ConocoPhillips v. Koopmann, 13th Court of Appeals, May 19, 2016, 2016 Tex. App. LEXIS 5278

Summary judgment for the holder of a reserved royalty interest for a specific term and so long thereafter as there is production in paying quantities – the specific term of which was to be extended if shut-in royalties or similar payments was being made was improper since the savings clause was ambiguous as to the criteria for its application after the specific term when a well or wells had been drilled prior to the end of the specific term but no production had been obtained.

The Koopmanns and Strieber claimed ownership of a NPRI. Streiber conveyed 120 acres to the Koopmanns reserving an NPRI until Dec. 27, 2011, and so long thereafter as there is production in paying or commercial quantities. The deed contained a savings clause that provided if there is a lease in place that is being maintained in force by the payment of shut-in royalties “or any other similar payments” in lieu of production while there is a well capable of production in paying quantities but “shut-in for lack of market or any other reason” then the well will be considered as producing in paying quantities for purposes of perpetuating the NPRI.

In 2007, the Koopmanns entered into a three-year lease with Burlington. In 2010 with a few months remaining, Burlington paid $24,000 to extend the lease for an additional two years, or until October 2012. Burlington began drilling and on December 7, 2011, sent a letter to the Koopmanns that a well was anticipated to be producing in the first quarter of 2012, noted the shut-in royalty provision and included a shut-in royalty payment. The Koopmanns promptly returned the payment to Burlington.

There was conflicting expert testimony as to whether or not the well, in December of 2011, was capable of producing in paying quantities, thus making summary judgment improper. Additionally, there was a question precluding summary judgment on whether or not the $24,000 payment for extending the lease was “similar” to a shut-in royalty payment.

Additionally, the Streiber parties argued that the NPRI reservation to the Koopmanns that was to take effect after 15 years and so long thereafter as there is commercial production violated the rule against perpetuities. The court disagreed and determined that the reservation created a future interest that did not violate the rule against perpetuities.