574 S.W.3d 73
Tex. App.2019Background
- Cimarex held a paid-up 1/6th undivided mineral lease on ~440 acres (5‑year primary term ending Dec. 21, 2014; secondary term “as long thereafter as oil or gas is produced”).
- Anadarko held the remaining 5/6ths and drilled three wells near/on the tract (two Murjo wells on the subject property produced in paying quantities by 2012).
- Cimarex sued in Feb. 2013 seeking an accounting for its share; parties executed a June 2013 confidential Settlement Agreement: Anadarko paid Cimarex for production through May 2013 and agreed to monthly accounting/payments thereafter.
- Anadarko paid monthly from July 2013–Dec. 2014, then stopped after Cimarex’s lease primary term expired (Dec. 21, 2014), asserting the lease terminated and a top lease became effective.
- Cimarex sued for breach of the Settlement Agreement (Aug. 2015). The trial court granted Anadarko’s summary judgment that Cimarex’s lease had terminated and denied Cimarex’s cross‑motion; judgment (and attorney’s fees to Anadarko) was appealed.
Issues
| Issue | Plaintiff's Argument (Cimarex) | Defendant's Argument (Anadarko) | Held |
|---|---|---|---|
| Whether the habendum clause required Cimarex to cause production to extend the lease | Habendum passive wording permits reliance on any production (Anadarko’s) to extend the lease | Lessee must take action to cause production after paid‑up term; passive wording does not remove that obligation | Court held lease unambiguous: Cimarex was required to cause production to extend into secondary term; lease terminated Dec. 21, 2014 |
| Whether the Settlement Agreement functioned as a joint operating agreement (thus satisfying Cimarex’s duty to cause production) | Settlement created operative rights akin to joint operating agreement; parties’ post‑settlement conduct treated Cimarex as a working interest owner | Settlement merely provided accounting/payment rights as a non‑participating co‑tenant and did not allocate costs/risks or designate an operator | Court held Settlement was not a joint operating agreement; it left Cimarex as a non‑participating co‑tenant |
| Whether Anadarko (stepping into lessors’ shoes) is estopped from asserting lease termination because lessors accepted royalties during the primary term | Acceptance of royalties by lessors (based on Anadarko’s production) estops them (and Anadarko) from claiming termination | Acceptance during paid‑up primary term did not preclude lessors from enforcing the secondary‑term requirement that Cimarex cause production | Court rejected equitable estoppel; acceptance of royalties during paid‑up term did not prevent lessors/Anadarko from asserting termination after primary term |
| Whether Anadarko is a prevailing party entitled to attorney’s fees under the Settlement Agreement | Cimarex: if judgment is reversed, fee award must be reversed because Anadarko is not prevailing party | Anadarko: trial court and appellate court rulings make it prevailing party under Agreement | Court affirmed fee award to Anadarko as prevailing party under the Settlement Agreement |
Key Cases Cited
- ConocoPhillips Co. v. Koopmann, 547 S.W.3d 858 (Tex. 2018) (definition and effect of a "paid‑up" lease term)
- Endeavor Energy Res., L.P. v. Discovery Operating, Inc., 554 S.W.3d 586 (Tex. 2018) (general rules for interpreting mineral leases; ascertain intent from four corners)
- Anadarko Petroleum Corp. v. Thompson, 94 S.W.3d 550 (Tex. 2002) (habendum clause governs lease duration and production requirement)
- Hughes v. Cantwell, 540 S.W.2d 742 (Tex. App.—El Paso 1976) (lessee must take action to develop or pay to keep lease alive; co‑tenant production generally insufficient)
- Mattison v. Trotti, 262 F.2d 339 (5th Cir. 1959) (Texas law principle that drilling/production is prime consideration when no cash consideration is paid)
- Cox v. Davison, 397 S.W.2d 200 (Tex. 1965) (producing co‑tenant must account to non‑participating co‑tenants; co‑tenant may develop independently)