Private Ownership of Groundwater, Billy Howe

Private Ownership of
Groundwater
What does it mean?

The Private Property Right

EAA v. Day McDaniel (2012)
Whether groundwater can be
owned in place is an issue we
have never decided. But we held
long ago that oil and gas are
owned in place, and we find no
reason to treat groundwater
differently.
3 Texas Farm Bureau Presentation 4/25/2012


TEXAS CO. v. DAUGHERTY et al. (1915)
Because of the fugitive nature of oil and gas,
some courts, emphasizing the doctrine that they
are incapable of absolute ownership until
captured and reduced to possession and
analogizing their ownership to that of things
ferae naturae, have made a distinction between
their conveyance while in place and that of other
minerals, holding that it created no interest in the
realty. But it is difficult to perceive a substantial
ground for the distinction.



Daugherty continued……
With the land itself capable of absolute
ownership, everything within it in the nature of a
mineral is likewise capable of ownership, so long
as it constitutes a part of it. If these minerals are
a part of the realty while in place, as undoubtedly
they are, upon what principle can the ownership
of the property interest, which they constitute
while they are beneath or within the land, be
other than the ownership of an interest in the
realty?



• Substance of the SURFACE
ESTATE
– Groundwater is part of the land
– Sand, gravel, limestone, etc
– Same Surface Estate rights associated
with these other substances



• Ownership of a Migratory
Substance
– Follow Oil and Gas Legal Precedents
– Right to Capture “Fair Share” WITHOUT
WASTE
– Do not own a certain amount


Can the Legislature Take
the Property Right Away?

• A right protected under the U. S.
Constitution cannot be taken by a
statute
• “a State cannot be permitted to defeat the
constitutional prohibition against taking
property without due process of law by the
simple device of asserting retroactively that
the property it has taken never existed at
all.” Hughes v. Washington, 389 U.S. 290,
296-97 (1967) (Stewart, J., concurring).


1917 Conservation Amendment

Section 59, Article XVI, Texas Constitution

The conservation and development of all of the
natural resources of this State,…. and the
preservation and conservation of all such natural
resources of the State are each and all hereby
declared public rights and duties; and the
Legislature shall pass all such laws as may be
appropriate thereto.


Texas Water Code
Sec. 36.0015. PURPOSE. In order to provide for the
conservation, preservation, protection, recharging,
and prevention of waste of groundwater, and of
groundwater reservoirs or their subdivisions, and to
control subsidence caused by withdrawal of water
from those groundwater reservoirs or their
subdivisions, consistent with the objectives of Section
59, Article XVI, Texas Constitution, groundwater
conservation districts may be created as provided by
this chapter. Groundwater conservation districts
created as provided by this chapter are the state's
preferred method of groundwater management
through rules developed, adopted, and promulgated by
a district in accordance with the provisions of this
chapter.

Texas Water Code

• 36.013- Require Permits to Drill
or Operate a Well
• 36.108- Establish Desired Future
Conditions of the Aquifer
• 36.116- Spacing and Production
• 36.122- Permit to Export


Does Ownership of the Groundwater
Prevent Regulation?!

Brown v. Humble Oil (1935)
Section 59(a), article 16, of the Constitution directs
the Legislature to do whatever is necessary for the
conservation of natural resources. The Legislature has
undertaken to comply with this provision of the
Constitution. Therefore, the Railroad Commission,
acting under valid laws, has ample authority, under
both the Constitution and the police power, to prevent
waste and conserve the mineral interests of this state.

If Oil and Gas can be regulated, then groundwater can
be regulated.


When does
groundwater
regulation result in a
taking?

Legal Analysis of Regulatory Takings

• Courts use same analysis for ALL
regulatory takings cases.
– Is it for a legitimate public purpose?
• Discriminating between property owners is not a public
purpose.
• NO COMPENSATION AWARDED UNDER THIS
TAKING
–Were there “Reasonable Investment-
backed Expectations?”
–Is the property “economically viable”
under the regulation?

Oil and Gas Takings Precedents

• CANNOT DISCRMINATE!
– “Mars”- Fair Chance Principle
– “Halbouty”- Historic v. Non-historic Use
• Regulations may only
discriminate if based on a
“Reasonable basis in fact”
– Unique characteristic of reservoir


What is NOT a taking?

• Limiting Total Production from the Aquifer to
Conserve Groundwater or Achieve DFC
• Basing individual permitting and production
limits on what each landowner can use
WITHOUT WASTE
• Permitting historical use as long as it does
not prevent another landowner from
exercising their property right to a “fair
share”


What is NOT a taking?

• Spacing wells
• Drilling Standards to Protect Water Quality
• Regulations based on a “reasonable basis in
fact” that supports treating an area
differently


What IS a taking?

• Discriminating between
landowners
– Historic v. Non-historic use
• FIX- Allow new users unless historic users buy or lease
rights to prevent drilling new wells.
– Denying fair chance because of spacing
• FIX- Require permit applicants to own or control rights of
other landowners that will be affected in the “spacing
area.”
– Different regulation for exporters


What IS a taking?

• Land is not economically viable
under the regulation
– Regulation is for Public Purpose and is
applied equally to all landowners
– But, the regulation severely diminishes
the economic viability of the “property”


What IS a taking?
– Will Courts determine a taking by land’s
economic value or the groundwater’s
value?
• Substance of Surface Estate- Based on other uses of the
land?
• Would the court find a regulation preventing the
quarrying of limestone, sand, or gravel to be a taking?
–Will Courts treat severed groundwater
rights differently since they are personal
property?


What IS a taking?
• Landowner made investments in the
land with a “reasonable expection” to
use it for a particular purpose i.e.
Stranded Costs
– Permit Denied
– Change in Spacing or Production
Regulations
– Courts are difficult on the landowner
proving a “reasonable expectation”


Real Life Example:

Bragg v. EAA
• Awarded $732, 493.40…….WHY?!
• NOT because the regulation was
unreasonable
– Court said the “enactment and implementation (of EAA
Act) did substantially advance the government’s
legitimate interest”
• NOT because the property was devalued
– Court said EAA, “did not deprive the Plaintiffs of all
economically viable use of their property”
• Severe economic impact due to investment-
backed expectations made PRIOR to
formation of EAA

Are there ad valorem
tax implications?

Groundwater:
Substance of the Surface Estate

• Gifford Hill (1992)
– Substances of Surface Estate are only
valued and taxed separately after they
are “mined or quarried” i.e. become
“personal property”
– While “in place” they are part of the land
• Value and tax when produced and
sold, not when “in place”

Groundwater:
Personal Property

• Groundwater becomes personal
property when:
– Rights are Severed from Surface Estate
– Captured at the Surface
• Subject to valuation and taxation as
personal property under the Tax Code
• Existing Law before Day McDaniel
Decision

QUESTIONS?
Billy Howe
State Legislative Director
512.472.8288
bhowe@txfb.org

4/25/2012
Texas Farm Bureau Presentation
27

Private Ownership of Groundwater, Billy Howe

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