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January 20, 2024:  I recently attended the State Bar of Texas-sponsored 10th Annual Oil and Gas Disputes seminar in Houston.  Over two days, fellow Texas lawyers and I delved into a comprehensive curriculum comprising 21 lectures, each backed by meticulously researched law review articles and citations to authoritative cases. The seminar's agenda covered a spectrum of crucial topics, ranging from precedent-setting cases in state and federal courts over the preceding 18 months to nuanced guidance on the interpretation of deed and lease clauses. For operators, the lectures provided a deep dive into the proper (and improper) ways to set off, net, and recoup money from royalty owners. The discussions also explored litigation opportunities compelling operators to drill or release the lease. 

Of the 21 lectures provided as part of the 2-day seminar, I found three particularly interesting.

1. Case Law Update from August 2022 – December 2023

This session provided a case law update that covered the prior 18 months of cases decided by Texas Appellate Courts and the Texas Supreme Court. The lecture covered 75 cases decided between August 1, 2022, and December 4, 2023, including the most recent treatment of the following issues:

• The Accommodation Doctrine (i.e., surface owner's rights in oil and gas operations)

• Contract and lease interpretation

• Deed construction

• Joint operating agreements

• Indemnity clauses

• Trespass to try title (the cause of action in Texas to clear title disputes)

2. Ownership of Produced Water and Its Constituent Elements 

The speaker discussed the emerging “produced water” issue in oil and gas operations during this lecture. In short, when an operator produces oil and gas from the ground, other things come up the “straw” alongside the oil and gas, including non-potable water. In the past, this water was considered useless and valueless. However, some enterprising operators discovered they could treat the water and remove valuable elements, which could be sold for profit. Still, some have claimed these minerals are not contemplated in the lease, and no royalty is owed. In most oil and gas leases, the operator contracts with the mineral owner for “oil, gas, and other minerals.” A good faith question emerged about whether the constituent elements of produced water are covered under the term “other minerals” in existing leases. The speaker discussed Texas statutes in great detail (particularly the Texas Water Code and the Texas Natural Resource Code). He summarized a case recently decided by the El Paso Court of Appeals, which the Texas Supreme Court has now accepted for further review.

Gloing forward, I now include a clear produced water clause in future leases, but I am also reviewing existing leases in light of the recent developments to determine whether operators are abiding by the lease vis a vis profit realized from produced water and its constituent parts.

3. Van Dyke: Practical Implications of the Court’s Treatment of the Presumed Grant Doctrine 

Attendees of this lecture heard details regarding a recent case in the Texas Supreme Court that dealt directly with the so-called “presumed grant doctrine” known by its case style Van Dyke v. Navigator Group (or simply “Van Dyke”). Though it was previously covered in the case law updated discussed above, this paradigm shifting case warranted a separate hour-long lecture due to its impact.

In so-called “ancient documents” (which the court does not define but suggests leases executed after World War 2 are not ancient), a common misperception is that the mineral estate was 1/8 of the surface estate. And so, based on this misperception, some deeds and leases would use the fraction 1/8 to mean the entire mineral estate. That practice makes little sense to modern readers of conveyance instruments, but we do not always have the luxury of dealing with documents that have corrected this misperception. It is supremely difficult to understand whether a grantor meant to convey 1/8 of the mineral estate (thereby retaining 7/8 of the mineral estate for himself) or whether he meant to convey the entire mineral estate and retain no interest.  Many lawsuits arise from ancient documents when the fraction 1/8 is used in the granting clause. Notably, Van Dyke created a rebuttable presumption that, when used in a double fraction, 1/8 means the entire mineral estate. In law, a rebuttable presumption shifts the balance in favor of one party and shifts the burden to the opposing party to convince the judge the presumption is wrong. 

Even if your document is not “ancient,” it may use an improper property description that relies on an inaccurate interpretation of a double fraction used in a prior conveyance to your predecessor in interest. This misinterpretation of the double fraction can either reduce or enlarge the amount you should receive as a royalty from the operator.

The recaps of these lectures underscore the significance of continuous learning in Texas oil and gas law. Attending the course is an excellent way to stay up to date on the ever evolving world of oil and gas.