• Thu. Nov 24th, 2022

A Texas Battle Over Competing Leases | gray reed

ByRobin H. Purcell

Nov 23, 2022

Let’s go straight to the takeaways Fort Apache Energy, Inc. v Short OG III, Ltd., et ala southern county of Texas bankruptcy court opinion. (Gray Reed Partners Jim Ormiston and David Leonard represented Short OG III)

The other’s business will not extend your lease beyond the original term

Texas law does not permit an oil and gas leaseholder to rely on the production of a co-tenant to extend the term of the lease. Fort Apache and short et al owned competing leases on 112 acres in Tyler County. The Southern Star lease expired because Fort Apache was not operating on land during the prime term and could not rely on its lack of operations to renew the lease. Fort Apache testified that it was not economically viable to drill its own well on already developed land and that it had no intention of developing the lease. The fact that a farm is unprofitable is no reason to justify a lack of production. As cotenant, Fort Apache had equal rights and access to products.

If you sue me, I’m entitled to claim expiration of the lease

Fort Apache argued unsuccessfully that Short et al did not have authority to contest a motion for summary judgment regarding the expiration of the Southern Star lease because they were not third-party beneficiaries or parties. Her reputation derived from her defense against the Fort Apache trespassing.

No trespassing by a roommate

A cotenant has the right to own land for mineral extraction and owes only accounting for the proceeds less reasonable costs of production and marketing. Short et al, as owners of a competing lease, did not enter because they were roommates. The Fort Apache trespassing claim failed because he presented no evidence that Short et al expropriated it from the land.

trust in rejection?

A lessee who never intends to drill a well cannot plead that his lessee disagrees with an oil and gas lease.

background

In this limited space, I will try to do (suboptimal) justice to the tangle of facts and events behind this judgment. Let’s just say, in general, this is what happened:

Hranivitz, Sr. and McBride each owned half of the land and signed competing leases. People died. Their descendants and successors signed some leases and ratified others, some with authority and some without, some in good time and some not. More people died, leading to a legal tug-of-war over who owned and could dispose of the property: the executor or the testamentary trustee?

Fort Apache sued seven distinct counts: Short et al objected.

Working Interest Holders (with Short et al) Aztec has filed for bankruptcy. Counterclaims by working interest holders and claims by third parties are still pending in adversarial proceedings.

The bankruptcy court concluded that the Southern Star lease was superior to the Miller lease and ratification of the Miller lease was invalid, but by the time the applicable lease may have expired.

Conclusion, for now

Short et al Claims for expiration of the Southern Star lease will take precedence. Because Fort Apache never conducted operations on the lease after it tried and failed to negotiate a joint development agreement with Short et al., the lease expired. Fort Apache’s motion for partial summary judgment on trespassing charges is denied.

Your Musical interlude.

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