Replies to This Discussion

Permalink Reply by Spring Branch,mineral owner on August 10, 2012 at 11:13

Andrew, I agree with Ben Elmore on this one.  When the Exhibit A contains the following language:  "NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, the following provisions shall apply as an exhibit to the foregoing Oil, Gas, and Mineral Lease and shall be in force and effect as a part of said Lease.  In the event of a conflict between the provisions  contained in the Exhibit "A" and the provisions as stated in the printed Lease form, the provisions of Exhiibit "A" prevail".  I don't see how it can be any clearer than that, nor do I see how Judge Hicks can ignore that very clear language!  Though I don't think he had any ulterior motive, I just think Judge Hicks made a bad decision and I can't see how it wouldn't be overturned on appeal.

• ▶ Reply

Permalink Reply by Jimburgess on August 10, 2012 at 3:36

Skip........If the no cost language clause in Exhibit A pertaining to post production

cost will not holdup in court.....what about the other clauses that are used in the

addendum, such as, substituting 1/5 or 20% royalty for the customary 1/8? 

Jim B.

• ▶ Reply

Permalink Reply by Skip Peel - Mineral Consultant on August 10, 2012 at 6:41

I'm just a landman and not an O&G attorney, jim.  My comment about turning legal somersaults refers to just the point you bring up.

• ▶ Reply

Permalink Reply by HBP on August 10, 2012 at 6:55

to jimburgess' quesiton - I'll throw in my opinion that we can relax on most  exhibit language depending on the facts.  Most language augmenting royalty percentage in the exhibit would not go the same way as this clause.  And many no-cost clauses will not go the same way as this one did under the ruling, many will hold up because of their detail or other distinguishing factors. 

I think the Smithermans or any attorneys drafting this lease were competent on the no-cost issue by placing well known language in there, but as an attorney I feel for them, because there is never a crystal ball that will tell you which language will be challenged.  That's why using well known language is sometimes better than going out on a limb and drafting from scratch.   Really, you could have a 2 page no-cost clause, but if the incentive to the company is great enough, they will find a way to challenge.  CHK got themselves a little win here.  

• ▶ Reply

Permalink Reply by Ben Elmore on August 10, 2012 at 9:22

That is also my problem with the opinion.  The judge ignores the parties "in the event of conflict" language for purposes of the no-cost clause.  But I think the other provisions in the addendum would hold up. 

• ▶ Reply

Permalink Reply by Andrew on August 12, 2012 at 11:36

That's a very good point. The stated justification, for better or for worse, for singling out this particular clause was that it was vague in how it should be applied, and to what. The other clauses that were clearer obviously override the main form. 

• ▶ Reply

Permalink Reply by Andrew on August 9, 2012 at 17:41

This is a federal judge, and is appointed not elected. He is also the author of the Adams v. Chesapeake "attorney fees for failure to respond to UMI demand" debacle.

• ▶ Reply

Permalink Reply by Henry on August 10, 2012 at 0:36

Andrew,

For those of us who are not familiar with this ruling, could you please upload it if you have it available?  Or provide a link?  Thanks.

• ▶ Reply

Permalink Reply by Andrew on August 10, 2012 at 13:36

The Adams order is attached. I can't stress enough how wrong I think this opinion is. I am currently writing a case note about it. If it gets published I'll post it on GHS.

Attachments:

• Adams v. Chesapeake.pdf, 41 KB

• ▶ Reply

Permalink Reply by Ben Elmore on August 12, 2012 at 4:36

I thought you said the judge "may have gotten this one right as a matter of law?" what do you think now after considering it more?

• ▶ Reply

Permalink Reply by Andrew on August 12, 2012 at 11:33

The opinion I think is dead wrong is the Adams case above.

I'm still on the fence about Magnolia Point. Another difficulty I have is that I don't have the benefit of seeing the lease before I read the opinion, so it's hard to really evaluate objectively. But I do think the cost-free language leaves something wanted. 

After reading the actual lease, I think there is strong justification for concluding that if the Lessor wanted a better cost-free royalty in there, he was more than sophisticated enough to put it in there. Since he was the drafter the ambiguity should be interpreted against him. If you put the shoe on the other foot, this same rule should go against Chesapeake if they draft a lease with an unsophisticated landowner. 

The clause isn't clear which costs it is referring to. "[N]o cost shall be charged or allocated to Lessor’s interest except severance and other applicable taxes" is the exact language. There is an obvious and compelling justification for saying "no cost" means NO COSTS, but it is not clear that they are referring to marketing and transportation.

The issue for me is that once the gas hits the wellhead, the Lessor OWNS that gas. It is their property. The costs being paid are charged by the purchaser, or at least the purchaser is causing them to be incurred. I think if a Lessee is going to pay the costs of selling and transporting the Lessor's property for them, it should be clearly spelled out in the lease that they will provide that service for free, in addition to finding and development costs.

Again, this is a very close call for me. If I read this lease and made an objective judgment I don't know if I would have come to this conclusion, but I can definitely sympathize with the judge's difficulty in reconciling this lease.

• ▶ Reply

Permalink Reply by Ben Elmore on August 13, 2012 at 5:49

I certainly agree the clause was poorly drafted, and that seems to be the primary basis for the court ruling the way it did.  Just another lesson to landowners that they need to be careful and specific in how they draft clauses in leases.

• ‹ Previous
• 1
• 2
• 3
• 4
• 5
• …
• 8
• Next ›
• Page