Face Challenges Confidently

658 Chambers v. San Augustine Cnty. Appraisal Dist., 514 S.W.3d 420 (Tex. App.—Tyler 2017, no. pet.)

Wednesday, February 14th, 2018

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.

Chambers v. San Augustine County Appraisal Dist. Chambers v. San Augustine Cnty. Appraisal Dist., 514 S.W.3d 420 (Tex. App.—Tyler 2017, no. pet.) (Pooling as a cross-conveyance), held that oil and gas lease language expressly negated the cross-conveyance that ordinarily follows when leases are pooled. Chambers owned 652 acres of land in Shelby County, Texas, subject to an oil and gas lease containing a pooling clause. Chambers’ land was pooled into two separate units with lands located in San Augustine County. San Augustine Central Appraisal District (“SCAD” [incorrectly named in the case style]) contended that Chambers cross-conveyed the mineral interest by pooling and that taxes were payable proportionately to each county in proportion to the percentage of the unit lying within each county. The lease provided:

The formation of any unit hereunder which includes land not covered by this lease shall not have the effect of exchanging or transferring any interest under this lease (including, without limitation, any shut-in royalty which may become payable under this lease) between parties owning interests in land covered by this lease and parties owning interests in land not covered by this lease.

The issue was whether the express lease language negating a cross-conveyance protected Chambers from tax liability in San Augustine County.

The Texas Constitution mandates that all property shall be taxed in the county in which such property is physically located, and the tax appraisal authority must first establish that the property it seeks to tax has a “taxable situs” within the boundaries of that authority’s appraisal district before levying a tax against that interest. “Ordinarily, all participants to a pooling agreement cross-convey to one another an interest in the minerals subject to the agreement.” Parties may include language in their lease to avoid cross-conveyance.

The court held as a matter of law that the language included in the lease expressly authorized pooling, but prohibited a cross-conveyance of interests, and SCAD failed to prove that Chambers owned any interest in lands in San Augustine County.

The case follows precedent in holding that the parties to a lease may, by contract, negate the cross-conveyance that ordinarily occurs when leases are pooled.