Washout of Production Payments Upon Expiration of the Underlying Leasehold

The Texas Supreme Court, in Apache Deepwater, LLC v. McDaniel Partners, Ltd., No. 14-0546, 2016 Tex. LEXIS 179 (February 26, 2016), addressed the issue of the calculation of production payments reserved in the assignment of four oil and gas leaseholds, and whether, after two of the leases terminated, the production payment should be adjusted to reflect the loss of the two leaseholds. The dispute in Apache Deepwater centered on the interpretation of a production payment reserved in the assignment of four oil and gas leases. Id., at *1-2. In 1953, Hugh W. Ferguson, Jr. ("Ferguson") assigned to L.H. Tyson ("Tyson") four oil and gas leases that Ferguson owned in Upton County, Texas. Id., at *2. The assignment reserved to Ferguson a one-sixteenth (1/16) production payment, which it described as "1/16th of 35/64ths of 7/8ths, being one-sixteenth of the entire interest in the production from said lands to which Assignor claims to be entitled under the…
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Statutory Subordination of Liens to Oil and Gas Leases

In a measured victory for oil and gas companies operating in Texas, the 84th Texas Legislature has passed House Bill 2207, codified as TEX. PROP. CODE § 66.001, and titled "Sale of Property Subject to Oil or Gas Lease." Chapter 66 became effective January 1, 2016, and applies with respect to foreclosure sales or judicial foreclosures commenced on or after that date. Prior to the enactment of House Bill 2207, the general rule of priority between mortgages and oil and gas leases was "first in time, first in right." If an oil and gas lease was taken prior to a mortgage, then it was superior to and unaffected by the subsequent foreclosure of the junior lien. Conversely, if the mineral estate was burdened by an outstanding mortgage at the time it was leased, a lessee would often have to go through the time-consuming and sometimes difficult task of obtaining a…
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New Mexico State Lease Recording Requirements

The New Mexico State Land Office ("SLO") is the government agency responsible for leasing oil, gas and other minerals owned by the State of New Mexico. The Oil, Gas and Mineral Resources Section of the SLO has two separate divisions: the Oil, Gas, and Minerals Division ("OGMD") and the Royalty Management Division ("RMD"). The OGMD administers monthly oil and gas lease sales and issues minerals leases. The RMD collects the royalty checks if production is achieved. The procedures for leasing state owned minerals are set forth in Chapter 19, Article 10 of the Annotated Statutes of New Mexico ("NMSA"), titled Lease of Oil and Gas Lands. NMSA § 19-10-1 authorizes the commissioner of public lands ("commissioner") to execute oil and gas leases in the name of the State of New Mexico. NMSA §§ 19-10-2, et seq. set forth the numerous technical requirements for leasing, including the classification of states lands, lease provisions,…
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