Oil and Gas Lawyer Blog

Today the Supreme court accepted the petition for review in Boerschig v. Rio Grande Electric Cooperative, No. 24-0213, a case in which the trial court granted an easement by estoppel based on a jury verdict.

In 2002 Boerschig purchased the 6,397-acre U-Bar Ranch. At the time there was a 1.6 mile distribution line with wooden poles carrying four wires, constructed in 1947. Boerschig was unable to locate any recorded easement for the line.

In 2012 RGEC bulldozed the 1947 line and began construction of a new line with more, larger poles carrying seven wires, for a new compressor station to be operated by Lone Star NGL Pipeline. Boerschig objected to the line, and litigation followed. After a jury trial, the jury found that RGEC failed to obtain a prescriptive easement, but that it did acquire an easement by estoppel, and that the new line constructed by RGEC was within the scope of that easement. The trial court rendered judgment on the verdict and awarded RGEC its legal fees.

Today the Texas Supreme Court denied PPC’s petition for review in  PPC Energy v. Basic Energy Services, No. 25-0061. I wrote about the opinion of the El Paso Court of Appeals, which reversed and remanded a trial court judgment of $13 million against Basic after jury trial . Basic operates disposal wells, and the jury found that its wells had damaged PPC Energy’s producing wells. The El Paso court held that the trial court had erroneously failed to submit a requested jury charge on the prudent operator standard and remanded for retrial.

Today the Texas Supreme Court agreed to decide another dispute over whether a conveyance is of a fixed or floating royalty. No. 23-0671, Clifton v. Johnson. The El Paso Court of Appeals held that the instrument in question conveyed a floating royalty – a fraction of the royalty. 2023 WL 444316. The Petitioners argue, among other things, that the Van Dyke presumption (Van Dyke v. Navigator Group, 668 S.W.3d 353 (Tex 2023)) should not apply to conveyances and reservations of royalty interests. The deed in Clifton refers to the interest being conveyed as “1/128 (1/16 of the usual 1/8 royalty).” The Supreme Court said in Van Dyke:

When courts confront a double fraction involving 1/8 in an instrument, the logic of our analysis in Hysaw [v. Dawkins, 483 S.W.3d 1 (Tex. 2016)] requires that we begin with a presumption that the mere use of such a double fraction was purposeful and that 1/8 reflects the entire mineral estate, not just 1/8 of it.  … Our analysis in Hysaw thus warrants the use of a rebuttable presumption that the term 1/8 in a double fraction in mineral instruments of this era refers to the entire mineral estate. Because there is “little explanation” for using a double fraction for any other purpose, this presumption reflects historical usage and common sense.

Note that the devise construed as a floating royalty in Hysaw v. Dawkins was a devise of a royalty interest, not a mineral interest.

ExxonMobil Pipeline owned a 1944 pipeline easement crossing a 126.7-acre tract. Its predecessor Humble Pipeline constructed an 11-mile pipeline crossing the tract. In 2000 ExxonMobil sold the pipeline to Salter Creek Resources. The assignment provided that “This Agreement may not be assigned, in whole or in part, without the prior written consent of the other Party hereto, and any such assignment that is made without such consent shall be void and of no force and effect.”  Salter Creek assigned the easement to Coffeyville Resources, which assigned it to Rose Rock, which assigned it to SemGreen–all without obtaining ExxonMobil’s consent.

In 2017, the owner of the 126-acre tract discovered crude seeping into a stream and complained to the Railroad Commission, which determined that the leak occurred when ExxonMobil was the owner and ordered it to clean up the spill. ExxonMobil sued Coffeyville, Salter Creek, Rose Rock and SemGreen alleging they had responsibility under the assumption of liability provisions of the original assignment.

In Coffeyville Resources v. ExxonMobil Pipeline Company, the Tyler Court of Appeals held that, because no consents to assignment were obtained, the assignments were void, so the defendants had no liability for the spill. ExxonMobil argued that it had impliedly consented to the assignment; the court held it could not do so because written consent to the assignment was required. ExxonMobil argued that it could choose whether or not to enforce the consent requirement; the Court disagreed. “Under the consent to assign provision … any assignment without written consent is void and not merely voidable.” Exxon elected not to appeal.

Suppose Company A obtains an oil and gas lease on Blackacre from the owner of a 1/6 mineral interest in Blackacre, and Company B obtains and oil and gas lease from the owner of the other 5/6 mineral interest. That makes Company A and Company B co-tenants leasehold mineral estate. Usually in such a circumstance the two companies will sign an operating agreement naming one of them as operator and agreeing to share in the costs of drilling wells on Blackacre. But what if Company B refuses to enter into an operating agreement and drills and produces wells on Blackacre, paying all the costs?

Such was the case in Cromwell v. Anadarko, No. 23-0927. Anadarko refused to enter into an operating agreement with Cromwell. As a co-tenant, Cromwell was entitled to his share of net profits from wells on Blackacre after payout of the wells, and Anadarko did account to Cromwell for his share of net profits — until the primary terms of Cromwell’s leases expired. Then Anadarko took new leases from Cromwell’s lessors and told Cromwell that its leases had expired because Cromwell did not produce any oil and gas from the property. The El Paso Court of Appeals agreed with Anadarko, relying on its own prior opinion in Cimarex Energy Co. v. Anadarko Petroleum Corp., 574 S.W.3d 73 (Tex.App.–El Paso 2019, pet. denied). The Texas Supreme Court reversed, holding that the habendum clauses in Cromwell’s leases only required the oil or gas be produced to keep the lease in effect beyond the primary term, not that Cromwell had to produce it. The Court disapproved of Cimarex v. Anadarko.

A typical habendum clause in an oil and gas lease provides that the lease remains in effect after the primary term “for as long as oil or gas is produced from the leased premises.” Based on this language, the Supreme Court concluded that production by any co-tenant will maintain the leases of all co-tenants, whether or not they have signed an operating agreement.

In Myers-Woodward v. Underground Services Markham, No. 22-0878, the Texas Supreme Court removed any doubt that pore space is owned by the owner of the surface estate, not the mineral estate.

Myers Woodward owns the surface estate of 160 acres in Matagorda County. It also owns a 1/8^th royalty on oil, gas and other minerals produced from the land.

Underground Services Markham (USM) owns the salt and salt formations under the 160 acres. USM produced some 2.7 tons of salt from the property between 2015 and 2019. The salt is mined by injecting water into the salt formation, pumping the resulting brine back to the surface and extracting the salt from the brine, creating an underground “salt cavern.”