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The Texas Tribune is joining with the Center for Public Integrity to publish a series of articles on the Permian Basin. Called “Blowout,” it is the result of eight months of study of the impact of the Permian oil boom. The first article can be found here.

The International Energy Agency said Friday that the world pumped 100.3 million barrels a day in the third quarter, a record, and production is expected to increase. The IEA also expressed concern about the upswing in energy prices, saying it “poses a threat to economic growth.”

And on CBS’ “60 Minutes” last night, President Trump backed off his claim that climate change is a hoax, but he said he doesn’t know if its man-made. “Something’s changing and it’ll change back again. I don’t think it’s a hoax,” he told Brent Stahl. “But I don’t know that it’s man-made. I will say this. I don’t want to give trillions and trillions of dollars. I don’t want to lose millions and millions of jobs. I don’t want to be put at a disadvantage,” he said. “Look, scientists also have a political agenda,” he added.

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Two cases were argued in the Texas Supreme Court last week that bear watching, and a third interesting case is pending in the court on petition for review.

No. 17-0266, Burlington v. Texas Crude

Texas Crude and Burlington entered into a joint development agreement covering leases Texas Crude had acquired on lands in Live Oak County. As part of the deal, Texas Crude was entitled to an overriding royalty on all leases taken within the area of interest.  Multiple assignments of overriding royalty were made, all containing this language:

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Our firm is hosting our 5th annual seminar for Texas land and mineral owners on topics of interest in oil and gas law. We have a great lineup of speakers, including Idalia Romanos on royalty audits, Peter Huddleston on current shale development activity in Texas, Mary Keeney providing a case law update, Allen Gilmer of Drillinginfo, and yours truly on allocation wells.

You can find more information and register here.

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Texas Land & Mineral Owners Association is having its Statewide Members Meeting on October 11 in San Antonio. Information here. It is a good organization and a good meeting. Join up and attend.TLMA-mtg

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The Texas Railroad Commission has issued its Monitoring and Enforcement Plan for fiscal year 2019. The plan was required by a 2017 law that directs the RRC to develop an annual plan to assess its use of resources to ensure public safety and minimize damage to the environment. It requires the RRC to track monitoring and enforcement activities. Highlights:

The RRC has 158 oil and gas field inspectors. They average more than 123,000 inspections each year and are expected to conduct 130,000 inspections in fiscal 2019.

The RRC Oil and Gas Division receives about 600 complaints each year, from operators, mineral owners, surface owners, government agencies and members of the public. According to the Plan, “the complainant receives written updates on the progress of the investigation and any related enforcement action. The complainant is also notified when the complaint is closed.”

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In Ridge Natural Resources v. Double Eagle Royalty, recently decided by the El Paso Court of Appeals, James and Jolinda McDaniel signed a “Royalty Lease” to Ridge, reading as follows:

Oil and Gas Royalty Lease

THIS LEASE AGREEMENT is made as of the 10th day of October, 2016 between

[the McDaniels]

as Lessor (whether one or more) … and Ridge Natural Resources … as Lessee. …

1. In consideration of ten dollars ($10.00) and other good and valuable consideration in hand paid and the covenants herein contained, Lessor hereby grants, leases and lets exclusively to Lessee, subject to the reservation contained herein, all of Lessor’s royalty interest in and to all of the oil, gas and other minerals produced and saved from the hereinafter described lands (the ‘Subject Interest’), such Subject Interest to include all proceeds thereof in and to the rights, rentals, royalties and other benefits accrued, accruing and/or to accrue and the right to demand, collect and receive same, hereinafter called leased premises:
[Legal description omitted]
2. This royalty lease, shall be in force for a primary term of 5 years from the date hereof, and for as long thereafter as oil or gas or other substances covered hereby are produced in paying quantities from the leased premises or from lands pooled therewith.
3. As Royalty on the Subject Interest leased to Lessee herein, Lessor reserves an equal one-fourth (25%) part of the Royalty and other proceeds from the sale of all oil, gas and condensate produced and saved from said Land and the Subject Interested lease to Lessee herein.
4. Lessor hereby expressly represents and warrants that no representation, promise or other statement that is not herein expressed has been made to Lessor in executing this Royalty Lease Document and Lessor did not rely on any representation, promise or other statement made by Lessee and/or Lessee’s agent and/or employees, relating to this Royalty Lease or the subject matter thereof, except as set forth herein, and it is the Lessor’s express intent to fully disclaim and disavow reliance on any such representation, promise or statement. Lessor expressly acknowledges that this Royalty Lease does not grant Lessee the right to explore for or produce oil, gas, or minerals from the leased premises. […]

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The Senate hearings on Judge Brett Kavanaugh’s nomination to the Supreme Court have brought public attention to the role the Supreme Court, and courts in general, play in our trilateral system of government – a role that the public usually does not see in headlines other than when the Supreme Court considers hot-button social issues such as abortion and gun control. Most of the work done by courts flies under the radar and receives little public attention.

But a critical element in our system of government is its reliance on and belief in the “rule of law.” John Adams expressed this idea when he wrote that government should be a “government of laws and not of men.” It means that private citizens and government are accountable under the law; that laws be clear, just, publicized, and applied equally; that the process by which laws are enacted, administered and enforced are accessible, fair and efficient; and that justice is delivered timely by competent, ethical and independent representatives.  Lawyers have an obligation to uphold the rule of law independent of and superseding their obligation to clients. Every person, including lawmakers, law enforcement officials and judges, is subject to the law. The authority of our courts is based on this principle.

The US Court of Appeals for the D.C. Circuit issued an opinion last month that illustrates the rule of law in the context of the political shift that took place after the election of President Trump. The case, Air Alliance Houston v. EPA, No. 17-155, was heard by a panel of three judges on that court, Judges Rogers, Wilkins, and Kavanaugh. Because of Judge Kavanaugh’s nomination to the Supreme Court, he did not participate in the opinion. The opinion was issued “Per Curiam,” meaning it was not signed by a particular judge but was issued “by the court” collectively. Continue reading →

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A recent case from the Ohio Court of Appeals, Fifth Appellate District, raises some interesting questions about forced pooling. The case, American Energy – Utica, LLC v. Fuller, Case No. 17 CA 000028, involves an oil and gas lease covering 40 acres in Guernsey County, Ohio, dated in 1981. The lease was held by production from a single vertical oil well. In 2009 Enervest acquired the lease; it subsequently assigned the deep rights to American Energy.TexasBarToday_TopTen_Badge_Small

American Energy wanted to form pooled units to drill horizontal wells in the Utica formation. The lease contained a handwritten provision: “Unitization by written agreement only!” so American asked Fuller for consent to pool. The parties could not reach agreement on pooling Fuller’s lease, so in 2015 American Energy filed an application under Ohio law to force a portion of Fuller’s property into a pooled unit. Fuller then sued to prevent his tract from being force-pooled and for breach of the lease. The trial court granted American Energy’s motion for summary judgment, holding that American had the right to force-pool Fuller’s lease despite the lease language.  Continue reading →

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This month the Texas Supreme Court refused to hear the case of Lindemann Properties, Ltd. v. Campbell, 524 S.W.3d 873 (Tex.App.-Ft. Worth 2017). Although the case involves an easement for a radio transmission tower, it provides some lessons for negotiating easements for pipelines.

In 1977 Smith granted to Campbell an easement to install a radio transmission tower on his land. The easement provided that it would be located on a tract 500 feet by 500 feet, the actual center of which would be determined by its location when installed. The easement did not specify the size or height of the tower. Campbell constructed the tower, 400 feet tall.

In 2012 Campbell decided to replace the tower, which had deteriorated in condition, with a new tower 420 feet tall. The original tower remained in place while the new tower was being constructed. The new tower was some 18 feet from the original tower.  The old tower was later removed. Continue reading →

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A recent opinion from the El Paso Court of Appeals, Harrison v. Rosetta Resources, illustrates how important groundwater has become in oil and gas development in the Permian Basin.

Harrison signed a lease on Relinquishment Act land, as agent for the State. The lease provided that the Lessee has the right to use groundwater in its operations, except for waterflood operations. Harrison sued the lessee for tearing up an irrigation ditch and other claims, and the lessee agreed as part of the settlement of those claims to purchase 120,000 barrels of water from Harrison’s water well at fifty cents a barrel. The lessee built a frac pit and bought the required amount of water from Harrison. But then the lessee sold the lease to Rosetta. Rosetta drilled additional wells but, instead of buying the water from Harrison, it piped the water onto the lease from another source. Harrison sued. He claimed that Rosetta had orally agreed to continue the same arrangement he had with the previous operator. He also alleged that there was a local custom, known as the “West Texas Rule,” that the lessee would purchase groundwater from the surface owner. He also alleged negligence and violation of the accommodation doctrine.  The trial court granted Rosetta’s motions for summary judgment, and the court of appeals affirmed. Harrison has no right to require Rosetta to purchase his groundwater.

In Texas an oil and gas lease conveys the mineral estate to the lessee for the term of the lease.  Because the mineral estate is the “dominant” estate, the mineral owner/lessee has the right to use so much of the surface estate as is reasonably necessary to exploit the mineral estate. The surface estate includes groundwater, so the lessee has the right, unless limited by the lease, to use groundwater in its operations — even to the point of depleting the groundwater aquifer.  This is true as to fee lands as well as Relinquishment Act lands.

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Contact Information
John McFarland
 Graves, Dougherty, Hearon & Moody, P.C.
401 Congress Avenue, Suite 2200
Austin, Texas 78701
Phone: 512-480-5618
This Blog/Web Site is made available for educational purposes only as well as to give general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand that there is no attorney client relationship between you and the publisher. The Blog/Web Site should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.
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