Julia Wisenberg, Volume 50 Articles Editor

JUSTICE LEHRMANN DELIVERED THE OPINION OF THE COURT.

In BP America Production Co. v. Laddex, Ltd., BP acquired an oil-and-gas lease that would expire when the property failed to produce sufficient quantities for a profitable lease. The lessors attempted to terminate the lease during a period of lesser production. Although BP did not respond to the lessors’ notice, the lessors entered into a lease with another oil and gas company, Laddex, Ltd. for the same property.

Laddex sued BP, alleging that the BP lease had terminated due to a failure to produce in paying quantities. BP moved to dismiss the case, arguing that the Laddex lease violated the rule against perpetuities and thereby was void. A jury found in favor of Laddex; BP appealed. The Seventh Court of Appeals held that the Laddex lease was not invalidated by the rule against perpetuities. The appellate court also held that the trial court erroneously charged the jury on the time frame it could consider when determining whether production had slowed to a failure to produce paying quantities; the court ordered a new trial.

The Supreme Court of Texas affirmed the Seventh Court of Appeals, holding that the Laddex lease did not violate the rule against perpetuities. The Court analyzed the language of the Laddex lease, which it noted was “not a model of clarity.” However, the Court concluded that the lease language allowed for multiple plausible interpretations as to whether, under the BP lease, the lease conveyed the lessors’ possibility of reverter or if instead the lease delayed the vesting of Laddex’s interest until the BP lease expired—such that the reversionary interest could vest outside the period allowed by the rule against perpetuities. The Court relied on a rule of construction allowing the Court to assume that the grantor of an instrument intended to create a legal document. Therefore, the Court held that the lease did not violate the rule and therefore Laddex had standing.

Further, the Court agreed that the jury should not have been instructed to only consider a 15-month window of oil production when determining whether the well failed to produce sufficient quantities of oil. The Court cited its two-prong analysis for determining whether a well is producing profitable quantifies from Clifton v. Koontz, 325 S.W.2d 684 (Tex. 1959). The Court explained that Clifton clearly prohibited limiting the jury to only considering a limited period of time when determining whether production from a lease has ceased or if it is profitable. Thus, the trial court erred and the Supreme Court remanded for a new trial.

 

BP Am. Prod. Co. v. Laddex, Ltd., 513 S.W.3d 476 (Tex. 2017).