Private Ownership of Groundwater, Billy Howe

Private Ownership of Groundwater

What does it mean?

What does the landowner own?

The Private Property Right

EAA v. Day McDaniel (2012)

Whether groundwater can be owned in place is an issue we have never decided. But we held long ago that oil and gas are owned in place, and we find no reason to treat groundwater differently.

Texas Farm Bureau Presentation 3 4/25/2012


TEXAS CO. v. DAUGHERTY et al. (1915)

Because of the fugitive nature of oil and gas,

some courts, emphasizing the doctrine that they are incapable of absolute ownership until captured and reduced to possession and analogizing their ownership to that of things ferae naturae, have made a distinction between their conveyance while in place and that of other minerals, holding that it created no interest in the realty. But it is difficult to perceive a substantial ground for the distinction.



Daugherty continued……

With the land itself capable of absolute ownership, everything within it in the nature of a mineral is likewise capable of ownership, so long as it constitutes a part of it. If these minerals are a part of the realty while in place, as undoubtedly they are, upon what principle can the ownership of the property interest, which they constitute while they are beneath or within the land, be other than the ownership of an interest in the realty?



• Substance of the SURFACE ESTATE

–Groundwater is part of the land

–Sand, gravel, limestone, etc

–Same Surface Estate rights associated with these other substances



• Ownership of a Migratory Substance

–Follow Oil and Gas Legal Precedents

–Right to Capture “Fair Share” WITHOUT WASTE

–Do not own a certain amount


Can the Legislature Take the Property Right Away?

• A right protected under the U. S. Constitution cannot be taken by a statute

• “a State cannot be permitted to defeat the constitutional prohibition against taking property without due process of law by the simple device of asserting retroactively that the property it has taken never existed at all.” Hughes v. Washington, 389 U.S. 290, 296-97 (1967) (Stewart, J., concurring).


How can it be regulated?

1917 Conservation Amendment

Section 59, Article XVI, Texas Constitution

The conservation and development of all of the natural resources of this State,…. and the preservation and conservation of all such natural resources of the State are each and all hereby declared public rights and duties; and the Legislature shall pass all such laws as may be appropriate thereto.


Texas Water Code

Sec. 36.0015. PURPOSE. In order to provide for the conservation, preservation, protection, recharging, and prevention of waste of groundwater, and of groundwater reservoirs or their subdivisions, and to control subsidence caused by withdrawal of water from those groundwater reservoirs or their subdivisions, consistent with the objectives of Section 59, Article XVI, Texas Constitution, groundwater conservation districts may be created as provided by this chapter. Groundwater conservation districts created as provided by this chapter are the state's preferred method of groundwater management through rules developed, adopted, and promulgated by a district in accordance with the provisions of this chapter.


Texas Water Code

• 36.013- Require Permits to Drill or Operate a Well

• 36.108- Establish Desired Future Conditions of the Aquifer

• 36.116- Spacing and Production

• 36.122- Permit to Export


Does Ownership of the Groundwater Prevent Regulation?!

Brown v. Humble Oil (1935)

Section 59(a), article 16, of the Constitution directs the Legislature to do whatever is necessary for the conservation of natural resources. The Legislature has undertaken to comply with this provision of the Constitution. Therefore, the Railroad Commission, acting under valid laws, has ample authority, under both the Constitution and the police power, to prevent waste and conserve the mineral interests of this state.

If Oil and Gas can be regulated, then groundwater can be regulated.


When does groundwater regulation result in a taking?

Legal Analysis of Regulatory Takings

• Courts use same analysis for ALL regulatory takings cases.

– Is it for a legitimate public purpose? • Discriminating between property owners is not a public

purpose.

• NO COMPENSATION AWARDED UNDER THIS TAKING

–Were there “Reasonable Investment-backed Expectations?”

–Is the property “economically viable” under the regulation?


Oil and Gas Takings Precedents

• CANNOT DISCRMINATE!

– “Mars”- Fair Chance Principle

– “Halbouty”- Historic v. Non-historic Use

• Regulations may only discriminate if based on a “Reasonable basis in fact”

–Unique characteristic of reservoir


What is NOT a taking?

• Limiting Total Production from the Aquifer to Conserve Groundwater or Achieve DFC

• Basing individual permitting and production limits on what each landowner can use WITHOUT WASTE

• Permitting historical use as long as it does not prevent another landowner from exercising their property right to a “fair share”


What is NOT a taking?

• Spacing wells

• Drilling Standards to Protect Water Quality

• Regulations based on a “reasonable basis in fact” that supports treating an area differently


What IS a taking?

• Discriminating between landowners

–Historic v. Non-historic use • FIX- Allow new users unless historic users buy or lease

rights to prevent drilling new wells.

–Denying fair chance because of spacing • FIX- Require permit applicants to own or control rights of

other landowners that will be affected in the “spacing area.”

–Different regulation for exporters


What IS a taking?

• Land is not economically viable under the regulation

–Regulation is for Public Purpose and is applied equally to all landowners

–But, the regulation severely diminishes the economic viability of the “property”


What IS a taking?

–Will Courts determine a taking by land’s economic value or the groundwater’s value?

• Substance of Surface Estate- Based on other uses of the land?

• Would the court find a regulation preventing the quarrying of limestone, sand, or gravel to be a taking?

–Will Courts treat severed groundwater rights differently since they are personal property?


What IS a taking?

• Landowner made investments in the land with a “reasonable expection” to use it for a particular purpose i.e. Stranded Costs

–Permit Denied

–Change in Spacing or Production Regulations

–Courts are difficult on the landowner proving a “reasonable expectation”


Real Life Example:

Bragg v. EAA

• Awarded $732, 493.40…….WHY?!

• NOT because the regulation was unreasonable

– Court said the “enactment and implementation (of EAA Act) did substantially advance the government’s legitimate interest”

• NOT because the property was devalued

– Court said EAA, “did not deprive the Plaintiffs of all economically viable use of their property”

• Severe economic impact due to investment-backed expectations made PRIOR to formation of EAA


Are there ad valorem tax implications?

Groundwater: Substance of the Surface Estate

• Gifford Hill (1992)

–Substances of Surface Estate are only valued and taxed separately after they are “mined or quarried” i.e. become “personal property”

–While “in place” they are part of the land

• Value and tax when produced and sold, not when “in place”


Groundwater: Personal Property

• Groundwater becomes personal property when:

–Rights are Severed from Surface Estate

–Captured at the Surface

• Subject to valuation and taxation as personal property under the Tax Code

• Existing Law before Day McDaniel Decision


QUESTIONS? Billy Howe State Legislative Director 512.472.8288 [email protected]


Private Ownership of Groundwater, Billy Howe

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