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When you ask a Texas oil and gas or real estate attorney to draft a deed for you, one of the first things they will ask you is just what do you want to convey: the surface, the water rights, the mineral interest, only royalties from the mineral interest or some combination of these? The reason is that a properly prepared deed must be specific about what is conveyed, and must use the correct language to do so. Otherwise, you or your heirs could end up in court over the deed’s meaning. Recently, the Texas Court of Appeals decided a case that demonstrates the confusion that occurs when the language in the deed is not clear.

In Reed v. Maltsberger/Storey Ranch, LLC, the court examined a 1942 deed in order to determine whether it meant to convey a mineral interest or simply a royalty interest.The deed said it conveyed “an undivided one-fourth (1/4) interest in and to all of the oil, gas and other minerals in and under and that may be produced from” certain lands in LaSalle County, Texas. The 1942 deed acknowledged that, at the time the deed was signed, the described lands were subject to an existing oil and gas lease:

And said above described lands being now under an oil and gas lease originally executed in favor of L.V. Chenoweth, Trustee and now held by said L.V. Chenoweth, Trustee, it is understood and agreed that this sale is made subject to said lease, but covers and includes one-fourth (1/4) of all the oil royalty and gas rental or royalty due and to be paid under the terms of said lease, insofar as it covers the above described property. (Emphasis added)

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In a case that is probably a recurring nightmare for oil and gas attorneys, the Texas Court of Appeals recently addressed the question of what constitutes a material change to a written agreement involving the purchase of oil and gas leases in the case of Ranger Energy LLC v. Tonya McCabe Trust et al. In 2008, Mark III Energy Holdings purchased eight oil and gas leases from Tomco Energy. Mark III Energy paid for the leases with a $4 million dollar loan from Peoples Bank. However, two of the leases were accidentally left out of the assignment to Mark III Energy from Tomco Energy. The mortgage lien also failed to include the same two leases. In 2011 and 2012, certain trusts purchased overriding royalty interest in these leases. One of the assignments to the trusts also omitted reference to the same two leases.

Mark III Energy defaulted on the loan and Peoples Bank sued. In settlement of that litigation, Mark III conveyed the leases to Peoples Bank in lieu of foreclosure and gave the Bank a modified deed of trust. Later, the Bank discovered that two leases were missing from the mortgage lien and modified deed of trust, so they took it upon themselves to unilaterally file a corrected mortgage and deed of trust which added the missing leases. Neither the Bank nor Mark III Energy signed the revised agreements. Instead the Bank just added the signature pages from the old documents. In 2013, the Bank sold the lien and indebtedness to an affiliate, Ranger Energy, who then proceeded to foreclose on the loan.

Ranger Energy filed suit to extinguish the overriding royalty interest in the eight leases. The litigation centered on the “correction instrument” statute in the Texas Property Code §§ 5.027–.031. Specifically, the Texas Property Code permits “a nonmaterial change that results from a clerical error,” [§5.028(a)], “a nonmaterial change that results from an inadvertent error,” [§ 5.028(a-1)] and in certain cases “a material correction” to a recorded instrument of conveyance. (§5.029). The statute also allows correction of nonmaterial clerical errors by a person who has personal knowledge of the facts relevant to the correction and the kinds of errors that can be corrected include “a legal description prepared in connection with the preparation of the original instrument but inadvertently omitted from the original instrument”.

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The Deep Carbon Observatory at the Carnegie Institution for Science is using “Big Data” to locate deposits of minerals, using techniques similar to those used by Amazon to recommend books based on a buyer’s previous book orders, or by Netflix to recommend new movies to a subscriber based on past movie choices. In a paper published in the American Mineralogist, scientists at the Observatory report the first application to mineralogy of network theory. Network theory has also been used to analyze the spread of disease, the scope of terrorist networks or even Facebook connections. The study reported in the paper was led by Shaunna Morrison of the Deep Carbon Observatory and Robert Hazen, Executive Director of the Observatory.

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These scientists are using network theory to analyze data on the vast amount of information on Earth’s more than 5,200 known mineral species together with with data on the surrounding geography, the geological setting, and coexisting minerals, and from this producing patterns of occurrence and distribution of minerals  that might otherwise be hidden. Dr. Morrison stated that “(t)he quest for new mineral deposits is incessant, but until recently mineral discovery has been more a matter of luck than scientific prediction.  All that may change thanks to big data.” According to Dr. Hazen “(n)etwork analysis can provide visual clues to mineralogists regarding where to go and what to look for. This is a brand new idea in the paper and I think it will open up an entirely new direction in mineralogy.”

In terms of oil and gas exploration, petroleum geologists can use this new tool to discover new oil and gas reservoirs. One benefit will be that data analysis will be a lot less expensive than drilling test wells. In addition, fewer dry holes and test wells will be a good thing in terms of environmental impact.

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The Texas Supreme Court recently decided an important real estate case in Town of Lakewood Village v. Bizios. Bizios was lived outside of Lakewood Village, Texas. Bizios was sued by Lakewood Village for not applying for or obtaining building permits when he began building his home. Lakewood Village, which is a general law municipality, asserted that it has the authority to extend its rules and ordinances to its extraterritorial jurisdiction. The extra-territorial jurisdiction (“ETJ”) of any particular city is based on the city’s population. Extra-territorial jurisdiction is the unincorporated area around the city’s corporate boundaries over which a city can exert control for certain activities.

In this case, the Texas Supreme Court determined that home rule cities are permitted to enforce their building codes in their extraterritorial jurisdiction, but general law cities, such as Lakewood Village, cannot.

What is a General Law City?new-homes-construction-1210994

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Texas oil and gas lawyers occasionally find themselves representing non-executive mineral owners. A non-executive mineral or royalty owner is someone who owns oil or gas royalty rights to a particular area of land, but who does not have the right to negotiate or sign a lease for the minerals and who usually does not have the right to receive bonus payments. The executive rights owner is the person who is has the exclusive right to execute oil and gas leases on a particular area of land and to receive bonus. Commonly, these relationships are created by a reservation in a deed, such as when someone sells their surface and mineral rights, including the right to negotiate an oil and gas lease, but reserves a non-participating royalty interest.

Recently, the Texas Supreme Court considered what duties are owed by the owner of an executive interest in minerals to the owners of the non-executive interests in the case of KCM Financial LLC v. Bradshaw. In this case, Bradshaw was the non-executive royalty owner and KCM Financial was the executive.

In this case, two deeds were executed in 1960 that reserved a non-participating royalty interest for Bradshaw of an undivided one-half of any future royalty, but not less than one-sixteenth share of gross production. In 2005, the executive KCM bought the land, and in 2006 KCM leased the land to lessee Range Resources for a one-eighth royalty interest and a 13 million dollar bonus. Nice payday for KCM!

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As many Texans are aware, hydraulic fracturing (“fracing”) uses a lot of water. In fact, one of the important ways in which Texas oil and gas lawyers assist their clients is to make sure that the oil and gas leases they sign contain appropriate protections for the client’s freshwater sources.

ConocoPhillips recently announced the availability of its “Water Visualization Tool” to use in discussing their water use with landowners in the Eagle Ford Shale. This is a 3D modeling tool that contains a model of the subsurface based on data from state and federal public databases, such as the US Geological Survey. With this tool, the oil company can demonstrate to a landowner the location and depth of the reservoir from which it is obtaining water and the spacing between horizontal wells and water sources.water-drop-1427344

The Water Visualization Tool sounds like it will assist in clear communication between oil companies and landowners. However, the more important issue is the need to continue to push to find non-freshwater sources for water used in fracing. For example, ConocoPhillips itself used municipal wastewater from Karnes City, Texas in the fracing of its wells in Karnes County. Other companies have used brackish water or are recycling water to use in fracking.

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Texas oil companies, mineral owners and oil and gas attorneys are all familiar with the Texas Railroad Commission. The Commission regulates oil and gas drilling and production and oil and gas pipelines in Texas. The Commission is pretty diligent in making sure abandoned wells are properly plugged. Unfortunately, on one occasion, they apparently plugged the wrong well!

The well was located on a tract owned and operated by American Coastal Energy. American Coastal Energy filed for bankruptcy. Gulf Energy held a lease on the area containing  the well and reached an agreement with the Commission to take over the well. In exchange, Gulf Energy provided $400,000 to cover the cost of eventually plugging the well if and when Gulf Energy decided to abandon the well. The Commission agreed to postpone plugging the well.

The Commission hired Superior Energy Services, LLC to plug other abandoned wells in the same tract as the Gulf Energy well. While plugging the other wells in the area, Superior Energy also plugged the Gulf Energy well, apparently at the specific instruction of the Commission staff. Due to a clerical error, someone at the Commission transposed the coordinates for the Gulf Energy well with another well.

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A new statute will provide new rights to co-tenant heirs and a new option for the Texas real estate attorneys assisting them. The Texas legislature recently passed and Governor Abbott signed  Section 16.0265 of the Texas Civil Practice and Remedies Code that provides assistance to heirs who have collectively inherited real estate from a common ancestor. In particular, it gives some additional rights to the heir or heirs who live on, use and pay taxes on the land to the exclusion of the other heirs. You can read the full text of the new law here.

This new statute applies to cotenant heirs, which the statute defines as one of two or more people who simultaneously acquire identical and undivided ownership interests in real property through intestate succession. Intestate succession means the passage of title to property according to the Texas Estates Code, which applies when someone dies without leaving a will or if someone has left will, but the will was not probated. This is a common situation, and is sometimes difficult to remedy short of filing a lawsuit.

Specifically, the new statute says that one or more cotenant heirs may acquire interests of the other heirs by adverse possession if, for a continuous and uninterrupted ten year period:

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Texas landowners and oil and gas attorneys have been watching Senate Bill 740 with interest. This bill, introduced by several Texas senators, would have increased landowner protections in the event a pipeline company sought to obtain an easement on their property using eminent domain. You can read the full text of the bill here.

The bill contains amendments to the “Bill of Rights” contained in the Texas Government Code and numerous amendments to the Texas Occupations Code dealing with right-of-way agents, but most importantly, it contains amendments to the Texas Property Code dealing with offers to land owners by pipeline companies seeking pipeline easements. Examples of the new provisions are:

  • a requirement pipeline company must provide any new, amended or updated appraisals to the property owner within a specific time
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There is a controversy between the Texas Railroad Commission and the US Army Corps of Engineers that is being followed closely by many Texas oil and gas attorneys and mineral owners. The Texas Railroad Commission is the state’s oil and gas regulator, and last year it bumped heads with the U.S. Army Corps of Engineers concerning whether the Corps has the authority to implement rules about where oil wells and injection wells can be drilled.  The dispute surrounds the Joe Pool Lake, located in Tarrant County, Dallas County and Ellis County, and specifically whether drilling and injecting should be permitted within a certain distance of the dam.

Injection Wells Linked to Increases in Seismic Activity

There have been claims asserted in some circles that fracing or the use of injection wells to dispose of waste water has been linked to an increase in seismic activity near drill sites. The Corp recently obtained a study concerning the impact induced seismic activity could have on the structural integrity of the Joe Pool Lake dam. The study concluded that with respect to production, a 5,000-foot standoff distance — which is slightly larger than the one set by the Army Corps — had little effect on subsidence, or caving and settling, at the dam. In fact, the study did not recommend any change in the current ban area. Somehow, despite the study’s conclusions, the Army Corps is concerned that drilling within four thousand feet of the Joe Pool Lake dam or hydraulic fracturing within five miles of the dam could increase the risk of man-made earthquakes in the area, which could in turn structurally damage the dam. (There is already a drilling ban in effect within three thousand feet of the dam). The expansion of the ban area would encompass land from the cities of Grand Prairie, Arlington and Dallas.joepool2

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