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?

In the fifth and final installment on the climate change debate, Gray Reed energy partner Paul Yale considers (and responds to) another criticism of Bjorn Lomborg’s False Alarm: How Climate Panic Costs Us Billions, Hurts the Poor, and Fails to Fix the Planet.

Joseph Stiglitz in the New York Times negatively reviewed False Alarm … .  Stiglitz, well-qualified as a professor of economics at Columbia University and a Nobel Prize laureate, accuses Lomborg of being simple and simplistic and implies that Lomborg admits there’s not much we can do about climate change. This is not an accurate portrayal of the book. Lomborg discusses many things that can be done to address climate change: carbon taxes, nuclear fusion, fission, carbon capture, water splitting, refining oil from algae grown on ocean surfaces, and geoscience engineering techniques. Lomborg recalls Paul Ehrlich’s 1960’s book The Population Bomb, which predicted mass starvation in the 1980s. Except it didn’t happen because of technological innovation.

Stiglitz accuses Lomborg of being biased but it looks like everybody is biased. In asking whether the benefits of some proposals to combat climate change are worth the cost, Lomborg refers to reducing the speed limit to 3 mph as a way to eliminate car crashes that kill 400,000 people per year. At what point is the benefit worth the cost? And spending trillions to combat climate change will take funds away from solving other problems.

In the end, Lomborg is an optimist who believes that global warming is real but manageable and that there are ways to beat climate change without having to sacrifice global economic growth.

Another musical interlude for our upcoming holiday.

CORRECTED
Co-author Ashley Atwood*

Apache Corporation v. Castex Offshore Inc. et al, answers the question, What constitutes willful misconduct in oil field operations? This was a breach of contract suit involving operator Apache and non-operator Castex.

In the exculpatory clause of the model form JOA, the operator can be liable only in the event of gross negligence or willful misconduct. In considering willful misconduct, under both the Texas and Louisiana definitions of “willfulness”, intent to cause harm is not required.

The question is whether the evidence establishes that a defendant-operator intentionally or deliberately engaged in improper behavior or mismanagement, without regard for the consequences of his acts or omissions.

Severe overspending, breaching company policy, and failing to timely notify the other party DO (THIS IS THE CORRECTION) meet the standard.  The existence of better decisions and routes to take do not create an inference of willful misconduct. A company selling its own assets only offers a scintilla of evidence that the company doesn’t care about the consequences of its actions.  The opinion has plenty of detail about the facts behind the decision.

The facts

Apache was operator under several agreements: (1) the “Belle Isle Agreement”, to expand a natural gas facility; (2) the “Potomac Agreement”, for the drilling of a well; and (3) the “Apache Contracts” (which we will not discuss).

Apache sued Castex for failure to pay its proportionate share of costs. Castex countersued alleging that Apache’s mismanagement caused gross overspending at Belle Isle and irreversible damage to the reservoir at Potomac. The jury found in favor of Castex and awarded $62 million. The appeals court reduced the judgment to $13.5 million.

Belle Isle Agreement

This was not a JOA but the parties used the willful misconduct standard. Apache’s outside engineering firm hired and fired numerous project managers who were underqualified and inexperienced. There was objective proof that one such manager was aware of the cost overruns for months but failed to act, having the attitude money was no object throughout the process, and knowingly misrepresented the amount he planned on spending.

For example, an AFE for $16.9 million was followed by a supplemental AFE for $37.7 million, and a second supplemental AFE for $78.5 million. Total AFE’s were $102 million by the time the project was completed.

Apache claimed that the cost overruns were ordinary negligence at most (with a whiff of stupidity) and asserted the legal maxim that “no sane company would purposefully increase its own costs”. The jury found Apache failed to comply with the Belle Isle Facility Agreement as a result of willful misconduct, awarding $5.5 million in damages.

Relying on Mo- Vac Serv. Co. v. Escobedo, (from the Texas Supreme Court) the appeals court turned to the ordinary meaning of willful misconduct since there is no technical legal definition. Relying on the Oxford dictionary definitions of “willful” and “misconduct,” the court set this standard: “A plaintiff can show that a defendant is liable for willful misconduct if the evidence establishes that the defendant intentionally or deliberately engaged in improper behavior or mismanagement, without regard for the consequences of his acts or omissions.”

Potomac Agreement

This dispute was over Apache’s alleged mismanagement in failing to set liners which would have protected gas reserves from the influx of water that crippled the profitability of the project. Castex sought damages for its share of drilling cost overruns and watered-out gas reserves.

Here, the appellate court found that evidence of willful misconduct was not legally sufficient to show “that Apache knew, but did not care, that it was mismanaging the drilling operation.”  The main consideration was that Apache took actions that showed it did care. The $52 million damage award was reversed.

This choice of law under this agreement was Louisiana. The predominant understanding of willfulness in Louisiana describes a degree of fault that falls short of intent to do wrong. The sufficiency of evidence standard is the same as in Texas (so says this Texas court).

Your musical interlude just in time for Memorial Day.

*Ashley is a 2L st SMU law school and a Gray Reed summer intern.


In Opiela v. Railroad Commission of Texas and Magnolia Oil and Gas Operating, LLC, an Austin district court determined that the Commission’s Final Order granting a permit for a Production Sharing Agreement well in Karnes County did not comply with the Administrative Procedure Act. Here is the Commission’s hearing examiners’ recommendation. It is 18 pages, but we won’t venture into the weeds. In particular, the court said that the Commission erred in:

  • Approving the initial unit well permit for the Audioslave A 102H well in Karnes County;
  • Determining it had no authority to review whether an applicant seeking a well permit has authority under a lease or other relevant title documents to drill a well;
  • Failing to consider the pooling clause of a lease in deciding an operator’s good-faith claim to operate a well; and
  • Finding that the operator showed a good-faith claim of right to drill the well.

Plaintiffs asserted:

  • Because the Commission has no formal rules that mention PSA or allocation wells, there is no statutory or administrative authority to issue PSA permits or allocation well permits.
  • Allocation wells violate Statewide Rule 26, which requires that all liquid hydrocarbons be measured before leaving the lease, and Statewide Rule 40, which requires that operators establish a pooled unit if they want to combine acreage from separate leases to form a drilling unit.

The well was designated as a PSA wellbore (the previous operator had designated it as a allocation well). The plaintiffs’ arguments were based on the fact that they did not consent to pool their lease or sign a PSA or ratify a pooled unit. Magnolia responded by relying on the Commission’s requirements for additional documentation that is required for allocation wells in the form of underlying written agreements for all tracts from which hydrocarbons will produce.

The examiners recommended that the Commission find that it had authority to grant drilling permits for wells on tracts covered by PSA’s. The Commission agreed and lessors sued.

“Maybe”, you say?

The case, and its ramifications, is far from over. The district court judgment is sure to be appealed, but first the dispute must return to the Commission for proceedings consistent with the judgment. For its part, the Commission has not altered its practices and processes for the issuance of PSA and allocation well permits.

And a musical interlude.

Co-author Rusty Tucker

This is another chapter in the dispute between Eagle Oil & Gas Co. and. TRO-X, L.P.  The litigation arises out of an agreement to acquire and sell oil and gas leases. Here, TRO-X alleges that Eagle failed to remit a share of revenues from production that commenced after the first suit between the parties ended.

Background

In 2005 TRO-X and Eagle entered into an acreage acquisition agreement for leases in Pecos and Reeves counties. The interests would be acquired in Eagle’s name for both parties. Each party could choose to retain a percentage of un-promoted working interests in the prospects, and the remaining interests would be sold to third parties. Profitable sales would yield either “cash proceeds” or “non-cash proceeds.” The agreement included an AMI. Continue Reading A Long-Running Dispute Over an Acquisition Agreement is Returned to the Trial Court

Co-author Brittany Blakey

The Texas Supreme Court in Concho Resources, Inc. v. Ellison enforced a boundary stipulation involving an unambiguous deed about which there had been no dispute. You can refer to our earlier post to understand the facts, the boundary, and the Court of Appeals decison.

More facts

The Boundary Stipulation of Ownership of Mineral Interests between the owners of the Northwest Tract and Southeast Tract mineral estates declared the boundary of the mineral estate to be different from the public road and was recorded in the Irion County public records. In 2008 Sampson sent a letter to Ellison, operator of leases on one tract, enclosing the stipulation and requesting that Ellison “signify your acceptance of the description of the [Northwest Tract] as set out in the Stipulation… [.]” Ellison signed and several wells were drilled. His wife Marsha succeded to his interest after his death and sued alleging trespass to try title and other claims.

The Court of Appeals

Concho contended that by signing the 2008 letter Ellison ratified the stipulation as a matter of law, which bound Marsha as his successor. The trial court agreed but the appellate court deemed the boundary stipulation to be void. Specifically, that court held that the stipulation was not itself a “conveyance” of the disputed acreage.  The 2008 letter could not have ratified the stipulation because it was not capable of being ratified. The 1927 deed was “objectively unambiguous” as to the “true” boundary line location (i.e., the public road), and the mineral owners’ agreement to establish the line elsewhere did not pass muster.

The Supreme Court

The Court disagreed and ruled that imposing an “objective uncertainty” requirement would “scuttle boundary agreements as a mechanism to avoid litigation” because parties will never know whether their informal settlement of a boundary dispute is effective until it is declared so by a court. The opinion emphasizes a public policy favoring settlements of disputes outside the courtroom, even if those informal settlements do not technically cross every legal “T” and dot every formal “I”.

The court qualified the ruling to declare that such informal boundary stipulations cannot retroactively bind others with an interest in the tracts who were not parties to the agreement. That qualification did not apply here because Ellison was the party who “[signified] [his] acceptance of” the boundary stipulation.

Ellison’s several equitable arguments and affirmative defenses were briefly discussed and disregarded.

WHAT OTHERS SAY

The result lays waste to Texas title law.                    

So predicted by the Texas Land Title Association in an amicus brief:

  • The result ultimately reached by the court would upend long-standing and well-established Texas law on real property descriptions and conveyancing solely to benefit (greedy? … they didn’t say that but you can read between the lines) oilfield operators’ attempt to gain an additional 154 acres of leasehold.
  • There was never ambiguity or uncertainty in the 1927 deed’s legal description.
  • Any title examiner reviewing the deed would readily conclude that the public road was the southern boundary of the Northwest tract.
  • The 2008 boundary stipulation retroactively changed boundaries without evidence of error or dispute.
  • Reversing the lower court would (did) inject unnecessary uncertainty into deed records and call into question the standard interpretation of legal descriptions.
  • The 2008 boundary stipulation was not a valid legal conveyance:  There was no grantor and grantee, there were no operative words of grant, it was not signed by the original grantors, it was not agreed by all parties with an interest in the mineral estate, and Ellison’s ratification was never recorded.
  • A void boundary agreement cannot be ratified and thus affect the record chain of title by an unrecorded letter agreement. That two tenant/lessees should be able to reallocate leased property denies the rights of other parties in interest, including the lessors, and creates ambiguity and uncertainty in deed records.
  • Petitioners’ position (and now, the result) flies in the face of the recently adopted Correction Instrument Statute.

The Court of Appeals laid waste to Texas title law.

So said Granador Operating (successor-in-interest to Concho and thus having a dog in the fight) who whispered the soothing words that make our Supreme Court swoon: Freedom of contract and public policy encouraging mineral production. According to the amicus brief:

  • The Court of Appeals ruling was extraordinary and unprecedented and destabilizes property rights.
  • The ruling removed the power of Texans to resolve their disputes without resort to judicial intervention and discouraged the development of oil and gas resources by punishing operators who rely on arms-length agreements when determining title to land.
  • Unambiguous, arms-length contracts should be enforced under their plain terms and private resolution of disagreements should be embraced by the judicial system.
  • Development of oil and gas resources is beneficial to the State and should be encouraged.
  • The result of the Court of Appeals opinion is that an arms-length boundary agreement can never be relied upon.

TXOGA offered aguments similar to Granador’s.

It’s enough to drive a person to drink. Your musical interlude, whiskey edition:

Rye whiskey

A two-fer or

sometimes anything.

The fourth installment on the climate change debate by Gray Reed energy partner Paul Yale looks at criticisms of Bjorn Lomborg’s False Alarm: How Climate Panic Costs Us Billions, Hurts the Poor, and Fails to Fix the Planet. These short summaries can’t do justice to Paul’s articles, or the books themselves for that matter. I encourage you to read them.

Lomborg’s criticism of the Paris Climate Agreement is that even if the signators undertook all emission cuts they’ve agreed to, the best case scenario would cause temperatures to fall only .05°F, at a cost of $2 trillion annually. That $1.00 in costs for every $.11 in benefits.

The critics – Robert Ward

Robert Ward, with the Grantham Research Institute, London School of Economics, says Lomborg, and Shellenberger in Apocolypse Never, rely on sources that are outdated, cherry picked or just wrong, and that William Nordhaus, the 2018 winner of a Nobel Prize for his work on climate economics, advanced conclusions that omitted the biggest risks.

Ward asserts that Lomborg says there’s nothing we can do about climate change. But Lomborg has an entire section entitled “How to Fix Climate Change”.

Is it more important to arrest rising temperatures or getting CO2 concentrations halfway back to preindustrial levels? Higher CO2 levels are good for plant life but higher temperatures have fewer benefits and subject humans to higher risks. Perhaps humans can adapt to higher temperatures with technological innovations.

Lomborg cautions against making extreme assumptions about the dangers of climate change, planning for the worst, overspending on wind and solar, and underspending on other opportunities to improve life over the course of the next century. Lomborg insists that’s inefficient and morally wrong.

Your musical interlude.