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Aycock v. Vantage Fort Worth Energy – Effect of Lease Ratification

The Texas Supreme Court recently denied a petition for review filed by the Aycocks in their suit against Vantage Fort Worth Energy. The trial court and  court of appeals both ruled against the Aycocks’ claims. The holding in the case is not surprising, but dicta in the court of appeals’ opinion may raise some eyebrows among oil and gas lawyers.

Desdemona Cattle Company owned an undivided mineral interest in 1,409 acres in Erath County. In March 2008 Desdemona leased its undivided interest to Vantage Fort Worth Energy for $750 per net mineral acre, for a total of $394,574.60. The Aycocks also owned an undivided mineral interest in the 1,409 acres, and when they learned of Desdemona’s lease to Vantage, they contacted Vantage and sought to lease their interest. Vantage never replied. No well was ever drilled, and the Desdemona lease expired in March 2011.

In May 2012, the Aycocks sued Vantage. They claimed that they had ratified the Desdemona lease and were entitled to be paid a bonus of $750 per net mineral acre for their mineral interest. The trial court denied the Aycocks’ claim. The Eastland Court of Appeals affirmed, holding that the Aycocks had no basis to assert a claim for unpaid bonus against Vantage.

The interesting part of the court’s opinion is what it says the Aycocks could have done. The court says the Aycocks could have sued Desdemona and recovered a share of the lease bonus Vantage paid to Desdemona. The reasoning goes like this: Desdemona is a cotenant in the mineral estate with the Aycocks. The oil and gas lease signed by Desdemona purported to lease the entire mineral estate to Vantage. The Aycocks had the right to ratify Desdemona’s lease, thereby approving Desdemona’s unauthorized act of purporting to lease the Aycocks’ undivided mineral interest; and having ratified Desdemona’s unauthorized act, the Aycocks are entitled to their share of any bonus and royalties paid under or for the oil and gas lease.

Typically, an oil and gas lease does not specify the undivided interest owned by the lessor. The lease simply says that the lessor is leasing the oil and gas in the land. A proportionate reduction clause in the lease provides that, if the lessor owns less than all of the oil and gas in the property, then any royalties owed under the lease will be proportionately reduced to reflect the undivided interest owned by the lessor. The bonus paid for the lease is calculated based on the parties’ understanding of the mineral title owned by the lessor when the lease is signed. So, even though the lease does not specify the undivided interest owned by the lessor, the lessor is not attempting or purporting to lease any other cotenants’ undivided interest in the property.

Cases cited by the court of appeals do hold that a cotenant can ratify an oil and gas lease and thereby become subject to that lease. None of those cases has held that a ratifying cotenant can recover a share of the bonus paid to the signing cotenant for the lease. Unless it can be shown that the lessee erroneously paid the signing cotenant for a mineral interest owned by a non-signing cotenant, I don’t think a signing cotenant should be required to share his/her bonus with another cotenant to decides to ratify the lease. To that extent, it appears to me that the court of appeals’ dicta is not correct.

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