Updated for a math infraction, thanks to several astute readers.

In Glassell Producing Company v. Naquin, the question was:

Did a conveyance among siblings create a real right in property, or was it an appendage of a lease that ceased to burden the property once that lease was terminated? Continue Reading An “Appendage” Determines a Louisiana Royalty Dispute

Co-author Chance Decker

How many times must an operator suffer for a mistake in a unit declaration? Samson Exploration LLC v. T. S. Reed Properties Inc. makes it twice. (See Hooks v. Samson Lone Star for the first round). The Texas Supreme Court ruled that a lessee could not avoid a contractual obligation to pay royalties from a zone shared by two pooled units. Continue Reading Unit Operator Pays For a Problem of its Own Making

Conoco Phillips Company v. Ramirez et al is a helpful reminder when preparing a document transferring title:

  • “Family vernacular” is a great way to communicate in wedding toasts and funeral eulogies, not so much in land conveyances.
  • Absent an express reservation, a conveyance of land includes both the surface and the underlying minerals.
  • When there is a claim of ambiguity, extrinsic evidence may not be used to create doubt as to the plain meaning of the words.

Continue Reading Informal Description Dooms Oil and Gas Leases

Co-author Chance Decker

You’ve seen the headlines.  The portrait is complete; the verdict is in; the clock has run down to zero. The devastation of Harvey is “unprecedented” and it’s all because of climate change. That’s not necessarily so, thanks to Powerline and Dr. Roy Spencer.  Read it and reach your own conclusion.

And now, on to the the law

Apache Deepwater, LLC v. Double Eagle Development, LLC asked whether a retained acreage clause provided for “rolling terminations” after the primary term or “snapshot termination”. As you might expect, the result depended on the language of the lease. Continue Reading Harvey and Climate Change, and Consideration of a Retained Acreage Clause

Like Les, except with an offense, Coach O congratulates the Tigers for subscribing to Energy and the Law

Lenders to Louisiana operators are likely to be reconsidering their business practices in light of Gloria’s Ranch v. Tauren et al.

A rather ordinary lease termination suit resulted in the lender Wells Fargo being solidarily liable with the lessees for $22.8 million in lost leasing opportunities, $242,000 in unpaid royalties, $484,000 in statutory damages, and almost $1 million in attorneys’ fees.

Here’s why: Continue Reading A New Day for Louisiana Oil and Gas Lenders?

Suggestions to Texas lessors after ExxonMobil v. Lazy R Ranch, et al:  Claiming that you were not aware of contamination from oil spills you’ve known about for 20 years is a tough sell, and suing your long-time lessee for millions right after it sells your lease looks a wee bit opportunistic.

For nearly 60 years Exxon operated wells on the 20,000 acre Lazy R Ranch before selling the lease in 2008. The Ranch hired an environmental engineer who identified a total of 1.2 acres in four areas where hydrocarbon contamination exceeded levels set by state law.

In 2009 the Ranch sued Exxon for contamination and sought damages for remediation of the 1.2 acres that would cost $6.3 million. (At least they waited to bite until the hand was no longer dispensing the groceries).

The damage claim presented a problem for the Ranch. Under Texas law the recovery for damages for a permanent injury to real property is generally limited to the difference in value of the property before and after the injury. Continue Reading Another Oil Field Contamination Plaintiff Waits Too Long

confusedCo-author Chance Decker

Here is what we believe is an unusual situation: A gas unit is formed. The gas well ceases to produce. Another gas well produces from an oil unit, but the lease at issue is not included in the oil unit. Is the lease perpetuated by production from the second gas well?

In Yarbrough v. ELC Energy, LLC The answer is, in Texas, Yes.  Read on for why, and decide for yourself  if this result makes sense. Continue Reading An Unusual Way To Hold an Oil and Gas Lease

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.

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.

Co-author Brooke Sizer

Prevails over what, you ask? In Gladney v. Anglo-Dutch Energy, LLC, a conditional allowable from the Office of Conservation didn’t supersede lease royalty obligations.

How did we get here?

Anglo-Dutch completed a gas well on the Gladneys’ lease and then filed a pre-application notice for a compulsory drilling and production unit and applied for a conditional allowable. On May 17, 2012, the application was granted:

All monies generated from the date of first production, the disbursement of which is contingent upon the outcome of the current proceedings before the Office of Conservation for the Frio Zone will be disbursed based upon results of those proceedings.

The next day Anglo-Dutch began sales of production from the well and later submitted a formal unit application. Order No. 124-Y established the unit, effective on and after October 30, 2012.

Perhaps to the surprise of Anglo Dutch, but certainly to its chagrin, the Gladneys demanded payment of the full one-fifth royalty for production from the well prior to October 30th, rather than settle for their share of production on a unit basis.

Anglo-Dutch refused, relying on the conditional allowable which, it said, superseded its lease obligations.

The trial court ruled for Anglo-Dutch, holding that the “allowable covers the royalty payments” because the allowable dated back to first production. The court found no provision in the lease which would require that the Gladneys be paid more than that provided by the commissioner under the allowable and the unitization order.

Reversal from the court of appeal

The court of appeal reversed. “The Mineral Lease … clearly provided Plaintiffs were to get lease-basis royalties on all production from the well and that lease governed the parties’ relationship prior to the unitization order, which was not effective until October 30, 2012.”

Under the Order, the effective date of the unit was October 30, 2012, not the first date of production. The Gladneys were entitled to a full one-fifth royalty from first production until the effective date of the Commission’s Order.

The Gladneys argued, and the court agreed, that the Office of Conservation can’t impede private contract rights. According to an affidavit from a long-time Office of Conservation representative, the conditional allowable was not meant to abridge privately negotiated contract rights. That is consistent with settled Louisiana jurisprudence that meddling in private contracts is beyond the Office of Conservation’s authority.

The court helps those who help themselves

 The court was unpersuaded by Anglo-Dutch’s plea that it had no choice other than to pay royalty on a unit basis because otherwise it would have had to pay double royalties. Anglo-Dutch could have amended its lease obligations through a royalty escrow agreement. The Gladneys noted that they suggested this alternative and it was rejected, and that such an arrangement is a common practice in these situations. The court also rejected the argument that the Gladneys were improperly attacking the Commission’s actions.

Anglo-Dutch should have listened to Alabama Shakes.