Pore Space Ownership and Utilization

INTRODUCTION

Pore space ownership poses a novel property law issue concerning carbon dioxide sequestration in underground geological formations within the United States. One must grasp the distinction between surface and mineral estates to properly assess pore space ownership and effectively execute land acquisitions for carbon storage agreements. The surface estate encompasses elements above ground, including trees, land, and structures, while the mineral estate pertains to subterranean resources like oil, gas, and other minerals.

As depicted in the image below, pore space is the area found between the grains of a rock. Water and hydrocarbons, such as oil and gas, are extracted from pore space, leaving it empty and awaiting utilization. Open space deep below the surface can be of great value for safe storage options, such as saltwater disposal wells, disposal of fracking fluids, temporary natural gas, or carbon capture and sequestration (“CCS”) projects.

ANALYSIS

This article briefly addresses some legal developments related to pore space ownership and clarifies any related ongoing confusion. As to the question of who owns pore space, many states lack a clear legal answer. One must ascertain the rightful owner in order to utilize this natural underground storage facility. When a party owns the land in fee simple, that party owns the surface, pore space, and minerals. However, a problem arises when the surface and mineral estates are severed.

Because the mineral estate owner has the right to extract the minerals from the pore space, one might assume they own the pore space. However, that is not always the case. Courts consider two main theories when presented with this issue: the English Rule and the American Rule. The English Rule dictates that pore space belongs to the mineral estate because they created it by extracting the minerals. Conversely, the American Rule states that the surface estate owns the pore space.

In Texas, case law suggests the American Rule applies, holding that the surface owner owns the subsurface entirely, with the mineral owner holding a determinable fee in the oil and gas located in the subsurface material. XTO Energy, Inc. v. Goodwin, 584 S.W.3d 481 (Tex. App.—Tyler 2017, pet. denied). Further, the surface owner owns every molecule below their land except for the actual molecules of any mineral occupying the pore space. There is minimal case law from other states regarding this issue, but the majority of states have passed or introduced legislation aligning with the American Rule. However, this rule can be limited if a severance instrument explicitly conveys the pore space to a particular party.

Pore space conveyed as a “separate estate” is typically allowed in Texas. Some states, such as North Dakota, have enacted statutes prohibiting this severance. This prohibition keeping pore space exclusively with the surface owner is in harmony with the American Rule. See Cont’l Res., Inc. v. Fisher, No. 1:18-cv-181, 2021 U.S. Dist. LEXIS 30914 (D.N.D. 2021). Other states, including Texas, may soon follow suit with similar statutes. Montana, Wyoming, and Illinois are attempting to pass legislation that will grant the surface owner the pore space specifically for CCS purposes. With pore space becoming a highly sought-after commodity, parties entering the CCS market may be able to rely on the legal trend of negotiating with surface owners; but ultimately, state law should be reviewed before a business decision is finalized.

Underground caverns created through mining processes present parallel issues. While these caverns are not naturally occurring, their empty space is a similarly valuable storage option. Texas appellate courts are currently split on the ownership of these caverns. The 9th Court of Appeals has held that when mineral owners create these caverns, they become the owners of the space, in line with the English Rule. See Mapco, Inc. v. Carter, 808 S.W.2d 262, 276 (Tex. App.—Beaumont 1991). The 13th Court of Appeals challenges this ruling by holding that the surface owner retains all interests in the subsurface and that precedent did not support the Mapco decision. Myers-Woodward, LLC v. Underground. Servs. Markham, LLC, No. 13-20-00172-CV, 2022 Tex. App. LEXIS 4082 (Tex. App. June 16, 2022). The 13th Court stated that mineral owners should not be able to profit from using the underground storage caverns after they have already extracted all the minerals. Without a ruling from the Texas Supreme Court, the state remains split on this topic.

CONCLUSION

In Texas and most states, pore space belongs to the surface owner, absent an explicit severance. Some states are passing statutes prohibiting the severance of pore space as a separate estate, thereby securing ownership in the surface owners. A few states are enacting statutes that allocate the pore space to the surface owners in specific circumstances. The table below lists some oil-producing states and their current positions on pore space ownership.

Overall, the mineral estate remains dominant, and with the presence of an oil and gas lease, the lessee may reasonably use the pore space, just as they are allowed to use the surface. Without a clear understanding of how your state handles pore space ownership, this issue is ripe for causing negotiation nightmares and potential litigation.  Understanding the various state laws is paramount in determining who to negotiate with for the utilization of pore space.

Kuiper Law Firm, PLLC understands the difficulty in concluding who has the right to utilize pore space and will continue to monitor any change to the law as it pertains to underground storage. If you have any questions about the information in this article, or how it applies to you and your business, do not hesitate to contact us.