subject mineral estate and the right to collect bonus and delay
payments from any such lease. Just like a royalty, an NPRI
cannot be adversely possessed because it is non-possessory.
OVERRIDING ROYALTY INTEREST (ORRI)
An overriding royalty interest is a royalty interest that is carved
out of a leasehold interest (and thus only survives as long as
the underlying lease is in effect), and a leasehold interest can
be adversely possessed (see below). That said, an ORRI is not
possessory—it is a type of royalty interest and is void of the
right to go onto the tract in question and cause production
to occur. There is no Texas case law specifically discussing if
an ORRI can be adversely possessed, but it seems likely that
adverse possession does not apply. See generally Portwood v.
Buckalew, 521 S. W.2d 904, 919 (Tex. Civ. App.—Tyler 1975, writ
ref’d n.r.e.) ( finding that claim of adverse possession of overriding royalty interests failed because there was no actual
possession of the mineral estate). Other states considering
the issue reached this conclusion. See Connaghan v. Eighty-Eight Oil Co., 750 P.2d 1321, 1324 (Wyo. 1988) (holding that
an ORRI cannot be adversely possessed and citing Texas
cases—including Portwood—holding that receipt of royalty
payments is not a basis for adverse possession of a royalty).
Unlike a royalty, a working interest (whether occurring through
ownership of the mineral estate or through ownership of a
lease of the mineral estate) is a possessory interest (i.e. the
owner of that interest has the right to enter onto the subject
tract and cause production to occur) and can be adversely
possessed. For example, assume a lease has a cessation-of-pro-duction clause and expires due to production from the lease
ceasing without additional operations being conducted or
delay rentals being paid for the requisite period stated in the
lease. What if the (now former) lessee drills new wells and
pays royalties on the same terms as the lease after the lease
terminated? The lessee is clearly trespassing on the mineral
estate by taking minerals it has no right to take. If enough
time passes without complaint, the lessee can acquire title to
the mineral estate through adverse possession. The scope of
this title is limited: “The lessees acquired the same interest
that they adversely and peaceably possessed, that is, the oil
and gas leasehold estates as defined by the original leases.”
Pool, 124 S. W.3d at 199.
NON-OPERATING WORKING INTEREST
Where there are multiple working interest owners that are all
entitled to produce minerals on a given tract, the parties
typically enter into a joint operating agreement (JOA) that
designates one working interest owner as the operator and
the rest as non-operators of the area covered by the JOA
(Contract Area). The operator drills and maintains the wells
while the non-operators share in the costs and revenues based
on the percentage interest each non-operator owns in the
Contract Area. Assume, for example, that a non-operator is
believed to own a 10% working interest. What if, after 10 years
of this non-operator receiving and paying joint interest billings
under the JOA and receiving revenue based on a 10% working
interest, the operator determines that the non-operator ac-
tually owns only an 8% working interest? Has the non-operator
adversely possessed the extra 2%? This is a difficult question.
As seen above, the Texas Supreme Court made clear in the
Pool case that a working interest owner can acquire title to a
mineral estate (working interest or leasehold interest) by
adverse possession by taking oil and gas out of the ground.
But a non-operating working interest is not taking oil and gas
out of the ground—it is not possessing anything. A non-pos-
sessory interest such as a royalty interest is not subject to
adverse possession, and a non-operating working interest is
similar to a royalty interest because it is non-possessory. On
the other hand, although the non-operating working interest
holder is not taking the minerals from the ground, he/she is
paying the costs of the operator to do so unlike a royalty owner,
and the designation of another working interest owner as the
“operator” under the JOA simply allows for a coordinated
arrangement for developing the Contract Area. There is no
Texas case law directly on point as to whether a non-operator
can adversely possess a non-operated working interest or
leasehold interest, so it’s hard to be certain how a court would
rule on an adverse possession claim made by a non-operating
working interest owner.
ABOUT THE AUTHORS
Andrew Zeve is a partner, and Austin Lee and William Moss
are associates in Bracewell LLP’s Houston office.
Zeve co-chairs Bracewell’s Energy Litigation
Group and maintains a diverse trial practice. He
has jury trial, bench trial, and arbitration experience in state and federal courts across the country.
He can be reached at andrew.zeve@bracewelllaw.
com. A member of Bracewell’s Business and Regulatory Group,
Lee focuses his practice on representing and counseling clients in the acquisition and divestiture of
oil and gas properties and related assets as well
as a broad range of transactional and operational
matters regarding upstream and midstream operations. He can be reached at email@example.com.
Moss focuses his practice on complex commercial
litigation matters including contracts, commercial
torts, environmental torts, and oil & gas and real
estate disputes. He can be reached at william.