August, 2021 | The Law Offices of Gregory D. Jordan

Texas Court Issues Recent Oil and Gas Opinion Discussing the Ratification of a Pooling Agreement

Recently, a state appellate court issued an opinion in a Texas oil and gas case discussing whether an owner of a mineral interest can withhold her agreement to pool her interests after accepting royalty payments calculated on a pooled basis.

The Facts of the Case

Strickhausen owned a one-half interest in a mineral tract found in La Salle County, TX. An oil and gas company, BPX, leased the right to drill on Strickhausen’s land. Under the terms of Strickhausen’s agreement with BPX, her interests could not be pooled without her “express consent.” The lease also contained a prohibition on commingling. However, the owner of the other half of Strickhausen’s land did not include such a restriction on pooling.

BPX filed a pooled unit designation and drilled a well located partly under Strickhausen’s tract. BPX then asked Strickhausen to ratify the pooled unit. At this point, Strickhausen asked BPX how she would be compensated under the pooling agreement and what would happen if she refused to consent. BPX told her that she would end up receiving a greater royalty payment under the pooled agreement and that if she disagreed, “the royalties will require being placed in suspense.”

Two months later, BPX issued Strickhausen a check for about $250,000. In response, Strickhausen told BPX that she would agree if BPX paid her $300,00 and allowed her to deposit the check they had just issued her. A few days later, Strickhausen deposited the check, despite not having heard back from BPX about her counteroffer. Strickhausen continued to deposit the checks for a few months until she eventually filed a breach-of-contract claim, arguing that BPX violated the comingling clause and that Strickhausen was owed royalty payments based on all oil drilled from the well.

BPX responded that, by depositing the checks, Strickhausen ratified the pooled unit and should not be able to claim now that BPX broke the lease. The trial court agreed with BPX; however, on appeal, the case was reversed. The appellate court found a material issue of fact regarding whether Strickhausen’s depositing of the checks constituted her express consent to the pooled unit.

The court explained that a mineral owner’s conduct must be viewed in whole to determine if they ratify such an agreement. Specifically, the court noted that “depositing the checks–may in some cases be enough to overcome express indications of an objective intent not to ratify, but only if the facts and circumstances as a whole ‘clearly evidence an intention to ratify.”

Here, the court held that by depositing the checks, Strickhausen did not accept the pooled unit agreement. The court explained that BPX received Strickhausen’s counteroffer and knew that the issue was not settled. The court also pointed out that Strickhausen may have thought the checks were part of her royalty interest and that she may be entitled to additional royalties once the parties agreed on the issue of her consent.

Cases such as these are highly fact-dependent. Two factors that likely weighed heavily in the court’s resolution in this case are, 1.) Strickhausen testified that she did not know the checks were calculated on a pooled basis and, 2.) Strickhausen’s lease only allows pooling with her express interest. Those involved in a Texas oil and gas dispute should reach out to an experienced attorney for assistance understanding the particular claim and how to protect and pursue their rights effectively.

Reach Out to a Dedicated Austin Oil and Gas Lawyer

Disputes over oil and gas rights can be, and often are, very complicated. These high-stakes situations are too often approached in a casual manner, which puts your interests at risk. Oil and gas companies usually have experienced lawyers working on their side, capable of making convincing arguments for their desired interpretation of a lease. At the Law Offices of Attorney Gregory D. Jordan, we have extensive experience representing clients in all types of oil and gas disputes. We have been handling Texas oil and gas issues for over 30 years, giving us a broad understanding of this complex industry. To learn more and to schedule an initial consultation, call 512-419-0684. You can also contact me through my online form.

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