Co-author Chance Decker

You’ve secured the right leases.  You’ve drilled nice wells in the right locations.  Now, who will pay the royalty owners?  Follow Devon Energy Production Company, L.P. v. Apache Corporation, to be sure.

The takeaways

  • The duty to pay lessor royalties was owed by their lessee, not the operator of the wells.
  • There’s something missing from the opinion. Tune in soon for an in-depth discussion of the question that is not addressed.
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Co-author Paul Yale

Issues surrounding the legality of allocation wells in Texas have been percolating for some time, and lately we’ve heard of potential litigation. So, what’s the fuss about? The results in Klotzman (a Texas Railroad Commission dispute) and Spartan et al v. EOG (a district court case) didn’t resolve the legal questions. Both settled before a ruling. Browning Oil Company v. Luecke provided theoretical underpinnings but didn’t go far enough.

Why does the controversy exist?
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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. 
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Co-author  Chance Decker

What does it take these days to get money from a Texas jury? Not much, it seems; in XTO v. Goodwin the trick was convincing a higher court that you should keep it.

Let’s start with the minefield that is the law of evidence:

  • Expert opinion testimony must be based on facts, and sound reasoning and methodology.
  • Conclusory or speculative opinion testimony is not relevant.
  • An opinion with no factual substantiation is speculative or conclusory.
  • Expert testimony based on unreliable data or flawed methodology is unreliable and does not satisfy the relevancy requirement.
  • Unreliable expert testimony is legally no evidence.


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Co-author Chance Decker

How many times must an operator suffer for a mistake in a unit declaration? Samson Exploration LLC v. T. S. Reed Properties Inc. makes it twice. (See Hooks v. Samson Lone Star for the first round). The Texas Supreme Court ruled that a lessee could not avoid a contractual obligation to pay royalties from a zone shared by two pooled units.
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Like Les, except with an offense, Coach O congratulates the Tigers for subscribing to Energy and the Law

Lenders to Louisiana operators are likely to be reconsidering their business practices in light of Gloria’s Ranch v. Tauren et al.

A rather ordinary lease termination suit resulted in the lender Wells Fargo being solidarily liable with the lessees for $22.8 million in lost leasing opportunities, $242,000 in unpaid royalties, $484,000 in statutory damages, and almost $1 million in attorneys’ fees.

Here’s why:
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Co-author Chance Decker

“The only sensible way to live in this world is without rules”. The Joker to Batman, The Dark Knight

Subject-to, reservations-from, and exceptions-to problems have been lurking in the shadows of Texas jurisprudence for a while now, and the courts have been all over the map in recent holdings (Title nerd and proud of it? Compare this example with this one.)

In Wenske v. Ealy, the Supreme Court channeled our superhero’s painted friend, essentially jettisoning the old rules and confirming the new rule in deed construction cases: There are no “rules”. 
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Co-author Brooke Sizer

Prevails over what, you ask? In Gladney v. Anglo-Dutch Energy, LLC, a conditional allowable from the Office of Conservation didn’t supersede lease royalty obligations.

How did we get here?

Anglo-Dutch completed a gas well on the Gladneys’ lease and then filed a pre-application notice for a compulsory drilling and production unit