Articles Posted in Recent Cases

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Last Tuesday the Texas Supreme Court heard arguments in three cases on oil-and-gas-related topics.TexasBarToday_TopTen_Badge_Small

Murphy Oil v. Adams, No. 16-0505:

Our firm represents the Herbsts in this case.  Murphy owns a lease on their lands in Atascosa County, shown in blue below. While the Herbst Lease was in its primary term, Comstock drilled the Lucas A Well on the adjacent tract, shown in green.

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Dragon v. Trial, from the San Antonio Court of Appeals, No. 04-16-00758-CV, decided November 8, is a case that may be of interest only to title attorneys and landmen and those of us who delight in the minutiae of land titles. It is also, like many title disputes, the story of a dispute over land whose minerals have become fantastically valuable. The case involves 237 acres in Karnes County, in the heart of the Eagle Ford play.

TexasBarToday_TopTen_Badge_SmallIn 1932, the 237 acres was conveyed in equal shares to eight siblings. One of the siblings died, and the property was thereafter owned by the remaining seven. One of the siblings was Leo Trial. In 1983, Leo conveyed one-half of his 1/7th share to his wife Anna Ruth.

In December 1992, Jerome and Patricia Dragon purchased the property from Leo Trial and his siblings. They financed a part of the purchase with a 15-year note. Also, the grantors reserved the mineral estate in the 237 acres for a term of 15 years, after which title to the minerals would go to the Dragons. But Anna Ruth Trial did not sign the deed – an oversight that was not discovered until years later. Continue reading →

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The DC Court of Appeals and the US District Court for the Northern District of California have struck down orders of the EPA and the Bureau of Land Management postponing compliance dates for the Obama administration’s rules requiring the oil and gas industry to monitor and reduce methane emissions. Both courts held that the agency’s orders were “arbitrary and capricious” and in violation of the Administrative Procedure Act.  Clean Air Council, et al. v. E. Scott Pruitt, Administrator, Environmental Protection Agency and Environmental Protection Agency, No. 17-1145, opinion July 3, 2017; State of California, et al. v. U.S. Bureau of Land Management, et al., Case Nos. 17-cv-03804-EDL, 17-cv-388-EDL, opinion Oct. 4, 2017.

Methane is a powerful greenhouse gas contributing to human-caused global warming. The EPA’s rules, aimed at reducing emissions of methane from oil and gas facilities, were adopted in May 2016. They impose “new source performance standards” for finding and fixing leaks of methane in oil and gas production facilities. Those rules require operators to implement a leak monitoring plan using optical gas imaging to find and fix leaks from valves, connectors, pressure-relief devices, flanges, compressors and thief hatches on storage tanks.  The BLM issued similar rules in November 2016 to reduce waste of natural gas from venting, flaring and leaks during oil and gas production activities on Federal and Indian lands.

President Trump appointed Scott Pruitt as Administrator of EPA. Pruitt, as Attorney General of Oklahoma, sued the EPA at fourteen times on behalf of his state, attacking the EPA’s authority to regulate various industries. Pruitt rejects the scientific consensus that human activities contribute to climate change. Continue reading →

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On September 22, the Texas Supreme Court refused to reconsider its opinion in BP America v. Red Deer Resources, No. 15.0569 – after some 16 amicus briefs and letters were filed urging the court to grant Red Deer’s motion for rehearing.

The Court addressed the construction of a shut-in royalty clause in an oil and gas lease:

Where gas from any well or wells capable of producing gas … is not sold or used during or after the primary term and this lease is not otherwise maintained in effect, lessee may pay or tender as shut-in royalty …, payable annually on or before the end of each twelve month period during which such gas is not sold or used and this lease is not otherwise maintained in force, and if such shut-in royalty is so paid or tendered and while lessee’s right to pay or tender same is accruing, it shall be considered that gas is being produced in paying quantities, and this lease shall remain in force during each twelve-month period for which shut-in royalty is so paid or tendered ….

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The Texas Supreme Court has reconsidered its decision not to hear two appeals involving retained acreage clauses: XOG Operating, LLC v. Chesapeake Exploration Limited Partnership, No. 15-0935, and Endeavor Energy Resources, L.P. v. Discovery Operating, Inc., No. 16-0155. The Court initially refused to consider the cases, after ordering briefs on the merits in both, but on September 1 the Court reversed itself. It reinstated XOG’s petition for review in XOG v. Chesapeake, and it granted the petition for review and set Endeavor v. Discovery for oral argument on January 9, 2018.TexasBarToday_TopTen_Badge_Small

In XOG v. Chesapeake, the retained acreage clause is included not in an oil and gas lease, but in an assignment of lease from XOG. The assignment provided that, once the continuous development period in the assignment expires:

Continue reading →

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Landowners in Texas challenged the right of pipelines to condemn easements for intrastate lines in Texas in Texas Rice Land Partners, Ltd. v. Denbury Green Pipeline-Texas, LLC, decided in 2011. The Texas Supreme Court held that a pipeline seeking to exercise the power of eminent domain must prove that the pipeline will be put to a “public use.” The case caused a stir among pipeline companies and their counsel, and resulted in new regulations at the Texas Railroad Commission, which approves intrastate pipeline projects, and efforts to bolster pipeline eminent domain authority by legislation.

A group of landowners has now filed suit challenging the Federal Energy Regulatory Commission’s grant of eminent domain authority for interstate pipeline projects. In Bold Alliance et al. v. FERC et al., No. 1:17-cv-01822 (Bold Alliance v. FERC), in the U.S. District Court for the District of Columbia, the plaintiffs allege that FERC does not require pipeline companies to demonstrate that their projects serve a “public use.”   The plaintiffs seek to enjoin FERC from issuing certificates of need to Mountain Valley Pipeline for its proposed 301-mile 42-inch gas line in West Virginia and Virginia,  and to Atlantic Coast Pipeline for its 564-mile 42-inch line in West Virginia, Virginia and North Carolina.

After all of the concern created by the Texas Supreme Court’s 2011 decision in Denbury, the Court this year finally held that Denbury did in fact have the power to condemn Texas Rice Land Partners’ property. The Court held that “the evidence adduced by Denbury Green on remand established as a matter of law that there was a reasonable probability that, at some point after construction, the Green Line would serve the public by transporting CO2 for one or more customers who will either retain ownership of their gas or sell it to parties other than the carrier.” This is not a high hurdle to overcome. It will be interesting to see what test the DC Court applies to determine whether the projects there challenged will serve a public use.

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Last May, the San Antonio Court of Appeals issued an opinion in Texas Outfitters Limited v. Nicholson, No. 04-16-00392-CV, addressing the duty of holders of the mineral executive right to its non-executive mineral owner – a case now pending on application for writ of error in the Texas Supreme Court. It is the first significant appellate opinion on the duty of the executive since the Supreme Court’s decision in Lesley v. Veterans Land  Board on the same topic. The case tells the remarkable story of a landowner’s failure to carry out its duty of “utmost fair dealing” in exercising – or in this case failing to exercise – its executive right.

The executive right is the power to lease minerals for oil and gas exploration and development. It is one of the sticks in the bundle of rights that make up the mineral estate. The executive right can be conveyed or reserved separately from the other rights of the mineral owner – the right to bonus, delay rental and royalty. When the right to lease the mineral estate is owned by a different party than the owner of the mineral estate, conflicts can arise between the two on whether, when and on what terms the executive should exercise its right. Courts have struggled to define what duty the executive holds to the non-executive mineral owner.

The two previous cases from the Texas Supreme Court, In re Bass, 113 S.W.3d 735 (Tex. 2003) and Lesley v. Texas Veterans Land Board, 352 S.W.3d 479 (Tex. 2011), sent mixed signals on the scope of the executive-rights holder’s duty. In Bass, the court held that the holder of the executive right had no duty to enter into an oil and gas lease, but only to exercise utmost fair dealing if it elected to lease. In Lesley, the court backed off its previous holding, deciding that the holder of the executive right could breach its duty by failing to lease – or in Lesley’s, case, imposing restrictive covenants on the land that made it impossible to lease.

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In a case of first impression, the Texas Supreme Court has held that the same land can be included in two pooled units, and that the lessee must pay royalties on the same well to the royalty owners in both pooled units. Samson Exploration v. T.S. Reed Properties, Inc., 2017 WL 2713047 June 23, 2017).

Samson created two pooled units, the Joyce DuJay No. 1 Gas Unit and the Joyce DuJay A No. 1 Gas Unit. The boundaries of the two units largely overlapped, but the A No. 1 Gas Unit also included a lease from T.S. Reed Properties, not included in the No. 1 Gas Unit. The two units also overlapped as to the designated depths pooled, and one of the wells located on the two units was located on lands included in both units and produced from the overlapping depth. Samson was thus faced with the possibility of paying royalties on production from that well to the royalty owners in both units. It refused to pay royalties to T.S. Reed Properties, contending that the second pooled unit was invalid.

Continue reading →

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Denbury Green Pipeline and Texas Rice Land Partners have now fought for ten years over Denbury’s right to condemn an easement across Texas Rice’s land for a CO2 pipeline. The fight is once again, for the third time, back before the Texas Supreme Court.

The fight began in 2007, when Texas Rice challenged Denbury’s right to condemn an easement for its pipeline. That case went to the Supreme Court, which issued a controversial decision holding that Denbury had not proven its right to condemn the easement.  Texas Rice Land Partners, Ltd. v. Denbury Green Pipeline-Texas, LLC, 363 S.W.3d 192 (Tex. 2012). The case went back to the trial court and through the Beaumont Court of Appeals, and in January of this year, the Supreme Court issued its second opinion, Denbury Green Pipeline-Texas, LLC v. Texas Rice Land Partners, Ltd., 510 S.W.3d 909 (Tex. 2017), this time ruling that Denbury had proven its right to condemn as a matter of law.  See my discussion of these cases here. The case was remanded for trial on the amount of compensation to be awarded for the easement.

The most recent dispute began when Denbury sought access to its pipeline for inspection and Texas Rice refused. Texas Rice argued that Denbury had no right of access because it had been enjoined from taking the compensation funds deposited by Denbury into the court registry eight years earlier. Denbury then asked the trial court to allow it access to the pipeline, but the trial court sided with Texas Rice, agreeing that it had not complied with the requirements of condemnation statutes because Texas Rice was enjoined from withdrawing the condemnation award. Denbury then sought mandamus relief in the Beaumont Court of Appeals, which ruled that it did not have jurisdiction. Now Denbury has sought mandamus relief in the Texas Supreme Court, Case No. 17-0556.

 

 

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