Wagner & Brown, Ltd. v. Jane Turner Sheppard

282 S.W.3d 419 (2008)

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Nature of the Case

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Facts

P owns 1/8th of the minerals underlying a 62.72-acre tract. C.W. Resources, Inc. (D) leased her 1/8th interest, and along with D leased the other 7/8ths of the minerals from other owners. P's lease had a special addendum providing that if royalties were not paid within 120 days after the first gas sales, her lease would terminate the following month. P's lease also authorized pooling with adjacent tracts. On September 1, 1996, Ds, and mineral lessees on adjacent tracts signed a unit agreement pooling the P tract and eight others to form the W.M. Landers Gas Unit. One month later, a gas well was successfully completed and began producing, and a second well was completed in September 1997. Both wells were physically located on P's tract, but pursuant to the unit agreement proceeds and costs were split among all the tracts in proportion to acreage. C.W. Resources (D) was designated as the operator of the unit. In September 2000, D took over that position and discovered that P had not been paid royalties within 120 days of the first gas sales. D offered p a new lease, but with two producing wells already on her property, she declined. The parties agree that P's lease terminated on March 1, 1997, and since then she has been an unleased co-tenant, entitled to her share of proceeds from minerals sold less her share of the costs of production and marketing. The question is whether the termination of P's lease also terminated her participation in the unit (in which case she is entitled to 1/8th of 100 percent of production, as both wells are on her tract), or did not do so (in which case she is entitled to 1/8th of only 51.3 percent of production -- the proportion her tract bears to total acreage in the unit). Regarding costs, the question is whether P should bear any costs incurred before her lease terminated, or any costs incurred after the lease terminated that relate to the unit but not her lease. The trial court granted summary judgment for P, finding that termination of the lease also terminated her participation in the unit, that she was not liable for any costs incurred before termination, and that she was liable for costs incurred after termination only if they pertained solely to her lease; the court of appeals affirmed. D appealed