Court Opinion

ID: 4133332
Source: CourtListenerOpinion
Date Created: 2017-02-18 01:36:44.39395+00
Date Added: 2024-06-11T14:34:14.327782
License: Public Domain

June 5, 1973

Honorable    Eyron Tunnell,  Chairman             Opinion    No. H-46
Railroad   Commission   of Texas
P. 0. Drawer 12967, Capitol Station               Re:       Questions     relating to the
Austin,   Texas 78711                                       applicability    of Article
                                                            6005, Vernon’s        Texas
                                                            Civil Statutes,      (the well-
                                                            plugging statute)       to
                                                            “landowners”       as that
                                                            term is defined in the
Dear   Chairman   Tunnell:                                  statute.

        You have requested   our opinion as to the applicability   and effect
of Article  6005, V. T. C. S. (as amended,    Acts 1965, 59th Leg.,     p. 762,
ch. 355) in seven hypothetical   situations,  relating to the definition of
“landowner”    and to the extent of his responsibility  for plugging aban-
doned wells.    The most pertinent sections    of the statute are as follows:

                     “Section   1. In this Article,    unless     the context
            requires   a different definition,    . . . .

                    “(4)   ’ landowner ’ means the owner of the land
                    upon which the well is situated at the time the
                    well is abandoned and one who holds a mineral
                    interest therein;

                      “Section 4. If the operator      fails to comply with
           Section 2 of this Article and the nonoperator          fails to
           comply with Section 3 of this Article,          then, in that event,
            each landowner is responsible         for his proportionate
            share of the cost of proper plugging of the well within
            a reasonable      time, according    to the rules and regula-
            tions of the Commission       in effect at the time the re-
            sponsibility    attaches. ”

                                         p. 185
Honorable   Byron Tunnell,         page 2    (H-46)

                      “Section 5. If a landowner plugs or replugs a
            well under Section 4 of this Article,          then the landowner
            shall have a cause of action against the operator             and
            nonoperator      or either of them, as the case may be,
            in any court of competent        jurisdiction     for all reason-
            able costs and expenses        incurred in the plugging or
            replugging of the wetl, to be secured by a lien upon
            the interest of the operator        and the nonoperator,       or
            either of them as the case may be, in the oil and gas
            underlying     the lease upon which the well is located
            and upon the interest of the operator and the nonoper-
            ator, or either of them, as the case may be, in all
            fixtures,    machinery     and equipment found or used on
            said lease; provided,       however,      that if the landowner
            is responsible      for the well not being properly        plugged,
            then the said landowner        shall not have a cause of action
            under this Article.

                     “Section 8. (a) Upon the determination      by the
            Commission      under Section 7 (a) of this Article that
            such a well has not been properly      plugged,  or needs
            replugging,    the Commission,    through its employees
            or through a person acting as agent Sor the Commis-
            sion, may plug or replug such a well, if

                     “(1)   the well was properly    plugged according
                            to regulations in effect at the time the
                            well was abandoned or ceased to be
                            operated;   or
                     “(2)   neither the operator,    nonoperator   nor
                            the landowner   properly   plugged the
                            well, and

                            “(A)   neither the operator,   nonoperator
                                   nor the landonwer can be found; or
                            “(B) neither the operator,     nonoperator
                                   nor the landowner has assets with
                                 . which to properly   plug the well.

                                            p. 186
Honorable   Byron    Tunnell,    page ‘3 (H-46)

                     “Section 9. If the Commission        plugs a well
            under Section 8 of this Article,     the State has a cause
            of action for all reasonable    expenses    incurred in
            plugging or replugging the well acording        to the rules
            and regulations     of the Commission    in effect at the
            time the well is plugged or replugged.         The cause
            of action is first against the operator,      to be secured
            by a lien upon his interest in the oil and gas in the
            land and all his fixtures.    machinery    and equipment,
            found or used on the land where the well is situated,
            and second.     against the nonoperator    at the time the
            well should have been plugged,       to be secured by a
            lien upon his interest in the oil or gas in the land,
            and third, against the landowner,       to be secured by
            a lien upon his interest in the land.”

       We have found no cases in which the courts have directly        considered
the character and extent of the obligations  of landowners    to plug abandoned
wells under Article 6005, V. T. C. S. Therefore,      the following    discussion
represents    what we consider  to be the proper construction     of the statute
in the light of court decisions  which have construed    some of the language
of this article.

       The first    question    posed   by the Railroad   Commission   is as follows:

                    “1. ‘A’ owns the mineral rights, hut none of
              the surface rights of the tract on which a well is located.

              “QUESTION:     Is ‘A’, the landowner,  within the statutory
              definition? If not, is there a landowner?”

        We assume that “A” has executed an oil and gas lease covering        his
mineral estate; otherwise,    he would probably be an operator.      Under
these facts, we are of the opinion that “A” would be a “landowner”        although
not owning any of the surface estate.    If “A” owns a real property     interest
in land upon which the we.11 is situated (other than a non-participating      royalty
interest),  he is an “owner of the land upon which the well is situated. ” For
the Legislature   to have excluded a mineral lessor from responsibility        for

                                            p. 187
Honorable    Byron    Tunnell,    page 4   (H-46)

plugging merely because he owned           no surface estate is moat improbable,
in view of the fact that such lessor        probably  received a bonus, delay
rentals,  and certainly the benefits       of the exploration  of hir mineral estate.

      Your   second    quertion    is:

                      “2. ‘A’ owns all of the property  rights at the
              time the well is drilled but sells the surface and a
              fraction of the minerals   before the well ceases  to
              produce.

              “QUESTION:     Is ‘A’ the landowner?        If so,   what is
              the extent of his liability? ”

       We understand  this question to refer to a mineral lessor     who owned
the entire fee simple estate in surface and minerals     prior to execution    of
an oil, gas, and mineral lease,    and who, during the term of said lease
and while minerals were being produced,       sold his surface estate and a
portion of his mineral estate.    For the same reasons given above,       “xSt
would be a landowner within the meaning of the statute by virtue of his
retained ownership of an interest    in the mineral estate,

       Section 4 of Article  6005, V. T. C. S., states if the operator   and
nonoperator   fail to comply with the Article,   each landowner is responsible
for his proportionate   share of the cost of the proper   plugging  of the well.
“A” would be responsible     for that proportion  of the cost of plugging as
his mineral ownership bears to the entire mineral fee estate.

       The Legislature,    in Article   6005, V. T. C. S., has created a three-
tiered scheme of responsibility.        Under Section 2, the operator     bears
100% of the responsibility    for the plugging.    The   statute does not consider
the percentage   of his ownership     of the working interest,    but simply says
“the operator of a well shall properly       plug the well when required,     I’
Presumably,    he can look to hi,s nonoperators      for reimbursement      under
the operating agreement.

       The second tier consists of the nonoperators     or owners of the
working interest who are not responsible    for the physical operation     and
control of the well.  Each nonoperator   is responsible    “for his proportionate

                                           p. 188
Honorable   Byron   Tunnell,         page 5   (H-46)

share of the cost of proper plugging. ” We are of the opinion that the
Legislature   intended to make the nonoperators   collectively responsible
for the plugging of the well in the event of the operator‘s failure.

        Therefore,   as between the nonoperators,  each would be responsible
for a portion of the entire cost of plugging not paid by the operator     in the
same ratio that his interest bears to the total nonoperating    interest.
Between the nonoperators      and the landowners, the nonoperators     are
severally   liable for the entire cost.

        The “landowners”      form the third tier of responsibility    and are
responsible    for the entire cost of plugging upon default by operator        and
nonoperators.      This responsibility    is divided between the landowners
according   to their proportionate      ownership   of the mineral estate and
not the ownership of the surface estate.          Only the mineral estate stands
to receive the benefits of exploration       and production.     The “landowners”
are, therefore,     responsible   for that proportion    of the entire cost of
plugging which their respective        ownerships   bear to the entire mineral
fee estate.     They, of course,    have claims for reimbursement        under
Section 5.

       The next question       is:

                     “3. ‘A’ purchases a royalty interest under
             a drilling or producing well (no surface rights).
             The well ceases to produce.

              “QUESTION:     Is ‘A’ a landowner?        If so,   what is
              the extent of his liability? ”

        The ownership     of a non-participating      royalty interest   with no
rights to bonus, delay rentals,       or executive      rights does not constitute
its owner a “landowner.       ” The statute,     in Subsection   3 of Section 1,
specifically   excludes    royalty and overriding       royalty owners from the
status of operators     or nonoperators:       “It is understood    that the terms
‘operator’   and ‘nonoperator’     as defined in this Article      do not mean a
royalty interest owner or an overriding           royalty interest owner.”

                                              p. 189
Honorable   Byron   Tunnell,   page 6    (H-46)

        The definition of “landowner”    requires    that he hold a “mineral
interest therein. ” The terms “mineral        interest, ” “mineral    rights, ”
and “minerals”      have repeatedly  been distinguished     from the terms
“royalty,  ” “royalty   interest” by the Texas courts.       As stated by the
Commission     of Appeals in Schlittler   v. Smith, 128 Tex. 628, 101 S.W.
2d 543 (1937):

             “The words ‘royalty, ’ ‘bonus, ’ and ‘rentals’ have a ’
             well-understood     meaning in the oil and gas business.
             Likewise,    ‘minerals’   and ‘mineral     rights’ have a well-
             recognized    meaning.     Broadly speaking,       a reservation
             of mineral rights without limitation’would           include roy-
             alties,  bonuses,   and rentals,     a conveyance      of land
             without reservation     would include all minerals         and
             mineral rights.      However,    it is well settled that a
             grantor may reserve      minerals     or mineral rights and
             he may also reserve      royalties,    bonuses,     and rentals,
             either one, more or all.        Here we have a reservation
             of only ‘royalty rights. ’ It is obvious,       it seems to us,
             that this does not include a reservation         of bonuses,     or
             rentals,   but only of an interest in oil, gas, or minerals
             paid, received,     or realized    as royalty.    . . . I(

        The distinction between “minerals”         and “royalty” is exhaustively
treated in Vol. I, Williams and Meyers,           Oil and Gas Law, Section 302,
et seq.

        We conclude,  therefore,  that a royalty owner does not own a “mineral
interest” as that term has been defined by the courts,    and is not a “land-
owner” within Article    6005, V. T. C. S. Accordingly,  we answer Question
No. 3. “No. I’

       The fourth question     is:

                     “4.  ‘A’ owns the surface and mineral rights of
              a property at the time production    ceases.   Thereafter,
              he sells all or a portion of his interest.   Thereafter,
              the well is found to be a pollution source.

              “QUESTION:      Is ‘A’ still the landowner?        If so,   what
              is the extent of his liability?  ”

                                         p. I90
.

    Honorable   Byron Tunnell,     page 7    (H-46)

           We assume that by “at the time production   ceases” ir meant the
    time the well is abandoned.   Cessation of production does not necessarily
    correspond   to abandonment.   A well may be “worked    over” or various
    means may be used to restore production    subsequent to the cessation   of
    production,  and while these operations are going on, the well would not
    be deemed to be abandoned.

           “A” would fall under the statutory definition of a “landowner”       and
    would be responsible      for plugging the well on default by the operators   and
    nonoperators.      His liability would be measured by his mineral ownership
    at the time of abandonment.        Therefore,  he would be responsible   for that
    proportion    of the cost of plugging as his mineral ownership at the time of
    abandonment      bore to the entire mineral fee estate.

          The fifth question     posed   by the Railroad   Commission     is as follows:

                        “5 . ‘A’ owns the surface and minerals at the
                 time of last production.     Thereafter,  ‘A’ assigns
                 his interest to ‘B’.   After the assignment,    the well
                 is determined   to be a polluting well.

                 “QUESTION:      Is ‘B’ a landowner?       If so,   what ia the
                 extent of his liability? ”

            In considering this question,  we assume that by “the time of last
    production ” is meant at the time of abandonment,      and that “B” owned no
    interest in the property prior to the assignment    from “A” to “B”.     Under
    these circumstances,     “B” would not be a “landowner”     became  he did not
    own any interest in the land until subsequent   to abandonment.     Therefore,
    he would not be responsible    for plugging.

           Section 9 of prticle     6005, V. T. C. S., provides      that, in the event
    the operators,    nonoperators,      and landowners     fail to plug the well and
    the Railroad Commission        does so, the Commission         shall have a cause
    of action against each of the foregoing        secured by a lien upon their respec-
    tive interests   in the fixtures,    equipment,    and machinery      found or used
    upon the land and a lien upon the landowner’s          interest in the land.    Pre-
    sumably,    this lien would not apply to “B”‘s       interest in the land since he
    is not a landowner within the meaning of the statute.             “A” would, of
    course, still be personally       responsible.

                                              p.   191
Honorable     Byron   Tunnell,     page   8 (H-46)

    The sixth question       is:

              “6.   ‘Al owns surface and minerals at the time
         production    ceases.  ‘A’ dies, leaving ‘Bt and ‘C’ as
         heirs.   The well is found to be a polluting well.

         “QUESTION:     Are ‘B’ and ‘C’ landowners?              If so,
         what is the extent of the liability of each?           Ia the
         estate liable before distribution?  ”

    If the words “at the time production          ceases’trefer        to the time of
abandonment.      then “A” was the landowner.          In the absence of any mention
of heirs,   personal   representatives,     executors,      administrators,        devisees.
or the like, we are of the opinion that the statute does not.provide                 for
succession.     The obligations     imposed on “landowners”            by Article    6005,
V. T. C. S., are highly ccntingent,       unliquidated,      and would not appear to
be debts recognized      at Common Law.         Their scope must be measured               by
the explicit terms of the statute.       By   limiting    the   obligations   to  “landowners”
without mention of heirs or personal         representatives         and by defining land-
owner as the person owning the land at a particular                time, namely,      at the
time of abandonment,       the Legislature     left no room to infer the succession
of these obligations.

    The seventh       and last question     posed    by the Railroad      Commission   is
as follows:

              “7.  ‘A’ purchases    a tract of land on which, known
         or unknown to him, there are one or more non-producing
         wells.   Thereafter,    such wells are determined    to be polluting
         wells.

                “QUESTION”        Is ‘A’ a ‘landowner.     t If so,    what is the
            extent of his liability?”

    The above question,    as does Question     5, involves the liability   of a
grantee or successor    in title to land upon which there are unplugged or
improperly   plugged wells.     In such cases,    responsibility  depends on the
time of acquisition.  “The time of abandonment”          is fixed by the statute
as the determinative  time.      If, therefore,  “A” purchased     the land after

                                            p. 192
Honorable   Byron Turntell,    page 9 (H-46)

abandonment, he ia not a “landowner”.       If he purchased before abandon-
ment, he is a “landowner”   and his liability ie determined by the percentage
of his mineral fee ownership.

                              SUMMARY

             In determining who are “landowners”     in the
        context of Article 6005, V. T. C. S., the time of
        acquisition is of importance since he who owns
        the land at the time the well is abandoned is the
        “landowner”,     made liable for the cost of plugging
        if the operator and nonoperators do not fulfill
        their obiigations.

                                          Very’ truly yours,

 DAVID M. KENDALL,        Chairman
 Opinion Committee

                                       p. 192A