In Opiela v. Railroad Commission of Texas and Magnolia Oil and Gas Operating, LLC, an Austin district court determined that the Commission’s Final Order granting a permit for a Production Sharing Agreement well in Karnes County did not comply with the Administrative Procedure Act. Here is the Commission’s hearing examiners’ recommendation. It is 18 pages, but we won’t venture into the weeds. In particular, the court said that the Commission erred in:

  • Approving the initial unit well permit for the Audioslave A 102H well in Karnes County;
  • Determining it had no authority to review whether an applicant seeking a well permit has authority under a lease or other relevant title documents to drill a well;
  • Failing to consider the pooling clause of a lease in deciding an operator’s good-faith claim to operate a well; and
  • Finding that the operator showed a good-faith claim of right to drill the well.

Plaintiffs asserted:

  • Because the Commission has no formal rules that mention PSA or allocation wells, there is no statutory or administrative authority to issue PSA permits or allocation well permits.
  • Allocation wells violate Statewide Rule 26, which requires that all liquid hydrocarbons be measured before leaving the lease, and Statewide Rule 40, which requires that operators establish a pooled unit if they want to combine acreage from separate leases to form a drilling unit.

The well was designated as a PSA wellbore (the previous operator had designated it as a allocation well). The plaintiffs’ arguments were based on the fact that they did not consent to pool their lease or sign a PSA or ratify a pooled unit. Magnolia responded by relying on the Commission’s requirements for additional documentation that is required for allocation wells in the form of underlying written agreements for all tracts from which hydrocarbons will produce.

The examiners recommended that the Commission find that it had authority to grant drilling permits for wells on tracts covered by PSA’s. The Commission agreed and lessors sued.

“Maybe”, you say?

The case, and its ramifications, is far from over. The district court judgment is sure to be appealed, but first the dispute must return to the Commission for proceedings consistent with the judgment. For its part, the Commission has not altered its practices and processes for the issuance of PSA and allocation well permits.

And a musical interlude.

Co-author Rusty Tucker

This is another chapter in the dispute between Eagle Oil & Gas Co. and. TRO-X, L.P.  The litigation arises out of an agreement to acquire and sell oil and gas leases. Here, TRO-X alleges that Eagle failed to remit a share of revenues from production that commenced after the first suit between the parties ended.

Background

In 2005 TRO-X and Eagle entered into an acreage acquisition agreement for leases in Pecos and Reeves counties. The interests would be acquired in Eagle’s name for both parties. Each party could choose to retain a percentage of un-promoted working interests in the prospects, and the remaining interests would be sold to third parties. Profitable sales would yield either “cash proceeds” or “non-cash proceeds.” The agreement included an AMI. Continue Reading A Long-Running Dispute Over an Acquisition Agreement is Returned to the Trial Court

Co-author Brittany Blakey

The Texas Supreme Court in Concho Resources, Inc. v. Ellison enforced a boundary stipulation involving an unambiguous deed about which there had been no dispute. You can refer to our earlier post to understand the facts, the boundary, and the Court of Appeals decison.

More facts

The Boundary Stipulation of Ownership of Mineral Interests between the owners of the Northwest Tract and Southeast Tract mineral estates declared the boundary of the mineral estate to be different from the public road and was recorded in the Irion County public records. In 2008 Sampson sent a letter to Ellison, operator of leases on one tract, enclosing the stipulation and requesting that Ellison “signify your acceptance of the description of the [Northwest Tract] as set out in the Stipulation… [.]” Ellison signed and several wells were drilled. His wife Marsha succeded to his interest after his death and sued alleging trespass to try title and other claims.

The Court of Appeals

Concho contended that by signing the 2008 letter Ellison ratified the stipulation as a matter of law, which bound Marsha as his successor. The trial court agreed but the appellate court deemed the boundary stipulation to be void. Specifically, that court held that the stipulation was not itself a “conveyance” of the disputed acreage.  The 2008 letter could not have ratified the stipulation because it was not capable of being ratified. The 1927 deed was “objectively unambiguous” as to the “true” boundary line location (i.e., the public road), and the mineral owners’ agreement to establish the line elsewhere did not pass muster.

The Supreme Court

The Court disagreed and ruled that imposing an “objective uncertainty” requirement would “scuttle boundary agreements as a mechanism to avoid litigation” because parties will never know whether their informal settlement of a boundary dispute is effective until it is declared so by a court. The opinion emphasizes a public policy favoring settlements of disputes outside the courtroom, even if those informal settlements do not technically cross every legal “T” and dot every formal “I”.

The court qualified the ruling to declare that such informal boundary stipulations cannot retroactively bind others with an interest in the tracts who were not parties to the agreement. That qualification did not apply here because Ellison was the party who “[signified] [his] acceptance of” the boundary stipulation.

Ellison’s several equitable arguments and affirmative defenses were briefly discussed and disregarded.

WHAT OTHERS SAY

The result lays waste to Texas title law.                    

So predicted by the Texas Land Title Association in an amicus brief:

  • The result ultimately reached by the court would upend long-standing and well-established Texas law on real property descriptions and conveyancing solely to benefit (greedy? … they didn’t say that but you can read between the lines) oilfield operators’ attempt to gain an additional 154 acres of leasehold.
  • There was never ambiguity or uncertainty in the 1927 deed’s legal description.
  • Any title examiner reviewing the deed would readily conclude that the public road was the southern boundary of the Northwest tract.
  • The 2008 boundary stipulation retroactively changed boundaries without evidence of error or dispute.
  • Reversing the lower court would (did) inject unnecessary uncertainty into deed records and call into question the standard interpretation of legal descriptions.
  • The 2008 boundary stipulation was not a valid legal conveyance:  There was no grantor and grantee, there were no operative words of grant, it was not signed by the original grantors, it was not agreed by all parties with an interest in the mineral estate, and Ellison’s ratification was never recorded.
  • A void boundary agreement cannot be ratified and thus affect the record chain of title by an unrecorded letter agreement. That two tenant/lessees should be able to reallocate leased property denies the rights of other parties in interest, including the lessors, and creates ambiguity and uncertainty in deed records.
  • Petitioners’ position (and now, the result) flies in the face of the recently adopted Correction Instrument Statute.

The Court of Appeals laid waste to Texas title law.

So said Granador Operating (successor-in-interest to Concho and thus having a dog in the fight) who whispered the soothing words that make our Supreme Court swoon: Freedom of contract and public policy encouraging mineral production. According to the amicus brief:

  • The Court of Appeals ruling was extraordinary and unprecedented and destabilizes property rights.
  • The ruling removed the power of Texans to resolve their disputes without resort to judicial intervention and discouraged the development of oil and gas resources by punishing operators who rely on arms-length agreements when determining title to land.
  • Unambiguous, arms-length contracts should be enforced under their plain terms and private resolution of disagreements should be embraced by the judicial system.
  • Development of oil and gas resources is beneficial to the State and should be encouraged.
  • The result of the Court of Appeals opinion is that an arms-length boundary agreement can never be relied upon.

TXOGA offered aguments similar to Granador’s.

It’s enough to drive a person to drink. Your musical interlude, whiskey edition:

Rye whiskey

A two-fer or

sometimes anything.

The fourth installment on the climate change debate by Gray Reed energy partner Paul Yale looks at criticisms of Bjorn Lomborg’s False Alarm: How Climate Panic Costs Us Billions, Hurts the Poor, and Fails to Fix the Planet. These short summaries can’t do justice to Paul’s articles, or the books themselves for that matter. I encourage you to read them.

Lomborg’s criticism of the Paris Climate Agreement is that even if the signators undertook all emission cuts they’ve agreed to, the best case scenario would cause temperatures to fall only .05°F, at a cost of $2 trillion annually. That $1.00 in costs for every $.11 in benefits.

The critics – Robert Ward

Robert Ward, with the Grantham Research Institute, London School of Economics, says Lomborg, and Shellenberger in Apocolypse Never, rely on sources that are outdated, cherry picked or just wrong, and that William Nordhaus, the 2018 winner of a Nobel Prize for his work on climate economics, advanced conclusions that omitted the biggest risks.

Ward asserts that Lomborg says there’s nothing we can do about climate change. But Lomborg has an entire section entitled “How to Fix Climate Change”.

Is it more important to arrest rising temperatures or getting CO2 concentrations halfway back to preindustrial levels? Higher CO2 levels are good for plant life but higher temperatures have fewer benefits and subject humans to higher risks. Perhaps humans can adapt to higher temperatures with technological innovations.

Lomborg cautions against making extreme assumptions about the dangers of climate change, planning for the worst, overspending on wind and solar, and underspending on other opportunities to improve life over the course of the next century. Lomborg insists that’s inefficient and morally wrong.

Your musical interlude.

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.