Co-author Ethan Wood

Merry Christmas and Happy Holidays from all of us at Gray Reed! Assuming that most of you have been good this year (stay tuned for 2019’s Bad Guys in Energy to see who hasn’t), we hope Santa brought you everything on your Amazon Wish List. Our sympathies go out to those in the oilfield services industry in Texas—it looks like you got a lump of coal. In Mesa Southern CWS Acquisition v. Deep Energy Exploration Partners the Houston Court of Appeals upended the long-held view that mineral lien waivers violate public policy. Bah Humbug! Continue Reading Oil Field Services: What is the Status of Mineral Lien Waivers?

Co-author Rusty Tucker

Confirming the obvious, in In re Etheridge a Texas court concluded that “personal effects,” in a last will and testament did not include mineral royalties. Let’s investigate how the case got this far. Continue Reading Mineral Royalties are Not “Personal Effects” in Texas

Co-author Kelley Clark Morris

Suing a state and its public officials is difficult because of the doctrine of sovereign immunity. There are exceptions. State of Texas v. Signal Drilling, et al. presents several of them.

The rules

The State and its agencies are immune from:

  • Suits seeking to construe or enforce contracts to which the State is a party,
  • Declaratory judgment actions,
  • Ordinary trespass to try title suits.

There are exceptions. For example:

  • Claims against a state official in his representative capacity for non-discretionary acts unauthorized by law (the ultra vires exception).
  • Claims for an unconstitutional taking of property without adequate compensation.
  • Suits to require state officials to comply with statutory or constitutional provisions.

Continue Reading No Sovereign Immunity for the Texas Land Commissioner

Co-author Rusty Tucker

Let’s talk the Duhig Rule and estoppel by deed in Texas. Don’t run away yet. We’ll get to the point quickly and then you can leave.

Under the doctrine of estoppel by deed:

  • “All parties to a deed are bound by the recitals therein, which operate as an estoppel, … and binding both parties and privies … ”
  • Estoppel by deed “does not bind mere strangers, or those who claim by title paramount the deed. It does not bind persons claiming by an adverse title, or persons claiming from the parties by title anterior to the date of the reciting deed.”
  • Estoppel by deed “does not bind individuals who are not a party to the reciting deed, nor does it bind those who claim title independently from the deed in question.”

Under Duhig v Peavy-Moore Lumber Co.: “If a grantor reserves an interest and breaches a general warranty at the very time of execution, then an immediate passing of title is triggered to the grantee for that property that was described in the reservation—in other words, if the grantor owns the exact interest to remedy the breach at the time of execution and equity otherwise demands it.”

So said the Supreme Court of Texas in Trial v. Dragon.

If you aren’t a title examiner or a landman, you have permission to proceed directly to the musical interlude.

The facts

Leo Trial and his six siblings each owned a 1/7th interest in property in Karnes County. In 1983 Leo gifted to his wife, Ruth, half all of his right, title and interest in the property. Thus, Ruth owned a 1/14th interest in the property as her separate property.

In 1992 Leo and his siblings purported to convey the entire property to the Dragons. Each of the seven siblings executed identical deeds with the following language: “WE, … GRANT, SELL AND CONVEY … all that certain parcel … being situated[d] in Karnes County… .” There was a 15-year mineral reservation and a general warranty clause.

Ruth was not a party to the 1992 deed, the deed did not mention her interest, and the Dragons were not otherwise aware of the 1983 deed, having obtained no title opinion. Leo died leaving his entire estate in trust for the benefit of Ruth for life, then the corpus to his two sons. Ruth died and her 1/14th interest passed to the sons.

An operator, actually paying attention to a lease status report that Ruth owned an undivided 1/14th interest, prepared a new division order and began paying the sons their respective royalties in a suspended account. The Dragons sued, claiming the property s owners.

The Dragons’ losing arguments

  • Under Duhig and its progeny, Leo breached the general warranty in the 1992 deed at the time of execution because he owned only half of what he purported to convey. The sons, as Leo’s direct heirs, are bound by the deed’s general warranty and are estopped from asserting title on any portion of the property.
  • XTO Energy, Angell, and Musick applied (see the opinion for facts and cites).
  • At the time the sons inherited the disputed interest, the after-acquired title rule was triggered and the interest vested immediately in the Dragons to make them whole under the express terms of the 1992 deed.

These arguments all failed because the facts differed significantly from those in Duhig. Leo did not own the interest required to remedy the breach at the time of the deed to the Dragons. Rather, Ruth owned the interest as her separate property. The Trial sons claimed through their mother, not their father.

Breach of warranty = damages

The Trial sons couldn’t avoid liability entirely. There was no question that Leo breached the general warranty at the time of execution. Therefore the proper remedy was monetary damages. Because the Trial sons are the direct heirs of Leo, they were bound by the general warranty to forever defend the Dragons from adverse claims to the property. The only question was whether the Trial sons are liable for damages when they failed defend against their own adverse claim to the property, and if so, what would the damages be.

The result

Because the Trial sons’ claim to the property was derived from their mother, an independent source predating the 1992 deed, estoppel by deed and Duhig did not divest the sons of their interest. The court remanded the case to the trial court to determine whether damages were appropriate.

The musical interlude

Contemporary music from New Orleans isn’t always what you’d call “New Orleans Music”. Witness John Fohl.  But then you have Renard Poche.

 

Co-author Rusty Tucker

In Texan Land & Cattle II, Ltd. v. ExxonMobil Pipeline Company a Texas court of appeals ruled that “oil or gas” is not limited to “crude petroleum,” but includes refined petroleum products gasoline and diesel.

The easement

Texas Land’s property in Harris County is burdened by an easement obtained by ExxonMobil from Humble Oil Company in 1919 that granted the right to lay, maintain, operate, and remove a pipeline for the “transportation of oil or gas” across Texas Land’s property. The easement does not define oil or gas.

The arguments

The sole issue was the definition of oil and gas as used in the easement. Texas Land contended that “oil and gas” granted the right to transport only “crude oil” or “crude petroleum,” but not refined products. ExxonMobil argued that “oil and gas,” as used in the early 20th century, included refined products such as gasoline and diesel. Continue Reading What is “Oil or Gas” as Used in a Pipeline Easement?

Reports on the inevitable death of the fossil fuel industry are overdone (assuming it isn’t kidnapped in the middle of the night by the next administration and murdered by litigation, regulation and executive fiat). One reason is the advance of technology to remove CO2 and methane from oil and gas activities. Some examples:

Researchers at MIT have devised a system to remove CO2 from the atmosphere efficiently. The process, called “Fordaic electro-swing reactive adsorption for CO2 capture”, should help curtail greenhouse gas emissions. Continue Reading Reducing Methane and CO2 from Oil and Gas Operations

Co-author Rusty Tucker

Scribner v. Wineinger, et al. affirms that acquisition of a Texas oil and gas leasehold by limitations is not defeated if the adverse possessor’s acknowledgement of a claimant’s title comes too late.

Transaction history

Scribner’s father conveyed all of the interest to his son by the “2002 Assignment” but Scribner was unaware of the instrument until 2016. (Thanks, Dad!) In 2010, the executor of the estate of the now-deceased father assigned the interest to Latigo. Scribner, ignorant of the windfall, didn’t claim ownership. By a series of assignments between 2010 and October 2016, Parra et al (including Wineinger) obtained the interest. During that time Parra and its predecessors operated the lease, received the revenue, and paid the taxes. Continue Reading Limitations Title Not Precluded by Late Acknowledgment

The 2019 Texas legislature enacted a new Property Code Section 5.152 to protect mineral and royalty owners from a certain species of fraudulent transactions perpetrated on trusting and/or naïve and/or out of state mineral owners. Ethan Wood and I wrote about the scam when it made its way into the courthouse.

How the scam worked

The grifter, fronting for a company with a name similar to a reputable operator, would approach the owner with an oil and gas “lease” of minerals or royalty that were already subject to an existing lease. Except that the lease was actually the sale of the mineral or royalty interest at a bargain price. The scammers would then invoke arbitration provisions they had written into the conveyance, and relying on the confidential nature of the arbitration process, would stifle publicity of the inevitable dispute.

Continue Reading Fake Mineral Leases Thwarted by the Texas Legislature

Under Louisiana law, does the operator’s bad faith preclude recovery for the non-operator’s breach of a joint operating agreement if the operator caused the non-operator to breach the JOA but did not itself breach?

Apache’s choice

In Apache Deepwater, LLC v. W&T Offshore, Inc., the litigants were parties to a JOA for operations on offshore deepwater wells. Apache proposed to use two drilling rigs or P&A three wells at a much higher cost than a vessel that had been considered for the operation. W&T contended that Apache’s proposal was for the purpose of offloading to W&T half of $1 million per day stacking costs of a bad rig contract. Apache’s AFE for the P&A using the two rigs was $81 to $104 million, which would be cheaper for them (but not in total) than the alternative. Apache’s story was that the federal regulators would not have approved the original vessel for the operation after Deepwater Horizon.

W&T declined to approve Apache’s AFE. Apache used the two rigs anyway. The work was successful and Apache billed W&T for its 49% share, or $68 million (Note to self: You can’t afford offshore operations). W&T paid $24 million, its share of the original estimate. Apache sued for breach of contract.

The ambiguous JOA

Section 6.2 of the JOA prohibited the operator from conducting any operation costing more than $200,000 without an AFE approved by the non-operator. But Section 18.4 directed the operator to conduct abandonments required by governmental authority and the risks and costs would be shared by the participating parties. No AFE was required. Continue Reading Louisiana Operator’s Bad Faith Does Not Preclude Recovery

Co-authors Lydia Webb and Rusty Tucker

Until Monarch Midstream v. Badlands Energy, midstream companies facing rejection of their contracts in a producer’s bankruptcy were left with Abraham Lincoln’s least favorite negotiating option: If the both law and the facts are against you, pound on the table. Under Sabine (which we covered here, here, and here) gathering agreements are not covenants running with the land and can be rejected in the producer’s bankruptcy. Sabine was the only law on the books, but now a Colorado bankruptcy court has determined that a gathering agreement was a covenant running with the land. Continue Reading Midstream Dedications – Colorado Bankruptcy Court Levels the Playing Field