This article is from the McGinnis Lochridge Oil & Gas newsletter, Producer’s Edge – Vol. 4, Issue 1. Read the full newsletter here.
In King Operating Corp. v. Double Eagle Andrews, LLC, the Eastland Court of Appeals was required to determine the superior ownership to between two lessee with competing leases over the same minerals. The earliest lease, referred to by the court as the “Robinson lease” covered four tracts of land in Scurry County, Texas. The court referred to the four tracts as “Tract One,” “Tract Two,” “Tract Three,” and “Tract Four.”
Through a series of conveyances, certain King entities (collectively, “King Operating”) came to own the Robinson lease. The Robinsons signed a new lease with Double Eagle Andrews, LLC (“Double Eagle”) covering Tracts Two and Three (the “DEA Lease”). After obtaining the lease, Double Eagle challenged a well permit application filed by King Operating to drill a well on Tract Two. Double Eagle also filed suit, contending that the Robinson lease had terminated and that Double Eagle’s lease was superior.
King Operating contended that the Robinson lease had been perpetuated by operations on Tract One because the lease provided that operations anyone on the leased premises would maintain the other lands. However, although the Robinson Lease purported to cover all four tracts, it was undisputed that the lessors of the Robinson lease did not own Tract One. Therefore, the court was required to determine whether operations on a tract of land described in a lease, but not owned by the lessor, are sufficient to maintain the lease. Ultimately, the court held that the operations did not constitute operations on the leased premises and that the Robinson lease terminated because no operations were conducted on lands owned by the lessor.
The court described the issue as whether the term “leased premises,” as used in the Robinson lease, referred to the lands described in the lease or the estate being conveyed by the lease. Based on the use of the phrase “leased premises” throughout the Robinson lease, the court held that the parties use the phrase to refer to the interest being conveyed by the lease, rather than the physical lands. For instance, the lease purports to grant the lessee the right to explore for mineral on the “leased premises,” but the lessor could not grant this right to lands the lessor does not own. Therefore, the court concluded the phrase “leased premises” must refer only to lands that the lessor owned.
Based on its conclusion that the term “leased premises” did not include Tract One, the court concluded that operations on Tract One could not perpetuate the lease as to the other three tracts. Accordingly, the court held that the Robinson lease expired and that Double Eagle’s DEA lease was superior.
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Chris Halgren represents clients in a wide variety of business disputes in the oil and gas industry, secured lending, and various other commercial disputes.
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