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In 2017 I wrote about consent-to-assign provisions in oil and gas leases, and I commented on a case decided by the Tyler Court of Appeals that year addressing such provisions, Carrizo Oil & Gas v. Barrow-Shaver Resources, 2017 WL 412892. In December last year, the Texas Supreme Court wrote on that case, No. 17-0332, Barrow-Shaver Resources v. Carrizo Oil & Gas. The court split 5 to 4. Although the consent-to-assign provision in the case was in a farmout agreement, it sheds light on how such provisions in oil and gas leases would be treated by the courts.
The facts of the case are these: Carrizo owned an interest in an oil and gas lease covering 22,000 acres in north-central Texas. It entered into a farmout agreement with Barrow-Shaver under which Barrow-Shaver was granted the right to drill wells and earn assignments of the lease, with Carrizo retaining an overriding royalty. The farmout agreement contained the following provision:
The rights provided to [Barrow-Shaver] under this Letter Agreement may not be assigned, subleased or otherwise transferred in whole or in part, without the express written consent of Carrizo.
NARO Texas‘ convention is being held July 18-20 at the Hyatt Regency Hotel on the Riverwalk in San Antonio. Several good speakers will be presenting on topics including how to negotiate retained acreage and pooling clauses, how to handle mineral buyers, and developments in horizontal drilling. I will be speaking about production sharing agreements and allocation wells.
The link for online registration for this event: www.naro-us.org/events
Additional information can be found at: www.naro-us.org/texas
I have often received calls from clients who receive unsolicited offers to buy their minerals. In the past, mineral owners have generally ignored these offers, reminded of their grandmother’s admonition to “never sell your minerals.”
That has changed. The buying and selling of minerals has now become common. Investment monies have flowed into funds that acquire mineral interests. Companies have been founded with that objective. Some of the largest mineral portfolios have been assembled by purchase over the last decade. Black Stone Minerals, for example, has evolved from a family-owned East Texas lumber company into one of the largest mineral owners in the country. Energynet, founded in 1999, conducts online auctions of minerals and now handles more than $1 billion per year in transactions.
Investment in minerals, especially in Texas, has several advantages. Holding costs for minerals are minimal. Taxes are assessed only on producing minerals. Severed non-producing minerals cannot be adversely possessed. No liability risks attach to mineral and royalty interests.
Native Texan and Austinite Lawrence Wright, longtime journalist and Reporter at Large at the New Yorker, has written about Texas’ love affair with and dependence on oil, in the January 1 issue of the New Yorker. “The Dark Bounty of Texas Oil” is a 10,000-foot flyover of Texas’ oil business, from Spindletop to the Permian Basin. An excellent read.
When I began this blog, US oil and gas production was just beginning to rise out of a 35-year decline.
Murphy Oil v. Adams, No. 16-0505:
Our firm represents the Herbsts in this case. Murphy owns a lease on their lands in Atascosa County, shown in blue below. While the Herbst Lease was in its primary term, Comstock drilled the Lucas A Well on the adjacent tract, shown in green.
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.
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.
Once 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.
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.