Yellow KEEP OUT Barrier TapeCo-author Chance Decker

We know that in Texas the mineral owner has the right to explore for and produce the minerals. What does that leave for the surface owner? In Lightning Oil Company v. Anadarko E&P Onshore, LLC the Texas Supreme Court tells us he owns the right to possess the specific place or space where the minerals are located. Absent pooling or some other contractual arrangement, with that comes the right to grant (for a price) or deny an off-lease operator the right to drill through the mineral estate to reach minerals under an adjacent tract.

Facts

  • Anadarko entered into a lease with the State of Texas for the mineral estate underlying the Chaparral Wildlife Management Area in South Texas. The lease required Anadarko to drill from off-site locations when prudent and feasible.
  • Anadarko entered into a Surface Use and Subsurface Easement Agreement with the surface owner of the adjacent tract, Briscoe Ranch, which permitted Anadarko to place wells on the Briscoe Ranch to access the minerals under the Chaparral. To do that, Anadarko’s well-bore would pass through the Briscoe Ranch subsurface.
  • The mineral estate under the Briscoe Ranch was leased by Lightning, who was not a party to the Surface Use and Easement Agreement.
  • Lightning sued Anadarko for trespass and tortious interference, and sought to enjoin Anadarko from drilling. Lightning claimed that the Briscoe Ranch, as a mere surface owner, could not consent to drilling through Lightning’s mineral estate.

Lightning argued (without success)

  • The holder of the dominant mineral estate has the right to exclude others from passing through it; to hold otherwise would transform a mineral lease into a “mere license to hunt for minerals.”
  • Anadarko’s activities would interfere with Lightning’s ability to develop its minerals.
  • Anadarko’s well-bore would remove at least some minerals, and removal of even that small volume is an actionable trespass.

The court said

The court noted two basic principles:

  • The surface owner owns all non-mineral molecules, i.e., the mass of earth that undergirds the surface estate.
  • The mineral owner is only entitled to a “fair chance to recover the oil and gas in place or under” the surface estate.
  • The rights conveyed by a mineral lease do not include the right to possess the specific place or space where the minerals are located.

The result

  • Lightning, as mineral owner, has no right to exclude others from traversing through the subsurface. Anadarko will not commit trespass by doing so with the surface owner’s permission.
  • Lightning produced no evidence that Anadarko’s activities would interfere with Lightning’s development of its mineral estate.
  • Though Anadarko’s activities would necessarily remove some minerals, that small volume is not large enough to be actionable.

There’s always an exception

The court left open the possibility that a mineral owner could prevent pass-through drilling if it can show that such activity would either (i) unreasonably interfere with the mineral estate owner’s development of the estate or (ii) remove or destroy a sizeable quantum of minerals.

A musical interlude.

certificate of participationCo-author Chance Decker

You are a service company and you’ve been sued for a defective frac job. It looks scary but there’s no detail in the petition and no certificate of merit is attached. What is your response:

  1. “Such a pity; my fifth-grader got one for finishing next-to-last at the track meet”;
  2. He should borrow one from the scarecrow;
  3. Panic, offer a nice settlement to the plaintiff if, for the love of Jesus, Mary and Joseph and your non-exempt ranch in West Texas, he’ll just go away;
  4. Ponder the difference between “shall” and “may”.

Perdenal Energy LLC v. Bruington Engineering, Ltd. asked whether a court must dismiss an engineering defect lawsuit filed without a certificate of merit with prejudice (never to file suit again) or may dismiss without prejudice (to refile once they obtain a certificate).

The point

Texas law requires a plaintiff to file a “certificate of merit” with its original petition for claims arising out of work by licensed or registered engineers. The certificate must be from a qualified engineer and must detail the manner in which the professional services were faulty.

The trial court shall dismiss the lawsuit when the plaintiff doesn’t file a certificate of merit with the original petition. The dismissal may be with or without prejudice.  The dismissal decision will be reviewed under the extremely lenient, “abuse of discretion” standard.  The statute is silent on when the court should dismiss with or without prejudice.

The facts

Pedernal sued Bruington for damages resulting from a fracking operation on a gas well, alleging shoddy engineering work. Because no certificate of merit accompanied the petition the trial court dismissed Pedernal’s claims “without prejudice,” allowing Pedernal to re-file with a certificate of merit.  On appeal the question was whether the case should have been dismissed with prejudice.

The Texas Supreme Court found that the trial court properly dismissed Pedernal’s claim without prejudice.

The standard

A court should dismiss a plaintiff’s claims with prejudice if the plaintiff’s failure to file a certificate of merit demonstrates the plaintiff’s claims lack merit. Dismissal with prejudice is a harsh remedy.  In fact, a dismissal is based solely upon the failure to follow procedural rules could face due process challenges by adjudicating a plaintiff’s claim on procedural formalities. The purpose of the certificate of merit is to weed out clearly unmeritorious claims. That goal would be severely handicapped if a plaintiff could always re-file a claim with a certificate of merit.

The strategy – patience.

If you are a defendant who was sued without a certificate of merit, what’s your move?

If you can, wait to move for dismissal until after the statute of limitations has run.  That way, whether the claim is dismissed with or without prejudice, they can’t sue you again. The plaintiff could claim you waived the right to insist on a certificate, so don’t wait too long.  But if you play your cards right it’s case closed.

Include as much information in your motion as possible to demonstrate the claims lack merit.  The statute is designed to quickly dispose of unmeritorious claims.  If you think the plaintiff’s claims are bogus, prove it at the dismissal hearing.

But I’m the plaintiff!

Don’t think you can intimidate the defendant with a vague, unsupported petition, purple prose and all. Just do your homework beforehand.

Musical interlude

A song for Mom. And another one if you prefer your Mothers Day seriously countrified.

A Black Rhino running towards the camera, Kruger National Park

Forest Oil Corporation v. El Rucio Land and Cattle Inc. et al deserves your attention for four reasons:

  • You won’t see another one involving damage to a rhinoceros pen.
  • It confirms that the Texas Railroad Commission does not have exclusive or primary jurisdiction over private claims for environmental contamination. Welcome to the courthouse.
  • The South Texas redistributionist approach to civil justice includes arbitrations.
  • For once, the Texas Supreme Court declined to eviscerate a multi-million dollar plaintiff victory.

The set up

Mr. McAllen and his family control the 27,000+ acre McAllen Ranch (think McAllen, Texas) through various entities. Forest had contractual obligations arising out of a 1990’s settlement agreement:

  • not to bring hazardous material on the property,
  • to remove hazardous material placed on or released thereon,
  • to comply with all laws,
  • perform remedial work where necessary, and
  • not dispose of hazardous materials on the surface.

The family sued for breach of contract, environmental contamination, improper disposal of hazardous materials, and “malicious donation of contaminated pipe”. Among other damages was the rhinoceros pen, and McAllen blamed donated pipe for a sarcoma that caused him to lose his leg.

The RRC referred Forest to its voluntary Operator Cleanup Program, but has yet to approve Forest’s final remediation plan. An arbitration panel awarded the families $21.7 million in damages and attorneys’ fees, $500,000 for exemplary damages, and to Mr. McAllen individually $500,000 for personal injury. The panel also made several declarations, all burdensome and unfavorable to Forest.

One out – the RRC does not have exclusive jurisdiction

The court disagreed with Forest’s argument that the RRC has exclusive jurisdiction over common-law contamination claims.

An agency’s jurisdiction is exclusive when the legislature gives that agency alone the authority to make the initial determination in a dispute. Ordinarily when the agency has exclusive jurisdiction a party must exhaust all administrative remedies before seeking judicial review. But abrogation of a common-law light is disfavored and requires clear repugnance between the common law cause of action and the statutory remedy. Absent a clear indication, the RRC did not have exclusive jurisdiction.

Arguably, the Water Code the Health & Safety Code, and the Natural Resources Code each ceded to the RRC sole responsibility over activities related to McAllen’s claims. Mainly because those statutes address only inter-agency jurisdictional questions, the court disagreed.

Also, the court rejected Forest’s argument that landowners seeking remediation both from the RRC and the courthouse can recover twice for the same injuries. That is one for the legislature, not for the court.

Two outs  – the RRC does not have primary jurisdiction

If a state agency has primary jurisdiction the trial court should abate. Primary jurisdiction allocates power between courts and agencies when both have authority to make initial determinations in a dispute. Under this doctrine trial courts should allow the administrative agency to initially decide an issue when the agency is typically staffed with experts trained in handling the complex problems in the its purview and great benefit is derived from an agency’s uniform interpretation of its regulations. To the contrary, courts and juries may reach different results under similar fact situations.

But the doctrine doesn’t apply to claims that are inherently judicial in nature, such as trespass, negligence, negligence per se. The RRC’s primary jurisdiction not so broad as to deprive courts of jurisdiction merely because the Commission might have jurisdiction to determine some facts related to the controversy.

RRC regulations and orders regarding remediation do not supplant Forest’s common-law duties in the agreement which do not implicate RRC jurisdiction or regulation. McAllen’s claims are inherently judicial; the doctrine of primary jurisdiction does not apply.

Three outs – “runaway “ arb award survives  

The arbitration panel was bitterly divided (the dissent was 40 angry pages). The court held that the award could not be vacated for one arbitrator’s evident partiality and the panel’s manifest disregard of the law. No surprise there.

Inning over, ballgame!

Musical interlude

A singer you should know but might not. And another one.

railroadCo-author Chance Decker

BNSF v. Chevron Midcontinent LP et al. asked whether a 1903 deed granted BNSF’s predecessor a strip of land in fee simple absolute or only an easement. The result: BNSF holds only an easement. There’s more to the case than an analysis of particular language in one sui generis contract. What else did we learn?

The big picture

  • Is your assignment to determine the intent of the parties in a document? Consider it as a whole; don’t cherry pick phrases and read them in isolation. I doesn’t matter whether you are issuing checks based on ownership or convincing the court of your righteousness.
  • Beware of ancient title documents, in particular a “Right of Way Deed”. Railroads in the early part of the last century had a propensity to present documents that looked like easements but were really deeds in fee simple. Here, 115 years later, if that was the intent it didn’t work.
  • “Beware” translates to “read the document carefully and thoroughly”. Don’t skim the granting clause and call it a day.
  • In a face-off between the granting and habendum clauses, the granting clause prevails. But, as you will see, it’s not that simple.

Dueling deed language

The consideration: “… benefits which will accrue… by reason of the construction of a line of railroad over the land…”

The granting language: “… a right of way, that certain strip of land hereinafter described, …”. The deed then described a line traced by surveyors.

The habendum clause: “To have and to hold the said premises, together with all appurtenances thereto belonging, in fee simple, unto the said … its successors and assigns forever.”

BNSF’s losing arguments (contending the deed conveyed fee simple absolute)

  • “Right-of-way” is not a legal term of art with a set definitive meaning, but rather may be used in two senses: a right of passage, and also a strip of land which railroad take up one upon which to construct a roadbed. The court agreed, but that didn’t carry the day.
  • “For a right-of-way” is a precatory nonrestrictive clause that states a purpose but does not limit the nature of the estate being conveyed. (Don’t even try to say you already know what “precatory” is.)
  • The habendum clause refers to “fee simple”. That alone should  answer the question. But the granting clause controls, and the court wasn’t ready to recognize a Texas doctrine of “an easement in fee simple” as do some other states.

The court – it’s an easement

The granting clause straddled the line between two different types of deeds, making it ambiguous. The court then had to examine the entire deed and harmonize its conflicting provisions. The court followed the basic rule: Assume the parties intended every clause to have effect so that no clause is rendered meaningless. But the focus remained on the granting clause, which controls the disposition.

Chevron offered the only reasonable reading of the deed. The deed as a whole evinces a clear intent to convey only a surface easement. The court noted these factors:

  • The opening recitals show that the grantor would receive benefits if a railroad passed over the land.
  • “Right-of-way” appears in the granting clause directly in front of “that strip of land”. The placement of the statement of purpose means something.
  • The line shaped by the surveyors went “over to and across” various sections.
  • There was a separate grant of the right to use wood, stone and other resources. If the deed conveyed the land in fee simple the right to take and use the natural resources would have passed automatically.
  • The granting clause defines which bundle of rights was transferred; the habendum clause tells the recipients how long and under what conditions they can have and hold those rights.
  • The habendum clause allows the grantee to have and hold the “premises”, which suggests only an easement.

What is the effect of the reference to “fee simple” in the habendum clause? Fee simple is a “durational or conditional qualifier, rather than the expression of an estate’s size”. The operative question of what BNSF actually owns is answered by the granting clause and the “gloss put on that clause by the rest of the deed.”

What is it about trains and prison in country songs?  Know what I mean?

man bites dogSierra Club v. Chesapeake Operating LLC et al is news more shocking than “Man Bites Dog”! A federal court has acknowledged that others are better equipped to address certain issues than the judiciary!

Sierra Club alleged that that deep injection of liquid waste from operations by Chesapeake, Devon and New Dominion has contributed to earthquakes throughout Oklahoma and southern Kansas. Sierra asserted that waste disposal activities present an imminent and substantial endangerment to the public health or environment. This was a citizen suit under the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act.

There is reason to be concerned

Sierra Club alleged:

  • Earthquakes in Oklahoma increased more than 300-fold from before 2009 to 2015, from 167 to 5,838.
  • The severity has increased.
  • Seismologists say a magnitude 7 quake is possible in the Nehama fault.
  • Earthquake risks in Oklahoma are now the highest in the nation.

What the parties wanted

Sierra Club wanted an order requiring defendants to:

  • Reduce “immediately and substantially” the amount of wastes injected into the ground,
  • Reinforce vulnerable structures that would be impacted by a large magnitude earthquakes, and
  • Establish independent earthquake monitoring and prediction.

The defendants urged the court to:

  • Allow the Oklahoma Corporation Commission to take action in response to increased seismicity in the state.
  • Dismiss, because Sierra did not join every company that disposes of liquid wastes, and
  • Dismiss, because the claims fall outside the “zone of interests” Congress intended to protect under RCRA.

The court sided with the defendants, concluding that dismissal is appropriate under the Burford abstention and primary jurisdiction doctrines. Here’s why:

  • In 1981 the EPA gave primary enforcement responsibility for underground injection control to the state of Oklahoma.
  • Oklahoma vests that authority in the Oklahoma Corporation Commission.
  • The OCC exercises exclusive jurisdiction over injections wells.
  • The OCC has an extensive regulatory structure in place for injection well control.

Abstention doctrines explained

The Burford abstention doctrine says that where timely and adequate state court review is available a federal court must decline to interfere with the state agencies where there are difficult questions of state law whose importance transcends the results in the case at bar and where exercise of federal review of the question would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern.

Oklahoma has established and is operating its own program to regulate wells, OCC oversight encompasses more wells than just those operated by these defendants, the issue is one of substantial public concern, and timely and adequate state court review is available to the plaintiff.

The primary jurisdiction doctrine protects the administrative process from judicial interference, and it applies here. The court should refer issues not within its conventional experience to the administrative agency having more specialized experience, expertise and insight.

Why is this a big deal?

Essentially, the court recognized that highly complex and technical issues should not be regulated by the courts. This presents fundamental differences between courts and regulatory agencies: The OCC is equipped as a regulatory body to apply continuous, persistent and flexible regulatory power, which the court can’t do. Immediate and substantial reduction in wastewater requires specific scientific and technical expertise, which the OCC has and the court doesn’t.

You don’t need to bite your dog.

 

crawfishIn Re Louisiana Crawfish Producers arises out of the collision between two of Louisiana’s favored enterprises: crawfish and hydrocarbons.

Takeaways

There is lots of legalese, of interest primarily to lawyers who practice in federal court. So, we’ll start with a few things to remember:

  • The mudbug, specifically Procambaras charkii, is Louisiana’s official state crustacean.
  • Louisiana is the only state with an official crustacean.
  • The court cited Wikipedia for the first two takeaways.
  • The Wikipedia cite could have been a bit in jest. Federal courts are loath to rely on Wikipedia for anything important to the case because, according to the courts, it is inherently and admittedly unreliable, is written by volunteers from anywhere, and can be changed on a whim anytime.
  • To be serious for a moment, in this dispute the tension between oil and gas operations and other competing and potentially incompatible land uses is displayed. This tension has always existed and is not going away.

The litigation

The crawfisherpersons sued a number of oil and gas companies claiming that dredging activities caused damage to fisheries in the Atchafalaya Basin (Non-natives: Impress your friends by reminding them the emphasis is on the “cha” not the “Atch”). The question was whether the complaints stated a cause of action for a maritime tort. The district court granted summary judgment in favor of Florida Gas Transmission Company and Southern Natural Gas Company, finding no genuine issue of material fact as to whether the defendants’ activities constituted dredging.

Summary judgment affirmed

The Fifth Circuit affirmed the judgment for Florida Gas. The company said all it did was place a pipeline into an existing canal, which is insufficient to support a maritime tort claim . The plaintiffs did not produce any evidence to create an issue of fact. A Corps of Engineers permit application and other circumstantial evidence was not enough to sustain plaintiffs’ burden to create a fact issue that dredging occurred.

Summary judgment reversed

The court reversed as to Southern Natural. A company representative testified in a deposition that they engaged in dredging activities in connection with spoil banks, and the company admitted in responses to requests for admission to using dredging vessels in the construction of a canal.

The problem was with the trial court’s denial of the plaintiffs’ motion to reconsider its original order. To understand why the Fifth Circuit reversed see the analysis of Federal Rule 59(e) addressing newly discovered evidence and who should be suffer when the judge is unaware of a revised scheduling order (spoiler: not a party; the district court should have considered evidence that was timely filed under the revised order). Worrisome for lawyers is why the district court had to be admonished over its refusal to consider the evidence on a motion to reconsider.

And of course, our musical interlude

Empty tomb with three crosses on a hill side.

Co-author Lydia Webb

One of the hottest issues from 2016 was whether an E&P debtor can reject, under section 365 of the Bankruptcy Code, an above-market midstream contract. Given the potential for a “no-win” situation, in all but one case where the issue arose E&P debtors and midstream companies were able to settle, often by entering into new midstream contracts upon mutually agreeable terms that take into account the changed market conditions since the downturn in commodity prices.

However, the bankruptcy judge in Sabine Oil and Gas Corp. held that an E&P debtor could reject its gas gathering agreements because its midstream counter-parties could not establish that their agreements were covenants running with the land under Texas law. The midstream companies appealed to the U. S. District Court for the Southern District of New York, hoping for a better answer. They did not get their wish.

Many were surprised by the opinions, given the billions of dollars invested in necessary midstream infrastructure that was built under the assumption that gathering, processing and transportation agreements would bind the producer’s successors. The Sabine court was unsympathetic, and last month affirmed the bankruptcy court’s rejection orders. The midstream companies’ primary argument was that the dedication language in the agreements were analogous to the conveyance of a royalty interest in minerals “produced and saved”.  Thus, Sabine’s dedication must have conveyed a real property interest. The district court was not impressed, and held that the gathering agreements were mere service contracts, and Texas law did not support a finding that they constituted a conveyance of mineral rights or otherwise burdened the underlying leases.

The debate will continue. Sabine is not the end of the argument that interests created by midstream oil and gas agreements are covenants running with the land that can survive a producer’s bankruptcy. Why?

  • A Texas court has not yet ruled on the issue, although at least one Houston bankruptcy judge has commented that he would love the opportunity to set the record straight for his New York colleagues. Given the complex issues of state law involved in the interpretation of these agreements, there is reason to believe that a Texas judge experienced in Texas property law would rule differently.
  • Energy companies continue to construct creative arguments that these agreements create real property interests that cannot be shed in bankruptcy. Most recently, in the Vanguard Natural Resources Corp. bankruptcy it has been argued that the right to drill and develop acreage assigned under a farmout agreement creates a covenant running with the land that burdens the entirety of the lessee/farmor’s undeveloped acreage (Caveat: This is not a midstream situation).

Stay tuned. Whether these arguments hold water, and in which contexts, is yet to be seen. What is clear is that midstream companies will continue to innovate in their effort to protect agreements in which they have invested millions of dollars, and the producers will respond.

It’s Holy Week, a time for musical interludes, one Jesusy but not churchy, one churchy. See you there.

perpuitiesWe have a new format. And we’re still gluten free!

Co-author Alexandria Twiss

In BP America v. Laddex, Ltd.  the Texas Supreme Court affirmed that in a lease termination case the trial court cannot limit the jury’s consideration of production in paying quantities to an arbitrary time period. The court also applied the Rule Against Perpetuities.

Production in paying quantities

See this entry for our discussion of the court of appeals’ ruling.

In March 2007 the lessors under the BP lease entered into a top-lease with Laddex covering the same property as the BP lease. Laddex sued, alleging that the BP lease had terminated for failure to produce in paying quantities in 2005 and 2006. A jury found that the BP lease had terminated for failing to produce in paying quantities. BP appealed.

The trial court incorrectly charged the jury on production in paying quantities by limiting the inquiry to a specific 15-month period in which production slowed. The controlling issue was whether the well failed to produce over a reasonable period of time determined by the jury, not a specific period chosen by the court.

The Rule Against Perpetuities

Despite the boredom that may result, you need to know about the Rule. BP argued that the top-lease on which Laddex’s standing depended was void as a perpetuity.

The Rule: “No interest is valid unless it must vest, if at all, within twenty-one years after the death of some life or lives in being at the time of the conveyance.”

The BP bottom-lease was a conveyance of the mineral estate (less portions expressly reserved, such as royalty) as a determinable fee. A it possibility of reverter is the interest left in a grantor after the grant of a fee simple determinable. The possibility of reverter is presently vested at the time the lease is executed.

A top-lease conveyance on expiration of a bottom-lease, without more, generally violates the Rule. However, the court looked to Laddex’s lease. Its primary term commenced on the date that either (1) releases of the BP lease executed by all owners of record are filed in the real property records, or (2) a final judgment terminating the BP lease.

The Laddex lease further stated that is “is intended to and does include and vest in Lessee any and all remainder and reversionary interest and after-acquired title of Lessor in the Leased Premises upon expiration of any prior oil, gas or mineral lease . . . .” The Court concluded that a plausible interpretation of this language was that the Laddex lease is a present “partial alienation” of the lessors’ possibility of reverter under the BP lease, to the extent that what Laddex has acquired “is capable of ripening into a fee simple determinable interest upon expiration of the [BP] lease.” BP’s interpretation was also plausible, but where an instrument is equally open to two constructions, the one will be accepted which renders it valid rather than void.

I denied my heritage by failing to feature a Mardi Gras song on Mardi Gras day. I’ll make up for it with one you’ve heard and one, maybe not.

james-cottonHow to distinguish an oil and gas lease from a mineral deed? In Richardson v. Mills, it was a deed when the instrument uses words like “forever” and imposes no duty to explore for and develop minerals.

An instrument from 1906, when Teddy Roosevelt was busting trusts and creating national parks, was between Mills on the one hand and Lindsey and Harris on the other. The document referred to the parties’ “desire” for “development, tests and demonstrations” and for Lindsay and Harris to manage the property so it would be developed for oil and gas or be sold.

The granting language referred to “an undivided one half interest in the oil, gas and other minerals … “ to Harris and Lindsay, and further rights and privileges necessary and proper for the performance of the work of prospecting, testing, operating, etc.

A 1908 release referred to “said contract or lease the time for said development has expired rendering null and void said lease.” There was a relinquishment of any right or claim held by Nacogdoches Land Company.

Trial and the clairvoyant expert – it’s a lease

Mills offered the opinion of an attorney who reviewed the contract (over 100 years after it was executed) and opined about what the (deceased!) parties possibly intended. It’s unknown whether his conclusion was absorbed from the cosmos or the result of a séance with the spirits of the dead.

The trial court determined that the instruments were ambiguous and allowed extrinsic evidence to determine the parties’ intent. Alternatively the 1906 instrument was released when Lindsay and Harris did not perform their obligations.

On appeal – it’s a deed

Reversed and rendered. The 1906 instrument was not ambiguous. It was a deed:

  • Harris and Lindsay had the right but not the duty to develop the minerals.
  • There was no time within which actions must be taken.
  • The consideration was services rendered.
  • The granting clause said “grant, bargain, sell and convey … ”.
  • The habendum and warranty clauses specified “forever”.

This was language of an unconditional conveyance, not for exploitation of minerals.

What about the 1908 release?

The 1908 release referred to an instrument dated July 9, 1907, whereas the document in question was dated July 9, 1906. The 1908 release described the document as a “contract or lease” but not as a deed. There were other discrepancies. No recording information for the 1906 document was mentioned in the 1908 release. Mills argued that there was a latent ambiguity (an ambiguity appearing by reason of some collateral matter). Mills contended that reference to 1907 really meant 1906.

Mills’ efforts were rejected, including the testimony from the lawyer. The 1908 release was unambiguous and there was no connection between the two instruments.

In an odd twist, the parties stipulated that if Mills lost they would nevertheless own a small interest in the property. Thus, Mills took nothing from the court but ended up with four percent of the minerals from the stipulation.

RIP, harmonica great James Cotton. He could do it with Howlin’ Wolf, Muddy Waters or his own band.

work-on-wellShould the sufficiency of reworking operations under the cessation-of-production clause of an oil and gas lease be limited to the producing well?  Crystal River Oil and Gas, LLC et al v. Patton was a suit to terminate an oil and gas lease due to cessation of production. The case addressed this question, which you would think had been considered in all the years of lease termination disputes in Texas.

The clause at issue was pretty “standard”:

If, … after discovery of oil, or gas the production thereof should cease from any cause, this lease shall not terminate if Lessee commences additional drilling or re-working operations within sixty (60) days thereafter … .”

The well produced 2,000 barrels of saltwater for each barrel of oil. The saltwater disposal well servicing the producing well became inoperable in September 2011 and was repaired in late October. The jury was asked whether the defendants failed to commence drilling or reworking operations on the producing well. The lessee complained that the question should have allowed the jury to consider work performed on the disposal well. The court agreed.

Lawyers: Pay attention to the Texas Pattern Jury Charge at PJC 303.16. Others: You need not go to that trouble.

The lease didn’t define “reworking operations”.  Lessor Patton contended that reading was required by the habendum clause.

Courts in Texas have used this definition for the term:

“… any and all actual acts, work or operations in which an ordinarily competent operator under the same or similar circumstances, when engaged in a good faith effort to cause a well or wells to produce oil or gas in paying quantities.”

Williams and Meyers (see §618.1) cites the difficulty in defining the term “because of the many ancillary activities that are required in order to operate an oil and gas well” and concludes that whether any particular operation falls under the definition of “reworking operations” depends upon the facts peculiar to that operation.

Prohibiting the jury from considering operations on the salt water disposal well was reversible error. The result will be a do-over at the trial court with a more expansive jury question.

I know you know this, but to appreciate Chuck Berry you have to listen to his songs as if it is 1956: Something you never heard before. RIP.