Newsletter DAPL INSIDE THIS ISSUE: UPCOMING EVENTS. Top 10 Oil and Gas Cases Part II DAPL Holiday Party 8. AAPL Education Calendar 12

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1 January DAPL Newsletter INSIDE THIS ISSUE: Top 10 Oil and Gas Cases Part II DAPL Holiday Party 8 UPCOMING EVENTS DAPL UPCOMING EVENTS: February 13th 2018 February Educational Luncheon Dallas, TX AAPL Education Calendar 12 DEAR MEMBERS: During the year we will continue to provide a variety of articles within our newsletter that we believe will benefit our membership. I invite any of you to contact the DAPL Publications Director if you have an article, paper, or topic you wish to submit for potential inclusion in future DAPL publications.

2 DAPL Board of Directors PRESIDENT DJ Cherry PetroVen, Inc. (972) ST VP (GOLF TOURNAMENT) Matt McCauley, CPL Comstock Resources, Inc. (972) ND VP (MEMBERSHIP) Kerri K. Sweet, CPL Northern Trust (972) RD VP (WEBSITE) Ben Boyer, RPL Millennial Energy Group (214) SERGEANT-AT-ARMS Andrew Swann, RPL Scout Energy Partners (972) TREASURER Alicia Surratt JP Morgan (214) SECRETARY Matt Rettke, CPL Merit Energy (972) PUBLICATIONS DIRECTOR Bennett Neale, CPL HERV Oil, LLC (214) EDUCATION DIRECTOR Pamela Sewak, CPL The Flying Landman, LLC (214) NGL & MEMBERSHIP CO-DIRECTOR Heath J. Burnett Northern Trust (972) ADVERTISING DIRECTOR Iris Bradey, CPL/ESA Northern Trust (972) AAPL DIRECTOR & IMMEDIATE PAST PRESIDENT Jerry D. Padilla, CPL Land Management Partners (806) MARK YOUR CALENDARS 2018 February Educational Luncheon Tuesday, February 13, :30 AM to 1:00 PM Maggiano s at North Park 205 N. Park Center Dallas, TX

3 TOP 10 TEXAS OIL AND GAS CASES 2017 PART 2 This is a continuation of the three-part series that began last month discussing significant oil and gas decisions from state courts in Texas during It is not intended to be a strict legal analysis, but rather a useful guide for landmen in their daily work. Therefore, a complete discussion of all legal analyses contained in the decisions are not always included. PART II 4. Town of Dish et al v. Atmos Energy Corp. et al., No. 519 S.W.3d 605 (Tex. 2017). By Chance K. Decker and Ryan Sears, Gray Reed & McGraw Town of Dish is one of several important nuisance opinions the Texas Supreme Court issued in The defendants in Dish were four midstream companies. Together, they owned four natural gas compressor stations and a metering station located adjacent to each other just outside of Dish, Texas. 1 Between February 2005 and May 2008, the defendants brought the compressor stations online, and in 2009, brought the metering station online. These facilities were collectively known as the Ponder Station. The Town of Dish and 18 of its residents sued the midstream companies on Feb. 28, 2011, for trespass and nuisance alleging the noise, odors, and natural gas molecules had unlawfully entered their properties and caused an unreasonable interference with their property. The trial court dismissed Dish and the residents claims on limitations grounds. On appeal, Dish and the residents argued that even though they first complained about the Ponder Station no later than 2006 and all the individual compressor stations were online by May 2008, their nuisance claims did not accrue until the Ponder Station was completely finished in summer According to Dish and the residents, their claims did not accrue until the full force and cumulative effect of all of the parts of the completed [Ponder Station] came to bear because only then did they believe a substantial interference with their property use and enjoyment was taking place. The court of appeals sided with Dish and the residents, holding the trial court failed to address the synergistic effect that all four compressor stations operating together might have once they were all completed. The Texas Supreme Court reinstated the trial court s rulings, dismissing the entire case on limitations. The Court noted that Dish and its residents sued on Feb. 28, 2011, so their nuisance claims must have accrued no earlier than February 28, 2009 to survive the two-year statute of limitations. A cause of action accrues when a wrongful act causes a legal injury, regardless of when the plaintiff learns of that injury or if all resulting damages have yet to occur. And, a permanent nuisance claim accrues when the condition first substantially interferes with the use and enjoyment of the land by causing unreasonable discomfort or annoyance to persons of ordinary sensibilities. Similarly, a trespass claim accrues when the known injury begins, not when it rises to a level the plaintiff considers actionable. The midstream companies showed that the residents began complaining about the Ponder Station in In January 2007, a Dish resident (and the town s eventual mayor) sent an to several other residents stating the Ponder Station was preventing [the residents] from enjoying our property with the noise and smell, and destroying [the residents ] property values. In March 2008, another resident sent an stating the Ponder Station had transformed [the area] into a living hell with unbearable, unending noise from thundering compressor engines, noxious fumes, blazing alarms, and roaring blast of gasses released into the air, louder than a jet engine at maximum takeoff thrust. Based on these facts, the Texas Supreme 1 Dish, Texas is a small town north of Fort Worth, formerly known as Town of Clark. Town of Clark changed its name to Town of Dish in 2005 in exchange for complimentary satellite television for its resident provided by Dish Network. 3

4 Court held that Dish and the residents claims accrued, at the latest, in May 2008, more than two years before they filed suit. Accordingly, the Court dismissed the case on limitations. 5. Lightning Oil Co. v. Anadarko E&P Onshore LLC, 520 S.W.3d 39 (Tex. 2017). For years, the energy industry has been grappling with the following subsurface trespass question: Whose permission is necessary for an oil and gas operator to drill through a mineral estate it does not own or lease to reach minerals under an adjacent tract? In Lightning Oil Co. v. Anadarko E&P Onshore, the Texas Supreme Court finally provided the answer: Only the surface owner of the tract on which the well will be located is required to authorize pass-through drilling. In Lightning, Anadarko entered into a lease with the state of Texas for the mineral estate underlying the Chaparral Wildlife Management Area. Anadarko s lease limited its drilling locations and required it to drill from off-site when prudent and feasible. Anadarko then entered into an easement agreement with the surface owner of the adjacent tract, Briscoe Ranch, Inc., permitting Anadarko to locate wells on the Briscoe Ranch to access the minerals under the Chaparral WMA through horizontal drilling. Before reaching the Chaparral mineral estate, Anadarko s wellbore would pass through the subsurface of the Briscoe Ranch. Lightning Oil Co. leased the minerals underlying the Briscoe Ranch. Lightning was not a party to the Surface Use and Easement Agreement and did not consent to Anadarko s pass-through drilling plan. Thus, Lightning sued Anadarko for subsurface trespass and tortious interference with its Briscoe Ranch lease and sought an injunction to stop Anadarko from drilling on the Briscoe. Lightning claimed the Briscoe Ranch, as a mere surface owner, could not consent to Anadarko drilling through Lightning s leased mineral estate. In response, Anadarko argued the surface owner not the mineral estate owner controls the matrix of earth underlying the surface. Thus, the only person Anadarko needs permission from to drill through Lightning s mineral estate is the Briscoe Ranch. In its opinion, the Texas Supreme Court noted that the surface owner, and not the mineral owner, owns all nonmineral molecules of land, i.e., the mass of earth that undergirds the surface estate, and the mineral estate owner is only entitled to a fair chance to recover the oil and gas in place or under the surface estate. Thus, the Court held that [t]he rights conveyed by a mineral lease generally encompass the rights to explore, obtain, produce, and possess the minerals subject to the lease; they do not include the right to possess the specific place or space where the minerals are located. Accordingly, Lightning, as the mineral estate holder, had no right to exclude others from traversing through the subsurface, and Anadarko will not commit trespass by doing so with the surface owner s permission. Importantly, Lightning produced no evidence that Anadarko s drilling activities would interfere with Lightning s development of its mineral estate. And, though Anadarko s drilling activities would necessarily remove some minerals from Lightning s mineral estate, that minimal volume of minerals is not large enough to be actionable. Thus, the Court left open the possibility that a mineral estate holder could prevent pass-through drilling if it can show the drilling activity would either (1) unreasonably interfere with the mineral estate owner s development of the estate or (2) remove or destroy a sizeable quantum of minerals from the mineral estate. 6. Longview Energy Co. v. The Huff Energy Fund L.P. et al., No , 2017 WL (Tex. June 9, 2017). In Longview Energy Co. v. The Huff Energy Fund L.P. et al., the Texas Supreme Court reversed a $95.5 million jury verdict in favor Longview Energy Co. and dissolved a constructive trust on over 50,000 leased acres in the Eagle Ford Shale. The Huff Energy Fund (HEF) became one of Longview s biggest investors in HEF s CEO Bill Huff and Lead Investment Evaluator Rick D Angelo sat on Longview s board of directors. In September 2009, Huff and D Angelo encouraged Longview to invest in the Eagle Ford Shale. Longview claimed Huff told Longview that if it located an investment in the Eagle Ford that HEF liked, HEF would fund the investment. 4

5 In December 2009, Longview met with lease brokers to discuss potential Eagle Ford acquisitions. At the meeting, the lease brokers drew circles on a map outlining about 250,000 acres in South Texas that were available for lease. The lease brokers did not identify specific tracts but only general areas of interest. The parties referred to these areas as blobs. Pursuant to his request, Longview mailed D Angelo a copy of the blob map on Dec. 23, At Longview s January 2010 board meeting, it considered a proposal to invest about $40 in the Eagle Ford. However, after the meeting, D Angelo advised Longview that HEF would not support Longview s investment in the Eagle Ford. As a result, Longview never voted on the Eagle Ford proposal. At its next meeting, Longview s board discussed selling some of its Oklahoma acreage to fund an Eagle Ford acquisition. Longview claims that at that meeting, D Angelo strongly objected to this plan. Unbeknownst to Longview, in summer 2009, HEF began discussions with Oklahoma oilman Bobby Riley about potential opportunities in the Eagle Ford. In October 2009, HEF and Riley formed a company called Riley-Huff Energy Group LLC, which then investigated potential Eagle Ford investments. Riley-Huff s manager was D Angelo. Also unbeknownst to Longview, two days before its January board meeting, Riley-Huff agreed to purchase certain Eagle Ford leases from a company owned by one of the lease brokers who presented the blob map to Longview in December Riley-Huff eventually acquired leases covering approximately 50,000 acres in the Eagle Ford, 5,200 of which were within the blobs that Longview s board considered and sent to D Angelo to review. When Longview discovered Riley-Huff s leases, it sued Huff, D Angelo, Riley-Huff and others for fraud, breach of fiduciary duty, and misappropriation of trade secrets. The case was tried with a jury, which found for Longview. The trial court then awarded Longview $95.5 million, imposed a constructive trust most of of Riley-Huff s Eagle Ford acreage and ordered Riley-Huff to transfer the leases to Longview. The court of appeals reversed, holding that Longview s general plan to invest in the Eagle Ford was not detailed enough to constitute a corporate opportunity. The court stated that to hold otherwise would give Longview a virtual monopoly on the Eagle Ford Shale from which its officers and directors were forever precluded from entering. The Texas Supreme Court affirmed, but for slightly different reasons. The Court held that even if Huff and D Angelo breached their fiduciary duties, Longview failed to trace Riley-Huff s acquisition of any specific leases to Huff and D Angelo s actions. That is, because Longview never considered any specific leases just general areas of interest or blobs on a map Longview could not prove Huff and D Angelo s actions resulted in Riley-Huff acquiring a [d]efinitive, designated property. And, without evidence to trace Huff and D Angelo s actions to a specific property, there can be no constructive trust. Likewise, the Court held that the jury could not award money damages to Longview based on the profits Riley-Huff made off the leases it wrongfully acquired because there was no evidence to trace Huff and D Angelo s actions to any specific leases. 7. Wenske v. Ealy, 521 S.W.3d 791 (Tex. 2017). In this case, the Texas Supreme Court highlighted the difference between a reservation from and exception to a mineral conveyance and purported to overturn decades-long precedent about the default rules for allocating NPRI s. In 1988, the Wenskes purchased a 55-acre mineral estate from Marian Vyvjala, Margie Novak and others. Vyvjala and Novak each reserved a 1/8 NPRI (i.e., a total 1/4 NPRI) for 25 years. In 2003, the Wenskes conveyed the property to the Ealys by warranty deed. The deed stated the conveyance was subject to the Reservations from Conveyance and Exceptions to Conveyance and Warranty listed therein. The deed then reserved a 3/8ths royalty to the Wenskes and excepted the Vyvjala NPRI from the conveyance and warranty. Eventually, a dispute arose about whose interest was burdened by the Vyvjala NPRI. The Wenskes claimed their 3/8ths interest was not burdened by the Vyvjala NPRI at all while the Ealys claimed the Vyvjala NPRI burdened the parties mineral 5

6 estates in proportion to their fractional ownership in the minerals. The trial court granted summary judgment for the Ealys. The court of appeals affirmed. The Texas Supreme Court affirmed as well. The Court focused on the deed s subject-to clause, noting it made the Wenskes conveyance of their mineral interest subject to both the Reservations from Conveyance and Exceptions to Conveyance and Warranty. The deed clearly reserved a 3/8 royalty interest to the Wenskes. And, by listing the Vyvjala NPRI as an exception from conveyance and warranty, the Court held that the deed put the Ealys on notice the conveyance did not include the portion of the mineral interest subject to the Vyvjala NPRI, thus protecting the Wenske s from a warranty claim. It did not, as the dissent argued, make the 5/8 royalty interest conveyed to the Ealys subject to the entire Vyvjala NPRI. The confusion this case creates stems from the Texas Supreme Court s continued efforts to discourage the use of default rules when interpreting mineral documents. The court of appeals based its decision on a decades-old default rule that in the absence of language to the contrary, a deed conveying a portion of a mineral estate subject to an NPRI subjects the conveyed and reserved mineral interests to the NPRI proportionately. The Texas Supreme Court held that the use of such a mechanical rules of construction was improper. Instead, reviewing courts must engage in a careful and detailed examination of a deed in its entirety to determine to whom to allocate an NPRI. The Court then stated, Going forward, drafters of deeds should endeavor to plainly express the parties intent within the four corners of the instrument they execute. However, the Court ignored the fact that its own holding was based on a default rule. That is, the rule that in the absence of language to the contrary, an NPRI burdens the conveyed and reserved mineral estate proportionately. In so doing, the Court created a source of uncertainty for interpreters of mineral deeds the exact opposite of what it sought to do. STAY TUNED. Next month, we will discuss the final three cases that may have an impact on your daily work. We hope this series will help you address the legal issues presented by modern oil and gas activities. As always, if you believe one of these decisions might have a bearing on an action you are about to take or a decision you might make, consult a lawyer. ABOUT THE AUTHORS Chance Decker, a litigation partner at Gray Reed & McGraw in Houston, focuses his practice on commercial, oil and gas and employment litigation. He can be reached at cdecker@grayreed.com. Ryan Sears, an energy partner at Gray Reed & McGraw in Dallas, focuses his practice on the representation of clients in the energy industry, primarily on upstream and midstream transactions. He can be reached at rsears@grayreed.com. 6

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10 YOUR INDUSTRY IS OUR INDUSTRY Gray Reed & McGraw is equipped to provide legal counsel to a broad range of clients in the ever-evolving energy industry. In addition to acquisitions, divestitures, mergers, energy finance, litigation, restructuring and more, Gray Reed & McGraw s title examination practice covers onshore properties in 10 states: Colorado Louisiana Montana New Mexico North Dakota Ohio Oklahoma Texas Utah Wyoming When you think about it, our proven experience in every facet of your industry makes it our industry too. CONTACT HOUSTON 10 DALLAS Paul Yale Philip Jordan pyale@grayreed.com pjordan@grayreed.com grayreed.com

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12 2018 AAPL Education Calendar 1/10/2018 Held by Production and Royalty Issues (webinar available) Fort Worth, TX 6.00 CEU 1/16/2018 Held by Production and Royalty Issues (webinar available) Houston, TX 6.00 CEU 1/23/2018 1/26/2018 Oil and Gas Land Review, CPL/RPL Exam Midland, TX CEU / 1.00 ETHICS 2/1/2018 Field Landman Seminar Midland, TX 2.00 CEU 2/2/2018 Working Interest/ Net Revenue Interest Seminar Fort Worth, TX 6.00 CEU 2/5/2018 2/9/ NAPE SUMMIT Global Business Conference Houston, TX 7.00 CEU 2/6/2018 Comparative Law Review Houston, TX 7.00 CEU 2/13/2018 Due Diligence Seminar Oklahoma City, OK 5.00 CEU 2/22/2018 Held by Production and Royalty Issues (webinar available) Moon Township, PA 6.00 CEU 2/27/2018 Joint Operating Agreements Seminar Denver, CO 7.00 CEU 3/6/2018 3/9/2018 Oil and Gas Land Review, CPL/RPL Exam Oklahoma City, OK CEU / 1.00 ETHICS 3/14/2018 Joint Operating Agreements Seminar Grand Rapids, MI 7.00 CEU 3/15/2018 3/16/2018 Mining and Land Resources Institute (webinar available) Reno, NV CEU / 1.00 ETHICS 3/21/2018 Held by Production and Royalty Issues (webinar available) Midland, TX 6.00 CEU 4/5/2018 4/6/2018 Working Interest/ Net Revenue Interest Seminar Denver, CO 6.00 CEU 4/17/2018 Joint Operating Agreements Seminar Moon Township, PA 7.00 CEU 4/27/2018 Held by Production and Royalty Issues (webinar available) Denver, CO 6.00 CEU 5/9/2018 5/10/2018 Joint Operating Agreements Seminar (two day) Houston, TX TBD 5/15/2018 5/18/2018 Oil and Gas Land Review, CPL/RPL Exam Pittsburgh, PA CEU / 1.00 ETHICS 6/20/2018 6/23/ Annual Meeting Denver, CO CEU 7/10/2018 7/13/2018 Oil and Gas Land Review, CPL/RPL Exam Denver, CO CEU / 1.00 ETHICS 9/11/2018 9/14/2018 Oil and Gas Land Review, CPL/RPL Exam Fort Worth, TX CEU / 1.00 ETHICS 11/6/ /9/2018 Oil and Gas Land Review, CPL/RPL Exam Houston, TX CEU / 1.00 ETHICS Note: Dates are subject to change, please check the AAPL Website at for event details. 12

13 Newsletter and Website Advertisement Guidelines DAPL News is the Monthly newsletter of the Dallas Association of Petroleum Landmen. s are circulated from September through June to more than 500 members throughout the Dallas / Fort Worth area. Website ads run continuously throughout the year. Advertisements must be submitted in static gif, jpg, png or pdf format (no animations, video or audio). Advertisements must conform to the dimensions specified on the chart below. Alternative text for website advertisements must not exceed 255 characters. Website advertisements will follow a URL of your choice in a new browser window. Color: CMYK color mode only Resolution: 300dpi 600dpi Send to for information about how to get started. Deadline for artwork changes and new advertisements is two weeks prior to newsletter distribution date which is typically around the 1 st of each month the newsletter is published. Advertisers are limited to one art work change per plan year. All ads and advertisers are subject to DAPL Board approval. Newsletters are distributed to its membership via each month from September through June, and Website ads run throughout the year. Advertising Plan years run from September 1st through June 30 th for Newsletters and September 1 st through August 30 th for Website ads. Artwork and payments are due by each year to ensure publication in the September newsletter. Website Advertisers will pay pro-rated amounts if renewed or commenced other than these times. For questions about advertising with DAPL, please contact (Advertising Director) at. Full Page 7.5 x 10.5 inches 3 MB $2,645 $1,465 $375 1/2 Page 7.5 x 5.25 inches 2MB $1,325 $775 $170 1/4 Page 3.75 x 5.25 inches 1MB $720 $400 $145 1/8 Page 3.75 x inches 1MB $400 $260 $115 Skyscraper 120 x 640 pixels 20k $610

14 DALLAS ASSOCIATION OF PETROLEUM LANDMEN P. O. Box , 2017 Membership Year Dallas, Texas January-December Please accept my application for membership in the Dallas Association of Petroleum Landmen under the classification of membership I have checked below. I agree to be governed by the Constitution and Bylaws of the Association, including the Code of Ethics. Check one of the following: ACTIVE Member ($150.00) Active membership in the association shall be available to professional Landmen whose responsibilities primarily involve the negotiation for the acquisition and/or divestiture of mineral rights, negotiation of business agreements that provide for the exploration, trading and management of oil, gas and all other mineral estates in land in a non-administrative or clerical manner. An applicant for active membership must have the sponsorship of two (2) Active Members of the Association who know the applicant. ASSOCIATE Member ($150.00) Associate membership in the Association shall be available to all persons who are directly, primarily and regularly engaged in performing services in the oil, gas and mineral industry. Associate Members shall have all the rights and privileges of Active Members except they may not hold office in the Association, vote in Association affairs or sponsor membership applications. An applicant for associate membership must have the sponsorship of two (2) Active Members of the Association who know the applicant. NON-RESIDENT Member ($40.00) Non-Resident membership in the Association shall be available at the discretion of the Board to individuals residing at least seventy-five (75) miles from downtown Dallas. Non-Resident Members will pay reduced annual dues as set by the Board. Non-Resident Members will have all the rights of Active Members except they may not hold office in the Association, vote in Association affairs or sponsor membership applications, and they will pay their share of any and all activities attended. An applicant for Non-Resident membership must be sponsored by two (2) Active Members of the Association or two (2) non-member CPL s. If the applicant is a CPL no sponsors are required. SENIOR Member ($40.00) Senior membership shall be optional to those members who have reached the age of sixty (60) years, and have actively engaged as a Petroleum Landman for at least twenty (20) years, and an Active member of the Association (DAPL) for a period of at least five (5) years. A senior member shall be relieved of his obligation of paying full annual dues, without prejudicing his/her fair rights as an Active member of the organization; provided however, a Senior member shall pay his/her share of ANY and ALL activities attended, plus reduced annual dues which shall be fixed from time to time by the Board of Directors. PLEASE PRINT C L E A R L Y Full Name (please print) Preferred First Name Company Name Nature of Business (i.e., Production, Exploration, Brokerage, etc.) Position Title Does this position, primarily involve Landman responsibilities (yes or no) Length of Experience as a Landman Length of total energy industry experience Office Address / / Street Zip Office Phone Cell Phone (optional) City All DAPL news/information is sent via . Address Are you a member of the AAPL? (yes/no) Please print legibly Birth date / / (for AAPL purposes) Are you a CPL? RPL? ESA? Universities Attended Other industry associations/societies of which you are a current member Date Signature of Applicant The following two (2) ACTIVE Members in good standing have signed below as sponsors of this applicant. Associate Members may not sponsor. Sponsor s Signature Print Name Legibly: Address: Phone Sponsor s Signature Print Name Legibly: Address: Phone MEMBERSHIP APPROVED: DATE THE BOARD OF DIRECTORS President THIS APPLICATION MUST BE SUBMITTED TO THE ABOVE ADDRESS WITH A CHECK MADE OUT TO DAPL FOR ANNUAL DUES IN THE AMOUNT OF $ IF ACTIVE OR ASSOCIATE, OR $40 IF NON-RESIDENT. 50% AFTER JUNE 1. RETURN TO ABOVE ADDRESS. NTAC:4UC-11 Your dues cover the costs associated with all DAPL publications, regular meetings and social functions. AMBASSADORS OF THE OIL INDUSTRY! LAND IS THE BASIS OF ALL WEALTH