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.
Case Law Update
In a decision that focuses on the parties’ intent as expressed within the four corners of the document, the Texas Supreme Court in Wenske v. Ealy 13-15-00012-CV, ___ S.W.3d ___ (Tex. 2017) decided whether the language of a deed puts the entire burden of an outstanding non-participating royalty interest (“NPRI”) on the grantees or whether the NPRI proportionately burdens both the grantor’s reserved interest and the interest conveyed to the grantees. The grantors argued that their reserved interest is not burdened by the NPRI, while the grantees argued that the NPRI proportionately burdens both their interest and the grantors’ interest. The Court ruled that, based on the language in the deed, the NPRI proportionately burdens both the conveyed and reserved interest.
|1.||↑||13-15-00012-CV, ___ S.W.3d ___ (Tex. 2017|
BNSF Railway Co. v. Chevron Midcontinent, LP
This dispute arises from a deed executed in 1903 from W.H.C. Goode to BNSF’s predecessor covering land in Upton County, Texas. When Chevron began producing from underneath BNSF’s railway tracks, BNSF sued for trespass of title, arguing that the 1903 deed conveyed fee simple title. Chevron argues that BNSF acquired only an easement. Thus, the issue before the Court was whether the parties to the 1903 deed intended to convey fee simple title or only an easement. Although the deed contained the term “fee simple” in the habendum clause, the court ultimately decided the deed conveyed an easement because it contained terms throughout the deed that suggested the parties intended to convey only an easement. Read More »
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.).|
On Friday, January 6, 2017, the Texas Supreme Court issued its long-awaited opinion in Denbury Green Pipeline–Texas, LLC v. Texas Rice Land Partners, Ltd. (“Texas Rice II”), 15-0225, 2017 WL 65470 (Tex. Jan. 6, 2017). holding that:
- Denbury’s evidence of a post-construction transportation agreement with an unaffiliated customer was relevant to the “reasonable probability test,”
- rejecting a rule that the requisite intent must exist at the time the pipeline was contemplated,
- rejecting the appellate court’s “substantial public interest” test, and
- holding that Denbury had “conclusively” established its qualification as a common carrier with the power of eminent domain.
The opinion provides clarity as to the test previously set forth in Texas Rice Land Partners, Ltd. v. Denbury Green Pipeline–Texas, LLC (“Texas Rice I”), 363 S.W.3d 192, 202 (Tex. 2012). and the types of evidence relevant to that determination.
|1.||↑||15-0225, 2017 WL 65470 (Tex. Jan. 6, 2017).|
|2.||↑||363 S.W.3d 192, 202 (Tex. 2012).|
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:
Earlier this year, we reported the San Antonio Court of Appeals decision in Dragon v. Harrell, a fixed versus floating royalty case. Here, the court is again confronted with the same issue. Relying on its decision in Graham v. Prochaska, the court explains why the estate misconception theory does not apply and explains how the interest in dispute is a fixed nonparticipating royalty interest.
Think your early chain of title has been cured by the passage of time? As this recent case shows, even 100+ year-old instruments can be the subject of new disputes. The Tyler Court of Appeals, in Richardson v. Mills  Richardson v. Mills, 12-15-00170-CV, 2016 WL 5800261 (Tex. App.—Tyler Oct. 5, 2016, no. pet. h.) recently reviewed whether a 100+ year-old instrument was a lease or a mineral deed, and the effect of a release entered approximately two years later.
|1.||↑||Richardson v. Mills, 12-15-00170-CV, 2016 WL 5800261 (Tex. App.—Tyler Oct. 5, 2016, no. pet. h.)|
This is a condemnation case from Comanche County, Texas. In January 2013, the Railroad Commission of Texas designated BridgeTex as a common carrier and granted it a T-4 permit. BridgeTex condemned an easement across Saner’s land and constructed a pipeline to transport crude petroleum from the Permian Basin to the Texas Gulf Coast. Both the special commissioners and the trial court determined that the easement was for public use, and Saner now challenges the trial court’s finding. The Eastland Court of Appeals affirmed the trial court’s judgment. Read More »
The Corpus Christi Court of Appeals released its Memorandum Opinion today in ConocoPhillips Company v. Koopman, 13-14-00402-CV. The case involved a deed which reserved a term NPRI for a period of fifteen years, or until December 27, 2011 and for “as long thereafter as there is production [of oil, gas, or minerals from the land] in paying quantities.”
The deed also included a savings clause that provided as follows:
[I]f any oil, gas, or mineral or mining lease covering [the Koopmanns’ land] is maintained in force and effect by payment of shut-in royalties or any other similar payments made to [the Koopmanns] in lieu of actual production while there is located on [the Koopmanns’ land] a well or mine capable of producing oil, gas, or other minerals in paying or commercial quantities but shut-in for lack of market or any other reason, then for purposes of determining [whether Strieber’s NPRI continues beyond December 27, 2011,] it will be considered that production in paying or commercial quantities is being obtained from the [Koopmanns’ land]. (emphasis supplied)
The lessee and NPRI owner claimed that these conditions were met and that a $24,000 lease extension fee constituted a “similar payment” to a shut-in royalty. The lessor burdened by the NPRI disagreed and suit was filed. Among the issues addressed are:
- Whether a lease extension fee made under a paid-up lease constituted a payment that was “similar” to a shut-in royalty within the context of a savings clause contained within a deed reserving a term NPRI.
- Whether the term NPRI involved in that case created a future interest in violation of the rule against perpetuities.
Stay tuned over the next few days. We will be working through this case to provide our subscribers with a summary of the court’s holding…