676 Cabot Oil & Gas Corporation v. Newfield Exploration Mid-Continent, Inc., No. 07-16-00125-CV, 2017 WL 2622773 (Tex. App.—Amarillo June 13, 2017, no pet.)

Richard F. Brown

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

Cabot Oil & Gas Corporation v. Newfield Exploration Mid-Continent, Inc., No. 07-16-00125-CV, 2017 WL 2622773 (Tex. App.—Amarillo June 13, 2017, no pet.) (mem. op.), held that a reservation of a wellbore and “the 160 acre proration unit surrounding said well” reserved only the wellbore when no 160 acre proration unit was ever designated. Cabot reserved the interest. Newfield contended the attempt to reserve a proration unit was void under the Statute of Frauds.

The Statute of Frauds requires that certain transactions be in writing and signed by the parties against whom it is to be enforced. Where the transaction involves a conveyance of realty, the writing memorializing it must furnish within itself, or by reference to some other existing writing, the means or data by which the property being conveyed may be identified with reasonable certainty. Similarly, when the writing attempts to exclude or reserve certain property from the transfer, the instrument must identify with reasonable certainty the property being excluded or reserved. Newfield contended that the lack of a proration unit coupled with the lack of any further description of the property, prevented the identification of the acreage included in the “proration unit” with any reasonable certainty. Newfield contended that the statute of frauds voided the portion of the reservation pertaining to the 160 acre proration unit, but Newfield did not dispute the reservation of the wellbore.

Cabot asserted that the “proration unit” actually referred to the entire southwest quarter of Section 27, Camp School Lands, where the well was located. Cabot’s reasoning was based on language found in some other documents related to the assignment and the fact that many sections contain 640 acres. That is, Cabot contended “proration unit” should be construed as the quarter section on which the well was located.

The court found the facts of this case to be indistinguishable from Clegg v. Brannam, where a portion of the property being conveyed was described as “one-fourth acre of land surrounding the well.” “Until designated, it likened to an amoeba with potentially shifting yet unknown boundaries, and, as such, the attempted reservation of the 160 acre proration unit surrounding the McCoy #27–1 well was void.”

The holding is consistent with precedent on the Statute of Frauds and is another example of the risk associated with legal descriptions tied to “proration units” or “drilling units.”