This case dealt with four separate disputes between a lessor and lessee, and litigation was triggered by the issue of subsurface trespass. The court was faced with determining the rights of a landowner regarding physical trespass of property at extreme depths, bad faith pooling, and payment issues on an invalid lease. The court relied on the Texas Supreme Court’s recent decision in Lightning Oil Co. v. Anadarko E&P Onshore, LLC2, contractual authority rules, rules of unjust enrichment, and the voluntary payment defense.
The case centered around a dispute between Elton Goodwin (“Goodwin”) as Lessor and XTO Energy, Inc. (“XTO”) as Lessee of three tracts of land in San Augustine County, Texas. In 2007, Goodwin signed an oil and gas lease with CS Platinum covering three tracts described as a 27-acre tract, a 55-acre tract, and a 2-acre tract.3 Under the terms of a letter agreement used in conjunction with the lease, CS Platinum paid Goodwin a lease bonus based on its belief that Goodwin owned a 50% mineral interest in the 55-acre tract and a 100% mineral interest in the remaining tracts.4 The initial dispute with XTO then arose when Goodwin learned that he owned a mineral interest greater than 50%, which was acknowledged by XTO, and called for the lease, which had been assigned to XTO, to be voided, which XTO disagreed with. Goodwin continued to question whether the lease was void, but nothing else came of the complaint despite Goodwin’s efforts. Later in 2010 and 2011, XTO formed the Butler Rooney and Terrapins 1H units.5 A successful well was drilled on the Butler Rooney Unit, and Goodwin began receiving royalty payments as all three of his tracts were included in the unit. Meanwhile, the Terrapins 1H well was planned to be drilled outside but close to the boundary of Goodwin’s 27-acre tract.6 However, the wellbore drifted during the drilling process and ended up trespassing on 2,900 linear feet of Goodwin’s land under the 27-acre tract he owned. While negotiating with XTO over a subsurface easement to cure the trespass, XTO suspended royalty payments to Goodwin on the Butler Rooney Unit due to an alleged accounting issue resulting in overpayment to Goodwin.7
The parties were unable to resolve the disputes mentioned above and Goodwin filed suit.8 During the litigation, Goodwin obtained a partial summary judgment voiding the CS Platinum lease due to incorrect lease bonus payments.9 Goodwin also presented additional claims of trespass, bad faith trespass, conversion, fraud, and bad faith pooling.10 The jury found that XTO committed (1) a trespass (2) bad faith trespass, (3) bad faith pooling, and (4) conversion. The jury did not find that XTO acted with malice or committed fraud.11 The trial court denied XTO’s motion for a directed verdict regarding unjust enrichment of Goodwin due to erroneous royalty payments, and this appeal followed.12
In addressing the first issue of the case, the subsurface trespass, the court noted that the facts of the wellbore intrusion were not in dispute, nor was there evidence the intrusion would negatively impact the surface or hurt Goodwin’s ability to develop the minerals.13 XTO’s argument relied in part on dicta included in a 2012 Texas Supreme Court opinion in which the court referenced that land ownership from the sky to the center of the earth “has no place in the modern world.”14 The appellate court looked at the recent Texas Supreme Court decision, Lightning Oil Co. v. Anadarko E & P Onshore, LLC, dealing with the ownership rights between the surface and mineral estates in the subsurface.15 In Lightning, the court noted a distinction between the earth surrounding hydrocarbons and the earth imbedded with hydrocarbons and placed no limitation on the surface owner’s interest in the subsurface or implied that the surface owner’s rights to the underlying earth ends at some depth below the surface.16 Based on this reasoning, the appellate court rejected XTO’s main argument that Goodwin did not have a legally protected ownership interest in the subsurface of his property at the depth of the Terrapins 1HB’s wellbore intrusion that would support a trespass cause of action.17
As to the issue of bad faith pooling, the court worked off the assumption that the trial court correctly ruled that the CS Platinum lease was void.18 Citing the 2008 Texas Supreme Court case Wagner & Brown, Ltd. v. Sheppard, which dealt with the expiration of a lease after the creation of a unit, Goodwin argued that voidance of the CS Platinum lease had no effect on his cause of action for bad faith pooling. XTO argued that with no lease or express permission, Goodwin had no right to production from any well not drilled on his property. In agreeing with XTO, the court concluded that without a valid lease, XTO had no authority to pool Goodwin’s tract with other lands but also had no duty to prevent potential drainage from Goodwin’s tracts from wells drilled on adjoining leased property.19 The court reasoned that the Sheppard case is distinguishable from the facts at issue because it dealt with issue of lease expiration after the creation of a unit; whereas here, the question was whether the operator had authority to pool in the first place to create a cause of action for bad-faith pooling.20 Here, the lease was not valid, therefore Goodwin could have no cause of action for bad-faith pooling because of the lack of contractual authority.
When considering the issue of XTO’s appeal of the trial court’s decision not to grant its motion for directed verdict based on XTO’s counter-claim for breach of the division order contract, the court looked at the issues of unjust enrichment and the voluntary payment rule. XTO argued that by Goodwin’s own actions to seek voidance of the lease, he gave up his right to receive royalties from the Butler Rooney Unit due to the well not being drilled on any part of Goodwin’s tracts. Goodwin in the alternative argued that by its own mistake, XTO was the one who made the incorrect payments via their faulty division order, and therefore he should not be responsible for returning the $386,000.00 in royalty payments.21 The court agreed with Goodwin and explained that XTO would be responsible for the mistake and not entitled to restitution for two main reasons. (1) When an operator prepares erroneous orders and retains the benefits, division orders are not binding because the operator has profited from its own errors, thus negating unjust enrichment22 and (2) money voluntarily paid on a claim of right, with full knowledge of the facts, in the absence of fraud, deception, duress, or compulsion, cannot be recovered merely because the party at the time of the payment was ignorant of or mistook the law as to his liability.23 Here, there was no evidence that any of the accounting or business errors were attributable to Goodwin, and the voluntary payment defense was effective against XTO’s claim of unjust enrichment.24
Based on the court’s analysis, it determined that a wellbore intrusion could support a trespass cause of action, a bad faith pooling claim was unwarranted without a valid lease, and finally, that Goodwin should not be responsible for his unjust enrichment of royalty payments due to XTO’s mistake and the voluntary payment defense. This holding helps clarify the rights of surface estate and mineral estate owners as well as the business ramifications of an ownership mistake.
1 XTO Energy Inc. v. Elton Goodwin, No. 12-16-00068-CV, 2017 WL 4675136 (Tex. App.— Tyler Oct. 18, 2017, pet. filed).
2 Lightning Oil Company v. Anadarko E&P Onshore, LLC, 520 S.W.3d 39 (Tex. 2017).
3 Id. at *1.
7 Id. at *2.
11 XTO Energy Inc. v. Elton Goodwin, No. 12-16-00068-CV, 2017 WL 4675136, at *2.
13 Id. at *3.
14 Id. at *3. (Citing Coastal Oil & Gas Corp. v. Garza Energy Tr., 268 S.W.3d 1, 11 (Tex. 2008)).
15 Id. at *3.
16 Id. (Citing Lightning Oil Co. v. Anadarko E&P Onshore, LLC, 520 S.W.3d 39, 46 (Tex. 2017)).
17 Id. at *4.
18 Id. at *8.
20 Id. at *8. ((Citing Wagner & Brown, Ltd. v. Sheppard, 282 S.W.3d 419 (Tex. 2008)).
21 XTO Energy Inc. v. Elton Goodwin, No. 12-16-00068-CV, 2017 WL 4675136, at *11.
22 Id. at *11. (Citing Gavenda v. Strata Energy, Inc., 705 S.W.2d 690, 692 (Tex. 1986).
23 Id. at *11. (Citing BMG Mktg., Inc. v. Peake, 178 S.W.3d 763, 768 (Tex. 2005)) (citing Pennell v. United States Ins. Co., 243 S.W.2d 572, 576 (Tex. 1951)).
24 Id. at *12.