Articles Posted in Retained Acreage Clauses

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Texas courts are very reluctant to hold that oil and gas lease provisions are ambiguous. The same holds true for deeds and wills. These instruments affect title to land, and if an instrument is ambiguous it inserts uncertainty into land titles and results in litigation over the parties’ intent using extrinsic evidence, usually before a jury. Such litigation often ends up with each party testifying as to what they meant in the instrument, leaving a jury with little go to on. Or the instrument in question is so old that no person is alive who could testify as to the parties’ intent.

The meaning of a contract, deed or lease is a “question of law,” meaning it is decided by a judge, not a jury, based solely on the “four corners” of the instrument. Only if an instrument is ambiguous can outside evidence of the parties’ intent be considered, and then the meaning of the contract is a fact question that may be submitted to a jury. Courts bend over backwards to avoid holding that an instrument is ambiguous. It is often the case that an appellate court will hold that the language of an instrument is unambiguous even though the court does not agree on the meaning!

But in Endeavor Energy Resources v. Energen Resources, the Supreme Court reached the conclusion, after eighteen pages of reasoning, that it was impossible to tell from the language in the lease what the parties intended, and that it was ambiguous. The Court remanded the case to the trial court to admit evidence of the parties’ intent.

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Last April the Texas Supreme Court issued its opinion in Endeavor Energy Resources, L.P. et al. v. Discovery Operating, Inc., et al., No. 16-0155, construing a retained acreage clause in an oil and gas lease.  I commented that the opinion commented in dicta that, even if a lease allows the lessee to retain “tolerance acreage” as allowed by applicable field rules, the operator must “verify that additional acreage is actually necessary or required to achieve the maximum allowable,” quoting from a 2015 CLE paper by Phillip C. Mani.  On rehearing, the Court revised the language I quoted, so that it now reads as follows (click to enlarge): the court watered down its language somewhat.  The issue nevertheless remains an open one.

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