Texas Bar Journal • December 2024

Oil, Gas, and Energy Law

Written by Graves B. Peeler

Texas courts decided several consequential oil, gas, and energy cases in 2024. The following is a summary of a few of those cases.

In Ammonite Oil & Gas Corp. v. R.R. Comm’n of Tex.,¹ the Supreme Court of Texas upheld a Railroad Commission of Texas finding that Ammonite’s offers to pool its riverbed lease with EOG Resources’ adjacent wells were not fair and reasonable under the Mineral Interest Pooling Act (MIPA). The court explained that Ammonite proposed to obtain a share of EOG’s production without Ammonite’s contributing of any minerals underlying its riverbed lease, thus failing to comply with MIPA’s requirement that pooling orders afford each interest owner “the opportunity to produce or receive his fair share.” One significant factor in the court’s reasoning was that these wells were drilled in the Eagle Ford Shale, where the formation has low permeability and drainage only occurs when fracturing extends into one’s minerals.

In Occidental Permian, Ltd. v. Citation 2002 Inv. LLC,² Shell Western E&P sold all of its rights and title to certain mineral and leasehold estates, without reservation, to Citation in 1987. Those interests transferred were described in an Exhibit A to the assignment that included a column identifying portions of acreage found within the leased lands, including depth descriptions. A decade later, Shell Western assigned all of its interests in the same leases to Occidental’s predecessor-in-interest without any mention of depth descriptions. Occidental claimed that the 1987 assignment limited the conveyance to only those depths described in Exhibit A, and Occidental, in the subsequent conveyance, had received all the depths reserved in the 1987 conveyance. However, the court held that the broad granting language in the 1987 assignment conveyed all of Shell Western’s interests and the depth descriptions had no effect because there was no specific language indicating depth reservations in the granting clause, and Exhibit A contained no clear indication that the depths listed were meant to limit the conveyance made by Shell Western.

In Carl v. Hilcorp Energy Co.,³ the Supreme Court of Texas answered questions certified from the U.S. Court of Appeals for the 5th Circuit concerning whether the cost of gas produced from an on-lease well and used off the lease to power post-production activities on other on-lease gas should be deducted from a lessor’s share of post-production costs. The lessor argued the lessor should be paid on all gas produced from the leased premises, but the court stated that the lessor’s royalty on all gas “sold or used off the premises” does not alter her obligation to bear the “usual share of post-production costs” as the holder of an “at-the-well” royalty and the gas Hilcorp uses “off the premises” added value to the minerals sold, just like other post-production activities, and must be accounted for when calculating the lessor’s “at-the-well” royalty.

GRAVES B. PEELER is an associate of Uhl, Fitzsimons, Burton, Wolff & Rangel. His practice focuses on the representation of land and mineral interest owners in the negotiation of oil and gas leases, renewable energy leases, pipeline easements, and mineral conveyances.