Tag: oil and gas lease

25Oct
Mystery Solved! 100+ Year Old Instrument Ruled to be a Mineral Deed

100+ Year-Old Title Dispute: Instrument Ruled a Mineral Deed, Not a Lease

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 [1] 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.

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Footnotes   [ + ]

13Jan

Texas: Statutory Subordination of Mortgages

Texas House Bill 2207, effective January 1, 2016, statutorily subordinates certain real estate mortgages to oil and gas leases, introducing an interesting tweak to the long-standing and well-established “first in time, first in right” rule. However, this statute is not without its limitations.  For example, it only applies to foreclosure sales for which the foreclosure notice occurs or the judicial foreclosure action commences on or after January 1, 2016.  Additionally, the statute goes on to clarify that, although the lease is to survive the foreclosure, the right to use the surface estate may be terminated and extinguished by the foreclosure to the extent the security interest had priority over the lessee.

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19Aug

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, [1] 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 »

Footnotes   [ + ]

6Nov

Life Tenants and the the Open Mines Doctrine

I’ve had a few landmen ask me about the proper way to handle payments of bonus and royalties under oil and gas leases involving a life tenant.  Judging by the guesses people have given, it may not be entirely common sense.  The entire analysis changes even further if the Open Mines Doctrine applies.  I suppose that’s one reason it’s always good to make sure you have an excellent title attorney preparing your title opinions and division orders!

The answer:  Once a lease is granted by both the life tenant and the remaindermen, courts generally allocate funds between them as follows:

However, the Open Mines Doctrine is of key importance when dealing with an active lease, because the entire division of proceeds changes when this doctrine applies.  The Cornell School of Law defines the Open Mines Doctrine as follows:

In property law, a doctrine that permits a tenant to commit voluntary waste on a piece of land by depleting it of natural resources when mining was previously done on the land and mines were currently open at the time the tenant took possession of the land. In this situation, a tenant is allowed to continue mining on the land, but can only continue to mine in the open mines already in existence and cannot open any new mines on the land.

The Open Mines Doctrine, while borrowed from the law of hard minerals, has been adopted in most oil-producing states.  Under this doctrine, where it applies, courts generally allocate funds between the life tenant and remaindermen as follows:

  • Life Tenant: Delay Rentals, all Bonus Payments and Royalty Payments.

So when does the Open Mines Doctrine apply?  Generally, a “mine” (oil and gas lease) is “open” when the oil and gas lease exists when the life tenancy is created.  Perhaps counter-intuitively, this may also include additional wells drilled under that lease.  One important limitation is that the Open Mines Doctrine generally does not apply to future leases or top leases.

 

© Copyright 2012-2018, McGinnis Lochridge LLP. All Rights Reserved. DISCLAIMER: The information in this article is for general information purposes only. This article should not be substituted for legal advice and should not be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or reading this article does not constitute, an attorney-client relationship. You are encouraged to contact an attorney for legal advice concerning the information provided in this article.
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