137 Sabre Oil & Gas Corp. v. Gibson

Tuesday, September 1st, 2015

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
Sabre Oil & Gas Corporation v. Gibson, 72 S.W.3d 812 (Tex. App.–Eastland 2002, pet. filed) construes the effect of the lease assignment clause on a pooling clause requiring all leased lands to be included in any pooled unit. In 1957, Gibson’s predecessor in interest executed an oil, gas, and mineral lease to Sabre’s predecessor in interest. The lease covered 38 separate tracts of land. Gibson owned all of the minerals in three of the leased tracts, which Sabre acquired. In 1997, Sabre drilled and completed a gas well on one of Sabre’s three tracts. Sabre filed a Designation of Unit for the Gibson #1 Gas Unit, which pooled Sabre’s three tracts with other lands not part of the 1957 lease, but the pooled unit did not include the other lease tracts in which Gibson did not own the minerals. Gibson filed suit against Sabre and others seeking a declaration that the Designation of Unit was void because it was formed in violation of the 1957 lease.  The trial court agreed.
Sabre appealed the trial court’s ruling that the Designation of Unit was void, arguing that the trial court erred in narrowly construing the pooling provision of the 1957 lease. Paragraph 4 of the lease (the pooling clause) provided:

Lessee, at his option, is hereby given the right and power to pool or combine the acreage covered by this lease or any portion thereof, with other land, lease or leases in the immediate vicinity thereof, to comprise what is hereinafter called a “unit,” when in Lessee’s judgment it is necessary or advisable to do so in order properly to develop and operate said premises for the production of oil, gas or gaseous substances, including condensate.

Additional provisions in Paragraph 4a stated:

Notwithstanding any language in Paragraph “4” above, to the contrary, it is expressly agreed and understood by and between the parties hereto that before Lessee hereunder shall be allowed to pool or unitize any of the lands embraced by this lease with other lands not owned by the Lessor herein Lessee shall designate full units from the lands embraced by this lease first and in the event there is land in excess of a full unit remaining then same may be done in accordance with Paragraph “4” above.

Gibson contended that under Paragraph 4a, Sabre could not pool other lands not owned by the lessor until all of the lands embraced by the 1957 lease had been included in full units. At the time Sabre filed the Designation of Unit, not all of the lands in the 1957 lease were included in units, but all of Gibson’s minerals were included in the Gibson #1 Gas Unit.
The appellate court, after examining and harmonizing the provisions of the 1957 lease, held it to be an unambiguous instrument and found that the Designation of Unit was not formed in violation of the lease. The court considered Paragraph 8 of the lease, which provided, “the rights of either party hereunder may be assigned in whole or in part and the provisions hereof shall extend to the heirs, successors and assigns,” and reasoned that under Paragraph 8, a lessee who acquired only a portion of the lands covered by the 1957 lease would satisfy the requirements of Paragraph 4a if the lessee included all of the tracts under the lease he had been assigned, and all of his lessor’s minerals.
The record showed that Sabre included all of the tracts owned by Gibson as part of the 1957 lease in the Designation of Unit, and that these three tracts were the only land under the 1957 lease to which Sabre had acquired rights. The court noted that because the 1957 lease indicates an intent to authorize pooling under Paragraph 4a, that the only limitation to pooling is that the lessee first attempt to include all land under the 1957 lease. Because all of the land that Gibson owned was included in the Designation of Unit, Sabre’s creation of the Unit under the lease was therefore valid. The court appeared to place particular emphasis on the fact that Gibson’s interest was not diminished.