The New Dominance of Groundwater: When Oil and Water Mix

© 2016 The Texas Lawbook.

By Frank Z. Ruttenberg, Elizabeth Chumney Breazeale and Abby Johanson

(Aug. 8) – As demand for water grows throughout Texas, there has been an increasing focus on the rights relating to the ownership and use of groundwater in our state. As a result, a number of significant issues relating to groundwater rights have found their way into our state courts, and the Texas Supreme Court has not been shy in its willingness to jump in to clarify these issues as they arise.

In its ruling in the widely reported 2012 case of Edwards Aquifer Authority v. Day, the Texas Supreme Court held in a landmark decision that landowners own the groundwater in place beneath the surface of their property. Much of the reasoning set out in the Day case was derived from the court’s willingness to extend existing common law concepts relating to the ownership of oil and gas, to groundwater rights.

The recent case of Coyote Lake Ranch, LLC v. The City of Lubbock presented the Texas Supreme Court with the thorny question of the extent to which the owner of land is required to accommodate the needs of the owner of the groundwater relating to that land, once the groundwater estate is severed from the surface estate.

Most significantly, the court concluded with little difficulty that a severed groundwater estate has the same implied right to use the surface estate as a severed mineral estate. This conclusion seems to be based, not on existing law and precedent relating to groundwater (since there is none), but on a simple analogy to the common law concepts relating to oil and gas ownership in our state.

The court pointed out that it is “well established doctrine” that a grant or reservation of minerals would be wholly worthless if its owner could not enter upon the land in order to explore for and extract its minerals. For this reason, under common law, the owner of a mineral estate is permitted to use so much of the surface estate as is reasonably necessary to produce and remove the minerals.

The court then held, for the first time, that a severed groundwater estate should have the same rights relating to surface use that a severed mineral estate has, since groundwater and minerals share similar characteristics. While this conclusion may have some logical basis, it seems to be a very significant leap (or clarification) from how our state previously perceived the relative rights between groundwater and surface owners.

The court then followed this reasoning with the further conclusion that, once severed estates of this nature have disputes relating to their respective rights to use the land, the court can think of no better tool to resolve these disputes than the principles which embody the accommodation doctrine.

Texas courts have previously recognized that the implied easement rights attributed to a mineral estate owner could have the potential to adversely impact the surface owner’s use of the property. On this basis, the “accommodation doctrine” was adopted as a way to balance the rights of the owners of the surface estate and the mineral estate.

According to this doctrine, if the owner of the surface estate desires to limit the mineral owner’s access or use of the surface estate, it must first prove that (1) the mineral owner’s use of the surface completely precludes or substantially impairs the existing surface use, and (2) the surface owner has no available, reasonable alternative to continue the existing use.
Even then, if the surface owner proves (1) and (2), he must further prove that given the particular circumstances, there are reasonable, customary and industry-accepted alternative methods available to the owner of the minerals which would allow recovery of the minerals (and allow the surface owner to continue the existing use).

As set out above, the Coyote Lake Ranch case extended the application of the accommodation doctrine to resolve disputes between groundwater owners and surface owners.

The Coyote Lake Ranch ruling raises a number of significant questions and issues for landowners who do not own the groundwater relating to their fee estate, including the following:

1. What impact will this new type of “dominant” groundwater estate have on the future development of the surface estate?
2. The need for surface waivers to protect current or future development.
3. The need to determine the relative rights of the owner of the groundwater rights as between those of the surface estate and the mineral estate (since there are now two dominant estates created, both groundwater and mineral).
4. The combined impact of rules relating to groundwater conservation districts and the required level of accommodation.
5. The appearance of new title exceptions in title policies relating to the severed groundwater rights.
6. In the Edwards Aquifer Authority groundwater district, how will this new easement impact the surface estate to which a withdrawal permit attaches?

Frank Z. Ruttenberg is a Haynes and Boone, LLP partner in the San Antonio office who is involved in assisting development clients with the purchase, sale or lease of groundwater and surface water rights, the development of diversion facilities and other water development and water supply agreements.

Elizabeth Chumney Breazeale is real estate counsel, and Abby Johanson is a real estate associate in the San Antonio Haynes and Boone office.

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