Let’s assume that you purchase a 105 acre farm in Greene County in 2022. You purchase only the surface estate while the seller, Farmer Jones, retains the underlying oil and gas rights. You intend to grow corn and winter wheat on the 105 acres, so the ability to plow the field is critical. You inform Farmer Jones of your plans and he tells you not to worry because the oil and gas lease he signed with XYZ Drilling Co. in 1973 addressed this issue (the “1973 Lease”). As a farmer himself, Farmer Jones specifically negotiated back in 1973 what is known as a “pipeline burial covenant”. As such, the 1973 Lease contains the following clause:
“[w]hen requested by Lessor, Lessee shall bury all pipelines below the ordinary plow depth or 48 inches, whatever is customary within the region”
In 2023, XYZ Drilling begins construction of a new gathering pipeline that will pass right through the middle of your field. Pursuant to the 1973 Lease, you contact XYZ Drilling and request that the new pipeline be at least 48 inches below the surface – a more shallow pipeline will create a hazard and could impact your ability to plant and cultivate the field. Much to your surprise, XYZ Drilling refuses to install the pipeline at the requested depth. XYZ Drilling contends that you do not have standing to enforce the pipeline burial covenant in the 1973 Lease. You are frustrated, angry and confused. Can XYZ Drilling simply ignore the pipeline burial covenant? Can surface owners even enforce such covenants? A recent troubling decision from the Seventh Court of Appeals in Amarillo Texas suggests that surface owners may not have standing to enforce a pipeline burial covenant in an oil and gas lease.
At issue in Unitex WI LLC v. CT Land and Cattle Co. LLC (No. 07-23-000390 – June 28, 2024) was a cattle ranch consisting of approximately 4,207 acres located in Garza County, Texas (the “Subject Property”). The Subject Property was encumbered by an oil and gas lease executed on July 21, 1948 between W.A. Fuller and Andrew Fuller and Humble Oil (the “1948 Lease”). At the time the 1948 Lease was executed, the Fullers owned both the surface and the underlying oil and gas estate. In 1977, the Fullers severed the oil and gas estate and conveyed the surface to Wilford and Joan Senn (the “1997 Deed”). Sixteen years later, the Senns conveyed the surface to CT Land & Cattle Co. LLC (“CT Land”).
In July 2019, CT Land requested that the current lessee, Unitex WI LLC (“Unitex”), bury all pipelines in accordance with Paragraph 6 of the 1948 Lease. That paragraph provided as follows:
“[W]hen required by Lessor, the Lessee will bury all pipelines below the ordinary plow depth. . .”
(the “Pipeline Burial Covenant”). Unitex refused. Thereafter, Unitex filed suit contending that it was not obligated to bury any pipelines. Unitex argued that by virtue of the 1997 Deed, the Pipeline Burial Covenant was “detached” from the surface estate and was no longer enforceable by the subsequent surface owners (i.e., Senns or CT Land). And because the 1997 Deed “detached” the Pipeline Burial Covenant from the surface, only the owner of the oil and gas estate (i.e. Fuller) could enforce the clauses and obligations in the 1948 Lease itself.
CT Land disagreed and filed cross-claims seeking a declaratory judgment and injunctive relief under Pipeline Burial Covenant. According to CT Land, the fact that it only owned the surface estate was simply immaterial. CT Land argued that, under well-established Texas law, the Pipeline Burial Covenant was a covenant “running with the land” and was therefore enforceable by any subsequent owner of the surface estate. CT Land further argued that the 1997 Deed not did sever or detach the Pipeline Burial Covenant from the surface: it merely made the conveyance “subject to” the 1948 Lease. CT Land suggested such “subject to” language merely confirmed that the surface estate would be subservient to the 1948 Lease. It did not limit or exclude any rights. On the contrary, CT Land argued that the right to enforce the Pipeline Burial Covenant was simply part of the bundle of rights that passed to the new surface owners (i.e. the Senns and later CT Land).
The trial court agreed with CT Land and held that CT Land could enforce the Pipeline Burial Covenant. The trial court further ruled that Unitex breached the 1948 Lease by ignoring the Pipeline Burial Covenant. As such, the trial court entered a permanent injunction against Unitex requiring all pipeline to the buried below the ordinary plow depth. Unitex promptly appealed to the Seventh District Court of Appeals in Amarillo.
Before we address substance of the Court of Appeals’ decision, a brief primer on covenants that “run with the land” is warranted. Under Pennsylvania law, and the law of many other jurisdictions, a covenant that runs with the land is one that is legally binding not only on the current owner but also future owners of the property. See, Treasure Lake Property Owners Acco. v. Meger, § 32 A.2d 477 (Pa. Super 2003). See also, Goldberg v. Nicola, 319 Pa. 1983 (Pa. 1935) (noting that a covenant running with the land operates as a “beneficial right thereby created as well as an impediment to or burden on the full enjoyment of land” and “follows the owner of the land with which it is inseparably connected”). As we have written before, the “free gas” clause in an oil and gas lease is generally recognized as a covenant that runs with the land. See, Free Natural Gas on Property: Who’s Entitled to Free Gas? (February, 2012). In other words, subsequent owners of the surface estate can often enforce such “free gas” clauses even if they have no ownership interest in the underlying oil and gas lease. See, Akin v. Marshall Oil Co., 41 A.748 (Pa. 1898) (when covenant in an oil and gas lease is for performance of “some duty in connection with the possession of land” it can be considered a covenant running with the land).
The same logic typically applies to pipeline burial covenants. Because the pipeline burial covenant is “attached to the surface,” it generally runs with the land and is conveyed through a deed to the surface owner. See, Henry v. Smith, 637 S.W.3d 226 (Texas-App- Forth Worth 2021). (holding that a pipeline burial covenant in oil and gas lease was conveyed to grantee along with the surface estate); See also, Mobile Oil Corp. v. Brennan, 385, F.2d 951, 953 (5th Cir. 1967) (observing that pipeline burial covenant is “attached to the surface and will remain with the same forever unless expressly detached therefrom by the surface owner”); Manges v. Gulf Oil Corp., 394 F.2d 487 (5th Cir. 1968)(limitations set forth in the pipeline burial covenant remain “forever with the surface estate in the absence of certain circumstances. . .”); Panhandle SF v. Wiggins, 161 S.W.2d 501 (Texas-App-Amarillo 1942)(“A covenant is said to run with the land when a liability to perform duties or the right to receive advantages thereof passes to a vendee or other assignee of the land”). Accordingly, it is generally understood that unless a severance deed (i.e. one that conveys only the surface estate) specifically and expressly excepts or reserves the pipeline burial covenant from the conveyance, the right to enforce such a clause typically passes to the subsequent surface owner.
In a rather surprising opinion, the Amarillo Court of Appeals reversed the trial court and ruled that CT Land could not enforce the Pipeline Burial Covenant. The logic and rationale espoused by the Amarillo Court of Appeals represents a troubling departure from existing oil and gas law. In essence, the Amarillo Court of Appeals concluded that, although the Pipeline Burial Covenant was a covenant that runs with the land, the “subject to” language in the 1997 Deed “detached” the covenant from the surface estate. Contrary to the well-established law, the Amarillo Court of Appeals equated the “subject to” language with a reservation of all rights and privileges in the 1948 Lease, including the Pipeline Burial Covenant:
“To reiterate, it limited the estate and associated rights passing to the Senns. Furthermore, that limitation included that 1948 lease. As written, that document expressly identified the category of people entitled to require burial of the pipelines. They included the “Lessor” and their assigns, successors, or heirs to the Lessor’s interest in the lease. Had the parties desired to expand the category to include future owners of the surface, they could have said something akin to “surface owners” in the place of “Lessor.” The would have clearly indicated their intent to include more than simply the lessors and their assigns, heirs, and successors to the lease. But they did not.”
(See, Unitex WI LLC v. CT Land and Cattle Co. p.7). The panel reasoned that the “subject to” clause operated as an implied reservation of all rights and privileges under the 1948 Lease. Since the Pipeline Burial Covenant was a “right” embodied in the 1948 Lease, it did not pass to the surface owner by virtue of the implied reservation in the 1997 Deed. As such, only the current owner of the oil and gas estate (i.e. Fuller) could enforce the Pipeline Burial Covenant.
The holding of Unitex WI LLC is directly contrary to the 2021 decision by the Fort Worth Court of Appeals in Henry v. Smith, 637 S.W.3d 226 (Tex.App. - Ft. Worth 2021). In Henry, the Fort Worth Court of Appeals ruled that a similar pipeline burial covenant in the underlying oil and gas was a covenant that ran with the land and that said covenant could be enforced by the current surface owner. The Henry court specifically rejected the argument that the covenant could be “detached” by an implied reservation of the oil and gas estate. The Henry court correctly observed that:
“There was no clear, express reservation of the surface covenants in the [deed] reservations. Since any such reservations of the surface covenants could not be established by implication but would need to be expressly stated, no such reservation occurred here.”
Henry, 637 S.W. 31 at 237. The Henry holding was consistent with a long line of cases that have rejected implied reservations and have consistently recognized that reservations must be express and be “stated in clear and specific language.” There is now an alarming and confusing split of authority between Henry and Unitex WI LLC that the Texas Supreme Court will have to address and clarify. Although not binding on Pennsylvania courts, the Unitex WI LLC decision is flawed and is inconsistent with decades of oil and gas law. Landowners and industry alike should closely monitor the Unitex WI LLC appeal as the Texas Supreme Court tackles this important issue.
