The so called “Anadarko Washout” involves a washout of oil and gas leases on undivided working interests owned by non-operating mineral cotenants. This particular species of lease washouts is based on two recent cases from the El Paso Court of Appeals – Cimarex Energy Co. v. Anadarko Petroleum Corp., 574 S.W.3d 73, 93 (Tex. App.—El Paso 2019, pet denied)) and Cromwell v. Anadarko E & P Onshore, LLC, 676 S.W.3d 860 (Tex. App.—El Paso, 2023 pet. granted) judm’t rev’d Cromwell v. Anadarko E& P Onshore, LLC, no. 23-0297, slip op. ¶3, available at https://www.txcourts.gov/media/1460583/230927.pdf.
In Cimarex Energy Co. v. Anadarko Petro. Corp., Cimarex Energy Company (“Cimarex”) obtained a lease in December 2009 of an undivided 1/6th of the minerals in 440 acres located in Ward County, Texas. The lease was a Paid-Up lease with a five-year primary term. Anadarko Petroleum Corporation (“Anadarko”) acquired the remaining 5/6ths of the minerals in the same property by assignment from prior lessees. During the five-year primary term of Cimarex’s lease, Cimarex did not commence drilling any wells on the property. Cimarex instead chose to rely on production from several wells Anadarko drilled in 2011 and 2012. Anadarko failed to account to Cimarex for its 1/6th share of production, and Cimarex brought suit in February 2013. The resulting settlement agreement required Anadarko to pay Cimarex for its 1/6th co-tenant share of the value of production, less Cimarex’s 1/6th share of the reasonable drilling completion and operations costs. It also required Anadarko to account to Cimarex on a go forward basis for its monthly share of production, less deductions for Cimarex’s share of ongoing operations costs. Anadarko continued to make production payments to Cimarex until December 2014, and thereafter ceased making any payments to Cimarex.
When Passive Production Becomes a Legal Battleground
In August 2011, Cimarex’s lessors granted a top-lease covering the 1/6th interest to Petro-Land Group. Anadarko subsequently acquired the top-lease in June 2012. Once the primary term of Cimarex’s lease expired in December 2014, Anadarko took the position that Cimarex’s lease expired because it required Cimarex drill or operate a well on the property prior to the expiration of the primary term, and Cimarex failed to do so. Both the trial court and the El Paso Court of Appeals agreed with Anadarko that Cimarex’s lease had terminated under these facts.
Those courts were not persuaded by Cimarex’s arguments that it had perpetuated its lease by paying royalties to its lessors on its share of production from Anadarko’s wells, or that Anadarko’s co-tenancy accounting to Cimarex under the terms of their settlement agreement was the equivalent of participation in joint development under the terms of a Joint Operating Agreement (“JOA”).
In a similar case, Cromwell v. Anadarko E & P Onshore, LLC, Cromwell obtained leases covering a small fractional interest in multiple sections in Loving County, Texas. Anadarko owned substantial leasehold interests in the same land. Prior to Cromwell’s acquisition of his leases, Anadarko had already established production, and was the designated Operator pursuant to a JOA with other non-operating working interest owners. After acquiring his leases, Cromwell made multiple requests that Anadarko send him a JOA so that he could participate in Anadarko’s development. Anadarko never sent Cromwell a JOA, but it did account to Cromwell as co-tenant once its wells paid out. After payout, Anadarko sent Cromwell joint interest invoices showing Cromwell’s revenues and deducted costs.
Anadarko even sent Cromwell an authorization for expenditure for a new compressor on one well, which Cromwell consented to and paid. Nevertheless, years after the primary terms of Cromwell’s leases expired, Anadarko took the position that Cromwell’s leases had terminated. Anadarko subsequently acquired new leases from Cromwell’s lessors. Once again, both the trial court and the El Paso Court of Appeals sided with Anadarko. Those courts held that Cromwell’s leases terminated because Cromwell had failed to drill any wells or obtain production, and Cromwell had not participated in joint development of the property pursuant to the terms of a JOA. In deciding both Cimarex and Cromwell, the El Paso Court of Appeals relied on its prior decision in Hughes v. Cantwell, 540 Sw.2d 742, 743-44 (Tex. Civ. App.—El Paso, 1976, writ ref’d n.r.e.) and Mattison v. Trotti, 262 F.2d 339 (5th Cir. 1959), both of which held that a typical habendum clause requires the lessee named in the specific lease (or presumably, the original lessee’s successor) to personally produce oil or gas to perpetuate the lease.
Joint Development Denied: The Cromwell Conflict
The holdings of these cases threatened to destabilize the title of many oil and gas lessees that relied on production operated by third-parties to maintain their leasehold rights. Relying on this line of cases, the United States District Court for the Southern District of Texas went so far as to state “Texas law does not allow a lessee to rely on a co-tenants production of oil to extend the term of a lease.” Fort Apache Energy, Inc. v. Short Og III, Ltd., 20922 U.S. Dist. Lexis 130625 (S.D. Tex., July 21, 2022) (emphasis added). This led many commentators and practitioners to advise clients that their non-operated leasehold interests were at risk in absence of a Joint Operating Agreement or pooling agreement.
A Doctrine Destabilized: Industry Implications of El Paso's Rulings
On May 23, 2025, the Supreme Court of Texas issued its opinion in Cromwell, reversing the El Paso Court of Appeals, and expressly disapproving Cimarex, Hughes and Mattison. The Court’s reasoning was simple, and firmly rooted in Texas oil and gas jurisprudence. First, the Court rejected Anadarko’s argument that the passive-voice habendum clauses in Cromwell’s leases required Cromwell to personally produce because the clauses did not say that, and courts are not at liberty to rewrite agreements. Further, the Court stated that “[n]either habendum clause ‘clear[ly], precise[ly], and unequivocal[ly]’ requires Cromwell to produce, so we will not imply such a requirement to cause a forfeiture of his interest.” Cromwell v. Anadarko E& P Onshore, LLC, no. 23-0297, slip op. ¶ 24, available at https://www.txcourts.gov/media/1460583/230927.pdf. In so doing, the Court reenforced its commitment to the rule that special limitations must be clear, precise and unequivocal, and that provisions providing for automatic termination may not be implied. This rule is undoubtedly one of the most important tenets of oil and gas lease interpretation. Its consistent application is important to the stability of mineral title in the State of Texas, something which the Court also acknowledged in the concluding paragraph of the opinion:
The Supreme Court's Reset: Bright Lines and Lease Clarity Restored
We remain faithful to the text of oil-and-gas leases because doing so provides “legal certainty and predictability,” values which “are nowhere more vital than in matters of property ownership, an area of law that requires bright lines and sharp corners.
As a practitioner that regularly represents industry participants in lease termination cases and title disputes, the consistent placement of “bright lines and sharp corners” is greatly appreciated.
