Texas Supreme Court Agrees to Review Three Oil and Gas Cases in 2016

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On September 2, 2016, the Texas Supreme Court agreed to review three oil and gas cases involving issues pertinent to the industry and land and mineral owners.

  1. BP America Production Company v. Red Deer Resources, LLC

In BP America Production Company v. Red Deer Resources, LLC, the lessee of a top lease, Red Deer, sued the lessee of the base lease, BP, contending that the prior lease had terminated due to a cessation of production in paying quantities.  The jury agreed, finding that the last well on the lease was incapable of producing in paying quantities at the time the well was shut-in.  On appeal, the Amarillo Court of Appeals agreed with Red Deer, finding that BP could not invoke the lease’s shut-in royalty clause because production from the last well was so slow that production in paying quantities had ceased, and thus the lease terminated, prior to BP shutting the wells in and offering to pay shut-in royalties.  At the Texas Supreme Court, BP argues that there was no finding and/or that the evidence was insufficient to support a finding that the well was incapable of producing in paying quantities at the time it was shut-in.

Red Deer has been set for oral argument on November 10, 2016.  Briefing can be found here. 

  1. BP America Production Company v. Laddex, Ltd.

BP America Production Company v. Laddex, Ltd. is another top-lease case from the Amarillo Court of Appeals.  In Laddex, the lessee of the top lease, Laddex, sued the lessee of the base lease, BP, contending that the prior lease terminated during a period of slow production between August 2005 and November 2006.  The jury found that the well on the base lease had failed to produce in paying quantities between August 1, 2005 and October 31, 2006 and that the lease therefore terminated, at which time the top lease became effective.  On appeal, BP argued that the top lease violated the Rule Against Perpetuities (the “Rule”) and that the trial court erred in limiting the jury’s consideration of whether the well ceased to produce in paying quantities to a fifteen-month period of time.

The Court of Appeals rejected BP’s argument that the top lease violated the Rule, explaining that the top lease conveyed a presently vested interest (i.e., the landowners’ reversionary interest in the mineral estate) as opposed to an interest that cannot vest until a condition precedent occurs (i.e., the expiration of the existing lease), and therefore was not subject to the Rule.  However, the appellate court found that the trial court erred in instructing the jury to only consider whether production had ceased in paying quantities during the time period of August 1, 2005 to October 31, 2006, finding that such a restricted time period was unreasonable, and remanded the case to the trial court.

Both parties filed petitions for review before the Texas Supreme Court.  Laddex has been set for oral argument on October 11, 2016.  Briefing can be found here.

  1. ExxonMobil Corporation v. Lazy R Ranch, L.P.

In ExxonMobil Corporation v. Lazy R Ranch, L.P., Lazy R Ranch, the surface owner of a site on which ExxonMobil conducted operations, sued ExxonMobil for an injunction to require ExxonMobil to prevent the alleged hydrocarbon-related groundwater contamination from spreading.  The trial court granted summary judgment in favor of ExxonMobil, finding that Lazy R Ranch’s claims were barred by the applicable statute of limitations as the landowners knew of the contamination for up to twenty years.  The El Paso Court of Appeals reversed and remanded, finding that the statute of limitations did not apply because Lazy R Ranch sought only non-monetary relief, an injunction to require ExxonMobil to abate a continuing nuisance.  ExxonMobil contends it will cost $6.3 million to comply with the requested injunction.

 Lazy R Ranch has been set for oral argument on November 7, 2016.  Briefing can be found here.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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