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Tiffany Dowell Lashmet, blogger at Texas A&M AgriLife Extension, alerted me in her blog to a bill passed in the last session of the Texas Legislature, HB 365, that Texas landowners should know about. The bill amends the Texas Farm Animal Liability Act, Texas Civil Practice and Remedies Code Chapter 87. The Act offers landowners protection from liability from injuries caused to “participants” resulting from an inherent risk of engaging in a “farm animal activity”.

The bill was passed to address an issue with the Act addressed in a Texas Supreme Court case, Waak v. Rodriguez, 603 S.W.3d 103 (Tex. 2020). The Waaks breed Charolais cattle on their ranch in Fayette County. They hired Raul Zuniga to help with the cattle. They instructed him to move some cattle to a different pasture, including a 2,000-pound bull. They later found Zuniga dead in the pen with the bull, cause of death blunt force and crush injuries. Zuniga’s parents and surviving children sued the Waaks for wrongful death and survival claims, alleging negligence. The trial court dismissed the case on the ground that the Farm Animal Activity Act barred the claims. The Court of Appeals reversed, holding that the Act did not apply. The Supreme Court affirmed, holding that the Waaks were not entitled to the protection of the Act. The Act limits liability for injury to a “participant in a farm animal activity” that results from “inherent risk” of such activities. The court held that Zuniga was not a “participant in a farm animal activity” as defined in the Act.

HB 365 broadens the definitions of participant and farm animal activity so that they would cover injuries sustained in handling cattle like the activity engaged in by Zuniga. (It also now includes bees as farm animals covered by the Act.)

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The recently completed session of the Texas Legislature several bills were filed addressing flaring from oil and gas wells — none of which passed. The number and variety of bills does, however, indicate the increased level of interest and concern about unwarranted flaring of natural gas.

HB 1377: Revises the Tax Code to eliminate the exemption from severance tax for gas “produced from oil wells with oil and lawfully vented or flared.

SB 1293 and HB 1494: Revises the Tax Code to impose a severance tax of 25% on flared gas.

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Landowners are often faced with a conundrum: can they accept a royalty check if they believe it is in the wrong amount?

Ms. Strickhausen owns a half interest in the minerals under a tract of land in La Salle County. Her minerals are subject to a lease owned by BPX (then Petrohawk, subsequently acquired by BPX). Her lease expressly prohibits pooling without her consent. The lease of the other half interest in her tract permits pooling. (Ms. Strickhausen’s lease also prohibits commingling of production: “Commingling of production from the Leased Premises with production from other lands or leases shall be prohibited prrior to such accurate metering, measuring and testing, unless commingling is consented to, in writing, by Lessor and each royalty owner.”) BPX filed a pooled unit designation for the WK Unit 4 No. 1H Well and drilled a horizontal well located partly under Ms. Strickhausen’s tract and partly under other tracts. It then asked Ms. Strickhausen to ratify the pooled unit.

Ms. Strickhausen’s lawyer then engaged in a series of communications with BPX seeking to negotiate terms under which Ms. Strickhausen would agree to ratify the pooled unit. The attorney asked BPX how it would propose to pay Ms. Strickhausen if she refused to ratify the unit. BPX replied that it would pay her “based on the length of productive wellbore on the subject tract over the total length of productive wellbore.” BPX claimed that Ms. Strickhausen would receive a larger royalty interest in the well by ratifying the pooled unit than she would if she were paid on a productive-wellbore basis. BPX concluded by saying that, if Ms. Strickausen did not ratify the unit “the royalties will require being placed in suspense.” Continue reading →

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HB 3794

This bill, signed by the Governor, fixes a problem with the provisions of the Texas Business and Commerce Code that grant a security interest in oil and gas production and proceeds to secure the payor’s obligation to pay royalty owners. I have written about this problem before. Previous bankruptcy court decisions held that this provision did not protect royalty owners when the payor was a company not organized in Texas.

SB 1259

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According to the Houston Chronicle, “ERCOT estimates the amount of solar capacity alone could more than double by May 2022, growing to more than 17,000 megawatts from about 7,000 megawatts in April. One megawatt is enough to power about 200 Texas homes on hot summer day.” That’s 3.4 million homes. Read the article here.

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Today a district court in Travis County held that the Texas Railroad Commission violated the Administrative Procedure Act by informally adopting rules for issuance of allocation and production sharing well permits without following the rule-making procedures of the Act. The Court ruled in an appeal by a mineral owner of the Commission’s order granting a well permit to Magnolia Oil & Gas Operating for a well in Karnes County.

The case is Opiela v. Railroad Commission of Texas, No. D-1-GN-20-000099, in the 53rd District Court of Travis County. Judge Karin Crump’s order can be viewed here. Opiela v. RRC Final Judgment (003) Our firm represents the Opielas in the case.

Magnolia’s well, the Audioslave 1H, was originally permitted by Enervest as an allocation well. The Opielas protested the permit, and while the protest was pending the Commission issued the permit and Enervest drilled the well. Magnolia then took over operation of the well and filed an application for an amended permit for the well as a production-sharing well. That permit was also granted over the Opielas’ protest, and Magnolia fracked and completed the well.

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Two unusual cases have recently been decided by the El Paso Court of Appeals, both arising out of the same underlying facts. Both deal with a tax foreclosure on royalty interests.

In the late 1990s an attorney and two mineral buyers got together and proposed to taxing districts to handle tax foreclosure suits for delinquent taxes on royalty interests. The tax foreclosures named a large set of defendants who were served by posting notice of the suit at the courthouse. Texas law allows notice of suit by posting or publication where the plaintiff has tried diligently to locate the defendant and has been unable to do so. The two mineral buyers, Joe Hughes and Duke Edwards, searched the tax records for owners with delinquent taxes, and the lawyer proposed to represent the taxing districts in foreclosing the tax liens. The lawyer’s fee was paid out of the proceeds from the sheriff sale of the royalty interests foreclosed on. Hughes and Edwards were hired to try to locate the delinquent royalty owners so they could be served with the tax suit. For those they could not locate, they provided testimony in the foreclosure suit that they diligently looked for the missing owners and were unable to find them, so the court would authorize service by posting. Hughes and Edwards received an “abstractor’s fee” for each “unlocatable” owner for whom they searched. At the sheriff sale, Duke and Edwards bid on and purchased some of the royalty interests sold.

In Mitchell v. Map Resources, No. 08-17-00155-CV, the El Paso Court of Appeals addressed an appeal of a suit by the Mitchells seeking to set aside a 1999 judgment for taxes and the sale of their interest in royalties. The case resulted in three opinions: the majority opinion by Justice Gina Palafox, a concurring opinion by Justice Alley, and a dissenting opinion by Justice Rodriguez. The court refused to set aside the sale.

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Link here to Texas Tribune article. Not a good idea. ERCOT definitely made some mistakes in the freeze, but it had no authority to require generators to winterize.  Everyone is still pointing the finger at everyone else. Another Texas Tribune article: the legislature is now considering creating a $2 billion taxpayer-funded account for those improvements.

 

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John McFarland
 Graves, Dougherty, Hearon & Moody, P.C.
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