Source: https://www.oilandgaslawyerblog.com/texas-supreme-court-again-reve/
Timestamp: 2019-04-23 22:17:19+00:00

Document:
The Marshalls owned a mineral interest in 17,000 acres, and in the 1970’s they leased their interest to Atlantic Richfield (ARCO, subsequently acquired by BP). Two weeks before the Marshalls’ lease was to expire on July 11, 1980, ARCO commenced drilling a well on the lease. The lease provided that it would not expire if a well was being drilled at the end of the primary term as long as such operations continued with no cessation of more than 60 consecutive days. ARCO continued working on the well for the rest of 1980 and into 1981. In March 1981 ARCO made an agreement with Sanchez-O’Brien Oil & Gas for Sanchez to drill a well on the lease. Sanchez drilled a productive well on the lease in April 1981, and ARCO plugged its well as a dry hole.
The Marshalls asked ARCO what it was doing with its well after the end of the primary term of the lease, and whether those operatons were sufficient to keep the lease in force. ARCO replied with a three-page letter documenting its continued operations on the well since the end of the primary term, implying that good-faith efforts were being made to try to complete the well.
In 2001, as a result of a different lawsuit brought by another mineral owner on the same property, the Marshalls learned facts through discovery showing that ARCO had abandoned any real efforts to complete its well shortly after it was drilled, and that it continued operations on the well into 1981 only to hold the lease until it could make its deal with Sanchez. The Marshalls then sued BP, successor to ARCO, for fraud in misleading them into thinking in 1981 that the lease had not expired.
In the jury trial, the jury found that ARCO had fraudulently concealed the cessation of good faith operations on its well and had fraudulently concealed from the Marshalls the facts necessary for them to know that they had a cause of action to declare the lease terminated; and that the Marshalls did not have knowledge “that would have required a reasonable and prudent person to make inquiry that … would have led to the discovery of” the cessation of operations or ARCO’s fraud until June 2000. Based on these findings, the trial court concluded that the Marshalls’ cause of action was not barred by the 2-year statute of limitations.
This case is reminiscent of another case recently decided against royalty owners by the Supreme Court, Exxon Corporation v. Emerald Oil and Gas Company. I discussed that case when it was originally decided by the Court, and the Court recently issued a new opinion in the case confirming its earlier opinion. In that case, like BP v. Marshall, the Court reversed a jury verdict, finding “as a matter of law” that there was “no evidence” to support the verdict.
Under Texas’ jury system, it is the exclusive province of the jury to decide disputed facts. This is done by submitting to the jury the specific fact questions that are in dispute. Once those facts are determined, the trial court must apply the law in accordance with the facts so found. Another important aspect of the Texas judicial system is that the Texas Supreme Court has no jurisdiction to review the sufficiency of the evidence to support a particular fact found by the jury. Intermediate appellate courts in Texas can review the evidence in support of the facts found by the jury, and they can reverse and remand a case if they find that there were not sufficient facts to support the jury’s findings. But the Texas Supreme Court may reverse a case based on an erroneous jury finding only if it concludes that there is no evidence to support the finding. (The Court’s use of the terms “no evidence” and “as a matter of law” are legal terms of art used to show that it is invoking its jurisdiction to overturn a jury’s fact finding.) The Court cannot substitute its judgment about the true facts for the judgment of the jury. Or at least it is not supposed to.
As a practical matter, the result in BP v. Marshall must serve as a warning to royalty owners: they cannot rely on assurances by their lessees as to the existence or effect of operations conducted on the lease after the end of the primary term. They must make their own independent investigation, including hiring experts to review Railroad Commission records and well logs, to determine whether a lease has been held in effect by the lessee’s operations. Claims must be brought within the period of the applicable statute of limitations, and any reliance on statements by the operator, even if fraudulent or misleading, will not excuse delay in bringing suit.
BP v. Marshall also addresses the proper interpretation of an earlier Supreme Court case of interest to royalty owners, Natural Gas Pipeline Co. of America v. Pool, 124 S.W.3d 188 (Tex. 2003). In Pool, the Court held, to everyone’s surprise, that a lessee could “revive” a lease that had expired because of lapses in production by continuing to produce from wells on the property and paying royalties, under the “adverse possession” statutes. Until Pool, no one thought that the adverse possession statutes applied to oil and gas leases. In BP v. Marshall, the Court held that the lessee’s continued payment of royalties after the lease had expired, and the royalty owner’s acceptance of those payments, served as notice to the royalty owner that the company was claiming adverse possession title to a new leasehold estate on the property — even though the lessee had misled the royalty owner by claiming that continuous operations had been conducted on the lease sufficient to keep it in force after the end of the primary term. It has long been the law in Texas that a royalty owner’s acceptance of royalty payments after a lease has terminated does not prevent the royalty owner from later claiming that the lease has terminated. But the Court makes clear that, if the royalty owner does not make that claim in a timely fashion, its acceptance of royalties will allow the lessee to in effect “revive” an expired lease by claiming adverse possession title, even if the lessee claims that the lease has remained in effect.

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