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In U.S. Shale Energy II, LLC v. Laborde Properties, L.P., the Texas Supreme Court grappled again with a royalty reservation. In a 1951 deed, the grantors reserved the following:

There is reserved and excepted from this conveyance unto the grantors herein, their heirs and assigns, 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. This reservation is what is generally termed a non-participating Royalty Reservation.

The Bryans, who owned the reserved royalty, sued Laborde Properties, which owned the minerals subject to the reserved royalty, to determine whether the clause reserved 1/2 of the royalty or a 1/16 royalty.  The Court, in a 6-3 decision, held that the clause reserved 1/2 of the royalty – a “floating” royalty.

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Lawyers’ tools are words. We are often accused of using too many of them.

In today’s political climate, words have often lost much of their meaning. It is good to be reminded of the elegance and poetry of good legal writing.

So take a few minutes to read the Declaration of Independence, not just to remind us of who we aspire to be, but also to remind us of the power of words.

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An article on the front page of the Austin American-Statesman last Sunday caught my eye: “Regulators Passed on Pipeline Penalty,” by Asher Price. It’s not often that the Railroad Commission makes the front page. The article tells the story of a pipeline leak in Fayette County in 2014 and the Commission staff’s efforts to get its operator, DCP Midstream, to test for groundwater contamination.

According to the article, DCP didn’t initially report the pipeline leak to the RRC. Leaks are not required to be reported unless they exceed 5 barrels, and DCP claimed it initially thought the spill was not reportable. DCP later estimated the spill at 42 barrels.

The line was a natural gas gathering line, carrying gas and condensate. Condensate is a light, clear liquid, much like gasoline.  It contains hazardous chemicals, in particular benzene.  It easily percolates into soil and if it reaches groundwater the resulting contamination will make the water unusable.

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Last week the Texas Supreme Court agreed to hear Texas Outfitters Limited v. Carolyn Grace Nicholson, No. 17-059, from the San Antonio Court of Appeals. I wrote about this case when the Court of Appeals decided it last year.  Interesting facts. The issue is whether the holder of executive rights can be liable for refusing to lease.  The courts below said yes and awarded the plaintiff $867,000 in lost bonus money.  Briefs on the merits have already been filed. No date yet for oral argument. The Court of Appeals’ opinion may be found here.

 

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Litigation of retained acreage clauses seems to be on the rise.  Apache Deepwater, LLC, v. Double Eagle Development, LLC, decided by the El Paso Court of Appeals last year, is now before the Supreme Court on petition for review, and the Court has asked the parties to file briefs on the merits. This after the Court recently issued two opinions on the same subject.

The lease in question in Apache v. Double Eagle covers a section of land in Reagan County. Four vertical wells were drilled and completed on the lease prior to the end of the primary term, and the lessee designated four proration units, 160 acres each, for those four wells. After the end of the primary term, three of those wells ceased producing. The lease has the following retained acreage clause:

Notwithstanding anything to the contrary in the foregoing, Lessee covenants to release this lease after the primary term except as to each producing well on said lease, operations for which were commenced prior to or at the end of the primary term and the proration units as may be allocated to said wells under the rules and regulations of the Railroad Commission of Texas or 160 acres, whichever is greater, insofar as said proration units cover from the surface to the base of the deepest formation penetrated by the deepest of said wells. The description of said tracts around said well shall be compiled and prepared by the Lessee for purpose of executing such release.

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Here’s another flow diagram, from Lawrence Livermore National Laboratory, showing sources and uses of energy in the US, sent to me by a client. Note how much of our energy comes from fossil fuels – natural gas, coal and petroleum. We are addicted to hydrocarbons, and will be for some time. Recent changes in weather patterns reflect what is becoming more obvious – increased CO2 in the atmosphere is warming our planet. But how are we going to stop driving our cars, running our air conditioners, powering our computers? The problem with fossil fuels is that they are too efficient a source of energy. (click to enlarge)

US-Energy-Consumption

And here’s a diagram given me by my niece, who is studying biology. I can’t tell you anything about it except that it reflects the inner workings of a human cell.  Things have certainly changed since I studied biology. Note the reference to “Energy” on the right side of the diagram, coming from glucose – sugar.

Cell

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NARO Texas‘ convention is being held July 18-20 at the Hyatt Regency Hotel on the Riverwalk in San Antonio.  Several good speakers will be presenting on topics including how to negotiate retained acreage and pooling clauses, how to handle mineral buyers, and developments in horizontal drilling.  I will be speaking about production sharing agreements and allocation wells.  NARO-convention

The link for online registration for this event: www.naro-us.org/events

Additional information can be found at: www.naro-us.org/texas

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In Devon v. Apache, No. 11-16-00105-CV, the Eleventh Court of Appeals sheds some light on a vexing problem that remarkably has never been addressed by a Texas court.  To understand the problem, consider the facts in Devon v. Apache:

Norma Jean Hester leased her one-third mineral interest in land in Glasscock County to Apache, reserving a one-fourth royalty. The remaining mineral owners leased to Devon, also reserving a one-fourth royalty. Apache and Devon were not able to reach agreement on joint development of the property, and Apache drilled seven wells on the property without Devon’s participation. Under Texas law, Devon and Apache were co-tenants, and Apache is obligated to account to Devon for 2/3rds of the net profits from the wells, which Apache did. But Apache refused to pay Devon’s royalty owners. Continue reading →

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On April 27 the Texas Supreme Court issued its opinion in Perryman v. Spartan Texas Six Capital Partners, Ltd., No. 16-0804. The dispute was over ownership of the royalty interest in 206 acres of land in Montague County and construction of a royalty reservation in a conveyance of the property.  The Supreme Court disagreed with the trial court’s and court of appeals’ construction of the deed reservation and with the construction argued by both sides in the dispute.  The case illustrates the need to be clear in drafting deed reservations and exceptions.TexasBarToday_TopTen_Badge_Small

In 1977, Ben Perryman conveyed the 207 acres to his son and daughter-in-law, Gary and Nancy Perryman. The deed contains the following:

LESS, SAVE AND EXCEPT an undivided one-half (1/2) of all royalties from the production of oil, gas and/or other minerals that may be produced from the above described premises which are now owned by Grantor.

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I love these energy flow diagrams from the Energy Information Administration. Below is the one for total energy sources and uses. EIA has others for crude oil, natural gas, coal and electricity. Click to enlarge.EIA-US-Energy-Flow-2017Here’s the flow chart for natural gas. Note how much US gas comes from shale gas wells and oil wells.

EIA-US-natural-gas-flow-2017

Contact Information
John McFarland
 Graves, Dougherty, Hearon & Moody, P.C.
401 Congress Avenue, Suite 2200
Austin, Texas 78701
Phone: 512-480-5618
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