Chesapeake v. Hyder - Royalty Owner Wins Gas Royalty Dispute

http://www.oilandgaslawyerblog.com/2014/03/chesapeake-v-hyder---royalty-o.html

Nice to see the courts taking the lease language for what it says.

Assuming this case continues to the Texas Supreme Court do you think the high court will uphold the lower court’s decisions?

Wilson,

Thanks for posting this decision by the lower Courts. Mr McFarland is good about keeping mineral/royalty/property owners informed. No, I don't think the Texas Supreme Court will go along with the lower Court's decision. That bunch in Austin is a bunch of Supreme Crooks looking out for the welfare of the oil companies and their own pocketbooks. Just my opinion.

Clint Liles

http://www.search.txcourts.gov/Case.aspx?cn=04-12-00769-CV
Here are some more documents of the court proceedings.

Clint,
Four of the justices have their term ending this year. I have no clue how any of them have ruled on oil and gas industry issues or how to find out. Knowing would make voting much more interesting.

Current Texas Supreme Court Justices (Wikipedia)

Justice

Party Affiliation

Place

Date Service Began

Term Ends

Nathan L. Hecht

Republican

Chief Justice

January 1, 1989

2014

Don R. Willett

Republican

2

August 24, 2005

2018

Debra Lehrmann

Republican

3

June 21, 2010

2016

John P. Devine

Republican

4

January 1, 2013

2018

Paul W. Green

Republican

5

January 1, 2005

2016

Jeff Brown

Republican

6

October 3, 2013

2014[a]

Jeffrey S. Boyd

Republican

7

December 3, 2012

2014

Phil Johnson

Republican

8

April 11, 2005

2014

Eva Guzman

Republican

9

October 8, 2009

2016

[a] Term ends in 2018 but must run in 2014 to keep position.

After reading the court case opinion it is hard for me to see how the Supreme Court would arrive at different conclusions but I think more like a redneck than a lawyer.

Your opinion may prove to be correct.

Kitchen,

Thanks for posting the court documents. The opinion issued 03/05/2014 is the first court case opinion I have ever read. Even though I have no education in the legal field and having just a general knowledge of the issues I was surprised that it is easy to read and comprehend.

http://http://www.oilandgaslawyerblog.com/2009/04/texas-supreme-court-record-on.html

Texas Supreme Court Record on Royalty Owner Cases

6 April 6, 2009 By John McFarland

In a previous post I discussed a recent Texas Supreme Court case, Exxon v. Emerald, reversing a multimillion-dollar judgment against Exxon for intentionally sabatoging wells so that they could not be re-entered. This nudged me to look at other royalty-owner related cases handed down by the Texas Supreme Court over the last ten years. The court's record is not a good one for royalty owners. Highlights of the Court's work:

HECI v. Neel (1998). HECI sued an adjacent operator for illegal production on an adjoining lease that damaged the common reservoir underlying both leases, and recovered a judgment for more than $3.7 million. HECI did not inform its royalty owners of the suit and did not share any of the judgment proceeds with the royalty owners. When HECI's royalty owners found out about the suit, they sued HECI to recover their share of the judgment. The Supreme Court held that the royalty owners had waited too long to bring their suit, even though they did not find out about the suit until five years after the trial. The Court held that the royalty owners should have known that the adjacent operator was damaging the common reservoir by its operations.

Yzaguirre v. KCS Resources (2001). Plaintiffs were royalty owners who received royalties under a lease operated by KCS. KCS sold its gas under a 20-year contract with Tennessee Gas Pipeline, and the price under the Tennessee contract greatly exceeded the spot market price of the gas. But KCS paid royalties based on the "market value" of the gas, using comparable spot sale prices, well below the price it received from Tennessee. The Court held that KCS did not owe royalties based on the Tennessee price -- and, it held that the Tennessee contract was not even competent evidence of the market value of the gas.

Wagner & Brown v. Horwood (2001). Plaintiffs sued Wagner & Brown for deducting excess compression fees from their royalties that were charged by a Wagner & Brown affiliate. The Supreme Court ruled that all claims for royalties paid more than four years prior to the suit were barred by the four-year statute of limitations. Plaintiffs argued that Wagner & Brown had falsely told them, when they inquired about the fees, that the fees were only 12 cents per mcf, rather than 25 to 30 cents, so Wagner & Brown should not be allowed to rely on the statute of limitations. The Court rejected this argument, holding that the Plaintiffs' claims were not "inherently undiscoverable," even if Wagner & Brown lied to them about the charges.

Natural Gas Pipeline Company of America v. Pool (2002). Plaintiffs sued NGPL claiming that two leases had terminated due to a lack of production. The trial court entered a judgment for lessors on a jury verdict, which the Court of Appeals affirmed. The Supreme Court reversed. It held that, if the leases had terminated for lack of production, the lessee had subsequently re-acquired title to the leases by adverse possession. This is the first case in the country to hold that adverse possession statutes apply to recover title to an expired oil and gas lease. In re Bass (2003). Plaintiffs owned a royalty interest under a ranch owned by the Bass family. The Basses refused to lease their land for oil and gas exploration, and the royalty owners sued them for breach of an implied duty to develop the land. The Supreme Court held that the Basses had no implied duty to lease or develop the minerals under their property.

Union Pacific Resources Group v. Hankins (2003). Royalty owners in Crockett County brought suit against Union Pacific, alleging that UPRG was selling gas to an affiliated company at a low price and then reselling it at a higher price, but paying royalties on the lower price. The plaintiffs sought to make the case a class action brought on behalf of all royalty owners in UPRG wells in Crockett County.The Supreme Court held that the case could not be brought as a class action because the royalty language in the leases could be different.

Kerr-McGee Corp. v. Helton (2004). Kerr-McGee drilled a well, the Holmes 17-1, in Wheeler County which produced more than 8.7 billion cubic feet of gas. The well was located 660 feet from the Heltons' lease. Kerr-McGee did not drill an offsetting well on the Helton lease, and the Heltons sued Kerr-McGee for failing to protect their lease against drainage from the Holmes 17-1. The trial court awarded $860,000 in damages, and the Court of Appeals affirmed. But the Supreme Court reversed, ruling that the plaintiffs should have no recovery. The Court held that the plaintiffs' expert witness had not adequately explained how he had measured the amount of gas that would have been produced from a well on the Helton lease if Kerr-McGee had drilled it; the Court said that there was "simply too great an analytical gap between the data [relied on by the expert] and the opinion proffered." The Court refused the plaintiffs' request to remand the case for a new trial.

Forest Oil Corp. v. McAllen (2008). In 1999, Forest Oil settled a lawsuit with McAllen and others who own the McAllen Ranch in Hidalgo County, over claims for royalties and leasehold development. In 2004, McAllen filed a separate suit against Forest to recover for damages caused by burying mercury-contaminated and radioactive material on the ranch. Forest claimed that McAllen was obligated by the 1999 settlement to arbitrate any disputes over its operation of the lease. McAllen claimed that he was fraudulently induced to sign the settlement and was not bound to arbitrate his claims. The Supreme Court held that McAllen was contractually bound to arbitrate. It held that language in the settlement agreement, providing that McAllen was not relying on any statement or representation of Forest in executing the agreement, prevented McAllen from arguing that he was fraudulently induced by Forest to sign the settlement agreement. In so holding, the Court overruled a prior case it had decided in 1997, in which it held that a settlement agreement must "clearly express .. the parties' intent to waive fraudulent inducement claims" in order to preclue a fraudulent inducement claim.

I was unable to find any Supreme Court case in the last ten years that ruled in favor of royalty owners.

Clint Liles

Royalty owners better show up to vote…get those guys out if there. Not one ruling for royalty owners? There needs to be laws about manditory royalty owner notification on any different activities other than what was previously established in the leases. Royalty owners have no idea what is going on with there mineral rights… I’ll give you an example…The boom in Grady and Stephens county. Chevron has been plugging my vertical wells since 2002 that are leased to them. I had no idea this was going on. After I started getting noticed for new leases, I began to look at my property. I used the occeweb to research as many court documents as I can find. Chevron is plugging and making me think my property is not worth anything when the reality is there is lots of resources. Does anyone have any feedback on this?

And the majority of us think the only thugs are Mafia and the ones in the White house! Obviously we have a few right here at home! I once worked with an older gentleman that was very active in politics and his motto was, never, never vote for an incumbent politician. Vote a new one in and then vote them out before he/she has an opportunity to understand the system well enough to be a supreme crook!

Clint Liles said:

http://http://www.oilandgaslawyerblog.com/2009/04/texas-supreme-cou...

Texas Supreme Court Record on Royalty Owner Cases

6 April 6, 2009 By John McFarland

In a previous post I discussed a recent Texas Supreme Court case, Exxon v. Emerald, reversing a multimillion-dollar judgment against Exxon for intentionally sabatoging wells so that they could not be re-entered. This nudged me to look at other royalty-owner related cases handed down by the Texas Supreme Court over the last ten years. The court's record is not a good one for royalty owners. Highlights of the Court's work:

HECI v. Neel (1998). HECI sued an adjacent operator for illegal production on an adjoining lease that damaged the common reservoir underlying both leases, and recovered a judgment for more than $3.7 million. HECI did not inform its royalty owners of the suit and did not share any of the judgment proceeds with the royalty owners. When HECI's royalty owners found out about the suit, they sued HECI to recover their share of the judgment. The Supreme Court held that the royalty owners had waited too long to bring their suit, even though they did not find out about the suit until five years after the trial. The Court held that the royalty owners should have known that the adjacent operator was damaging the common reservoir by its operations.

Yzaguirre v. KCS Resources (2001). Plaintiffs were royalty owners who received royalties under a lease operated by KCS. KCS sold its gas under a 20-year contract with Tennessee Gas Pipeline, and the price under the Tennessee contract greatly exceeded the spot market price of the gas. But KCS paid royalties based on the "market value" of the gas, using comparable spot sale prices, well below the price it received from Tennessee. The Court held that KCS did not owe royalties based on the Tennessee price -- and, it held that the Tennessee contract was not even competent evidence of the market value of the gas.

Wagner & Brown v. Horwood (2001). Plaintiffs sued Wagner & Brown for deducting excess compression fees from their royalties that were charged by a Wagner & Brown affiliate. The Supreme Court ruled that all claims for royalties paid more than four years prior to the suit were barred by the four-year statute of limitations. Plaintiffs argued that Wagner & Brown had falsely told them, when they inquired about the fees, that the fees were only 12 cents per mcf, rather than 25 to 30 cents, so Wagner & Brown should not be allowed to rely on the statute of limitations. The Court rejected this argument, holding that the Plaintiffs' claims were not "inherently undiscoverable," even if Wagner & Brown lied to them about the charges.

Natural Gas Pipeline Company of America v. Pool (2002). Plaintiffs sued NGPL claiming that two leases had terminated due to a lack of production. The trial court entered a judgment for lessors on a jury verdict, which the Court of Appeals affirmed. The Supreme Court reversed. It held that, if the leases had terminated for lack of production, the lessee had subsequently re-acquired title to the leases by adverse possession. This is the first case in the country to hold that adverse possession statutes apply to recover title to an expired oil and gas lease. In re Bass (2003). Plaintiffs owned a royalty interest under a ranch owned by the Bass family. The Basses refused to lease their land for oil and gas exploration, and the royalty owners sued them for breach of an implied duty to develop the land. The Supreme Court held that the Basses had no implied duty to lease or develop the minerals under their property.

Union Pacific Resources Group v. Hankins (2003). Royalty owners in Crockett County brought suit against Union Pacific, alleging that UPRG was selling gas to an affiliated company at a low price and then reselling it at a higher price, but paying royalties on the lower price. The plaintiffs sought to make the case a class action brought on behalf of all royalty owners in UPRG wells in Crockett County.The Supreme Court held that the case could not be brought as a class action because the royalty language in the leases could be different.

Kerr-McGee Corp. v. Helton (2004). Kerr-McGee drilled a well, the Holmes 17-1, in Wheeler County which produced more than 8.7 billion cubic feet of gas. The well was located 660 feet from the Heltons' lease. Kerr-McGee did not drill an offsetting well on the Helton lease, and the Heltons sued Kerr-McGee for failing to protect their lease against drainage from the Holmes 17-1. The trial court awarded $860,000 in damages, and the Court of Appeals affirmed. But the Supreme Court reversed, ruling that the plaintiffs should have no recovery. The Court held that the plaintiffs' expert witness had not adequately explained how he had measured the amount of gas that would have been produced from a well on the Helton lease if Kerr-McGee had drilled it; the Court said that there was "simply too great an analytical gap between the data [relied on by the expert] and the opinion proffered." The Court refused the plaintiffs' request to remand the case for a new trial.

Forest Oil Corp. v. McAllen (2008). In 1999, Forest Oil settled a lawsuit with McAllen and others who own the McAllen Ranch in Hidalgo County, over claims for royalties and leasehold development. In 2004, McAllen filed a separate suit against Forest to recover for damages caused by burying mercury-contaminated and radioactive material on the ranch. Forest claimed that McAllen was obligated by the 1999 settlement to arbitrate any disputes over its operation of the lease. McAllen claimed that he was fraudulently induced to sign the settlement and was not bound to arbitrate his claims. The Supreme Court held that McAllen was contractually bound to arbitrate. It held that language in the settlement agreement, providing that McAllen was not relying on any statement or representation of Forest in executing the agreement, prevented McAllen from arguing that he was fraudulently induced by Forest to sign the settlement agreement. In so holding, the Court overruled a prior case it had decided in 1997, in which it held that a settlement agreement must "clearly express .. the parties' intent to waive fraudulent inducement claims" in order to preclue a fraudulent inducement claim.

I was unable to find any Supreme Court case in the last ten years that ruled in favor of royalty owners.

Clint Liles

When a judge says that the language of cost free or free of cost in a lease means the lessor does not have to pay for his portion of drilling and completing a well, it is an incredible disconnect!

What would be the purpose of leasing if you stll had to pay for your proportionate part of the well? Why wouldn't you just be a working interest, collecting 100% less cost of production, if you would have to pay for your part of a well under a lease?

We need to get all of the judges out [congress too], there may be a few that should stay but the great marjority I think should not and when you are cutting out a gangrene, you can't be afraid to remove a little healthy flesh along with it to be sure.

Personally, I think we, as a nation, will do nothing. The infection will reach the brain if it has not already and a persistent vegetative state will ensue.

Here, here, I'll vote for that!

r w kennedy said:

When a judge says that the language of cost free or free of cost in a lease means the lessor does not have to pay for his portion of drilling and completing a well, it is an incredible disconnect!

What would be the purpose of leasing if you stll had to pay for your proportionate part of the well? Why wouldn't you just be a working interest, collecting 100% less cost of production, if you would have to pay for your part of a well under a lease?

We need to get all of the judges out [congress too], there may be a few that should stay but the great marjority I think should not and when you are cutting out a gangrene, you can't be afraid to remove a little healthy flesh along with it to be sure.

Personally, I think we, as a nation, will do nothing. The infection will reach the brain if it has not already and a persistent vegetative state will ensue.

Kind of like the minimum royalty percent in Pennsylvania. Why even have such a law if it still allows deductions below 12.5%? Why not just give your minerals away at that point! If a lessee is crafty enough to get that low of a royalty rate to begin with, I’m sorry but they should not be allowed ANY additional deductions. They already have 87.5% to profit from. How much more greed do we need to be happy? What a joke. Let’s pay them 12.5% on a market value 20% of actual because we inflated all of the gathering charges because no law exists to regulate those charges. Pennsylvania is the only hope to start fixing these problems in my opinion. If they are successful, other states may have a chance.

Don't mention that too loudly since this administration and if Hillary gets in it will even be worse, would like to have the government own all of our minerals. This would allow them to take more free vacations and waste more on their whims.

Kitchen said:

Kind of like the minimum royalty percent in Pennsylvania. Why even have such a law if it still allows deductions below 12.5%? Why not just give your minerals away at that point! If a lessee is crafty enough to get that low of a royalty rate to begin with, I'm sorry but they should not be allowed ANY additional deductions. They already have 87.5% to profit from. How much more greed do we need to be happy? What a joke. Let's pay them 12.5% on a market value 20% of actual because we inflated all of the gathering charges because no law exists to regulate those charges. Pennsylvania is the only hope to start fixing these problems in my opinion. If they are successful, other states may have a chance.

Wow, those cases cited by Clint make it pretty clear that the TX courts 'supreme rulers' are 'bought & paid for' by the oil companies. They are a disgrace to their profession. Oh, wait, everyone already knows that many lawyers are a disgrace to their profession.

It must be hard to be an honest attorney when so many of your counterparts are thieves.