Introduction:
As societal goals shift towards renewable energy and reduced greenhouse gas emissions, Texas exploration and production companies are shifting their business models accordingly by testing the waters of geothermal energy and carbon sequestration. Much like the shale play revolution, operators are adapting and combining old techniques to meet today’s energy challenges. As new markets emerge for geothermal energy and carbon dioxide sequestration, one source of uncertainty that must be dealt with by the industry is the ownership of geothermal energy and subsurface pore space.
Geothermal Resource Extraction:
Although Texas has recognized geothermal resources as a valuable energy source since passage of the Geothermal Resources Act of 1975 (the “Act”),[1] ownership of geothermal resources has not been directly addressed by Texas courts, and the definitional language found in the Act is ambiguous as to the ownership of such resources.
The Texas Natural Resources Code defines “Geothermal energy and associated resources” as: (A) products of geothermal processes, embracing indigenous steam, hot water and hot brines, and geopressured water; (B) steam and other gasses, hot water and hot brines resulting from water, gas, or other fluids artificially introduced into geothermal formations; (C) heat or other associated energy found in geothermal formations; and (D) any by-product derived from them.[2] “By-product” means any other element found in a geothermal formation which is brought to the surface, whether or not it is used in geothermal heat or pressure inducing energy generation.[3] Unlike the Federal Geothermal Steam Act of 1970 that expressly excludes oil and hydrocarbon gas, the Act does not expressly exclude oil and gas from its definition of geothermal energy and associated resources.[4]
Additionally, although Section 141.002(4) of the Act states that since geopressured geothermal resources in Texas are an energy resource system, and since an integrated development of components of the resources, including recovery of the energy of the geopressured water without waste, is required for best conservation of these natural resources of the state, all of the resource system components, as defined in this chapter, shall be treated and produced as mineral resources, Section 141.002(5) subsequently states that in making the declaration of policy in Subdivision (4) of this section, there is no intent to make any change in the substantive law of this state, and the purpose is to restate the law in clearer terms to make it more accessible and understandable.
The Act’s language (i) clearly demonstrates the legislature’s intent to govern indigenous steam, hot water, and any other element found in a geothermal formation which is brought to the surface, (ii) states that “resource system components” shall be treated and produced as mineral resources, but (iii) also states that there is no intent to change the substantive law of the state. This calls to question what the substantive law of the state was and is with regard to surface or mineral estate ownership of indigenous steam, hot water and hot brines, and geopressured water. Although there are no Texas Supreme Court cases directly on point, the question of groundwater ownership has been addressed.
In Sun Oil Co. v. Whitaker,[5] the Texas Supreme Court addressed the issues of ownership and use of groundwater in a case between the owner of the surface estate the owner of a mineral leasehold estate that sought to use ground water beneath the tract in question for water flooding operations. The Court took judicial notice that water, unsevered expressly by conveyance or reservation, has been held to be a part of the surface.[6] This surface ownership was, however, subject to the reasonable use of such water by the dominant mineral estate.[7]
In Robinson v. Robbins Petroleum Corp. Inc.,[8] another case involving water flood operations, the Court took further notice that water is part of the surface estate according to the ordinary and normal use of the words conveying or reserving minerals, and noted that such ownership included fresh or salt water.[9] The Court stated:
It has been said, and is argued here, that a different result should be reached as between fresh water and salt water. See Ambassador Oil Corp. v. Robertson, 384 S.W.2d 752 (Tex.Civ.App. 1964, writ ref., n.r.e., with per curiam opinion reserving this question 390 S.W.2d 472); Hudson, Salt Water is a Mineral, 50 Tex.L.Rev. 448 (1972). We are not attracted to a rule that would classify water according to a mineral contained in solution. Water is never absolutely pure unless it is treated in a laboratory. It is the water with which these parties are concerned and not the dissolved salt. If a mineral in solution or suspension were of such value or character as to justify production of the water for the extraction and use of the mineral content, we would have a different case. The substance extracted might well be the property of the mineral owner, and he might be entitled to use the water for purposes of production of the mineral. See State v. Parker, 61 Tex. 265 (1884); Cain v. Neumann, 316 S.W.2d 915 (Tex.Civ.App. 1958, no writ). In either case the water itself is an incident of surface ownership in the absence of specific conveyancing language to the contrary. And in our case the saline content has no consequence upon ownership.[10]
The Court in Robinson further clarified that the mineral owners were entitled to be protected in their use of the salt water which was reasonably necessary to produce oil under the premises and terms described in the lease at issue, but that the surface owner was entitled to recover the value of that portion of the salt water which had been consumed for the production of oil for owners of lands outside the leased lands.[11]
Some commentators have opined that produced water from oil, gas, and geothermal wells should not be considered as groundwater at all, and should by definition be considered as property of the mineral estate.[12]
Injection of Carbon Dioxide:
Most states in the U.S. follow the “American Rule” of ownership in which the mineral estate holder has ownership of the underground mineral resources but not any geological formations found beneath the surface. Those property rights remain with the owner of the surface estate. A caveat to this rule states that surface estates, under the American rule, must allow the oil and gas company holding the mineral estate to complete their extraction of minerals and completely deplete the subsurface area before leasing the pore space to another. A second rule, the “English Rule” of ownership differs from the American in that the mineral estate holds ownership of the natural resources under the ground as well as any pore space found. There are multiple cases that offer conflicting answers when it comes to which rule Texas follows.
In Humble Oil & Ref. Co. v. West,[13] owners of reserved royalty interests brought suit to enjoin use of a gas field for gas storage purposes until such time as all the native gas to which they were entitled to royalty was produced. Although the West decision focuses on a “confusion-of-goods” analysis, the Court noted Emeny v. United States,[14] where it was stated that the surface of the leased lands remaining as the property of the respective landowners included the geological structures beneath the surface, together with any such structure that might be suitable for the underground storage of extraneous gas produced elsewhere.
By contrast, in MAPCO, Inc. v. Carter,[15] the Ninth Court of Appeals at Beaumont found that the mineral estate owner rather than the surface owner retained ownership of the storage capacity in an underground salt dome that had been created by salt leaching operations. The appellate court in Mapco ignored the West decision and stated:
Texas has recognized the right of the owner of a severed mineral estate to its fee ownership of the minerals in place, coupled with the right to enter upon the surface owner’s property in order to explore for, and produce, the minerals. Thus, under well-recognized, decisional law, the continued ownership interest in the mineral estate in an underground storage facility is acknowledged and harmonious with the decisional law of our state.[16]
The Texas Supreme Court addressed the issue of pore space ownership in the context of off-unit surface locations in Lightning Oil Co. v. Anadarko E&P Onshore, LLC.[17] The Court in Lightning dealt with the issue of whose permission is necessary for an oil and gas operator to drill through a mineral estate it does not own to reach minerals under an adjacent tract of land. The Court relied on the West decision and held that the surface overlying a lease mineral estate is the surface owner’s property, and those ownership rights include the geological structures beneath the surface.[18] The Court further relied on its decision in Coastal Oil & Gas Corp. v. Garza Energy Tr.,[19] where it held that the mineral estate owner is only entitled to “a fair chance to recover the oil and gas in place or under” the surface estate.
Whereas, on balance, the surface estate appears to have a better claim to pore-space ownership in Texas, that claim is not unfettered. When considering the fact that injection operations for sequestration purposes might permanently render residual minerals unrecoverable, it is important to remember that while no formation yields 100% of its oil and gas reserves, technological improvements continually raise the ultimate recovery of oil and gas formations, raising liability concerns regarding the mineral estate’s right to any remaining or residual minerals.
Conclusion:
Due to a lack of clarity regarding (i) ownership of geothermal resources, and (ii) the duty to the mineral estate concerning subsurface pore space under Texas law, the developer of a geothermal power or carbon sequestration project is well served to acquire both the surface and mineral estates and, thereby, avoid adverse claims as to geothermal energy ownership, competing uses of target injection zones, and the creation of possible mechanical pathways for carbon dioxide leakage. Until the courts provide greater clarity, in the event it is necessary to include acreage covering severed surface and mineral estates, the most prudent practice will be to obtain leases, easements, surface and subsurface use agreements, and production and revenue sharing agreements executed by all surface and mineral estate owners, thereby minimizing the threat of litigation. In the event it is only possible to obtain agreements from surface estate owners, the operator should take care when conducting operations that could interfere with the mineral estate owner’s right to produce minerals.
[1] See Tex. Nat. Res. Code § 141.001 et seq.
[2] Tex. Nat. Res. Code § 141.003.
[3] Id.
[4] Compare 23 U.S.C. §§ 1001(c)–(d), with TEX. NAT. RES. CODE §§141.003(4)–(5).
[5] 483 S.W.2d 808 (Tex. 1972).
[6] Id., citing Fleming Foundation v. Texaco, Inc., 337 S.W.2d 846 (Tex.Civ.App. 1960, writ ref’d, n.r.e.).
[7] Id. at 816.
[8] 501 S.W.2d 865 (Tex. 1973).
[9] Id. at 867.
[10] Id.
[11] Id. at 868.
[12] See Frank N. Cusimano, III and Benjamin W. Sebree, Texas Law of Produced Water Ownership, Advanced Oil, Gas and Energy Resources Law (September 2020).
[13] 508 S.W.2d 812 (Tex. 1974).
[14] 412 F.2d 1319, 188 Ct.Cl. 1024 (1969).
[15] 808 S. W.2d 262, 274 (Tex. Civ. App.—Beaumont 1991), rev’d in part on other grounds, 817 S.W.2d 686 (Tex. 1991).
[16] Id. at 277-78.
[17] 520 S.W.3d 39 (Tex. 2017).
[18] Id. at 46.
[19] 268 S.W.3d 1 (Tex. 2008).
