Recent Cases

Published on: October 3, 2017

Texas Supreme Court Denies Motion for Rehearing in BP America Production Co. v. Red Deer Resources, LLC

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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Published on: September 14, 2017

Supreme Court Considers Two Cases on Retained Acreage Clauses

By John McFarland

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.

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:

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Published on: September 6, 2017

New Challenge to Pipeline Eminent Domain Powers

By John McFarland

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.

Published on: August 24, 2017

Texas Outfitters v. Nicholson – the Duty of the Holder of the Executive Right to Lease

By John McFarland

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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Published on: August 7, 2017

Double-Pooling? Samson Exploration v. T.S. Reed Properties, Inc.

By John McFarland

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.

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Published on: July 19, 2017

Denbury-Texas Rice Fight Continues

By John McFarland

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.

Published on: July 11, 2017

End of the Road for DISH

By John McFarland

The Texas Supreme Court has refused to allow DISH, a small town in Denton County north of Fort Worth, and several of its residents, to proceed with its suit against four companies who operate gas compressor stations near the town. The plaintiffs alleged that they were harmed by the noise, odors, light and chemicals from the compressors. The Court held that their claims were barred by limitations, reversing an opinion by the Amarillo Court of Appeals that would have allowed the case to proceed.

DISH caused quite a stir beginning in 2010, out of proportion to its size (it had a population of 201 in the 2010 census). Originally named Clark, the town changed its name to DISH as part of a deal with Dish Network in which all residents received free basic television service for ten years. Continue reading →

Published on: June 13, 2017

Beware the Blanket Conveyance Clause in a Mineral Deed

By John McFarland

In March, the Texas Supreme Court decided James H. Davis, Individually and d/b/a JD Minerals, and JDMI, LLC v. Mark Mueller, No. 16-0155. (Davis v. Mueller) The Court construed a mineral deed to JD Minerals covering interests in Harrison County. The deed described particular interests owned by the grantor and then added the following:

The “Lands” subject to this deed also include all strips, gores, roadways, water bottoms and other lands adjacent to or contiguous with the lands specifically described above and owned or claimed by Grantors. If the description above proves incorrect in any respect or does not include these adjacent or contiguous lands, Grantor shall, without additional consideration, execute, acknowledge, and deliver to Grant[ee], its successors and assigns, such instruments as are useful or necessary to correct the description and evidence such correction in the appropriate public records. Grantor hereby conveys to Grantee all of the mineral, royalty, and overriding royalty interest owned by Grantor in Harrison County, whether or not same is herein above correctly described.

The particular tract descriptions were vague and not sufficient to satisfy the statute of frauds. So the issue was whether the deed conveyed anything. JD Minerals contended that the last sentence quoted above was sufficient to convey all interests owned by Grantor in Harrison County, even if all other descriptions in the deed were not sufficient under the Statute of Frauds. The Supreme Court agreed with JD Minerals. It agreed that the particular descriptions were too vague to convey anything, but it followed the Texas rule that a “blanket” conveyance of all of the grantor’s property a named county (or indeed in the State of Texas) is sufficient to convey all property owned by the grantor in the county. The fact that this sentence was in the same paragraph as the Mother Hubbard clause of the deed did not make it ambiguous.

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Published on: May 30, 2017

BP America v. Red Deer Resources – the Shut-in Royalty Clause

By John McFarland

On April 28, the Texas Supreme Court issued its opinion in BP America Production Company v. Red Deer Resources, LLC, No. 15-0569, a unanimous opinion written by Justice Green. The case concerns operation of a shut-in royalty clause in a lease granted in 1962 covering 2,113 acres in Lipscomb and Hemphill Counties. BP had one gas well on the lease that produced less than 10 mcf per day. In 2011, Red Deer obtained a top lease on the 2,113 acres. BP turned off the valve on the well on June 12, 201 and tendered a shut-in royalty payment to the lessors on June 13. The well last produced gas on June 4. In August 2012, Red Deer sued BP, alleging that the lease had terminated for lack of production in paying quantities prior the date the well was shut in.

The shut-in royalty clause reads:

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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Published on: May 22, 2017

Lightning Oil v. Anadarko – Supreme Court Rules on Subsurface Trespass Claim

By John McFarland

Last week the Texas Supreme Court issued its opinion in Lightning Oil Company v. Anadarko E&P Onshore, LLC, No. 15-0910, denying Lightning Oil’s trespass claim against Anadarko. Lightning Oil lost in the trial court, the San Antonio Court of Appeals, and now the Supreme Court.

To understand the case, it is helpful to look at the plat below (click to enlarge):

Lightning Oil owns an oil and gas lease on the knife-shaped tract. The surface estate of the tract is part of the Briscoe Ranch in Dimmit County, which includes lands to the north. To the south lies the Chaparral Wildlife Refuge, owned by the State and managed by Texas Parks & Wildlife. Anadarko obtained a lease from the State on the Refuge. That lease made it difficult to use the surface estate of the Refuge to drill wells, and Anadarko made an agreement with the Briscoe Ranch to allow Annadarko to put drilling pads on the Ranch (and on Lightning Oil’s oil and gas lease) to drill horizontal wells that would produce from the Refuge. Lightning Oil sued Anadarko claiming that its wells would trespass on Lightning’s mineral estate, even though no well perforations would be on Lightning Oil’s lease.

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