154 Union Gas Corp. v. Gisler

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.
 
Union Gas Corp. v. Gisler, 129 S.W.3d 145 (Tex. App.—Corpus Christi 2003, no pet.) (emphasis in original), is the first of seven related cases considering the relationship between the lease pooling clause, the filing of the designation of unit and the effect on the royalty obligation when lessee files after the date of first production. The Gisler lease pooling clause read as follows:
 
Lessee shall file for record in the appropriate records of the county in which the leased premises are situated an instrument describing and designating the pooled acreage as a pooled unit; and upon such recordation the unit shall be effective as to all parties hereto, their heirs, successors, and assigns irrespective of whether or not the unit is likewise effective as to all other owners of surface, mineral, royalty or other rights in land included in such unit.
 
The Gisler lease was the well-site tract. Production was obtained on March 27, 2000, and the designation of unit was filed on August 7, 2000. In the unit designation, Union stated that the designation would be effective from the date of first production. On August 30, 2000, Gisler sued Union for all royalties from the date of first production until the August 7th recordation of unit (Gisler also sued for bad faith pooling, drainage, breach of implied covenants, fraud, negligence, conversion, inter alia against Union). Union brought all of the other lessors of the pooled leases into the suit, and the other lessors contended they were entitled to share proportionately in all royalties from date of first production. Union paid no royalties to anyone. When the competing lessors began filing motions for partial summary judgment, after the suit had been on file for nine months (fourteen months after the date of first production), Union belatedly interpled all the royalties of $1,313,327.38, attributable to the time prior to August 7.
 
In Gislers’ part of the controversy, the Gislers’ claims for all the royalties were severed from their other claims, resulting in a final judgment against Union for an amount equal to all the royalties, plus interest, and attorney’s fees in the amount of $250,000.00. The principal issue on this appeal was whether Gisler was entitled to 100% of royalties to the date of recordation of the unit designation. The court found no reason to depart from the settled principles expressed in Browning Oil Co. Inc. v. Luecke, 38 S.W.3d 625 (Tex. App.—Austin 2000, pet. denied). The lessee’s authority to pool is derived solely from the terms of the lease and the parties must strictly comply with the terms of the lease. The lease provided that pooling was effective upon “recordation,” and therefore there was no pooling until recordation. Absent express authority, a lessee has no power to pool the lessor’s interests with the interests of others. Union did not pool Gisler in accordance with the terms of the Gisler lease, so nothing Union did in the subsequent, unilateral, unit designation could change Union’s obligation to Gisler. The judgments as to the other royalty owners were not part of this appeal.
 
Union’s real problem was that the six other lessors under pooled leases with functionally identical pooling clauses were also seeking payment of royalty from date of first production by summary judgment. In the trial court, each of the other lessors also prevailed on their claim, thus “doubling” the royalty Union was obligated to pay. Union Gas Corp. v. Tittizer, No. 13-01-735-CV, 2003 WL 22479980 (Tex. App.—Corpus Christi Oct. 30, 2003,                                                                                                 ) (mem.), was the second of the seven cases. The trial court had granted Tittizer’s motion to share prorata in royalty prior to August 7, thus effectively “doubling” Union’s royalty obligation, because Gisler was entitled to all royalty prior to August 7. The court of appeals reversed this judgment and held that because the unit was not effectively pooled under Gisler’s lease until the recordation of the designation, there was no unit production until that time. Although there was production from March 27 on the Gisler’s lease, there was no producing well on the pooled unit until August 7. Thus, the court held that the well-site lease was determinative in resolving the date by which a leasehold well becomes a unit well.
 
This significance of the case is that it establishes that there is no unit production, and therefore no unit, until the wellsite lease is properly pooled. No non-wellsite lessors can share in unit production until the wellsite lease is properly pooled.