signed a final judgment in favor of Leon Oscar Jr. and Minerva against ConocoPhillips awarding plaintiffs title to the minerals and $11.1 million for their share of net profits on production from the Ranch, plus $951,546 in prejudgment interest and $1,125,000 in attorneys’ fees. In 2017, the San Antonio Court of Appeals affirmed. 534 S.W.3d 490. The Texas Supreme Court reversed the court of appeal’s judgment and held the bequest of Las Piedras Ranch to Leon Oscar Sr. for his lifetime with the remainder to his children only included the surface estate. The mineral interest under Las Piedras Ranch passed via the residuary clause to Leon Oscar Sr., Rodolfo and Ileana. ConocoPhillips Co. v. Ramirez, 599 S.W.3d 296 (Tex. 2020) Yowell v. Granite Operating Co. This case revolves around a 1986 lease on which there was an overriding royalty reservation. The ORRI reservation was subject to an anti-washout provision in the event the lease was terminated: “in the event Assignee obtains an extension, renewal or new lease or leases covering or affecting all or part of the mineral interest covered and affected by said lease or lease, then the overriding royalty interest reserved herein shall attach to said extension, renewal or new lease or leases; and an appropriate recordable instrument shall be executed to evidence Assignor’s overriding royalty interest therein.” The Yowells ultimately obtained this override by assignment and Upland Resources Inc. (Upland) became the owner of the leasehold interest. In 2007, Amarillo Production Company obtained top leases on the property, and sued Upland, the current lessee, to terminate the bottom leases due to lack of production. In connection with a settlement of that litigation, after releasing its interest in the underlying leases, Upland changed its name to Granite Operating Company, and Amarillo assigned the leases to Granite, reserving a 5% ORRI, which it then assigned to Peyton Oil & Gas and PAC Production, in the proportions of 2% and 3% respectively. Granite later assigned the leases to Apache.
In 2013, the Yowells filed suit to recover their ORRI, which they claimed automatically attached to the new leases. Apache and PAC contended that the language purporting to attach the ORRI to new leases violated the Rule. The Amarillo Court of Appeals held that the provision violated the Rule Against Perpetuities and was not subject to reformation under section 5.043 of the Texas Property Code and, even if it were, it would decline to reform it under section 5.043 due to the Yowells’ nearly six-year delay in filing suit. The Texas Supreme Court reversed and held that the ORRI is a real property interest; an “anti- washout” clause extending overriding royalty interests (“ORRI”) to new, future leases was invalid under the Rule Against Perpetuities and that the document creating the ORRI must be reformed, if possible, in accordance with Tex. Prop. Code § 5.043. The court drew an important distinction between applying the Rule Against Perpetuities to anti-washout provisions vis-a-vis new leases and applying the same to renewals or extensions, noting that ORRIs extending to renewals or extensions of leases do not violate the Rule Against Perpetuities. One key takeaway for parties considering applying anti-washout language to potential new leases is to ensure that that any such language is crafted to comply with Rule Against Perpetuities, as has become commonplace for top leases. The Supreme Court also held that the four- year residual statute of limitations did not bar the Yowells’ request for reformation. The parties did not agree whether or how to reform the ORRI under the statute and the issue was remanded back to the court of appeals. Yowell v. Granite Operating Co., No. 18-0841, 2020 WL 2502141 (Tex. May 15, 2020) BlueStone Natural Resources II LLC v. Walker Murray Randle et al , The issue in this case concerned competing clauses between the printed oil and gas lease, which contained language that indicated that the royalties would be calculated on the market value at the mouth of the well and an addendum. The operator and the mineral owner agreed to an addendum that stated that royalties would be computed and paid
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N a t i o n a l A s s o c i a t i o n o f D i v i s i o n O r d e r A n a l y s t s
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