On January 11, 2019, Austin, Texas appellate attorney Ryan Clinton spoke to an audience of oil-and-gas attorneys and executives at the State Bar of Texas Oil and Gas Disputes Conference in Houston, Texas.

Ryan presented on the topic of the oil-and-gas leasehold estate, how the estate is created, and how to determine whether the estate has ended. Ryan spoke about the classifications of lease clauses— covenants, conditions subsequent, and special limitations— and the remedies available for the breach of each type of clause. Ryan also discussed the application of the so-called “rule against forfeiture” in Texas, and the Texas “repudiation doctrine.”

Ryan’s accompanying paper provides additional detail on the subjects presented. To read Ryan’s paper in full, click the link below:

Ryan Clinton, The End of the Leasehold as We Know It: Termination, Forfeiture, & Repudiation, State Bar of Texas Oil and Gas Disputes, January 11, 2019.

On December 14, 2018, the Texas Supreme Court declined to review a Davis, Gerald, & Cremer client victory in a dispute over the meaning of a covenant-to-release clause in an oil-and-gas lease. The Court’s decision leaves intact the El Paso Court of Appeals’s holding that Apache Deepwater, LLC did not lose previously developed acreage long after the expiration of the primary term. See Apache Deepwater, LLC v. Double Eagle Dev., LLC, 557 S.W.3d 650 (Tex. App.—El Paso 2017, pet. denied).

The key issue presented in the case was whether the disputed clause was triggered once—at the expiration of the primary term—or over and over again anytime production ceased on a well in the lease’s secondary term (a theory sometimes called “rolling termination”). DGC argued on behalf of Apache that the clause’s language, read in harmony with the lease’s habendum and drilling-operations clauses, could mean only one thing: the covenant-to-release clause was triggered just once.

The court of appeals agreed with Apache. And after requesting full briefing on the merits, the Texas Supreme Court denied Double Eagle’s petition for review.

RESOURCES:

Court of Appeals opinion
Apache Deepwater’s Brief on the Merits

The Dallas Bar Association’s Energy Law Section invited Ryan Clinton to speak about the Texas Supreme Court’s two recent retained-acreage clause opinions, Endeavor v. Discovery and Chesapeake v. XOG. Ryan served as lead appellate counsel in both cases, and his clients prevailed at the Supreme Court in each case. At the meeting, Ryan shared appellate insights into both opinions as well as the strategic thinking behind the positions he took on behalf of his clients. Ryan also shared key lessons learned from the Court’s opinions for litigants, producers, and mineral owners.

Ryan Clinton was honored to be selected as a “Texas Super Lawyer” again this year by “Super Lawyers” magazine, a Thomson Reuters service.

This is the 14th year that Ryan has been recognized by the magazine. Ryan has been named a “Super Lawyer” among all Texas appellate attorneys each year from 2014 to 2018. Before that, Ryan was 10 times named a “Rising Star” among Texas appellate attorneys—-from 2004-05, and 2007-14.

According to the magazine, the Super Lawyers list is created through a process of peer nominations, evaluations, and independent research. “Each candidate is evaluated on 12 indicators of peer recognition and professional achievement. The objective is to create a credible, comprehensive and diverse listing of outstanding attorneys that can be used as a resource for attorneys and consumers searching for legal counsel. [T]he lawyers in the top 5% of the total lawyers in the state are selected to the Super Lawyers List.”

In a mandamus proceeding before the Austin Court of Appeals, DGC client Catherine Tower, LLC prevailed in a landmark tax-appraisal-protest dispute implicating the rights of every real-property owner in the State of Texas.  See In re Catherine Tower, LLC, No. 03-17-00735, 2018 WL 3041088 (Tex. App.---Austin June 20, 2018, orig. proceeding).

In general, Texas taxpayers may protest their governmental property valuation in one of two ways:  (1) by challenging the governmental appraising entity's analysis in determining the property's fair-market value---i.e., a "fair-market-value" challenge; or (2) by challenging the governmental appraisal district's valuation of a property relative to the government's appraisal of other properties---i.e., an "equity-based" or "unequal-appraisal" challenge. 

This case involved a pivotal issue for Texas landowners:  whether evidence of a property's fair-market value is relevant in a Texas landowner's equity-based challenge to a governmental appraisal district's property valuation under Texas Tax Code Section 41.43(b)(3).  The Travis Central Appraisal District argued that an equity-based challenge and a fair-market-value challenge are one and the same, and that, therefore, market-value evidence is relevant in an equity-based protest.  Catherine Tower, on the other hand, explained that the two challenges require independent analyses under Texas law, and market value is not a factor in an equity-based challenge under the plain terms of Section 41.43(b)(3).  The Court agreed with Catherine Tower, writing:

[T]he analysis prescribed by Section 42.26(a)(3) does not independently determine the market value of either the subject property or the comparison properties.  Essentially, one merely takes the appraised values of the subject property and of the comparison properties as "found on the tax rolls" and compares them, and "the only independent analysis required is adjusting the appraised values [of the comparison properties] to put the properties on equal footing.  Section 42.26(a)(3) thereby differs from---and represents a less burdensome alternative to---the other statutory means through which a taxpayer may establish an unequal-appraisal claim. . . .  And that is the very purpose of Section 24.26(a)(3), as Catherine Tower emphasizes.

Id. at *5.

On mandamus, Catherine Tower was represented by Ryan Clinton, along with trial counsel Lorri Michel of the law firm Michel Gray in Austin.  The Austin Court of Appeals denied TCAD's petition for rehearing en banc.

Resources:

In re Catherine Tower Opinion
Catherine Tower's Petition for Writ of Mandamus

The national animal-welfare non-profit Maddie's Fund named Ryan Clinton a 2018 beneficiary of its "Maddie's Hero Award" for his work in helping communities in Texas and throughout the United States improve live outcomes at their municipal animal shelters. 

The award came with the opportunity to designate a $10,000 grant to an animal-welfare non-profit of the recipient's choice.  Ryan picked the acclaimed Williamson County Regional Animal Shelter, which has saved more than 9 out of every 10 animals in its care for nearly a decade.

According to Maddie's Fund, the award "recognizes and honors 'top dogs' in communities that are not only advancing the welfare of companion animals in the United States, but are leading the way with their innovative ideas, progressive thinking and lifesaving actions."

More information is available on Maddie's Fund's news release here.

Posted by Ryan Clinton: 512-493-9603 or rdclinton@dgclaw.com

On April 13, 2018, the Supreme Court of Texas issued opinions in two landmark oil-and-gas appeals---Endeavor Energy Resources, L.P. v. Discovery Operating, Inc., Cause No. 15-1055, and XOG Operating, LLC v. Chesapeake Exploration Ltd. Partnership, Cause No. 15-0935.  Both cases examined the acreage "earned" by an oil-and-gas operator---for use after the expiration of the contract's primary term---by successful development of a mineral lease within the contract's primary term.

In both cases, the Court affirmed the judgment of the court of appeals.  In both cases, Davis, Gerald & Cremer's clients prevailed.  And in both cases, the Supreme Court focused on the proper plain-language construction of the text of the applicable contract between the parties as understood in the context in which the parties contracted.

The Issues & Results

In Endeavor, the retained-acreage clause stated that after the primary term's expiration, the lease would terminate except for that acreage "[1] within a governmental proration unit assigned to a well[,] ... [2] with each such governmental proration unit to contain the number of acres required to comply with the applicable rules and regulations of the Railroad Commission of Texas for obtaining the maximum producing allowable for the particular well." 

Petitioner Endeavor argued that the first half of the clause was "ambiguous," and that the second half automatically retained the highest number of acres permitted under the applicable Railroad Commission field rules.  On the other hand, Respondent Discovery Operating argued that there is only one way to "assign" a "governmental proration unit" to a well, and that's through the operator's proration-plat assignments filed in the Railroad Commission.  Moreover, Discovery Operating argued that the second half of the clause didn't automatically retain the highest number of acres for any well under the field rules, but instead required that the operator assign only those acres "required" to obtain the particular well's "maximum allowable"---i.e., its fair share of the field's total production.  The Court agreed with Discovery Operating, affirmed the court of appeals's judgment, and held that the operator retained only that acreage it actually assigned to its wells, which was also far more than sufficient to obtain all of the applicable wells' production under the field rules.

In XOG, the retained-acreage clause stated that after the primary term's expiration, the leasehold-transfer agreement would terminate except for that acreage "included within the proration or pooled unit of each well," and defined the term "proration unit" to mean: (1) the area "prescribed by field rules" for wells drilled into formations governed by special field rules; and (2) 320 acres of land for wells drilled into formations not governed by special field rules.  In turn, five of the six wells were governed by special field rules, and those rules mandated 320-acre "prescribed proration units."  Accordingly, the court of appeals concluded that the operator retained 320 acres for each of its six wells.

At the Texas Supreme Court, Petitioner XOG argued that a proration unit "prescribed by field rules" did not mean the number of acres prescribed by the applicable field rules, but instead meant the number of acres that the operator "assigned" to its wells in its Railroad Commission proration filings.  Respondent Chesapeake, on the other hand, argued that under the field rules for the five wells regulated by field rules, the "prescribed proration unit" was mandated to be 320 acres; therefore, for purposes of the contract, the operator's proration filings at the Commission didn't matter.  Each well retained 320 acres.  The Supreme Court agreed with Chesapeake and affirmed the court of appeals's judgment.

(Note: as of April 29, 2018, both petitioners have indicated their intent to file motions for rehearing in the two cases.)

Key Takeaways

For oil-and-gas practitioners, these cases provide critical---although unsurprising---guidance from the Supreme Court.  First, the text matters.  The modern Texas Supreme Court has repeatedly emphasized that its aim is to give effect to the ordinary meaning of the words of a contractual agreement.  The Court is also highly reluctant to declare "ambiguous" the words of sophisticated parties' agreements.  Second, the context matters.  Almost as important as the terms of an agreement is the context in which the agreement is written.  In the oil-and-gas context, the terms used by the parties had long-settled and clear meaning.  The Court rejected the petitioners' invitations to change the meaning of settled oil-and-gas terms.  Third, authority matters.  Both opinions looked to prior precedent, Railroad Commission rules, and legal commentary to help discern the meaning of the contracts' terms.  And fourth, the Commission Rules matter. Or more specifically, when the parties to a contract incorporate particular parts of Railroad Commission rules, those rules become part of the parties' agreement.  In Endeavor, that meant that the acreage "assigned" by the well operator pursuant to the applicable field rules governed the acreage retained.  And in XOG, that meant that the acreage "prescribed by the field rules" governed the acreage retained.

The Opinions and DGC's Appellate Briefing

Endeavor v. Discovery opinion
Discovery Operating's Brief on the Merits

XOG v. Chesapeake opinion
Chesapeake's Brief on the Merits

On March 22, 2018, the highly respected and influential Texas Oil and Gas Association filed amicus briefs supporting Davis, Gerald & Cremer's clients in two high-profile Texas appeals currently pending before the Texas Supreme Court.

The two cases are Endeavor Energy Resources, L.P. v. Discovery Operating, Inc., No. 15-0155, and XOG Operating, LLC v. Chesapeake Exploration Ltd. Partnership, No. 15-0935.  Both cases involve a dispute over the number of acres retained by the lessee or transferee after the expiration of an oil-and-gas contract's primary term.  The contracts in each case define retained acreage differently, but the Petitioners in both cases have argued that the two contracts should be construed to lead to the same conclusion.

Respondents Discovery Operating and Chesapeake Exploration, both represented by Ryan Clinton of Davis, Gerald & Cremer, assert that the court of appeals's judgments in each case correctly determine the number of acres retained under the particular language of each contract. 

The Texas Oil and Gas Association agrees.  In a brief to the Court, TXOGA wrote:

TXOGA urges the Court to carefully consider the technical drafting associated with each of the retained acreage clauses involved in these two cases.  Retained acreage clauses that refer to Railroad Commission rules potentially are confusing, and the industry relies on careful interpretation of these clauses to avoid unnecessary risk in development areas that may be subject to retained acreage clauses.

TXOGA believes that the courts of appeal in each case correctly interpreted the retained acreage clause in each lease.  Although the courts reach different results for what may seem to be similar clauses, TXOGA notes that the wording in each clause is different.  Accordingly, TXOGA encourages the Court to affirm the decisions of the courts of appeals in these matters.

To reach TXOGA's amicus brief in full, click here.
 

On January 9, 2018, Ryan Clinton presented oral argument to the Texas Supreme Court in the case of XOG Operating, LLC v. Chesapeake Exploration Ltd. P’ship, Cause No. 15-0935.

The case involves a term assignment in which XOG assigned its leasehold rights to Chesapeake for a particular term.  After the initial term expired, the contract provided that Chesapeake had the right to retain all lands in a “proration unit,” which was defined in the contract as either 320 acres in size (for wells placed into fields not governed by special field rules) or the acreage “prescribed” by Railroad Commission field rules (for wells placed into fields governed by special field rules).  Five wells were drilled into a field prescribing 320-acre proration units, and one well was drilled into a field not governed by special field rules.

At oral argument, Ryan Clinton argued on behalf of Chesapeake Exploration, arguing that each of Chesapeake’s six wells retained 320 acres—-far more than enough to retain all of the acreage transferred to Chesapeake in the term assignment.  The parties now await a decision from the Texas Supreme Court.

Chesapeake’s Brief on the Merits
Ryan Clinton’s Oral Argument on Behalf of Chesapeake 

On September 29, 2017, Texas appellate attorney Ryan Clinton spoke to an audience of Texas oil-and-gas attorneys, in-house counsel, and industry professionals at the 35th Annual State Bar of Texas Advanced Oil, Gas & Energy Resources Law Conference in Houston, Texas.

Ryan spoke about Texas oil-and-gas law's repudiation doctrine, which---in its simplest form---holds that a lessor's repudiation of an operative oil-and-gas lease relieves the lessee of any obligation to conduct further operations on the lease until such time as a court resolves the dispute between the parties over the lease's validity.  But the simplicity of the doctrine in concept has broken down in its application in Texas cases, and parties and litigants in Texas have been left with confusing and often conflicting guidance from Texas courts---including the Texas Supreme Court.

Ryan's accompanying paper on the topic explains the basics of the doctrine, the elements often required by courts to prove the doctrine, and the conflicting judicial interpretations of the doctrine.  To read Ryan's paper in full, click the link below:

Ryan Clinton, To Drill or Not to Drill: The Repudiation Doctrine, State Bar of Texas 35th Annual Advanced Oil, Gas & Energy Resources Law, September 29, 2017.

Ryan Clinton was named one of the best Texas appellate lawyers again this year by Super Lawyers, a Thomson Reuters service, as published in Texas Monthly magazine.  This is Ryan's fourth year to be selected for the honor and fourteenth year to be recognized by the magazine.  Ryan has been named a "Super Lawyer" each year from 2014 to 2017, and was previously ten times named a "Rising Star" in Texas appellate law.

According to Super Lawyers, the organization "selects attorneys using a patented multiphase selection process. Peer nominations and evaluations are combined with independent research. Each candidate is evaluated on 12 indicators of peer recognition and professional achievement. Selections are made on an annual, state-by-state basis. The objective is to create a credible, comprehensive and diverse listing of outstanding attorneys that can be used as a resource for attorneys and consumers searching for legal counsel."

Ryan Clinton's continuing-legal-education paper on oil-and-gas retained-acreage clauses was presented at the 34th Annual State Bar of Texas Advanced Oil, Gas & Energy Resources Law Conference in Houston, Texas in September 2016.

Ryan's paper---co-authored by Davis, Gerald & Cremer shareholder Jad Davis---discusses the purpose and history of retained-acreage clauses in Texas oil-and-gas leases and the mechanics of retained-acreage clauses.  In addition, the paper analyses a potential statute-of-frauds defense to the application of retained-acreage clauses, and offers guidance on crafting and construing such clauses in light of current Texas precedent.

To read Ryan's paper in full, click the link below:

Revisiting an Old Friend: Retained-Acreage Clauses in Oil-and-Gas Contracts, State Bar of Texas, Advanced Oil, Gas & Energy Resources Law CLE, September 2016

In Mercury-Ward LLC v. Anadarko Petroleum Corp., a top lessee and family members of the lessor argued that Anadarko's lease had terminated because an extension of the lease was executed by one family member but not her children.  Anadarko argued that its lease extension was valid because, among other reasons, (1) the lessor inherited the minerals in fee simple, not in life tenancy, and thus had full authority by herself to execute the lease extension; and (2) the lessor's children had no standing to challenge the lease extension's validity because, under their father's will, their prospective interest in the minerals was unvested as a matter of law.  The trial court agreed with Anadarko, entering judgment that Plaintiffs take nothing on their claims.

Anadarko's Motion for Summary Judgment

When the Texas Board of Veterinary Medical Examiners decided to prosecute a non-profit animal-shelter veterinarian as a "test case" to attempt to expand the state agency's authority over animal shelters, Ryan Clinton joined a team of litigators at the law firm Ewell, Brown & Blanke to challenge the agency's unlawful abuse of power pro bono.  The team won at every level, and three years into the litigation, the state agency gave up.  Nonetheless, the Austin Court of Appeals went on to hold that an agency rule attempting to regulate shelter medicine violated Texas law and approved a state administrative law judge's conclusion that the agency exceeded its statutory authority when it attempted to prosecute the animal-shelter veterinarian.  Tex. Bd. of Veterinary Med. Examiners v. Ellen Jefferson, DVM, NO. 03–14–00774–CV, 2016 WL 768778 (Tex. App.--Austin Feb. 26, 2016, no pet.) (mem. op.).

Dr. Jefferson's Brief
Court of Appeals Opinion

In Occidental Chemical Corporation v. Jenkins, a chemical-plant employee who was severely injured at work sued Occidental, which had owned the chemical plant many years prior to the accident but not at the time of the accident.  The plaintiff sued Occidental on the theory that even though Occidental was no longer the owner of the plant (and thus not liable on a premises-liability theory), Occidental remained forever liable for its "negligent design" of improvements at the chemical plant made during the time it owned the plant.  A panel of the First Court of Appeals in Houston agreed with the plaintiffs' theory, reversed the trial court's take-nothing judgment, and directed the trial court to enter judgment for the plaintiff. 

Occidental appealed to the Texas Supreme Court on two theories:  (1) that previous owners of real property in Texas do not remain forever liable for conditions on the premises; and (2) that the plaintiff's suit was barred by Texas's statute of repose.  The Texas Supreme Court granted Occidental's petition and, in a precedent-setting tort-law decision, held that a previous owner of real property is not liable for its "negligence" in creating conditions on property it no longer owns.   Occidental Chem. Corp. v. Jenkins, 478 S.W.3d 640 (Tex. 2016).

Occidental's Petition for Review
Texas Supreme Court Opinion

Please note: Ryan Clinton wrote the briefing on behalf of Occidental in the court of appeals and at the petition-for-review stage, but changed law firms (and did not thereafter participate in the case) after the petition-for-review stage.

 

In XOG Operating, LLC v. Chesapeake Expl. Ltd. P'ship, the assignor of a leasehold-assignment contract asserted that the assignee's leasehold rights had partially terminated based on the contract's retained-acreage clause.  That clause stated that at the end of the assignee's continuous-development operations, the transferred rights terminated except for those rights associated with acreage in a "proration unit," which "shall mean the area within the surface boundaries of the proration unit then established or prescribed by field rules or special order of the appropriate regulatory authority for the reservoir in which each well is completed."  The assignee argued that each producing well retained the number of acres in a prescribed proration unit under Railroad Commission's field rules, and the court of appeals agreed.  XOG Operating, LLC v. Chesapeake Expl. Ltd. P'ship., 480 S.W.3d 22 (Tex. App.--Amarillo 2015, pet. filed). 

Chesapeake's Brief on the Merits
Court of Appeals's Opinion