Co-author Brittany Blakey

Yowell v. Granite Op. Co. and Apache Corp. v. Peyton Royalties, L.P. is another Rule Against Perpetuities case. Keep reading. The anti-washout protection for your reserved overriding royalty could be at risk.

The court of appeals (on remand from the Supreme Court) determined that a reserved overriding royalty interest in an oil and gas lease may be reformed under section 5.043 of the Texas Property Code to comply with the Rule. Continue Reading Texas Court Addresses Anti-Washout Clause and Rule Against Perpetuities

Regency Field Services LLC v. Swift Energy Operating LLC, draws one’s attention to the difficult analyses that should be made before bringing a subsurface trespass claim.

A mineral estate lessee (Swift) alleged that H2S (“brimstone” if you follow the Old Testament) injected into the Wilcox formation by an injection well (owned by Regency) migrated and injured its interests in the minerals underlying nearby properties. The issue for the court was when the lessee’s claims accrued. We will ignore parts of the decision discussing pleadings and summary judgment evidence (trial lawyers, pay attention!). Continue Reading Texas Supreme Court Reverses Subsurface Trespass Judgment

Co-author Rees LeMay*

In Apollo Exploration, LLC v. Apache Corp., Texas’ 11th Court of Appeals analyzed several provisions of purchase and sale agreements in a complex oil and gas transaction and demonstrated a measured, text-centered approach to the interpretation of contract language.

Significant parts of the holding hinged on the Court’s reference to defined terms in the contracts, highlighting the importance that contracting parties clearly clarify contract terminology. The lesson for the scrivener is to know and understand two things: The effect of each word in the document, and the “big picture”: What, ultimately, are the parties trying to accomplish? This is as necessary as it is difficult, especially when the document is long and the transaction is complex.

The case is of particular interest in the context of PSAs, which address, and therefore must define, back-ins, “payout”, “leases” and a host of other terms. Apollo and its co-appellants had collectively owned 98% of the working interest in 109 oil and gas leases, covering significant tracts in the Panhandle. Apache purchased 75% of the interests, entering into four separate (but largely identical) PSAs.

The meaning of “all” and “affected leases”

Apache was to provide the sellers with an annual review and commitment for development of the leases in each the coming year. If the contents of the reports would result in the loss or release of any of the leases, Apache would then have to “offer all of [its] interest in the affected Leases” to the seller, and to transfer them to the seller upon the seller’s acceptance.  The fight centered on construction of the simple word “all,” as well as the term “affected leases.” As to the latter, Apollo argued that, to the extent that some leases covered fractional mineral interests in overlapping acreages, the term “affected leases” required Apache to offer all leases covering a given acreage, even if only one would be lost. Apache countered that it need only offer the specific leases that were set to be lost. The court, focusing largely on the definition of “Leases” in the PSAs themselves, agreed with Apache.

As to the construction of “all,” though, the Court, relying on the dictionary definition of the word, concluded that the term expressly required Apache to offer all of its interests in an affected lease to each of the sellers. Apache argued that this interpretation would render compliance functionally impossible. The court disagreed, noting that the interests could potentially be transferred to the sellers collectively, or that only one seller might accept. The court saw this result as an “unavoidable” consequence of the PSAs’ express language. Apache was bound by the documents as they were written.

You will live or die by your defined terms

The second disputed provision preserved to each seller a back-in option for up to one-third of its conveyed interest once the project reached 200% of “Project Payout.” Again, the court gave great weight to the PSA’s defined term.  The PSA definition of “Project Payout” provided a definite formula for the calculation. The court rejected Apache’s argument that it needed to achieve a 2:1 return on its overall investment for the back-in option to trigger, instead holding the parties to the expressly defined terms they had agreed on.

Of special interest to trial lawyers are pages 38 to 58, in which the court resolving disputes over the trial court’s striking of several of Apollo’s expert witnesses for reliability and untimely designation of adjusted opinions.

*Rees is a rising 3L at Duke Law school and was a Gray Reed summer associate.

Your musical interlude … Edwin Edwards, RIP

Co-author Rusty Tucker

Howard, et al. v. Matterhorn Energy, LLC, et al. [6th Dist.] May 4, 2021 considered the Texas Citizens Participation Act as amended, effective on September 1, 2019.

Background

The lessors leased their minerals in 1,100+ acres in Harrison County to Matterhorn. To induce the deal, Matterhorn several representations to the lessors and agreed to a continuous development program. The lease required lessors to give 60 days’ notice of a breach before filing suit. Before the primary term expired gas prices dropped and Matterhorn decided to sell the lease.

The lessors sued Matterhorn for damages and rescission based on several causes of action  and filed a notice of lis pendens. Matterhorn alleged it had contracted with EnergyNet to market its interest in the lease and that when lessors became aware they filed suit and a notice of lis pendens.

Testimony showed that the lessors made false misrepresentations about Matterhorn and Cherry to third parties (including prospective purchasers) prior to filing suit. Matterhorn claimed these discussions led to the termination of its sales agreement with EnergyNet. Matterhorn counterclaimed for tortious interference and business disparagement.

Lessors moved to dismiss Matterhorn’s claims under the TCPA because they were based on their petition and lis pendens and invoked their exercise of the right to petition the courts for relief. Lessors further argued they established an affirmative defense entitling them to judgment as matter of law because the counterclaims were barred by the judicial proceedings privilege.

Matterhorn responded that the communications forming the basis of their claims were among private parties, not the public, and occurred prior to the filing of the litigation. There was testimony about how lessors’ third party discussion and filing of the lawsuit and lis pendens caused Matterhorn to lose its ability to sell the lease. Plaintiff Howard admitted in a deposition that he filed the lawsuit before expiration of the primary term and before penalties under the lease were due to “put . . . a drain on” Matterhorn and affect its ability to “flip” the lease. The trial court denied lessors’ TCPA motion to dismiss.

The TCPA process

Resolving a TCPA claim occurs in three steps: Continue Reading Texas Court Applies Amended Citizens Participation Act to a Lease Dispute

Co-author Rusty Tucker

Ridgefield Permian, LLC, et al. v. Diamondback E & P LLC, et al. addresses the scope of a property interest foreclosed upon by a tax suit in Reeves County, Texas. In this post we will shortcut the complicated facts and discuss the takeaways. The rules are what you need.

Royalty interests that were subject to an oil and gas lease were foreclosed upon and sold by the sheriff. The lease then terminated. Both the purchaser of the foreclosed interest (Magnolia, LLC) and the assignee (the Trust) of the former royalty owner whose interest was foreclosed upon (Albert) claimed to own the possibility of reverter * (the POR) and granted oil and gas leases.

The point

The Supreme Court of Texas has held that a POR is not taxable. The POR was not included in the property interest that was the subject of the tax foreclosure. The foreclosed interest was a royalty interest under the Meriwether lease. The POR, owned by Albert, was not derived from, part of, or attached to the foreclosed royalty interest. Therefore, the tax lien did not attach to the POR. Continue Reading Tax Foreclosure on Royalty Did Not Include Possibility of Reverter

Co-author Rees LeMay*

“Ratification is not a game of ‘gotcha’”, said the Texas Supreme Court in BPX Operating Co. v. Strickhausen.  The Court, in a 5-4 opinion, addressed the standard for an oil and gas lessor’s implied ratification of an unauthorized pooling. Among other lessons, this decision warns royalty owners to be careful when cashing those royalty checks. Continue Reading Supreme Court Introduces Totality of the Circumstances Test for Implied Ratification

Co-author Brittany Blakey

In Headington Royalty, Inc. v. Finley Resources, Inc., this release was included in an acreage swap agreement:

Headington waives, releases, acquits and discharges Petro Canyon and its affiliates and their respective… predecessors and representatives for any liabilities… related in any way to the Loving County Tract…”

The swap agreement did not explicitly mention Finley Resources, and Finley did not execute the agreement.

The question

Was “predecessors” limited to prior corporate forms of the released party and its affiliates, or did it include predecessors-in-title?  The court held that Finley was not a corporate predecessor of Petro Canyon or its affiliates and therefore was not a released party.

The circumstances Continue Reading “Predecessors” Does Not Include Predecessors-in-Title, Says Court

Co-author Rusty Tucker

What if you pay good money for a mineral interest and record the deed in the official public records, thereby securing your title? What if your predecessors-in-title decide among themselves they made a material mistake in a conveyance way back in the chain of title, fix the alleged error, and record the correction deed? What if they don’t seek your approval and don’t even bother to tell you about the fix? What if that is deemed to be an acceptable way of correcting real property instruments? Here’s what: Chaos, loss of your property rights, not to mention bidding adios to the stability of record titles in Texas.

In Broadway Nat’l Bank Trustee v. Yates Energy Corp. the Supreme Court of Texas held that Section 5.029 of the Texas Property Code does not require that correction instruments be executed by a party’s heirs, successors, or assigns if all of the original parties to the recorded instrument executed the correction, even if an original grantee of the instrument has since conveyed the interest that the correction deed is correcting.

The dispute

  • 2005: Broadway Bank, Trustee, conveys mineral interests in DeWitt and Gonzales Counties to John in fee simple.
  • 2006: the Bank executes a correction mineral deed attempting to change the fee mineral interest to a life estate.
  • John does not sign this instrument.
  • 2012: John executes royalty deeds conveying his interests to Yates Energy.
  • 2013: Broadway Bank, John, and the original grantees of the 2005 deed execute a second correction deed, again attempting to change the fee interest to a life estate.
  • This correction deed is not executed by Yates or its assigns.
  • John dies. A dispute arises:  Did the royalty interests conveyed to Yates vest in the remaindermen in the 2013 correction deed or did Yates and its successors obtain a fee interest.
  • The probate court declares the 2013 correction deed valid. It conveyed a life estate to John.
  • Yates appeals, contending that the 2013 correction deed did not comply with the Material Correction Statute (Section 5.029).
  • The Court of Appeals holds that Section 5.029 requires that correction instruments be executed by a party’s heirs, successors, or assigns, rather than only the original parties, if the property interest has been conveyed by an original party.
  • The Supreme Court reverses.

The statutes

In 2011, the Texas Legislature enacted the Correction Instrument Statute (Property Code §§5.027-5.030) to enlarge the instances in which a correction instrument could be executed. Correction instruments that comply with either the Non-Material Correction Statute (§5.028) or the Material Correction Statute relate back to the date of the recorded original and effectively “replace” the original instrument.

Material corrections

It was undisputed that changing the interests conveyed in the 2005 Mineral Deed was a material correction and that the 2006 Correction Deed failed because John did not execute it. Were Yates and its assigns necessary parties to the 2013 Correction Deed?

Section 5.029(b) says a correction instrument must be executed by each party to the recorded original instrument the correction instrument is executed to correct or, if applicable, a party’s heirs, successors or assigns.

The Court reasoned that “or” is typically understood as a disjunctive term, meaning that either of the separated words or phrases may be employed without the other. In ascertaining the meaning of “if applicable,” the Court reasoned that the statutory text does not support a preference either way for the joinder of heirs, successors and assigns merely because they exist.

The statute’s plain language and the Property Code’s scheme confirm that section 5.029(1) is satisfied when all parties to the original transaction agree to correct a material mistake in the original conveyance.  Accordingly, because the 2013 correction deed was executed by all of the original parties, the court of appeals erred in declaring the correction instrument invalid.

Limitations

Broadway Bank’s lawsuit was not barred by limitations. The Property Code does not require that parties making a material correction do so within four years of the mistake.

Innocent Purchasers?

The Supreme Court remanded to the court of appeals to consider the trial court’s ruling that neither Yates nor its assigns are bona fide purchasers.

Was there a dissent?

You betcha! According to the four dissenters, the majority read the words “if applicable” out of the statute by allowing the original parties to alter a deed without even giving notice to the current owners. Aside from a grammar lesson and what is possibly the longest footnote in judicial history, their most compelling argument addresses the consequences of the decision. For instance, requiring current property owners to monitor real property records for correction instruments filed by their predecessors is especially burdensome.

TXOGA agrees. Their amicus brief warned of the perils of reversing the court of appeals.

Tired of codgers’ YouTube laments that today’s “young people” listen to garbage? The codgers, apparently impaired by that bummer acid trip in Daytona back in ‘69, aren’t paying attention.

How about Jackie Vensen

… or Rhiannon Giddens?