Articles Posted in Recent Cases

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Two new opinions, one from the San Antonio Court of Appeals and one from the El Paso Court of Appeals, again tackle the task of construing mineral and royalty conveyances and reservations. A spate of these cases has arisen as a result of the recent shale plays, where lands never before productive have suddenly become valuable. As a result, muddy language in old deeds has to be clarified by the courts.

In Laborde Properties, L.P. v. U.S. Shale Energy II, LLC, the San Antonio Court of Appeals was required to construe the following mineral reservation in a 1951 deed:

There is reserved and excepted from this conveyance … an undivided one-half (1/2) interest in and to the Oil Royalty, Gas Royalty and Royalty in other Minerals in and under or that may be produced or mined from the above described premises, the same being equal to one-sixteenth (1/16) of the production.

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In May of this year, the Provost Umphrey law firm filed a class action complaint in federal court in Pennsylvania against Talisman Energy USA, Inc. for underpayment of royalties on production from the Eagle Ford field in South Texas. Regmund v. Talisman complaint  The Plaintiffs are three royalty owners who own royalties in wells drilled by Talisman and Statoil under a joint venture covering several thousand acres of leases in the Eagle Ford. The Plaintiffs had a basis to file in Pennsylvania because Talisman’s principal place of business is in Warrendale, Pennsylvania. The Plaintiffs had a basis to file in federal court under the Class Action Fairness Act of 2005. That act allows federal courts to preside over certain class actions where the amount in controversy exceeds $5 million, the class comprises at least 100 plaintiffs, and at least one plaintiff class member resides in a state other than the residence of the defendant.

Talisman USA is a subsidiary of Talisman Energy, Inc., based in Calgary, Alberta. In May 2015, Talisman Energy, Inc. was acquired by Repsol S.A., the largest Spanish energy company, for $13 billion.

In 2010, Talisman opened a Texas office and started buying oil and gas leases in the Eagle Ford under a joint venture with Statoil, Inc. Under the Joint Development Agreement, each company would own a 50% interest in the leases. Each company separately marketed its share of oil and gas and paid royalties on its share of production. Under a modification of the Joint Development Agreement, Statoil operated wells in the eastern part of the joint development area, and Talisman operated wells in the Western part.  In December 2015, Statoil took responsibility for operating all jointly owned wells and acquired a portion of Talisman’s ownership, so that their joint venture is now 63%/37%.

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The Denbury case that caused such a stir on the Texas Supreme Court’s first review of the case, is back before the Court again. In the first Denbury opinion, the Court held that a pipeline seeking to assert eminent domain authority had to make a showing that it was in fact a “common carrier.” The case went back to the trial court which again granted summary judgment for the pipeline company. But the court of appeals reversed, holding that fact issues existed on whether Denbury is a common carrier.

Our firm represents Texas Rice Land Partners in the appeal, and Bill Christian argued the case. The oral argument can be viewed here.

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Last week the Texas Supreme Court agreed to hear three petitions for review of lower court opinions addressing oil and gas issues of interest to land and mineral owners.

BP America Production Co. v. Laddex Ltd., No. 15-0248

BP owned a lease that was granted in 1971 and was held by production from a single well. The mineral owners granted a top lease to Laddex, and Laddex sued BP contending that BP’s lease had expired for failure to produce in paying quantities. The jury found for Laddex, and the court of appeals affirmed. BP argues that the jury charge is faulty and that there is no evidence to support the jury’s answers; it also contends that Laddex’s top lease is void under the rule against perpetuities. Briefs of the parties are here. Oral argument October 11.

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Yet another suit alleging underpayment of royalties has been filed against Chesapeake in the Barnett Shale. The petition can be viewed here: Addax v. Chesapeake Among the long list of plaintiffs is Kimbell Art Foundation. The petition alleges that plaintiffs are lessors under more than 8,000 leases in 280 pooled units with more than 725 producing gas wells. Defendants are Chesapeake and its working interest partner in the Barnett, Total E&P USA, Inc. Plaintiffs’ counsel is Burns Charest LLP.

The suit focuses on two complaints against the defendants. The first is based on the gathering agreement between Chesapeake and Access Midstream. The second is based on how Chesapeake has calculated the plaintiffs’ royalty interests in the pooled units. Continue reading →

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Trans-Pecos Pipeline is pursuing condemnation proceedings to acquire right-of-way for its pipeline, a project of Energy Transfer Partners to build a 143-mile, 42-inch pipeline from Fort Stockton into Mexico. Presidio County landowner John Boerschig is challenging the company’s right to use eminent domain to acquire an easement across his ranch. Last week he sued the company in U.S. District Court in Pecos, contending that Texas laws on eminent domain deny him due process of law in the condemnation process. He argues that pipeline companies asserting the right to use eminent domain should have to prove their right to condemn before they can obtain a judgment awarding an easement. Boerschig’s attorney Renae Hicks said  “It’s a no-strings-attached, standard-less delegation of government power to a private entity. There’s no accountability, they do not have to report to anyone.” He argues that a pipeline’s status as a public utility, which under Texas law entitles it to use eminent domain, can be legally challenged only after the condemnation award of the special commissioners appointed to determine the amount owed for the condemned easement. After the commissioners’ award, the pipeline’s right to condemn can be challenged in court, but in the meantime the pipeline has the right to tender the amount awarded by the commissioners into court and begin laying the pipeline on the easement awarded. So the pipeline can be constructed even while the landowner is challenging the company’s condemnation authority.

That is what happened in the latest condemnation case decided by the Texas Supreme Court, Texas Rice Land Partners v. Denbury, , 363 S.W.3d 192 (Tex. 2012). In that case, Denbury sought to condemn an easement for a pipeline that would carry carbon dioxide across Texas Rice Land’s property. Texas Rice Land challenged Denbury’s right to condemn an easement; the trial court sustained Denbury’s authority, and it built its easement. But the Supreme Court held that Texas Rice Land had the right to challenge Denbury’s use of eminent domain, whether it was a common carrier. It remanded the case to the trial court for trial on that issue. On remand, the trial court again agreed that Denbury had eminent domain powers, but the Beaumont Court of Appeals  reversed and remanded again, 457 S.W.3d 115 (Tex.App.-Beaumont 2015). Denbury has appealed to the Texas Supreme Court, which granted Denbury’s petition for review on April 1. In the meantime, Denbury has constructed its pipeline across Texas Rice Land’s property and is using it to transport carbon dioxide.

For more on the Denbury case, read my posts here and here.

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The Gardiners claimed that a compressor station across the road from their property created a nuisance that damaged the value of their property. A trial resulted in a $2 million judgment for the Gardiners. After an eight-year battle, the Texas Supreme Court decided the Gardiners would have to try their case again. The case is another in a recent spate of cases alleging nuisance damages for operations in the oil field. Continue reading →

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The Fourth Court of Appeals in San Antonio handed down an opinion this week in Adams v. Murphy Exploration & Production Co.-USA, deciding the meaning of “offset well” as used in an oil and gas lease.

The plaintiffs in the case signed an oil and gas lease to Murphy containing the following provision:

It is hereby specifically agreed and stipulated that in the event a well is completed as a producer of oil and/or gas on land adjacent and contiguous to the leased premises, and within 467 feet of the premises covered by this lease, that Lessee herein is hereby obligated to, within 120 days after the completion date of the well or wells on the adjacent acreage, as follows:

(1) to commence drilling operations on the leased acreage and thereafter continue the drilling of such offf-set well or wells with due diligence3 to a depth adequate to test the same formation from which the well or wells are producing from on the adjacent acreage; or

(2) pay the Lessor royalties as provided for in this lease as if an equivalent amount of production of oil and/or gas were being obtained from the off-set location on these leased premises as that which is being produced from the adjacent well or wells; or

(3) release an amount of acreage sufficient to constitute a spacing unit equivalent in size to the spacing unit that would be allocated under the lease to such well or wells on the adjacent lands, as to the zones or strata producing in such adjacent well.

Continue reading →

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The Supreme Court last week denied the petition for review of the Corpus Christi Court of Appeals’ decision in Forest Oil v. El Rucio Land and Cattle Company. Forest was acquired by Sabine Oil & Gas during the course of the case, which started in 2004. Jimmy McAllen and his company obtained a $20 million arbitration award against Forest, and the Corpus Christi Court affirmed the award. The Texas Supreme Court has now declined to hear the case. I have written about this interesting case here and here.

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The Texas Supreme Court last week handed down its opinion in Coyote Lake Ranch v. City of Lubbock, holding, in a case of first impression, that the accommodation doctrine applies to govern the City’s right to use the surface of the Ranch to develop its groundwater.

Coyote Lake Ranch covers 40 square miles in Bailey County, on the Texas-New Mexico border northwest of Lubbock. In 1953, the then owners of the Ranch sold the groundwater under the Ranch to the City of Lubbock. The Ranch reserved the right to use groundwater for domestic use, ranching operations, oil and gas production, and agricultural irrigation, but the conveyance limits the Ranch to one or two wells in each of 16 specified locations. The Deed contains lengthy, detailed provisions on the City’s right to use the land. It grants to the City the right “at any time and location [to] drill water wells and test wells” on the Ranch, and to build roads, power lines and other improvements and otherwise make use of the Ranch lands “necessary and incidental” to the production of groundwater.

The groundwater underlying the Ranch is the Ogallala Aquifer, a huge aquifer that underlies much of north Texas as well as parts Oklahoma, New Mexico, Kansas, Colorado, and Nebraska. Water from the aquifer has made the arid high plains one of the most prolific agricultural regions of the United States. It is also a depleting resource and has been depleted in substantial areas of the Texas Panhandle. Continue reading →

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