American Oil and Gas Reporter - July 2015 - 16

IndustryDigest
deemed abandoned, one legal analysis
states. Another difference centers on
how each version sets a 20-year
window to determine when the severed
oil and gas interest should be deemed
abandoned.
Lawsuits over the act first reached
the Ohio Supreme Court in 2012.
Bennett says the legal question on the
applicability of the two versions has
hampered oil and gas companies'
efforts to develop mineral leases.
In Dodd v. Croskey, issued June 15,
the court ruled the 2006 amendments
allow the holder of the mineral estate to
preserve his rights by filing an affidavit
with the county recorder after a surface
owner seeks to the abandonment
declaration. The decision points out the
2006 language preserves the severed
mineral interest if the mineral owner
files a preservation claim after the 20year window has expired but within 60
days of the filing of the public notice.
The decision specifically noted the
court was not ruling on the issue of
when to apply the 1989 or 2006
versions of the DMA, media sources
note, adding that question will be
resolved in subsequent cases. ❒

Denton, Tx., Retracts
Ban Against Fracturing

DENTON, TX.-The Denton City
Council has voted to repeal its
ordinance against hydraulic fracturing,
Texas energy groups confirm.
According to the Texas Independent
Producers & Royalty Owners
Association and the Texas Alliance of
Energy Producers, in a June 16 meeting,
the city's leaders decided to lift the
seven-month-long ban in what Denton
leaders described as a "strategic repeal."
After debating the issue for almost
three hours, the council voted 6-1 to
repeal the ordinance that voters enacted
last November, the associations state.
The city of Denton released a
statement after it withdrew the ban,
saying that it "reluctantly deems it in
the best interest of the citizens." The
city added that it did so, in part, to
reduce expenses of anti-ban litigation. It
also cited a desire to mitigate "problems
and perceptions associated with
operation discrepancies between the
ordinance and newly adopted state law
(HB 40), to which the city is bound to
16 THE AMERICAN OIL & GAS REPORTER

comply."
The associations clarify that
Governor Greg Abbott signed HB 40
into law in May. HB 40 prohibits
municipalities from enacting ordinances
that interfere with oil and gas activities.
The legislation was written, in part, to
address local bans, such as Denton's,
which infringe on the state's regulatory
authority, TIPRO and TAEP say (see
"Texas Clarifies State, Local
Authority," AOGR, June 2015).
Denton, however, will continue its
moratorium on new drilling permits until
August, and could extend it indefinitely,
the associations note. The Texas Oil &
Gas Association and the General Land
Office have filed separate lawsuits
against both moratoria, although the
lawsuits have been amended to reflect
the passage of HB 40.
In late June, both TXOGA and GLO
officials said they would continue legal
action against Denton on a claim that
state law preempted the drilling permit
moratorium. ❒

Texas Supreme Court
Sides With Royalty Owner
On Post-Production Costs
AUSTIN, TX.-A 5-4 Texas
Supreme Court ruling has upheld a
Texas appeals court decision about
royalty payment deductions that some
oil and gas industry advocates say could
negatively affect industry practice and
well economics.
According to Texas Alliance of
Energy Producers government relations
and legal adviser Gloria Leal, the ruling
found that Chesapeake Exploration
LLC violated lease terms when it
improperly deducted drilling expenses
from overriding royalty interest (ORRI)
payments to Martha Hyder and family
for natural gas production on her 1,000acre property west of Dallas. "The
Supreme Court ruling in favor of the
Barnett Shale landowner has generated
confusion regarding settled general
rules for contracting in the oil and gas
industry," Leal comments.
The Hyders argued against the
deductions, in part, because the lease
contained a clause commonly known as
a "Heritage disclaimer," she explains,
which some land and royalty interests
insert into new leases in response to the
1996 Texas Supreme Court decision in

Heritage v. NationsBank. That case, she
describes, establishes that operators can
deduct post-production costs from
royalty payments that are based on "the
market value at the well," even if the
lease prohibits such deductions. The
main focus before the Texas Supreme
Court was the proper interpretation of
the ORRI clause, Leal indicates.
"Generally speaking, an overriding
royalty on oil and gas production is free
of production costs, but must bear its
share of post-production costs unless the
parties agree otherwise," the decision
reads.
Although there were other issues, the
Supreme Court based its decision on the
presence of the disclaimer that provided
that the holding in the Heritage case had
no application to the terms and
provisions of the lease. According to
the ruling, "the only question in this
case is whether the parties' lease
expresses a different agreement. We
conclude it does and therefore affirm
the court of appeals' judgment."
Chesapeake filed a petition for
review that had support from a Texas
Oil & Gas Association amicus brief that
contended the appellate court
incorrectly interpreted "gross
production" in the ORRI clause and
other lease terms.
Leal says the decision's impact on
case law remains unclear, but notes that
oil and gas representatives have argued
that economic and public policy
implications will be negative if the
ruling proves to carry much
precedential value.
Regardless, Leal assesses, another
primary implication of the decision
seems to be the importance of
contractual precision. "I think this
ruling underscores that even
sophisticated parties need to understand
the lease provisions before agreeing to
them," she advises. ❒

Suspending Impact Fee
Shows Colorado County
Is Open For Business
GRAND JUNCTION, CO.-Rio
Blanco County, Co., commissioners
have approved a resolution suspending
impact fees for oil and natural gas
projects as a signal to operators and
other governments of the steps that can
be taken to encourage energy
American Oil and Gas Reporter - July 2015

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