Court Opinion

ID: 9642700
Source: CourtListenerOpinion
Date Created: 2023-08-22 18:06:51.984689+00
Date Added: 2024-06-11T18:10:51.266395
License: Public Domain

DODSON, Justice,
concurring.
I concur in the results reached by the lead opinion. However, I am not persuaded that the reasonably prudent operator standard stated in Amoco Production Co. v. Alexander, 622 S.W.2d 563, 568 (Tex.1981) applies to the lessee’s exercised option to pool. The lessee’s exercise of an option to pool was not before the court in Alexander.
In general, Texas courts have consistently held that a lessee, pooling under a lease pooling clause, is “subject to the implied requirement that he act fairly and in good faith.” (Emphasis added.) Tiller v. Fields, 301 S.W.2d 185, 190 (Tex.Civ.App.—Texarkana 1957, no writ). To the same effect is *348Elliott v. Davis, 553 S.W.2d 223, 226 (Tex.Civ.App.—Amarillo 1977, writ refd n.r.e.) and Banks v. Mecom, 410 S.W.2d 300, 303 (Tex.Civ.App.—Eastland 1966, writ refd n.r.e.). It is said that even though the lessee’s interests frequently conflict with those of his lessor, the lessee must exercise the power to pool “in fairness and in good faith taking into account the interests of both the lessor and the lessee.” (Emphasis added.) Elliott v. Davis, 553 S.W.2d at 226-27.
As stated in the lead opinion, the appellants owned all of the oil, gas and other minerals underlying Section 3, Block A-5, B S & F Survey, in Wheeler County containing 643.23 acres of land. In September of 1987, the appellants executed on its section of land an oil, gas, and other minerals lease to Vise Energy, Inc. The lease provided a 3/16ths royalty payable to the appellants-lessors.
Sidwell Oil and Gas, Inc. acquired the lease, and drilled and completed a gas well on the property under a 640 acre well spacing permit granted by the Texas Railroad Commission. After the gas well had produced for approximately six months, Sidwell executed a “Designation of Consolidated Gas Leasehold Estate” creating the Circle Dot Ranch No. 1 Gas Unit. As stated in the lead opinion:
The unit was irregular in shape, its diagonal corners being in excess of 11,000 feet apart, and contained 668.23 acres. Included in the pooled 668.23 acres were 123.23 acres under the Circle Dot lease, carved out of the southwest corner of the Circle Dot property where the Circle Dot 103 well was located, and 545 acres covered by six leases on three contiguous sections of land. Except for the consolidation, the primary term of one of the six leases would have expired in three months, and the primary terms of four of the leases would have expired within 18 months.
Before Sidwell’s pooling, Circle Dot was entitled to 3/16ths of all of the royalty for the gas produced from the well located on its property. After the pooling, Circle Dot would receive only 3/16ths of 123.23/668.23 or only 18.4% of the royalty for gas produced from its well.
In essence, by its pooling arrangement, Sidwell has appropriated 81.6% of Circle Dot’s royalty from the gas well on Circle Dot’s property and distributed the percentage to the royalty owners of the 545 acres consolidated with Circle Dot’s 123.23 acres. In that regard, I point out that the record shows more than 25% of the 545 acres pooled with Circle Dot’s 123.23 acres is under a lease which provides for only a l/8th royalty payment rather than the 3/16ths royalty payable under the Circle Dot lease. This percentage differential equates to a substantial royalty payment savings to Sidwell under the pooling arrangement. By contrast, we are not directed to, nor have we found any benefit accruing to Circle Dot from the pooling arrangement. Likewise, we are not offered an explanation for the pooling arrangement other than a claimed unfettered legal right to pool as prescribed in paragraphs six and seven of the lease. Nevertheless, the pooling option is subject to the implied requirement that it be exercised in fairness and in good faith, taking into account the interests of both the lessor and lessee. In that connection, the lessee is obligated to protect the leasehold estate rather than destroy it.
Also, I am not persuaded that circumstances in this instance present a question of fact for the fact finder. I acknowledge that this court stated in Elliott v. Davis, 553 S.W.2d at 226 that “[t]he general rule is that the question of what constitutes good faith in the circumstances of a particular case is one of fact to be resolved by the fact finder.” However, the cited authorities simply do not support that determination. I submit that the fairness and good faith issue is like other legal propositions in that it may be conclusively established when reasonable minds could not differ. See Calvert, Robert W., “No Evidence” and “Insufficient Evidence” Points of Error, 38 Tex.L.Rev. 361 (1980).
I believe the instructed verdict would have been more accurately directed in favor of Circle Dot (the Lessors) rather than Sidwell (the Lessee). The good faith requirement implied by case law requires the lessee to take into account the interests of both the lessor and lessee. In this instance, it cannot be said that the lessee, in fairness and in *349good faith, protected and took into account the lessors’ interest when the lessee (1) destroyed the lease, (2) appropriated 81.6% of the lessors’ royalty and distributed the royalty to others not in privity with the lessors, (3) perpetuated six other leases held by the lessee on property unrelated to the lessors’ property and (4) reduced the lessee’s overall royalty payment by including property in the pooled unit, which provided for a lower royalty payment rate.
In essence, as between the lessors and lessee, Sidwell (the Lessee) received all the benefits from the pooling arrangement and the lessors none, and in particular, the lessors lost 81.6% of their royalty. Under these circumstances, Circle Dot conclusively established unfairness and lack of good faith as a matter of law. Nevertheless, since we do not have a predicating motion for rendition before us, I concur that the trial court’s judgment must be reversed and the cause remanded to the trial court.