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Strickhausen v. Petrohawk Operating Co.

Court of Appeals of Texas, Fourth District, San Antonio

April 24, 2019

Margaret Ann STRICKHAUSEN, Appellant
v.
PETROHAWK OPERATING COMPANY n/k/a BHP Billiton Petroleum (TxLa) Operating Company; Petrohawk Properties, LP n/k/a BHP Billiton Petroleum Properties (N.A.), LP; Segundo Navarro Drilling, Ltd.; First Rock I, LLC; EF Non-Op, LLC; and CEU Hawkville, LLC n/k/a South Texas Shale, LLC, Appellees

          From the 218th Judicial District Court, La Salle County, Texas Trial Court No. 14-08-00130-CVL Honorable Russell Wilson, Judge Presiding

          Sitting: Sandee Bryan Marion, Chief Justice Beth Watkins, Justice Liza A. Rodriguez, Justice

          MEMORANDUM OPINION

          Sandee Bryan Marion, Chief Justice.

         This is a permissive appeal of an amended order on motions for summary judgment which identifies the controlling question of law as "Plaintiff's ratification of 1) the pooled units and/or 2) Defendants' breach of the no pooling clause of the lease." In her brief, appellant Margaret Ann Strickhausen presents four issues, asserting:

(1) her depositing of royalty checks for production from the improperly pooled unit did not constitute a ratification given express language in the lease that
(a) contractually eliminates any form of implicit ratification; and (b) sets out the only procedure by which she can make an express ratification;
(2)she is not estopped from denying she ratified the pooled unit because she would have been entitled to royalties on production from the property in which she owns a mineral interest;
(3)she was required to deposit the royalty checks in mitigation of her damages, precluding such acts from constituting a ratification; and
(4)she could not have made an unintentional, implicit ratification in light of the "duty of utmost good faith and fair dealing" the appellees owed her under the lease.

         We reverse the portion of the trial court's order granting summary judgment in favor of the appellees on the affirmative defense of ratification as it relates to the no pooling clause of the lease and remand the cause to the trial court for further proceedings.

         Background

         Strickhausen owns a fifty percent undivided mineral interest in a tract of land (the "Property) in La Salle County located in the Hawkville (Eagle Ford Shale) Field. The other fifty percent undivided mineral interest is owned by Delphine Crouch and others (collectively referred to herein as "Crouch"). Both Strickhausen and Crouch entered into leases with Escondido Resources II, LLC. Those leases were later assigned, and the appellees are the current lessees who collectively own all of the working interest in the Property's minerals at the depths of the Eagle Ford Shale.

         Although the Crouch lease allowed pooling, the Strickhausen lease prohibited pooling without Strickhausen's express written consent, providing, "Notwithstanding any provision or reference contained in this Lease agreement to the contrary, pooling for oil or gas is expressly denied and shall not be allowed under any circumstances without the express written consent of the Lessor named herein." In addition, the Strickhausen lease contained a provision entitled "Future Documents" which provided:

At any time during the term of this Lease if Lessee requires Lessor to execute any document, including division orders or any other agreement connected in any way to this Lease or the minerals extracted from the Leased Premises, Lessee agrees that Lessor's execution of such agreement(s) shall not, irrespective of the language contained therein, constitute a waiver, acceptance, ratification, revivor or adoption of this Lease or a waiver of any claim, demand or cause of action Lessor or any royalty owner may have or claim for any breach of an expressed or implied obligation arising out of or in any way connected with this Lease unless such document expressly states that its purpose is the acceptance, ratification, revivor or adoption of a prior questionable lease or waiver of a claim or defense and such document is agreed to after and upon advise [sic] of Lessor's counsel, with such counsel indicating his concurrence by signing such document or a separate letter so stating. Further, Lessee agrees to reimburse Lessor for reasonable attorney's fees incurred by Lessor in connection with Lessor's attorney's review of such agreements.

         Notwithstanding the prohibition against pooling in the Strickhausen lease without express written consent, the appellees filed documents designating a pooled unit named White Kitchen Unit No. 4 ("WK Unit 4") effective January 1, 2012, which pooled five different leases, including the Strickhausen and Crouch leases. Like the Crouch lease, the other three leases allowed pooling.

         On September 20, 2012, a landman sent Strickhausen a letter requesting that she execute a ratification of the WK Unit 4 and a pooling consent agreement. Strickhausen contacted her attorney, Frank Armstrong.

         By letter dated October 12, 2012, Armstrong responded to the landman's letter, noting he had been advised by email that the "'WK4-1H' began flowing to sales at 12pm on 8/16/12." Armstrong's letter quoted the provision of Strickhausen's lease that prohibited pooling and asserted, "it appears that the referenced Lease has been pooled, notwithstanding the fact that the express terms of the Lease prohibit pooling." Armstrong's letter then posed a series of questions including questions regarding: (1) the appellees' authority to pool; (2) when drilling operations on the well commenced; (3) who was responsible for payment of royalties under the Strickhausen lease; (4) whether royalties would be suspended if Strickhausen elected not to sign the ratification; and (5) the manner in which royalties would be paid if Strickhausen elected not to execute the ratification.

         On December 21, 2012, a representative of the appellees, Shane S. Duvall, responded to Armstrong's letter conceding the appellees commenced drilling operations on the "WK Unit 4, #1H well" on April 20, 2012. The letter stated the appellees believed they proposed a fair and reasonable method of payment for the royalty based on a tract participation factor using acreage figures but noted a second method of calculating the royalty would be to calculate payments "based on the drainhole length of the perforated lateral drilled on each of the three individual tracts." The letter included calculations based on both methods, but noted the second method would require all lessors to execute a Production Sharing Agreement. The letter again requested that ...


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