On Tuesday, January 9, 2018, the Texas Supreme Court heard oral argument in two separate but related cases involving oil and gas “retained acreage” clauses in an effort to reconcile an apparent split among lower appellate courts regarding the interpretation of such clauses. These clauses are common in oil and gas leases and assignments.
Jackson Walker Partner, John R. Hays, Jr., presented the oral argument on behalf of Petitioner, XOG Operating, LLC with assistance from Jackson Walker Senior Counsel Alicia French. Mr. Hays, for XOG, had argued before the Seventh Court of Appeals in Amarillo that the assignee operator, Chesapeake, retained only the acreage that was claimed for each well in its Texas Railroad Commission P-15 proration unit designations on file at the time of the reversion. Chesapeake claimed the right to over 1,600 acres under the retained acreage clause. The Seventh Court of Appeals held in a split decision that the assignment’s retained acreage clause determined the size of the proration units to be 320 acres rather than the size established by the Railroad Commission based on Chesapeake’s Railroad Commission filings.
Mr. Hays implored the Court to keep in mind the purpose of retained acreage clauses – namely, that they serve to encourage development of drilling and exploration by causing acreage not developed to be timely released so that others have the opportunity to develop the acreage and thus avoid suits for failure to develop. Mr. Hays also pointed out that retained acreage clauses work to avoid windfalls in the holding of acreage purely for speculative purposes. Mr. Hays concluded that looking at the plain meaning and context, the operative language supports Petitioners’ position that the acreage was released to the extent it was not specifically included within proration units in Chesapeake’s filings with the Texas Railroad Commission.
Texas Bar CLE provided a recording of the oral argument. The Texas Supreme Court initially refused to consider the two related cases but reversed itself after ordering briefs on the merits in both. It reinstated and granted XOG’s petition for review in XOG Operating LLC et al. v. Chesapeake Exploration LP et al., Case number 15-0935, and set both the XOG case and Endeavor Energy Resources, L.P. v. Discovery Operating, Inc., Case number 15-0155, for oral argument on January 9, 2018.