The real takeaway fromPruett v. River Land Holdings LLC is the reminder that the Texas Railroad Commission cannot adjudicate questions of title.
The facts
In 2001 Pruett acquired 323 acres and his mother acquired 194 acres of an original 550-acre tract in Milam County, Texas, which was burdened by an oil and gas lease. In 2021 River Land purchased the 194 acres. The deed reserved "any oil and gas leases to the extent that these remain viable and in effect."
River Land sued for a declaration that the lease had terminated as to the 194 acres in accordance with the cessation of production clause. River Land claimed that oil production had ceased for more than 60 days and that Pruett was judicially estopped from denying the lease had terminated because he had taken a contrary position in a 2008 lawsuit with then-operator Smith. The trial court declared the lease terminated. The court of appeal reversed and remanded.
The evidence
River Land introduced Commission records showing that no production had been reported by any operator of record for more than five years. Pruett claimed that when he acquired the 323 acres he became the sole owner of certain wells which he self-operated to produce every two months from 2005 to 2012. He asserted that in 2012 Jet Tex obtained a P-4 and began to produce and sell oil from those wells on a profitable basis. He said he routinely pumped oil from the wells using portable generators, stored the oil in a tank battery, produced gauge reports showing 391 barrels on hand in December 2011, and thereafter the oil was stolen.
Property rights and the Railroad Commission
River Land said those claims failed to create a fact issue as to production. Smith, not Jet Tex or Pruett, was recognized by the Commission as operator of the wells at the time of the alleged operations and any production sold by Jet Tex during that time was illegal and could not constitute production under the lease.
The court disagreed with the trial court. Whether Jet Tex was legally entitled to engage in operations is a property rights issue. The Commission has no authority to determine ownership of land or property rights. Thus, the Commission's records reflecting Smith as operator of record were not dispositive of whether Jet Tex was legally entitled to operate the lease. There were genuine issues of material fact. The court did assume without deciding that production by a nonregistered operator is unmarketable as a matter of law.
Production in paying quantities
There was a genuine issue of material fact about whether River Land met its burden to prove that lease terminated because of cessation of production in paying quantities. See pages 9 and 10 of the opinion for the two-prong test.
The prudent operator test does not apply where there is total cessation of production for the number of days stated in the cessation-of-production clause. Cessation in paying quantities and total cessation are independent grounds for seeking termination of an oil and gas lease.
River Land's summary judgment also failed because there was no evidence as to what time frame would constitute a reasonable time for measuring profitability and whether the wells were profitable during that time.
Judicial estoppel
In the 2008 lawsuit Pruett sought a declaration that the 1976 lease had terminated. But the court could not conclude that River Land met its burden to conclusively establish that Pruitt successfully maintained his prior position. There was no evidence that a final judgment that the lease terminated was signed by the court in that case.
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