Oil and Gas Lawyer Blog
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.
This bill was introduced as a result of a Texas Supreme Court decision, ConocoPhillips v. Koopmann, which held that the division order statute, Chapter 91 of the Natural Resources Code, does not provide the sole remedy for royalty owners suing for their royalties. ConocoPhillips argued that Chapter 91 was intended to supersede a royalty owner’s contractual right to sue for royalties due under their lease. SB 1259, signed by the Governor, provides that a royalty owner “does not have a common law cause of action for breach of contract against a payor for withholding payments under subsection b) unless, for a dispute concerning the title, the contract requiring payment specifies otherwise.” Under the division order statute a payor may withhold payment without interest if there is a dispute concerning title to the royalty owner’s interest. The intent of the bill is to protect payors from having to pay interest or attorneys’ fees if the payor withholds payment because of a title dispute.
These bills, both enacted, add additional protections to landowners in pipeline and electric line condemnation actions. They include some of the provisions for reform of condemnation laws that failed to pass in the last legislative session. HB 2730 requires the condemnor to make additional disclosures to the landowner and include in the condemnor’s proposed easement form specified provisions to protect the landowner, including disclosure of the number of pipelines and above-ground appurtenances that will be placed on the easement, the maximum diameter of the lines, the substances that will be transported through the line, a center-line description and plat, the minimum specified depth to which the line will be installed, whether the company will double-ditch the line, provisions for cutting of fences and use of gates, an obligation to restore the property after installation, and provisions concerning compensation for damages. HB 4107 provides that the condemnor must give the landowner written notice before entering their property for surveying, an agreement to indemnify the landowner for damages resulting from the survey and other landowner-protection provisions.
This bill as introduced required the Railroad Commission to adopt a rule requiring operators applying for a well permit to disclose whether the well is near a well that had suffered a blowout. Representative Craddick introduced an amendment to the bill that addressed allocation wells. The amendment provided:
Unless expressly prohibited by a lease, deed, or other contract, an operator or lessee with the right to drill an oil or gas well on or produce or develop oil or gas from each tract independently may, under a permit issued by the commission, drill, operate, and produce oil or gas from an oil or gas well … that traverses multiple tracts in order to prevent waste promote conservation, or protect correlative rights.
This amendment was introduced after a district court in Travis County entered a judgment in Opiela v. Texas Railroad Commission, about which I have written before, and which called into question whether oil and gas leases allow the lessee to drill allocation wells – horizontal wells that cross lease boundaries without pooling. Rep. Craddick introduced a bill with similar language in the 84th legislative session in 2015, HB 1552, which died in committee. Craddick’s amendment to SB 367 was passed by the house, but the bill as amended died in the Senate.