Do Actions Speak Louder Than Words: Ratification by Acceptance of Royalties?
In BPX Operating Co. v. Strickhausen , 2021 Tex. LEXIS 468, the Texas Supreme Court determined that there was insufficient evidence to support a finding that a lessor had impliedly ratified an unauthorized pooling agreement by depositing royalty checks that had been calculated on a pooled basis. To make this determination, the Court considered the totality of the lessor’s actions and whether, considered objectively, they provided clear evidence of implied ratification as a matter of law. Margaret Strickhausen (“Strickhausen”) owned a fifty percent mineral interest in a tract of land in La Salle, County. The other fifty percent of the mineral interest was owned by Delphine Crouch and others (collectively “Crouch”). Both Strickhausen and Crouch leased their mineral rights to Escondido Resources II, LLC, and after subsequent assignments, BPX acquired the leases. While the Crouch lease permitted pooling, Strickhausen’s lease prohibited pooling unless obtaining Strickhausen’s “express written consent.” The Strickhausen lease provided the following:
including the Strickhausen and Crouch property, to form a pooled unit BPX named “White Kitchen Unit No. 4” (“WK4 Unit”). In April 2012, BPX drilled the “WK Unit 4 No. 1H Well” (“WK4-1H Well”) on the Strickhausen tract that also ran horizontally under other pooled tracts. The WK4-1H Well began producing in August 2012. However, it was not until September 2012 that BPX sent Strickhausen a letter requesting that she sign a pooling consent agreement and a ratification of the WK4 Unit. BPX also included an attachment of the proposed ratification agreement that stated, “the lands covered by the Lease are included in the White Kitchen No. 4 Gas Unit as described in the Designation of Pooled Unit dated January 1, 2012.” Strickhausen notified her attorney Frank Armstrong (“Armstrong”) about the letter from BPX. Armstrong then contacted BPX to request information, which prompted a series of email exchanges between Armstrong and BPX over a two- month period. The emails consisted of Armstrong requesting information about the pooling consent agreement and how royalties would be calculated if Strickhausen ratified the pooling agreement in comparison to if she did not. During this correspondence period, Armstrong called attention to Strickhausen’s lease that prohibited pooling without her express written consent. Armstrong also acknowledged that despite the prohibition, BPX had pooled the leased lands and requested authority for the unauthorized pooling. BPX responded by acknowledging the prohibition on pooling but concluded by stating that “the royalties will require being placed in suspense” if Strickhausen did not “cooperat[e] by executing the enclosed Ratification of Designation of Pooled Unit.” Despite BPX not receiving the executed Ratification, BPX sent Strickhausen a $249,901.73 check for royalties for production from August to December 2012 with the notation “WK UNIT 4
9. POOLING: Notwithstanding any provision or reference contained in this Lease agreement to the contrary, pooling for oil or gas is expressly denied and shall not be allowed under any circumstances without the express written consent of the Lessor named herein. Further, Lessee is denied the right to seek, or consent to, or participate in the forced pooling of any part of the Leased Premises under the Texas Mineral Interest Pooling Act and any and all amendments thereto or any other pooling or unitization statutes of the State of Texas without Lessor’s written consent.
(emphasis added). Despite Strickhausen’s express prohibition on pooling, BPX pooled multiple tracts,
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