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unit well and the RRC should not be considering inappli- cable or irrelevant provisions of a lease when determining whether to grant a permit or not. Rather, those disputes should be between the lessor and lessee and adjudicated in the courts and not adjudicated in quasi-trial before the RRC. Opiela is significant in that it is the first challenge to an allocation that has resulted in a decision issued by a district court. Does Opiela represent an invalidation of allocation wells? We do not believe so. Rather, Opiela at- tempts to impose additional obligations and requirements on the RRC prior to granting an allocation or produc- tion sharing well permit. Opiela should not invalidate the thousands of allocation and production sharing well permits already issued throughout Texas. If Opiela stands and is not reversed on appeal, then the RRC will be forced to develop additional steps and scrutinize the lease and potentially other relevant title documents before issuing an allocation or production sharing well permit. Operators considering seeking an allocation well permit should evaluate the specific provisions in their lease and be prepared to make a more detailed showing to the RRC based upon the Opiela decision. Additionally, Opiela is also a reminder that any decision of the RRC is subject to judicial scrutiny by the district court. [FINAL JUDGMENT – Opiela v. Railroad Commission of Texas, No. D-1-GN-20-000099] [1] Plaintiffs asserted that the following language in the oil and gas lease prohibited an allocation or production sharing well permit: “Nothing contained herein shall authorize Lessee in any manner whatever to pool said land or any part of the same for oil, and for the production of oil from said land under this lease. . . .” [2] See Klotzman v. Railroad Comm’n of Texas, No. GN-13-004306, filed Dec. 23, 2013, in the District Court of Travis County, 98th Judicial District; Monroe Properties, Inc. et al. v. R.R. Comm’n of Texas, No. D- 1-GN-18-001111, 53rd Judicial District, Travis County, Texas. [3] The disclaimer, in part, provides: “Commission Staff expresses no opinion as to whether a 100% ownership interest in each of the leases alone or in combination with a “production sharing agreement” confers the right to drill across lease/unit lines or whether a pooling agreement is also required.…Issuance of the permit is not an endorsement or approval of the appli- cant’s stated method of allocating production proceeds among component leases or units…Payment of royalties is a contractual matter between the lessor and lessee. Inter-
preting the leases and determining whether the proposed proceeds allocation comports with the relevant leases is not a matter within Commission jurisdiction but a matter for the parties to the lease and, if necessary, a Texas court of competent jurisdiction.” [4] The Texas Supreme Court has explained that a “reason- ably satisfactory showing of good-faith claim of ownership in the property” is what is required to obtain a drilling permit and that the function of the RRC “is to administer the conservation laws. It does not undertake to adjudicate questions of title or rights of possessions. These questions must be settled in the courts.” Magnolia Petroleum Co. v. Railroad Comm’n of Texas, 170 S.W.2d 189 (Tex. 1943). If you have any questions regarding this case law update or suggestions for topics to be covered in future issues, please call Kiefaber & Oliva LLP at 713-229-0360 or contact:
Brad Gibbs Partner bgibbs@kolawllp.com
Eli Kiefaber Partner rkiefaber@kolawllp.com
Zachary Oliva Partner zoliva@kolawllp.com
The content of this publication and any attachments are not intended to be and should not be relied upon as legal advice or to create a lawyer-client relationship. © 2021 Kiefaber & Oliva LLP. All rights reserved. This publication may qualify as “Attorney Advertising” requir- ing notice in some jurisdictions. Houston (principal of- fice): 815 Walker St., Suite 1140, Houston, Texas 77002, 713-229-0360 | Columbus: One East Livingston Avenue, Suite B, Columbus, Ohio 43215, 614-349-4525
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