Down Step by Step—Ratification of Oil and Gas Leases by Royalty Interests in Texas

Authors

Christopher S. Kulander, South Texas College of Law HoustonFollow

Abstract

A sporadic series of opinions dating back seven decades has incrementally established that, in Texas, the executive has no authority to pool the royalty or nonexecutive mineral interest covered by an oil and gas lease. Conversely, the owners of nonexecutive interests do have a choice whether or not to ratify leases that purport to cover their interest. This state of the law arose first from cases involving royalty apportionment and community leases, then drawing in nonexecutive interests, before finally establishing the privileged position of freestanding royalty and nonexecutive mineral interests. Texas should instead follow the lead of Louisiana and West Virginia and again recognize the executive position the lessor has vis-`a-vis nonexecutive interests. So long as the duty of the executive to associated nonexecutive interests is observed, leasing executives should be able to bind those nonexecutives to all the terms of a lease, including pooling and entireties clauses. Thereafter, a lessee should be able to voluntarily pool those interests provided it does so as a reasonably prudent operator. As recent litigation shows, this change would prevent situations in which small non-executive interests far from production make payment claims based on dubious title assertions. It would also promote the state’s policy of fostering mineral development and ease title examination burdens related to the orderly development of leases. Within the existing jurisprudence, when a freestanding royalty owner files lease ratifications in the public record or is judicially determined to have ratified a lease, it should be subject to every term in the lease. This includes provisions to apportion royalties on a tract-specific basis rather than across the entire lease. Such ratifications should not be revocable. Several defensive measures, such as drafting carefully to limit lease coverage, getting ratifications before development, and using allocation wells, may help lessees in certain, but not all, instances.

Recommended Citation

Christopher S. Kulander, Down Step by Step—Ratification of Oil and Gas Leases by Royalty Interests in Texas, 73 SMU L. Rev. 251 (2020)