TBJ January 2022
2021: The Year in Review
Energy Law
Written by Katy Wehmeyer
Notwithstanding COVID-19 delays and shutdowns, 2021 was a busy year for energy-related jurisprudence, with decisions affecting both Texas’ oil and gas and renewables industries.
Winter Storm Uri and the resulting Texas energy grid crisis in February 2021 set in motion a flurry of litigation ranging from claims in connection with drastic price hikes during the crisis to personal injury and property claims. In 2018, the 5th Court of Appeals in Dallas held that the Electric Reliability Council of Texas, or ERCOT, is immune from claims in Elec. Reliability Council of Tex., Inc. v. Panda Power Generation Infrastructure Fund, LLC,1 a case that well pre-dates Winter Storm Uri. The Texas Supreme Court granted review of that case but in March 2021 declined to rule on the issue of sovereign immunity and dismissed the case on procedural grounds,2 leaving the question of ERCOT’s immunity an open question as ERCOT faces growing litigation stemming from Winter Storm Uri.
After a few quiet years, litigation in connection with allocation wells made a return in 2021 with Elsie Opiela and Adrian Opiela Jr. v. Railroad Commission of Texas and Magnolia Oil & Gas Operating LLC,3 an appeal to the Travis County District Court of a Railroad Commission of Texas, or RRC, order. Opiela addresses whether the RRC has authority under its rules to issue permits for production sharing and allocation wells. In reaching its decision, the Travis County District Court ruled that Magnolia failed to establish a good faith right to drill on the Opielas’ property and that the RRC should have considered whether the pooling clause in the Opielas’ lease gave Magnolia the right to drill across lease lines.
The Texas Supreme Court delivered another opinion in a line of cases dealing with deductions of post-production expenses from a landowner’s royalty in BlueStone Nat. Res. II, LLC v. Randle,4 a case in which the court held that the particular lease addendum at issue requiring payment of royalty on an amount realized basis negated a “market value at the well” royalty clause in a form lease and prohibited the deduction of post-production expenses.
In Broadway Nat’l Bank v. Yates Energy Corp.,5 the Texas Supreme Court weighed in on Texas’ correction deed statute to decide whether the original parties can correct a material mistake in an instrument after a third party acquired an interest in the subject property. The 4th Court of Appeals in San Antonio held that the original parties could no longer unilaterally correct material mistakes after a third party acquired an interest without joinder of the third party. The Texas Supreme Court held in a 5-4 decision that the original parties to an instrument could correct a material mistake without joinder of the third party as long as the current owners were not innocent purchasers.
The Texas Supreme Court also dealt with two ratification cases in different contexts. In Concho Res. Inc. v. Ellison,6 the court determined that a lessee’s signature on a boundary agreement and stipulation between two mineral owners constituted a ratification of the boundary agreement. And in BPX Operating Co. v. Strickhausen,7 the court rejected a bright-line rule that acceptance of lease royalties on a pooled basis constitutes ratification of the pooled unit as a matter of law and held instead that the totality of the circumstances must be examined to determine whether the lessor demonstrated an objective intent to ratify.
KATY WEHMEYER advises oil and gas exploration and production companies in connection with oil and gas lease negotiation and operation, including participation and joint development agreements, pooling and unitization issues, and royalty payment and calculation matters. She also handles acquisitions and divestitures of oil and gas assets and assists clients with title due diligence ahead of asset acquisition and development. Wehmeyer is certified in Oil, Gas and Mineral Law by the Texas Board of Legal Specialization.
