Let’s take a look at what President Trump has done for the oil industry in his first year (This is not about decorum, dossiers, tweets, or Oprah’s inauguration.) As in the past, I refer to sources whose opinions and insights are more knowledgeable than mine.

No More “Sue and Settle” Continue Reading Trump and the Oil Patch One Year In

Co-author Chance Decker

Gloria’s Ranch v. Tauren et al – the Louisiana lenders’ bad dream

Anyone seeking stability in the law governing E&P activities in Louisiana will view the lower court decision as a grave error that must be corrected. Virtually every mortgage provides safeguards to protect collateral and manage lenders’ risk. The court of appeal reasoned that because of those provisions, the lender controlled the ability of the borrower to execute a release of a mineral lease, resulting in solidary liability when the borrower-lessee failed to release its lease. Continue Reading An Oil and Gas Case to Expect From Louisiana, and Another From Texas

Co-author Chance Decker

The Texas Supreme Court recently heard oral argument in three intriguing oil and gas cases.  Here’s what you need to know about two of them (We’ll address the third case soon).

Adams v. Murphy Exploration & Production Co. USA

Did lessee Murphy comply with an offset-well clause that doesn’t state where the offset-well must be drilled?  When a well was drilled on an adjacent tract, Murphy drilled its offset-well more than 2,000 feet from the triggering well.

The lessors argued the offset-well clause requires Murphy to drill its offset close enough to the triggering well to actually prevent drainage, which Murphy’s well won’t accomplish. Murphy argued all it has to do is drill on the lessors’ property – anywhere.  Whether it actually prevents drainage doesn’t matter.

The San Antonio court of appeals sided with the lessors.  “Offset-well” is understood in the industry to be a well that protects against drainage.  Thus, Murphy must drill a well close enough to the triggering well to actually prevent drainage from the lessors’ tract—and Murphy must prove it.

Predicting a “flood of litigation” if the lessors prevail, Murphy argues this interpretation is a “profound legal error”, noting it is next to impossible to prove an offset-well actually prevents drainage. In response, the lessors argue the court of appeals merely enforced the lease as written, and if oil and gas producers don’t like it they should draft leases with more flexibility.

See the briefs.

ConocoPhillips Co. et al v. Koopmann, et al.

Does a term NPRI for 15 years “and so long thereafter… ” violate the Rule Against Perpetuities?  Grantor the Strieber Estate and its lessees ConocoPhillips and Burlington say yes; this type of reservation creates a “springing executory interest” for the grantee when the production stops at some potentially distant time in the future, thus violating the Rule.  The grantees – Koopmann – argue no; instead, a conveyance with this reservation conveys a future interest in the property subject to the NPRI in the grantees, which vests immediately even if they are not yet entitled to possession.

The two lower courts sided with the Koopmanns on the Rule of Perpetuities claim.

The Strieber parties argue the court of appeals “eviscerated” the Rule and invented a “legal fiction” to avoid enforcing the Rule, and Supreme Court’s acceptance of Strieber et al’s contention that term NPRI reservations like this one violate the Rule would be a watershed opinion “potentially opening the floodgates of litigation.”  Predicting a lawsuit tsunami isn’t a bad pitch to this court, given its makeup ever since way back when, when Jimmy Johnson gave way to Barry Switzer.

Incidentally, when the Texas Oil and Gas Association filed an amicus brief against them the Koopmans alleged the Association is “controlled by, funded by, and biased” in favor of the industry! Wow! Now we understand Captain Renault!

See the briefs.

Merry Christmas. Have it your way: Holy or otherwise.

 

To begin, choose from these candidates for the all-world spendthrift hall of fame:

  • Imelda Marcos.
  • Every Congress since you and I were little babies.
  • Any MLB team that would trade for Giancarlo Stanton.
  • All Power Five football schools not named Vanderbilt.
  • The eventual winner of the Amazon HQ2 sweepstakes.
  • Robert Baratheon, Lord of the Seven Kingdoms.

In Bradley v. Shaffer, Darrell, a beneficiary of a mineral trust established by his grandparents, purported to convey to Bradley his mineral interests that were subject to the trust and any interest held in trust that he might acquire in the future. The trustees sued, alleging that Darrell had no authority to convey his beneficial interest. Bradley argued that an extension of the trust violated the Rule Against Perpetuities.  Spoiler: It didn’t.

A primer on Texas trust law … who owns what and other rules:

Continue Reading Mineral Conveyance Thwarted by a Spendthrift Provision


Co-author Trevor Lawhorn

*Kind of; this is a federal court predicting what the Ohio Supreme Court would do.

In Ohio, in calculating royalties in a market-value-at-the-well lease (as distinguished from a “proceeds” lease), post-production costs are to be shared proportionately by the working interest and royalty owners. The lessee’s duty to market does not extend to expenses incurred in sales not at the well-head. This is consistent with other producing states such as Texas and Pennsylvania.  Continue Reading Ohio Takes a Position on Market-Value-at-the-Well Royalty Clauses*

Lukewarm apology: the headline is clickbait. This post is all about the whiskey, not the oil.

In my quest for the perfect Sazerac (as reported here and here) I’ve concluded that perfection is on the palate of the beholder. From this moment on I will refrain from declaring whether a particular offering is good, bad or indifferent. I’m a guidepost, not your conscience. Quid pro quo: Don’t tell me which King I should prefer: Albert, Freddie or BB. Continue Reading Searching for Oil … and a Sazerac

Let’s suppose that someone (You? The other guy?) who operates wells in which others have an interest organizes the enterprise so that the owner of the leases, the owner of the overrides, the operator, several service companies, the employer of the workers, and on-an-on are all separate entities. Money is owed, liability is alleged, litigation ensues. Can a plaintiff, casting the net as far and wide as possible, lump all those entities together, treating them as one for liability purposes?  It depends on which side of the Sabine River you are on. (Perhaps you know the joke about what other the difference is.)

First, a definition:

A distinct corporate entity may be disregarded when a corporation is so organized and controlled as to make it merely an instrumentality or adjunct of another corporation. If one corporation is wholly under the control of another, the fact that it is a separate entity does not relieve the letter from liability.

A Louisiana court can consider at least 18 factors. See page 5 of the opinion for an illustrative but not exhaustive list.

The doctrine in Louisiana

GBB Properties v. Sterling Properties Inc. was a dispute over a real estate lease. The plaintiff claimed that the several defendants constituted a single business enterprise. The defendants argued that the theory was abolished by La. RS 12:1320. But according to the court that statute only relates to personal liability of individuals. The real question was whether the doctrine itself is a viable claim. The answer is yes, it does. Whether two or more entities comprise a single business enterprise is to be decided by the trier of fact. Whether the doctrine works for the plaintiff in this case will be decided after a trial.

What about Texas?

According to the Texas Supreme Court, the claim is no more. In Best SP Partners v. Gladstrong Investments USA Corp. the rationale in denying such a cause of action was that there is nothing abusive or unjust about corporations sharing names, offices, accounting, employees, services and finances. Different entities may coordinate their activities without joint liability.

Piercing the corporate veil?

Texas plaintiffs are not bereft of all theories of recovery, no matter how much our Supreme Court tamps them down. Best SP Partners confirmed that cause of action remains viable in Texas.

Saturday was Veterans Day

If you know one, thank him or her for doing their duty for us.  If its a WW II vet, do yourself a favor and do it soon. There aren’t many of them left. One, Captain C. Lenton Sartain, was my uncle. For him and his unit it was North Africa, Italy, D-Day, Operation Market Garden, Battle of the Bulge, all before his 24th birthday. Died this week at age 97. Knowing him and others like him, including my own father and maybe yours or your grandfather, it’s easy to understand why they are called the Greatest Generation.