BP America Production Co. v. Laddex, Ltd., 513 S.W.3d 476

Background

BP held a 1971 oil-and-gas lease (the BP lease) that continued "as long thereafter as oil or gas is produced"; the Mahler D-2 was the sole producing well.
From Aug 2005 to Oct 2006 production slowed substantially; production resumed to prior levels by Nov 2006.
In Apr 2006 lessors’ attorney sent BP a letter asserting the BP lease had terminated for failure to produce in paying quantities; BP did not respond.
In Mar 2007 lessors executed a top lease with Laddex that purported to vest in Laddex the lessors’ remainder/reversionary interest upon expiration or judicial termination of the BP lease.
Laddex sued to terminate the BP lease for failure to produce in paying quantities during Aug 1, 2005–Oct 31, 2006; BP challenged Laddex’s standing (arguing the top lease violated the Rule against Perpetuities) and later appealed after a jury verdict terminating the BP lease.
The court of appeals held the top lease was valid (Laddex had standing) but reversed and remanded because the trial court’s jury charge improperly limited the paying-quantities inquiry to the fifteen-month slowdown period.

Issues

Issue	Plaintiff's Argument (Laddex)	Defendant's Argument (BP)	Held
Whether the Laddex top lease violates the Rule against Perpetuities and thus whether Laddex has standing	Lease conveys a present, vested partial alienation of the lessors’ possibility of reverter; therefore Rule does not apply	The lease delays vesting until expiration/termination of the BP lease, creating a future interest that might vest outside the Rule period and is void	The Court construes ambiguous language to avoid invalidity: top lease conveys a present vested interest in the possibility of reverter and does not violate the Rule; Laddex has standing
Whether the jury charge on "production in paying quantities" was proper	Limiting the jury to the 8/1/2005–10/31/2006 window was appropriate because that was the period of nonpaying production alleged	The charge was erroneous because Clifton requires consideration of production over all relevant time (no fixed/accounting period)	Charge was erroneous; the trial court improperly limited the jury to a specific period; remand for new trial is required
Whether evidence conclusively establishes paying production (BP seeks rendition)	Evidence supports jury finding of nonpaying production during slowdown; later profitable months are immaterial if lease already terminated	Cumulative profitability across a broader period (including pre/post slowdown months) shows lease was producing in paying quantities; BP seeks judgment as a matter of law	Court held neither side is entitled to rendition; evidence could support differing jury conclusions, so remand for a properly instructed jury is warranted
Whether lessors’ April 2006 letter repudiated the BP lease (affecting admissible periods)	Laddex argued repudiation did not occur; post-letter profitability can be considered	BP argued the letter repudiated the lease so later profitability cannot support termination	Jury found no repudiation; Court affirmed that the letter did not constitute the clear, unequivocal repudiation required to bar consideration of later production

Key Cases Cited

Peveto v. Starkey, 645 S.W.2d 770 (Tex. 1982) (top deed that postponed vesting until termination of a determinable fee may create an invalid springing executory interest under the Rule)
Luckel v. White, 819 S.W.2d 459 (Tex. 1991) (oil-and-gas lease is a determinable fee; lessor retains a vested possibility of reverter)
Jupiter Oil Co. v. Snow, 819 S.W.2d 466 (Tex. 1991) (lessor may alienate possibility of reverter)
Clifton v. Koontz, 325 S.W.2d 684 (Tex. 1959) (two-prong test for production in paying quantities; courts must consider profitability over all relevant time with no fixed accounting period)
Kelly v. Womack, 268 S.W.2d 903 (Tex. 1954) (ambiguous instruments should be construed to preserve validity)
Shelly Oil Co. v. Archer, 356 S.W.2d 774 (Tex. 1962) (lessor bears burden to prove lack of paying production to terminate lease)
Garcia v. King, 164 S.W.2d 509 (Tex. 1942) (a lease continuing "as long thereafter as oil or gas is produced" means production in paying quantities)
Ridge Oil Co. v. Guinn Invs., Inc., 148 S.W.3d 143 (Tex. 2004) (context on repudiation/notice principles)