Face Challenges Confidently

382 Pharaoh Oil & Gas, Inc. v. Ranchero Esperanza, Ltd.

Friday, September 4th, 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.
Pharaoh Oil & Gas, Inc. v. Ranchero Esperanza, Ltd., 343 S.W.3d 875 (Tex. App. – El Paso, 2011, no pet.) held that a temporary injunction requiring removal of unused oil field equipment from two well-established equipment yards and any other portion of the ranch requires proof of irreparable injury or extreme hardship.  The court also broadly noted that whether the mineral owner’s use of the surface is unreasonable should generally be reserved for a trial on the merits.  Ranchero (“Landowner”) owned the surface of a large hunting ranch, which it had acquired in 2004, and Pharaoh (“Operator”) became the latest oil and gas operator on the same land approximately one year later.  There had been oil and gas operations on the ranch since 1982, but by 2008, when the Landowner sued the Operator, the facts presented the common circumstance of a weak operator, an accumulation of oil field junk, and a landowner anxious to clean up the property for other uses.  In the 2008 suit, Landowner contended that there was an unreasonable use of the surface and sought among other relief a temporary injunction prohibiting Operator from storing equipment and material when it was not being put to immediate on-lease use.  In 2009, the Texas Railroad Commission issued a plugging order on some of the open wells, and in 2010 the Landowner proceeded with a hearing on its application for a temporary injunction.
The court relied upon well-established authority for the general rules governing disputes between mineral owners and surface owners as to the mineral owner’s use of the surface.  The holder of an oil and gas lease, in the absence of a specific contractual provision relating to surface damages, has the right to use as much of the surface as is reasonably necessary to comply with the terms of the lease and carry out its purposes.  A person who seeks to recover from the lessee for damages to the surface has the burden of alleging and proving either specific acts of negligence or that more of the land was used by the lessee than was reasonably necessary. The court then applied these principles and the usual rules applicable to the granting of temporary injunctions to its analysis of the facts presented.
It was uncontroverted that the equipment yards and oil field junk had been in place for a very long time.  A temporary injunction’s purpose is to preserve the status quo of the litigation’s subject matter pending a trial on the merits, as long as the status quo is not a violation of the law.  The status quo is defined as the last actual, peaceable, non contested status that preceded the pending controversy.  If, however, the central question in the suit is whether the status quo is a violation of the law, that determination should generally be made with a full trial on the merits.   Because Landowner did not identify any express law that Operator violated by its surface use, the court held that whether the Operator’s use was unreasonable could only be determined in a trial on the merits.
A temporary injunction that changes the status quo, such as an order to remove equipment is a mandatory (rather than prohibitive) injunction.  A mandatory injunction should only be granted when necessary to prevent irreparable injury or extreme hardship.  The facts of this case did not establish extreme hardship, and although there was some evidence of damages to the land, Landowner’s own expert quantified the damage of the clean up as $100,000, which was therefore not irreparable.
The significance of the case is the interaction between the underlying cause of action and the rules applicable to the granting of temporary injunctions.  When the underlying cause of action is a claim by the surface owner that the mineral owner is guilty of excessive use or negligence in the mineral owner’s use of the surface, that claim will only be resolved in a trial on the merits.  The mineral owner will not be required to change his use by a temporary injunction, unless the surface owner can establish irreparable injury or extreme hardship.