Face Challenges Confidently

026 Pampell Interests, Inc. v. Wolle

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 some significance to you.
In Pampell Interests. Inc. v. Wolle, No. 03-89-238-CV (Tex. App.–Austin, October 10, 1990, n.w.h.), the Court held that where an oil and gas lease requires the “lessee to execute and record any unit designation, it is insufficient for anyone other than the lessee, even his agent, to execute a unit designation to properly pool any portion of the leased property.
The lease provided that “Lessee” (Pampell Interests, Inc.) could pool the Wolle tract with other land, and oil or gas operations anywhere on the unitized tract would maintain the lease. On the day the lease was to expire, Zeal Energy Corporation, who was not a party to the lease and who had no “record interest” in the Pampell lease or the Wolle tract, filed a unit designation to pool a portion of the Wolle tract with a neighboring lease. Drilling on the neighboring lease was already in progress and was successfully completed. Alfred E. Pampell signed the unit designation on behalf of Zeal. Mr. Pampell was the president and sole shareholder for both Zeal and Pampell. Otherwise, Zeal was not affiliated with Pampell.
Wolle sued Pampell, claiming that Pampell’s lease had expired on its own terms and that the unit designation was void as to any effect upon the Wolle tract. Pampell contended that Zeal filed the unit designation as agent for Pampell. The issue before the court on motion for summary judgment was whether the unit designation properly pooled the productive acreage with the Wolle tract, thus preserving the Pampell lease. Held: the lease terminated and the unit designation was void as to the Wolle’s tract.
The court stated that this oil and gas lease could be extended beyond its primary term only by operations on the leased tract or on property “properly pooled” with the plaintiff’s tract. The court further determined that Texas law requires parties to strictly comply with the terms of an oil and gas lease. The court said:

The Pampell lease required the “lessee”–Pampell–to execute and record the unit designation. The unit designation in this case was executed and recorded by Zeal, not Pampell, moreover, not only did Zeal fail to specify in the unit designation that it was acting as agent for Pampell, to the contrary, Zeal purported to be the owner of the Pampell lease. Zeal was a stranger to the lease, however–Zeal even admitted that it had no interest in the Pampell lease or the Wolle tract. Therefore, the unit designation did not strictly comply with the terms of the lease, and so would be invalid even if Zeal tad acted as Pampell’s agent.  [emphasis added]

The case is significant because almost every pooling clause in every printed form mineral lease provides that unitization may be accomplished by the execution and filing of a unit designation “by the lessee.” The worst possible construction of Wolle is that the party originally designated as “lessee” in the lease is the only party that can properly file a unit designation. Because almost every lease is assigned at least in part by the original lessee, this could make almost every unit designation in Texas void.
If the opinion means that lessee’s “assigns” can file the designation, but not lessee’s “agents,” the distinction is difficult to understand. Presumably, there is an express right of assignment in the lease (or such a right would be presumed), whereby the assignee would succeed to the rights of the “lessee.” lease form is likely to have any relevant provision dealing with agency. Perhaps a distinction can be made on that basis. Nevertheless, if the opinion means the lessee can assign the right and power to pool, but the lessee cannot delegate to an agent the power to pool for the lessee, it is very difficult to rationalize the distinction. There are thousands of recorded unit designations executed by attorneys-in-fact. This opinion would seem to invalidate every one of them.
Working interest owners have also not always been careful to determine the precise identity of the “lessee” (either of record or in fact) at the moment a designation of unit is filed. A common circumstance is one where multiple working interest owners exist, some but not all of their interests are recorded, and some but not all of them join in the unit designation of the lessee’s interest. What is the effect if some, but not all of the owners of the lessee’s interest join in the designation? Does it make any difference if the owner’s interest is not recorded? The Wolle case provides no answers, only questions, as to the validity of such unit designations.
Finally, holding that the designation was “void,” not merely voidable, dramatically increases the risks for all parties. Significant damage awards may result as to a “void” unit. The case may also have a major impact on lease preservation. For example, if the wellsite had been the Wolle tract, the unit designation would be void, but the Wolle lease would continue. However, all of the other leases purportedly pooled into the unit and past the primary term would by then presumably have expired, and lessee would have no opportunity to save the leases. Many other examples could be given. If allowed to stand, this case will promote uncertainty and heighten the risk of litigation. The stakes will be high because the focus will almost always be on productive acreage.