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Last month the Texas Supreme Court decided three cases involving Texas’ Open Beaches Act. The Court issued one opinion in all three cases: No. 24-0237, Texas General Land Office and Dawn Buckingham, in her official capacity as the Texas Land Commissioner, v. SaveRGV, Sierra Club, and Carrizo/Comecrudo Nation of Texas, Inc.; No 24-0407, Cameron County v. SaveRGV, Sierra Club, and Carrizo/Comecrudo Nation of Texas Inc; and No. 24-0457, Ken Paxton, in his official capacity as Attorney General of Texas, v. Save RGV, Sierra Club, and Carrizo/Comecrudo Nation of Texas, Inc.  The cases reminded me of a little Texas history.

The three plaintiffs filed suit because in 2013 the Legislature passed HB 2623, amending the Open Beaches Act, Tex. Nat. Res. Code Chapter 61, to authorize the General Land Office and Cameron County to adopt rules allowing them to temporarily close beaches “for space flight activities.” The bill passed at the request of SpaceX, which maintains a launch site on Boca Chica Beach on the coast in Cameron County (now incorporated as the town of Starbase. The GLO and the county have at restricted access to Boca Chica beach when SpaceX launches take place.

Boca-Chica
Plaintiffs claimed that HB 2623 violates Article I, Section 33 of the Texas Constitution, approved by voters in 2009, which states:

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As we are on the cusp of celebrating the 250th anniversary of the Declaration of Independence and the remarkable fact that our nation has survived so long, it seems a good time to share a speech given by Lee West at the Oklahoma Bar Association Rule of Law Conference at Oklahoma City University School of Law on April 11, 2008, published by the Oklahoma City University Law Review in Spring 2009, Vol. 34, Number 1. I had the pleasure of knowing Judge West, who was District Judge for the Western District of Oklahoma from 1979 until he took senior status in 1994, but he continued to serve as judge after that. He died in 2020, age 90.  A wonderful interview of Judge West recounting his youth in Oklahoma during the Great Depression, published by the Oklahoma Historical Society, can be found here.

Below are excepts from his speech, which has remarkable parallels to current attacks on the rule of law. (I can provide a copy of the full speech to anyone who requests it.)

Good afternoon. It is a genuine honor to be among so many friends and colleagues. I may not deserve this honor, but I am recovering from kidney-stone surgery, and I guarantee you I do not deserve that either. This morning you have heard eloquent descriptions and defenses of the rule of law. After such fascinating presentations, I am hard pressed to add anything. Honestly, being asked to speak in the wake of so many distinguished judges, lawyers, doctors, businessmen, and academics feels a little bit like being asked on a date by a porn star. Any anticipation of personal enjoyment is tempered by performance anxiety—the expectation that my efforts, however enthusiastic, will be judged by a punishing professional standard. In all seriousness, the rule of law is a broad and important subject, and I confess I am a serious student who continues to learn from conferences such as this one. Of course, my perspective on the topic cannot help but be shaped by my long experience as a state and federal judge. My thirty-seven years on the bench have only reinforced my appreciation for our Founders’ genius.

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Oil and gas leases that cover larger tracts — say 300 acres or more — should contain a retained acreage clause.

A retained acreage clause has two parts: defining how much acreage will be kept under lease by a well and requiring the lessee to designate that acreage; and defining when the retained acreage must be designated and lands outside the retained acreage tracts released. The idea is to allow the operator to retain the acreage, and only the acreage, being drained by each well.

The amount of acreage (and depths) retained by a well may depend on whether the well is vertical or horizontal; whether the well is classified as a gas well or an oil well; and the depth of the perforated interval. Before the development of horizontal well technology and the ability to produce from tight unconventional formations, retained acreage clauses generally allowed units for oil wells of 40 acres and units for gas wells of 160 acres. For deeper production, units could be 80 acres for oil and 320 acres or even 640 acres for gas. It was generally assumed that a gas well would drain a larger area in a conventional field than an oil well.

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Dan Moody was governor of Texas, serving two terms, 1927-31. He was born and raised in Taylor, Texas; the family home is now the Moody Museum. Last Saturday I attended the unveiling of a statue of Governor Moody at the museum. Because his family has a connection to Graves, Dougherty, Hearon & Moody, I thought it appropriate to say something about him. His son Dan Moody Jr. (1929-2000) was born in the Governor’s Mansion; he was a partner in our firm from 1966 until his death and was a distinguished Austin attorney.

Governor Moody was admitted to the bar in 1914, at the age of 21. It is reported that he had to sell the gold watch he had inherited from his father to pay the $75 fee for the bar exam. He served in in World War I; as county attorney of Williamson County; and as District Attorney of the 26th Judicial District encompassing Travis and Williamson Counties from 1923-25. He was elected Attorney General of Texas in 1925 and Governor in 1927, serving two terms.

As District Attorney, Moody prosecuted and convicted four members of the Ku Klux Klan for tarring and feathering a traveling salesman; he became known for “breaking the back” of the Klan in Texas. A dramatization of the trial has been performed in the courthouse in Georgetown where his prosecutions took place. The recognition he gained from these trials led him to run for Attorney General, where he successfully prosecuted cases to set aside highway contracts awarded by then-governor Miriam A. (“Ma”) Ferguson. He ran against and defeated Ferguson for governor, supporting prohibition and woman suffrage.

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On May 22 the Texas Supreme Court issued opinions in Boerschig v. Rio Grande Electric Cooperative, No. 24-0213. Four Justices joined the majority opinion by Justice Busby; Justice Hawkins also filed a concurring opinion; and Justice Bland, joined by Chief Justice Blacklock and Justices Lehrmann and Huddle, filed a dissent.

The case concerns an old electric line running across property owned by John Boerschig. Rio Grande Electric wanted to update and add to the line, and Boerschig objected. The result was a lawsuit, filed in 2014, tried to a jury, and finally reaching the Texas Supreme Court. The implications of the case troubled the electric and pipeline industries who filed several amicus briefs, including the the Texas Electric Cooperatives, the Texas Pipeline Association, Oncor Electric, Southwestern Public Service, Texas New Mexico Power, American Electric Power, and CenterPoint Energy. Two amicus briefs were filed by those advocating for Mr. Boerschig’s position, Texas Farm Bureau and Texas Land & Mineral Owners Association.

Rio Grande Electric was formed in 1945 by ranchers in South Texas as part of the electrification of rural America. A member-owned non-profit utility, it began acquiring easements to lay electric lines using “blanket” easements that only describe the land across which the line will be laid and not the actual line location. Such blanket easements were common for electric lines and pipelines in the early part of the last century. Between one-third and one-half of Rio Grande’s lines are built on such easements. In 1947 Rio Grande acquired such an easement from the Estate of Mary Clamp to place electric lines on her 5,684-acre Ranch. Rio Grande constructed a line across some 1.6 miles of the Clamp property.

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Every oil company lease form will contain a pooling clause, and the rights granted to the Lessee by that clause can significantly affect the economic and other rights of the Lessor under the lease.  Every Lessor should therefore understand the concept of pooling.

The basic idea behind pooling is a good one, and its use can benefit both parties to the lease.  In all states, laws and regulations have been adopted governing the spacing of wells – how many wells can be drilled in a field and how far apart they must be from each other and from the lease line on which the well is located.  These regulations have been developed to prevent the drilling of unnecessary wells and to maximize the ultimate recovery of oil and gas from a field.  The spacing rules — often called “field rules” — may differ from field to field, depending on whether the field produces gas or oil and on the geological characteristics of the reservoir.  In Texas, the Texas Railroad Commission’s spacing rules require an oil company to have a minimum number of acres under lease and assigned to a well in order for the Commission to grant a permit to drill the well.  The acreage assigned to the well is called a “proration unit”  (not to be confused with a pooled unit). For most oil fields, the proration unit size is 40 acres.  For gas wells, the proration unit size can range from 40 acres to 640 acres, depending on the field rules for that field. For horizontal wells, the amount of acreage that must be (or can be) assigned to a well generally depends on the length of the productive lateral. The longer the lateral the more acreage can be assigned to the well.

Where mineral ownership is divided into small tracts, it may not be possible for a Lessee to obtain a permit to drill a well unless it can somehow combine the small tracts into a larger tract for purposes of assigning a proration unit to the well.  For example, if the proration unit size in a field is 160 acres but all of the tracts in the field are 40 acres or less, then the Lessee must combine several tracts into a single unit in order to drill a well.  Also, the tract boundaries in a field may not fit the spacing pattern for a field.  The best location to drill a well may be exactly on the boundary between two tracts.  In such a case, the best solution is to combine all or parts of the two adjacent tracts to form a single unit.  This combining of acreage is called pooling, and the units so created are called pooled units.

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Over the last 100 years courts have developed a body of case law in disputes between lessors and lessees of oil and gas leases. Courts have held that certain provisions are “implied” in the contracts, even though there is no language in the lease to support those provisions. The rationale behind these implied provisions goes back to cases interpreting hard mineral leases, and back to the cradle of the oil industry, Pennsylvania. The idea behind these implied provisions is that they are necessary for both parties to get the benefit of their bargain and to make the lease work as intended. Because the lessee has control over what operations are conducted under the lease, most of these implied provisions are intended to benefit the lessor, who generally has less bargaining power in negotiation of the lease and no say in whether and how the lease is developed.

An example: oil and gas leases generally provide that the lease will remain in effect for the primary term and for as long thereafter as oil or gas is produced from the leased premises. Courts have implied a requirement that, for the lease to remain in effect, the production must be in “paying quantities.” The production must be sufficient for the lessee to realize a profit over operating costs.

Another example: what if the well on the lease temporarily ceases production at some point after the end of the primary term. Does the lease terminate even if the well can be repaired and restored to production? Courts developed the implied provision that a “temporary” cessation of production will not cause the lease to terminate, as long as the lessee acts with reasonable diligence to restore production.

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Last July the Fort Worth Court of Appeals decided City of Crowley v. TotalEnergies E&P USA, Inc. Last week the Texas Supreme Court denied the City’s petition for review. Another case in which Heritage v. NationsBank has raised its ugly head.

The City’s lease had the following provisions related to how its royalty should be calculated:

• The Lessee is to pay the Lessor “the Royalty Fraction of the market value at the point of sale, use, or other disposition” (the “Valuation Provision”);

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The following is from Michael Curry and Jacob Rolls. Michael Curry is an Austin lawyer who served as an adjunct professor at the University of Texas, where he got his law degree. Jacob Rolls, based in Driftwood, is a former public defender and trial consultant with a master’s degree in international relations. Both volunteer with Lawyers Defending American Democracy.

May 1 is Law Day, a day to focus the nation’s attention on the rule of law and the rights and freedoms it secures. That focus may seem abstract, but the rule of law is a foundational principle of our democracy — and arguably more threatened than ever.

The rule of law can be defined in different ways, but certain elements are fundamental. It is the principle that we are governed by published laws, not by the unchecked decisions of elected or appointed officials. John Adams said we are “a government of laws, and not of men.” In our system, the Constitution and laws apply to everyone, regardless of status or position, and are enforced by independent courts.

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On April 24, the Supreme Court issued an opinion in two consolidated appeals, Boren Descendants v. Fasken Oil and Ranch, Ltd., and Mabee Ranch Royalty Partnership LP v. Fasken Oil and Ranch, Ltd. I wrote about the Eastland Court of Appeals, decision in these cases in December 2024. The issue is construction of a 1933 deed of 60,000 acres in which the grantor reserved “an undivided one-fourth (1/4th) of the usual one eighth (1/8th) royalty.” Fasken owns the reserved royalty and the Boren and Mabee descendants on the fee mineral interest. Relying on the Supreme Court’s guidance on how to construe such deeds in Van Dyke v. Navigator Group, the Eastland Court held that the deed reserved a “floating” 1/4th of the royalty.

The more interesting part of the case is the applicability of the presumed grant doctrine, also addressed in Van Dyke. The appeal of the Fasken cases was a permissive interlocutory appeal; the Eastland Court refused to consider the the Boren and Mabee parties’ contention that the presumed grant doctrine applied, concluding that it was not one of the issues referred by the trial court for the interlocutory appeal.

The Supreme Court has elected to return the case to the Eastland Court for further proceedings. First, it told the Eastland Court that it should consider the Supreme Court’s more recent opinion in Clifton v. Johnson, which addressed a another fraction-of-royalty issue. Second, it said the Eastland Court should have considered the Boren and Mabee parties’ claim that the presumed grant doctrine applied.

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John McFarland
 Graves, Dougherty, Hearon & Moody, P.C.
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