The Texas Supreme Court Rejects Chesapeake’s Last-Ditch Rehearing Efforts
On January 29, 2016, the Texas Supreme Court crushed Chesapeake’s last-ditch effort to have the Chesapeake Exploration v. Hydercase resolved in its favor. In a split decision, the Texas Supreme Court denied Chesapeake’s Motion for Rehearing and affirmed the lower courts’ opinions in favor of the Hyders. Chesapeake described this ruling as a “sea change” in oil and gas law.
The stage is set for the Texas Supreme Court to decide Chesapeake’s Motion for Rehearing in Chesapeake Exploration, L.L.C., et al. v. Hyder, et al. To date, eight (8) Amicus Briefs have been filed in this case on both sides.
The Texas Supreme Court recently discussed the impact of Heritage Resources v. NationsBank on an overriding royalty clause in Chesapeake Exploration, L.L.C. v. Hyder. According to an article published by Law 360, “[l]awyers say th[is] decision pricks a hole in the armor oil and gas well operators have held up . . . as a means to avoid bearing the entire burden of post-production expenses.” See Jess Davis, Well Operators’ Costs May Rise After Chesapeake Ruling, Law 360 (last visited June 22, 2015). The Hyder opinion suggests that a lease’s language can free a royalty owner from the burden of post-production costs, even though the Court’s prior Heritage opinion suggests that, in practice, avoiding post-production cost is almost never possible.
The Hyder case was argued in the Texas Supreme Court on March 24, 2015. Although Justice Raul Gonzalez filed an Amicus Brief (“Gonzalez Brief”) in the case on behalf of two groups (Texas Land and Minerals Owners Association and National Association of Royalty Owners-Texas, Inc.), little attention was given to the averments made in the brief. Unlike the principle briefs for the Hyder family, which sidestep taking on the Heritage opinion directly given the overriding royalty interest involved along with the Heritage-disclaiming language of the lease, the Gonzalez Brief does an exquisite job showing the inconsistencies in the Heritage “majority” opinion and concurrence, both internal conflicts and inconsistencies with other leading Texas oil and gas opinions applying basic contract interpretation principles to oil and gas leases. Not surprising given the lead author, the Gonzalez Brief echoes his devastating dissent in Heritage.
In our last blog we discussed in overview fashion the Texas Supreme Court’s Heritage opinion, and a more recent court of appeals opinion (Hyder) beneficially limiting Heritage’s application to certain leases, but implying that Heritage might still apply to other lease language. This edition of the firm’s blog will show why Heritage should be treated as an aberrational opinion out of the mainstream of contract interpretation, and wholly violative of numerous principles of Texas contract construction. If anything, Hyder does not go far enough. Since the Texas Supreme Court granted petition in Hyder, and heard argument , last month, it should take that opportunity to not only affirm Hyder, but put distance between itself and the incongruous Heritage opinion.
This firm is deeply involved in representing thousands of royalty owners in claims against Chesapeake, its joint venture partner Total, and other operators, for the underpayment of royalties due royalty owners. Our firm has teamed with The McDonald Law Firm, also based here in Fort Worth, to represent these royalty owners.