into a valid operating agreement prior to the expiration of the primary term of their leases. It remains unclear whether different facts may lead to a “constructive” operating agreement, but such an argument appears to be tenuous at best. For added protection and to avoid an intentional washout, lessees should ensure that their leases provide that any operations on the leased premises, (i) whether or not caused by the lessee or its successors or assigns, (ii) whether or not conducted in accordance with an executed operating agreement, and/or (iii) whether or not the lessee conducted, participated in, or consented to the drilling, reworking, completion, or other operations resulting in production, will maintain a lease past its primary term and will fulfill the lessee’s obligation to cause production on the lease. Otherwise, a well-capitalized party may attempt to wield Cimarex offensively by refusing to enter into an operating agreement. As of the date of this article, it remains to be seen whether Cromwell will file an appeal and the Supreme Court will weigh on the possibility of creating an “operating agreement by estoppel.” Otherwise, the Anadarko Washout may be here to stay. CONTACT If you have any questions regarding this case law update or suggestions for topics to be covered in future issues, please call our office at 713-229-0360 or contact:
Brad Gibbs Partner, Houston bgibbs@oglawyers.com
www.oglawyers.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. © 2023 Oliva Gibbs LLP. All rights reserved. This publication may qualify as “Attorney Advertising” requiring notice in some jurisdictions. Houston (principal office): 815 Walker St., Suite 1140, Houston, Texas 77002 | Columbus: 580 North Fourth Street, Suite 260, Columbus Ohio 43215 | Lafayette: 4906 Ambassador Caffery Parkway, Building K, Lafayette, LA 70508 | Oklahoma City: 301 Lilac Drive, Suite 250, Edmond, OK 73034| Attorneys licensed in Arkansas, Colorado, Louisiana, Montana, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, Texas, West Virginia and Wyoming
Landowners and oil and gas companies in Texas are facing a significant legal battle over the interpretation of new royalty clauses. The recent ruling by the Texas Supreme Court has restricted post-production cost deductions, causing turmoil in the industry. This groundbreaking decision has sparked a $100 million lawsuit against Devon Energy and BPX Properties, with landowners alleging underpaid royalties. In this article, we will delve into the details of this case and explore the implications of the court’s ruling on the oil and gas sector.
Texas
Texas Supreme Court Ruling Restricting Post-Production Deductions in New Royalty Clauses Now Being Tested in $100M Lawsuit
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N at i onal A ssociation of D i v i s i on O rder A nalys t s
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