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Landowners are often faced with a conundrum: can they accept a royalty check if they believe it is in the wrong amount?

Ms. Strickhausen owns a half interest in the minerals under a tract of land in La Salle County. Her minerals are subject to a lease owned by BPX (then Petrohawk, subsequently acquired by BPX). Her lease expressly prohibits pooling without her consent. The lease of the other half interest in her tract permits pooling. (Ms. Strickhausen’s lease also prohibits commingling of production: “Commingling of production from the Leased Premises with production from other lands or leases shall be prohibited prrior to such accurate metering, measuring and testing, unless commingling is consented to, in writing, by Lessor and each royalty owner.”) BPX filed a pooled unit designation for the WK Unit 4 No. 1H Well and drilled a horizontal well located partly under Ms. Strickhausen’s tract and partly under other tracts. It then asked Ms. Strickhausen to ratify the pooled unit.

Ms. Strickhausen’s lawyer then engaged in a series of communications with BPX seeking to negotiate terms under which Ms. Strickhausen would agree to ratify the pooled unit. The attorney asked BPX how it would propose to pay Ms. Strickhausen if she refused to ratify the unit. BPX replied that it would pay her “based on the length of productive wellbore on the subject tract over the total length of productive wellbore.” BPX claimed that Ms. Strickhausen would receive a larger royalty interest in the well by ratifying the pooled unit than she would if she were paid on a productive-wellbore basis. BPX concluded by saying that, if Ms. Strickausen did not ratify the unit “the royalties will require being placed in suspense.” Continue reading →

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HB 3794

This bill, signed by the Governor, fixes a problem with the provisions of the Texas Business and Commerce Code that grant a security interest in oil and gas production and proceeds to secure the payor’s obligation to pay royalty owners. I have written about this problem before. Previous bankruptcy court decisions held that this provision did not protect royalty owners when the payor was a company not organized in Texas.

SB 1259

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According to the Houston Chronicle, “ERCOT estimates the amount of solar capacity alone could more than double by May 2022, growing to more than 17,000 megawatts from about 7,000 megawatts in April. One megawatt is enough to power about 200 Texas homes on hot summer day.” That’s 3.4 million homes. Read the article here.

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Today a district court in Travis County held that the Texas Railroad Commission violated the Administrative Procedure Act by informally adopting rules for issuance of allocation and production sharing well permits without following the rule-making procedures of the Act. The Court ruled in an appeal by a mineral owner of the Commission’s order granting a well permit to Magnolia Oil & Gas Operating for a well in Karnes County.

The case is Opiela v. Railroad Commission of Texas, No. D-1-GN-20-000099, in the 53rd District Court of Travis County. Judge Karin Crump’s order can be viewed here. Opiela v. RRC Final Judgment (003) Our firm represents the Opielas in the case.

Magnolia’s well, the Audioslave 1H, was originally permitted by Enervest as an allocation well. The Opielas protested the permit, and while the protest was pending the Commission issued the permit and Enervest drilled the well. Magnolia then took over operation of the well and filed an application for an amended permit for the well as a production-sharing well. That permit was also granted over the Opielas’ protest, and Magnolia fracked and completed the well.

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Two unusual cases have recently been decided by the El Paso Court of Appeals, both arising out of the same underlying facts. Both deal with a tax foreclosure on royalty interests.

In the late 1990s an attorney and two mineral buyers got together and proposed to taxing districts to handle tax foreclosure suits for delinquent taxes on royalty interests. The tax foreclosures named a large set of defendants who were served by posting notice of the suit at the courthouse. Texas law allows notice of suit by posting or publication where the plaintiff has tried diligently to locate the defendant and has been unable to do so. The two mineral buyers, Joe Hughes and Duke Edwards, searched the tax records for owners with delinquent taxes, and the lawyer proposed to represent the taxing districts in foreclosing the tax liens. The lawyer’s fee was paid out of the proceeds from the sheriff sale of the royalty interests foreclosed on. Hughes and Edwards were hired to try to locate the delinquent royalty owners so they could be served with the tax suit. For those they could not locate, they provided testimony in the foreclosure suit that they diligently looked for the missing owners and were unable to find them, so the court would authorize service by posting. Hughes and Edwards received an “abstractor’s fee” for each “unlocatable” owner for whom they searched. At the sheriff sale, Duke and Edwards bid on and purchased some of the royalty interests sold.

In Mitchell v. Map Resources, No. 08-17-00155-CV, the El Paso Court of Appeals addressed an appeal of a suit by the Mitchells seeking to set aside a 1999 judgment for taxes and the sale of their interest in royalties. The case resulted in three opinions: the majority opinion by Justice Gina Palafox, a concurring opinion by Justice Alley, and a dissenting opinion by Justice Rodriguez. The court refused to set aside the sale.

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Link here to Texas Tribune article. Not a good idea. ERCOT definitely made some mistakes in the freeze, but it had no authority to require generators to winterize.  Everyone is still pointing the finger at everyone else. Another Texas Tribune article: the legislature is now considering creating a $2 billion taxpayer-funded account for those improvements.

 

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Last week the Texas Supreme Court issued a per curiam opinion, without oral argument, reversing the judgment of the El Paso Court of Appeals  in Sundown Energy LP v. HJSA No. 3 Limited Partnership, No. 19-10654. The lease at issue covers 30,450 acres in Ward County. The case is another illustration of how parties fail to clearly express their intent in drafting retained acreage clauses.

The lease provides that, after the end of its six-year primary term, the lessee must release acreage not held by production unless the lessee was engaged in a “continuous drilling program:”

The obligation . . . to reassign tracts not held by production shall be delayed for so long as Lessee is engaged in a continuous drilling program on that part of the Leased Premises outside of the Producing Areas. The first such continuous development well shall be spudded-in on or before the sixth anniversary of the Effective Date, with no more than 120 days to elapse between completion or abandonment of operations on one well and commencement of drilling operations on the next ensuing well.

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