With the beginning of a new year, there are several oil cases pending in the Texas Supreme Court relevant to the oil and gas industry.  We’ll be following these cases throughout the year.  Sign up as a subscriber to oilandgaslawdigest.com to receive updates on these and other cases.

Here are ten cases that we will be watching:

Argued Cases

The Supreme Court has granted a petition for review in each of the following cases and oral argument has already occurred.

  1. Production in Paying Quantities:
    BP Production Company v. Laddex, Ltd.
    A top lessee seeks a determination that a prior lease terminated for failing to produce in paying quantities. This will be one of the first Supreme Court cases to analyze the law related to production in paying quantities in quite a while.
  2. Liability for Surface Damages:
    ExxonMobil Corp. v. Lazy R Ranch, et al.
    A surface owner seeks an injunction against a lessee which would require the lessee to remediate damage to the property.  The lessee contends that the cost to remediate the property would exceed the property’s value, thus the relief would run afoul of longstanding Texas law which limits recovery in property damage cases to the value of the property.
  3. Parties Necessary for Royalty Litigation:
    Richard D. Crawford v. XTO Energy, Inc.
    The Supreme Court will determine whether a royalty owner who claims to have been underpaid must join any third-parties that may have received royalties which should have been paid to the plaintiff royalty owner.  The royalty owner in this case claims that such a procedural requirement would place an undue burden on small royalty owners.
  4. Shut-In Wells:
    BP America Production Company v. Red Deer Resources, LLC
    Another lease termination case, the parties dispute whether a well shut-in by BP America could perpetuate the lease. At issue, among other things, is whether a well was capable of producing in paying quantities when shut-in and whether a reasonably prudent operator would continue to operate the lease.
  5. Indemnity:
    Noble Energy, Inc. v. ConocoPhillips Company
    A purchaser of assets out of a bankruptcy estate took the assets “free and clear” of all “claims,” but an appellate court found a duty of defense and indemnity existed in connection with a $60 million liability arising 10 years after the assets were purchased.  This case should be followed by any company acquiring assets out of bankruptcy proceedings.

Petition Granted

The Supreme Court has granted a petition for review in the following cases, but oral argument has not yet occurred.

  1. Fiduciary Duties:
    Longview Energy Company v. The Huff Energy Fund, LP, et al.
    (set for argument 2/9/2017)
    This case analyzes the duties owed by board members to a company.  The trial court judgment, valued by some to be just under $1 Billion (based largely on the value of mineral interests at the time), but the appellate court held that there was insufficient evidence to support a claim for breach of fiduciary duty by usurping a business opportunity.
  2. Pooling:
    Samson Exploration, LLC v. T.S. Reed Properties, Inc., et al.
    (set for argument 2/28/2017)
    This dispute involves several questions related to the nature of pooling and the corresponding lease obligations.  Among others, this case concerns the legal effect of two overlapping units designated by Samson as well as the interpretation of lease language controlling how royalty payments are computed. [1]

Briefing on the Merits Requested

The Supreme Court has requested full briefing on the merits, but has not yet determined whether to grant a petition for review.  If the petition for review is denied, the proceeding at the Texas Supreme Court will likely be over.  If it is granted, then the case will likely be set for oral argument.

  1. Offset Obligations:
    Murphy Exploration & Production Company – USA v. Shirley Adams, et al.
    The dispute concerns the obligations placed on a lessee to protect a lease from drainage.  The trial court held that the lessee complied with the requirements of the lease’s offset obligations clause, but the appellate court reversed based on its holding that the lessee did not prove that an offset well drilled to comply with the lease did in fact protect the lease from drainage.
  2. Retained Acreage Clauses:
    XOG Operating, LLC, et al. v. Chesapeake Exploration Limited Partnership, et al.
    At issue is the interpretation and application of a retained acreage clause.  The dispute focuses, in large part, on whether the lessee is permitted to retain all acreage it could have included in a proration unit or only the acreage which it actually included in the proration unit for each well.
  3. Post-Production Costs:
    The General Land Office of the State of Texas, et al. v. Sandridge Energy, Inc., et al.
    Recently reinstated by the Supreme Court, this is another “post-production costs” dispute concerning whether a royalty clause requiring payment of royalty based on the “greater of” the market price where produced or the gross price paid to the lessee.  The appellate court held that royalty should be determined net of costs, but the GLO contends this conflicts with the express terms of the leases.
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