With our collective consciousness focused on a greener and cleaner environment, companies within the energy space are working to reduce their carbon footprints. One solution toward that end is Carbon Capture Utilization and Sequestration (CCUS), an innovative technology implemented to minimize man-made greenhouse gases.
The promise of CCUS as a tool to slow down global warming by recycling carbon dioxide (CO2) emissions is undeniable, but with it comes certain unintended concerns for players in the energy industry. One of these has to do with ownership of the subsurface pore space in which CO2 is injected and stored.
This issue continues to be debated in Texas and, most recently, an appellate court determined that pore space ownership belongs to the holder of the surface estate rights. Yet this may not be the final word on the topic. A request is currently pending before the Texas Supreme Court to review the recent appellate court decision captioned Myers-Woodward, LLC v. Underground Services Markham, LLC.
At the heart of Myers-Woodward is the novel question of whether pore space ownership should be determined based on the nature of the underground cavern at issue—a naturally occurring cavern formed out of dirt and rock versus an artificially created cavern formed out of solid minerals. This article takes a deep dive into that query pending the Texas Supreme Court’s decision to hear the case.
The Meyers-Woodward Decision
Myers-Woodward involves a dispute between Myers-Woodward, LLC, a surface estate owner, and two other companies, the mineral interest owners, regarding cavern space resulting from brine mining operations. The mineral interest owners sought a declaration from the trial court that they had the right to store oil, gas, and other gases or liquids in the cavern space created when they extracted salt from the subsurface. Myers-Woodward contended that it owned the subject tract in its entirety, including all geological structures in the subsurface, and that the mineral interest owners did not have the right to use the cavern for storage of hydrocarbons or other products or substances.
The trial court agreed with the mineral owners, ruling they were the owners of the subsurface caverns created by virtue of their salt mining activities. Myers-Woodward appealed, arguing that it owned all the physical land—all meaning the surface, subsurface, the matrix underlying the earth, and the reservoir storage space beneath the surface. In response, the mineral owners argued on appeal that (1) naturally occurring caverns should be distinguished from ones artificially created and (2) because the cavern at issue was a byproduct of their salt mining operations that required their maintenance to be utilized for storage operations, they should be entitled to subsurface ownership rights.
In support of their position, the mineral owners relied on Texas case law precedent; namely, Mapco, Inc. v. Carter, in which it was determined that the holders of the mineral estate owned all rights to pore space where the cavern was formed out of the underground mineral salt being mined. However, despite the precedent established in Mapco, the appellate court ruled in favor of Myers-Woodward because of “well-recognized, decisional law” in Texas holding that “the mineral interest owner owns the minerals but not the subsurface.”
Of note, the appellate court did not delve into a discussion regarding the distinction between naturally occurring and artificially created caverns. Instead, it explained that a mineral owner is merely entitled to a fair chance to recover and extract subsurface minerals, not to subsequently use the subsurface for its monetary gain after those minerals are extracted.
Request for Review from the Texas Supreme Court
On August 1, 2022, the mineral interest owners requested that the appellate court reconsider its decision. In their briefing, the companies argued they possess an unrestricted mineral estate in all minerals, including the salt, in, on, or under Myers-Woodward’s property, and the salt caverns created from mining operations. The companies again distinguished between naturally occurring caverns, which they alleged belonged to the surface owner, and artificially created caverns, which the companies alleged belong to the mineral owner.
More particularly, the companies explained that caverns created by the mining of solid minerals (i.e., salt) are composed of the actual minerals themselves, whereas caverns created by the mining of non-solid minerals (i.e., liquid oil or natural gas) are pre-existing and composed of non-mineral earth, like dirt or rock. With that by way of background, they reasoned that mineral owners should own the artificially created caverns made up of minerals, while surface owners should have ownership of naturally occurring caverns composed of dirt and rock.
It is for this reason, according to the companies, that the appellate court should have followed Mapco, which specifically involved salt mining operations, rather than the “well-recognized decisional law” involving liquid oil and gas operations.
Notwithstanding these arguments, the appellate court denied the request to reconsider its opinion in Myers-Woodward. That denial led to a petition for review with the Supreme Court of Texas, which is calendared to be filed on January 20, 2023.
It is suspected that the companies will make the same argument for pore space ownership to the Texas Supreme Court that was made to the appellate court. If the Texas Supreme Court grants the petition for review, a ruling overturning the Myers-Woodward decision could pave the way to changing the law regarding pore space ownership not only in Texas, but potentially across the country.
An Interim Solution to the Pore Space Ownership Debate
As we await the Texas Supreme Court’s pronouncement on the ownership of subsurface pore space, steps can be taken by parties seeking to engage in underground storage after existing wells or mines have been depleted. First among them, the negotiation of provisions in mineral leases addressing these rights.
One of the main arguments advanced by the surface owner in Myers-Woodward was that the mineral lease executed in that case only granted to the lessee the right to mine, drill, and operate for minerals and maintain facilities necessary for producing, treating, and transporting them. Arguably then, at least as far as the surface owner was concerned, nothing in the leases could have been interpreted to grant the lessees the right to use the subsurface structures for storage.
Hence, a seemingly clear interim takeaway from Myers-Woodward: negotiating the right to engage in subsurface storage when the mineral lease is executed could prevent these disputes altogether.
This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.
