Articles Posted in Recent Cases

The Fourth Court of Appeals in San Antonio handed down an opinion this week in Adams v. Murphy Exploration & Production Co.-USA, deciding the meaning of “offset well” as used in an oil and gas lease.

The plaintiffs in the case signed an oil and gas lease to Murphy containing the following provision:

It is hereby specifically agreed and stipulated that in the event a well is completed as a producer of oil and/or gas on land adjacent and contiguous to the leased premises, and within 467 feet of the premises covered by this lease, that Lessee herein is hereby obligated to, within 120 days after the completion date of the well or wells on the adjacent acreage, as follows:

(1) to commence drilling operations on the leased acreage and thereafter continue the drilling of such offf-set well or wells with due diligence3 to a depth adequate to test the same formation from which the well or wells are producing from on the adjacent acreage; or

(2) pay the Lessor royalties as provided for in this lease as if an equivalent amount of production of oil and/or gas were being obtained from the off-set location on these leased premises as that which is being produced from the adjacent well or wells; or

(3) release an amount of acreage sufficient to constitute a spacing unit equivalent in size to the spacing unit that would be allocated under the lease to such well or wells on the adjacent lands, as to the zones or strata producing in such adjacent well.

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The Supreme Court last week denied the petition for review of the Corpus Christi Court of Appeals’ decision in Forest Oil v. El Rucio Land and Cattle Company. Forest was acquired by Sabine Oil & Gas during the course of the case, which started in 2004. Jimmy McAllen and his company obtained a $20 million arbitration award against Forest, and the Corpus Christi Court affirmed the award. The Texas Supreme Court has now declined to hear the case. I have written about this interesting case here and here.

Marsden v. Titan Operating, decided by the Fort Worth Court of Appeals in August 2015, is another case in which a landowner sought nuisance damages from the drilling of wells close to their home. After a jury trial, the trial court awarded damages of $36,000 to the Marsdens. The court of appeals reversed. The Marsdens have asked the Texas Supreme Court to hear the case.

The facts are these. The Marsdens bought 6 acres in Parker County in 1997, near Aledo, where they made their home with their two daughters. They signed an oil and gas lease covering the property in 2004. It was on the company’s printed form, but the Marsdens negotiated provisions they added by an addendum to the lease. The printed form provided that no well could be drilled nearer than 200 feet to any house on their property. But the addendum provided that no drilling operations could be conducted on the surface of their property – a “no-surface-use” lease.

In 2011, Titan, who acquired the Marsden lease and leases on adjacent properties, constructed a pad site immediately adjacent to the Marsdens’ property and within about 200 feet of their home. The rig for the initial well on the pad site was just over 300 feet from the house. The well was completed on a pooled unit in which the Marsdens’ property was included, and the Marsdens signed division orders and receive royalties from the unit.  Titan subsequently drilled five more wells on the pad.

In January of last year the Texas Supreme Court decided Hooks v. Samson, a suit by royalty owners against Samson Lone Star Limited Partnership. I wrote a post on the Supreme Court’s decision, found here. The Hooks obtained a $21 million fraud judgment against Samson, but the First District Court of Appeals reversed and rendered judgment that the Hooks should take nothing. The Hooks appealed to the Texas Supreme Court. The focus of the Supreme Court’s opinion was whether the Hooks’ claim was barred by limitations — whether the Hooks should have discovered Samson’s conduct more than four years before it sued Samson.  The court of appeals had held that, under prior Supreme Court cases, it was bound to rule that the Hooks’ case was barred by limitations and should be dismissed. But the Supreme Court distinguished its prior opinions and held that, when the fraudulent documents Samson gave to Hooks were filed by Samson in the Railroad Commission, the Hooks could rely on them, even if the documents are contradicted by other public records.

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On January 29, the Texas Supreme Court issued its opinion in Hysaw v. Dawkins, a unanimous decision with opinion by Justice Guzman. Our firm represents one group of the plaintiffs in the case, which concerns construction of Ethel Hysaw’s will.

Ethel Hysaw had three children: Dorothy, Howard and Inez. Her will, executed in 1947, divided her lands in Karnes County among her three children. She gave one tract to each child. But she divided the royalties on oil and gas differently, and the dispute in the case was over how the will disposed of her royalty interest in the three tracts. The descendants of Dorothy and Howard argued that Ethel’s will divided all oil and gas royalties equally among Dorothy, Howard and Inez. The descendants of Inez argued that Ethel’s will divided a 1/8th royalty equally among her children, but left all other royalties to the child who got the surface of the property.  Wells producing from the Eagle Ford shale were drilled on the lands willed to Inez, and the lease signed by Inez’s descendants provides for 22.5% royalty. Inez’s heirs argued that Dorothy and Howard’s descendants each should receive 1/3 of 1/8th royalty, or 4.1666%, from those wells, and that they should receive the rest, .141666%. Dorothy and Howard’s descendants argued that each family should receive 1/3 of the 22.5% royalty, or 7.5% each.

Ethel’s will provided that

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.