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Energy & the Law

What’s To Know About the Defend Trade Secrets Act of 2016

Posted in Legislation

trade secretCo-author David Lisch

Congress has passed the Defend Trade Secrets Act of 2016 and the president is expected to sign it into law. The DTSA allows suits in federal court for misappropriation of trade secrets. Before the DTSA, most litigants would sue in state court under the Uniform Trade Secrets Act (the UTSA), approved by 48 of the 50 states (New York and North Carolina being the exceptions).

What is a trade secret?

It remains what it was: Your interpretations, evaluations, and that other work product that derives economic value from not being generally known to your competition. The operative word is “secret”. The key is to take reasonable steps to prevent unauthorized disclosure. Anything on the wall in your booth at NAPE is pretty much toast.

Why would I use the DTSA instead of the UTSA?

Here are several reasons:

  • It is a federal statute, which means federal court jurisdiction. There could be benefits in a particular case to be in federal court.
  • It allows seizure of property to prohibit the dissemination of a trade secret without advance notice to the other side in “extraordinary circumstances.”
  • It increases penalties for a criminal violation from $5 million to the greater of $5 million or three times the value of the stolen trade secret.
  • It allows recovery of actual damages, restitution, injunctive relief, exemplary damages of up to two times actual damages, and attorney’s fees.
  • If you’ve been paying attention you should already be protected by a confidentiality agreement, but the statute provides additional rights and remedies.

Do I need to act?

The statute does not eliminate the need for confidentiality agreements when showing a prospect. You will want to update your employment agreements to include the immunity notice required under the DTSA so that you can also recover punitive damages and attorney fees from an employee gone wrong.

Speaking of trademarks

This act doesn’t address your logos, slogans and other manifestations of your “brand” that could be protected by existing copyright and trademark laws. You do that by registering. Gray Reed can help.

Why do we need this legislation?

There are two theories. First, there are benefits of uniformity and consistency in the law. Plus, service and discovery is often easier and more orderly in federal court, especially between litigants from different states. And there would be less jockeying between state and federal court.

The competing theory: Having failed to eradicate the federal debt, balance the budget, stabilize Social Security and Medicare for the sake of our grandchildren, replace the Affordable Care Act, reform immigration laws, and slow the avalanche of overbearing federal regulations, Congress chose a bipartisan agenda: Feeding its insatiable need to federalize every aspect of life in our great country. Nothing says “Git Er Done” like a new federal statute that duplicates existing law in 48 states.

There’s more to know

Here is an article on the topic by Gray Reed employment lawyers Michael Kelsheimer, Travis Crabtree and the aforesaid David Lisch.

Guy Clark, RIP. Compare his original to Jerry Jeff’s.

Neither a Will Nor a Gift Deed?

Posted in Land Titles, Title Issues

cruellaThis narrative about a daughter gone bad is for title examiners, landmen and moralists. Business development persons, skip straight to the lesson.

The background

Elvira owned a home and lived with Johnny. Elvira and Johnny were named managing conservators for her three grandchildren after a daughter died. The grandchildren lived at the house. Elvira and Johnny signed a “March 11, 2005 Will”, handwritten by Johnny. It said that the house would be equally owned by the grandchildren and nothing would be done to the house without their authorization. All the players knew of the document.

Irma wants it all

Elvira and daughter Irma has a history of not getting along. Fast forward to 2009. At trial it was established that Elvira, along with physical maladies, suffered from psychosis, dementia, and Alzheimers. Notes of a nurse at her nursing facility described her as confused, combative, and unable to find her room without assistance. Irma and Elvira met at a Starbucks and Elvira signed a Warranty Deed, prepared at Irma’s request, conveying the home to Irma and husband in exchange for a “love and affection” (Imagine how the jury received that information). The notary knew something was up when Irma asked if Elvira needed to be present for him to notarize the document. Wasting no time, Irma filed the deed of record the day after signing.

Irma changed the locks on the house and denied access to Johnny. A year after the trespass to try title suit was filed by Johnny and the grandchildren, Irma and husband made improvements to the property.

Was the will effective?

No. The will was not attested to by two witnesses.  It could have been a holographic will if it had been written wholly in Irma’s handwriting. Remember, it was handwritten by Johnny.

Was it a gift deed?

No. The will was not acknowledged, witnessed or recorded. Delivery of the property is required but it need not be actual or immediate. Delivery could be constructive. So far so good.

An unrecorded or unacknowledged instrument is binding on the parties to the instrument, their heirs, and a subsequent purchaser who does not pay valuable consideration or who has notice of the instrument (in other words, not a bona fide purchaser for value). The question, then, was …

What was Elvira’s intent?

To be a gift, the donor must intend immediate and unconditional vesting of her ownership interest in the donee. The will did not absolutely and irrevocably divest Elvira of title, dominion and control of the property.  The 2005 “will” was not a gift deed. And Elvira clearly did not have the requisite capacity to sign the 2009 Warranty Deed.

Could Irma and husband recover their improvements?

No, thank goodness. Under the Property Code a defendant in a trespass to trial title action who is not the rightful owner of the property, but who has possessed the property in good faith and made permanent and valuable improvements is either:

  • entitled to the amount by which the value of the improvements exceeds of the use and occupation. or
  • liable for the amount by which the value of the use of and waste or other injuries exceeds the value of the improvements.

The Property Code does not allow for direct reimbursement of money. Receipts for material and labor were not helpful. There was no evidence as to the value of the improvement, and there was no evidence whether the value of their use and occupancy outweighed any increase in the property’s value.

The lesson

This musical interlude is for Irma’s soul.

And while we’re on the harmonica, an analogue for her behavior.

PS: Nothing personal to Irma. I’m only extrapolating.

Here We Go Again: Fractional Royalty or Fraction of a Royalty?

Posted in Royalty Disputes

Fractions


“Blood may be thicker than water, but oil is thicker than both.”  J. R. Ewing.

This family dispute among Ethel’s descendants arose when Ethel’s will employed double fractions in bequeathing royalty interests to her children. Did the instrument create a fixed fractional royalty or a floating fraction of royalty?

Straight to the takeaway

Don’t like math? Avoid a pop quiz by remembering, when describing a royalty conveyance:

  • Do not convey a fraction of a fraction unless that is what you intend to do. Why let ambiguity and confusion ruin your carefully crafted document?
  • Use language appropriate for the time and circumstances, but think ahead. Is change foreseeable in a way you can plan for?

If you don’t believe me read Hisaw v. Dawkins, from the Texas Supreme Court.

Times were different then

When Ethel’s will was written in 1947 Jackie Robinson was a rookie, LSU beat Texas A&M 19-13 (some things never change), and the standard royalty was 1/8th. Was that figure in Ethel’s will a synonym for the lessor’s royalty, or was the royalty interest fixed without regard for the possibility of a higher royalty in the future?

There were three separate parcels of land and each child received the surface and executive rights to one. Ethel’s will contemplated three scenarios for the royalty under all the tracts. Each child would receive:

  • an NPRI of an undivided 1/3rd of an undivided 1/8th of all oil, gas ….
  • 1/3rd of 1/8th royalty  …
  • 1/3rd of the remainder of the unsold royalty, if a conveyance occurred while she was alive.

Clarity from the Supreme Court

The court said it would not embrace a “mechanical approach” to a royalty conveyance that would require “rote multiplication of double fractions”. Bright line rules are arbitrary and will not always give effect to what the conveyance provides as a whole. The court of appeals erred in construing each royalty provision in isolation.

In what it called an analytical approach, the court applied the four corners rule, and attempted to harmonize all provisions of the document. The court reaffirmed its commitment to a “holistic” approach to contract construction by ascertaining the parties’ intent from all words and all parts of the instrument. To harmonize would resolve apparent inconsistencies or contradictions in the document.

The third royalty clause governed. It clearly showed Ethel’s intention to equally divide the royalties among the three children. Each would receive a 1/3rd floating royalty, not a 1/24th fixed royalty (that is, 1/3rd of 1/8th).

The antiquated assumption that all future royalties would be 1/8th did not evidence Ethel’s intent. This is not to say that reference to 1/8th won’t ever mean just that. It might, if the language is clear and unambiguous.

 Prince RIP. His voice and an acoustic guitar are all you need to see what a force he was.

Proposed Methane Rules – Good or Bad?

Posted in Environmental Policy, Pollution, Regulations

wolfLast week we discussed why the EPA’s plan to limit methane emissions from existing oil and gas facilities is good. Now we will consider reasons why the plan is not prudent.

Will the rules be good or bad for America?

The President says good. Will it be as “good” as the ACA?  While you decide for yourself, consider these facts:

Methane is down

From 2005 to 2014 natural gas production increased by 33 percent and methane emissions from natural gas systems decreased 11 percent.  The EPA places the natural gas industry in third place on the list of methane emitters behind landfills and “enteric fermentation” (It’s Blazing Saddles, but with cows).

What’s wrong with the free market?

EPA’s last greenhouse gas inventory in April 2015 specifically credited a 38 percent drop in methane emissions since 2005 to voluntary efforts by producers.  Where is Friedrich Hayek when we need him?

Is it worth the cost?

Methane emissions from natural gas systems represent 3.4 percent of all the greenhouse gases emitted in the United States.  EID has done the math: Assume methane emissions every year from 2025 to 2100 are kept at the target of 45 percent reduction from 2013; that would impact global temperature by .004 degrees Celsius. Some would call that benefit de minimis compared to the cost.

Close enough for government work

In justifying new methane rules the EPA assumed substantially higher natural gas prices than did the EIA. Result: Faulty cost-benefit analysis. How has the agency has fared in other regulations? It estimated its new CAFE standards would save consumers a few thousand dollars on gas and add $948 to the cost of a new car. Three different groups have gauged the additional cost to be more like $3,800 even after fuel savings.

Crazies debunked

EID reports on the debunking of Bill McKibben’s fracking “facts”  Highlights (details in the links):

  • Several of his claims have even been rebuked by the IPCC, the international global-warming alarmist enterprise.
  • The IPCC considers the rapid deployment of hydraulic fracturing as an important reason for the reduction of greenhouse gas emissions.
  • The Harvard study allegedly showing the nation is leaking methane in “massive quantities” doesn’t point to shale gas production as its source.
  • The greatest methane increases have been in areas where there is no shale development.
  • Even the EDF agrees: Study after study shows that emissions are far lower than Ingraffea claims.
  • Gasland has proven to be a fraud.

A contrary look at the EDF study 

Several observations about last week’s EDF’s study:

  • Alex Trembath of the Breakthrough Institute explains that methane leakage is a minor factor in determining the benefit of coal-to-gas transition; such levels are within acceptable ranges.
  • Even after targeting the “super emitters”, the EDF study shows an overall very low methane leakage rate.

Mother’s Day is coming up.  How about a musical interlude for Mom!

EPA Methane Rules Are Coming

Posted in Environmental Policy, Regulations

wolf“Remember, I can do anything to anybody”, deranged and murderous Roman emperor Caligula to his grandmother (Julia, widow of Tiberius and herself no stranger to things done to other people as and when they pleased).

In related news, the White House intends to limit methane pollution from thousands of existing oil and gas wells, pipelines and other facilities.

Why should I care?

Because, if you suspect the new rules are .. pick the word … unnecessary, too expensive for the benefit, anti-capitalist, “overbearing leftist bulls&%t” … you should understand the point of view of those who see it differently. That way you can defend the industry to those who don’t know better. This week is a discussion of the rationale for the rules.

The new rules good for America, aren’t they?

No they aren’t, (That’s an opinion; feel free to disagree). Here are reasons why we need the new rules.

The Environmental Defense Fund, through its Energy Exchange blog, asserts that methane emissions are far higher than EPA estimates. According to EDF, the oil and gas sector is the largest industrial source of methane emissions in the United States and reducing these emissions is the biggest, most cost-effective opportunity to make “fast meaningful reduction in greenhouse gas pollution.”

Reducing methane emissions isn’t as difficult or as costly as the industry claims. For example, Jonah Energy reduced fugitive methane emissions by 75 percent and cut repair time by 85 percent, saving more than $5 million in product. We’ve got to do it now.

Methane traps 84 times as much heat as CO2 over 25 years.  The IPCC suggests methane is responsible for 25 percent of the world’s global warming and is a climate destroying fossil fuel.

According to a recent study published in Environmental Science and Technology, the biggest problem is the “super emitters” – large, unpredictable leaks caused by equipment failure, human error or other factors.  The study recommended that “regularized, widespread monitoring facilities across the supply chain” could quickly find and fix leaks in equipment.

According to the EPA, methane constitutes about 10 percent of total US greenhouse gas emissions.  Methane has a warming potential that is about 25 times greater than carbon dioxide, according to the EPA and the IPCC.

What do the fabulists say?

Bill McKibben, whose fracking “facts” have been debunked more often that your president has apologized to foreign dignitaries, is still at it. Here are his assertions:

  • Fracking would do more climate damage than coal even if only a small percentage of methane is leaked;
  • America’s contribution to global warming increased during the Obama years;
  • the nation is leaking methane in massive quantities;
  • new research backs prior claims of McKibben and Ingraffea;
  • Gasland is one of the classic environmental documentaries of all time.

Next week: Why the new rules are neither good for the industry nor helpful in reducing global warming.

Our musical interlude: Here is where these studies take me.

 

When Joint Bidding Is Not Bid Rigging

Posted in Legislation, Regulations

joint biddingCo-author Dominic Salinas

Last week we discussed the pitfalls of joint bidding for oil and gas properties. We didn’t say you can’t do it. It’s like domestic life: There are ways you can tell your beloved that dress makes her look  …, well, never mind. You can do it, … in the right way and for the right reasons.

Joint bidding arrangements and AMI agreements are common in the upstream sector, so how do you go about it?

Joint bidding done successfully

In Gunnison and SG  (from last week), the government didn’t dispute the companies’ joint bidding activity after their agreement was set forth in an AMI and an Option and Participation Agreement. The DOJ determined that the AMI was an integral part of a broad pro-competitive collaboration between the two companies to jointly develop leasehold interests and create a new pipeline system in the area. The agreement allowed the companies to combine their resources and allocate risk. The DOJ concluded that the agreement was “reasonably necessary to achieve the potential benefits of their broad collaboration.” As the Gunnison/SG case suggests, today’s antitrust regulators regard lawful joint bidding arrangements as legitimate means for producers to achieve efficient production.

Even the government likes it

The Antitrust Guidelines for Collaborations Among Competitors, published in 2000 by the Department of Justice and the Federal Trade Commission, recognized that joint bidding and joint ventures often enhance competition by allowing new players to enter the market and achieve objectives that would be unattainable if they were required to act alone.

For joint ventures not deemed as per se unlawful, applying the Standard Oil rule of reason, pro-competitive benefits of the collaborative arrangement are weighed against the restraints that the agreement may place on free competition. The major factors outlined in last week’s case against Gunnison and SG can be used to determine whether a joint bidding agreement would be considered an unreasonable restraint on trade in violation of the Sherman Act or a pro-competitive and beneficial arrangement.

There are plenty of benefits to a legal joint-bidding arrangement. Smaller producers can become players in increasingly expensive upstream and midstream activity while allocating the potential risk appropriately. That is an increasingly important option in today’s price environment.

The takeaway

Engage in joint bidding in the right way and for the right reasons.

So, find partner and win a pep talk from Mavis Staples. You’ll be in the big times that will never end; let’s party like it’s 2013!

The Peril in Joint Bidding for Properties

Posted in Legislation, Regulations

Teddy-RooseveltCo-author Dominic Salinas

Wondering what was behind the Department of Justice indictment of the late Aubrey McClendon? The charge was conspiring to rig bids for oil and gas properties in Oklahoma. Read the McClendon indictment and engage in the parlor game of guessing who the co-conspirators were.

Where does this come from?

The Sherman Antitrust Act:

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished …

In 1906, the Roosevelt Administration (Teddy, the speak-softly-and-carry-a-big-stick trust-buster) sued Standard Oil under the Sherman Act for conspiracy to restrain trade.  In upholding the decision by the district court to dissolve the empire, Chief Justice Edward White introduced the “rule of reason” as the basis for judicial evaluation of collaborative efforts among competitors.

Recent history

  • In 2012, Gunnison Energy Corp. and SG Interests paid a $550,000 settlement to the DOJ in the first challenge to anticompetitive joint bidding arrangements for the acquisition of mineral leases.
  • That same year Chesapeake and Encana were charged with dividing up counties to bid on a state auction. The scheme allegedly drove bid prices down from $1,510 per acre to $40. The state settled with Encana for $5 million and Chesapeake for $25 million.
  • And there was the recent McClendon indictment. Noticeably vague on details, count one depicted a bid-rigging arrangement among McClendon, Chesapeake and “Company B” in which McClendon and his co-conspirator agreed not to bid against one another for leaseholds and producing properties in return for a share in the leases ultimately purchased.

The test

Bid-rigging arrangements purposefully designed to restrict competition are considered per se unlawful, and the federal government has the discretion to instigate either a civil or criminal case against the alleged perpetrators.

In Gunnison and SG, an agreement under a written Memorandum of Understanding to not bid against one another for oil and gas leases in an auction was deemed by the DOJ to be a violation of the Act. The DOJ concluded that the agreement was a “naked restraint of trade”:

  • Gunnison and SG appeared to be the only significant bidders acquiring leases in the Ragged Mountain area of Colorado.
  • The companies had a history of bidding against one another for leases; conflicting efforts even led to litigation between them in 2004.
  • Gunnison and SG were not pooling their resources in order to acquire the oil and gas interests; each had the financial capability to complete the purchase independently.
  • Discussions between the two companies regarding a broad collaborative effort in the joint acquisition of assets, improvement of existing pipeline, and development of a new pipeline system had broken down.
  • The MOU was drafted just two days before the lease auction and was never disclosed to other parties in the bidding process.

In the Chesapeake-Encana matter, McClendon asked in an email, “Should we throw in 50/50” on Michigan “rather than bash each other’s brains out on lease buying.” Later he said the companies could save “billions of dollars in lease competition.”

With Merle Haggard’s passing, today is a three-musical-interlude occasion. RIP.

His favorite song

A kind-of country song with George Jones 

A country song

Next week: How to joint bid legally.

Washing Out a Lessee By Email

Posted in Land Titles, Lease Disputes, Title Issues

mr. cleanBehold Mr. Clean. Even he can’t remove a pesky stain as skillfully as the landman who framed the conversation in a way that washed out a lessee. See Anadarko Petroleum Corporation v. TRO-X, LP

Did the lessee retain any interest in the mineral estate after its sublessee and the lessors filed a release of the leases and, unbeknownst to the lessee, executed new leases  In the end, the new leases weren’t governed by anti-washout provisions. The lessee was washed out.

First, the background

Five leases in Ward County, Texas, were executed in 2007. An offset well obligation was triggered by the completion of a producing off-lease well. If the lessee failed to timely commence operations after demand, the lessee would surrender a portion of the lease.

Lessee TRO-X executed a sublease and a Participation Agreement with Anadarko, reserving a back-in that would extend to renewals, extensions or top leases taken within one year of termination of the underlying leases.

In 2008 a neighboring well was completed (by Anadarko, of all people) that arguably triggered the offset provision. Anadarko the sublessee failed to drill an offset well. Two years later the lessors asserted their right to terminate the lease and demanded a release. Anadarko concluded that the demand automatically vested the mineral interests back to the lessors.

In 2011, Anadarko and the lessors signed new leases. The release of the old leases was recorded 13 days after recordation of the 2011 leases. The trial court found that the 2011 leases were top leases and TRO-X was entitled to its back-in.

The court of appeals thought otherwise. Because of the 13-day delay between recordation of the new leases and the release, TRO-X needed to demonstrate that the lessors intended for the new leases to function temporarily as top leases until the transaction was fully consummated (by the release). The court believed that the separate release was an ancillary formality to the new leases.

What was so special about the emails?

The lessors representative assumed the new lease would be an extension of the 2007 leases. The Anadarko landman made it clear that they were not requesting an extension of the 2007 leases, but that they considered the 2011 leases as new leases. In the ensuing emails the lessor never disagreed. He probably didn’t care. He was focused on the bonus, term and a continuous drilling obligation.

My kingdom for a scintilla

There was no evidence suggesting the lessors’ actual intent. TRO-X had the burden of raising more than a scintilla of evidence to support its claim.  A jury may not reasonably infer an ultimate fact on “circumstantial evidence which could give rise to any number of inferences, none more probable than another.” You would assume the lessors’ representative was deposed and the result was not helpful to TRO-X.

The result hinged on what the lessors intended when they signed the 2011 leases. The mere execution and recording of a release after execution of the new leases, without more, was not legally sufficient evidence that the lessors intended for the leases to function as top leases until the release was executed and recorded.

 Our musical interlude considers TRO-X’s likely take on what happened to its back-in.

State Well Permit Prevails Over Local Zoning – Again

Posted in Legislation, Local Ordinances

st. tammanyCo-author Brooke Sizer

The state laws of Louisiana regulating oil and gas exploration and production will trump local regulations. See St. Tammany Parish Government v. State of Louisiana, Office of Conservation. (Forgive us for that word that should be avoided in a civil society.) 

The conflict

St. Tammany is a home-rule charter parish that adopted a Unified Development Code. The Louisiana Commissioner of Conservation later issued an order adopting a drilling and production unit and issued a permit to Helis Oil & Gas Company for a well that would be located in an area zoned as residential.

St. Tammany Parish sued to declare the drilling permit illegal because their zoning designation trumped prevailed over the right of the Commission to issue the permit.

The State prevails

The trial court and court of appeal ruled for the State. The appellate court first looked at “the extensive body of law that addresses every phase of the oil and gas exploration process … .”  The court focused on La. R.S. 30:28F:

The issuance of the permit by the [C]ommissioner … shall be sufficient authorization … to enter upon the property … and to drill in search of minerals thereon. No other agency or political subdivision of the [S]tate shall have the authority, and they are hereby expressly forbidden, to prohibit or in any way interfere with the drilling of a well or test well in search of minerals by the holder of such a permit. [Our emphasis.]

The court acknowledged that local power to regulate land use and zoning within its boundaries is not preempted unless it is the clear and manifest purpose of the legislature to do so.  However, St. Tammany’s zoning ordinances must yield to state law based on La. R.S. 30:28F.  “… [H]ereby expressly forbidden…” clearly and manifestly evinces the legislative intent to preempt that area of the law.

The pervasiveness of the legislation, which addresses every aspect of oil and gas exploration as well as the need for uniformity and the danger of conflicts between the enforcement of local laws, demonstrates the legislative intent to impliedly preempt that area of the law.  Therefore, local zoning ordinances are preempted by state law insofar as they affect the State’s regulation of oil and gas activity.

The court cited Art VI, §9(B) of the Constitution, “Notwithstanding any provision of this Article, the police power of the [S]tate shall never be abridged.”  The Commissioner’s power is an exercise of the State’s police powers.  The grant of zoning powers to local governments was not as important.

The court rejected the contention that the Constitution gives concurrent power to the State and the local governments to protect health, safety, and welfare, citing Article IX § 1 of the Constitution.

Finally, the court applied the ordinary meaning of “consider” and held that the Commissioner did “consider the master plan” as required by statute.

Musical interlude, presidential edition

Today we honor every voter who promises to emigrate if (insert name of candidate) is elected president.  The first tune is Reggae-inflected, Caribbean-by-white-guys; the second is real Reggae.

What Happens to a Bundled Production Payment When a Lease Terminates?

Posted in Land Titles, Royalty Disputes, Title Issues

production paymentMust a production payment out of four oil and gas leases be proportionately reduced if two of the leases expire because production ceased? In Apache Deepwater, LLC v. McDaniel Partners, Ltd., the Texas Supreme Court says yes. Absent express language in the assignment to the contrary, this general rule applies:  When an assigned lease terminates, a production payment (like an override) created in that lease is extinguished.

The instrument

A 1953 assignment of a production payment to McDaniel’s predecessor covering four leases in Upton County was a 1/16th of 35/64ths of 7/8ths in all four leases. Apache Deepwater acquired the four leases (after a wrong turn at Sabine Pass?). By the time of the acquisition two leases were of a 35/64ths mineral interest and two others were 3/64ths.

Tracts on two leases had expired for lack of production. Apache reduced the payment proportionately.

McDaniel’s losing proposition

The equation, 1/16th of 35/64ths of 7/8ths, states the production payment as a percentage of the cumulative working interests. This indicates the parties’ intent to burden the individual leases jointly with a production payment based upon the original cumulative working interest conveyed. The production payment was reserved from the conveyance as a whole, binding all of the leases jointly.

The result, and why

The production payment must be reduced when a lease expires. Neither the inclusion of four leases in a single instrument nor the instrument’s statement of the cumulative interest as a single fraction demonstrates that the parties intended the production payment to be carved from other than each lease. To the contrary, the phrase following the fraction ties the reservation to the assigning party’s interest in the “respective” leases. The court referred to Webster’s for the meaning of “respective’ and concluded it means “particular” or “separate”. This indicates that the interest pertains to each lease separately. The assignment neither states, implies, nor suggests the production payment would be unaffected by the termination of the leaseholds from which it was carved.  The assignment fixed the dollars in volume of oil to be delivered but that does not necessarily inform the rate at which it was to be delivered.

Takeaways

  • If the remaining leases hold up McDaniel will get his money, just not as quickly;
  • The parties could have written the assignment differently to achieve a different result;
  • Title examiners: Study the language carefully but keep the general rule in mind;
  • Everybody else: Hand off an instrument like this one to your title examiner.

Musical interlude

Many great song covers vary so much from the original as to be almost unrecognizable. For example, here is the original. Here is the cover. NOT SO FAST!  Having squandered so much of your precious allotment of waking hours reading this far, take a moment to waste a little more.  Go to the second cover; obscure enough of the screen so you can’t see the title (use that notepad where you’re recording your post-rebound getting-rich fantasies); hit “play”; see how long it takes to recognize the tune.

Or just forget it and get back to work.