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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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Osler McCarthy, the Staff Attorney for Public Information at the Texas Supreme Court, sends out an email to subscribers each time the Court issues opinions or orders. The email summarizes the facts and opinions of cases decided by the Court. It also includes a section called “Returning to Yesteryear” in which Osler lists historical events that happened on the date of his email.  They are fascinating. Here’s an example:

On this day in 1862, noted by the Texas State Historical Association, Confederate soldiers attacked a force of Hill Country Unionists, most of them German, beside the Nueces River in Kinney County in what is known as the Battle of the Nueces. Nineteen Unionists were killed. The next day the Confederates executed eight who were wounded. Another eight were killed in October as they tried to cross the Mexican border. A marker in Comfort commemorating the battle is the only Civil War monument in the German language where the remains of those killed in battle are buried in the South.

I had never heard of this battle or monument, so I looked it up.Battle-of-Nueces-Monument

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TexasBarToday_TopTen_Badge_SmallJarndyce v. Jarndyce is a fictional court case in Charles Dickens’ Bleak House, an interminable suit over a large inheritance.  The case itself is a principal character in the book. Dickens wrote in Bleak House:

Jarndyce and Jarndyce drones on. This scarecrow of a suit has, over the course of time, become so complicated, that no man alive knows what it means. The parties to it understand it least; but it has been observed that no two Chancery lawyers can talk about it for five minutes without coming to a total disagreement as to all the premises. Innumerable children have been born into the cause; innumerable young people have married into it; innumerable old people have died out of it. Scores of persons have deliriously found themselves made parties in Jarndyce and Jarndyce without knowing how or why; whole families have inherited legendary hatreds with the suit. The little plaintiff or defendant, who was promised a new rocking-horse when Jarndyce and Jarndyce should be settled, has grown up, possessed himself of a real horse, and trotted away into the other world. Fair wards of court have faded into mothers and grandmothers; a long procession of Chancellors has come in and gone out.

A recent case filed in the Texas Supreme Court, In re: Occidental Chemical Corporation, et al., No. 18-0660, reminded me of Jarndyce.  The origin of the case is a dispute between San Patricio County and Nueces County over the boundary between them, which began in 1972, when San Patricio County sued Nueces County in Refugio County to establish their common boundary. (The Texas legislature, in its wisdom, enacted a statute requiring boundary suits between counties to be filed an an adjacent county, so as to avoid possible prejudice by judges in either of the warring counties.)  Two rulings were made by the district court in Refugio County, one on May 31, 1989 (not a typo), and one on April 11, 2003. The court established the boundary between the two counties at the shoreline of San Patricio County, and the court held that “past and future natural and artificial modifications to the shoreline of San Patricio County shall form a part of San Patricio County.”  Those judgments became final. Case finally resolved, right?

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An article in yesterday’s Austin American-Statesman – “How gas flare-offs could bring water” – caught my attention. It was written by Vaibhav Bahadur, an Assistant Professor of Mechanical Engineering at UT Austin. He posits that natural gas could be used to harvest water from the atmosphere (“atmospheric water harvesting”), enough to supply a significant part of the water needed for hydraulic fracturing.gas-flare

I remember reading about atmospheric water harvesting using solar power, for drinking water. Scientists have developed crystalline powders called metal organic frameworks, or MOFs, that suck water from the air. Omar Yaghi, a chemist at the University of California, and Evelyn Wang, a mechanical engineer at MIT, designed a system using an MOF that uses solar energy to condense 2.8 liters of water per day from the air, even in the desert.

Bahadur’s proposal is to use conventional gas-powered engines to run compressors that condense water from the air. He says that a cubic meter of gas would capture up to 2.3 gallons of water.  He estimates that 2 billion gallons of water could be harvested annually from gas flared in the Eagle Ford, which would meet 11% of the annual water consumption in the Eagle Ford. In the Bakken, he estimates that 4 billion gallons of water could be harvested in a year, supplying 65% of the annual water consumption there.

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Solaris Water Midstream announced last month that it is building an 11-mile water supply line from Loving County to Eddy County, New Mexico that will be able to transport about 150,000 barrels of day to supply water for completion operations in Eddy County. The water comes from wells in Loving County.

Some authorities in New Mexico are concerned that the Texas water comes from the same aquifer that extends into New Mexico.  Loving County is not in a groundwater district, so there is no regulation of water wells, and landowners are free to pump as much as they like under the “rule of capture.”  Groundwater is regulated in New Mexico, which taxes groundwater extracted in Eddy County.  Aubrey Dunn, the state land commissioner in New Mexico, has complained that New Mexico is missing out on millions of dollars in taxes and suffering from depletion of its groundwater: “they’re taking water that’s New Mexico’s, pumping it out in Texas, and selling it back to us. It’s depleting a resource from future generations being able to use it.”  He says New Mexico should sue Texas to force it to enact groundwater regulations. Dunn is running for the U.S. Senate as a Libertarian.

As they say, in Texas – Whiskey’s for drinkin’, water’s for fightin’.

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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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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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