Co-author Chance Decker

The Texas Supreme Court has agreed to hear oral arguments in a dispute over an “accumulation” provision in a continuous development clause of an oil and gas lease.  The case is Endeavor Energy Resources L.P. v. Energen Resources Corp. et al.  Here’s the language:

…this lease shall terminate … [150] days after the expiration of the primary term unless during such [150] day period Lessee has commenced operations for the drilling of a well in which case this lease shall be extended  … so long as operations for the drilling of a subsequent well are commenced within [150] days after the completion of the preceding well. This lease shall terminate … any time a subsequent well is not commenced within [150] days from the completion of a preceding well. … Lessee shall have 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 drilling of a subsequent well.

According to Endeavor, this provision allows it to accumulate the days it drills prior to the 150 day deadline like “pennies in a jar” that it can use to extend the 150 day deadline to drill any subsequent well.  Energen (and the trial court and the Eastland court of appeals) interpret the provision to apply only to the next well.  Under this interpretation, Endeavor lost its lease on all non-retained acreage.

Here is Endeavor’s brief on the merits, Energen’s brief on the merits, and Endeavor’s reply.

Endeavor argues two points: The lower court failed to construe the provisions of the clause (to them, a “retained acreage clause”) as a harmonious whole, and allowed a special limitation of the grant without the required clear and unambiguous language.

The Supreme Court will make the call. Given the Court’s professed policy to resolve contract disputes on the plain language of the agreement, our pennies are on Energen in this one. Perhaps the special limitation argument is the key.

Bonnie Pointer RIP, a good song for the times we are in.

Real author Paul Yale

You’re in for a treat today; a report from my Gray Reed partner Paul Yale on the Texas Supreme Court decision, Yowell v. Granite Operating et al, dealing with anti-washout clauses in assignments of overrides and that bane of all first year law students, the Rule Against Perpetuities.  The Court, in Paul’s view, has taken a step back from promoting title certainty by injecting the Cy Pres Doctrine into the already complex body of law pertaining to anti-washout clauses.

Common law defines the Rule Against Perpetuities this way,  No property interest is valid unless it must vest, if at all, within twenty-one years after the death of some life or lives in being at the time of the conveyance.

If you’ve forgotten, or never heard of it, the Cy Pres Doctrine means to reform a document as nearly as possible to confirm with the grantor’s intent.

For more discussion, read on.

And for a musical interlude, listen on.

 

If you follow the Marcellus shale there are political developments you should know about. Daniel Markind, a partner in the Philadelphia office of Flaster Greenberg PC, gave me permission to share this recent blog post.

Devastated By Coronavirus, New York’s Pipeline Politics Ensure A Tougher Second Round

By: This article originally ran on Forbes.com on May 20, 2020. All rights reserved.

Approximately 30% of all confirmed coronavirus cases in the United States have been reported in the New York City metropolitan area, which is located mainly in southeastern New York state and northeastern New Jersey. Last weekend, the administrations of the Governors of both states, Andrew Cuomo of New York and Phil Murphy of New Jersey, rejected once again the key permits for the Northeast Supply Enhancement Project (NESE), a natural gas pipeline that would have ensured sufficient natural gas supply to much of New York City and its environs. These decisions probably mean the death of NESE.

Click here to read the article in its entirety on Forbes.com. Continue Reading Marcellus Pipeline Permits Rejected by New York and New Jersey

Let’s begin with a quiz:

What is a “Labor” ? Assuming you met one face to face, how big is would you expect it to be?*

From Great Western. Drilling, Ltd. v. Pathfinder Oil & Gas, Inc. we learn that if you want one agreement to be conditioned on execution of another one, you’d better say so … in writing … in the first one. Texas courts look for ways to avoid conditions precedent. Continue Reading Offer to Acquire Leases Could Not be Conditioned on a JOA

Co-author Kelley Clark Morris

Geary v. Two Bow Ranch Limited Partnership* is an example of the havoc an unusual contract provision can create.

In 1981, Geary and other Grantors executed a warranty deed conveying 2,614 acres (let’s call it the Property) in Bandera County, Texas, to Meader, Two Bow’s predecessor. The Grantors reserved an undivided one-half mineral interest, and conveyed one-half. The deed conveyed to Meader the ”executory rights” to its minerals and reserved the same to Grantors over their half. The deed included this “Provisional Authority” language:

“Grantee may control the executory rights pertaining to the minerals provided the Grantors and Grantee share equally in any and all proceeds related thereto.” Continue Reading “Provisional Authority” to Control Executive Rights Not Assignable

The question in Cannisnia Plantation, LLC v. Cecil Blount Farms, LLC was whether a well was drilled in good faith in order to interrupt the running of prescription on a Louisiana mineral servitude.

The Mineral Servitude

If you conduct your business where they don’t have the Mardi Gras, the nutria, or the King of Zydeco, be mindful that in Louisiana there is no “mineral estate” that lives in perpetuity. Instead, there is the mineral servitude. See Mineral Code Article 21: “ … the right of enjoyment of land belonging to another for the purpose of exploring for and producing minerals and reducing them to possession and ownership.” Among the modes of extinction of mineral servitudes is prescription for nonuse for 10 years.

Continue Reading Louisiana Servitude Extended by Good Faith Drilling

Co-authors Ethan Wood and Rusty Tucker

We read the comments and listened in on portions of the historic April 14 hearing on the proposal that the Commission order market demand prorationing of Texas oil and gas production. Of the 120+ written comments, 51 supported, 59 opposed, 12 were neutral, and several were not clear.

Here is our summary of the comments.* To read them for yourself, go to:  https://www.rrc.state.tx.us/general-counsel/open-meetings/comments-received-re-the-rrcs-april-14-2020-open-meeting/

Continue Reading Who Said What at the Railroad Commission Market Demand Prorationing Hearing?

Co-author Rusty Tucker

Contract construction cases are fact-specific, but one can take lessons of general application from all of them. Here are the takeaways from Jones Energy, Inc. v. Pima Oil & Gas, L.L.C.,

  • In assigning an ORRI, it matters whether the parties intend to exclude production from a particular interval of a formation or from a particular wellbore.
  • It also matters, when two documents relate to the same subject, which one will control.
  • Courts rely on the grammatical meaning of words and phrases. If in doubt when writing or reviewing a document, brush up on your eighth grade grammar.

Caveat: If this analysis doesn’t make total sense (or, God forbid, makes no sense at all), it’s because the agreements are complicated and we don’t have the space to dive into them in detail. Focus on the takeaways. Continue Reading Lessons from an Override Assignment

WTX Fund, LLC v. Brown, is Texas mineral deed construction case.

In the same year as that crazy thing happened at Coogan’s Bluff, the Roaches executed a Mineral Conveyance to the Holts. Let’s review the transaction and ask ourselves why – or if – there had to be so many “intentions” clauses in addition to the granting clause, and whether “magic words” are needed to reserve a royalty interest.

The granting clause

By the granting clause the Roaches conveyed:

“ … all of grantor’s right, title, interest, and estate in and to the leasing rights, bonuses and delay rentals in and to the oil gas and other minerals … under [the described land].

Intentions clause, part 1

The grantors intended to grant:

” … the right to control and execute all oil and gas leases now on said property or which may be made thereon in the future without the necessity of grantors, heirs or assigns joining in the execution of same.”

Intentions clause, part 2

Grantees were given the right:

… to collect any and all bonuses and benefits on any future oil and gas leases and any and all delay rentals on all … leases now upon said property or which may hereafter be made by grantee his heirs or assigns… .

Intentions clause, part 3

The grantors intended to convey:

… all of grantor’s right … the 7/8 leasing rights or working interest in the oil, gas and minerals … together with all bonuses, delay rentals, oil payments and all other rights and benefits [from leases] … together with the right of ingress and egress … .

The shall-not-affect clause

The conveyance would not affect any interest that any grantor:

“ … may have in the future to the non-participating 1/8th royalty … “. But the grantors would have no right to “bonuses, delay rentals, oil payments or other benefits under any … leases which have been made or which may hereafter be made.”

Heirs and successors of the original parties to the deed sued, counter-sued and cross-sued each other seeking proceeds from production from property. By this time, a lease with a 1/6th royalty was in effect.

The analysis

The court noted that the granting clause individually named (1) the leasing rights, (2) bonuses, and (3) delay rentals, so the deed expressly conveyed those attributes. The intentions clause described the conveyance of (4) leasing/executive rights, (5) the rights to collect bonus and delay rentals, and (6) right of development (with ingress and egress).

Importantly, the intentions clause specified that it was a conveyance of “the 7/8 leasing rights or working interest … “ The court concluded that, together with a reference to a “1/8 non-participatory royalty rights” in the later clause, and given the deed’s vintage, signified an intent of the Grantors to reserve a 1/8th royalty interest.

“Shall-not-affect” as a reservation?

The sharpest point of contention was the meaning of “benefits” and the effect of the shall-not-affect clause.The court construed “benefits” as “ … an interchangeable term operating as a catch-all to describe the economic gains of a mineral lease. Such gains include bonuses, delay rentals, royalties, or other forms of payment. “ In this case it included the 1/8th royalty in the shall-not-affect clause.

The court held that the deed conveyed leasing rights, bonuses, delay rentals, and development rights in their entirety, but reserved the entire non-participatory royalty as a floating (rather than fixed) royalty in favor of grantors. How’s that, you say? Because the intention of the reserved 1/8th was informed by the transfer of the 7/8ths, and recalling that in 1951 the 1/8th royalty was standard and everybody thought it would be that way forever. The court rejected the argument that “shall-not-affect” language in a deed could not be construed as a reservation.

RIP Ellis Marsalis.  While we’re at it, let’s hear from Winton and Branford.