Articles Posted in Recent Cases

Suppose Company A obtains an oil and gas lease on Blackacre from the owner of a 1/6 mineral interest in Blackacre, and Company B obtains and oil and gas lease from the owner of the other 5/6 mineral interest. That makes Company A and Company B co-tenants leasehold mineral estate. Usually in such a circumstance the two companies will sign an operating agreement naming one of them as operator and agreeing to share in the costs of drilling wells on Blackacre. But what if Company B refuses to enter into an operating agreement and drills and produces wells on Blackacre, paying all the costs?

Such was the case in Cromwell v. Anadarko, No. 23-0927. Anadarko refused to enter into an operating agreement with Cromwell. As a co-tenant, Cromwell was entitled to his share of net profits from wells on Blackacre after payout of the wells, and Anadarko did account to Cromwell for his share of net profits — until the primary terms of Cromwell’s leases expired. Then Anadarko took new leases from Cromwell’s lessors and told Cromwell that its leases had expired because Cromwell did not produce any oil and gas from the property. The El Paso Court of Appeals agreed with Anadarko, relying on its own prior opinion in Cimarex Energy Co. v. Anadarko Petroleum Corp., 574 S.W.3d 73 (Tex.App.–El Paso 2019, pet. denied). The Texas Supreme Court reversed, holding that the habendum clauses in Cromwell’s leases only required the oil or gas be produced to keep the lease in effect beyond the primary term, not that Cromwell had to produce it. The Court disapproved of Cimarex v. Anadarko.

A typical habendum clause in an oil and gas lease provides that the lease remains in effect after the primary term “for as long as oil or gas is produced from the leased premises.” Based on this language, the Supreme Court concluded that production by any co-tenant will maintain the leases of all co-tenants, whether or not they have signed an operating agreement.

In Myers-Woodward v. Underground Services Markham, No. 22-0878, the Texas Supreme Court removed any doubt that pore space is owned by the owner of the surface estate, not the mineral estate.

Myers Woodward owns the surface estate of 160 acres in Matagorda County. It also owns a 1/8^th royalty on oil, gas and other minerals produced from the land.

Underground Services Markham (USM) owns the salt and salt formations under the 160 acres. USM produced some 2.7 tons of salt from the property between 2015 and 2019. The salt is mined by injecting water into the salt formation, pumping the resulting brine back to the surface and extracting the salt from the brine, creating an underground “salt cavern.”

On the last day of 2024 the Texas Supreme Court issued its opinion in ConocoPhillips v. Hahn, No. 23-0024, putting to rest a long-running dispute between Kenneth Hahn and ConocoPhillips (COP). The opinion deals with a fixed vs. floating NPRI reservation, and a stipulation of interest addressing the reservation.

Kenneth Hahn owned the surface estate and 1/4th of the minerals in 37 acres of land in DeWitt County. In 2002 Hahn conveyed the tract to William and Lucille Gips, reserving

an undivided one-half non-participating interest in and to all of the royalty [Hahn] now owns (same being an undivided one-half of [Hahn’s] one-fourth or an undivided one-eighth royalty) ….

Another case interpreting a royalty reservation in an old conveyance has been decided by the 11th Court of Appeals in Eastland: Boren Descendants and Mabee Descendants v. Fasken Oil and Ranch, Ltd., two consolidated appeals, Nos. 11-22-00365-CV and 11-23-00001-CV. This is the first skirmish in a fight that will undoubtedly end up in the Texas Supreme Court.

In 1933, Midland Farms Company sold to J.E. Mabee 60,000 acres of land in Andrews and Martin Counties. The deed reserves “an undivided one-fourth (1/4th) of the usual one eighth (1/8th) royalty.” The Boren and Mabee descendants are the successors-in-interest of J.E. Mabee in the minerals under this 60,000 acres. Fasken Oil and Ranch, Ltd. is the successor to Midland Farms Company and owner of the reserved royalty. Fasken is also the operator of wells on the 60,000 acres.

Fasken sued the Boren and Mabee descendants in 2019, contending that the 1933 deed reserved a floating 1/4th of the royalty. The Boren and Mabee descendants raised several affirmative defenses, including waiver, division order estoppel/estoppel by contract, judicial estoppel, estoppel by deed, limitations, ratification and/or quasi-estoppel, and presumed grant. The trial court sided with Fasken on construction of the royalty reservation and entered partial summary judgment denying the Boren and Mabee affirmative defenses, leaving only the question of damages. The judge suggested, and the parties agreed, to appeal the legal issues in both cases. The Eastland Court of Appeals affirmed the trial court’s rulings and remanded the cases.

In Mitchell v. Map Resources, the Texas Supreme Court described the constitutional right of due process as follows:

The Due Process Clause of the United States Constitution prevents the government from depriving a person of his or her “property, without due process of law.” U.S. Const. amend. XIV, § 1; see also Tex. Const. art. I, § 19 (“No citizen of this State shall be deprived of … property … except by the due course of the law of the land.”).⁷ It is well settled that these words “require that deprivation of life, liberty or property by adjudication be preceded by *189 notice and opportunity for hearing appropriate to the nature of the case.” Mullane, 339 U.S. at 313, 70 S.Ct. 652. Notice must be “reasonably calculated, under the circumstances, to apprise interested parties of the pendency of the action and afford them the opportunity to present their objections.” Peralta v. Heights Med. Ctr., Inc., 485 U.S. 80, 84, 108 S.Ct. 896, 99 L.Ed.2d 75 (1988) (quoting Mullane, 339 U.S. at 314, 70 S.Ct. 652).⁸

Gill v. Hill, 688 S.W.3d 863, decided by the Texas Supreme Court in January, grows out of a very similar set of facts the court reviewed in Mitchell v. Map Resources in 2022.

Unitex WI, LLC v. CT Land and Cattle Co., decided by the Amarillo Court of Appeals, petition for review pending in Texas Supreme Court.

CT Land and Cattle owns the surface estate of 4,000 acres in Scurry and Kent Counties. The land is subject to an oil and gas lease signed in 1948 to Humble Oil & Refining Company. Unitex is the operator of some 200 wells on the property. The oil and gas lease provides: “When required by Lessor, Lessee will bury all pipelines below ordinary plow depth.” Multiple pipelines serving those wells lie on the surface of the land.

CT Land wrote Unitex, requesting that all pipelines be buried, per the burial covenant in the lease. Unitex refused; CT Land sued; and the district court in Lubbock County entered an order requiring Unitex to bury its lines. Unitex appealed.