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ConocoPhillips v. Ramirez – What is the effect of an oil and gas lease signed by the owner of a life estate?

ConocoPhillips always seems to be getting into interesting scrapes.

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 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.

Leon Oscar Sr. died in 2006, survived by three children – Leon, Jr., Minerva and Rosalinda. In 2010 they sued ConocoPhillips and EOG for an accounting and to establish their title to 1/4 mineral interest in the Ranch. They alleged that the oil and gas lease signed by Leon Oscar Sr. was not binding on them as remaindermen following Leon Oscar’s life estate, and that EOG and ConocoPhillips owed them an accounting and payment for 1/4 of the net profits from oil and gas production from the Ranch, from the date of first production. They also sued for prejudgment interest and attorneys’ fees. The plaintiffs settled with EOG, and in 2015 the trial court signed a final judgment against ConocoPhillips awarding plaintiffs title to the minerals and $11.1 million for their share of net profits on production from the Ranch, plus $950,000 in prejudgment interest and $1,125,000 in attorneys’ fees. In 2017, the San Antonio Court of Appeals affirmed. 534 S.W.3d 490. In June of this year the Texas Supreme Court granted ConocoPhillips’ appeal. Oral argument is set for September 17. ConocoPhillips Company, et al. v. Ramirez, No. 17,0822

The appeal has lots of interesting issues and I’m curious to know what issues the Supreme Court wants to address. There are two issues that should be of particular interest to royalty owners, and they both concern the application of the division order statute, Texas Natural Resources Code Chapter 91. That statute provides that an owner who recovers amounts owed on production from oil and gas wells is entitled to recover attorneys’ fees and prejudgment interest from the due date of the payments. CononocPhillips attacks the trial court’s award of attorneys’ fees and prejudgment interest under the statute.

First, ConocoPhillips argues that the division order statute does not entitle the plaintiffs to attorneys’ fees because the case was a trespass to try title suit (a suit to establish the plaintiffs’ ownership of the minerals), not a suit under the division order statute. Relying on a previous case decided by the San Antonio court of appeals, Prize Energy Resources v. Cliff Hoskins, 345 S.W.3d 537 ( 2011, no pet), the court of appeals rejected that argument.

Second, ConocoPhillips argues that plaintiffs are not entitled to prejudgment interest because, under the division order statute, a payor is entitled to withhold payment without interest where there is a legitimate dispute as title. The trial court found that “there was no legitimate title dispute in this case,” and the court of appeals agreed. ConocoPhillips had argued that Leonor’s will conveyed a life estate only in the surface estate of the Ranch. The court of appeals held that “there was no ambiguity in Leonor’s Will with respect to the Grandchildren’s contingent remainder mineral interest and that title to the collective 1/4 mineral interest vested in them when their father died in November 2006.” So that provision of the division order statute did not protect ConocoPhillips from paying prejudgment interest.

Note the potential inconsistency in ConocoPhillips’ two arguments. On the one hand it argues that the division order statute does not apply to the plaintiffs’ claims, and on the other it seeks the protection of the statute to avoid paying prejudgment interest.


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