Background and Parties

Myers-Woodward, LLC held the mineral interest in salt beneath property in Matagorda County, Texas. Underground Services Markham, LLC owned the surface estate and also held a 1/8 non-participating royalty interest in the property's salt and other minerals. Myers-Woodward extracted salt from underground formations, creating large empty caverns within the salt-rock formation. These salt caverns became economically valuable for storing oil and gas produced from other properties and transported to the site. Myers-Woodward sought to use the caverns for such storage operations, while Underground Services claimed ownership of the cavern space and the exclusive right to control its use.

The Ownership and Use Dispute

Myers-Woodward brought a declaratory judgment action seeking to establish that it owned the cavern space created through salt production and had the exclusive right to use that space for storage. Underground Services counterclaimed, seeking a declaration that Myers-Woodward had no right to use the caverns for storage purposes. The dispute turned on whether the mineral deed's conveyance of "oil, gas and other minerals in, on and under said land" included the void space created by mineral extraction. After a bench trial following two rounds of summary judgment motions, the district court held that the subsurface caverns belonged to Myers-Woodward. The Corpus Christi-Edinburg Court of Appeals reversed, and the Texas Supreme Court granted review.

The Court's Analysis on Cavern Ownership

Chief Justice Blacklock, writing for the Court, held as a matter of first impression that the surface estate owner owns the space contained within salt formations hollowed out by mineral extraction. The Court explicitly overruled Mapco, Inc. v. Carter, 808 S.W.2d 262, which had suggested a contrary result. The Court reasoned that the deed conveyed "oil, gas and other minerals in, on and under said land," not any space or voids within mineral formations, and there was no contrary agreement between the parties. Applying the foundational principle that a grantor cannot convey to a grantee a greater or better title than he holds, the Court concluded that the surface owner, and not the mineral lessee, owns the possessory rights to the space under the property's surface, absent an agreement otherwise.

The Court acknowledged that the severed mineral estate has an implied right to use as much of the surface estate as reasonably necessary to produce and remove minerals. However, the Court determined that the mineral rights owner lacked the right to use space in salt formations, as part of its limited right to use the surface estate to recover minerals, to store hydrocarbons produced elsewhere. The Court distinguished between uses related to producing the property's minerals—which the mineral owner may undertake—and uses unrelated to such production. Storage of off-site hydrocarbons fell into the latter category and therefore exceeded the mineral owner's implied rights.

The Royalty Issue

The Court also addressed a separate dispute over royalty payments. As a matter of first impression, the Court ruled that the deed reserved an in-kind royalty. Myers-Woodward had sought to establish that it discharged its royalty obligations by tendering one-eighth of the salt brine produced. Underground Services had argued that royalty payments were payable in money or in kind at its election. The district court had found that Myers-Woodward owed $258,850.41 to Underground Services in past royalties based on the market value of salt at the point of production. The Supreme Court's ruling on the in-kind royalty issue resolved this dispute in favor of the mineral owner's position that the royalty could be satisfied by delivering one-eighth of the production.

Significance

This decision clarifies important questions about subsurface property rights in Texas. By overruling Mapco, the Court established that mineral conveyances do not automatically include void spaces created by extraction unless expressly stated. The ruling limits mineral owners' ability to use subsurface caverns for purposes unrelated to producing the property's minerals, while affirming that surface owners retain possessory rights to subsurface space absent contrary agreement. The Court's interpretation of in-kind royalty provisions also provides guidance for parties negotiating and interpreting mineral deeds and royalty arrangements.