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Last week the Corpus Christi Court of Appeals issued a decision on a long-running dispute over reservation of a royalty interest in a deed. This is the court’s second opinion in the case.

In the court’s first opinion in 2018, the court construed the following royalty reservation:

SAVE AND EXCEPT and there is hereby reserved to [Hahn] herein, his heirs and assigns, an undivided one-half (1/2) non-participating interest in and to all of the royalty [Hahn] now owns, (same being an undivided one-half (1/2) of [Hahn’s] one-fourth (1/4) or an undivided one-eighth (1/8) royalty) in and to all of the oil royalty, gas royalty and royalty in other minerals in and under and that may be produced from the herein described property.

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Mayfield and Ingham leased several sections in Sutton County to EnerVest. EnerVest produces gas which goes to a gas plant for processing and pays royalty on the residue gas and natural gas liquids, after deducting post-production costs. The gas must be compressed and dehydrated before sale, and EnerVest does not pay royalty on the fuel used in compression and dehydration. Mayfield and Ingham sued EnerVest seeking royalties on the fuel gas.

The San Antonio Court of Appeals held that, under the lease royalty provisions, EnerVest does not owe royalties on fuel gas. EnerVest v. Mayfield, No. 04-21-00337-CV.

The lease provides for payment “on gas produced from said land and sold or used off the premises, … the market value at the mouth of the well of one-eighth of the gas so sold or used.” Another lease clause provides:

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A good article in Texas Tribune about the growing problem of P-13 wells that are leaking and contaminating land and groundwater.

When an oil and gas operator drills a dry hole or decides to abandon a well, instead of plugging the well it can transfer the well to the surface owner to re-complete as a water well. The parties file a Form P-13 with the Railroad Commission to accomplish that change in ownership. The Commission and the operator contend that the surface owner then becomes responsible for plugging the well. But apparently the law is not so clear on the issue. The Middle Pecos Groundwater District contends that some 40 P-13 wells in its area are the responsibility of the Railroad Commission to plug as orphan wells. The problem is exacerbated by operators using a shallow formation to dispose of produced water; the formation is pressured up and unplugged P-13 wells become a conduit for flowing polluted salt water to come up the wellbore.

Wight

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Last June the Corpus Christi Court of Appeals decided that the right to store oil in a salt cavern belongs to the surface owner. In Myers-Woodward, LLC v. Underground Services Markham, LLC, et al., No. 13-20-00172-CV, the court addressed a dispute between Myers-Woodward, which owned the surface estate and a royalty on minerals, including salt, in a tract in which Underground Services owned the salt. Underground Services mined and sold salt by solution-mining from a salt cavern under the land. Myers-Woodward disputed how Underground calculated its royalties on the salt. Underground also asserted that, as owner of the salt, it has the right to use the resulting salt cavern to store hydrocarbons. The court ruled in favor of Underground on its method of determining the royalties owed, but it ruled in favor of Myers-Underwood on the right to use the resulting salt cavern, holding that Myers-Underwood held the storage rights, a part of its rights as owner of the surface estate.

Underground cited Mapco, Inc. v. Carter, 808 S.W.2d 262 (Tex.App.–Beaumont 1991), rev’d on other grounds 817 S.W.2d 686 (Tex 1991), in support of its claim to storage rights. Mapco has often been cited as lending uncertainty to the issue of whether the surface owner owns the pore space under its land. The Beaumont court in Mapco, without citing any authority, held that the mineral owner had storage rights for underground storage facilities. After reviewing other authority, the Corpus Christi court concluded that, contrary to Mapco, “the well-recognized, decisional law states that the mineral estate owner owns the minerals but not the subsurface. … Therefore, we decline to follow Mapco in this case.”

Storage rights have become a more important issue recently with the advent of CO2 sequestration projects in Texas. Although the court did not cite Lightning Oil v. Anadarko, Lightning would seem to support its conclusion as well.

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Ridgefield Permian v. Diamondback is another case arising out of the same tax foreclosure suit that was addressed in Mitchell v. MAP Resources, decided earlier this year by the Texas Supreme Court. My discussion of Mitchell can be found here. Both Ridgefield and Mitchell were initially decided by the El Paso Court of Appeals. While Mitchell’s appeal to the Supreme Court was pending the El Paso Court handed down its opinion in Ridgefield, 2021 WL 1783260 (May 5, 2021). In Ridgefield, the El Paso Court held that the taxing authorities’ lien attached only to the royalty interest reserved in the lease; once the lease terminated, the purchaser of the royalty interest foreclosed upon owned no interest in the mineral estate. This week, the Texas Supreme Court declined to hear Ridgefield’s appeal of the El Paso Court’s judgment.

Alberta Griffith owned a 1/7th interest in the surface and minerals in a section of land in Reeves County. When she died her interest passed to her two sons, Albert and David, subject to a life estate interest in her surviving husband. In 1975, the husband and sons signed an oil and gas lease to Billings, reserving a 1/8th royalty. A well, the Meriwether No. 1, was completed on the lease.

In 1998, there was a small tax debt owed by Mr. Griffith and Albert on their royalty in the Meriwether lease. That year the taxing districts filed suit to foreclose tax liens against several hundred defendants, including Mr. Griffith and Albert. In the suit their interests were each described as a .005952 decimal interest in the Meriwether lease (each owning a royalty of 1/3 of 1/7 of 1/8 royalty). Judgment was entered foreclosing the lien, the interests were sold at Sheriff’s sale, and the interests came to be owned by Magnolia, LLC.

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Last year KUT produced a podcast, “The Disconnect,” chronicling the February 2021 Texas freeze and blackout. KUT has now produced Part 2: “The Disconnect: Power, Politics and the Texas Blackout,” explaining what has happened since–what has been fixed, the cost in electric bills, and the aftermath–hosted by KUT reporter Mose Buchele. An excellent look at what the legislature, regulators, gas producers and generators have and have not done to prevent future system failures.

Yesterday the Texas Railroad Commission approved new regulations requiring well, gas plant and pipeline operators to winterize their facilities. Critics are skeptical they will do the job.

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Sometimes lawyers really do have the best responses.  The following is just one example.

Rebuilding New Orleans after Katrina often caused residents to be challenged to prove home titles back hundreds of years. That is because of community history stretching back over two centuries during which houses were passed along through generations of family, sometimes making it quite difficult to establish a paper trail of ownership.

A New Orleans lawyer sought a FHA rebuilding loan for a client. He was told the loan would be granted upon submission of satisfactory proof of ownership of the parcel of property as it was being offered as collateral. It took the lawyer 3 months, but he was able to prove title to the property dating back to 1803. After sending the information to the FHA, he received the following reply.

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Dr. Scott Tinker will host a 12-episode TV series on energy and climate, on Austin’s PBS station, KLRU, beginning September 4 at 6 pm and streaming on PBS.org. More information can be found here.

From the press release:

Energy and climate are intertwined, two of the most important topics in the world today. Yet very little is known about them. This show aims to change that. ENERGY SWITCH brings together two renowned experts from government, NGOs, academia and industry, with differing perspectives on important energy and climate topics, such as: Could solar and wind power our future? Or could hydrogen be the dominant energy source? Should we have more or less nuclear power? How should we respond to climate change? What policies most effectively reduce emissions? How could we pay for them?

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The King Ranch Institute for Ranch Management at Texas A&M University – Kingsville has published a webinar and a white paper on how ranchers should consider whether to enter into agreements to change their ranch practices to increase CO2 in their soil, generating carbon credits. Links to the webinar and white paper can be found here.

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