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This is my 500th blog post. My first post was on March 23, 2009, the first of three posts about deductibility of post-production costs from royalties. Since then I’ve written about post-production costs twenty-three times.

I decided to start this blog as a way to provide information about developments in oil and gas law of interest to land and mineral owners. Lawyers have continuing education requirements and attend seminars in their specialty where they hear other attorneys present papers on current issues in the law. But there are few such seminars for land and mineral owners, and legal seminar papers are not designed for laypersons. I couldn’t find any other blogs that provided the content I wanted. So I ventured into the blogosphere, a territory I knew little about. It has been a fun and productive ride.

When I began this effort the Barnett and Haynesville shales were booming, the controversy over environmental effects of hydraulic fracturing was bubbling up, and lawyers were just beginning to grapple with the legal issues raised by horizontal wells. Since 2009 the shale boom has revived the domestic onshore oil and gas industry and in the process changed the international politics of global energy production and supply. OPEC and Saudi Arabia have tried unsuccessfully to stifle the shale boom. Talk of peak oil has disappeared. Global demand for oil continues to increase in the face of the now-incontrovertible evidence of hydrocarbons’ adverse effect on our atmosphere. There are five-day traffic jams in China, and India has passed China in the rate of growth of oil consumption, increasing 8.3% in 2016.

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The Texas Supreme Court heard argument last week in a fee dispute between Albert Hill Jr., an H.L. Hunt heir, and one of his attorneys, Gregory Shamoun. Albert G. Hill, Jr. v. Shamoun & Norman, LLP, No. 16-0107.  The Dallas Court of Appeals reversed a take-nothing judgment and awarded Shamoun $7.5 million in fees. 483 S.W.3d 767 (Tex.App.-Dallas 2016)  Shamoun helped Hill resolve a “spider web of litigation”, twenty lawsuits, among Hill, his son and other family members over a $1 billion family trust that involved more than 100 attorneys representing Hill. Shamoun claimed that Hill orally promised to pay him a contingency fee if Shamoun was successful in resolving all of the litigation. To everyone’s surprise, Shamoun negotiated a global settlement of $40.5 million and left the trust in Hill’s control. (Shamoun gained fame by once bringing a donkey to testify in a case.)

The jury awarded Shamoun $7.5 million, which would work out to about $48,000/hour. (Shamoun sought $11 million.) The trial court threw out the verdict, refusing to enforce an oral fee agreement. But the court of appeals held that Shamoun had proven his right to a fee under a theory of quantum meruit, even though oral fee agreements are illegal under Texas’ Statute of Frauds. Under the quantum meruit theory, the jury was free to award a fee that was reasonable under the circumstances, based on the time spent and the result obtained. Hill’s attorneys argued that the only evidence Shamoun presented of a reasonable fee was the contingency fee he said Hill had agreed to, and that evidence was inadmissible.

Texas Solicitor General Scott Keller weighed in with an amicus brief supporting Hill and presented argument in the case – a very unusual event. Hill’s lawyer, James Ho, who also argued the case for Hill, was recently nominated for a seat on the 5th U.S. Court of Appeals by President Trump. One of the attorneys representing Shamoun is former Texas Supreme Court Chief Justice Wallace Jefferson, who argued the case for Shamoun.  Oral argument can be viewed here.

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TP-ticketOnce the largest landowner in Texas with 3.5 million acres of land, Texas Pacific Land Trust now owns 888,333 acres of land in West Texas. The Trust is owned by holders of “shares of proprietary interest” traded on the New York Stock Exchange. TPLT’s story is a window into the history of Texas and railroads in the 19th century.

Texas and Pacific Railway was created by federal charter in 1871. Its charter was to build a southern transcontinental railroad between Marshall, Texas and San Diego, California. Railroad companies were given land grants in exchange for building rail line, and the U.S. Congress granted T&P twenty sections of land per mile in California and forty sections per mile through the territory that is now Arizona and New Mexico. The State of Texas (where there were no federal lands) agreed to grant T&P twenty sections per mile for the portion of the line crossing Texas. The panic of 1873 caused financial difficulties, and by 1876 only 444 miles had been built. In 1879, Jay Gould bought the company and began laying track west. Gould merged T&P with Southern Pacific Railway, and by 1881 it had built a total of 972 miles of track, entitling it to 12.4 million acres of land. But because it had not built all of the line within the time required by its charter, T&P was awarded only 5,173,120 acres, later reduced to 4,917,074 acres – 3.5 million of that in Texas.TP-map

In 1888, the T&P went through bankruptcy and receivership, and the bondholders who financed the railroad were awarded the land in Texas that had been granted to T&P. The bondholders created a trust, Texas Pacific Land Trust, to liquidate those lands for the benefit of the bondholders, receiving 3.5 million acres of land. The certificates of trust issued to the bondholders were later listed on the New York Stock Exchange. The mineral estate under the land was spun off into a separate entity and later sold to Texaco, now Chevron. TPLT owns a royalty interest in almost 500,000 acres of its land.

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Lightning Oil v. Anadarko will be argued before the Texas Supreme Court on March 21. I wrote about the court of appeals’ opinion here.  The issue: whether the owner of a mineral estate has a cause of action for trespass if a horizontal well is drilled through the tract to produce from an adjacent tract. The parties’ briefs may be found here.

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Texas A&M has asked that I post notice of its 2017 Energy Law Symposium on “The Future of Energy”. The symposium, scheduled for March 23–24, 2017, will convene industry experts, academic commentators and public officials to discuss a wide range of issues bearing on anticipated needs, policy challenges and proposed reforms in the U.S. and global energy markets. Panel, debate and keynote sessions will address legislative and regulatory priorities, power generation, allocation wells, trans-boundary resource management, environmental considerations, bankruptcy and much more. $50 Registration / $150 Registration + CLE (12.75 CLE credit hours pending approval). The agenda for the symposium can be viewed here: energy-symposium-agenda-2feb17(4)

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Yet another suit alleging underpayment of royalties has been filed against Chesapeake in the Barnett Shale. The petition can be viewed here: Addax v. Chesapeake Among the long list of plaintiffs is Kimbell Art Foundation. The petition alleges that plaintiffs are lessors under more than 8,000 leases in 280 pooled units with more than 725 producing gas wells. Defendants are Chesapeake and its working interest partner in the Barnett, Total E&P USA, Inc. Plaintiffs’ counsel is Burns Charest LLP.

The suit focuses on two complaints against the defendants. The first is based on the gathering agreement between Chesapeake and Access Midstream. The second is based on how Chesapeake has calculated the plaintiffs’ royalty interests in the pooled units. Continue reading →

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Three recent articles have intensified the debate over whether allocation wells are authorized by a typical oil and gas lease. Two of the articles appear in the most recent edition of the Section Report of the Oil, Gas & Energy Resources Law Section of the State Bar. The first, written by Ernest E. Smith, makes clear in its title the position of the author: Applying Familiar Concepts to New Technology: Under the Traditional Oil and Gas Lease, a Lessee Does not Need Pooling Authority to Drill a Horizontal Well that Crosses Lease Lines. View here: Applying Familiar Concepts  A later version of his article will be published in the Texas Journal of Oil, Gas and Energy Law at the University of Texas School of Law. The second article is by Ronald D. Nickum, an oil and gas attorney in Amarillo, titled Non Consent Allocation – Will it Survive Judicial Scrutiny. View here:  Non Consent Allocation Mr. Nickum’s article is more skeptical about the legality of allocation wells.

Professor Smith’s article is written in rebuttal to an article to be published in the Baylor Law Review written by Professor Bret Wells, Allocation Wells, Unauthorized Pooling, and the Lessor’s Remedies, which can be viewed here. Professor Wells argues that allocation wells are a form of pooling not authorized by a typical oil and gas lease and give rise to claims for trespass and punitive damages.

The Texas Railroad Commission ruled in the Klotzman case that it had the authority to issue permits to drill horizontal wells that cross multiple lease lines without pooling those leases together. Although the Commission has never adopted a rule defining or authorizing permits for such wells, an “allocation well” has generally come to be understood as a well that crosses one or more lease lines and that produces from more than one lease without pooling those leases and without any agreement with the royalty owners as to how production will be allocated among the leases crossed by the well. Because of the uncertainty as to the legality of allocation wells, exploration companies sought legislation in the last legislative session expressly authorizing such wells. That bill, HB 1552, died in committee. It is expected that similar legislation will be filed in the upcoming session.

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Our firm’s third annual seminar for land and mineral owners is May 6th at the Stephen F Austin Intercontinental Hotel from 9am to 6pm.

As a reader of my blog, if you use the coupon code BLOG, you will save $5 off the registration fee.

Topics covered throughout the day will include:

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