Highlights
- Absent an agreement otherwise, the Supreme Court of Texas has held that "the surface owner, and not the mineral lessee, owns the possessory rights to the space under the property's surface."
- This holding clarifies ownership of pore space and subsurface storage capacity as being the domain of the surface estate, a point which had been unsettled in Texas law.
- The opinion has important legal implications for stakeholders in the growing area of carbon sequestration and other projects that involve the use of underground storage rights.
The Supreme Court of Texas has provided helpful guidance as to ownership of subsurface storage rights and pore space. In the recent holding in Myers-Woodward, LLC v. Underground Services Markham, LLC, the court held that "the surface owner, and not the mineral lessee, owns the possessory rights to the space under the property's surface, absent an agreement otherwise." The opinion is available to read online.1
This case arose when Underground Services Markham LLC and United Brine Pipeline Company LLC (collectively, USM), the owner of subsurface salt deposits, claimed ownership of the empty subsurface caverns left behind after USM had conducted salt-mining operations in the subject land. Myers-Woodward LLC (Myers) owns the surface estate of the subject land. USM and Myers disputed which of them was entitled to use the now-empty caverns underneath the surface of the property to store oil and gas that had been produced from other land.
Court's Opinion
In the court's opinion, "much of this case boils down to the elementary observation that empty space is not salt." USM pointed to the language of its deed, which granted USM "all of [the mineral-estate holder's] right, title and interest, in and to all of the salt and salt formations only, in, on and under and that may be produced from the property." However, the court pointed out that in an earlier 1947 conveyance, USM's predecessor only obtained an interest in "oil, gas and other minerals in, on and under said land" (emphasis added). Because "a grantor cannot convey to a grantee a greater title than [he] holds," the court found that USM at most owned only the salt itself (salt being a mineral under Texas law) and could not have obtained ownership of the now-empty salt caverns from its predecessor who did not own them to begin with. Ultimately, the court determined that the mineral estate does not generally include the empty spaces created by mineral production, as the empty spaces are not themselves minerals.
More broadly, the court also held that "the surface owner, and not the mineral lessee, owns the possessory rights to the space under the property's surface, absent an agreement otherwise." The court also noted that "we consider Texas law reasonably clear that underground storage space generally belongs to the surface owner absent a contrary agreement and, in doing so, expressly rejected a previous minority view that a mineral owner retains a property interest in subsurface storage caverns created by salt mining.
USM also argued that even if the storage space belonged to the surface owner, USM had the right to access and use the storage space as the holder of the "dominant" mineral estate. The court rejected this argument, however, because USM's storage of off-site minerals on Myers' land had no connection to USM's production of salt from the property on which it owned the mineral estate.
This case seems to settle Texas law regarding ownership of pore space, insofar as it allocates subsurface voids to the owner of the surface, absent an agreement to the contrary. The court cautioned, however, that "[n]ot all mineral estates are created equal. Resolving a dispute over the scope of a mineral conveyance should therefore begin with the text of the conveyance – not with generalizations about the default nature of a 'surface estate' or a 'mineral estate.'"
In general though, Texas has signaled its intention to continue the precedent of surface ownership of subsurface formations and pore space. This helps to resolve a question of ownership that has plagued those considering carbon capture and sequestration activities, reinjection of produced minerals and enhanced recovery.
Finally, it should be noted that as of the date of this writing, the Texas Legislature is in session and considering two companion bills (House Bill 2762 and Senate Bill 1258) that would achieve a similar result that the Texas Supreme Court reached in this case. Both bills are in committee as of this writing, with the legislative session set to end on June 2, 2025.
Strategic Considerations
- Carbon Capture and Sequestration. This opinion delivers a greater level of certainty to investors and operators in carbon sequestration projects by clarifying the ownership of subsurface storage rights.
- Mineral Estate Still Dominant. However, from the developer's standpoint, the best practice is still to strike agreements with mineral owners, since the mineral estate remains dominant over the surface, when conflicting uses arise.
- Additional Uses. Surface owners may be emboldened by this case to explore additional productive uses. By reducing legal uncertainty, the Texas Supreme Court has helped facilitate other uses of subsurface storage complexes, whether in connection with oil and gas storage, tertiary recovery, geologic research or other purposes.
Footnote
1. The court also dealt with a longstanding royalty valuation dispute between the parties, although the case is highlighted here for its holding on subsurface storage rights.
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