Face Challenges Confidently

077 Sun Operating L.P. v. Oatman

Tuesday, September 1st, 2015

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
Sun Operating Limited Partnership v. Oatman, No. 004-93-00634-CV, 1995 WL 92593 (Tex. App.–San Antonio March 8, 1995–) involves the adverse possession of the mineral rights by one operator against another when there has been a horizontal severance. Sun farmed out the shallow rights to Oatman, retaining an overriding royalty. Oatman drilled and completed a shallow gas well. Sun’s title was uncertain as to 1/8th of the minerals, and Oatman obtained a new lease from the “real” owner as to that 1/8th as to all depths. Years later, Sun wanted to drill a deep well, and the issue of ownership of the deep rights as to that 1/8th became important. In addition to claiming that his new lease from the real owner was good, Oatman also claimed to have adversely possessed title to the 1/8th as to all depths under his new lease. The question was whether Oatman went far enough in his actions with respect to the shallow rights to put Sun on notice that he was adversely possessing the 1/8th in the deep rights. Sun contended that Oatman adversely possessed only the 1/8th interest for the shallow rights, because the farmout effected a severance.
The court held that an adverse possessor claiming title under a registered deed (the new lease in this case) is considered to have constructive possession of all the land within the boundaries of his deed not under another’s actual possession, if the adverse possessor has actual possession of any part of those lands. The only cases cited as authority deal with adverse possession of the surface. In this case Oatman was claiming under a lease of 1/8th of the minerals which covered the entire tract as to all depths, Oatman was in possession of the shallow minerals, and Sun was not in possession of any of the minerals. Therefore, Oatman adverse possessed all the minerals as to all depths as to the contested 1/8th interest. Most leases purport to cover all the minerals, even when the parties know the lessor owns only 1/8th of the minerals, because the proportionate reduction clause operates to protect the lessee on the lessee’s obligations. This case is silent as to whether the lease purported to cover all or only 1/8th of the minerals. Under the typical “all” leasing transaction, the result in this case could be extended to the adverse possession of all the minerals.
The case is significant because of the extension of surface concepts of the doctrine of adverse possession to minerals. It hold a great deal of potential for future litigation because assignments of mineral leases following a severance are frequently inaccurate as to the depths conveyed or reserved (and even as to prior partial lease conveyances). Assignments of leases, particularly undeveloped leases, are very commonly made without warranty. Thus, while it is important to correctly identify the lease (which usually covers all depths and all products), it is not very important to correctly identify depth restrictions, or whether the assignment covers all products, or only gas, or only oil or even prior conveyances. Thus, there are many, many assignment out there which could form the basis of a broad claim of adverse possession. The ruling of the case suggests that draftsmen should be more careful to not over-convey, even when the conveyance is without warranty.