ConocoPhillips Co. v. Vaquillas Unproven Minerals, 2015 Tex. App. LEXIS 8194 (Tex.App. San Antonio, 2015)

In interpreting a relatively standard retained acreage clause, the court ruled that, when the Railroad Commission set field rules establishing spacing rules to 40 acres per well, that this controlled over the lease provision of 640 acres per gas well.

ConocoPhillips and the Vaquillas are parties to two leases, one of which is of a 26,622.79 acre tract. The lease provides that, upon the cessation of the continuous drilling program, ConocoPhillips would retain 40 acres for each producing oil well and 640 acres for each producing or shut-in gas well, except that if the Railroad Commission established different units, that such different units would control.

The Railroad Commission established field rules providing that no well is to be drilled nearer than 467 feet of any property line and no nearer than 1200 feet from any other permitted and completed well. This spacing conforms to Statewide Rule 38, which contains a chart showing that such a spacing rule would mean that the acreage requirement for any well is 40 acres per well. The court held that, even though this field rule mimicked Rule 38, it trumped the lease provision so that ConocoPhillips could retain only 40 acres for each gas well.

It is important in negotiating leases to provide that Railroad Commission established units would only trump the units size agreed to in the lease itself if it establishes greater sized units.