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Charles Sartain

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Co-author Jamie Mills*

Is it worth spending extra dollars, days, and windshield time to discover what mischief your oil and gas operator might be making on your property? The landowner-plaintiffs in Mustafa v. Americo Energy would certainly say so.

The “discovery rule” offered them no help in their suit against their lessee for negligence when visible soil contamination occurred over two years before suit and was filed and the landowners had not visited the property in over six years. The two-year statute of limitations barred the landowners’ claim.
Continue Reading Landowners Vanquished by the Discovery Rule

Co-author David Leonard

If perpetuation of a mineral lease beyond the primary term is contingent upon continuous operations, do traditional notions of “production in paying quantities” always matter? Spoiler: No.

In Thistle Creek Ranch, LLC v. Ironroc Energy Partners, LLC, an appellate court affirmed partial summary judgment in favor of lessee Ironroc Energy Partners under these odd clauses in the Kettler lease.

The habendum clause:

Unless sooner terminated …  this lease shall remain in force for a term of three (3) years from the date hereof, hereinafter called “primary term,” and as long thereafter as operations, hereinafter defined, are conducted upon said land with no cessation for more than ninety (90) consecutive days.

The lease defined “operations” as:

“ … any of the following: drilling, testing, completing, reworking, recompleting, deepening, plugging back or repairing of a well in search for or in any endeavor to obtain production of oil [or] gas, …  production of oil [or] gas, … whether or not in paying quantities.

The oddity, of course, is that the lease could be perpetuated by operations, whether or not there was production in paying quantities.
Continue Reading Lease Perpetuated Beyond Primary Term Without Production in Paying Quantities

Co-author Julia Edwards

This “most-favored-nations” clause in three oil and gas leases on land in LaSalle County, Texas, was at issue in EP Energy E&P Co., L.P. v. Storey Minerals, Ltd.:

If … the lessee … acquires an Oil and Gas Lease [on certain lands] on such terms that the … bonus … [is] greater than th[at] provided to be paid to lessor hereunder, lessee  …  agrees that it will execute an amendment to this lease, effective as of the date of the third party lease on the leased premises, to provide that the lessor hereunder shall receive thereafter the same percentage (per net mineral acre) … bonus … as any subsequent lessor of the leased premises to the extent that such … bonus … [is] greater than those provided to be paid herein. … “

In the end, as a result of lessee EP’s subsequent leases lessors (MSP) were entitled to increased bonuses on leases from the time prior to execution of the triggering lease. Once again, a court applied the plain, ordinary, and generally accepted meaning of the contract.
Continue Reading Most-Favored-Nations Clause Costs Lessee

Co-author Max Brown

Commonwealth of Pennsylvania v. International Development Corporation resolved the question, In a 100 year old Pennsylvania deed is a “subject to” provision an exception to a grant or a warranty disclaimer?

The transactions:

  • 1894: 2,094 acres are sold by deed from Proctor and Hill to Union Trading Company; Proctor and Hill reserve all minerals.  This reservation is not reported to the taxing authority, and the property is assessed and taxed as a whole following the sale.
  • 1903: Union deeds the surface to CPLC.
  • 1908: Property is sold in a tax sale to McCauley. This effectively “washes” the title and reunifies the two estates; McCauley owns the surface and the minerals.
  • 1910: McCauley conveys the property back to CPLC.
  • 1920: CPLC sells the property and other land to the Commonwealth of Pennsylvania. The deed had two key clauses.

The clauses

The “First Clause”: The conveyance was “subject to” the mineral interests “as fully as said minerals and mineral rights were excepted and reserved in [the 1894 deed].”

The “Second Clause”: The conveyance was “also subject to all the reservations, exceptions, covenants, and stipulations contained in [the 1894 deed] … and in the [1903 deed].”

More transactions

CPLC quitclaims the mineral rights, the minerals were resold multiple times, in 2000 International Development Corporation (IDC) purchases the property.

Who owns the mineral rights, IDC or Commonwealth?
Continue Reading The Meaning of “Subject To” in a Deed

Co-author Darien Harris

The Texas Civil Practices and Remedies Code, Chapter 95, limits a property owner’s liability when an independent contractor hired to construct, repair, renovate or modify an improvement to the owner’s property brings a negligence claim that arises “from the condition or use of the improvement.” The Texas Supreme Court has ruled that the property owner is free from liability when negligence elsewhere contributes to the plaintiff’s injuries. But the contributing negligence must involve the condition or use of the improvement on which the plaintiff was working.

If you’ve stayed with us this far you must be a lawyer.

The facts

In Energen Res. Corp. v. Wallace, Energen hired Nabors and New Prospect to drill an oil well in Pecos County. Energen contracted Dubose Drilling to complete a water well that would assist the oil well drilling operation.  Dubose subcontracted with Elite Drillers to complete the water well.  Elite’s president, Wallace, supervised the water well project. Because the wells were only 500 feet from each other, Energen and Elite more or less worked side-by-side.
Continue Reading Operator Escapes Liability For a Gas Kick and Resulting Fire

Co-author Brittany Blakey

Zehentbauer Family Land, LP v. TotalEnergies E&P USA, Inc. is a story we’ve heard before: Royalty owners contend they are not getting a big enough slice of the hydrocarbon pie, which presents a question courts must answer: Where is the valuation point for royalty calculation?

Under the oil and gas leases at issue, royalties are to be paid:

“based upon the gross proceeds paid to Lessee for the gas marketed and used off the leased premises, including casinghead gas or other gaseous substance… computed at the wellhead from the sale of such gas substances so sold by Lessee.”

The midstream arrangements and the “netback method”

Chesapeake and Total sell their production at the wellhead to their respective midstream affiliates, CEMLLC and TGPNA, each of which sells the transported product to unaffiliated downstream companies. The affiliates account for the gas using the “netback” method, which “takes a weighted average of prices at which the midstream affiliates sell the oil and gas at various downstream locations and adjusts for the midstream company’s [various costs (including transportation)] to move the raw oil and gas from the wellhead to downstream resale locations.” The netback method accounts for these midstream (post-production) costs. The midstream affiliates pay this reduced amount to the producers, who use this netback price as the base for calculating the plaintiffs’ royalty payments.
Continue Reading Ohio Royalty Owners Burdened with Post-Production Costs

The question with wide-ranging implications for Louisiana operators and mineral owners in Johnson et al. v. Chesapeake Louisiana LP et al is whether unleased mineral owners in a drilling unit established by the Commissioner of Conservation must bear their proportionate share of post-production costs.

The statutory scheme

Under Louisiana’s forced pooling statutes, the Commissioner may form drilling units and appoint an operator to drill and operate wells for all owners in the unit. Unleased mineral owners (the court called them UMO’s) are exempt from the statutory 200% risk charge for drilling costs applied to non-participating lessees. The operator is required by La. R.S 30:10(A)(3) to pay a UMO who has not elected to market his share of production the tract’s pro rata share of proceeds from the sale of hydrocarbons.

The claims and defenses
Continue Reading Louisiana Unit Operators May Deduct Post-Production Costs from Unleased Mineral Owners