In In re Sanchez Energy Corporation, a recent Memorandum Opinion by the United States Bankruptcy Court for the Southern District of Texas (the “Court”), the Court held for arguably the first time that the presence of a real property covenant in an executory contract does not preclude the debtor from rejecting the contract in bankruptcy. Over the last several years, whether midstream agreements create real property covenants has been a hot issue, particularly in the bankruptcy context.  Under many such agreements, the producer of oil, gas, or water purports to dedicate certain real propert ..read more

Texas has always been a leader in the U.S. energy industry.  Historically, that meant oil and gas exploration and production.  But as the energy transition continues, Texas has seen increased development in both the wind and solar energy sectors.  As this trend evolves, the potential for disputes between oil and gas operators and wind and solar companies will increase, especially in places where the windier or sunnier parts of our state exist above valuable mineral deposits.  Lyle v. Midway Solar, LLC, 618 S.W.3d 857 (Tex. App.—El Paso 2020, pet. filed) illustrates one such ..read more

    A Texas court of appeals recently issued a decision construing the reservation of a nonparticipating royalty interest (NPRI) in a deed and resolving a dispute concerning the nature and calculation of such NPRI.  The case, Hoffman v. Thomson[1], is another example of the “fixed” vs. “floating” royalty line of Texas cases, which has become an area of frequent litigation in the oil and gas arena, and is one in a recent line of such cases in which the court had to assess the impact of the parties’ inclusion of a double fraction in the deed.     A fi ..read more

    In the recent Texas Supreme Court (“Court”) decision in BlueStone Natural Resources II, LLC v. Randle,[1] the Court once again addressed the practice of deducting postproduction costs in oil and gas royalty calculations.  The Court also, for the first time, directly addressed the effect of a lease’s “free use” clause, applying such a clause more narrowly than some would have anticipated.  Ultimately, based primarily on what the Court concluded the plain meaning of the words of the lease required, the Court affirmed the lower court’s rulings in favor of the les ..read more

The Texas Supreme Court recently issued an opinion that may have caused some attorneys to relive a law school nightmare. In Yowell v. Granite Operating Company, the Court determined that an anti-washout provision in a reservation of an overriding royalty interest violated the infamous rule against perpetuities (the “Rule) by attempting to attach the overriding royalty interest to a new oil and gas lease.[i] The Rule provides that “no property interest is valid unless it must vest, if at all, within twenty-one years after the death of some life or lives in being at the time of the conveyance ..read more

In OJSC Ukrnafta v. Carpatsky Petroleum Corp., 957 F.3d 487 (5th Cir. 2020), the Fifth Circuit recited a familiar notion: “Arbitration is supposed to keep disputes out of court and ‘increase[] the speed of dispute resolution.’” The Fifth Circuit made this statement in the context of a contract dispute governed by an arbitration agreement that spawned related litigation and a decade-long confirmation process. This case highlights that not all arbitrations are speedy, efficient, and cost-effective. To achieve the intended purposes of arbitration, such provisions should be carefully prepared and ..read more

As a follow-up to this post, the Railroad Commission of Texas’s May 5, 2020 open meeting resolved the pending prorationing request. Public comments made by the Commissioners in advance of the meeting made clear that the Commission would not order prorationing, and as expected, the Commission voted 2-1 at the meeting to dismiss the verified complaint submitted by Parsley Energy and Pioneer Natural Resources, with only Commissioner Sitton in opposition. In addition to dismissing the complaint, the meeting resulted in other important items that producers should be aware of. First, the Commission ..read more

In an open meeting virtually conducted yesterday morning, the Railroad Commission of Texas seemed to indicate that prorationing may be a real possibility in the near future. Commissioner Ryan Sitton, citing the need for prompt action, moved that the Commission immediately consider a prorationing order, designed to curtail 20% (approximately 1 million barrels per day) of oil production by Texas producers. Commissioner Sitton further outlined his vision of a proposed order, which would have an effective date of June 1st and would be contingent on other oil producing states and nations also agree ..read more

The Texas Supreme Court recently addressed whether an assignment of overriding royalty interests conveyed the seller’s interest in the only then-existing wellbore, or in any subsequent well on the entire lease. In Piranha Partners v. Neuhoff the court held that the assignment at issue “unambiguously conveyed the assignor’s overriding royalty interest in all production under the lease” as opposed to just production from a single well.[1] The facts are simple: Neuhoff Oil & Gas sold and assigned its mineral interest in Section 28 but reserved a 3.75% ORRI in all production under the Lease ..read more

Reducing costs is paramount for oil and gas companies in a depressed price environment. Shrinking general and administrative expense budgets is an acceptable position in the abstract, but when jobs and positions are terminated, or teams are compressed leaving only a few members to maintain the assets until a sale is more palatable, specific termination decisions and resulting fallout can be harder and contentious both from a morale and maintenance perspective.   When the decision to terminate an employee’s employment is made, the employer should evaluate various considerations such ..read more