Co-author Brittany Blakey

The central issue in the Texas case of Cook v. Cimarex Energy Co.: Did Cook grant Cimarex a right of way across Cook’s land to the location of two Cimarex wells. No he didn’t. Reversing the trial court, the court of appeals concluded that two Contracts of Release were ambiguous. Neither party was entitled to summary judgment, so its back to the Ochilltree County courthouse for a large helping of he-said-she-said.

The land and the agreements

Cook owns the surface of sections 48, 49, and 129. To access the property from Highway 281, Cook holds an easement parallel to the western line of Section 136. Here are the tracts:

Cook and Cimarex signed releases allowing Cimarex’s use of a road so it could drill and operate wells under leases with third parties (Cook’s cousins, it turns out).

In the releases, the term “road” was only mentioned twice, in one sentence. In one portion, Cook contractually agreed he is the landowner of the property “on which [Cimarex] proposes to construct the … road.” Later in the same sentence, consideration of $25,000 was a “payment for surface damages…related [to] the…operating of the Well, including the lease road…[.]” Neither “road” nor “lease road” were defined.

Disagreements arose surrounding the meaning of the language regarding use of roads. Cook refused Cimarex’s tender of payment and sued alleging that use of the road over sections 48 and 129 constituted trespass and sought injunctive relief.

The Texas elements for trespass are:

  • entry,
  • onto the property of another,
  • without the property owner’s consent or authorization.

The ambiguity

The court focused on lack-of-consent, denying that the release evidenced consent for Cimarex to come on to Cook’s land and to use his “lease road.” The releases did not unambiguously grant Cimarex a right of way over Cook’s road on sections 48 and 129.

Cimarex argued that the releases referred to two roads, with the “lease road” including Cook’s existing road and the other “road” referring to a newly constructed road. But the releases failed to show the parties’ intent to grant Cimarex a right of way across Cook’s other adjacent property. Stated another way, the scope of the releases expressly acknowledged Cook’s ownership of and defined surface activities on section 49 only. No language in the text stated Cook’s consent to use the road beyond section 49 onto tracts 48 and 129.

Extrinsic evidence

The court looked to extrinsic evidence and determined that there were genuine issues of material fact regarding Cook’s alleged consent for a right of way over his private road on sections 48 and 129. Cook’s testimony “may (or may not)” indicate that he personally knew that the “lease road” was intended to run through tracts 48 and 129 (Our guess is he knew. We wonder, Did he lay behind the log at the beginning or did Cimarex make him mad?). But this evidence did not identify the reach of the “lease road” from within the language of the release itself as required under case law.

Cimarex’s equitable estoppel, quasi-estoppel, waiver, and other defenses also failed for reasons stated in the opinion.

Scriveners: Can you avoid ambiguity?

Of course you can.  Does your document recite the obvious and necessary elements of the agreement? Those who are in a hurry can overlook this basic requirment. So … write the contract, put it aside for a while, and come back to it. Better yet, have someone else read it. Can they tell you what precisely it means? More to the point, Does it mean what you think it means?

Your musical interlude

Co-author Rusty Tucker

Bell v. Midway Petroleum Grp., L.P., was a trespass to try title action, suit to quiet title for possession of a land, and a counterclaim for title by adverse possession. There are several …

… Takeaways

  • A Mother Hubbard Clause can save a deed in which the property description fails to satisfy the Statute of Frauds.
  • Testimony to establish adverse possession must be of such character as to indicate unmistakably an assertion of a claim of exclusive ownership in the occupant.
  • Where there is a claim for adverse possession, an overly agressive party risks paying the oppoent’s attorney’s fees.
  • Before you head off to the courthouse for vindication, remember that the complexity of legal and factual issues is wholly unrelated to the amount in controversy. We say that because this dispute seems like a lot of work for less than an acre of land.

Continue Reading Mother Hubbard Clause Saves a Property Deed

Co-author Brittany Blakey

Texas lien law in some cases does not require the filing of a financing statement for priority perfection. However, as you might have learned in In re First River Energy, the Delaware Uniform Commercial Code did not recognize the priority of Texas producers’ unfiled, unperfected security interests in proceeds under Texas Business and Commerce Code Section 9.343. In contrast, Oklahoma Producers prevailed because the Oklahoma Lien Act in 2010 cured a defect still present in the Texas statute. Texas producers with a lien are subject to UCC choice-of-law, priority, and perfection of security interests rules.

Rep. Charlie Green introduced House Bill No. 3794 which, if passed, would replace Section 9.343 with the “Texas First Purchaser Lien Act.” Continue Reading Texas Legislature to Consider Oil and Gas Lien Law Amendment

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

What is the standard of care imposed by the Model Form JOA on the well operator?  Crimson Exploration Op., Inc. v. BPX Op. Co. gives us the answer, and it is no surprise.

Background

Under a Model Form JOA, BPX as operator and Crimson and other non-operators drilled the McCarn A1H well. After a problem that prevented further drilling the parties agreed to plug and abandon the well.

BPX billed Crimson for its proportionate share of drilling expenses; Crimson refused to pay. In BPX’s suit to recover Crimson’s share of costs, Crimson asserted the affirmative defense of prior material breach by BPX’s failure to act as a prudent operator in drilling the well.  Crimson argued the standard of care was a “reasonably prudent operator” while BPX relied on the exculpatory clause in Art. V.A of the JOA that excused liability unless BPX acted with gross negligence or willful misconduct. Continue Reading Well Operator Protected by the Model Form JOA

In his third installment on the climate change debate, Gray Reed energy partner Paul Yale discusses the assertions of Bjorn Lomborg in his book False Alarm:

  • Lomborg relies on two major sources: Reports from the UN Intergovernmental Panel on Climate Change and the US Government’s National Climate Assessment.
  • He says their forecasts about temperatures at the end of the 21st century assume nothing will be done to mitigate CO2 increases. Emissions are declining in the developed world but are rising in the developing world mainly because of China, India and Southeast Asia.
  • The US alone cannot save the planet from the ravages of climate change by self-imposed restrictions on carbon emissions.
  • If China were to switch its power production to natural gas, global CO2 emission cuts would be massive and would dwarf the cuts already made in the US. Among other options are nuclear power and or quadrupling research and development budgets.
  • Wind and solar will bring land-use, intermittency, and battery storage problems.
  • The only way solar and wind power could enable the world to meet the Paris Accord goal of holding climate change increases to 2°C (a political goal) would be for all governments to collectively force citizens to eschew all fossil fuels in favor of wind and solar power. That is not likely to happen, and the costs would fall disproportionately on poor countries, who are the ones least able to afford the leap.
  • One billion people in the world use wood and dung for their primary energy supplies. Poor countries need a functioning power grid like the wealthy countries and this could come from nuclear power, with its high startup costs and safety concerns, or cheaper, more reliable and more flexible coal or natural gas. Wind and solar are not sufficient.
  • Polls indicate that the public is generally unwilling to pay the higher taxes and utility bills needed to convert the US power grid completely to wind and solar even if it were technologically feasible. He cites trillions of dollars in costs.
  • His conclusion: All of the above, and a worldwide carbon tax (you have to read the book for the details). A carbon tax would impact rural Americans disproportionately.

Your musical interlude.

Co-author Rusty Tucker

The Supreme Court of Texas has ruled that oil and gas leases under consideration in BlueStone Natural Resources II, LLC v. Walker Murray Randle, et al. did not permit deduction of postproduction costs from sales proceeds before royalties were computed, and a “free use” clause did not authorize the lessee to consume leasehold gas in off-lease operations without compensating the lessors.

The takeaway …

… at least that’s what they ruled in this cicumstance. The Court reiterated that regardless of a recitation here or an observation over yonder, it will not adjudicate the supremacy of one contract clause over another or one arbitrary rule of construction over another. Rather, it will construe each contract according to its terms.

The royalty clause Continue Reading Texas Supreme Court Weighs in on Post-Production Costs

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 Rusty Tucker

In Susan Davis Van Dyke et al. v. The Navigator Group. et al., the Eastland court of appeals applied recent fixed-versus-floating NPRI principles to a double-fraction mineral interest reservation.

In a 1924 Deed Mulkey conveyed property to White and Tom and reserved “one-half of one-eighth of all minerals …”

Davis (heirs and assigns of Mulkey) claimed ownership of half of the minerals pursuant to the reservation. Navigator (heirs and assigns of White and Tom) claimed that Davis only owns 1/16th and that Navigator owns the rest. Ruling on dueling motions for summary judgment, the trial court agreed with Navigator and declared, among other things, that the Deed was unambiguous and that the Mulkeys reserved 1/16th of the minerals (1/2 of 1/8th) and conveyed 15/16ths to White and Tom.

Davis asserted claims under the estate misconception theory and the presumed grant doctrine and asserted estoppel defenses. This post can’t do justice to the court’s deep dive into these theories. See this long form summary for more detail. Continue Reading Fixed-or-Floating NPRI Principles Applied to Texas Mineral Reservation