The Texas Supreme Court has reversed an Amarillo Court of Appeals decision holding that an oil and gas lessee’s notation on a check reset the deadline for payment of a shut-in royalty that was made prior to the annual deadline established by the lease.
Scout Energy Management, LLC, Scout Energy Group III, LP, Scout Energy Partners III-A, LP, Scout Energy Partners IV, LP, and Scout Energy Partners IV-A, LP v. Taylor Properties (No. 23-1014; December 31, 2024) involves two consolidated mineral leases that include Taylor’s land. Each lease has an identical savings clause that extends the lease upon a $50 per well annual payment for a year when gas from a gas-only well is not sold or used. In September 2017, ConocoPhillips, the successor to the original lessee under both leases, made two separate payments to Taylor when production ceased on the only gas-only well. The parties stipulated that the payments were sufficient to meet the $50 requirement of the savings clause. In October 2017, Conoco made two additional payments to Taylor in the same amounts with certain notations on the check receipt, including a notation “Mth Begin” indicating a date of October 9, 2017. Subsequently, Scout acquired the leases from Conoco and, in December 2018, made two payments purportedly under the savings clause. Taylor, however, responded that the payments were too late and that the lease terminated because more than a year had passed since October 2017, the date of the last payments. Taylor sued Scout for trespass to try title and sought a declaration that the leases terminated in October 2018. The trial court ruled for Scout on the basis that the lease was ambiguous and that Conoco’s additional payments in October 2017 extended the lease through 2018, making Scout’s payments timely. Taylor appealed. The Amarillo Court of Appeals reversed and remanded, concluding that the lease was unambiguous and that it allowed advance shut-in payments. In this case, however, Conoco’s notation on the check represented an agreement of the parties to reset the deadline from December to October 2018. Thus, the lease terminated in October and Scout’s payments were too late. Scout appealed.
In a per curiam opinion, SCOTX reversed. The Court agreed with the court of appeals that the savings clause unambiguously “permits a lessee to secure a full year of constructive production with each $50 payment.” Taylor concurred that the the savings clause was unambiguous, but argued that it meant the one-year constructive production period ran from the date the payment was made. As the court of appeals likewise concluded, Taylor’s interpretation rewrote the savings clause, which provides only that a $50 annual payment secures the next year of constructive production, whether paid early or not. The Court, however, disagreed with the court of appeals that Conoco’s notation on the check receipt indicating “Mth Begin” as October 9, 2017, did not constitute a revision of the original lease because “the notations were too vague to be given effect as a contract or a lease modification that would reset the deadline for future payments and thereby penalize ConocoPhillips for its early tender of what, under the terms of the lease, unambiguously constitutes sufficient payment for two full years of constructive production.” Consequently, the Court reverse and reinstated the trial court’s take-notbing judgment for Scout.
