Oil and Gas Lease Addendum Supersedes Printed Form

Gray Reed
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In Apache Corp. v. Hill, et al.,  lessors prevailed in a lease construction dispute because of the court’s unsurprising conclusion that a typewritten addendum to oil and gas leases superseded conflicting provisions in the printed forms.

Background

Several lessors executed identical oil and gas leases with Apache’s predecessor-in-interest covering 207.62 acres in Brazos County, Texas. Three lease provisions were at issue:

  • Paragraph 9 of the printed form gave Apache the right to release any part of the leased acreage at any time, but they had to provide the lessors with a copy of the release after it was filed of record.
  • Paragraph 14 stated that the following typewritten addendum’s provisions superseded and governed the provisions in the printed form if they conflicted.
  • Paragraph 29 of the addendum essentially repeated Paragraph 9.
  • According to Paragraph 41 of the addendum, “At Lessor’s sole option, at the end of the primary term, if this lease is not being held in accordance with its terms and provisions, then Lessee shall lease the entire leased premises for an additional one . . . year term for an additional consideration of . . . $1,000 per net mineral acre.” Lessors had three months after the end of the primary term to provide written notice of such decision to Apache.

The primary terms were to expire on May 1, 2016. On April 28, Apache filed releases of the leases in the Brazos County Clerk’s records, but failed to provide copies to the lessors. On May 2, the lessors notified Apache that they were exercising their Paragraph 41 option. Apache declined to pay the additional amounts.

History of the case

The lessors sued for Apache’s allleged breach of the leases.  After a bench trial the court concluded that the leases were not ambiguous and held that Apache had breached the leases by failing to pay the lessors $1,000 per acre. The court awarded lessors $207,620 in damages for breach of contract, plus attorney’s fees and costs

Analysis

The Court of Appeals affirmed the judgment, agreeing that the leases were not ambiguous, applying the standard and oft-cited rules of contract construction, which we’ve repeated in these pages more often than Donald Trump and the Kraken lady have reminded you that the election was stolen.  Paragraphs 9 and 41 were so inconsistent that they could not subsist together. Apache’s right to release the leases was mutually exclusive of the lessors’ right to extend the leases beyond the primary term. Paragraph 41 superseded Paragraph 9 because of Paragraph 14. Apache’s release under Paragraph 9 effectively ended the primary terms, at which time the lessors’ ability to extend the lease under Paragraph 41 became operative. Apache breached the leases by not paying the $1,000 per acre required by Paragraph 41 and by failing to deliver a copy of the releases to the lessors.

For its part, Apache argued without success that termination of the leases before the end of the primary terms precluded the lessors’ rights to renew..

There was a lot not like about the chief twerker when she was in that phase, but she surely has a great voice.

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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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