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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 provisions.  Id., at *3.  The royalty provision in dispute provided “a perpetual, cost-free (except only its portion of the production taxes) overriding royalty of five percent (5.0%) of gross production obtained.”  Id., at *3-4.  Additionally, the lease contained a disclaimer, which provided: “Lessors and Lessee agree that the holding in…

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 disposal facility.  Id., at *4.  The Texas Natural Resource Conservation Commission (TNRCC), a predecessor regulatory agency to the Texas Commission on Environmental Quality (TCEQ), properly permitted the EPS wastewater disposal facility in 1996.  Id.  In 1999, EPS applied to the TCEQ to amend its permit to increase the volume of…

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 maximize the royalty terms in an oil and gas lease.  Betty Lou Bradshaw (“Bradshaw”) owned a one-half (1/2) non-participating royalty covering a portion of a 2,000 acre tract of land in Hood County, Texas, known as Mitchell Ranch.  Id., at *7.  Steadfast Financial LLC (“Steadfast”), which later changed its name…

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 at the end of the primary term.  Id.  The Plaintiff, Landover Production Company, LLC (“Landover”), held a “top lease” on the same 80-acre tract.  Id.  Landover filed suit claiming that Endeavor’s lease had automatically terminated due to cessation of production, and, therefore, its top lease was the only valid lease…

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 drill horizontal wells that would enter and cross through Lightning Oil Co.’s (“Lightning”) mineral estate.  Lightning owned the mineral estate to a portion of land known as Cochina East Ranch.  Id., at *2.  To the south of Cochina East Ranch lies the Chaparral Wildlife Management Area (“Chaparral WMA”), a wildlife…

In a case of first impression, The Eastland Court of Appeals recently held that Tex. Nat. Res. Code § 91.402 (the “Texas Division Order Statute”) does not require an operator to pay royalties directly to mineral interest owners who have leased their interest to a different working interest owner.  Devon Energy Prod. Co., L.P. v. Apache Corp., 550 S.W.3d 259 (Tex. App.–Eastland 2018, pet. denied). The dispute arose relating to the payment of royalties in Glasscock County, Texas.  A mineral owner had leased her one-third interest in the subject land to Apache Corporation (“Apache”) and the remaining mineral owners leased their combined two-thirds interest to Devon Energy Production Company, L.P. (“Devon”).  However, Devon and Apache were unable to agree on the terms of a joint operating agreement.  Apache drilled seven producing wells.  After payout, Apache paid Devon its full two-thirds share of production, including the landowner royalty set forth in…

The rule against perpetuities (“RAP”) and its archaic and frequently confusing interpretation of when an interest is “vested” has plagued generations of law students and property lawyers.  RAP requires that “no interest is valid unless it must vest, if at all, within twenty-one years after the death of some life or lives in being at the time of conveyance.”  BP Am. Pro. Co. v. Laddex, Ltd., 513 S.W.3d 476, 479 (Tex. 2017).  Traditionally, RAP imposed the draconian consequence of voiding any interest if any possible contingency of the grant violated RAP.  Over time, courts have continued to relax the penalty imposed by RAP.  Rosson v. Bennett, 294 S.W. 660, 662 (Tex. 1927) (holding that an oil and gas lease, which grants a lessee the right to explore and develop for a certain period of time and for so long thereafter as oil and gas is produced, creates a fee simple…

In Hardin-Simmons Univ. v. Hunt Cimarron L.P., No. 07-15-00303-CV, 2017 Tex. App. LEXIS 6934 (Tex. App.-Amarillo July 25, 2017), the court evaluated the terms of an oil and gas lease to determine to what extent the oil and gas lease remained in effect, if at all, due to a lack of production in paying quantities. In the late 1950s several producing wells were drilled on the leased premises, but production declined. In 1967, the leased premises was included in the Buckshot Unit, a 13,000 acre waterflood unit. In the 1990s, the leased premises fell out of the Buckshot Unit and the owners of entered a new lease that was subsequently assigned to United Oil and Gas (the "United Lease"). At the conclusion of the primary term of the oil and gas lease to United, the lease was released as to all of the leased premises, except for 700 acres, which lease…