHTS, MINERAL RIGHTS, AND LYLE v. MIDWAY SOLAR, LLC
I. Introduction
II. Surface Estate, Mineral Estate, and the Accommodation Doctrine
A. The Dominant Estate
B. The Accommodation Doctrine
III. Recent Case Law and the Accommodation Doctrine
A. Coyote Lake Ranch
B. VirTex and Merriman
IV. Arguments and Holdings in Lyle
A. Quiet Title Claim
B. The 1948 Deed Does Not Prevent Application of the Accommodation Doctrine
C. Application of the Accommodation Doctrine: Is the Lyles' Claim Ripe?
V. What Should Developers Do in Light of Lyle?
A. Express Language and Agreements
B. Local Oil and Gas Development
C. Title Research
D. Surface Waiver Agreements
E. Other States
VI. Conclusion
In the recent case Lyle v. Midway Solar, LLC,1 the rights of a severed mineral owner were pitted against a solar developer. This article addresses how Texas law evolved to adjudicate conflicts between surface and severed mineral owners, the result in Lyle, and how solar developers should approach the mineral estate.
Texas prides itself on being a leader in the energy industry, and it is no different with the emergence of renewable energy. The modern energy industry is investing billions of dollars in renewable projects around the
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globe, and policy makers are doing their best to ensure those dollars are funneled into Texas. According to the Solar Energy Industries Association, Texas ranks second in the United States in solar production.2 Texas is one of the best markets for wind and solar developers due to the vast amount of empty pasture land, abundant sunshine, existing power transmission infrastructure, and a friendly regulatory environment.3
Texas law has evolved to promote the economic development of both the surface and mineral estates. Inevitably, conflicts between property owners arise when there is an interest in developing more than one energy source in the same region. This is still an evolving area in Texas law and in most of the country. If solar energy is going to become a major source of energy production in Texas, what does that mean for oil and gas development? In Lyle, the El Paso Court of Appeals gave us a glimpse into how the rights of severed mineral owners could be impacted by solar projects. In the suit, a severed mineral owner brought an action against a solar lessee, alleging the construction of a large solar farm violated Texas's laws protecting the mineral estate.
Lyle involves a 315-acre tract of land in Pecos County (the "Lands") in which the Lyles owned 27.5% of the mineral estate and no interest in the surface. At the time of filing suit, the Lyles' interest was not subject to an oil and gas lease, and the Lyles had no plans to develop the minerals. In October 2015, the surface owner entered into a solar lease with Midway Solar, LLC (Midway). The solar lease was for a term of 55 years, with all options exercised, and stated that the surface owner did not own any minerals but agreed to help Midway obtain surface use waivers from the mineral owners. The lease was later amended to identify "designated drill site tracts" to allow for future exploration of oil and gas on the Lands. The drill sites were an 80-acre tract off the north end and a 17-acre tract off the south end with the solar farm in the middle. Ultimately, Midway constructed the solar farm without obtaining a surface use waiver from the Lyles.
By 2016, Midway had obtained 20 surface waivers from various parties who owned mineral rights in neighboring properties. The property description in those waivers included the Lands, even though none of the executing parties owned any mineral interest in the Lands. After the Lyles complained that the original surface use waivers clouded their title to the mineral estate, Midway unilaterally recorded corrected waivers wherein the legal description in 13 of the 20 waivers was corrected to exclude the Lands but failed to get the original signatories to execute the corrected waivers. After the Lyles filed suit, Midway recorded a "disclaimer of
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interest," wherein it disclaimed any suggestion that the waivers gave Midway the right to develop the mineral estate in the Lands. The Lyles sued Midway seeking damages for breach of contract and trespass, stating that the construction of the solar facility had "destroyed and/or greatly diminished the value" of their mineral interest. The Lyles also sought the removal of the solar panels from the property.
The remainder of this article will discuss the background for the legal arguments made in Lyle, how the court addressed the first conflict between solar and oil and gas development, and what steps solar developers should follow to ensure they avoid conflicts with severed mineral owners.
In Texas, whether by grant or reservation, it is very common for the mineral estate to be severed from the surface. The legal framework that makes separate mineral ownership possible evolved such that the mineral owner also has limited rights to use the surface. Oftentimes when exercising these implied rights, the mineral owner's surface use results in damage to the surface. Alternatively, a surface owner's use of the land may prevent reasonable access to the severed minerals. These and other conflicts between the surface and severed mineral owners led to the creation of the legal theory known as the "accommodation doctrine."
To preserve the economic value of subsurface minerals, Texas law and public policy evolved in a way that ensures severed mineral owners have enough access to the surface to allow for the extraction and marketing of their produced minerals. Texas law allows mineral estate owners the right to use "as much of the [surface] as is reasonably necessary to produce and remove the minerals."4 Because the surface owner's rights to use the surface are subject to the mineral owner's right, the mineral estate is known as a "dominant" estate. Even though the mineral owner's dominant estate carries an implied right to reasonable use of the surface, the right is not unlimited. For instance, a mineral owner's implied easement to use the surface of the tract does not grant that mineral owner the right to access a separate and adjacent mineral tract even though the mineral owner owns minerals under both tracts. The mineral owner may not use the surface of one property for the benefit of the other. Dominant estate theory has influenced many landmark oil and gas decisions and is the legal foundation for all disputes related to the competing rights of surface and mineral owners.
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Even though the mineral estate is the dominant estate, the surface estate cannot be made entirely worthless through the actions of the mineral estate owner. Conflicts over the use of the surface led to the creation of the accommodation doctrine.
In Getty Oil Co. v. Jones,5 the surface owner sought an injunction against Getty Oil Company (Getty) to stop it from using pumping units that interfered with an automatic irrigation sprinkler system. The surface owner asserted that Getty had alternatives available that would not obstruct the existing irrigation system. Getty responded by arguing it was the dominant estate owner and could choose where and how to locate its pumpjacks. The court went on to hold that while the mineral estate is the dominant estate,
where there is an existing use by the surface owner which would 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 lessee6
Accordingly, if the surface owner is able to demonstrate that there are alternative methods available to the mineral owner, then the mineral owner must accommodate the surface owner's preexisting surface use. In Getty, the court described the relationship by stating that ``reasonableness involves considering both the surface owner's and the mineral lessee's needs, although the surface owner has the burden of proving the `unreasonableness of the lessee's surface use in this light.'''7 Getty established the modern framework used to analyze accommodation doctrine disputes; to prevail in its claim, the surface owner must prove the following:
(1) "[T]he mineral owner's use of the surface completely precludes or substantially impairs the surface owner's existing use";
(2) "[T]here is no reasonable alternative method available to the surface owner by which the existing use can be continued"; and
(3) ```[T]here are alternative reasonable, customary, and industry-accepted methods available to the [mineral owner] which will allow recovery of the minerals and also allow the surface owner to continue the existing use.'''8
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The next section will discuss three recent Texas cases in which the accommodation doctrine was applied in very different situations.
The dominant...
