Minerals, Wind, and Solar in a TREC World...2019 Texas Land Title Institute-Minerals, Wind, and Solar in a TREC World 3 estate.26 Texas courts have historically given much deference

Minerals, Wind, and Solar in a TREC World

2019 Texas Land Title Institute

San Antonio, Texas

William Chance Perkins

Underwriting Counsel

First National Title Insurance Company

2400 Dallas Parkway, Ste. 510

Plano, Texas

[email protected]

mailto:[email protected]

William Chance Perkins

Chance Perkins resides in Katy, Texas with his beautiful wife, Catherine, and son, Will. Chance is a

member of the underwriting team at First National Title Insurance Company. His main responsibilities

include providing underwriting support and education to FNTI title agents. Prior to joining First National,

Chance worked for several independent agents throughout the state as an attorney/examiner. Chance

also worked in a national commercial office in the role of title attorney and Texas underwriting counsel.

He is a frequent presenter of continuing education courses for realtors and FNTI title agents. Chance

currently serves on the TLTA School Committee and Webinar Planning Committee.

Chance received his Bachelor of Arts in Political Science from the University of Louisiana at Lafayette and

his Juris Doctor from South Texas College of Law in Houston.

2019 Texas Land Title Institute-Minerals, Wind, and Solar in a TREC World 1


1. Introduction

The presence of petroleum in Texas has been known ever since Spanish conquistadors pulled

into coastal bays and caulked their vessels with natural tar seeps.1 On January 10, 1901, atop Spindletop

Hill, an explosive eruption occurred on a rig, shooting pipes out of the well.2 “After a few moments of

silence, a geyser of greenish-black crude oil shot out of the hole, topping the derrick by more than a

hundred feet and falling back to the earth like rain.”3 “Texas tea had arrived.”4 Ever since, Texas has

been at the center of the oil and gas industry. Texas has also played a prominent role in the

development of renewable energy, particularly wind and solar energy projects. “Texas leads the nation

in wind-powered generation and produced one-fourth of all the U.S. wind powered electricity in 2017.”5

“Texas wind turbines have produced more electricity than both of the state’s nuclear power plants since

2014.”6 With existing infrastructure in place from other renewable energy projects, the growth of solar

power projects in Texas has increased as well. 7According to the Solar Energy Industries Association,

Texas ranks 6th for solar power production.8 These industries often find themselves in competition for

the right to use the surface estate. It is important for the parties to a real estate transaction to take into

consideration these competing rights and interests. For transactions that involve a Texas licensed

realtor, the parties rely on promulgated contract forms and addendum. Although these forms are

designed to help with the facilitation of the transaction, they have the potential to create issues for

those who rely on them. Practitioners who assist the parties should be aware of these pitfalls and have a

basic understanding of oil and gas law in order to properly draft transactional documents that conform

to the law and intentions of the parties.

2. Basics of Oil and Gas Law

a. Ownership in Place, Rule of Capture and Correlative Rights

At common law, a landowner owned everything from the heavens above the surface to the

depths of the earth beneath it.9 Texas follows the ownership in place theory, where the landowner is

regarded as having absolute title in severalty to the oil and gas in place beneath his land, which is

considered part of the realty.10 The only qualification of this rule of ownership is that it must be

considered in connection with the law of capture, the correlative rights of adjacent owners, and is

subject to police regulations. The common law rule was modified to promote and encourage the

1 James L. Haley, Passionate Nation: The Epic History of Texas 443 (Free Press 2006). 2 Id. 3 Passionate Nation at 444-445. 4 Passionate Nation at 445. 5 U.S. Energy Information Administration, State Profile and Energy Estimates, https://www.eia.gov/state/?sid=TX (last visited November 4, 2019). 6 U.S. Energy Information Administration, State Profile and Energy Estimates, https://www.eia.gov/state/?sid=TX (last visited November 4, 2019). 7 Mose Buchele, KUT, Texas Poised to Become National Leader in Solar Power (2019, June 19), https://www.kut.org/post/texas-poised-become-national-leader-solar-power. 8 Solar Energy Industries Association: Texas Solar, https://www.seia.org/state-solar-policy/texas-solar (last visited November 4, 2019). 9 Coastal Oil & Gas Corp. v Garza Energy Trust, 268 S.W.3d 6, 15 (Tex. 2008). 10 Elliff v. Texon Drilling Co., 210 S.W.2d 558, 580 (Tex. 1948).


development of minerals. Without the rule of capture, mineral owners would be hesitant to recover the

minerals from a common source for fear of liability. The rule of capture gives the mineral owner title to

the oil and gas produced from a lawful well located on the property, even if the oil and gas flowed to the

well from beneath an adjacent owner’s property.11 Each owner is afforded his fair chance to extract the

minerals; however, they must not exercise these rights in a manner that injures the common source of

supply.12 The landowner may place “as many wells as he desires upon his tract of land and extract

therefrom and appropriate all the oil and gas that he may produce, so long as he operates within the

spirit and purpose of conservation statutes and orders of the Railroad Commission.”13 “These laws and

regulations are designed to afford each owner a reasonable opportunity to produce his proportionate

part of the oil and gas from the entire pool and to prevent operating practices injurious to the common

reservoir.”14 The Railroad Commission is vested with the power and charged with the duty of regulating

the production of oil and gas for the prevention of waste as well as for the protection of correlative

rights.15

b. Mineral Estate

“A property owner’s rights are often described as a bundle of rights, or a bundle of sticks.”16

“Property does not refer to a thing but rather to the rights between a person and a thing.”17 In Texas, a

mineral interest in oil and gas is an interest in land capable of being owned, severed, and sold.18 A

severance may be accomplished by means of a conveyance of the minerals or by means of an exception

or reservation in a conveyance.19 A severed mineral estate is comprised of five attributes: “1) the right

to develop (the right to ingress and egress), 2) the right to lease (the executive right), 3) the right to

receive bonus payments, 4) the right to receive delay rentals, and 5) the right to receive royalty

payments.”20 “Thus, each attribute is a separate, distinct property interest that may be conveyed or

reserved in connection with a conveyance of a mineral interest.” 21 In reality, there are infinite

combinations that could be made in regards to a reservation or conveyance of a mineral interest. “A

grant or reservation of minerals by the fee owner effects a horizontal severance and the creation of two

separate and distinct estates: an estate in the surface and an estate in the minerals.”22 The mineral

estate is the dominant estate23 with rights to use the surface as is reasonably necessary to produce,

develop, and remove the minerals.24 This includes the right of ingress and egress upon the land for

exploration and production of oil and gas25, which is an implied right in all conveyances of the mineral

11 Garza Energy Trust, 268 S.W.3d at 13. 12 Elliff, 210 S.W.2d at 583. 13 Id. At 582. 14 Id. 15 Garza Energy Trust, 268 S.W.3d at 15. 16 Lighting Oil Co. v. Anadarko E&P Onshore, LLC, 520 S.W.3d 39, 48 (Tex. 2017). 17 Lightning Oil Co., 520 S.W.3d at 49 (citing Evanston Ins. Co. v. Legacy of Life, Inc., 370 S.W.3d 377, 382-83 (Tex. 2012)). 18 Hager v. Stakes, 116 Tex. 453, 471, 294 S.W. 835, 842 (1927). 19 Id. 20 Altman v. Blake, 712 S.W.2d 117, 118 (Tex. 1986). 21 Hamilton v. Morris Res., Ltd., 225 S.W.3d 336, 344 (Tex. App. —San Antonio 2007, pet. denied). 22 Acker v. Guinn, 464 S.W.2d 348, 352 (Tex. 1971). 23 Id. 24 Harris v. Currie, 176, S.W.2d 302, 305 (Tex. 1943). 25 Ball v. Dillard, 602 S.W.2d 521 (Tex. 1980).


estate.26 Texas courts have historically given much deference to mineral owners when it comes to what

is reasonably necessary. For instance, the mineral owner:

Has the right to construct roads across the surface;27

Has the right to choose the location of the wells;28

May use the surface to lay pipelines29, build storage tanks, power stations, and other

structures;30

Has the right to determine timing of drilling operations;31

Has the right to use water from the leased premises, including for use in waterflood projects;32

Has the right to conduct geophysical exploration and seismic testing.33

These rights run with the land so that a lessee of the mineral estate would obtain the same rights as the

mineral owner (ingress and egress, roads, pipelines).34 A mineral lease gives the lessee a determinable

fee therein35 and is generally only granted the right to develop under a lease.36 The right to develop has

been described as “the exclusive right to prospect for, produce, and dispose of the minerals.”37 The

mineral owner owes no duty or obligation to restore the surface of the land to the condition it was in

prior to the commencement of drilling operations absent an express contractual provision or

negligence.38

c. Due Regard and Accommodation

The mineral owner must also exercise these rights with due regard for the rights of the surface

owner and without negligence.39 “The due regard concept defines more fully what is to be considered in

the determination of whether a surface use by the lessee is reasonably necessary.”40 Out of this

concept, the courts established the Accommodation Doctrine:

“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

26 Sun Oil Co. v. Whitaker, 483 S.W.2d 808, 811 (Tex. 1972). 27 Gulf Oil Corp. v. Walton, 317 S.W.2d 260 (Tex. Civ. App.—El Paso 1958, no writ); Humble Oil & Refining Co.

v. Williams, 420 S.W.2d 133, 135 (Tex. 1957). 28 Walton, 317 S.W.2d 260. 29 Miller v. Crown Central Petroleum Corp., 309 S.W.2d 876 (Tex. Civ. App.—Eastland 1958, writ dism’d). 30 Joyner v. R.H. Dearing & Sons, 134 S.W.2d 757 (Tex. Civ. App.—El Paso, 1939, writ dism’d). 31 Robinson Drilling Co. v. Moses, 256 S.W.2d 650 (Tex. Civ. App.—Eastland 1953, no writ). 32 Sun Oil Co., 483 S.W.2d at 811. 33 Phillips Petroleum Co. v. Cowden, 241 F.2d 586, 590 (5th Cir. 1957); Yates v. Gulf Oil Corp., 182 F.2d 286, 289

(5th Cir. 1950). 34 Gulf Oil Corp., 317 S.W.2d at 262. 35 Brown v. Humble Oil & Ref. Co., 126 Tex. 296, 83 S.W.2d 935, 940 (Tex. 1935). 36 Merriman v. XTO Energy, Inc., 407 S.W.3d 244, 248-49 (Tex. 2013). 37 Stephens County v. Mid-Kansas Oil Gas Company, 113 Tex. 160, 254 S.W. 290, 293-94 (Tex. 1923). 38 Warren Petroleum Corporation v. Monzingo, 157 Tex. 479, 304 S.W.2d 362, 363 (1957). 39 General Crude Oil Co. v. Aiken, 162 Tex. 104, 344 S.W.2d 668, 671 (Tex. 1961); Williams, 420 S.W.2d 133

(Tex. 1967); Sun Oil Co., 483 S.W.2d at 810. 40 Getty Oil Co. v. Jones, 470 S.W.2d 618, 622 (Tex. 1971).


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 lessee.”41

On its face, the doctrine would appear to offer some relief to the surface owner. However, the burden

of proof lies with the surface owner to prove that the mineral owner failed to accommodate an existing

surface use.42 If this initial burden is carried, the surface owner must prove that there are alternative

reasonable, industry accepted methods available to the mineral owner which would allow recovery of

the minerals.43 If the mineral owner or lessee has only one method for developing and producing the

minerals, the mineral owner may proceed, regardless of whether the method precludes or substantially

impairs an existing surface use.44 In addition, Texas courts have interpreted the doctrine narrowly.

d. Minerals defined

As previously discussed, a mineral interest in oil and gas is an interest in land capable of being

owned, severed, and sold.45 A severance is often accomplished by a grant or reservation of “oil, gas, and

other minerals”.46 In Texas, oil and gas are minerals as a matter of law. Courts have declined to use the

rule of ejusdem generis47 to limit the term “oil, gas, and other minerals” to hydrocarbons.48 This raised

the question as to what constitutes “other minerals”, and the courts construed the scope of this term on

a substance-by-substance basis.49 In 1971, the Texas Supreme Court created the “surface destruction

test” to determine the scope of a grant or reservation of “minerals”.50 In Acker v. Guinn, the Court held

that the term “minerals” should not be construed to include a substance that would require destruction

of the surface to remove.51 The court reasoned that it is not ordinarily contemplated that the utility of

the surface for agricultural or grazing purposes will be destroyed or substantially impaired the dominant

mineral estates reasonable use of the surface for production of minerals.52 The Texas Supreme Court

later abandoned the “surface destruction test” due to the title uncertainty that resulted from

determining ownership of minerals in this manner.53 For mineral conveyances occurring after June 8,

1983, “a severance of minerals in an oil, gas, and other minerals clause includes all substances within the

41 Id. 42 Getty Oil Co., 470 S.W.2d at 623. 43 Tarrant County Water Control and Improvement Dist. Number One v. Haupt, Inc., 854 S.W.2d 909, 911-12 (Tex.

1993). 44 Getty Oil Co., 470 S.W.2d at 622; Haupt, Inc., 854 S.W.2d at 911. 45 Hager, 294 S.W. at 842. 46 Moser v. U.S. Steel Corp., 676 S.W.2d 99, 101 (Tex. 1984). 47 Black’s Law Dictionary 556 (8th ed. 2004) (“A canon of construction that when a general word or phrase follows a

list of specifics, the general word or phrase will be interpreted to include only items of the same type as those

listed”). 48 Southland Royalty Co. v. Pan American Petroleum Corp., 378 S.W.2d 50 (Tex. 1964). 49 Heinatz v. Allen, 147 Tex. 512, 217 S.W.2d 994 (1949) (devise of "mineral rights" held not to include limestone

and building stone); Atwood v. Rodman, 355 S.W.2d 206 (Tex. Civ. App.—El Paso 1962, writ ref'd n.r.e.) ("oil, gas,

and other minerals" did not include limestone, caliche, and surface shale); Union Sulphur Co. v. Texas Gulf Sulphur

Co., 42 S.W.2d 182 (Tex. Civ. App.—Austin 1931, writ ref'd) (solid sulphur deposits conveyed by ordinary oil and

gas lease); Praeletorian Diamond Oil Ass'n v. Garvey, 15 S.W.2d 698 (Tex. Civ. App.—Beaumont 1929, writ ref'd)

(gravel and sand not intended to be included in lease for "oil and other minerals"); Reed v. Wylie, 597 S.W.2d 743

(Tex. 1980) (near surface lignite, iron and coal is part of the surface estate as a matter of law). 50 Acker, 464 S.W.2d at 348. 51 Id. at 352. 52 Id. 53 Moser, 676 S.W.2d at 102.


ordinary and natural meaning of that word, whether their presence or value is known at the time of

severance.”54 The Court reaffirmed that the following substances were not “minerals” and belong to the

surface as a matter of law: limestone, building stone, caliche, surface shale, sand, gravel, near surface

lignite, iron, and coal.55 For those substances deemed to be a “mineral” the mineral owner would be

able to extract the substance using the surface as is reasonably necessary to do so. However, the

mineral owner must compensate the surface owner for surface destruction.56

e. Mineral Interest and Royalty Interest

It is important for the parties to fully understand what it is they are reserving or conveying to

ensure that the intentions of the parties are carried through to the transactional documents. Along the

same lines, the practitioner must carefully draft the transactional documents to clearly define what is

being conveyed or reserved to avoid future litigation over the issue. This task can become difficult if the

contractual documents between the parties contradict established case law. In a real estate transaction,

it is important for the parties to understand that there is a difference between a mineral interest and

royalty interest.57

As previously discussed, the mineral estate consists of five attributes, each one being a distinct

property interest that may be conveyed or reserved in connection with a conveyance of a mineral

interest.58 “[I]t is fundamental that a warranty deed will pass all of the estate owned by the grantor at

the time of the conveyance unless there are reservations or exceptions which reduce the estate

conveyed.”59 “An unqualified reservation of the mineral estate reserves the entire bundle of property

rights accorded to the estate.”60 However, if a seller were to reserve a royalty interest, the seller would

be entitled to receive a stated share in the production, while the other attributes of the mineral estate

would pass to the buyer (rights to lease, receive bonus money, etc.).61 A royalty interest is a non-

possessory interest to share in the production, free of expenses of production, but is typically subject to

post-production costs, absent an agreement providing otherwise.62 A royalty owner does not have right

to lease, explore, or develop the mineral estate but simply the right to his proportionate share of

production once minerals are produced.63 “There has been much litigation over the years dealing with

the construction of deeds that do not clearly define what is being conveyed or reserved, mineral or

royalty.”64 For a detailed discussion on proper drafting techniques and pitfalls pertaining to mineral

54 Id. 55 Id. 56 Id. 57 Celia C. Flowers and Melanie S. Reyes, Avoiding the Unintended Consequence When Drafting Mineral

Reservations, Advanced Real Estate Strategies (2013) at 2. 58 Altman, 712 S.W. 2d at 188; Hamilton, 225 S.W.3d at 344. 59 Cockrell v. Texas Gulf Sulphur Co., 157 Tex. 10, 15, 299 S.W.2d 672, 675 (1956). 60 Avoiding the Unintended Consequence When Drafting Mineral Reservations, at 2. 61 Id. 62 Concord Oil Co. v. Pennzoil Exploration and Production Co., 966 S.W.2d 451, 459 (Tex. 1991); Heritage

Resources, Inc. v. NationsBank, 939 S.W.2d 118, 121-122 (Tex. 1996). 63 Bank One, Texas, National Association v. Alexander, 910 S.W.2d 530, 534 (Tex. App. Austin 1995, writ den’d). 64 Ronald D. Nickum, The Role of Minerals in Real Estate Drafting: Ten Common Pitfalls Created by Mineral and

Royalty Case Law, Advanced Real Estate Drafting Course (2009) at 4.


reservations, see the articles cited in the footnote.65 The end result of whether an interest is a mineral

interest or royalty interest can be summarized as follows:

“If A reserves a ¼ royalty interest and a producing well is drilled, A is entitled to ¼ of the value of

the minerals produced from the well. Alternatively, if A reserves a ¼ mineral interest, and a

producing well is drilled, A is entitled to ¼ of the royalty paid. If the royalty paid by the producer

is 1/5, then the mineral interest owner is entitled to 1/20 (1/4 of 1/5) of the value of the

produced minerals.”66

Therefore, the determination can affect the amounts each party is entitled to once production begins,

and any uncertainty resulting from poorly drafted documents will likely result in litigation.

“The difference between a “fraction of” royalty and a “fractional royalty” presents one of the most

complex and confusing deed-construction issues title examiners and courts, alike, face in interpreting

certain royalty conveyances and reservations.”67 “A “fractional royalty” interest entitles the owner to

the specified fractional amount stated in the deed of oil, gas, or other minerals produced from the land

and remains constant regardless of the amount of royalty contained in a subsequently-negotiated oil

and gas lease.”68 “An example of a fractional royalty is as follows: the owner of a fractional 1/16th royalty

takes 1/16th of gross production whether the lease provides for a lessor’s royalty of 1/8, 3/16, or ¼.”69 A

“fraction of royalty” conveys a “floating” fractional share of the royalty that is contained in an existing or

future oil and gas lease.70 The amount to be paid is calculated by multiplying the fraction in the royalty

reservation by the royalty provided in a lease.71 “For example, the owner of a 1/16th fraction of royalty

takes 1/16th of whatever royalty the lessor reserves in any given lease.”72 “While the definitions of each

type of royalty seem fairly straightforward, the courts’ struggle to construe deeds as one or the other

have created a quagmire of conflicting, confusing interpretations.”73 The parties to a real estate

transaction should have a clear understanding of what it is they wish to reserve or convey to ensure that

documents are properly drafted to incorporate the intent of the parties. It should also be noted,

although not discussed further, there are other important drafting considerations that a practitioner

should be aware of, in particular the Duhig rule and “subject to” clauses.74

3. TREC and TREC Forms

The Texas Real Estate Commission (“TREC”) was established in 1949 with the purpose of

safeguarding consumers in matters of real property transactions. Among other duties administered by

TREC, the agency oversees the licensing of brokers and agents in the State of Texas. TREC also

65 Id.; Stephen A. Boykin, Mineral Reservations: A Little History, Some Modern Cases and a Cautionary Tale,

Advanced Real Estate Law Course (2010). 66 Mineral Reservations: A Little History, Some Modern Cases and a Cautionary Tale, at 4. 67 Avoiding the Unintended Consequence When Drafting Mineral Reservations, at 3. 68 Range Resources Corp. v. Bradshaw, 266 S.W.3d 490, 493 (Tex. App.—Fort Worth 2008, pet. denied). 69 Avoiding the Unintended Consequence When Drafting Mineral Reservations, at 4. 70 Bradshaw, 266 S.W.3d at 493. 71 Id. 72 Avoiding the Unintended Consequence When Drafting Mineral Reservations, at 3-4. 73 Id. at 3-6. (See for a thorough review of case law on deed construction and interpretations of royalty reservations). 74 See Mineral Reservations: A Little History, Some Modern Cases and a Cautionary Tale; Avoiding the Unintended

Consequence When Drafting Mineral Reservations; The Role of Minerals in Real Estate Drafting: Ten Common

Pitfalls Created by Mineral and Royalty Case Law.


promulgates contract forms and addenda for mandatory use by licensed real estate professionals

dealing with residential property.75 Although designed for use by licensed real estate professionals,

other parties to the transaction rely on these forms to assist with facilitating the transaction. In regards

to a mineral reservation, the contract and deed should be clear as to what is being conveyed or

reserved. The forms that will be discussed have the potential to create issues in drafting the proper

mineral reservation and are often not adequate to reflect the desires of the parties involved.

a. TREC Contract Forms and Mineral Reservations

TREC contract forms are identified “with a number on the lower right side of the form, followed

by a hyphen and another number indicating the update status of the form.”76 Each form will contain a

revision date at the top right corner of the form,77 which will be indicated in parentheticals throughout

this paper. The two contract forms that will be discussed are the Farm and Ranch Contract and One to

Four Family Residential Contract (Resale). The portion of these contracts that deal with mineral

reservations has evolved over time.

i. Farm and Ranch Contract

Paragraph 2.F. of the TREC No. 25-8 Farm and Ranch Contract (8-1-2011) and TREC No. 25-9

Farm and Ranch Contract (8-13-12) contained the following language:

F. RESERVATIONS: Any reservation for oil, gas, or other minerals is described on the attached

TREC addendum. Seller Reserves the following water, timber, or other interests: ____________.

The Addendum for Reservation of Oil, Gas, and Other Minerals was also set out in Paragraph 22 of the

contracts, which contains a list of addenda that can be selected.

Paragraph 2.F. of the TREC No. 25-10 Farm and Ranch Contract (4-28-14) was revised to the

following:

F. RESERVATIONS: Any reservation for oil, gas, or other minerals, water, timber, or other

interests is made in accordance with an attached addendum or Special Provisions.

Notice that reference to the “TREC addendum” was removed and the parties could also now make

reservations in the Special Provisions portion of the contract in Paragraph 11. The Addendum for

Reservation of Oil, Gas, and Other Minerals was removed from Paragraph 22 of the contract “to avoid

mistakes, since that addendum is not sufficient for use with this property type.”78

In the most recent version of the contract, Paragraph 2.F. of the TREC No. 25-12 Farm and Ranch

Contract (2/12/2018) was revised to the following:


interests is made in accordance with an attached addendum.

75 Tex. Occ. Code, §1101.155; 22 T.A.C. §537.11. 76 David Z. Conoly, TREC/TAR Forms Update Special Forms That Can Be Useful, Advanced Real Estate Drafting

Course (2009), at 1. 77 Id. 78 Meeting of the Texas Real Estate Commission, April 28, 2014, Meeting Materials, Page 82 of 358.


Notice that the option to make reservations in the Special Provisions portion of the contract was

removed, “suggesting that reservations are to be addressed only in a properly drafted addendum.”79 The

Addendum for Reservation of Oil, Gas, and Other Minerals was added back to Paragraph 22 of the

contract. This leaves the parties to assume that the addendum is “now sufficient” for this type of

property type.

ii. One to Four Residential Contract (Resale)

The TREC No. 20-8 One to Four Residential Contract (Resale) (06-30-08) did not have a provision

for making reservations, however the first Addendum for Reservation of Oil, Gas, and Other Minerals

was adopted for use by December 15, 2008.

The TREC No. 20-10 One to Four Residential Contract (Resale) (2-14-11) and TREC No. 20-12 One

to Four Residential Contract (Resale) (4-28-14) allowed for the use of the Addendum for Reservation of

Oil, Gas, and Other Minerals in Paragraph 22.

The TREC No. 20-14 One to Four Residential Contract (Resale) (2-12-2018) was revised to add

Paragraph 2.E. which reads as follows:

E. RESERVATIONS: Any reservation for oil, gas, or other minerals, water, timber, or other


The Addendum for Reservation of Oil, Gas, and Other Minerals remained in Paragraph 22 of the contract

as an addendum that could be utilized.

As it stands, it would appear that anytime a party wishes to make a reservation for oil, gas and

other minerals when using the TREC contracts discussed above, the Addendum for Reservation of Oil,

Gas, and Other Minerals must be used. However, a better option would be for the property owner to

have an attorney assist with preparing an addendum during contract negotiations, as this appears to be

acceptable under the rules.80

b. TREC Addendum for Reservation of Oil, Gas, and Other Minerals

As of December 15, 2008, licensed real estate professionals in Texas are to utilize the TREC

promulgated Addendum for Reservation of Oil, Gas, and Other Minerals where the seller wishes to

reserve a mineral interest. As one author notes, the contract with the addendum is typically negotiated

and agreed to well in advance of the drafting of the transactional documents (and likely before any

advice of counsel is sought).81 While the addendum is intended to aid the parties to the transaction, it

has the potential to create issues for reasons that will be discussed below.

The author would like to give credit to Celia C. Flowers and Melanie S. Reyes for their prior work

on this subject, which served as the foundation for the following discussion.82

79 Meeting of the Texas Real Estate Commission, February 12, 2018, Meeting Materials, Page 158 of 328. 80 22 T.A.C. §537.11(a). 81 Avoiding the Unintended Consequence When Drafting Mineral Reservations, at 16. 82 Celia C. Flowers and Melanie S. Reyes, Avoiding the Unintended Consequence When Drafting Mineral

Reservations, Advanced Real Estate Strategies (2013).


i. Addendum Section A.

Section A of the addendum contains a definition of the “Mineral Estate”. The prior versions of

the addendum, the TREC No. 44-0 Addendum for Reservation of Oil, Gas, and Other Minerals (12-15-08)

and TREC No. 44-1 Addendum for Reservation of Oil, Gas, and Other Minerals (12-05-11), included the

following definition:

A. “Mineral Estate” means all oil, gas, and other minerals in or under the Property, any royalty

under any existing or future lease covering any part of the Property, surface rights (including

rights of ingress and egress), production and drilling rights, lease payments, and all related

benefits.

Rather than describing the reservation as one of “oil, gas, and other minerals”, as the title of the

addendum suggests, the addendum attempts to further define the “Mineral Estate”. The definition as

set out conflicts with the well settled law discussed above. “There are “minerals” that belong to the

surface estate.”83 However, when the term is used in the phrase “oil, gas, and other minerals”, case law

limits the meaning such that “minerals” does not include minerals belonging to the surface estate.84 The

use of the terminology “Mineral Estate” in the addendum can cause confusion for the parties to the

transaction who may believe that the addendum addresses all minerals and not just oil and gas.85

Further complicating matters, when documents are drafted for the transaction to include a mineral

reservation per the language in the contract, the attorney drafting the documents is faced with using a

definition that is inconsistent with oil and gas law.86

Another issue that was presented in this portion of the addendum is the use of the phrase

“surface rights” within the definition of “Mineral Estate”.87 As discussed above, a severance of the

minerals creates two separate estates, the surface estate and the mineral estate.88 The mineral estate is

the dominant estate and carries with it the implied right of ingress and egress for purposes of entering

the land for exploration and production of oil and gas.89 There is little case law in Texas construing the

phrase “surface rights”. One case that does include a discussion of the issue is the 1960 Amarillo Court

of Appeals case, Fleming Foundation v. Texaco, Inc.90 For a detailed analysis of the case, see the article

referenced in the footnote.91 “Surface rights” as defined by the Fleming case includes everything but the

“oil, gas, and other minerals.”92 “Thus, if the “Mineral Estate” definition in the TREC addendum includes

“surface rights”, but the case law defines “surface rights” as everything but the mineral estate, the

grantor appears to be reserving everything, including the surface estate.”93 The use of this language

leads to confusion on what exactly is being conveyed or reserved, and the attorney drafting the

83 Avoiding the Unintended Consequence When Drafting Mineral Reservations, at 16. 84 Id. 85 Id. 86 Id. 87 Id. 88 Acker, 464 S.W.2d at 352. 89 Ball, 602 S.W.2d 521; Sun Oil Co., 483 S.W.2d at 811. 90 337 S.W.2d 1075 (Tex. App.—Amarillo 1960, writ ref’d n.r.e.). 91 Avoiding the Unintended Consequence When Drafting Mineral Reservations, at 16. 92 Avoiding the Unintended Consequence When Drafting Mineral Reservations, at 17. 93 Id.


documents for the transaction is once again faced with the problem of using the definition contained in

the addendum that conflicts with case law.

The latest version of the addendum, the TREC No. 44-2 Addendum for Reservation of Oil, Gas,

and Other Minerals (11-18-14), contains a revised definition of the “mineral estate” that reads as

follows:

A. “Mineral Estate” means all oil, gas, and other minerals in and under and that may be

produced from the Property, any royalty under any existing or future mineral lease covering

any part of the Property, executive rights (including the right to sign a mineral lease covering

any part of the Property), implied rights of ingress and egress, exploration and development

rights, production and drilling rights, mineral lease payments, and all related rights and

benefits. The Mineral Estate does NOT include water, sand, gravel, limestone, building

stone, caliche, surface shale, near-surface lignite, and iron ore, but DOES include the

reasonable use of the these surface materials for mining, drilling, exploring, operating,

developing, or removing the oil, gas, and other minerals from the Property.

The troublesome language regarding “surface rights” has been removed from the definition of the

“Mineral Estate” and language has been added to distinguish those minerals that per case law, belong to

the surface estate (albeit near-surface coal is left out). However, the revised language in the addendum

still attempts to further define the “Mineral Estate” as opposed to letting case law (and the title of the

addendum) speak for itself, in what one would presume to be an attempt to provide more information

to the parties in the transaction. Sometimes less is more.

The definition of “Mineral Estate” as set out in the addendum, does not accommodate the

various reservations that a party could choose to make. For example, it does not allow a party to reserve

the executive rights and convey the other separate and distinct attributes of the mineral estate. The

seller must choose between a reservation of the entire “Mineral Estate” as defined or a mineral/royalty

interest. Therefore, if a party wishes to reserve less than the entire bundle of sticks, the addendum

would not be appropriate to use in that transaction.

ii. Addendum Section B.

Section B of the addendum contains the reservation that will be incorporated into the deed

when the documents are prepared for the transaction. The prior versions of the addendum (TREC No.

44-0 Addendum for Reservation of Oil, Gas, and Other Minerals (12-15-08) and TREC No. 44-1

Addendum for Reservation of Oil, Gas, and Other Minerals (12-05-11)) allowed for the following

reservation:

B. The Mineral Estate owned by the Seller, if any, will be conveyed unless reserved as follows

(check one box only):

(1) Seller reserves all of the Mineral Estate owned by Seller.

(2) Seller reserves an undivided______% interest in the Mineral Estate owned by Seller.

NOTE: If the Seller does not own all of the Mineral Estate, Seller reserves only this

percentage of Seller’s interest.

One of the issues presented in the prior versions of the addendum was the reservation of a percentage

interest when the Seller was not reserving the entire Mineral Estate. “Throughout the history of Texas


oil and gas, reserved interests have ordinarily been set out in terms of fractional interests, however, not

as percentages.”94 If a fraction were used in the blank, the language used in the addendum creates a

fractional percentage, potentially leading to confusion for the parties involved and to those later

drafting the transaction documents. Another issue, is the inclusion of the language “owned by Seller”

following the reservation. “This choice cannot be used for those sellers who want to reserve a fractional

royalty (as discussed above) which is a fraction of the whole royalty and not a fraction of the interest

“owned by the seller”.”95 The result is that the addendum can only be used to reserve a “fraction of” the

royalty.96 Further complicating matters, if the parties are utilizing the TREC No. 25-12 Farm and Ranch

Contract (2/12/2018), there is no longer an option to make reservations in the “special provisions”

portion of the contract. Therefore, a reservation of a fractional royalty is not possible when using the

TREC contracts and addendum.

The latest version of the addendum (TREC No. 44-2 Addendum for Reservation of Oil, Gas, and

Other Minerals (11-18-14)) revised the reservation language as follows:

B. Subject to Section C below, the Mineral Estate owned by the Seller, if any, will be conveyed

unless reserved as follows (check one box only):

(1) Seller reserves all of the Mineral Estate owned by Seller.

(2) Seller reserves an undivided______ interest in the Mineral Estate owned by Seller.

NOTE: If the Seller does not own all of the Mineral Estate, Seller reserves only this

percentage or fraction of Seller’s interest.

The percentage sign was removed from the reservation of an undivided interest in the second

option for when the seller reserves less than the entire Mineral Estate. However, the issue pertaining to

the reservation of a fractional royalty (discussed above) remains in the current Addendum for

Reservation of Oil, Gas, and Other Minerals.

iii. Addendum Section C.

Section C of the addendum provides the Seller with the option to waive the right to access the

surface for drilling and exploration. Surface waivers are becoming increasingly common as they

accommodate the desires of both parties. With advances in technology, like horizontal drilling, the

mineral owner may still be able to extract and develop the reserved minerals without utilizing the

surface estate of the property conveyed. The buyer who obtains a surface waiver has comfort knowing

that future mineral development will not interfere with their proposed use of the surface estate.

The prior versions of the addendum, the TREC No. 44-0 Addendum for Reservation of Oil, Gas,

and Other Minerals (12-15-08) and TREC No. 44-1 Addendum for Reservation of Oil, Gas, and Other

Minerals (12-05-11), included the following language:

C. Seller waives does not waive Seller’s surface rights (including rights of ingress and

egress). NOTE: Any waiver of surface rights by Seller does not affect any surface rights that

may be held by others.

94 Id. at 17. 95 Id. 96 Id.


As previously discussed, the mineral estate has the implied right of ingress and egress for purposes of

entering the land for exploration and production of oil and gas. Instead of relying on settled law, the

addendum “takes the existing legal right to ingress and egress” and broadens it by placing it in

parentheticals after the phrase “surface rights”.97 “The language “including rights of ingress and egress”

in conjunction with the Fleming Foundation case definition appears to mean that “surface rights”

include more than the mere right to access the surface of the property or use the surface of the

property for drilling and production.”98 Once again, the parties were left to wonder what exactly is being

conveyed or reserved.


and Other Minerals (11-18-14), revised the language in Section C. as follows:

C. Seller does does not reserve and retain implied rights of ingress and egress and of

reasonable use of the Property (including surface materials) for mining, drilling, exploring,

operating, developing, or removing the oil, gas, and other minerals. NOTE: Surface rights

that may be held by other owners of the Mineral Estate who are not parties to this

transaction (including existing mineral lessees) will NOT be affected by Seller’s election.

Seller’s failure to complete Section C will be deemed an election to convey all surface rights

described herein.

The language has been revised to more accurately track case law on the dominant mineral estates

implied right of ingress and egress for drilling and production; however, a few issues still remain. The

phrase “surface rights” was removed from the reservation selection but still remains in the “note”

portion of Section C. This wouldn’t be an issue if it were not for the last sentence of the paragraph. It

reads, “Seller’s failure to complete Section C will be deemed an election to convey all surface rights

described herein.” This sentence appears to mean that if the seller fails to make an election in Section

C., the seller is deemed to waive his rights to the surface by silence. (The parties are left to assume this

is the meaning of the sentence as there is no definition of “surface rights” in the addendum and little

case law to offer guidance, as discussed above.) In other words, if a seller reserves the “Mineral Estate”

and fails to make an election, the right to go upon the land for the purposes of exploration and

development are to be “conveyed” to the buyer. The implied right is appurtenant to the mineral estate

and was created as courts realized a grant or reservation of minerals would be wholly worthless if the

mineral owner could not enter upon the land to explore for and extract the minerals granted or

reserved.99 The legal rights between mineral owner and surface owner may be altered by written

agreement.100 The last sentence of Section C. contradicts case law by eliminating the implied right of

ingress and egress and creating a waiver of this right by silence. This sentence also contradicts the first

two Sections of the addendum. If a seller reserves the “Mineral Estate” in Section B. of the addendum,

the definition of “Mineral Estate” in Section A. includes the “implied rights of ingress and egress.”

However, failure to make an election in Section C. arguably carves this implied right out of the

97 Id. at 18. 98 Id. 99 Harris, 176 S.W.2d at 99. 100 Monzingo, 304 S.W.2d at 363 (absent a contractual provision, the lessee is under no obligation to restore the

surface to its original condition); Atlantic Refining Co. v. Bright & Schiff, 321 S.W.2d 167, 168 (Tex. Civ. App.—

San Antonio 1959, writ ref’d n.r.e.)(noting that the Court is unwilling to imply covenants without reviewing the

express terms of the lease itself in regards to interference with lessee’s rights)


reservation. The ultimate answer to this problem depends on how the documents are drafted and

whether the instruments include a waiver of surface rights. However, let’s suppose the seller reserves all

of the “Mineral Estate” under Section 2, fails to make an election under Section C., and the deed for the

transaction fails to include a waiver of surface rights. Is the language in the addendum sufficient to

create a waiver of surface rights by silence? It is doubtful; however, one can never be certain how a

court would construe the language in the addendum.

Recent case law also suggests that one should be careful in drafting a surface waiver, as to not

potentially strand the minerals they have reserved. In the recent case Lightning Oil Co. v. Anadarko E&P

Onshore, LLC,101 the Texas Supreme Court affirmed the court of appeals ruling that the surface owner

owns the subsurface space in land surrounding any hydrocarbon molecules that may lie within.

Anadarko leased portions of a wildlife conservation area from the State of Texas and the lease contained

surface use restrictions, requiring the lessee to drill from off-site locations, when prudent and

feasible.102 In order to produce minerals from its lease, Anadarko entered into an agreement with an

adjacent surface estate owner, Briscoe Ranch, Inc., to drill down vertically from the surface of the ranch

before kicking off horizontally into the leased tract.103 Lightning Oil Co. was the lessee of the minerals

underlying the Ranch and objected to Anadarko drilling from the surface of the Ranch on grounds of

trespass and tortious interference with contract.104 Lighting Oil Co. argued that it had the right to

exclude those seeking to pass through the dominant mineral estate.105 However, the Court disagreed

and held that the surface owner “owns all non-mineral molecules of the land” and that the mineral

estate owner is only entitled to a fair chance to recover the oil and gas under the surface estate.106

Therefore, Lightning Oil Co. had no right to exclude Anadarko from vertically drilling through the

subsurface mass that it did not own or control.107 Pure speculation that Anadarko’s proposed well sites

would interfere with Lightning Oil Co.’s right to develop the minerals in the future was not enough to

constitute a trespass.108 “Following the holding in Lightning Oil, it is possible that these simple surface

waivers commonly used throughout the state may inadvertently waive use of not only the linear surface

as they were clearly intended, but may also waive the use of the subsurface as well.”109 In a typical

waiver, “the mineral owner has merely waived all future uses of the surface for development of the

mineral estate”.110 However, since “the courts have concluded that the “surface” is more than just the

lateral surface but that it includes the “subsurface mass” and the “non-mineral molecules” beneath the

surface, it is possible that these surface waivers have stranded the minerals and that they cannot be

developed by any means on the surface and subsurface of the subject property.”111 This is something to

consider if the parties are electing to waive their rights to the surface.112

101 520 S.W.3d 39, 47 (Tex. 2017). 102 Id. at 43. 103 Id. 104 Id. 105 Id. at 46. 106 Id. at 46-47. 107 Id. at 47. 108 Id. at 49. 109 Thomas M. “Mike” Murray, Conflicting Uses of the Surface Estate, Advanced Real Estate Drafting (2019) at 20. 110 Conflicting Uses of the Surface Estate, at 20. 111 Id. 112 Id. (See sample mineral reservation or surface waiver clause that takes this case into consideration).


“The analysis of whether a seller should consider waiving his right to access the surface of the

property is a complicated one and depends on many factors, such as size of the tract, the availability of

other drill sites that might be utilized, whether the property is in a city or in the countryside, etc.”113 The

addendum does provide useful information in Section C., in regards to notifying the parties that the

waiver of surface rights is ineffective as to mineral owners or lessee’s who are not a party to the

transaction. It is important for the buyer to realize that even though the seller is executing a waiver of

surface rights, if other parties own a portion of the mineral estate, those parties are not bound by the

surface waiver. This brings us to the last portion of the addendum.

iv. Addendum Section D.

Section D of the addendum obligates the seller under the contract to notify the buyer of any

existing mineral lessee known to the seller, when the seller reserves less than all of the Mineral Estate.


and Other Minerals (11-18-14), contains the following language:

D. If Seller does not reserve all of Seller’s interest in the Mineral Estate, Seller shall, within 7

days after the Effective Date, provide Buyer with the contact information of any existing

mineral lessee known to Seller.

Since this section of the addendum contains a timeframe in which the seller must provide this

information, it is important for the parties to understand where they may obtain this information. Many

parties mistakenly presume that a Commitment for Title Insurance will contain all necessary instruments

affecting the chain of title, therefore they may rely on its contents as a status of the chain of title.

However, the Commitment for Title Insurance specifically states that it “is not an opinion or report of

your title.”114 “It is a contract to issue...a policy subject to the Commitment’s terms and requirement.”115

It also provides that “The Policy is not an abstract of title nor does a Company have an obligation to

determine the ownership of any mineral interest.”116 The title insurance company is determining

whether title is insurable and setting forth the requirements for insuring. Title Insurance Companies are

not required to insure the mineral estate of land117, and the policy typically insures fee simple title of the

surface estate. Generally speaking, research of the mineral estate is outside the scope of title insurance

due to the process used in researching land for purposes of issuing title insurance. A complete search of

the mineral estate requires research back to sovereignty, which may not be possible depending upon

the information that is accessible to the company by virtue of the abstract plant it utilizes for that

particular county. A third party, like a land service company, may have to be utilized to research the real

property records to provide a mineral ownership report to the parties, in order to avoid defaulting

under this section of the addendum.

The Addendum for Reservation of Oil, Gas, and Other Minerals was assuredly designed as tool to

assist the parties when making a mineral reservation. However, due to the complexity of oil and gas law,

a general addendum simply cannot include all matters that it would need to include to account for every

113 Avoiding the Unintended Consequence When Drafting Mineral Reservations, at 18. 114 Commitment for Title Insurance (Form T-7). 115 Id. 116 Id. 117 Tex. Ins. Code §2703.055.


transaction imaginable. Buyers, sellers and practitioners alike, should be aware of the pitfalls of the

addendum and proceed accordingly. Lastly, many title companies utilize the same firm or attorney for

the drafting of transactional documents. Does the attorney or firm drafting the deed understand all of

the issues discussed above? It is certainly a question that merits consideration.

4. Wind and Solar

Texas has a long history as an oil and gas state, but the arrival of the wind and solar power industries

inherently increases the chances of conflicts between these industries. In regards to the contract forms

previously discussed, they simply do not deal with solar and wind energy issues for good reasons. “Wind

rights and the physical facilities and turbines constructed upon the surface in order to generate wind

energy electricity are part of the surface estate.”118 “Thus, the surface owner is the fee owner of wind

rights with the right to develop the wind rights, to lease the wind development rights to another party,

to sell and assign all or part of the wind rights to another party, or to otherwise separate the wind rights

from the surface rights by any legal act of severance.”119 “There is no legal precedent in Texas either

supporting or rejecting the validity of a severance of wind rights.”120 Wind energy projects utilize a

leasehold estate, where the wind company negotiates with the surface landowner for the rights to

develop the wind project and the landowner typically receives rent and royalty payments in return.121

There has been no challenge to the legal validity of the rights conveyed by a wind lease, and it is

presumed that Texas common law principles (ad coelum) would apply.122 As for solar rights, “there are

no cases in Texas that have found a separate and distinct severable interest in a solar estate.”123

“Similarly, like wind, it seems plausible that the right to sever solar development from the surface could

be accomplished by contract.”124

Since the energy project is one of a leasehold estate, between the landowner and energy company,

it is not a matter that would be discussed between a buyer and seller of real property (unless the

property was subject to an existing lease). However, that is not to say that the parties to a real estate

transaction should not take into consideration the rights and interests of these types of projects and

competing estates. A seller could arguably reserve all or a portion of the wind rights to a property. Also,

if the buyer intends to lease the property to a wind or solar energy company, they need to take into

consideration how their rights may be impacted by third parties who may also have an interest in the

property (i.e., a mineral owner).

The primary source of tension involves the utilization of the surface estate due to the shear amount

of land needed for most wind and solar energy projects. For a wind energy project, “the optimum

location of turbines is in an east-to-west direction with north-to-south rows spaced approximately 1000

feet between each turbine and 3000 feet between each row.”125 These projects can easily encompass

118 James M. Summers, The Impact on Lenders of the Correlative and Conflicting Rights of Competing Estates and

Interests: Surface, Mineral, Water, and Wind, Mortgage Lending Institute (2013) at 39. 119 Id. 120 Conflicting Uses of the Surface Estate, at 13. 121 The Impact on Lenders of the Correlative and Conflicting Rights of Competing Estates and Interests, at 40. 122 Id. 123 Conflicting Uses of the Surface Estate, at 15. 124 Id. 125 The Impact on Lenders of the Correlative and Conflicting Rights of Competing Estates and Interests, at 39.


thousands of acres due to turbine spacing and buffer zones.126 In addition, the wind projects use

significant portions of the surface for roads, facilities, substations, and laydown yards. 127 The wind

turbines are connected through a series of underground and overhead transmission lines.128 Solar

projects are typically smaller in size (1000 to 6000 acres), however the surface footprint is much larger

as the “leased acreage will be covered with panels and supporting infrastructure, effectively precluding

all other surface uses.”129

These types of projects are often located on property that is already subject to oil and gas

exploration. A good example is McCamey, Texas, a town in West Texas that I happen to have lived in for

a few years as a child. This area has seen oil and gas development for many decades. However, utilizing

current satellite mapping, you will notice large solar projects, wind farm projects and oil/gas wells all

located within close proximity to each other. It should be noted, though, that these issues and

considerations are not limited to land located in the panhandle or West Texas. There are several solar

projects located throughout the state in rural and urban areas. Due to the nature and extent of surface

utilization inherent with wind and solar energy projects, one must take into consideration the possibility

of conflict with existing or concurrent development of oil and gas.

As previously discussed, the mineral estate is the dominant estate in Texas. The wind or solar

developer under a leasehold estate maintains the same status as the surface owner. Therefore, it would

be prudent for those entertaining these types of projects to take measures to reduce potential conflict.

Some of the options available would be to seek waivers of surface rights from mineral owners or

accommodation/drill site agreements. Otherwise, the parties may find themselves relying on the

Accommodation Doctrine, discussed above. “Arguably, once a wind farm is constructed, it should

constitute a reasonable use of the surface of the land.”130 Whether or not the oil and gas lessee has a

reasonable alternative available to develop the mineral estate around the wind farm would be the

deciding factor.131 As to a solar project, the dominance of the mineral estate is more concerning. “Since

solar development, for all intents and purposes, precludes surface use for any other purpose, this would

act to effectively rob the mineral owner of its implied easement to access the surface to explore for and

develop the minerals.”132 Proceeding with a solar development without taking preventative measures

would essentially be “throwing a Hail Mary, hoping that its development would fall within the protection

of the Accommodation Doctrine.”133 Even though the current TREC contract forms do not contemplate

wind and solar energy issues or rights, in today’s world the parties to the transaction should at least give

some thought and consideration to these issues.

126 Id. 127 Roderick E. Wetsel, Conflicts Between Wind Development and Oil and Gas Development, Advanced Real Estate

Law Course (2010) at 3. 128 Id. 129 Ernest E. Smith et. al., Everything Under the Sun: A Guide to Siting Solar in the Lone Star State, 12 Tex. J. Oil

Gas & Energy L 41, 55 (2017). 130 The Impact on Lenders of the Correlative and Conflicting Rights of Competing Estates and Interests, at 42. 131 Id. 132 Conflicting Uses of the Surface Estate, at 15. 133 Id.


5. Title Insurance Coverage

For those transactions that are insured, parties may wish to seek additional coverage to deal with

issues that may arise from mineral development on the subject property. The title insurance policy

typically insures fee simple title of the surface estate. Pursuant to Procedural Rule P-5.1 of the Texas

Title Insurance Basic Manual, the following exception may be placed in a policy:

1. On Schedule A, Item 2:

"subject to, and the Company does not insure title to, and excepts from the description of the Land, coal, lignite, oil, gas and other minerals in, under and that may be produced from the Land, together with all rights, privileges, and immunities relating thereto."; or

2. On Schedule B:

"All leases, grants, exceptions or reservations of coal, lignite, oil, gas and other minerals, together with all rights, privileges, and immunities relating thereto, appearing in the Public Records whether listed in Schedule B or not. There may be leases, grants, exceptions or reservations of mineral interest that are not listed."134

The latest versions of the TREC No. 20-14 One to Four Residential Contract (Resale) (2-12-2018) and TREC No. 25-12 Farm and Ranch Contract (2-12-2018) were revised to add this promulgated exception in Paragraph 6.A., that portion of the contract dealing with Title Policy and Survey.

Coverage for mineral development issues is addressed by issuance of the Restrictions,

Encroachments, Mineral Endorsement (T-19) and Restrictions, Encroachments, Minerals Endorsement-

Owner’s Policy (T-19.1), pursuant to Procedural Rule P-50. Insuring paragraph 4.d. of these

endorsements contains the following language:

d. Damage to an Improvement located on the Land on or after Date of Policy, resulting

from the future exercise of a right to use the surface of the Land for the extraction or

development of minerals or any other subsurface substances excepted from the

description of the Land or excepted in Schedule B.

The term “Improvements” is a defined term in the T-19 and T-19.1 endorsements. In the T-19.1

endorsement, the term incudes “a building, structure, road, walkway, driveway, or curb, affixed to

either the Land or adjoining land and that by law constitutes real property, but excluding any crops,

landscaping, lawn, shrubbery, or trees.” In the T-19 endorsement, the term means “an improvement,

including any landscaping, lawn, shrubbery, or trees, affixed to either the Land or adjoining land that by

law constitutes real property.”

Also, if the general mineral exception is used, the insurer may issue the Minerals and Surface

Damage Endorsements (T-19.2 or T-19.3) for each tract of land being insured, upon request of the

insured.135 These endorsements provide similar coverage but are limited to mineral development issues.

The T-19.2 endorsement insures against “loss which the insured shall sustain by reason of damage to

improvements (excluding lawns shrubbery, or trees) located on the Land on or after Date of Policy

resulting from the future exercise of any right existing at Date of Policy to use the surface of the Land for

the extraction or development of coal, lignite, oil, gas or other minerals excepted or excluded on

134 Procedural Rule P-5.1. 135 Procedural Rule P-5.1.


Schedule A, Item 2 or excepted in Schedule B.” The T-19.3 endorsement contains similar language but is

limited to “damage to permanent buildings located on the Land on or after the Date of the Policy.”

It is important to note that the Procedural Rule states that “Any insured matter covered in the

Restrictions, Encroachments, Minerals Endorsement T-19 or T-19.1 may be insured only by the use of

these endorsements, except that coverage regarding minerals may be insured by the use of the T-

19.2 or T-19.3 endorsements as provided in P-50.1.”136 This rules out providing coverage in any other

manner, including express or affirmative coverage.

Each title insurance company will have their own underwriting requirements for issuing these

endorsements. The factors that will be considered include, but are not limited to, whether there are

surface waivers from the mineral owners of the property, drill site agreements, the extent of the title

search performed, existence of mineral development in the area, and existence of municipal ordinances

prohibiting drilling activity.

6. Conclusion

Texas will continue to be a leader in oil and gas exploration and production for the foreseeable

future, and other industries like wind and solar energy are rapidly gaining a foothold throughout the

state. It is important for the parties involved to have an understanding of the rights and interests of

these competing estates during their negotiations for the sale of real property. It is also important for

those assisting these parties to have a general understanding of oil and gas law and to be aware of the

pitfalls of promulgated contract forms when drafting mineral reservations.

136 Procedural Rule P-50.



Chance Perkins, First National Title Insurance Company


2019 TEXAS LAND TITLE INSTITUTE


▪ The Paper Basics of Oil and Gas Law

TREC and Pitfalls of Contract Forms for Mineral Reservations

◼ Farm and Ranch Contract

◼ 1-4 Residential Resale Contract

◼ Addendum for Reservation of Oil, Gas, and Other Minerals

Wind and Solar

Title Insurance Coverage


1

2

3

Basics of Oil and Gas Law

▪ Ownership in Place, Rule of Capture and

Correlative Rights



▪ Mineral Estate A severed mineral estate is comprised of five attributes:

◼ 1) the right to develop (the right to ingress and egress);

◼ 2) the right to lease (the executive right);

◼ 3) the right to receive bonus payments;

◼ 4) the right to receive delay rentals; and

◼ 5) the right to receive royalty payments.



▪ Mineral Estate A grant or reservation of minerals by the fee owner effects a horizontal

severance and the creation of two separate and distinct estates: an estate

in the surface and an estate in the minerals.

Mineral estate is the dominant estate with rights to use the surface as is

reasonably necessary to produce, develop, and remove the minerals.

◼ Implied right of ingress and egress upon the land for exploration and production

of oil and gas

◼ “Reasonably necessary”- Has the right to construct roads across the surface;

Has the right to choose the location of the wells;

May use the surface to lay pipelines, build storage tanks, power stations, and other structures;

Has the right to determine timing of drilling operations;

Has the right to use water from the leased premises, including for use in waterflood projects;

Has the right to conduct geophysical exploration and seismic testing


4

5

6


▪ Due Regard and Accommodation Mineral owner must also exercise these rights with due regard for

the rights of the surface owner

Accommodation Doctrine:◼ 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 lessee.



▪ Minerals Defined A severance is often accomplished by a grant or reservation of “oil,

gas, and other minerals”.

◼ Oil and gas are minerals as a matter of law

◼ “Other Minerals”

“Surface destruction test”

For mineral conveyances occurring after June 8, 1983

▪ Not “minerals” and belong to the surface as a matter of law:

limestone, building stone, caliche, surface shale, sand, gravel, near

surface lignite, iron, and coal.



▪ Mineral Interest and Royalty Interest Mineral estate consists of five attributes, each one being a distinct property interest

that may be conveyed or reserved in connection with a conveyance of a mineral

interest.

◼ An unqualified reservation of the mineral estate reserves the entire bundle of property rights

accorded to the estate

Royalty Interest

◼ Non-possessory interest to receive a stated share in the production

“If A reserves a ¼ royalty interest and a producing well is drilled, A is entitled to ¼ of

the value of the minerals produced from the well. Alternatively, if A reserves a ¼

mineral interest, and a producing well is drilled, A is entitled to ¼ of the royalty paid.

If the royalty paid by the producer is 1/5, then the mineral interest owner is entitled

to 1/20 (1/4 of 1/5) of the value of the produced minerals.”


7

8

9


▪ “Fraction of” royalty v. “Fractional” royalty▪ Fractional royalty-entitles the owner to the specified fractional amount stated in the deed

of oil, gas, or other minerals produced from the land and remains constant regardless of

the amount of royalty contained in a subsequently-negotiated oil and gas lease. owner of a fractional 1/16th royalty takes 1/16th of gross production whether the lease provides for a lessor’s

royalty of 1/8, 3/16, or ¼.

▪ Fraction of royalty- conveys a “floating” fractional share of the royalty that is contained in

an existing or future oil and gas lease. The amount to be paid is calculated by multiplying

the fraction in the royalty reservation by the royalty provided in a lease. owner of a 1/16th fraction of royalty takes 1/16th of whatever royalty the lessor reserves in any given lease


TREC and Contract Forms

▪ Texas Real Estate Commission “TREC” Established in 1949 with the purpose of safeguarding consumers in

matters of real property transactions

Oversees the licensing of brokers and agents in the State of Texas

Promulgates contract forms and addenda for mandatory use by

licensed real estate professionals dealing with residential property

◼ Other parties to the transaction rely on these forms to assist with

facilitating the transaction


TREC Contract Forms and Mineral Reservations

▪ Paragraph 2.F. of TREC No. 25-8 Farm and Ranch Contract (8-1-2011) and TREC No.

25-9 Farm and Ranch Contract (8-13-12)

F. RESERVATIONS: Any reservation for oil, gas, or other minerals is described on the attached

TREC addendum. Seller Reserves the following water, timer, or other interests:____________.

The Addendum for Reservation of Oil, Gas, and Other Minerals in Paragraph 22.

▪ Paragraph 2.F. of the TREC No. 25-10 Farm and Ranch Contract (4-28-14)


interests is made in accordance with an attached addendum or Special Provisions.

Addendum for Reservation of Oil, Gas, and Other Minerals was removed from Paragraph 22

▪ Paragraph 2.F. of the TREC No. 25-12 Farm and Ranch Contract (2-12-2018)



Addendum for Reservation of Oil, Gas, and Other Minerals was added back to Paragraph 22


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TREC Contract Forms and Mineral Reservations

▪ TREC No. 20-8 One to Four Residential Contract (Resale) (06-30-08)

No provision for making reservations

First Addendum for Reservation of Oil, Gas, and Other Minerals was adopted for use by 12-15-

08

▪ The TREC No. 20-10 One to Four Residential Contract (Resale) (2-14-11) and TREC

No. 20-12 One to Four Residential Contract (Resale) (4-28-14)

Allowed for the use of the Addendum for Reservation of Oil, Gas, and Other Minerals in

Paragraph 22

▪ Addition of Paragraph 2.E. on the TREC No. 20-14 One to Four Residential Contract

(Resale) (2-12-2018)

E. RESERVATIONS: Any reservation for oil, gas, or other minerals, water, timber, or other


The Addendum for Reservation of Oil, Gas, and Other Minerals remained in Paragraph 22


Addendum for Oil, Gas, and Other Minerals

▪ Addendum Section A- contains a definition of the “Mineral Estate”

TREC No. 44-0 Addendum for Reservation of Oil, Gas, and Other Minerals

(12-15-08) and TREC No. 44-1 Addendum for Reservation of Oil, Gas, and

Other Minerals (12-05-11)

◼ A. “Mineral Estate” means all oil, gas, and other minerals in or under the

Property, any royalty under any existing or future lease covering any part of the

Property, surface rights (including rights of ingress and egress), production and

drilling rights, lease payments, and all related benefits.

Attempts to further define the “Mineral Estate” rather than relying on

well settled case law regarding “oil, gas, and other minerals”

Draft reservation in accordance with the addendum or case law?

What are “surface rights”?2019 TEXAS LAND TITLE INSTITUTE


▪ Addendum Section A- contains a definition of the “Mineral Estate”


(11-18-14)◼ “Mineral Estate” means all oil, gas, and other minerals in and under and that may be

produced from the Property, any royalty under any existing or future mineral lease covering

any part of the Property, executive rights (including the right to sign a mineral lease

covering any part of the Property), implied rights of ingress and egress, exploration and

development rights, production and drilling rights, mineral lease payments, and all related

rights and benefits. The Mineral Estate does NOT include water, sand, gravel, limestone,

building stone, caliche, surface shale, near-surface lignite, and iron ore, but DOES include

the reasonable use of the these surface materials for mining, drilling, exploring, operating,

developing, or removing the oil, gas, and other minerals from the Property.

“Surface rights” language removed

Further defined “Mineral Estate” and clarification of “surface minerals”

Does not accommodate the various reservations that a party could possibly

choose2019 TEXAS LAND TITLE INSTITUTE

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▪ Addendum Section B.- contains the reservation that will be

incorporated into the deed



Other Minerals (12-05-11)◼ B. The Mineral Estate owned by the Seller, if any, will be conveyed unless reserved as follows (check one

box only):

1. Seller reserves all of the Mineral Estate owned by Seller.

2. Seller reserves an undivided______% interest in the Mineral Estate owned by Seller. NOTE: If

the Seller does not own all of the Mineral Estate, Seller reserves only this percentage of Seller’s

interest.

Oil and gas, reserved interests have ordinarily been set out in terms of

fractional interests, not as percentages.

“owned by Seller” – “fraction of” royalty versus “fractional royalty”



▪ Addendum Section B.- contains the reservation that will be

incorporated into the deed


(11-18-14)◼ B. Subject to Section C below, the Mineral Estate owned by the Seller, if any, will be

conveyed unless reserved as follows (check one box only):

1. Seller reserves all of the Mineral Estate owned by Seller.

2. Seller reserves an undivided______ interest in the Mineral Estate owned by Seller. NOTE: If the

Seller does not own all of the Mineral Estate, Seller reserves only this percentage of Seller’s

interest.

Percentage sign removed from option 2

“owned by Seller” – “fractional royalty” issue remains



▪ Addendum Section C.- provides the Seller with the option to waive the

right to access the surface for drilling and exploration



Other Minerals (12-05-11)

◼ C. Seller waives does not waive Seller’s surface rights (including rights of

ingress and egress). NOTE: Any waiver of surface rights by Seller does not

affect any surface rights that may be held by others.

Broadens the implied right of ingress and egress

“Surface rights”?


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▪ Addendum Section C.- provides the Seller with the option to waive the

right to access the surface for drilling and exploration


(11-18-14)◼ C. Seller does does not reserve and retain implied rights of ingress and egress and of reasonable use

of the Property (including surface materials) for mining, drilling, exploring, operating, developing, or

removing the oil, gas, and other minerals. NOTE: Surface rights that may be held by other owners of the

Mineral Estate who are not parties to this transaction (including existing mineral lessees) will NOT be

affected by Seller’s election. Seller’s failure to complete Section C will be deemed an election to convey all

surface rights described herein.

Revised to more accurately track case law on the dominant mineral estates

implied right of ingress and egress

Waiver of “Surface rights” by silence?


Waiver of Surface Rights

▪ Lightning Oil Co. v. Anadarko E&P Onshore, LLC, 520 S.W.3d 39, 47

(Tex. 2017).


Briscoe Ranch, Inc. State of Texas

Lightning Oil Co. Anadarko


▪ Addendum Section D.- obligates the seller under the contract to notify

the buyer of any existing mineral lessee known to the seller, when the

seller reserves less than all of the Mineral Estate


(11-18-14)

◼ D. If Seller does not reserve all of Seller’s interest in the Mineral Estate, Seller

shall, within 7 days after the Effective Date, provide Buyer with the contact

information of any existing mineral lessee known to Seller.

Commitment for Title Insurance- not an abstract of title or opinion on title

Mineral Ownership Report


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Wind and Solar

▪ TREC Contracts do not address Wind and Solar issues.

▪ Wind and Solar Rights and the physical facilities used to generate

electricity are part of the surface estate. Surface owner is the fee owner of wind rights, solar rights, leasing rights, etc.

No case law that has found or rejected the notion of a legal severance of wind rights or solar

rights

Energy project will be one of a leasehold estate

Parties should take into consideration the competing rights and interests of these estates and

how they could be impacted by third parties who may have an interest in the property (i.e., a

mineral owner)


Wind and Solar

▪ Competing for Utilization of Surface Estate

Wind-

◼ The optimum location of turbines is in an east-to-west direction with north-to-south rows

spaced approximately 1000 feet between each turbine and 3000 feet between each row.

◼ Can easily encompass thousands of acres due to turbine spacing and buffer zones. Not to

mention surface use for roads, facilities, substations and laydown yards

Solar-

◼ Typically smaller in size (1000 to 6000 acres), but surface footprint will be larger

Minerals

◼ Mineral estate is the dominant estate in Texas

◼ wind or solar developer under a leasehold estate maintains the same status as the surface

owner

◼ prudent for those entertaining these types of projects to take measures to reduce potential

conflict (i.e., surface waivers, accommodation/drill site agreements, etc.)



▪ Procedural Rule P-5.1

1. On Schedule A, Item 2:

◼ "subject to, and the Company does not insure title to, and excepts from the description of

the Land, coal, lignite, oil, gas and other minerals in, under and that may be produced from

the Land, together with all rights, privileges, and immunities relating thereto."; or

2. On Schedule B:

◼ "All leases, grants, exceptions or reservations of coal, lignite, oil, gas and other minerals,

together with all rights, privileges, and immunities relating thereto, appearing in the Public

Records whether listed in Schedule B or not. There may be leases, grants, exceptions or

reservations of mineral interest that are not listed.”

▪ TREC No. 20-14 One to Four Residential Contract (Resale) (2-12-2018) and

TREC No. 25-12 Farm and Ranch Contract (2/12/2018) Revised to add this promulgated exception in Paragraph 6.A., that portion of the contract dealing

with Title Policy and Survey


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▪ Restrictions, Encroachments, Mineral Endorsement (T-19) and

Restrictions, Encroachments, Minerals Endorsement-Owner’s Policy

(T-19.1)

Insuring paragraph 4.d.

◼ d. Damage to an Improvement located on the Land on or after Date of Policy, resulting from

the future exercise of a right to use the surface of the Land for the extraction or

development of minerals or any other subsurface substances excepted from the description

of the Land or excepted in Schedule B.

◼ “Improvements” is a defined term within the endorsements.

▪ Minerals and Surface Damage Endorsements (T-19.2 or T-19.3)

▪ Issuance subject to underwriting guidelines of title insurance company


Conclusion

▪ Texas will continue to be a leader in oil and gas exploration and production for

the foreseeable future and other industries, like wind and solar energy, are

rapidly gaining a foothold throughout the state.

▪ Parties involved should have an understanding of the rights and interests of

these competing estates during their negotiations for the sale of real property.

▪ Practitioners should have a general understanding of oil and gas law and be

aware of the pitfalls of promulgated contract forms when drafting mineral

reservations in accordance with the intentions of the parties.


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Minerals, Wind, and Solar in a TREC World...2019 Texas Land Title Institute-Minerals, Wind, and Solar in a TREC World 3 estate.26 Texas courts have historically given much deference

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