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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.

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I recently ran across a publication containing two stories by O. Henry, purchased at the Capitol Visitors Center in Austin. The stories center on the Texas General Land Office, where O. Henry (then William Sydney Porter) worked as a draftsman between 1887 and 1891. The stories led me down a rabbit hole of the history of the Texas General Land Office.

The General Land Office is the oldest Texas state agency, established by the Republic of Texas in 1836 to “superintend, execute, and perform all acts touching or respecting the public lands of Texas.” When Texas entered the Union in 1845, the United States allowed it to keep its public lands rather than taking those lands in exchange for assuming Texas’ public debt. The GLO was responsible for granting patents as land was settled and sold. The history of land grants in Texas is complex and colorful, including Spanish and Mexican land grants in South Texas and to Stephen F. Austin and other empresarios who settled the land before Texas independence. The records of those Spanish and Mexican land grants, and all other grants and surveys of state lands, are housed in the General Land Office. Many of those records, including historical maps and surveys, have been digitized and can be viewed online at the GLO website.

After Texas won its independence from Mexico, Columbia became the nation’s capital and its archives were housed there. The records were moved to Houston when Congress declared Houston the capital of Texas in 1836. Then in 1839, then-President Mirabeau B. Lamar convinced Congress to authorize the establishment of a planned city, Austin, to be the nation’s capital, and the archives were moved there.

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The Supreme Court has handed down its opinion in Cactus Water Services, LLC v. COG Operating, LLC, a dispute over ownership of produced water. Its holding: COG, the operator, owns the produced water.

Between 2005 and 2014, the Colliers granted leases covering 37,000 acres of land in Reeves County to COG. The leases granted lease of only “oil and gas” or “oil, gas and other hydrocarbons.” COG has drilled 72 horizontal wells, and production from those wells has generated nearly 52 million barrels of produced water. Between December 2018 and March 2021 COG paid nearly $21 million in disposal fees to a third party to dispose of the produced water.

In 2019 and 2020 the Colliers signed “produced water lease agreements” with Cactus Water Services, conveying to Cactus water from oil and gas producing formations and flowback water under the lands covered by the COG leases. Cactus then notified COG of its claim to the produced water, and COG sued for a declaration that it, not Cactus, owns the produced water. The trial court agreed with COG, and the court of appeals affirmed with one dissent. 676 S.W.3d 733 (Tex.App.—El Paso 2023). Cactus obtained review in the Supreme Court.

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The EPA has issued notice that it proposes to approve Texas’ application for authority to issue permits for Class VI injection wells (wells to be used for CO2 sequestration projects). The Trump administration had previously instructed EPA to accelerate consideration of states’ applications for primacy for Class VI wells. A virtual public hearing on EPA’s proposal is set for July 24. Four states so far have received primacy to issue Class VI permits.

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There are at least 150,000 unplugged inactive oil and gas wells in Texas, and the number is growing. Of these, almost 9,000 are “orphan wells,” having no active operator because the owner has gone out of business or gone bankrupt. Senate Bill 1150, passed by the Legislature, is the Legislature’s effort to address the problem–“a rare example of the Texas Legislature regulating the state’s oil and gas industry,” according to the Texas Tribune. In my opinion it is a weak effort.

Prior to SB 1150 operators could avoid plugging wells indefinitely, as long as they held a lease on the property where the well is located. Operators could obtain extensions of plugging obligations as long as the held the lease and they filed the necessary paperwork.

SB 1150 amends Section 89.023 of the Natural Resources Code. The amendment provides that an operator cannot obtain a plugging extension if the well was completed more than 25 years ago and has been inactive “for more than 15 years.”  But there are exceptions. An operator doesn’t have plug a well even if it is more than 25 years old and has been inactive for more than 15 years if the commission finds that “the operator’s demonstrated history of returning inactive wells to operation warrants the granting of the extension,” or “the operator’s financial hardship in complying [the plugging requirement] warrants the granting of the extension.” The operator must submit a compliance plan committing to plug the well or bring it back into production by September 1, 2042 (not a typo). The operator must also provide a performance bond in an amount not less than the full cost for plugging the inactive well, “as established by the commission, that runs with and covers the lifetime of the well, regardless of a change in the operator.”

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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 1/8th 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.”

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I ran across a fascinating opinion from the 10th Circuit Court of Appeals that provides a window into Wyoming history. Iron Bar Holdings v. Cape, No. 23-8043, decided March 18.

The facts are these: Iron Bar Holdings owns a ranch in southwest Wyoming covering 50 square miles. But within its boundaries are some 11,000 acres of federal and state public lands, some of which are completely enclosed by Iron Bar’s lands. In 2020, three hunters from Missouri decided to travel to Wyoming to hunt elk on public land within Iron Bar’s ranch. They could get to one section wholly surrounded by Iron Bar sections only by crossing over the corner touching two sections of federal land. So they stepped across the corner from Section 14 to Section 24, without setting foot on Section 13 or Section 23.

iron-bar-1As stated by the court, “Iron Bar is not friendly to corner-crossers.” It erected no trespassing signs at the corners, and its employees harassed the hunters. But in 2020 they did hunt on Section 24. They returned in 2021 to do the same, but this time Iron Bar convinced the local prosecuting attorney to prosecute the hunters for criminal trespass. They were acquitted in a jury trial. Not satisfied, Iron Bar sued the hunters for civil trespass, seeking $9 million in damages. It is this civil case that eventually ended up in the 10th Circuit.

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The Delaware Mountain Group is a group of formations including the Bell Canyon, Cherry Canyon and Brushy Canyon formations, deposits in ancient canyons filled in over the ages, and are productive of oil and gas. These formations lie above parts of the Wolfcamp formation in the Permian Basin. Disposal of produced water in the Permian has become a big problem, and the Texas Railroad Commission has granted permits for disposal wells that inject produce water into depths within the Delaware Mountain Group. These disposal wells have caused water to migrate to producing wells in the Delaware Mountain Group, killing those wells. The disposed water from these wells has also migrated to long-abandoned wells causing gushers of produced waters from the abandoned wells.

In Basic Energy Services v. PPC Energy, No. 08-23-00218-CV in the El Paso Court of Appeals, PPC Energy operated several marginal wells producing from the Delaware Mountain Group. It sued several disposal well operators in the vicinity for killing nine of PPC’s producing wells, resulting in a total loss of their remaining reserves. PPC settled with all disposal well operators except Basic. (Basic’s well was 6,300 feet from PC’s nearest well.) At trial, the jury found that Basic’s disposal well was responsible for 60% of PPC’s losses, and the trial court entered a judgment for PPC of $13 million, including interest. Basic appealed.

Basic complained that the charge to the jury was erroneous. The jury was asked:

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The podcast The Disconnect has begun Season Three, about the role of gas producers and pipelines in the Big Freeze of 2022., This is the third of a series by Mose Buschele, energy and environmental reporter at KUT and NPR. The first two episodes are out, and you can listen here. Mose has done a great job making the complex Texas grid understandable and calling out those responsible for the 2022 blackout. The Texas grid is not out of the woods yet.

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John McFarland
 Graves, Dougherty, Hearon & Moody, P.C.
401 Congress Avenue, Suite 2700
Austin, Texas 78701
Phone: 512-480-5618
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