Denbury v. Texas Rice: Clarifying the Test for Common Carrier Status, Power of Eminent Domain

Posted by: Austin Brister in Case Law Update, Primers and Insights

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”), ^[1]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”), ^[2]363 S.W.3d 192, 202 (Tex. 2012). and the types of evidence relevant to that determination.

Footnotes[+]

Footnotes
↑1	15-0225, 2017 WL 65470 (Tex. Jan. 6, 2017).
↑2	363 S.W.3d 192, 202 (Tex. 2012).

5Aug

Case Law Update: ConocoPhillips Must Release 15K Acres

Posted by: Austin Brister in Case Law Update, Lease Perpetuation

Texas Case Law Update: On August 5, 2015, the San Antonio Court of Appeals released its opinion in ConocoPhillips Company v. Vaquillas Unproven Minerals, Ltd., ^[1] No. 04-15-00066-CV (San Antonio – August 5, 2015). affirming the trial court’s order declaring ConocoPhillips breached two oil and gas leases in Webb County by failing to release all acreage in excess of 40 acres for each producing and shut-in natural gas well capable of producing in paying quantities. As a result, ConocoPhillips was ordered to release an additional 15,351 acres. The issue on appeal was whether the retained acreage clauses allowed ConocoPhillips to retain 40 acres per gas well or 640 acres per gas well.

This case illustrates how appellate courts can interpret acreage perpetuation and release language in a lease in conjunction with regulatory rules. As such, this case underscores the importance of lease language that references regulatory rules, which may provide for spacing or proration units of a greater or smaller size than the default acreage provided within the lease.

Footnotes[+]

Footnotes
↑1	No. 04-15-00066-CV (San Antonio – August 5, 2015).

18Jun

TX Supreme Court: Chesapeake May Not Deduct Post-production Costs from Overriding Royalty

Posted by: Austin Brister and Chris Halgren in Case Law Update

In a 5-4 decision, the Texas Supreme Court issued its opinion in Chesapeake Exploration, L.L.C. v. Hyder, 14-0302, 2015 WL 3653446 (Tex. June 12, 2015), holding that Chesapeake is prohibited from deducting postproduction costs from an “overriding royalty interest” described in a lease. The Majority noted that while overriding royalty interests are generally subject to post production costs, the language used in the lease creating the Hyder overriding royalty shifted the burden of paying these postproduction costs to Chesapeake, alone.

6Apr

Anatomy of a Joint Operating Agreement

Posted by: Austin Brister in Primers and Insights

In Introduction to Joint Operating Agreements, we reviewed several of the critical roles the Joint Operating Agreement plays within the oil and gas industry. One of the first steps to understanding the JOA is to understand the anatomy of its several components. The AAPL Joint Operating Agreement is organized into the following sections, in order:

Cover page,
Table of contents,
15 sections of standard provisions labeled as “articles,”
An article designed exclusively for custom provisions, and
Several placeholders for exhibits which parties may identify.

9Aug

Wyoming: Can Lessees Pool Overriding Royalty Interests?

Posted by: Austin Brister in Primers and Insights

There is a debate among Wyoming oil and gas attorneys, and I wanted to weigh in. Some (maybe even many) Wyoming lawyers believe an overriding royalty interest simply cannot be pooled in Wyoming without the owner’s direct and express consent. Of course, this is only a debate in the context of voluntary pooling. However, I believe this issue is, at best, unsettled. I’d love to hear your thoughts in the comments below!

The Framework in Texas

Of course, Wyoming is not Texas. However, many states look to Texas law for guidance in oil and gas issues, simply due to the vast number of reported oil and gas cases in Texas over the last 100 years. So how have Teas courts weighed in on this issue?

The General Rule

In Texas, the general rule is that a lessee has no power to pool any type of royalty interest without consent of the owner. ^[1]PYR Energy Corp. v. Samson Res. Co., 456 F. Supp. 2d 786, 791 (E.D. Tex. 2006) clarified 470 F. Supp. 2d 709 (E.D. Tex. 2007). This would include overriding royalty interests as well. ^[2]Id. Therefore, in order to pool an overriding royalty interest, a working interest owner will need to either (1) obtain consent of the overriding royalty interest owner, or (2) fit into an exception to this general rule.

Footnotes[+]

Footnotes
↑1	PYR Energy Corp. v. Samson Res. Co., 456 F. Supp. 2d 786, 791 (E.D. Tex. 2006) clarified 470 F. Supp. 2d 709 (E.D. Tex. 2007).
↑2	Id.

19Jun

Legalese: Standard Interpretive Boilerplate

Posted by: Austin Brister in Primers and Insights

“Legalese Schmegalese.” I first started reviewing contracts back in my days working with TIC Wyoming, Inc., a subsidiary of the Kiewitt Corporation, reviewing large scale heavy industrial construction contracts for construction jobs such as oil refineries, natural gas compressor stations, and coal mine facilities.

I’ll be honest with you: my first impression of all the boilerplate legalese at the end of a contract was that it was totally unnecessary. I had the impression that these provisions were not ‘essential deal terms,’ and were drafted by some uptight committee of scholars. This attitude is not uncommon amongst transactional attorneys – they are often concerned with ‘getting the deal done’ and making sure the ‘deal works.’

Since then, however, I have developed a different attitude. While the essence of the deal may be encapsulated in the other provisions of the document, subsequent dispute negotiations, arbitration, mediation, and litigation almost always involves the boilerplate language in one way or another. Read More »

Tag: oil and gas law

Denbury v. Texas Rice: Clarifying the Test for Common Carrier Status, Power of Eminent Domain

Case Law Update: ConocoPhillips Must Release 15K Acres

TX Supreme Court: Chesapeake May Not Deduct Post-production Costs from Overriding Royalty

Anatomy of a Joint Operating Agreement

Wyoming: Can Lessees Pool Overriding Royalty Interests?

The Framework in Texas

The General Rule

Legalese: Standard Interpretive Boilerplate