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Five years ago I wrote a blog entry titled “The Limits of Rational Decision-making.” The topic was a sociological study testing subjects’ ability to make decisions based on facts. The conclusion of the study was that knowledge does not increase a person’s ability to reason when it comes to politically charged issues. People’s biases prevent them from making decisions based on facts. I ended the post with these words:

Leon Festinger, a famous Stanford University psychologist, said that “A man with a conviction is a hard man to change. Tell him you disagree and he turns away. Show him facts or figures and he questions your sources. Appeal to logic and he fails to see your point.” Changing one’s point of view on difficult politically charged issues is difficult.

A group called “Ark Encounter” is raising money to construct a replica of Noah’s Ark in Williamstown, Kentucky, using the exact dimensions and directions found in Genesis. It will be more than 500 feet in length, three stories high, and built with planks, beams and pegs. When asked how they were going to get the more than 2 million species of animals now on the planet in the ark, they say that, in Noah’s time, there were only some 2,000 types of animals, and that all animals today descend from those original animals. Fitting myth to reality is no problem for believers. Changing their minds about the facts is more of a problem.

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TexasBarToday_TopTen_Badge_SmallThe Texas Supreme Court recently refused to consider the case of Devon Energy Production Company v. Apache Corporation, decided by the Eastland Court of Appeals – 550 S.W.3d 259. The case presents issues that, remarkably, have not previously been considered by a Texas appellate court.

Norma Jean Hester leased her one-third mineral interest in lands in Glasscock County to Apache, reserving a 1/4th royalty. The other mineral owners in the land (the Lessor Plaintiffs) leased their two-thirds mineral interest to Devon, reserving a 1/4th royalty.  Apache and Devon were unable to agree on terms for a joint operating agreement to develop the property, and Apache drilled seven producing wells on the land without Devon’s participation. Devon became what is commonly called a “non-consenting co-tenant.”  Devon became entitled to two-thirds of the net revenue from each well after Apache had recovered the costs of drilling and production (“payout”).  But Devon did not pay its Lessor Plaintiffs their royalty on production, claiming that Apache owed the royalties to the Lessor Plaintiffs. The Lessor Plaintiffs sued Devon and Apache for their royalties.

The trial court ruled that Apache owed no royalty payments to the Lessor Plaintiffs, and that Devon owed the Lessor Plaintiffs royalties, but only on revenues received by Devon after the wells had paid out.  The Lessor Plaintiffs then settled their claims against Devon, and Devon appealed. Continue reading →

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The Texas Tribune is joining with the Center for Public Integrity to publish a series of articles on the Permian Basin. Called “Blowout,” it is the result of eight months of study of the impact of the Permian oil boom. The first article can be found here.

The International Energy Agency said Friday that the world pumped 100.3 million barrels a day in the third quarter, a record, and production is expected to increase. The IEA also expressed concern about the upswing in energy prices, saying it “poses a threat to economic growth.”

And on CBS’ “60 Minutes” last night, President Trump backed off his claim that climate change is a hoax, but he said he doesn’t know if its man-made. “Something’s changing and it’ll change back again. I don’t think it’s a hoax,” he told Brent Stahl. “But I don’t know that it’s man-made. I will say this. I don’t want to give trillions and trillions of dollars. I don’t want to lose millions and millions of jobs. I don’t want to be put at a disadvantage,” he said. “Look, scientists also have a political agenda,” he added.

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Two cases were argued in the Texas Supreme Court last week that bear watching, and a third interesting case is pending in the court on petition for review.

No. 17-0266, Burlington v. Texas Crude

Texas Crude and Burlington entered into a joint development agreement covering leases Texas Crude had acquired on lands in Live Oak County. As part of the deal, Texas Crude was entitled to an overriding royalty on all leases taken within the area of interest.  Multiple assignments of overriding royalty were made, all containing this language:

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Our firm is hosting our 5th annual seminar for Texas land and mineral owners on topics of interest in oil and gas law. We have a great lineup of speakers, including Idalia Romanos on royalty audits, Peter Huddleston on current shale development activity in Texas, Mary Keeney providing a case law update, Allen Gilmer of Drillinginfo, and yours truly on allocation wells.

You can find more information and register here.

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Texas Land & Mineral Owners Association is having its Statewide Members Meeting on October 11 in San Antonio. Information here. It is a good organization and a good meeting. Join up and attend.TLMA-mtg

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The Texas Railroad Commission has issued its Monitoring and Enforcement Plan for fiscal year 2019. The plan was required by a 2017 law that directs the RRC to develop an annual plan to assess its use of resources to ensure public safety and minimize damage to the environment. It requires the RRC to track monitoring and enforcement activities. Highlights:

The RRC has 158 oil and gas field inspectors. They average more than 123,000 inspections each year and are expected to conduct 130,000 inspections in fiscal 2019.

The RRC Oil and Gas Division receives about 600 complaints each year, from operators, mineral owners, surface owners, government agencies and members of the public. According to the Plan, “the complainant receives written updates on the progress of the investigation and any related enforcement action. The complainant is also notified when the complaint is closed.”

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In Ridge Natural Resources v. Double Eagle Royalty, recently decided by the El Paso Court of Appeals, James and Jolinda McDaniel signed a “Royalty Lease” to Ridge, reading as follows:

Oil and Gas Royalty Lease

THIS LEASE AGREEMENT is made as of the 10th day of October, 2016 between

[the McDaniels]

as Lessor (whether one or more) … and Ridge Natural Resources … as Lessee. …

1. In consideration of ten dollars ($10.00) and other good and valuable consideration in hand paid and the covenants herein contained, Lessor hereby grants, leases and lets exclusively to Lessee, subject to the reservation contained herein, all of Lessor’s royalty interest in and to all of the oil, gas and other minerals produced and saved from the hereinafter described lands (the ‘Subject Interest’), such Subject Interest to include all proceeds thereof in and to the rights, rentals, royalties and other benefits accrued, accruing and/or to accrue and the right to demand, collect and receive same, hereinafter called leased premises:
[Legal description omitted]
2. This royalty lease, shall be in force for a primary term of 5 years from the date hereof, and for as long thereafter as oil or gas or other substances covered hereby are produced in paying quantities from the leased premises or from lands pooled therewith.
3. As Royalty on the Subject Interest leased to Lessee herein, Lessor reserves an equal one-fourth (25%) part of the Royalty and other proceeds from the sale of all oil, gas and condensate produced and saved from said Land and the Subject Interested lease to Lessee herein.
4. Lessor hereby expressly represents and warrants that no representation, promise or other statement that is not herein expressed has been made to Lessor in executing this Royalty Lease Document and Lessor did not rely on any representation, promise or other statement made by Lessee and/or Lessee’s agent and/or employees, relating to this Royalty Lease or the subject matter thereof, except as set forth herein, and it is the Lessor’s express intent to fully disclaim and disavow reliance on any such representation, promise or statement. Lessor expressly acknowledges that this Royalty Lease does not grant Lessee the right to explore for or produce oil, gas, or minerals from the leased premises. […]

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The Senate hearings on Judge Brett Kavanaugh’s nomination to the Supreme Court have brought public attention to the role the Supreme Court, and courts in general, play in our trilateral system of government – a role that the public usually does not see in headlines other than when the Supreme Court considers hot-button social issues such as abortion and gun control. Most of the work done by courts flies under the radar and receives little public attention.

But a critical element in our system of government is its reliance on and belief in the “rule of law.” John Adams expressed this idea when he wrote that government should be a “government of laws and not of men.” It means that private citizens and government are accountable under the law; that laws be clear, just, publicized, and applied equally; that the process by which laws are enacted, administered and enforced are accessible, fair and efficient; and that justice is delivered timely by competent, ethical and independent representatives.  Lawyers have an obligation to uphold the rule of law independent of and superseding their obligation to clients. Every person, including lawmakers, law enforcement officials and judges, is subject to the law. The authority of our courts is based on this principle.

The US Court of Appeals for the D.C. Circuit issued an opinion last month that illustrates the rule of law in the context of the political shift that took place after the election of President Trump. The case, Air Alliance Houston v. EPA, No. 17-155, was heard by a panel of three judges on that court, Judges Rogers, Wilkins, and Kavanaugh. Because of Judge Kavanaugh’s nomination to the Supreme Court, he did not participate in the opinion. The opinion was issued “Per Curiam,” meaning it was not signed by a particular judge but was issued “by the court” collectively. Continue reading →

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A recent case from the Ohio Court of Appeals, Fifth Appellate District, raises some interesting questions about forced pooling. The case, American Energy – Utica, LLC v. Fuller, Case No. 17 CA 000028, involves an oil and gas lease covering 40 acres in Guernsey County, Ohio, dated in 1981. The lease was held by production from a single vertical oil well. In 2009 Enervest acquired the lease; it subsequently assigned the deep rights to American Energy.TexasBarToday_TopTen_Badge_Small

American Energy wanted to form pooled units to drill horizontal wells in the Utica formation. The lease contained a handwritten provision: “Unitization by written agreement only!” so American asked Fuller for consent to pool. The parties could not reach agreement on pooling Fuller’s lease, so in 2015 American Energy filed an application under Ohio law to force a portion of Fuller’s property into a pooled unit. Fuller then sued to prevent his tract from being force-pooled and for breach of the lease. The trial court granted American Energy’s motion for summary judgment, holding that American had the right to force-pool Fuller’s lease despite the lease language.  Continue reading →

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John McFarland
 Graves, Dougherty, Hearon & Moody, P.C.
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Phone: 512-480-5618
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