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Published on: December 21, 2020

After Five Years of Litigation, Texas Supreme Court Concludes that Lease’s Continuous Development Clause is Ambiguous

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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Published on: December 1, 2020

The Passing of a Judicial Giant

By John McFarland

Thomas M. Reavley, senior judge on the 5th Circuit Court of Appeals, died today at age 99. Judge Reavley was on the Texas Supreme Court when I clerked there in 1975-76. The obituary below is from the Texas Supreme Court.

Tom Reavley, who served for nine years on the Texas Supreme Court before President Carter appointed him to what would become a 41-year career on the Fifth Circuit U.S. Court of Appeals, died Tuesday in Houston. He was 99.

When he died he was the oldest active federal judge. During his federal judicial tenure he decided cases as a visiting judge on every U.S. court of appeals but one. His legal career spanned more than six decades.

As a lay Methodist minister and Sunday School teacher, his moral bearing earned him the sobriquet “Pope of the Fifth Circuit.”

Chief Justice Nathan L. Hecht said: “Sailor, scholar, lawyer, advisor to governors and presidents, judge, writer – Tom Reavley was all these things, and always with unfailing wisdom, humility, civility, decency, kindness to all and good humor. He was a towering figure in Texas and a true champion of justice for the state and the country.” Continue reading →

Published on: May 18, 2020

Texas Supreme Court Weighs In On Application of Rule Against Perpetuities to Overriding Royalty Reservations

By John McFarland

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.”

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 →

Published on: February 7, 2020

Follow Me With an RSS Feed

By John McFarland

If you’d like to know when there has been a new post on this blog but you don’t want to keep going back to see if there have been any updates, you can subscribe to my blog. There is a link to the right, “how to subscribe to RSS feeds.” Click on that and it will tell you how. Also, I always post on LinkedIn and Twitter when I post a new blog, you can follow me there.

Published on: September 18, 2019

Texas Supreme Court Opines on Consent-to-Assign Provision

By John McFarland

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.

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Published on: May 24, 2018

NARO Texas Convention July 18-20 in San Antonio

By John McFarland

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

Published on: January 8, 2018

Should I Sell My Minerals?

By John McFarland

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.

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Published on: January 2, 2018

Lawrence Wright, “The Dark Bounty of Texas Oil”

By John McFarland

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.

While Texas oil production is not back to its levels of the 1970’s, its rise since 2019 has been meteoric, fueled by the resurgence of production from the Eagle Ford and more recently the Permian.

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Published on: December 11, 2017

Three Recent Arguments in Texas Supreme Court: Offset Clauses, the Rule Against Perpetuities, and the Duhig Rule

By John McFarland

Last Tuesday the Texas Supreme Court heard arguments in three cases on oil-and-gas-related topics.

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.

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Published on: November 13, 2017

No. 500

By John McFarland

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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