Taylor Sheridan’s locally filmed show Landman, with the help of several brilliant actors and many local extras (including one of my poker buddies), paints a riveting picture of the Texas oil and gas industry, even while taking some liberties with locations, processes, industry hierarchy, and Fort Worth’s real Western flavor. Tropes abound but are sprinkled across Sheridan’s usual cannot-look-away storytelling, so even wizened locals enjoy spotting landmarks like River Crest Country Club, the Petroleum Club, and several Mira Vista McMansions. Billy Bob Thornton classically plays the title character, with all of his drawling humor, perfect timing, and physical domination of any space he occupies. Of course, he is not really a lowly field "landman" but a high-level manager-in-the-field for a wealthy owner-operator’s Permian Basin interests. Plots filled with oil field conflict, tragic rig accidents, drug dealer confrontations, and family pressures seem to beg the question: can real-life Texas oil and gas cases bring even half of the drama that Landman brings to the screen?
The answer is a resounding “yes,” even if one looks at just one recent court opinion that now appears headed to the big show: the Texas Supreme Court. The El Paso Court of Appeals decision in Cromwell v. Anadarko E&P Onshore [cite 2023][Sc Ct writ cite] gives a good take on the real skullduggery that goes on in the “oil patch” that Landman likes to focus on. Cromwell is a classic big corporation versus the little guy story that Landman likes to weave into plots.
A common situation in the oil patch involves joint ownership of a productive oil and gas tract, which the law calls joint tenancy (“joint tenants”). All over the state, many leaseholders have a fractional interest in the same oil and gas property/land. Each often derives their interest by separate leases, often with different prior owners, divergent relatives, prior separate inheritances, and the like. Joint tenancies of oil and gas interests are quite common in Texas. The point of contention can sometimes be that each joint tenant enjoys their oil and gas rights through separate leases. It is also quite common that Texas form leases involve a primary term (during which production from the oil and gas interest must occur), and a secondary term during which production must continue, OR THE LEASE TERMINATES. This part of the lease describing what needs to happen in the primary and secondary terms (production) and the circumstances triggering lease termination is called the “HABENDUM CLAUSE.” More about Cromwell’s leases’ habendum clause below.
Cromwell enjoyed two oil and gas leases in Loving County (between Midland/Odessa and El Paso). Anadarko had substantial lease interests (working interests) in the same land. Anadarko had executed joint operating agreements with other working interest owners who were joint tenants, whereby Anadarko would take the lead in exploring and developing the leases. Cromwell asked to join in the operating agreements with Anadarko, and Anadarko ignored these requests. Anadarko then proceeded to drill three vertical wells, at least one of which was productive and reached “payout” (costs of drilling and completing are recovered from production, so production after is almost completely profit). Even though Anadarko had ignored Cromwell’s requests to sign onto the Anadarko joint operating agreements, from 2009-2016, it billed Cromwell as if he had, and sent out joint interest invoices (“JIB” for joint interest billings) to Cromwell, which Cromwell paid in full. Anadarko then started netting out these monthly invoices against production payments it made to Cromwell, as if he were a joint interest owner who had signed the operating agreements. Cromwell paid these billings, directly or by net-out, fully, and Anadarko even sent Cromwell “AFEs” (authorizations to spend more money re-working a well) as if he were a “working interest owner” under the joint operating agreement. Once litigation ensued, Anadarko simply called this a mistake.
The primary terms of Cromwell’s leases ended in 2012 and 2014. The secondary term of the leases would continue only if “production were occurring” from the lease property. Cromwell [cite, p. 5 of Lexis cite] {quoting the court} Cromwell never drilled his own wells on the leases, since he was participating, albeit without a formal operating agreement, in the Anadarko wells. And, of course, Cromwell’s lessor (the lessor is usually the original landowner or transferee mineral owner who “leases” out the oil and gas interests) was cashing monthly royalty checks from the production of the well that Cromwell was helping pay for, thanks to Anadarko’s invoices and AFE.
And it is here things take a Landman-like plot turn, and get really interesting.
Anadarko eventually realized in 2016 the situation it had placed Cromwell in. And that one reading of the Cromwell leases was that they terminated after the primary term, for non-production by Cromwell. Yet it continued, despite this realization, to send Cromwell revenue checks from one well, but not the others, and did not bother in 2016 to tell Cromwell of Anadarko’s new position: that his leases had terminated. And of course, the royalty owner(s) continued to cash checks for wells that Cromwell had helped pay for.
Then Anadarko did a very clever thing, or truly nasty thing, depending on what ethical standard one believes should apply to the Texas oil patch. It quietly entered into “top leases” with Cromwell’s grantors/lessors. A top lease simply provides that if for any reason Cromwell’s leases have terminated or terminate in the future, Anadarko takes Cromwell’s place as lessee/working interest owner. Once these top leases were in place, Anadarko informed Cromwell of its brand new position: that Cromwell was not in fact a working interest owner or participant in its wells, and that Cromwell’s leases had terminated due to non-production in the secondary term, because Cromwell had not brought in production from the lease as an operator or otherwise. Cromwell then sued Anadarko.
Both sides agreed that if Cromwell had simply signed a joint operating agreement with Anadarko, then that was enough to attribute the Anadarko wells’ production to Cromwell for purposes of maintaining production in his secondary term, avoiding termination of his leases. The trial court and El Paso Court of Appeals both acted like this never happened, side-stepping the inconvenient fact that Anadarko had treated (billed, invoiced, and paid) Cromwell as if he were a working interest owner under a joint operating agreement for almost ten years.
This gymnastics maneuver meant that the El Paso Court of Appeals had to deal with the exact language of Cromwell’s leases’ habendum clause: a primary term, and then the lease lasts “as long thereafter as oil, gas, and other minerals are produced (secondary term).” Each lease also required that production in the secondary term be “actual production in paying quantities,” a typical provision not in issue in the case.
Cromwell maintained that his leases were still in effect, because there was production in paying quantities on both leases (which both sides stipulated to), even though he did not physically drill his own wells. Anadarko said the opposite: Cromwell’s leases terminated because he did not physically drill additional wells on his own. Anadarko relied on a four-year-old case from the same court of appeals, Cimarex [add cite]. Cimarex had some similar facts as Cromwell, but not nearly as much participation (and treatment by Anadarko) as if he were a full working interest owner under a joint operating agreement.
In Cromwell, the El Paso court applied Cimarex without analyzing the differences in the two cases, continuing a device used in Cimarex to declare Cromwell’s leases terminated: it implied (or added) a clause to the actual leases’ habendum clause about the secondary term: that the lease-continuing production had to be caused by, physically produced by, the lessee/Cromwell. This, of course, is not what the lease says. The Court looked to other clauses about the purpose of the lease, but the distraction of these bright shiny objects should never modify the cardinal rule in lease (indeed, any contract) construction in Texas: Courts should never re-write the leases for the parties, by adding, modifying, or changing language in the actual lease. The Cromwell leases’ secondary term language did not explicitly require the lease-extending production to be instigated by, caused directly by, or physically done by Cromwell. The Court simply added this additional language through fiat—by “implying” the missing term. And as a practical matter, the lessor directly benefitted from Cromwell’s payments to Anadarko, by cashing royalty checks from wells in which Cromwell indisputably participated. The lessor received the benefit of its bargain. The leases became oil and gas-producing properties.
The opinion (actually, the very similar opinion on rehearing) from the El Paso Court of Appeals is now on appeal to the Texas Supreme Court, which was not required to take the appeal, but has agreed to hear it.
While the case does not have entertaining facts like Landman’s drug mule plane crashes, exploding pump jacks, or dramatic scenes with a fictional Texas governor, it does have the oil patch double-dealing that makes Landman, and Dallas before it, fascinating television. And there are likely thousands of Cromwell-like joint tenants in Texas fixin’ to lose their leases if this latest from El Paso’s Court of Appeals stands.
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