Background and Parties

Myers-Woodward, LLC owned the mineral interest in salt beneath property in Matagorda County, Texas, while Underground Services Markham, LLC owned the surface estate and a one-eighth non-participating royalty interest in the property's salt and other minerals. Myers-Woodward extracted salt through solution mining, creating large subsurface caverns in the salt formation. The dispute arose when Myers-Woodward sought to use these hollowed-out caverns to store hydrocarbons produced from other properties, and Underground Services challenged both this use and the manner in which Myers-Woodward calculated its royalty obligations. After a bench trial following two rounds of summary judgment motions, the trial court determined that the subsurface caverns belonged to Myers-Woodward but that Underground Services was entitled to royalty based on market value of salt at the point of production, awarding $258,850.41 in past royalties. The Court of Appeals affirmed in part, reversed and remanded in part, and reversed and rendered in part, and both parties petitioned for review.

The Cavern Ownership Issue

The Supreme Court's most significant holding addressed ownership of the void space created by salt extraction. Explicitly overruling its 1991 decision in Mapco, Inc. v. Carter, 808 S.W.2d 262, the Court held that the surface estate owner, not the mineral estate owner, owns the space contained within salt formations hollowed out by mineral extraction. According to the headnotes, the deed conveyed "the 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. The Court applied the fundamental principle that "a grantor cannot convey to a grantee a greater or better title than he holds."

Implied Surface Use Rights

Having determined that Underground Services owned the cavern space, the Court addressed whether Myers-Woodward nonetheless possessed an implied right to use that space for hydrocarbon storage. The Court held that 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. The Court's analysis focused on whether using the voids to store hydrocarbons produced elsewhere was reasonably necessary for Myers-Woodward to recover the salt from the property.

In-Kind Royalty Obligation

The Court also addressed the nature of the royalty obligation, holding as a matter of first impression that the deed reserved an in-kind royalty. This determination meant that Myers-Woodward was required to tender actual salt brine rather than its monetary equivalent to satisfy its royalty obligations to Underground Services.

Disposition

The Supreme Court affirmed in part, reversed in part, and remanded the case for further proceedings consistent with its opinion.