Oil and Gas Lawyer Blog

The Texas Supreme Court issued three opinions last week of interest to Texas land and mineral owners: one dealing with the duties of holders of executive rights, one limiting the condemnation powers of pipelines, and one addressing whether injection well operators can be held liable for trespass if the injected substances migrate onto adjacent lands.

Leslie v. Veteran’s Land Board – The duty of the executive rights holder

The Supreme Court again considered what duty the holder of the
right to lease (“executive right”) minerals owned by another has to the
non-executive mineral interest owner. The court significantly weakened
its prior decision in In re: Bass, and increased the duties of
the holder of the executive right. The right to lease is often separated from the mineral interest. For example, if I sell a tract to a
developer, but want to keep part of the mineral interest, the developer
may object, worried that I, as a mineral interest owner, might lease my
interest and allow a company to drill wells on the property he intends
to develop for a residential subdivision. A common solution to this
problem is for me to retain a part of the mineral interest (or a part of the royalty interest) but convey to the developer the exclusive right
to lease the minerals. The developer is then protected, because no
mineral development can take place without his consent. Whenever the
right to lease is separated from the mineral or royalty interest, the
holder of the leasing right is called the holder of the “executive
right,” and the other mineral or royalty owner without any leasing right is called the owner of the “non-executive” interest.

In the Leslie case, a developer named Bluegreen
purchased 4,100 acres of land in southwest Tarrant County, outside of
Fort Worth, to develop a large residential subdivision, Mountain Lakes,
of over 1700 lots. Bluegreen acquired some of the minerals in the 4,100
acres and all of the executive rights to the minerals. Bluegreen then
imposed restrictive covenants on its development to govern what kinds of homes could be built, what uses of the property could be made, etc. One of those restrictive covenants prohibited “commercial oil drilling, oil development operations, oil refining, quarrying or mining operation.”
Later, development of the Barnett Shale formation in Tarrant County
occurred, and companies sought to lease the 4,100 acres to drill Barnett wells, but found that the restrictive covenant prohibited development.
Evidence in the case showed that “Mountain Lakes is sitting on $610
million worth of minerals that, in large part, cannot be reached from
outside the subdivision.” So the non-executive mineral owners sued,
seeking to have the restrictive covenants declared void. Their theory
was that, by imposing the restrictive covenant prohibiting mineral
development, Bluegreen had breached its duty as the holder of the
executive rights. The trial court declared the restrictive covenant
void, but the Eastland Court of Appeals upheld it. The Supreme Court
agreed with the trial court, holding that “Bluegreen breached its duty
to [the non-executive mineral owners] by filing the restrictive
covenants. The remedy, we think, should be the … cancellation of the
restrictive covenants.”

Continue reading →

The Texas Supreme Court on August 19 overruled the royalty owners’ motions for rehearing of their decision in BP v. Marshall. For my prior discussion of this case, go here. To see the Court’s original opinion, go here.

Counsel for the plaintiffs in BP v. Marshall filed unusual motions for rehearing after the Texas Supreme Court reversed the judgments of the courts below awarding substantial damages for fraud. See my discussion of the Supreme Court’s decision here. The Marshalls’ attorneys’ motion for rehearing accuses the court of engaging in “de novo review of a jury finding,” exceeding the court’s constitutional authority, violating the Marshalls’ constitutional right to a jury trial, ignoring uncontradicted expert testimony, and ignoring its own prior precedent. The motion calls the court’s reasoning “disingenuous.” The Vaquillas attorneys’ motion for rehearing says that “the decisional process has gone awry,” and the court “has not decided, or even recognized, the main issue in the Vaquillas-Wagner case.” From the Vaquillas motion for rehearing:

“The Opinion resolves the BP-Marshall dispute on a legal insufficiency point, but the Opinion never uses the phrase ‘standard of review,’ never alludes to the standard of review, and never undertakes to apply one.”

“Perhaps the Court has in mind an explanation — maybe even a devastating explanation — for making the evidence that supports the verdict all vanish. Very well, then, but the Opinion ought to opine on these things, rather than leaving the world wondering.”