Royalty Free of Post-Production Costs

The Texas Supreme Court, in Chesapeake Exploration, L.L.C. v. Hyder, No. 14-0302, 2015 Tex. LEXIS 554 (June 12, 2015), addressed the issue of allocation of post-production costs and whether, based on a certain lease royalty provision, an overriding royalty must bear its share of post-production costs. The dispute in Hyder centered on the interpretation of a lease royalty provision.  Chesapeake Exploration, L.L.C. (“Chesapeake”), as lessee, acquired an interest in 948 mineral acres in the Barnett Shale previously leased by the Hyder family.  Id., at *2-3.  The Hyder family had previously executed a lease with the original lessee containing three royalty…
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Subsurface Trespass Remains Undecided in Texas

In Envtl. Processing Sys., L.C. v. FPL Farming Ltd., No. 12-0905, 2015 Tex. LEXIS 113 (Feb. 6, 2015), the Supreme Court of Texas concluded that lack of consent is a required element of common law trespass, but declined to address whether subsurface wastewater migration is actionable as a common law trespass in Texas. The dispute in Envtl. Processing Sys., L.C. v. FPL Farming Ltd. arose between FPL Farming Ltd. (“FPL Farming”), who owned a rice farm in Liberty County, Texas, and Environment Processing Systems (“EPS”), who leased an adjacent tract of land upon which it constructed and operated a wastewater…
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The Duty of the Executive to Non-Executives

The Texas Supreme Court, in KCM Fin., LLC v. Bradshaw, No. 13-0199, 2015 Tex. LEXIS 220 (March 6, 2015), addressed the nature of the duty owed by the executive to the nonparticpating royalty owners or non-executive mineral interest owners and under what circumstances the executive has fulfilled its duty.  The Court described the duty owed by an executive as a duty of “utmost good faith and fair dealing,” but refused to create a bright line rule outlining the nature or boundaries of the executive’s duty.  Id., at *3-4. The dispute in Bradshaw centered on the obligation of the executive to…
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Application of the Implied Temporary Cessation of Production Doctrine

In Landover Prod. Co., LLC v. Endeavor Energy Res., L.P., No. 11-13-00132-CV, 2014 Tex. App. LEXIS 11990 (October 31, 2014), the Eastland Court of Appeals applied the implied temporary cessation of production doctrine to preserve a lease in its secondary term because the lease did not have an explicit savings clause that applied to the secondary term of the lease. The Defendants (collectively “Endeavor”) owned the working interest under an 80-acre oil and gas lease.  Id., at *1.  The primary term of the lease had expired, but the lease continued to operate under the secondary term because there was production…
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Off-Lease Drilling Locations and Claims of Subsurface Trespass

In Lightning Oil Co. v. Anadarko E&P Onshore, No. 04-14-00152-CV, 2014 Tex. App. LEXIS 11844 (Oct. 29, 2014), the San Antonio Court of Appeals concluded that a mineral estate owner was not entitled to injunctive relief to prevent an adjacent mineral estate owner from drilling horizontal wells crossing through the other party’s mineral estate to access the adjacent mineral estate.  This case is significant for operators that drill multiple horizontal wells from a single pad location and for operators that drill horizontal wells from off-lease surface locations. The dispute in Lightning Oil arose from Anadarko E&P Onshore’s (“Anadarko”) attempt to…
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Texas Supreme Court Addresses the Deduction of Post-Production Costs

The Texas Supreme Court addressed the deduction of post-production costs in Burlington Res. Oil & Gas Co. LP v. Tex Crude Energy, LLC, 573 S.W.3d 198 (Tex. 2019).  The Texas Supreme Court, reversing the Court of Appeals, explained that Burlington, the lessee and producer, could deduct post-production costs when calculating royalty payments on the amount realized when the royalty interest is to be delivered “into the pipeline, tank, or other receptacle to which any well or wells on such lands may be connected . . . .” In 2005, Burlington and Texas Crude entered into a Prospect Development Agreement and…
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North Dakota Supreme Court Concludes that a Pugh Clause Controls over the Habendum and Continuous Drilling Clauses

In Robert Post Johnson & A.V.M., Inc. v. Statoil Oil & Gas LP, 918 N.W.2d 58 (N.D. 2018), the North Dakota Supreme Court interpreted an oil and gas lease to resolve a conflict between the habendum and continuous drilling clauses and the Pugh clause.  The habendum and continuous development clauses were part of a form oil and gas lease and the parties separately negotiated a Pugh clause that was added to the lease. At the expiration of the three-year primary term, production in paying quantities was occurring in only three of eight units that included lands covered by the disputed…
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R.A.P. Battle: The Kansas Supreme Court Clips the Rule Against Perpetuities

In Jason Oil Co., LLC v. Littler, 2019 Kan. LEXIS 204 (Kan. 2019) Kansas joined a growing number of jurisdictions declining to apply the rule against perpetuities to defeasible term oil and gas interests. On December 30, 1967, Grantor executed two deeds in favor of separate Grantees conveying tracts of land in Rush County, Kansas (the “1967 Deeds”).  Each 1967 Deed excepted the mineral estate “for a period of 20 years or as long thereafter as oil and/or gas and/or other minerals may be produced.”  Upon the expiration of 20 years, no drilling operations had been conducted on the lands…
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