Lease Disputes

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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 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 Rusty Tucker

As Humpty Dumpty would have said to Alice if he were Justice Dumpty of the Texas Supreme Court, the term means whatever the parties to an oil and gas lease say it means, neither more nor less. In Sundown Energy LP, et al. v. HJSA No. 3, Ltd. P’ship  the term “drilling operations” meant that activities other than spudding-in new wells were sufficient to satisfy a continuous operations clause.

The lease

In a lease in Ward County, 19,570 acres from the surface to the base of the Pennsylvanian formation were “Producing Areas”. The remainder covered all depths as to 10,880 acres plus depths in the Producing Areas below the Pennsylvanian. During the primary term, production in paying quantities from anywhere on the leased premises would maintain the entire lease. At the end of the primary term lessee Sundown was required to reassign its rights in each tract not then held by production unless Sundown was engaged in a “continuous drilling program.” The continuous drilling clause in Paragraph 7(b) read:

The obligation . . . to reassign tracts not held by production shall be delayed for so long as Lessee is engaged in a continuous drilling program on that part of the Leased Premises outside of the Producing Areas. The first such continuous development well shall be spudded-in on or before the sixth anniversary of the Effective Date, with no more than 120 days to elapse between completion or abandonment of operations on one well and commencement of drilling operations on the next ensuing well.

Sundown spudded-in three development wells prior to the end of the primary term and then spent over $40 million drilling 14 more wells from 2006 to 2015.…
Continue Reading What are “Drilling Operations”?

Co-author Rusty Tucker

Yesterday we discussed aspects of PPC Acquisition Co., LLC, et al. v. Delaware Basin Res., LLC, et al. Today we consider whether the retained-acreage clauses created a special limitation or a covenant and the relationship between the clauses and Field Rules in place at several different times. Did Field Rules establishing 640-acre units expand  acreage each lessee could retain? (The clauses are highlighted in the opinion and facts are in yesterday’s post.)

What’s the difference?…
Continue Reading Texas Court Parses Three Retained-Acreage Clauses – Part 2

Co-author Rusty Tucker

PPC Acquisition Co., LLC, et al. v. Delaware Basin Res., LLC, et al. addressed retained acreage clauses in three separate oil and gas leases covering the same 640-acre tract in Reeves County, Texas.

Did the lessees hold acreage under the leases based on one producing well, the Colt #1 that was completed in 2003? OR, did the lessees’ failure to drill additional wells, re-classification of the well from gas to oil, and failure to timely file a RRC Form P-15 with a limited acreage designation terminate the leases for all or part of the acreage?

The facts …
Continue Reading Texas Court Parses Three Retained-Acreage Clauses – Part 1

Co-author Skyler Stuckey

In Endeavor Energy Resources, L.P. v. Energen Resources Corp. et al. the Supreme Court of Texas construed a continuous development clause in an oil and gas lease covering 11,300 acres in Howard County. After the primary term, lessee Endeavor could retain acreage by drilling a new well every 150 days. The clause gave Endeavor “ … the right to accumulate unused days in any 150-day term during the continuous development program in order to extend the next allowed 150-day term between the completion of one well and the driling of a subsequent well.

After the primary term, Endeavor drilled 12 wells that extended the lease. Endeavor began drilling a 13th well 320 days after completing the preceding well. In the ensuing period Energen top-leased the supposedly non-retained parcels. Litigation ensued.

The dispute focused on how to calculate the number of “unused days”. Endeavor argued that it could carry forward unused days across multiple 150-day terms.  Energen argued that unused days in any given 150-day term could be carried forward only once, to the next term.…
Continue Reading Texas Supreme Court Deems Continuous Development Clause Ambiguous

Co-author Rusty Tucker

In Mayo Found. For Med. Educ. & Research v. BP Am. Prod. Co. a United States District Court considered the circumstances under which a lessor can withold its consent to assign an oil and gas lease.

The provision 

A lease from Barbara Lips* to Alpar Resources included Section 157 and other lands.  Paragraph 7 reserved to Lips an absolute veto right over any assignment of Alpar’s interest in the Lease.

An amendment to the lease replaced the original Paragraph 7 with this less-restrictive clause:

“The rights and obligations of the Lessee hereunder are not assignable or transferable in any respect by it, except upon the written approval of [Mayo], which approval shall not be unreasonably withheld.”…
Continue Reading Texas Court Evaluates Consent to Assign an Oil and Gas Lease

Co-author Rusty Tucker

Devon Energy Prod. Co., et al. v. Sheppard, et al is your kind of case if you are in search of:

  • A roadmap for slicing and dicing royalty calculations in myriad ways,
  • Pretty good summaries of the Supreme Court’s notable decisions in Heritage Resources v. NationsBank, Judice v. Mewborne Oil, Chesapeake Exploration v. Hyder and Burlington Resources v. Texas Crude. (pp 12-19)
  • A description of the gas fractionation process.
  • For you scriveners: Reference to the Supreme Court’s lament for “the considerable time, money and heartache” expended due to the use of “industry jargon, outdated legalese, or tenuous assumptions about how judges will interpret industry jargon or outdated legalese”.

…
Continue Reading When is a “Gross Proceeds” Royalty not Paid on Gross Proceeds?

Co-author Rusty Tucker

In Evans Resources, L.P., et al. v. Diamondback E&P, LLC, two agreements left the terms “constructed” and “utilized” undefined. If the terms had been defined would the outcome have been different? Maybe. Should parties define every term in an agreement? No, if they are content to rely on the ordinary meaning of the words.

The agreements

…
Continue Reading “Construction” of a Well Pad Requires More than a Survey