Limitations of Title and Obtaining HBP lands via Production

Texas Oil and Gas:

Can a operating company obtain rights to a lease on lands that are currently held by production if said operating company drilled a well and established production on another part of the property that is HBP?

Example: multiple tracts on one lease with NO Pugh Clause

*portion of the tract was "Farmed out" and production established

*remaining acreage is held by that production

*another Operator leases and drills on that HBP land (full title must not have been completed) and production is established as well

Is there a time frame in which the first operator must file suit in order to obtain what is rightfully theirs?

any help would be greatly appreciated!!



Hi, TJ -

My apologies for not having noticed your posting until now, but I have been busy and am just now catching up with what's happening on The Forum. There is always some pretty Cool Beans stuff going on here and I really enjoy being a part of the conversations.

I am truly surprised that after 5 days, no one else has responded to your Posting. It's a pretty simple question or set of questions to address.

First, let me explain that I am not an Oil and Gas Attorney and you should always consult one in matters such as this. If you don't have an experienced Oil and Gas Attorney in mind, I know of several that can give you much more greatly detailed answers.

My first response is that from my experience: NO, they cannot obtain rights to a Lease that is currently HBP.

And, to my knowledge, there is no "time frame in which the first operator must file suit in order to obtain what is rightfully theirs".

You mentioned that there was no Pugh Clause in the Original Lease, which is greatly in your favor. If there was a Depth Clause, limiting the rights under the Original Lease, that might change things.

As you pointed out, the "New Lessee" might have had poor or incomplete land title research upon which their Title Attorney based his or her Title Opinion(s) on.

There are a whole lot of minimally experienced Landmen out there, so that would not be unexpected. I have been preparing Title Runsheets for some 38 years and can tell you from personal that they are out there.

The error might have been due, however, to after production having been established on the tract that was Farmed Out, there was not or has not yet been a subsequent Assignment filed of Record of the acreage earned under the Terms of the Farmout Agreement.

If none was filed, the Landman that prepared the Title Runsheet would not have had any knowledge of the Farmout Agreement (Farmout Agreements are are not typically filed of Record, as they are effectively Unrecorded Side Letter Agreements and not conveyant of title) and the Examining Attorney would not have had any knowledge of it either.

In your favor, however: Whether an Assignment of the acreage earned was not (or not yet) filed of Record, Texas is a "Race/Notice State" when it comes to filing documents.

Again, a knowledgeable Oil and Gas Attorney will be more able to explain the differences to you, but in my simple language:

In a "Race" State, such as Louisiana, whoever gets to the Courthouse first Wins. That is not the same in the "Race/Notice" State or a "Notice" State.

Even if there has not yet been an Assignment of the acreage earned under the terms of the Farmout Agreement filed of Record, in "Race/Notice" States or "Notice" States, the two Parties: The Land / Mineral Owners and the Original Operator are aware of the existence of the Original Lease and the terms of it.

That constitutes "Public Notice".

When the Parties to the Original Lease are aware of it, and it's terms, no filing of the Assignment of acreage earned under the terms of the Farmout Agreement is required to make The Public aware of it.

They know.

When the Land / Mineral Owner that has been receiving royalties under the Original Lease signed the New Lease, he may have placed himself in an actionable position when he signed the "New Lease".

Well, he may claim to have "an out" if he did so without warranting title or something in the New Lease, but even that might make him appear even more guilty before a Court.

As I understand it, these situations usually boil down to a negotiated settlement between the Original Operator (I assume that is you) and the New Operator (who may be effectively be innocent of any misdoing), but all of these situations seem to take "Lawyering Up".

As I said before, if I can help with that sort of thing, I can introduce you to some very highly qualified and experienced Attorneys that can help you sort all of your situation out.

Hope this helps -

Charles Emery Tooke III

Certified Professional Landman

Fort Worth, Texas