Roland Oil Company v. Railroad Commission of Texas, 03-12-00247-CV

Background

Roland Oil was unit operator of a pooled oil-and-gas unit and the Railroad Commission (Commission) severed the unit after a 15‑month cessation of unit production.
Roland performed maintenance and testing on inactive wells (H‑5 and H‑15 tests) and sought to rely on those activities to preserve its possessory right to the unit under the Unit Agreement.
The Commission's hearing examiner issued a Proposal for Decision concluding Roland failed to show it maintained a possessory right because no operations restoring production occurred during the severance period.
The Commission adopted the examiner’s findings; Roland appealed and the Court of Appeals issued an opinion the Commission now requests be reheard/en banc.
The Attorney General (on behalf of the Commission) argues the Court erred by treating regulatory‑compliance maintenance and testing as sufficient "operations" to maintain the unit; operations must be efforts to restore or continue production.

Issues

Issue	Roland's Argument	Railroad Commission's Argument	Held
Whether testing and maintenance on inactive wells during a production cessation qualify as "operations" to preserve possessory rights under the Unit Agreement	Testing and maintenance (including repairs, gauging, inspections) demonstrate ongoing operations sufficient to keep the unit in force	Those activities were regulatory compliance and routine maintenance aimed at passing tests or avoiding penalties, not bona fide efforts to restore or produce in paying quantities	The court below treated the activities as sufficient; the Commission argues that finding conflicts with precedent and should be reversed (i.e., activities were insufficient)
Whether substantial‑evidence review properly considered the whole administrative record	Roland contends the Commission lacked substantial evidence to support adverse findings	The Commission contends the court failed to review the record as a whole, including the Proposal for Decision which explains tests were for compliance and wells remained inactive after testing	The Commission urges rehearing, asserting the record (including PFD) supports the Commission’s findings that Roland failed to show operations to produce minerals
Interpretation of "operations"/Unit Agreement paragraph relied upon by Roland	Roland reads Paragraph 18.1 to allow preservation of the unit by conducting required testing and related work	Commission interprets "operations" as efforts to actually produce or restore production; testing to obtain plugging extensions is insufficient	The Commission argues established Texas oil‑and‑gas law requires production‑directed acts, not mere compliance activities, to preserve rights
Whether Court’s opinion conflicts with Texas oil-and-gas precedent	Roland implies maintenance/testing fit within precedent cited by the court	Commission says the opinion departs from cases holding maintenance or regulatory compliance alone are insufficient to preserve leases/units	Commission asks en banc reconsideration, asserting the opinion conflicts with precedent and misapplied substantial‑evidence review

Key Cases Cited

Clifton v. Koontz, 325 S.W.2d 684 (Tex. 1959) (discusses when nonproduction activities preserve lease rights)
Hall v. McWilliams, 404 S.W.2d 606 (Tex. Civ. App. — Austin 1966, writ ref’d n.r.e.) (holds minimal maintenance and compliance acts do not constitute operations to continue a lease)
Ridge Oil Co. v. Guinn Invs., Inc., 148 S.W.3d 143 (Tex. 2004) (treats what constitutes operations to hold leases and the law governing lease perpetuation)
Hydrocarbon Mgmt., Inc. v. Tracker Expl., Inc., 861 S.W.2d 427 (Tex. App. — Amarillo 1993, no writ) (addresses reworking/operations standards to preserve lease)
Bargsley v. Pryor Petrol. Corp., 196 S.W.3d 823 (Tex. App. — Eastland 2006, pet. denied) (lease‑perpetuation precedents evaluating what acts qualify as operations)
Phillips Petrol. Co. v. Rudd, 226 S.W.2d 464 (Tex. Civ. App. — Texarkana 1949, no writ) (early authority on operations and lease continuation)
Ramsey v. Grizzle, 313 S.W.3d 498 (Tex. App. — Texarkana 2010, no pet.) (discusses standards for activities intended to restore production)
Cox v. Stowers, 786 S.W.2d 102 (Tex. App. — Amarillo 1990, no writ) (addresses sufficiency of acts to constitute operations to hold a lease)