Property Taxation of Part of a Unitized Oil Pool

The 20th and 21st-century history of Texas is the history of Texas oil. Spindletop, the first Texas oil well, was in what is now the Ninth Supreme Judicial District (For ease of explanation, I'm going to call all liquid or gas petroleums oil. Understand, though, that the natural gas follows the same rules as crude oil.).So, what oil is whose? The first rule of oil ownership is the rule of capture, that is, if you drill your land and oil comes out, that oil is yours. For a dramatic, graphic, and horrifying historical tale of the oil business during the days of the rule of capture see the film There Will Be Blood. Or, if you're in a hurry-- watch this:

The State can require all the landowners above a common pool of oil to unitize their interests such that anyone taking out of the pool owes a pro rata share to the others for taking oil out of the pool.

So the question that was put to Justices Charles Kreger, Hollis Horton, and Leanne Johnson was how much of a unitized oil field could a city apply property tax to? Ms. X's surface plot under which her mineral interest exists which is wholly within the city limits is clearly taxable. Mr. Y's surface plot under which his mineral interest exists is partially within and partially without the city limits. His surface interest is clearly taxable to the extent it is in the city limits and not, to the extent which it is not. The mineral royalties are coming out of a unitized pool partly in, and partly without the city limits. How much of the mineral estate is taxable? Ms. Z whose land is wholly without the city limits but who is drawing from a unitized pool partly in and partly out of the city limits breathes firey imprecations when the city delivers her a tax bill.

In this case, named on appeal  Hader v. Jefferson County Appraisal District, the Manions (Mrs. Hader was a Manion.) owned land outside of Beaumont, part of which had been unitized into a pool which was mostly in Beaumont. Each set of parties filed a motion for summary judgment in the trial court. The Appraisal District moved for a judgment holding that to the extent the pool was in Beaumont, the Manions owed property tax for that part of the pool even though their surface estate was in no way in Beaumont. The Manions moved for judgment that they owed Beaumont nothing, since all their land was outside of Beaumont. None of the parties attached any of the relevant mineral deeds to their motions. The trial court generally found for the Appraisal District and refused judgment for the Manions. The Manions appealed, and, in an opinion written by Justice Horton, the Court of Appeals reversed the judgment and remanded it to the trial court for further consideration.

The Justices observed that pooling agreements could be written two ways: (1) the agreement could effect a cross-conveyance of interests between all the pool members, or (2) the agreement could be written not to cross-convey interests. The pooling agreement was not before the trial court-- if it was a cross-conveyance agreement, the Manions' case is weaker than if the agreement does not cross-convey interests. The appeals court further ruled that the Manions were not barred from their tax attack on the ground that they had accepted benefits from the pool because they had consistently fought getting taxed on their mineral- generally the Manions had not waived their rights. It also ruled that two of the Manions' failure to pay their assessments before bringing suit, did not eliminate their rights to attack their assessment. Those two did not pay; their defense was that they were being charged Beaumont taxes when they had no surface estate in Beaumont at all-- the appeals court cited a case in which a person challenged a tax assessment without paying because he claimed not to own the property. It appears that in a case where tax is assessed on land clearly within the relevant jurisdiction and the taxpayer clearly owns relevant property, the dispute is only about the amount of taxes to be paid, and such taxpayers have to pay their assessments before challenging them.

Hader v. Jefferson County Appraisal District, No. 9-14-00311 CV, (Tex. App.--Beaumont, Apr. 14, 2016)(no pet. h.)