Articles Posted in Recent Cases

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The Fifth Circuit Court of Appeals has held that a landowner has stated a judiciable claim against the Brazos Valley Groundwater Conservation District (BVGCD) for an unconstitutional taking of his groundwater rights. David Strata, et al. v. Jan A. Roe, et al., No. 18-60994. Fascinating facts.

Groundwater Districts were created by the Texas Legislature to manage production of groundwater. Most Districts cover one county. The BVGCD covers Robertson and Brazos Counties. There are nearly 100 Districts encompassing 72 percent of major and minor aquifers in the State. Each District adopts its own rules governing permitting of and production from water wells.

BVGCD’s rules create three categories of water wells: Existing Wells, New Wells, and Wells with Historic Use. Its rules are designed to “minimize as far as practicable the drawdown of the water table and the reduction of artesian pressure, to control subsidence, to prevent interference between wells, to prevent degradation of water quality, and to prevent waste.” The rules provide that Historic Use Wells are generally limited to producing the maximum amount of groundwater used before the effective date of the District’s rules. New Wells have a maximum allowable production based on the number of contiguous acres assigned to the well. When a water well is produced it creates a “cone of depression” in the aquifer – the more water withdrawn, the greater the cone of depression.  The District’s rules establish a formula that calculates the amount of water that can be withdrawn from a well based on the number of acres assigned to the well. For example, a New Well producing 3,00 gallons per minute must have 649 continuous acres assigned the well – a circle with a radius of 3,003 feet. No other wells may be permitted in this 649 acres. The District’s rules define “Existing Wells” as those wells “for which drilling or significant development of the well commenced before the effective date of these Rules.” But the rules do not establish production limits for Existing Wells that have no established historic use. Continue reading →

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Yesterday the Texas Supreme Court denied a petition in one case and granted a petition in the other, both dealing with provisions in oil and gas leases.Top-Ten

The Court denied Chesapeake’s petition in Chesapeake v. Bell, construing an express drainage offset clause in Bell’s lease. The San Antonio Court of Appeals’ decision in favor of Bell stands – for now. The case goes back to the trial court for trial on the merits. I wrote about the Court of Appeals’ decision here.

The Supreme Court granted Endeavor Energy’s petition for review in Endeavor Energy Resources v. Energen Resources, No. 18-1187, dealing with a continuous drilling provision in a lease retained acreage clause.

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Lone Oak Club, a hunting and fishing club, owns a tract of land in Galveston County near Galveston Bay, through which runs Lone Oak Bayou:

lone-oak-bayou

Top-TenMembers of the public boat up into Lone Oak Bayou and sometimes wade and fish or hunt in its shallow waters. Lone Oak complained about this activity and asserted that it owns the bed of Lone Oak Bayou and that members are trespassing when they set foot on the bayou’s bed. The Club agrees that the public has the right to boat on the public waters of the bayou, but when the fisherman or hunter steps out of his boat, they claimed trespass. The Texas General Land Office disagreed. It said the State owns the bed of Lone Oak Bayou adjacent to the Club’s land because the bayou is influenced by tides from the bay and is below the line of mean high tide, and the State owns all submerged lands within tidewater limits. So the Club sued George P. Bush, Commissioner of the Land Office, to establish its title to the bed of the bayou within the boundaries of its 160 acres.

Nature sometimes does not cooperate with the laws created by humans to establish the boundary between the land and water. In Texas especially these laws, mostly created by courts, can sometimes be confusing and complex. Water boundaries shift with the rise and fall of tides, erosion and evulsion, and changes in watercourses. I learned this when I was asked, in my first year of law practice many years ago, to summarize Texas laws regarding land boundaries and rights of public access for a client who owned land along the coast. Continue reading →

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Last week the Texas Supreme Court issued its opinion in Yowell v. Granite Operating Company, No. 18-0841, again grappling with the ancient Rule Against Perpetuities in the context of modern oil and gas transactions–the second time in two years in which the court tackled the inscrutable “Rule.”Top-Ten

The facts (simplified): The Yowells own an overriding royalty on production from a 1986 oil and gas lease. Upland Resources owned the lease. In May 2007, Amarillo Production Company took a top lease on the same land as the 1986 lease, and three months later it sued Upland, contending that the 1986 lease had expired. The parties settled: Upland’s 1986 lease wass terminated, Amarillo Production’s 2007 lease became effective.

The overriding royalty owned by the Yowells was created in an assignment of the 1986 lease that contains the following language, known as an “anti-washout clause”:

Should the Subject Leases … terminate and in the event Assignee obtains an extension, renewal or new lease or leases covering or affecting all or part of the mineral interest covered and affected by said lease or leases, then the overriding royalty interest reserved herein shall attach to said extension, renewal or new lease or leases; and an appropriate recordable instrument shall be executed to evidence Assignor’s overriding royalty interest therein. Further, any subsequent extension or renewal or new lease or leases shall contain a provision whereby such overriding royalty shall apply and attach to any subsequent extensions or renewal of Subject Leases.

The successors to Upland, Granite Oil and Apache, refused to recognize the Yowells’ continued overriding royalty in the 2007 lease, contending that the grant of an override in “future leases” violates the Rule Against Perpetuities. Continue reading →

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The oil and gas industry is at the beginning of a significant downturn. Oil and gas prices are down, supply is up, demand is flat. Another in the never-ending cycle of a boom-and-bust industry, now exacerbated by appearance of a potential coronavirus world epidemic and a sharp reduction in demand for hydrocarbons in China.

As in the past, a downturn in the industry results in a rise in bankruptcies, and this downturn is no exception. Two recent bankruptcy cases illustrate a new wrinkle in disputes arising from failed companies: Monarch Midstream, LLC v. Badlands Production Co., 608 B.R. 854 (Bkrtcy.D.Colo. 2019), and Alta Mesa Holdings, LP v. Kingfisher Midstream, LLC, 2019 WL 7580122 (Bkrtcy.S.D.Tex. Dec. 20, 2019). Continue reading →

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The Texas Supreme Court issued its opinion in ConocoPhillips Co. v. Ramirez, No. 17-0822, a family dispute over ownership of minerals in 10,058 acres in Zapata County, and ConocoPhillips’ claim to an oil and gas lease covering those minerals.

In 1995, ConocoPhillips bought oil and gas leases from EOG covering 1,058 acres, the Las Piedras Ranch, in Zapata County. At the time there was one producing well on the leases. The minerals belonged to the Ramirez family. One member of that family was Leonor, who died in 1990, owning all of the surface estate and a 1/4 mineral interest in the Ranch. Her will devised to her son Leon Oscar Sr. “all of my right, title and interest in and to Ranch Las Piedras … during term of his natural life,” and on his death “to his children then living in equal shares.” Leon Oscar Sr. signed an oil and gas lease on the Ranch, which was acquired by ConocoPhillips. Continue reading →

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Last April the Fort Worth Court of Appeals issued its opinion in Bluestone Natural Resources II, LLC v. Randle, No. 02-18-00271-CV, 2019 WL 1716415. The Court decided that, under Randle’s lease, Bluestone could not deduct post-production costs and owed royalty on plant fuel and compressor fuel. Bluestone has petitioned the Supreme Court for review and the Court has asked for briefs on the merits.

Randle’s lease was a printed form with an exhibit. The printed form provided that royalties on gas would be “the market value at the well of one-eighth of the gas so sold or used …” Exhibit A provided that “the language on this Exhibit A supersedes any provisions to the contrary in the printed lease hereof.” One provision in Exhibit A dealt with post-production costs:

Lessee agrees that all royalties accruing under this Lease (including those paid in kind) shall be without deduction, directly or indirectly, for the cost of producing, gathering, storing, separating, treating, dehydrating, compressing, processing, transporting, and otherwise making the oil, gas and other products hereunder ready for sale or use. Lessee agrees to compute and pay royalties on the gross value received, including any reimbursements for severance taxes and production related costs.

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Significant cases on oil and gas issues in 2019:

In Texas Outfitters v. Nicholson, the Texas Supreme Court again addressed the duty of the older of executive rights to minerals owned by another.

In Trial v. Dragon, the Supreme Court delved into the arcane theories of the Duhig rule and estoppel by deed.

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Happy New Year.

The decade now ending was the decade of the Permian Basin.  Its rise in production changed the US to a net oil exporter.

Permian-Oil-Production

Permian gas production, a byproduct of the search for oil, drove down gas prices and resulted in a frenzied effort to build pipelines to move the gas to the coast.

Permian-Gas-Production

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The Texas Tribune has published an article describing a remarkable settlement in San Antonio Bay Estuarine Waterkeeper and S. Diane Wilson v. Formosa Plastics Corp, a suit claiming environmental damages for Formosa’s plastics pollution discharges into Lavaca Bay. The judge in the US District Court for the Southern District of Texas, Kenneth Hoyt, approved a $50 million settlement – the largest ever for a citizen’s suit against an industrial polluter under the Clean Air Act and Clean Water Act.

Formosa argued that the $121,875 fine imposed by the Texas Commission on Environmental Quality made the suit moot. In an earlier ruling, Judge Hoyt disagreed, calling the company a “serial offender” and saying that “the TCEQ’s findings and assessment merely shows the difficulty or inability of the TCEQ to bring Formosa into compliance with its permit restrictions.” I cited this case in an earlier post about the inadequacy of Texas agencies’ enforcement of environmental laws and the complexities of administrative enforcement actions.

Diane Wilson, a retired shrimper and environmental activist, was represented by Texas Rio Grande Legal Aid and others. Congratulations to Ms. Wilson.

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John McFarland
 Graves, Dougherty, Hearon & Moody, P.C.
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