Case Law Update 2013

Transcription

1 Case Law Update 2013 Christopher S. Kulander Assistant Professor of Law, Texas Tech Of Counsel, Haynes and Boone, LLP

2 Total E & P USA, Inc. v. Kerr-McGee Oil & Gas Corp. 711 F.3d 478 (5th Cir. 2013), vacated & superseded by 719 F.3d 424 (5th Cir. 2013) Question Considered Does a calculate and pay clause absolve the lessor from a having to pay ORRI when invoked? Background 1998: Federal lease in OCS, may be subject to DWRRA Lessees: Chevron, Statoil, Total 1999 & 2001: Assignment of ORRI to Kerr-McGee and staffers Contains clause providing, [t]he overriding royalty interest assigned herein shall be calculated and paid in the same manner and subject to the same terms and conditions as the landowner s royalty under the Lease. While Chevron soon thereafter paid the overriding royalties to the ORI owners, Total and Statoil did not pay based on their interpretation of the calculate and pay clauses within the mineral lease. Lawsuit follows

3 Total E & P USA, Inc. v. Kerr-McGee Oil & Gas Corp. 711 F.3d 478 (5th Cir. 2013), vacated & superseded by 719 F.3d 424 (5th Cir. 2013) Lessees Argument: Total and Statoil argued the calculate and pay clauses were meant to suspend the requirement of payment of ORI as long as the 12.5% payments of the lessor s royalty were (possibly) suspended due to the Outer Continental Shelf Deep Water Royalty Relief Act ( DWRRA ) ORI Owners Argument: calculate and pay clauses were only meant to denote how their overriding royalties were to be calculated and paid, not to tie payment of the overriding royalties to the lessor royalties owed the federal government District Court: Summary judgment for lessees

4 Total E & P USA, Inc. v. Kerr-McGee Oil & Gas Corp. 711 F.3d 478 (5th Cir. 2013), vacated & superseded by 719 F.3d 424 (5th Cir. 2013) Fifth Circuit: reversed and remanded: calculate and pay clauses ambiguous and require further interpretation based on the parties intent contracts did not include any explicit words allowing lessees to suspend ORIs if DWRRA was activated Meeker v. Ambassador Oil Co.: 1 ORIs are wellrecognized as being distinct from a lessor s royalty As the calculate and pay clauses could reasonably be interpreted two ways, the intent of parties must be determined no merit for SJ F.2d 875, 882 (10th Cir. 1962), rev d on other grounds, 375 U.S. 160, 84 S.Ct. 273, 11 L.Ed.2d 261 (1963).

5 Phillips Petroleum Co. v. Yarbrough 405 S.W.3d 70 (Tex. 2013) Questions Considered: Must a class be recertified when the class adds a new claim for breach of implied duty to market? Can a party make an interlocutory appeal of a court s decision to allow the opposing party to proceed with the new claim without first recertifying the class? Background Royalty owners brought a class action against Phillips alleging underpayment of royalties. In 2008, the Texas Supreme Court affirmed decertification of two subclasses, and reversed decertification of another, remanded that certification back to the trial court with instructions for the trial court to conduct a res judicata analysis regarding that class s potential for certification.

6 Phillips Petroleum Co. v. Yarbrough 405 S.W.3d 70 (Tex. 2013) Background, cont. On remand, Yarbrough added a new claim The trial court allowed new implied covenant claim without new certification motion or hearing Phillips filed a notice of interlocutory appeal Holding: Texas Supreme Court rejected the court of appeal s application of De Los Santos, 1 noting it stood for the proposition that a party may appeal an order when the order changes the class in such a way as to raise significant concerns regarding whether the class should remain certified and alters the fundamental nature of the class S.W.2d 493 (Tex. 1996) (per curiam).

7 Phillips Petroleum Co. v. Yarbrough 405 S.W.3d 70 (Tex. 2013) Held: trial court s order altered the fundamental nature of the class for two reasons. (1) Yarborough had originally alleged Phillips had violated the express terms of royalty agreement (2)Violation of implied covenant can occur without express breach of the terms of royalty agreement New claim therefore altered the fundamental nature of the class not merely altering attributes of the class Yarbrough s new claim raised issues of typicality and predominance which the trial court had not considered Also, by denying Phillips alternative motions, the trial court had effectively certified the class and that is subject to an interlocutory appeal

8 Key Operating & Equip., Inc. v. Hegar 403 S.W.3d 318 (Tex.App. Houston [1st Dist.] 2013), review granted (Dec. 13, 2013) Question Considered: use of road for production Can a producer continue to use a production road over one tract if subsequently all production comes from a neighboring tract Background: trespass action against mineral estate owner Key to permanently enjoin continued use of road located on the property of surface owner The road was used to facilitate production of oil from a neighboring property. In 1994, Key obtained ogl covering a tract of land that abutted a second tract of land. Key had been operating wells since As the tracts were themselves contiguous, Key built a road across both to access its wells on both tracts from 1994 on.

9 Key Operating & Equip., Inc. v. Hegar 403 S.W.3d 318 (Tex.App. Houston [1st Dist.] 2013), review granted (Dec. 13, 2013) Background, cont. In 2000, when the wells one tract stopped producing, Key pooled its mineral interests from both tracts. In 2002, Hegar bought the surface of one tract, knowing that Key had leased both tracts and of the existence of the road In 2007, Key drilled well on other tract, increasing traffic Procedure: Hegar brought suit for trespass and sought to enjoin Key from continued use of the road. After a bench trial, the trial court permanently enjoined Key from using the road on Hegar s tract to produce oil on the other tract Court of Appeals affirm Because Key s lease & pooling agreements were outside of Hegar s chain of title, neither expanded Key s right to use surface Hegar bound by neither

10 Key Operating & Equip., Inc. v. Hegar 403 S.W.3d 318 (Tex.App. Houston [1st Dist.] 2013), review granted (Dec. 13, 2013) After considering accommodation doctrine and Robinson v. Robbins Petroleum Corp., 1 the court held that Key had right to use Hegar s road so long as oil produced from the pooled tracts included oil produced from Hegar s tract individually. Thus, Key could not use the road from one mineral estate to produce oil only from another Remanded issue of whether Key was producing oil from Hegar s tract. As the trial court found that Key was not currently producing oil from Hegar s Tract, the court of appeals affirmed S.W.2d 685 (Tex. 1973)

11 Springer Ranch, Ltd. v. Jones Opinion No CV, 2013 WL (Tex. App. San Antonio Dec 20, 2013, no pet. h.) Questions Considered: Based on terms of an agreement, are all tracts through which a horizontal well is drilled due a portion of the royalty? Is so, how is the royalty allocated among the tracts? Background: Owner executed ogl covering the entire tract in The original tract divided into three separate tracts in 1990 partition, each with different owners and multiple oil and gas operators 1993 contract between surface estate owners that allocated royalties to the owner of the surface estate on which such well or wells are situated, without reference to any production unit on which such well or wells are located No mention of horizontal wells! 2013: well started on the tract that belonged to Springer Ranch and continued under the contiguous Sullivan tract. Productive intervals in the borehole were completed under both tracts No royalty paid to owner of tract without wellhead

12 Springer Ranch, Ltd. v. Jones Opinion No CV, 2013 WL (Tex. App. San Antonio Dec 20, 2013, no pet. h.) Trial Court: Ruled for Sullivan tract owners-horizontal well royalty payments to be paid to owner of surface under which productive portions of well are located Court of Appeals: First, considers terms of 1993 agreement: situated, well, on, and surface estate interpreted: situated meant where the well was located well meant the entire length of well, not wellhead on has more than one meaning, not dispositive surface estate meant estate over each well segment

13 Springer Ranch, Ltd. v. Jones Opinion No CV, 2013 WL (Tex. App. San Antonio Dec 20, 2013, no pet. h.) Division & allocation formula of royalty arguments: Sullivan: allocation should be calculated by distance between the well s first and last perforation points with each owner entitled to a proportional % of royalty calculated on the length of the interval traversing under that owner compared to total Springer Ranch: allocation should be calculated upon the length of well under each tract Court: a well only produces over the interval of the reservoir, so the discrete interval of production is more accurate for apportioning royalties Opinion considered each foot of productive interval to be equally productive. Opinion did not address scenario where multiple productive intervals were interspersed with nonproductive intervals.

14 Richmond v. Wells 395 S.W.3d 262 (Tex.App. Eastland, 2012), reh g overruled, (Jan. 4, 2013) Questions Considered: Is a trespass to try title cause of action is necessary to determine the ownership of non-possessory interests such as royalty and a possibility of reverter? Are exploration and production activities sufficient to qualify as constructive notice of a possessory right? Background: Richmond owned tract in fee on which operator Endeavor completed a well. Richmond conveyed tract to Zugg by warranty deed. Zugg subsequently conveyed property to Wells by warranty deed. Dispute: Does Richmond or Wells own the minerals? Wells brought suit claiming ownership of the minerals along with the surface. Richmond filed both a general denial and a third-party suit against Zugg in which Richmond attempted to reform the deed to Zugg to reflect it had retained the minerals. Zugg answered the suit and agreed that the deed from Richmond was for the surface only. Richmond WD Zugg WD Wells

15 Richmond v. Wells 395 S.W.3d 262 (Tex.App. Eastland, 2012), reh g overruled, (Jan. 4, 2013) Trial Court: Both parties file summary judgment motions Held: both deeds conveyed mineral estate as well as surface. In addition, Richmond was not entitled to reform his deed to Zugg. Appeal: Richmond argues Citing Martin v. Amerman, 1 need trespass to try title suit summary judgment not enough Because the deed to Zugg had been reformed, the Wells deed was reformed as well Wells had constructive notice of Richmond s claim because of the pump jack and batteries that were on the property S.W.3d 262 (Tex. 2004)

16 Richmond v. Wells 395 S.W.3d 262 (Tex.App. Eastland, 2012), reh g overruled, (Jan. 4, 2013) Court of Appeals affirms and reverses Distinguished Martin, opining that Martin involved a possessory interest. Here, the case dealt with only nonpossessory interests a royalty interest and a possibility of reverter. When an intermediate party has conveyed a deed to a third party, the original party that is seeking reformation of the subsequent deed must prove that the third party was not BFP Presence of pump jack & batteries could only provide Wells notice of Endeavor s right to occupy the property But genuine issues of material fact existed as to whether Wells had actual knowledge of Richmond s interest.

17 Merriman v. XTO Energy, Inc. S.W.3d (Tex. 2013), 56 Tex. Sup. Ct. J. 719 Questions considered: Is a surface owner required to show (1) that it was impossible to use other lands (that were covered by short term leases) for the disrupted use on the lease land; or (2) that it had no reasonable alternatives for any sort of ag use? Background: Merriman raised cattle When XTO drilled near Merriman s barn, he filed a motion for a permanent injunction, claiming XTO had failed to accommodate his existing use an annual cattle roundup. The trial court granted summary judgment in favor of XTO. After holding that Merriman had not proven that he did not have any available alternatives as to managing his cattle, the court of appeals upheld the trial court s decision.

18 Merriman v. XTO Energy, Inc. S.W.3d (Tex. 2013), 56 Tex. Sup. Ct. J. 719 Supreme Court: Merriman only had to provide sufficient evidence that he had no reasonable alternative as to his cattle operation no other type of use need be considered Court of appeals had held that if evidence existed that Merriman was able to use the tract in any alternative way, he had no claim Merriman not required to show impossibility to use other lands (that were covered by short term leases) for the disrupted use on the lease land

19 Wynne/Jackson Dev., L.P. v. PAC Capital Holdings, Ltd. Opinion No CV, 2013 WL , 2013 Tex. App. LEXIS 6865 (Tex.App. Corpus Christi June 6, 2013, pet. filed) (mem. op.) (op. on reh g). PAC sought a dec. judgment that its NPRI under three deeds was a fraction of royalty The deed described contested NPRI and other interests as: a non-participating royalty of one-half (1/2) of the usual oneeighth (1/8) royalty in and to all oil, gas, and other materials produced, saved and sold from the above-described property, provided, however, that although said reserved royalty is nonparticipating and Grantee shall own and possess all leasing rights in and to all oil, gas and other minerals, Grantor shall, nevertheless, have the right to receive one-half (1/2) of any bonus, overriding royalty interest, or other payments, similar or dissimilar, payable under the terms of any oil, gas and mineral lease covering the above-described property. PAC: reserved a fraction of royalty Wynne: reserved a definite fractional royalty (1/8 x 1/16)

20 Wynne/Jackson Dev., L.P. v. PAC Capital Holdings, Ltd. Opinion No CV, 2013 WL , 2013 Tex. App. LEXIS 6865 (Tex.App. Corpus Christi June 6, 2013, pet. filed) (mem. op.) (op. on reh g). PAC cited Sundance Minerals, L.P. v. Moore 1 Sundance: shall be entitled to one-half of the usual one eighth royalty received forsuch [sic] oil, gas, and other minerals produced from said land. merely serves as an illustration of how the royalty reservation would be calculated Court of Appeals not convinced In Sundance, the court did not quote the entire operative language, thus making it impossible to compare and contrast the language Purposely sets aside judicial recognition of the usual 1/8 landowner s royalty even though mentioned S.W.3d 507, 510 (Tex.App. Fort Worth 2011, pet. denied).

21 Graham v. Prochaska Opinion No CV Question considered: fixed or floating royalty Assignment language: one-half (1/2) of the one-eighth (1/8) royalty to be provided in any and all leases for [ogm] Background: Leases at conveyance were 1/8, later leases 1/5 Graham seeks dec. judgment. Both parties agree conveyance in unambiguous

22 Graham v. Prochaska Opinion No CV Court of appeals Must construe with an eye towards surrounding language construed one-eighth within the context of the surrounding language ( the... royalty to be provided in any and all leases for [ogm] now upon or hereafter given on said land, or any part thereof ) as both (1) an objective expression of the parties intent to measure the reserved royalty of Prochaska on the basis of any lessor s royalty on any future lease (2) along with the mistaken assumption that that landowner s royalty would always be one-eighth of production. So royalty interest reserved by the deed was a floating one-half royalty interest.

23 Crosstex NGL Pipeline, L.P. v. Reins Road Farms 1, LTD. 404 S.W.3d 754 (Tex. App. Beaumont 2013, no pet. h.) Question considered: Did the trial court abuse discretion when it denied Crosstex s request for a temporary injunction that would prevent Rein Road Farms ( RRF ) from interfering with Crosstex s attempt to survey RRF s land for an NGL pipeline because Crosstex wasn t a common carrier? Background: In 2011, the RRC granted Crosstex permission to build a pipeline RRF denied Crosstex entry Crosstex brings suit as common carrier for entry

24 Crosstex NGL Pipeline, L.P. v. Reins Road Farms 1, LTD. 404 S.W.3d 754 (Tex. App. Beaumont 2013, no pet. h.) Court of Appeals: No abuse of discretion by determining that the term crude petroleum, as used in the eminent domain provisions of the Nat. Res. Code, does not include by-products like NGLs Legislature recognizes a distinction in the code between crude petroleum and by-products derived therefrom Crosstex exec described separation process As a result, Crosstex s argument for common carrier status based on crude petroleum transportation failed One implication: if NGLs are not included in the term crude petroleum, then NGL pipelines will need additional authority for eminent domain

25 Crosstex NGL Pipeline, L.P. v. Reins Road Farms 1, LTD. 404 S.W.3d 754 (Tex. App. Beaumont 2013, no pet. h.) Crosstex: common carrier status under of the TX Bus. Org. Code because pipeline would be available for public use & under authority of RRC RRF: while the pipeline could be a common carrier in the future, it was currently likely to be used exclusively by Crosstex and its affiliates Conflicting evidence present on customer. Trial court did not abuse discretion in ruling for RRF not public

26 Crosstex NGL Pipeline, L.P. v. Reins Road Farms 1, LTD. 404 S.W.3d 754 (Tex. App. Beaumont 2013, no pet. h.) Court of Appeals: Cites Denbury 1 concluding,... we are not persuaded the [Supreme] Court s reasoning concerning the process of obtaining a T- 4 permit applies only to carbon dioxide lines. Therefore, despite possessing a T-4 permit from the RRC, the permit was not enough by itself to presume common carrier status. Prospective NGL pipelines should not rely only on the NRC for eminent domain authority, but also of the TEXAS BUSINESS ORG. CODE. Make sure it is reasonably foreseeable some of your capacity will be contracted to third parties! S.W. 3d 192 (Tex. 2011).

27 Colt Unconventional Resources, LLC v. Resolute Energy Corporation 2013 WL (N.D. Tex. July 19, 2013) Questions Considered: (1) whether 2 non-signatories to a contract subject to binding arbitration could compel a signatory to arbitrate if their parent company had signed (2) whether claims at issue were within the scope of arbitration clause Background: April 2011, Colt and Resolute executed Exploration and Development Agreement ( E&D Agreement ) work to be conducted under the terms of form JOA with Resolute operator and Colt non-operator Colt elected to participate in the construction of a pipeline project retained 49% interest in project RNRS designated Resolute Energy Corporation ( REN ) and Resolute Natural Resources Company ( RNRC ) non-signatories to the E&D Agreement as affiliates in charge of day-to-day operations on pipeline Colt doesn t pay billings through Resolute files motion, seeking to compel arbitration per terms of E&D Agreement. Colt counters with contract claim

28 Colt Unconventional Resources, LLC v. Resolute Energy Corporation 2013 WL (N.D. Tex. July 19, 2013) District Court invoked equitable estoppel to prevent Colt from having it both ways pursuing K-based claims against non-signatories while claiming arbitration clauses in the K do not apply intertwined-claims test: non-signatory may compel a signatory party to arbitration when the signatory relies on terms of K in its action against the non-signatory Also, intentional tort claims can fall within scope of arbitration Scope issue: Colt claimed pipeline wasn t constructed under the E&D Agreement, but rather an AfE (?) Court held E&D Agreement governed the claims

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30 Other Cases in the Article Crawford v. Keystone Pipeline (Tex.App. Texarkana) Another pipeline eminent domain case Robinson Township v. Pennsylvania (Pa. Dec. 19, 2013) Local laws governing E&P activities not pre-empted Morrison v. Beck Energy Corp. (Ohio 9 th ) Local laws governing E&P activities pre-empted Clovelly Oil v. Midstates Petroleum (La. Mar. 9, 2013) Applicability of 56 form JOA to future-acquired leases Elm Ridge Exploration v. Eagle (10 th Cir.) JOA claim substantial breach vs. material breach Bilbaran Farm, Inc. v. Bakerwell, Inc. (Ohio Ct. App.) Effectiveness of disclaimer on implied covenant to develop Plus more!

31 Thank you! Christopher S. Kulander Assistant Professor of Law, Texas Tech Of Counsel, Haynes and Boone, LLP