Oil and Gas Law | The Law Offices of Gregory D. Jordan

Court Issues Opinion Addressing Accommodation Doctrine in Recent Texas Oil and Gas Case

Earlier this year, a state appellate court issued an opinion in a Texas oil and gas case, discussing the interplay of property rights between large-scale solar power facilities and the owners of the mineral rights to the land on which the solar panels rest.

The Facts of the Case

According to the court’s opinion, the case involves a 315-acre parcel of land in Bezos County, Texas. As is common in Texas, one party owns the mineral estate, and another owns the surface estate. As is relevant to this case, the Lyles own a significant portion of the mineral estate, and Drgac owns the surface estate.

In October 2015, Drgac leased his surface estate to Midway Solar, a company that uses solar panels to generate power. The lease provided Midway with the right “to free and unobstructed use and development of solar energy resources” for up to 55 years. The lease also allowed Midway to place transmission lines, electrical lines, and cable lines, provided they seek his approval first. However, the lease noted that Drgac was not the owner of the mineral rights to the property and that Drgac would work with Midway to obtain surface waivers, if necessary.

Midway developed the land, placing solar panels on 70 percent of the surface. Midway left 17 acres on the south end and 80 acres on the north end for “Designated Drill Sites.” While Midway obtained surface waivers from other parties who owned the mineral rights to portions of the land, they never sought to obtain a surface waiver from the Lyles.

The Lyles later sued Midway for breach of contract, claiming that Midway’s use of the property prevented the Lyles from using their land underneath the solar panels. However, when the Lyles filed suit, they had made no efforts to develop any of the land or extract oil or gas from their estate. They also testified that they had no immediate intention of doing so. Instead, they presented testimony from an expert who explained that Midway’s use of the surface prevents the Lyles from developing the minerals, denying them reasonable access.

Midway responded by claiming that, until the Lyles attempt to develop the land, their claim is not ripe. Midway also explained that, when the Lyles eventually decide to do so, it can accommodate the Lyles’ use.

The Court’s Opinion

In resolving the parties’ dispute, the court had to address several issues. First, whether the accommodation doctrine could apply to the facts of the case.

The accommodation doctrine holds that the owners of mineral and surface rights must generally accommodate each other’s use of the property. Under Texas oil and gas law, the mineral estate the “dominant estate,” meaning that the owners of mineral rights must be afforded a way to access their property by the surface owner. While the lease can negate the application of the accommodation doctrine, or add to the surface owner’s obligations, to do so, the lease must make clear that is the parties’ intention.

Here, the court reviewed the relevant leases, finding that there was nothing in the documents that otherwise limited Midway’s ability to develop the land other than requiring they accommodate the Lyles’ use of the property. In other words, the mere fact that Midway developed the land with solar panels does not, by itself, result in a breach of the contract between the parties.

Next, the court addressed whether the Lyles could bring their case without having attempted to develop the land. The Lyles argued that at the moment Midway constructed the solar panels, they suffered damage to their property rights. The Lyles rely on the fact that Midway placed panels over 70 percent of their land.

However, the court agreed with Midway that, until the Lyles attempt to develop the land and encounter a problem, their claim is not ripe. The court reasoned that, when the Lyles attempt to develop the land, Midway may be able to accommodate their use. Thus, until that is determined not to be the case, Lyles’ case is not ripe for review.

The case illustrates the complex interplay between a surface estate owner and the owner of a mineral estate. Parties facing a dispute regarding these often-competing rights should consult with a dedicated Texas oil and gas lawyer for assistance.

Contact a Dedicated Austin Oil and Gas Lawyer for Immediate Assistance

Oil and gas disputes can be complicated. Not only that, but these disputes often involve very high stakes. Choosing an attorney to represent you or your business is a crucial decision that can save months or even years of litigation and many thousands of dollars. At the Law Offices of Gregory D. Jordan, we have been effectively handling Texas oil and gas cases for over 30 years. To learn more and to schedule an initial consultation, call 512-419-0684. You can also contact me through my online form.

Appellate Court Resolves Texas Oil and Gas Dispute by Looking to a Deed Written Nearly 100 Years Ago

Earlier this year, a state appellate court issued an opinion in a Texas oil and gas case, requiring the court to interpret a 1927 deed. The deed purported to convey a “royalty interest” as well as an “equivalent reversionary interest in and to all oil, gas, casinghead gas and other minerals” pertaining to certain land. Ultimately, the court affirmed the lower court’s ruling.

In this case, Five Star claimed it was the successor in interest to the original grantee, and that it was entitled to a “floating” royalty interest, providing the company a 3/8 interest in any leased royalty. Ultimately, the court found that Five Star owns an undivided 3/8 interest in the minerals. However, the court clarified that the interest consists only of the “right to receive a proportionate share of royalties and does not include any executive right or right to develop the land.”

The Facts of the Case

According to the court’s opinion, Five Star sought to establish that it was the successor in interest to an earlier grantee. Five Star tried to prove that it owned a 3/8 interest in the mineral interests. In response, the defendants argued that Five Star was only entitled to 3/8 of a 1/8 interest, or a 3/64 interest.

In support of its claim, Five Star presented the court with a quit-claim deed that purported to convey a “ROYALTY ONLY” interest. The question for the court was whether the quit-claim deed conveyed a 3/8 interest or a 3/64 interest to Five Star. In resolving this question, the court had to wrestle with the fact that the Texas oil and gas industry’s customs and terms have changed significantly since the original deed was created in 1927.

The court began its analysis by noting that there are two types of royalty interests.

  1. a “mineral interest” that includes a right to receive a proportionate share of reserved royalties; and
  2. a free “royalty interest” granting a right to a fixed fraction of gross production.

The court then went on to explain that a mineral estate consists of five separate interests:

  1. The right to develop,
  2. The right to lease,
  3. The right to receive bonus payments,
  4. The right to receive delayed rentals, and
  5. The right to receive royalty payments.

Under state law, a party can convey any of the above interests while reserving others. If any of the above interests are conveyed, they are generally referred to as “mineral interests.” The court explained that when a deed conveys a royalty interest, through a fractional share, “what is conveyed is a fraction of royalty, not a fixed fraction of total production royalty.”

Here, the court noted that the original deed conveyed a “royalty interest of three-eighths of all . . . minerals.” The court acknowledged this alone may indicate that the conveyance only consisted of a 3/8 fixed royalty. However, later in the document, the same interest is referred to as “a three-eighths part of the royalty provided by the then-operative lease” and again as a “three-eighths of one-eighth interest.” The court also noted that the deed did not address production costs. This led the court to find that the “royalty interest” mentioned in the deed was not a fixed royalty, but a right to receive royalties proportionate to a held mineral interest. Ultimately, the court concluded that Five Star was entitled to a full 3/8 interest, but that its interest was limited to receive a proportionate share of royalties and does not enable Five Star to develop or lease the land.

The court acknowledged that the original deed used confusing, and at times, conflicting language. The court attributed some of this confusion to the fact that the deed was nearly 100 years old, and that the customs and common terms used in the oil and gas industry have changed.

If nothing else, this case illustrates the complexity of oil and gas litigation in Texas. These cases often involve old documents that may not comport with the current state of the law. Thus, anyone dealing with a dispute surrounding Texas mineral interests should work with an experienced attorney to ensure that their rights are adequately protected.

Reach Out to a Dedicated Austin Oil and Gas Lawyer

Oil and gas disputes can be extremely complicated. Choosing an attorney to represent you or your business is a crucial decision that can save months or even years of litigation, and many thousands of dollars. At the Law Offices of Gregory D. Jordan, we have been effectively handling Texas oil and gas cases for over 30 years. This experience provides us with a detailed understanding of this unique practice area, which we put into each of our clients’ cases. We genuinely value your business and time and strive for quick and effective resolutions to whatever legal issues you face. To learn more, and to schedule an initial consultation, call 512-419-0684. You can also contact me online.

Texas Appellate Court Rules Against Pipeline Company in Condemnation Hearing

Earlier this year, a state appellate court issued an opinion in a Texas oil and gas case discussing a pipeline company’s condemnation claim against a landowner based on the parties’ inability to reach an agreement regarding an easement. Ultimately, the court ruled in favor of the landowners, finding that the pipeline company failed to prove that it was a “common carrier” with eminent domain power. The court also held that one of the property owners should not have been prevented from testifying as an expert regarding the value of the easement. 

The Facts of the Case

In the early 2000s, the Hlavinkas purchased 15,000 acres in Brazoria County for the primary purpose of generating income by acquiring additional pipeline easements. At the time the family purchased the land, there were about 25 pipelines already traversing the property. A pipeline company, HSC Pipeline Partnership (HSC), wanted to obtain an easement across the property to build a pipeline from Texas City to Brazoria County. 

The Hlavinkas and HSC could not agree on the terms of the easement, so HSC filed for a condemnation hearing. Essentially, HSC was attempting to use its purported eminent domain power to compel the Hlavinkas to grant HSC the easement. The Hlavinkas challenged HSC’s ability to exercise eminent domain powers, arguing that propylene, the product HSC intended on transporting through the pipeline, was neither crude petroleum under the Texas Natural Resources Code, nor an oil product or liquefied mineral under the Texas Business Organizations Code. The Hlavinkas also argued that the pipeline was not for public use, which prevented HSC from exercising eminent domain powers. The trial court rejected the Hlavinkas’ arguments, granting HSC’s motion for summary judgment and subsequently awarded HSC the easement. The court ordered HSC to pay the Hlavinkas $132,293.36 for the easement. In calculating this figure, the court precluded one of the Hlavinkas from testifying to the value of the easement. The Hlavinkas appealed. 

On appeal, the case found in favor of the Hlavinkas on both issues. First, the court held that HSC was not a “common carrier” as a matter of law, and summary judgment should not have been entered in favor of HSC. The court also held that the Hlavinkas should have been allowed to present testimony regarding the value of the easement. 

Regarding the “common carrier” issue, the court began by noting that the burden rests with a company to establish that it is a common carrier. To do this, the company must serve a public purpose, which requires the company show that “at or before the time common-carrier status is challenged, that the pipeline will serve the public by transporting gas for customers who will either retain ownership of their gas or sell it to parties other than the carrier.” The court explained that whether a pipeline serves a public purpose is a judicial question. In finding that there was conflicting evidence regarding whether the HSC pipeline served a public purpose, the court noted the following:

  • The pipeline did not have any interconnections, and there was no evidence that HSC advertised other companies could use the pipeline. 
  • There was no evidence of the pipeline’s capacity. 
  • The pipeline was designed to serve only one customer. 

Taking all this into account, the court held that the lower court erred when it ruled, as a matter of law, that the pipeline served the public and that HSC was a common carrier. 

Moving on to the issue regarding the Hlavinkas’ ability to testify to the value of the easement, the appellate court ruled that the lower court was wrong to prevent the Hlavinkas’ testimony. The court explained that, generally, an expert testifies regarding the value of the condemned property. However, in certain situations, a landowner can testify to the value of their property. 

Here, the court noted that Terry Hlavinka would have testified that he bought and sold property and negotiated pipeline easements and oil and gas leases for over thirty years, and that the “main driver” behind purchasing the land was the opportunity to generate income through pipeline development. He was also planning on testifying that the income derived from pipeline development exceeds the income he could get from any other use of his property. Additionally, he would have explained that there were at least twenty-five pipelines located on the property before HSC expressed its interest in the easement, and that he relied on this fact when determining that the best use of the property was for pipeline development. Terry used comparable sales from other deals to arrive at a value for the easement. 

Ultimately, the court concluded that Terry Hlavinka’s methodology for calculating the value of the easement was sound and should have been presented to the jury. The court also noted that “the sale of easements to private pipelines who are not common carriers, and, therefore, do not have the power to acquire property by eminent domain are necessarily voluntary.”

The issues presented in this case, especially landowners’ ability to testify regarding the value of their property, is a hot-button issue in Texas oil and gas law. This case represents one of the few times a property owner was able to do so.  

Are you dealing with a Texas oil and gas issue?

Oil and gas disputes can be complicated. Choosing an attorney to represent you or your business is a crucial decision that can save months or even years of litigation, and tens of thousands of dollars. At the Law Offices of Gregory D. Jordan, we have been effectively handling Texas oil and gas cases for over 30 years. To learn more, and to schedule an initial consultation, call 512-419-0684. You can also contact me online.

Texas Court Discusses Scope of Assignment in Recent Oil and Gas Case

Oil and gas law in Texas is often closely intertwined with contract law. In fact, many Texas oil and gas disputes are based on disagreements over unclear terms in lease or sale agreements. Earlier this year, the state’s high court issued a written opinion in a Texas oil and gas case highlighting the importance of unambiguous contractual terms. The case required the court to determine the scope of an oil and gas assignment that was, by all accounts, far from clear.

The facts of the case

According to the court’s opinion, Neuhoff Oil purchased a two-thirds interest in a mineral lease for a piece of property referred to as Section 28. A few years after its initial purchase, Neuhoff Oil assigned its two-thirds interest, reserving for itself a 3.75 percent overriding royalty interest on all production under the lease.

From 1975 to 1999, there was only one well on Section 28. Under the assignment agreement, Neuhoff received royalty payments until 1999, when Neuhoff sold its overriding royalty interest to Piranha Partners. The following year, Neuhoff Oil went out of business, and all the company’s assets were assigned to individual members of the Neuhoff family.

After the sale to Piranha Partners, the operator drilled several other wells on Section 28. Piranha Partners continued to receive payments related to the initial well. However, the Neuhoff family received payment for all the newly drilled wells. However, in 2012, the operator obtained a title opinion suggesting that Piranha Partners actually owned the royalty interest according to the sale. The operator then paid Piranha Partners what it believed the company was due, and asked the Neuhoff family to refund it for the amount they received in error.

The Neuhoffs filed this lawsuit, claiming that the sale to Piranha Partners only included the one well in existence at the time of the agreement. The trial court agreed with Piranha Partners, finding that the sale agreement transferred the rights to all wells then in existence and those not yet in existence. The court of appeals reversed, finding that the agreement only transferred the Neuhoff’s rights for some of the future wells. Not satisfied with the appellate court’s opinion, Piranha Partners appealed to the Texas Supreme Court.

The Texas Supreme Court agreed with Piranha Partners, that the agreement conveyed the mineral rights to the entirety of Section 28. The court first looked to the language of the conveyance:

Neuhoff Oil does hereby assign, sell and convey unto Piranha . . . without warranty or covenant of title, express or implied, subject to the limitations, conditions, reservations and exceptions hereinafter set forth . . . all of Neuhoff Oil’s right, title and interest in and to the properties described in Exhibit “A.”

The court then looked to Exhibit A, which described both the individual well that existed at the time of the sale, as well as the property as a whole. The court reviewed the typical rules of construction and the surrounding circumstances, finding neither helpful to resolving the issue at hand. Ultimately, the court determined that Exhibit A was ambiguous because it referred to the individual well, the general area where the well was located, as well as the entire property. Thus, the court looked to the agreement as a whole, trying to reconcile what the original intent of the parties would have been at the time the agreement was executed. Ultimately, the court agreed with the trial court, holding that Piranha Partners obtained a royalty interest in the entire property.

Are you involved in a Texas oil and gas dispute?

If you have a Texas oil and gas legal issue, contact Austin oil and gas attorney Gregory D. Jordan for immediate assistance. Choosing an attorney to represent you or your business in a Texas oil and gas dispute is a crucial decision that can save months or even years of litigation, and tens of thousands of dollars. At the Law Offices of Gregory D. Jordan, we have been effectively handling Texas oil and gas cases for over 30 years. To learn more, call 512-419-0684. You can also contact us online.

Texas Lawmakers Pass Law to Curtail Common Oil and Gas Scam Tactic

To some extent, the history of Texas is closely tied to the state’s historically ample supply of oil and gas. Texas has been at the forefront when it comes to establishing oil and gas laws throughout the country. Unfortunately, due to the value of the commodity, over the years, enterprising scammers have come up with ways to bilk unsuspecting landowners of their mineral rights. Earlier last year, Texas lawmakers passed HB 3838, which was designed to stop one of the more common Texas oil and gas scams.

The scam worked like this: someone posing to be an employee of a reputable oil and gas operator approaches a landowner who is receiving nonparticipating royalties with what looks to be an “oil and gas lease.” The document looks and reads as though it is a typical lease for mineral interests; however, it is an agreement by which the landowner sells their interest in the land for what is termed a “bonus.” While this should be a red flag because nonparticipating royalty holders are not technically permitted to sign a lease — few owners are aware of this fact, and scam artists have been able to take advantage of this.

To help curb this dishonest practice, Texas lawmakers recently passed HB 3838. The bill was signed into law by Governor Abbott last year in June and took effect in September. It is currently codified at Texas Property Code Section 5.152, and it clarifies what language an oil and gas royalty lease must contain to be valid. The new law applies to contracts that convey mineral or royalty interests but are presented to the owner in the form of a document that “is titled an oil and gas lease or an oil and gas royalty lease.” Under the terms of the new law, for such a document to be valid, it must contain the following language in size 14 font, at the top of the document’s first page: THIS IS NOT AN OIL AND GAS LEASE. YOU ARE SELLING ALL OR A PORTION OF YOUR MINERAL OR ROYALTY INTERESTS IN (DESCRIPTION OF PROPERTY BEING CONVEYED). In addition, the same language must be displayed immediately above the signature line of the agreement. If this language is not included in an agreement, the contact will be deemed void.

As noted above, the new law went into effect in September 2019. That said, those who have been bilked prior to the passage of the new law may have other remedies available to them. However, aggrieved right holders need to act quickly to preserve all of their rights as the statutes of limitations that govern these disputes are relatively short.

Are you involved in a Texas oil and gas dispute?

If you believe that you have been the victim of a Texas oil and gas scam, contact Austin oil and gas attorney Gregory D. Jordan for immediate assistance. Choosing an attorney to represent you or your business in a Texas oil and gas dispute is a crucial decision that can save months or even years of litigation, and many thousands of dollars. At the Law Offices of Gregory D. Jordan, Mr. Jordan has been effectively handling Texas oil and gas cases for over 30 years.

Texas court rejects drilling company’s claim against co-lessee for its share of the profits

Earlier this year, the Court of Appeal for the Eighth District of Texas in El Paso issued an opinion in a Texas oil and gas case discussing whether the plaintiff company was entitled to an accounting for its share of the profits from a majority-interest co-tenant. Ultimately, the court concluded that the plaintiff company’s lease had expired, eliminating any right the company had to an accounting of the profits.

The facts of the case

According to the court’s written opinion, the plaintiff company leased a one-sixth interest in a tract of land in Ward County, Texas. Another oil and gas company, the defendant, leased the remaining five-sixths of the property. The plaintiff’s lease provided for a five-year term that was “paid-up,” plus an optional second term that was to continue “as long thereafter as oil or gas is produced from said land or from land with which said land is pooled.”

The plaintiff company requested permission from the defendant to drill wells on the property. However, as the primary lessee, the defendant was able to preclude the plaintiff from drilling by withholding permission. Thus, during the initial five-year period of the lease, the plaintiff did not drill a well or produce any oil. During that time, however, the defendant company drilled several productive wells. The plaintiff was paid a portion of these profits during the initial five-year period of the lease.

When that five-year period ended, however, the defendant stopped making payments to the plaintiff. The defendant’s position was that the plaintiff’s primary lease term was over, and because the plaintiff never produced oil or gas from the land, the lease was no longer valid. The trial court agreed with the defendant and dismissed the case, and the plaintiff appealed.

The court affirms the dismissal of the plaintiff’s case

On appeal, the Court of Appeal for the Eighth District affirmed the dismissal of the plaintiff’s lawsuit. The focus of the court’s inquiry was on whether the plaintiff’s lease was still valid. If so, then the plaintiff would still be entitled to an accounting of any profits generated from the property. However, if the plaintiff’s lease had expired, then the defendant had no obligation to provide an accounting.

The plaintiff presented several arguments in favor of a finding that the lease was valid. Most importantly, the plaintiff argued that the lease was unclear, and that the defendant’s production of oil on the land could satisfy the continuation clause in the plaintiff’s lease. Essentially, the plaintiff argued oil was produced (by the defendant), and that the contract did not state whether the plaintiff had to be the one to produce it. The court disagreed, noting that notwithstanding the language in the lease, Texas courts have held such clauses to require the lessee to cause production in order to meet the continuation clause requirements. The court also noted that this interpretation was consistent with the intentions of the parties at the time the lease was formed, because the landowner would not likely have bothered leasing to the plaintiff if it planned on making no effort to extract oil or gas.

The court was similarly unpersuaded by the plaintiff’s policy argument that the court’s decision in favor of the defendant will negatively impact minority interest holders. By allowing the defendant to prevent the plaintiff from producing oil, the plaintiff claimed that the defendant effectively forced the termination of the plaintiff’s lease. The plaintiff argued that this was unfair, and would discourage others from obtaining minority interest rights in the future. The court dismissed the plaintiff’s argument, explaining that the parties were co-lessees and had no duty to each other. The court added that, presumably, the plaintiff knew of its rights when it entered into the minority-interest lease.

Are you involved in a Texas oil and gas dispute?

Oil and gas disputes can be very complicated. Choosing an attorney to represent you or your business is a crucial decision that can save months or even years of litigation, and tens of thousands of dollars. At the Law Offices of Gregory D. Jordan, we have been effectively handling Texas oil and gas cases for over 25 years. To learn more, and to schedule an initial consultation, call 512-419-0684. You can also contact us online.

Texas Supreme Court rejects plaintiff’s breach-of-contract claim in unambiguous oil and gas farmout agreement

In Barrow-Shaver Resources Co. v. Carrizo Oil & Gas, Inc., on June 28, 2019, the state’s high court issued an opinion in a Texas breach-of-contract case involving a farmout agreement. Generally, a farmout agreement is one in which a party that owns rights to drill for oil on a property agrees to allow another entity to drill on the property in exchange for defined rights. While the underlying claim arose in the context of a dispute involving Texas oil and gas law, the court ultimately resolved the case by applying fundamental contract law.

According to the court’s opinion, the plaintiff was a company that engaged in oil and gas drilling, and the defendant was a current leaseholder of a tract of land. The parties entered into an agreement whereby the plaintiff would drill on the leasehold property. Among other terms included in the contract was a consent-to-assign term, which is the focus of this appeal.

Initially, the contract provided that, “The rights provided to [the plaintiff] under this Letter Agreement may not be assigned, subleased or otherwise transferred in whole or in part, without the express written consent of [the defendant] which consent shall not be unreasonably withheld.” However, the agent for the defendant later submitted a revised draft of the contract, eliminating the phrase “which consent shall not be unreasonably withheld.”

The plaintiff took issue with the removal of this phrase, and was verbally reassured by the defendant that, even without the term in the contract, consent would not be withheld. Ultimately, the final version of the contract provided that, “The rights provided to [the plaintiff] under this Letter Agreement may not be assigned, subleased or otherwise transferred in whole or in part, without the express written consent of [the defendant].”

The plaintiff spent $22 million drilling wells, but was unsuccessful in establishing production. At that time, another company approached the plaintiff interested in purchasing the plaintiff’s drilling rights. The plaintiff negotiated an agreement with the company, and submitted the agreement to stakeholders, all of which approved the assignment of the plaintiff’s rights except for the defendant. As a result of the defendant’s refusal to consent to the assignment, the deal fell through. The plaintiff then sued the defendant for breach-of-contract, fraud and tortious interference.

The Court’s Decision

Ultimately, the court rejected each of the plaintiff’s claims against the defendant, first discussing the breach-of-contract claim. The court explained that when a contract is unambiguous, interpretation of the agreement is a matter of law which is to be resolved by a judge. Despite the plaintiff’s arguments to the contrary, the court concluded that the contract was unambiguous because it provided an unqualified right for the defendant to refuse to consent to the assignment of the plaintiff’s drilling rights. In so holding, the court rejected the plaintiff’s request to read in an implied requirement of good faith, noting that Texas contract law imposes no such duty.

The court then discussed the plaintiff’s fraud claim, holding that the plaintiff could not rely on the defendant’s oral assurances that consent would not be withheld and therefore, the defendant was not liable for fraud. The court noted that it is a basic principle of contract law that “a written contract vitiates any oral promises.” Here, the court explained that regardless of what the defendant may have told the plaintiff during contract negotiations, the only relevant agreement between the parties was the written document. The court went on to hold that because there was no limitation included in the contract regarding the defendant’s ability to withhold consent, the plaintiff’s fraud claim must fail.

Are You Involved in a Texas Oil and Gas Dispute?

Texas oil and gas law can be exceedingly complex. The Law Offices of Gregory D. Jordan helps individuals and businesses effectively navigate the legal system to resolve their claims efficiently and practically. Through his Austin oil and gas practice, Attorney Jordan confidently serves clients throughout the State of Texas, including those involved in the Eagle Ford Shale and in the Permian Basin, and he has been doing so since 1989.

The Duties of the Holder of the Executive Right to Minerals

In the case of Texas Outfitters, LLC vs. Nicholson, the Texas Supreme Court examined the holder of the executive right’s duty of utmost good faith and fair dealing to non-participating mineral interest owners. In Texas Outfitters, the holder of the executive right to lease minerals refused to sign a lease which the owner of a non-participating mineral interest alleged it should have signed.

A company called Texas Outfitters, LLC purchased over a thousand acres, including 1/24th of the mineral rights, as well as the exclusive right to lease 11/24th of the mineral rights retained by the sellers of the property. At the time, the land was not leased and had no oil and gas production. Approximately a decade after the sale of the land, the owners of the remaining 50 percent of the minerals leased to El Paso Oil Exploration and Production Company. El Paso made the same offer to Texas Outfitters; however, Texas Outfitters refused to lease even though the sellers made it clear to Texas Outfitters that they wanted Texas Outfitters to lease. Ultimately, the sellers filed suit against Texas Outfitters for breaching its duty of good faith and fair dealing as the executive holder of the right to lease the mineral rights. The sellers sought damages in the amount that they lost due to Texas Outfitters refusing to lease the mineral rights.

At a bench trial, the trial court found in favor of the sellers, holding that Texas Outfitters did not act in good faith and breached its duty as the holder of the executive right. The case was eventually appealed to the Texas Supreme Court. The Court looked at the history of the executive right and ultimately held that, in this case, Texas Outfitters breached its duty of good faith and fair dealing where it engaged in acts of self-dealing to the benefit of its interest in the surface estate and to the detriment of the owners of the mineral estate. The Court stated that Texas Outfitters, in refusing to lease the mineral rights, did so “in acts of self-dealing that unfairly diminished the value of the non-executive interest.” This action “crossed the line” bringing Texas Outfitters, LLC into the realm of breaching its duty to the non-executive rights holder.

Attorney Gregory D. Jordan is an oil and gas attorney with offices in the Austin area. To learn more, visit https://www.theaustintriallawyer.com/

Law Offices of Gregory D. Jordan
5608 Parkcrest Drive, Suite 310
Austin, Texas 78731
Call: 512-419-0684

Texas jury awards $60 million in oil and gas royalty fraud case

A jury in Roby, Texas has awarded a group of oil and gas investors $60 million, making it the largest verdict ever in Fisher County. The case stemmed from a fraudulent scheme concocted by two men to cut other partners out of profits from the sale of oil and gas leases, thus keeping the profits for themselves. The fraud was allegedly planned and performed by attorney Kerwin Stephens and oilman Chester Carroll.

The issue began when Richard Roughton and Lowry Hunt, along with other investors, acquired mineral and property rights to 25,000 acres in the Three Finger/Black Shale region of the Cline Shale in West Texas. Roughton then brought in as additional investors his attorney, Stephens, and Roughton’s best friend, Carroll. They created a partnership called the Alpine Group. The leases were then transferred from Roughton and Hunt to the Alpine Group. It was then that Stephens and Carroll allegedly conspired to cut the other partners out of any profits obtained from subsequently selling the leases.

Stephens and Carroll were accused of fraudulently convincing Roughton and Hunt to lower their percentages of ownership in the leases, indicating to the two that Stephens and Carroll were also lowering their interests, but they actually did not. This was done by allegedly convincing Roughton and Hunt that there was no buyer for any of the leases, but actually there was a buyer lined up by Stephens and Carroll. Instead of lowering their ownership interest, Stephens and Carroll purportedly increased their ownership interest in the leases. Then, unbeknownst to Roughton and Hunt, Stephens and Carroll allegedly sold an additional 17,000 acres of leases to a buyer, splitting the money for themselves.

The verdict on behalf of Hunt and Raughton includes $3 million in actual damages plus more than $7 million in returned profits and $18 million in punitive damages. Two additional plaintiffs in the trial, Tiburon Land and Cattle and Trek Resources, both of Dallas, were awarded $33.1 million, including $24 million in actual damages and $9 million in exemplary damages.

Attorney Gregory D. Jordan is an oil and gas litigation attorney with offices in the Austin area. To learn more, visit https://www.theaustintriallawyer.com/

Disclosure requirements reach mailed, but not emailed, offers to purchase oil interests

A Texas statute requiring that offers to purchase oil rights contain a conspicuous, large-print disclaimer does not apply to emailed offers, according to a recent ruling from the Texas Court of Appeals in El Paso.

The court turned back several arguments why an arbitration clause in an agreement to purchase mineral interests was unconscionable, among them the lack of the statutorily mandated large-print disclaimer.

Texas Property Code, § 5.151, provides in relevant part:

A person who mails to the owner of a mineral or royalty interest an offer to purchase only the mineral or royalty interest . . . and encloses an instrument of conveyance of only the mineral or royalty interest and a draft or other instrument, as defined in Section 3.104, Business & Commerce Code, providing for payment for that interest shall include in the offer a conspicuous statement printed in a type style that is approximately the same size as 14-point type style or larger and is in substantially the following form:

By executing and delivering this instrument you are selling all or a portion of your mineral or royalty interest in (description of property being conveyed).

By its terms, Section 5.151(a) applies only to “mailed offers, not emailed offers,” Justice Yvonne T. Rodriguez wrote for a unanimous court. The court gave this limiting interpretation to the statute without analysis, though it appears to be the first time a Texas court has considered the question.

State law regulating real estate transactions marched into the twenty-first century with the 2005 Uniform Electronic Real Property Recording Act (Real Property Code § 15.001 et seq.) and 2007 Uniform Electronic Transactions Act (Business and Commerce Code § 322.001 et seq.), the latter declaring that if a law requires a record to be in writing, an electronic record satisfies the law.

The court’s ruling, if widely adopted, means that consumer protections found in Section 5.151 will not be traveling along. By restricting the statute’s reach to mailed offers, the court appears to have confined the state legislature’s command that offers to purchase mineral interests include a conspicuous disclaimer to the rapidly receding era of mailed, ink-on-paper transactions.

Even if the statute did apply to emailed offers, the court continued, the remedy is not rescission or a finding of unconscionability.

“Nothing about the text of this statute indicates that the Legislature intended for transactions like this one to be voidable, and nothing in the text of the statute excuses a party from his general duty under Texas contractual common law to read whatever instrument it is he is signing,” the court said.

Justice Rodriguez said that the remedy for a violation of Section § 5.151 is an award of $100 statutory damages or the difference in value between the amount paid for the mineral interest and its fair market value.

Along the way, the court invalidated language in the arbitration agreement eliminating punitive damages, finding that this restriction on available remedies violates Texas public policy. The court’s ruling is consistent with other rulings in this area, cf., Amateur Athletic Union of the U.S., Inc. v. Bray, 499 S.W.3d 96, 108-09 (Texas Ct. App., 4th Dist.—San Antonio, 2016).

The case is Ridge Natural Resources LLC v. Double Eagle Royalty L.P., No. 08-17-00227, (Texas Ct. App., 8th Dist.—El Paso, Aug. 24, 2018).

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