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 Chance Decker

Is an overriding royalty interest lasting beyond the term of a lease-now-in-effect impossible to create?  You saw the recent Texas Supreme Court opinion invalidating an anti-washout clause in TRO-X v. Anadarko Petroleum Corp. Now, you see Tommy Yowell et al v. Granite Operating Company et al.  In light of these opinions one could wonder if an override is as valuable a tool in an oil and gas trade as it used to be.

An assault on overrides? Continue Reading Anti-Washout Clause Defeated by the Rule Against Perpetuities

Co-author Trenton Patterson*

We’re not saying you should do it, but there is a recipe for ridding oil and gas leases of pesky burdens: Enter into a new lease covering the same interest as the earlier lease and omit any reference to an intent that the later be subordinate to the earlier. You don’t even have to release the earlier lease. So says TRO-X, L.P. v. Anadarko Petroleum Corp.

You might remember a report on this case at the court of appeal, where we marveled at the skillful (or fortuitous, we’ll never know) way the Anadarko landman won the day via email. Continue Reading Texas Supreme Court Affirms Washout of a Back–in Interest

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.