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:
This Assignment and the interest assigned hereby shall be subject to the following terms and provisions, to wit:
The overriding royalty interest share of production shall be delivered to ASSIGNEE or to its credit into the pipeline, tank or other receptacle to which any well or wells on such lands may be connected, free and clear of all royalties and all other burdens and all costs and expenses except the taxes thereon or attributable thereto,
ASSIGNOR, at ASSIGNEE’s election, shall pay to ASSIGNEE, for ASSIGNEE’s overriding royalty oil, gas or other minerals the applicable percentage of the value of the oil, gas or other minerals, as applicable, produced and saved under the leases.
“Value”, as used in this Assignment, shall refer to
(i) in the event of an arm’s length sale on the leases, the amount realized from such sale of such production and any products thereof,
(ii) in the event of an arm’s length sale off of the leases, the amount realized for the sale of such production and any products thereof, and
(iii) in all other cases, the market value at the wells.
Burlington disposed of gas and natural gas liquids produced from the properties in arms-length sales off the leases and paid Texas Crude its overriding royalty in cash. But Burlington deducted post-production costs. In this interim appeal, Burlington complains of the rulings of the trial court and court of appeal that its post-production costs are not deductible from Texas Crude’s royalty. Interesting argument on what is meant by the term “amount realized” in the assignments. The argument can be viewed on the Supreme Court website. Our firm assisted in the briefing of the case on behalf of Texas Crude.
No. 17-0509, Texas Outfitters Limited v. Nicholson
I wrote about this case when it was decided by the San Antonio Court of Appeals. The case concerns the duty of the holder of executive rights to lease the non-executive mineral interest. Argued before the Supreme Court last Wednesday.
No. 17-1039, VirTex Operating v. Bauerle
This case deals with the accommodation doctrine. The Bauerles own an 8,500-acre ranch in Frio and Zavala Counties. But they own only a 2% royalty interest in the minerals. ExxonMobil owns the mineral fee estate, and has leased 3,000 acres of the ranch to VirTex, which has nine wells on the property. VirTex proposed to install power lines to its wells, and the Bauerles objected. They run the ranch primarily as a hunting operation, and helicopters are used frequently for deer capture, predator control, and game surveys. They argued that the electric lines would interfere with their hunting operations and that VirTex had to accommodate their existing use by burying the lines. The jury agreed with the Bauerles, and the court of appeals affirmed. The Supreme Court has asked the parties to file briefs on the merits. The court of appeals opinion can be found here.