Reed Smith Client Alerts

Spurred on by enhanced tax incentives in the Inflation Reduction Act, carbon capture, utilization, and storage (CCUS) has become an increasingly prominent component in energy transition strategies. The growth of the CCUS industry presents stakeholders with several unanswered questions, including a fundamental one for operators of CO2 injection wells: Who owns the rights to the pore space in which the CO2 will be sequestered? In Texas, conflicting court holdings have resulted in some confusion on pore space ownership. The Supreme Court of Texas is about to finish its review of the recent decision in Myers-Woodward, LLC v. Underground Services Markham, LLC, and the high court’s ruling might shed some light on pore space ownership in Texas. But in the meantime, property owners in Texas will have to wait to see and evaluate the associated risks.

States generally take one of two different approaches concerning pore space ownership. The prevailing rule, often referred to as the American Rule, holds that the pore space is owned by the surface owner, rather than the mineral owner1. The overwhelming majority of jurisdictions follow the American Rule, including the states of Louisiana2, Oklahoma3, and New Mexico4. State legislatures in West Virginia5, Montana6, Wyoming7, and North Dakota8, among others, have passed laws codifying the surface owner’s ownership of the pore space.

In Texas, there is some confusion on pore space ownership resulting from conflicting court holdings. Texas is one of the few jurisdictions with some case law adopting the minority English Rule, which asserts that the mineral owner owns the rights to the pore space9. However, conflicting rulings within the state have led to ambiguity, as some Texas courts have applied the American Rule10. Most recently, in Myers-Woodward, LLC v. Underground Services Markham, LLC, the Texas Court of Appeals for the Thirteenth District held that pore space ownership belongs to the holder of the surface estate rights11. The matter was subsequently appealed to the Supreme Court of Texas.

Should the Supreme Court of Texas grant review and ultimately affirm the lower court’s ruling, it would settle the question of pore space ownership in favor of the surface owner in Texas. Notwithstanding the resultant potential clarity concerning ownership, such a ruling, however, would raise new questions regarding the rights – either implied or express – of the owner to penetrate severed mineral formations to access the pore space. It is well-established Texas law that mineral rights encompass the right to enter and extract minerals, including surface access and use to do so12. This common law right reflects the reality that “a grant or reservation of minerals would be wholly worthless if the grantee or reserver could not enter upon the land in order to explore for and extract the minerals granted or reserved.”13