As we head into the new year, several oil and gas cases are pending at the Supreme Court. Here are some of the key cases we are watching (status as of Jan. 1, 2020):Read More »
Author: Chris Halgren
Post-Production Cost Fights Continue: Supreme Court Holds the Phrase “Into the Pipeline” Set a Valuation Point for “Amount Realized” Royalties
Burlington Resources Oil & Gas Co LP v. Texas Crude Energy, LLC, 2019 Tex. LEXIS 196 (Tex. March 1, 2019)
In Burlington Resources, the Texas Supreme Court held that an oil and gas royalty assignment that required the royalty to be delivered “into the pipeline” permits the payor to deduct post-production costs from the royalty owners’ payment, even if the agreement purports to prohibit such a deduction.
For years, Texas courts have found that when an oil and gas lease provides that royalty will be paid “at the well” or “at the mouth of the well,” the lessee generally can pay royalties net of all reasonable postproduction costs — even if the lease purports to prohibit such deduction. The reasoning has been that such language places the “valuation point,” (ie, where the production must be valued for royalty payment purposes) at a point before any post-production costs would have been incurred. In leases with a valuation point “at the well,” the Supreme Court has held that language prohibiting deductions for post-production costs as “surplusage” — or meaningless. In Burlington Resources, the Supreme Court held that the phrase “into the pipeline” mirrors the “at the well” designation and requires the same result.Read More »
Supreme Court Splits Over Use of Expert Testimony and Other Extrinsic Evidence When Construing Obligations in Oil and Gas Agreements
Barrow-Shaver Res. Co. v. Carrizo Oil & Gas, No. 17-0332, 2019 Tex. LEXIS 688 (June 28, 2019)
On June 28, 2019, a divided Texas Supreme Court issued its opinion in Barrow-Shaver Resources Company v. Carrizo Oil & Gas, LLC, a decision that will impact what evidence a court can consider in oil and gas contract disputes and possibly how oil and gas agreements are negotiated and drafted. The Court discussed the line between admissible evidence of “surrounding circumstances” and inadmissible parol evidence, when prior drafts and the use of expert testimony regarding industry custom and usage is offered to construe an unambiguous agreement. The Court also discussed the use and function of “consent-to-assign” provisions and the inability to rely on oral representations that conflict with the terms of a written agreement.Read More »
The Texas Supreme Court issued a narrow 5-4 opinion in Murphy Exploration & Production Co. — USA v. Adams on June 1, 2018, interpreting a common “offset” clause contained in a 2009 oil and gas lease. The majority held that the phrase “offset well” in that clause does not necessarily refer to a well that would protect the leasehold against drainage, but instead referred to a well drilled anywhere on the leased premises that was drilled to a depth required by the lease. The Court reached this conclusion based on interpreting that phrase in light of “surrounding circumstances” evidence of the discovery of the Eagle Ford and drainage patterns of horizontal shale wells. Four justices dissented in an opinion that, among other things, criticized the majority opinion for disregarding the commonly understood meaning of the phrase “offset well,” which is a well designed to protect the leasehold from drainage.
Texas Court Holds that Permit of Injection Well May be Challenged Outside Railroad Commission and Travis County Via Injunctive Relief
Brief Overview: What You Need to Know
On January 18, 2017, in Ring Energy v. Trey Resources, Inc., Ring Energy v. Trey Resources, Inc., 2017 WL 192911(Tex. App.—El Paso January 18, 2017, no pet. h.). the El Paso Court of Appeals, in a case of first impression, addressed whether a trial court outside of Travis County (where the Texas Railroad Commission (the “RRC”) is based) has jurisdiction to issue an injunction prohibiting a party with a valid RRC injection well permit from operating its injection well based on a complaining party’s claim that the injection would cause imminent and irreparable “waste,” even though the complaining party (1) had not yet sustained any actual injury, (2) did not oppose the permit prior to issuance, and (3) did not take advantage any other administrative remedy that might have been available. Read More »
|1.||↑||Ring Energy v. Trey Resources, Inc., 2017 WL 192911(Tex. App.—El Paso January 18, 2017, no pet. h.).|
With the beginning of a new year, there are several oil cases pending in the Texas Supreme Court relevant to the oil and gas industry. We’ll be following these cases throughout the year. Sign up as a subscriber to oilandgaslawdigest.com to receive updates on these and other cases.
Here are ten cases that we will be watching:
Chris Halgren is presenting today at the Houston College of Law for its 29th Annual Energy Law institute on the topic “Royalty Litigation: An Overview of Current Trends.” The slides are embedded in this post below.
Texas Supreme Court to Determine Whether Accommodation Doctrine Applies to Severed Groundwater Estate
The Texas Supreme Court recently granted Coyote Lake Ranch’s petition to review an opinion by the Amarillo Court of Appeals in Lubbock v. Coyote Lake Ranch, holding that the “Accommodation Doctrine” does not apply to the relationship between a surface owner and the owner of a severed groundwater estate. In the context of a severed mineral estate, the Accommodation Doctrine requires that the owner of a severed mineral estate accommodate pre-existing surface uses in certain circumstances.
By granting Coyote Lake Ranch’s petition to review, the Texas Supreme Court will have the opportunity to address whether this doctrine also applies to a severed groundwater estate. The decision in this case could potentially answer an important question regarding conflicts between groundwater production activities and existing surface uses. With the oil and gas industry dealing with sub-$50 oil prices, and the public’s increasing awareness of the importance of water, the Supreme Court’s holding in this case will have significant implications to the development of groundwater in Texas. As Texas A&M University School of Law professor Gabriel Eckstein told Law 360, this case “has big implications, some of which we can’t even imagine yet.”
Texas Court: Lessee May Not Exclude Other Lessees from Constructing Surface Facilities Or Drilling Through Mineral Estate
The San Antonio Court of Appeals, in Lightning Oil Co. v. Anadarko E&P Onshore, LLC,  Opinion not yet published, San Antonio Court of Appeals (4th Dist.), August 19, 2014. held that a Texas oil and gas lease does not inherently convey a right for the lessee to control the “subterranean structures” from which hydrocarbons may be produced. As a result, the court held that the mineral lessee of a severed mineral estate did not have the right to exclude third-parties from constructing surface facilities on the surface overlying the lessee’s mineral estate and/or exclude third-parties from drilling wells through (but was not producing from) the lessee’s mineral estate. The Lightning court identified the “central question” as being the nature of Lightning Oil Co.’s (“Lightning”) interest as a mineral lessee. After reviewing cases from its own court and the Texas Supreme Court, among others, the Lightning court concluded that the surface estate owner, not the mineral estate owner, controls the earth beneath the surface estate. Read More »
|1.||↑||Opinion not yet published, San Antonio Court of Appeals (4th Dist.), August 19, 2014.|
On June 1, 2015 the Amarillo Court of Appeals issued an opinion  William Scisco, et al v. Enbridge Gathering (North Texas), LP, et al 2015 WL 3463490 (Tex. App.—Amarillo June 1, 2015, no. pet. h.) concerning whether a landowner may have a cause of action for nuisance or trespass against a company conducting regulated oil and gas operations in the vicinity. In reversing the trial court’s summary judgment in favor of the defendant-companies, the Amarillo court held that a cause of action for trespass is available when particles migrate from regulated operations onto neighboring property and that liability for nuisance will not be avoided by mere regulatory compliance.
The plaintiffs, including the City of DISH and several residents of the City (collectively, “DISH”) filed suit against several companies who owned or performed operations collateral to the “Ponder Compression Station.” The Ponder Compression Station began operations in February 2005 and the neighboring landowners began to complain about excessive noise and offensive odors emanating from the operations. However, DISH claimed that they did not learn the true alleged danger of the airborne particles until the release of an environmental report prepared in 2009. Shortly thereafter, the TCEQ and the Texas Department of State Health Services performed investigations into the air quality and the effects on the surrounding community, both finding that exposure levels were no higher in DISH than in the general population.
DISH filed suit seeking compensation for past injuries, primarily for the diminution in value of the respective properties. No pecuniary relief was sought for personal injuries or medical expenses, nor did DISH seek injunctive relief. The trial court granted summary judgment in favor of the Defendants, but the judgment was reversed in part on appeal.
The Amarillo court rejected the Defendants’ contention that migrating particles could never, as a matter of law, be the basis for a trespass claim. However, while the Amarillo court found that the migrating particles could constitute a trespass, the court made clear that the plaintiff must still prove the remaining elements of the claim. DISH’s nuisance claim was analyzed in conjunction with Defendants’ arguments that a nuisance claim was preempted by local, state, and federal regulations. However, the Amarillo court concluded that regulatory compliance will not insulate a party from liability because “[r]egulatory compliance or licensure is not a license to damage the property interest of others.” The court did find, however, that DISH’s demand for damages in an amount equal to $1,000 per day that operations continued, was more similar to a penalty than compensation for an injury. The court concluded that such a “penalty” would amount to a psuedo-regulatory scheme which is preempted.
|1.||↑||William Scisco, et al v. Enbridge Gathering (North Texas), LP, et al 2015 WL 3463490 (Tex. App.—Amarillo June 1, 2015, no. pet. h.)|