MINERAL
LAW
FALL
2011
Tawes
v. Barnes, 340 S.W.3d 419 (Tex. 2011)
Royalties,
Joint Operating Agreement, Working Interest Unit Agreement, Third Party
Beneficiaries, Privity of Estate: To understand the precise
relationship of the parties, this opinion needs to be read. Basically Moose and
Tawes, owners of a lease from Baker entered into a working interest unit agreement
(WIUA) and a joint operating agreement (JOA) with Dominion, owner of an
adjoining lease from Barnes. After the first well was drilled, Dominion elected
to go non-consent on the next two wells. The JOA provided that the Consenting
Parties would be responsible for paying royalties owed to the lessors of leases
contributed by Non-Consenting Parties until a specified amount of production
had been recovered. Barnes did not get all the royalties owed on production
from the two non-consent wells. Although Barnes was not a member, Barnes sued
the parties thereto claiming she qualified as a third party beneficiary or
privity of estates under the WIUA or JOA. Barnes settled with Dominion and
Moose, but not Tawes. Held: As to Barnes’ third party beneficiary status,
the Texas Supreme Court found that Barnes was not a signatory to these
agreements and that there was an absence of any sufficiently clear and
unequivocal language demonstrating an intent to directly benefit the royalty
owner. Likewise, privity of estates
between Barnes and Tawes was held not to exist because the grant of temporary
ownership of the non-consenting parties’ share of production to consenting
parties was temporary, i.e. the consenting parties received no permanent
interest in the Barnes lease and Tawes never specifically assumed dominion’s
duty of to pay directly to Barnes the royalties accruing from production on the
non-consent wells.
Exxon
Corporation and Exxon Texas v. Emerald Oil & Gas, W.L. 1226100; LEXIS
250 (Tex. 2011)
Duty
to Plug Well, Statute of Limitations, Fraudulent Concealment, Waste,
Negligence, Tortious Interference, Fraud in Filing Plugging Reports: This
case was previously reported in the GPD, Mineral Law, Spring 2011 Edition. The
12/17/2010 opinion was withdrawn, but the Court’s judgment remained unchanged.
The basic allegations were that the lessee failed to fully develop an oil and
gas tract and sabotaged the wells before abandoning the lease. This opinion
needs to be read in detail to review and understand the Supreme Court’s
discussion of the lessee’s duties and potential causes of action related
thereto.
Railroad
Commission of Texas and Pioneer Exploration v. Texas Citizens for a Safe Future
and Clean Water, 336 S.W.3d 619 (Tex. 2011)
Salt
Water Injection Well Permits: The issue was whether the
Texas Railroad Commission was entitled to or should take into account the
impact of a salt water injection well operation on traffic safety in the area
and whether it would not serve the “public interest” which the Railroad
Commission was obligated to consider. Held: The Court held that it was obligated to
defer to an agency’s interpretation and construction of an ambiguous statute
that it was charged with administering if its construction was reasonable. Note:
Three of the Supreme Court justices
joined in a concurring opinion because they felt the statute at issue
unambiguously precluded the Railroad Commission from considering traffic safety
factors as a part of its public interest inquiry in the permitting of oil and
gas waste injection wells.
Basic
Energy Services v. D-S-B Properties, Inc., W.L. 2649989; LEXIS
4971 (Tex. App.—Tyler 2011)
Operator,
Royalty Owner, Rights under DTPA: D-S-B hired Basic to repair
a well, which was irreparably damaged in connection with the repair work. D-S-B
brought suit as operator and on behalf of the royalty interest owners. Held: The Court held that D-S-B had standing to
sue as a representative of all working interest owners. The measure of damage
for destruction of an oil well that can be reproduced was the lower of: (1)
cash market value of the old well or (2) the cost of reproduction of the well
with a new well equipped like the old one, less selling value of the old well.
While a royalty owner must prove with “reasonable certainty” the damages
suffered, under the facts in this case, the Court held sufficient evidence was
admitted to support the damages awarded to the royalty owner. The well repair company also argued that the
royalty owner had no right to sue under the DTPA because it was not involved in
the transaction between the repair company and the operator for the work on the
well. The DTPA required proof of “consumer status” i.e. “a person or entity
that sought or acquired goods or services by purchase or lease.” Here the
repair company was employed by the working interest owners, and the Court held
that the royalty owner as an incidental beneficiary of the transaction was not
sufficiently connected with the transaction to be a consumer under the DTPA,
and therefore it was not entitled to attorneys fees in its claim against the
repair company.
Faith
Oil & Gas v. King, W.L. 2204476; LEXIS
4215 (Tex. App.—Eastland 2011)(memo op.)
Habendum
Clause, Gas Lease: Faith
Oil & Gas(Faith) and King entered into a gas lease dated February 19, 2007,
and acknowledged April 5, 2007, providing for a term of one year and so long
thereafter as oil, gas, or minerals were produced from said land …. A well was
drilled but no oil, gas or minerals were ever produced. Instead Faith used the well as a salt water
injection well. The lease did have a provision “if the well being drilled on
King land does not prove to be a producing gas well, then and only then will
this well be used as a salt water injection well.” Held: Since there was no
production of oil, gas or other minerals at the end of the primary term, the
lease terminated.
Pharaoh
Oil & Gas, Inc. v. Ranchero Esperanza, Ltd., W.L. 2162755; LEXIS
4179 (Tex. App.—El Paso 2011)
Surface
Use, Trespass, Unreasonable Use of Surface, Negligence, Temporary Injunction: Ranchero
Esperanza, Ltd. was the owner of the surface estate and one-half of the mineral
estate. Pharaoh began operating oil and gas wells on many sections in the
ranks. Suit was brought by the surface owner against Pharaoh for a temporary
injunction and trespass, negligence, and for various causes of action on the
ground that the equipment and materials and actions on the surface were not for
any current or were not used for any current operation. The trial court found
that the storage of equipment constituted an unreasonable, unnecessary
excessive burden on the leased land and granted a temporary injunction. Held:
After discussing the elements required
for a mandatory temporary injunction the Court held the trial court abused its
discretion in granting a mandatory temporary injunction in this case.
Merriman
v. XTO Energy, Inc., W.L. 1901987; LEXIS
3601 (Tex. App.—Waco 2011) (memo op.)
Surface
Use, Mineral Estate: The landowner, owning the
surface rights in a 40 acre tract, told the oil company, XTO that the proposed
well site would interfere with his cattle operation. XTO started building a well site and the surface
owner sought a temporary and permanent injunction. Held: The dominant mineral
estate had the right to reasonable use of the surface estate to produce
minerals, but this right was to be exercised with due regard to the rights of
the surface estate’s owner. Where there was an existing use by the surface
owner which would otherwise be precluded or impaired, and where under the
established practices in the industry, there were alternatives available to the
mineral owner whereby minerals could be recovered, the rules of reasonable
usage of the surface may require the adoption of an alternative method by the
mineral owner. In this case the Court held that the surface owner had other
reasonable means of developing his land for agricultural purposes under the
evidence and affirmed the trial courts’ order granting XTO’s motion for summary
judgment.
Coleman
v. Coleman, W.L. 1796234; LEXIS
3497 (Tex. App.—San Antonio 2011)
Construction
of Mineral Conveyance: The
husband bequeathed to the wife a life estate in his mineral estate under the
terms “I give all of my interest in the Crockett County, Texas, mineral
interest that Occidental Permian Ltd. is presently making payments to me on
under owner number …. to my wife, Betty
… Coleman for the term of her life ….”
After the Husband’s death, additional wells were drilled on the land and
the issue arose as to whether or not the wife was entitled to royalties from
the additional wells. Held: The husband unambiguously bequeathed to the wife
his entire mineral estate in Crockett County. The phrase regarding payments was
held not to limit the interest but to describe it in additional detail.
City
of Houston v. Maguire Oil Company, W.L. 1643587; LEXIS 3306 (Tex.
App.—Houston 2011, pet. filed)
Regulatory
Taking of Private Property: The city’s interference with
the oil company’s right to drill constituted a regulatory taking for which
compensation was due under the Texas
Constitution.
This case would need to be read, if a lawyer has a similar situation.
Hernandez
v. El Paso Production Company, W.L. 1442991; LEXIS
2841 (Tex. App. — Corpus Christi 2011) (memo op.)
Mineral
Interest Conveyance: The original deed granted a “one-sixteenth interest in and to all
of the oil, gas and other minerals in and under and may be produced from the
following described land . . . . .” The
land was under an oil and gas lease described in the deed which stated “. . .
.this sale is made subject to said lease, but covers and includes one-half
(1/2) of all the oil royalty and gas rental or royalty due and to be paid under
the term of the lease.” The deed further
provided that in the event the “lease becomes cancelled or forfeited . . . the
lease interests and all future rentals on said land, for oil, gas and mineral privileges”
would be owned jointly by grantee and grantors . . . . “each owning one-half ½
of Royalty same being 1/2 of 1/8 or 1/16 interest in all oil, gas and other
minerals in and upon said land under the present lease or any future lease on
said land together with 1/2 one-half interest in all future rents.” Note:
The opinion and cases cited need to be
reviewed as the opinion discusses the duty of the court interpreting the
deeds, and prior Supreme Court cases
interpreting “three grant” clauses and,
“two
grant clauses in Texas.” Held: While the granting clause may have granted a
one-sixteenth interest in the minerals, the “subject to” clause included a one-half interest in the
oil royalty, and the gas royalty, and the subject to clause showed an intent to
convey a full one-half of all royalties and gas rental due under the lease,
indicating that the grantors understood that a one-eighth royalty was what they
owned and they were giving one-half of that to the grantee, and that the future
lease provision expressed the parties
intent that they jointly own the minerals one-half each, with the future lease
provision further confirming the grantors thought that the 1/8 royalty interest
was all that they owned and that by granting a 1/16th interest, the grantors were conveying a ½ of
what they owned on the existing as well as any potential future leases.
Gail
v. Berry, W.L. 1434642; LEXIS 2812 (Tex. App.—Eastland
2011)
Contract
to Sale, No Deed Reservation, Mutual Mistake, Reformation of Deed: An
attorney in fact for appellees entered a contract to sell land to the purchaser,
under a sales contract reserving to the seller all minerals. The mineral
reservation was omitted from the warranty deed. Held: A scrivener’s failure to
embody the true agreement of the parties in a written instrument was a ground
for reformation on the basis of mutual mistake. Here, the Court held that
grantors established there were no genuine issues in material facts and as a
matter of law they were entitled to reformation of the deed on the basis of
mutual mistake.
Smith
v. Basa Resources, Inc., W.L. 1435273; LEXIS 2813 (Tex. App.—Eastland
2011) (memo op.)
Damages
to Surface. Leaking Pipeline: An oil leak from a
production pipeline on a ranch caused damages to the surface. The damage was
caused by a rusted bolt breaking on a buried pipeline; but the probative
evidence showed the defendant acted as a reasonably prudent operator would have
acted under the circumstances in and had used reasonable care in maintaining and
taking care of the pipeline and in cleaning up and remediating the leak. Note:
The case can be read for its discussion
of the evidence required to prove the operators’ negligence, trespass and it’s reasonably
prudent operator defense.
Long
v. RIM Operating, Inc., W.L.
1431476; LEXIS 2808 (Tex. App.—Eastland 2011)
Joint
Operating Agreement, Non-consent: The
operator acting under a joint operating agreement (JOA) filed suit against one
of the working interest owners who had signed the (JOA) to determine that he
had forfeited his interest in the lease. The (JOA) provided that if working
interest owner went non-consent over a proposed operation it relinquished
rights to any production until its share of the cost, plus and additional 200%
to 500%, had been recouped by the consenting working interest owners. However a
“required well” provision provided that if the well drilling or other proposed operation
was necessary to perpetuate expiring leases, and a party elected not to
participate, then the nonparticipating party shall release and relinquish
forever its interest in and to the leases which would be perpetuated by drilling
the “required well” well under the
circumstances. Held: The Court after
discussing a number of technical points raised by the non-consenting owner
confirmed the judgment of the trial court, except for attorney fees.