How are leases written in 2009 affected now re: SC's "offset well" meaning?


#1

I just read the following & wonder does this affect existing leases now that were written in 2009 between royalty owners & oil companies?

“The Texas Supreme Court issued a narrow 5-4 opinion in Murphy Exploration & Production Co. — USA v. Adams on June 1, 2018, interpreting a common “offset” clause contained in a 2009 oil and gas lease. The majority held that the phrase “offset well” in that clause does not necessarily refer to a well that would protect the leasehold against drainage, but instead referred to a well drilled anywhere on the leased premises that was drilled to a depth required by the lease. The Court reached this conclusion based on interpreting that phrase in light of “surrounding circumstances” evidence of the discovery of the Eagle Ford and drainage patterns of horizontal shale wells. Four justices dissented in an opinion that, among other things, accused the majority of disregarding the commonly understood meaning of the phrase “offset well,” which is a well designed to protect the leasehold from drainage.
Sent from my smartphone. Please forgive any typos.”


#2

You need to read the entire court ruling, not just an excerpt, as the exact wording of the lease provision is crucial to the interpretation. The decision may discuss other cases and either distinguish or extend those holdings. Also, the wording in your lease may differ from the lease in the case.


#3

There was some wording here that could have been read to allow the operator to drill another well anywhere on the tract. The lesson is be specific that an offset well means a well to lessen the potential drainage.

The other lesson is a 9-0 Republican Supreme Court is not necessarily good for mineral owners when an operator is involved. You have to strain a little to disregard the word “offset” in the lease and make it meaningless. I thought the 4 dissenters had the more persuasive argument.


#4

Can you provide a hyperlink to both rulings?

Thank you very much.

Buddy Cotten

Mineral Manager


#5

Murphy Opinion