080 Eland Energy v. Rowden Oil & Gas, Inc.,

Tuesday, September 1st, 2015

CASE NOTE

Richard F. Brown

 
The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
 
Eland Energy v. Rowden Oil & Gas, Inc., 914 S.W.2d 179 (Tex. App.–San Antonio, 1995, writ den.) involves a farmout under which the farmee was obligated to reconvey the entire drilling lease at the end of the drilling program, except for “40 acres in the form of a square as nearly as possible” in a restricted depth around each producing well. Farmee was to designate the 40 acre units. Farmor conveyed the entire lease to Farmee, subject to the farmout agreement. A long time elapsed after the completion of the last well. When requested to make the reconveyance. Farmee refused. Farmee contended that the statue of limitations had run on the obligation to reconvey and the “40 acres in the form of a square as nearly as possible” around each well was unenforceable under the statue of frauds, because the lands were not sufficiently described.
 
Held: Farmee was obligated to reconvey the lease except as to the forty acre tracts designated around each well. Farmee contended that the lease assignment conveyed the complete title with a covenant to convey back the 40-acre units. Because more than four years had lapsed since the last well was completed, Farmee argued that the action was time barred. The court rejected this argument and held that the Farmor always held the equitable title, i.e., the right to legal title as to all lands outside the 40-acre units. Because Farmor never gave up its title, this was not an action for specific performance to convey land, but an action to clear title, which is not subject to the four year statue of limitations. In response to Farmee’s challenge that the forty acre tracts were unenforceable legal descriptions the Court held that the right to make the designation was an equitable right to perfect title by selecting the boundaries of each forty acre tract earned. The right to make the designation is a right that me be lost by delay, but under the facts of this case, Farmee’s delay was not fatal. The right to make the designation, coupled with the interest in doing so, satisfies the requirements for the statute of frauds.
 
The case is significant because it is quite common to see farmouts and other similar agreements with reconveyance obligations and rights to earn couched in similar terms. The practice pointer would seem to be that “agreements to transfer” are safer than “conditional assignments,” but even agreements to transfer are probably safe if made subject to the farmout. As to the “40 acres in the form of a square as nearly as possible” legal description, some additional language could add some additional assurance that the legal is enforceable. For example, the description could add “centered on the well with the boundaries parallel to the boundaries of Section                                                                                                .”