Newsletter DAPL INSIDE THIS ISSUE: UPCOMING EVENTS. Letter From the President 3. A Primer on Oil and Gas 4 Regulation in Texas

Transcription

1 September DAPL Newsletter INSIDE THIS ISSUE: Letter From the President 3 A Primer on Oil and Gas 4 Regulation in Texas Golf Tournement Dates 13 DAPL Incoming 14 Board of Directors Landmen We Will Miss 19 Pickering Your Poison 21 AAPL Education Calendar 46 UPCOMING EVENTS DAPL UPCOMING EVENTS: September 14th Formal Meeting Dallas Petroleum Club October 19th Golf Tournament Brookhaven Country Club November 2nd Educational Luncheon Maggiano s North Park OTHER INDUSTRY UPCOMING EVENTS: September 18th AAPL Negotiations Seminar 6.00 CEU Dallas Marriot October 7th AAPL Marketable Title 5.00 CEU Embassy Suites Fort Worth Downtown October 30th AAPL Due Diligence Seminar 5.00 CEU Dallas Marriot DEAR MEMBERS: On behalf of the AAPL, we would like to announce that they are offering an extended period of time in which to renew your AAPL memberships. If you have not already done so, you will have until Friday, September 18, 2015 to renew and pay your dues. If you do not make it in by that time, you will be required to re-complete a new membership application and go through the process of providing references and their contact information, etc Your AAPL membership can be renewed at (

2 DAPL Board Of Directors PRESIDENT Adam Griffin, CPL J-W Energy Company (972) ST VP (ENTERTAINMENT) D.J. Cherry PetroVen, Inc. dj@petroveninc.com (972) ND VP (MEMBERSHIP) Keri Sweet, CPL Northern Trust kks5@nrts.com (972) RD VP (WEBSITE) Jerry Padilla, RPL Land Management Partners jdpadilla952@gmail.com (817) SERGEANT-AT-ARMS Joel Robbins, CPL Merit Energy joel.robbins@meritenergy.com (972) TREASURE Alicia Surratt JP Morgan alicia.surratt@jpmorgan.com (214) SECRETARY J. Brooks Yates Ventex Oil & Gas, Inc. jbyates@ventexoilandgas.com (214) PUBLICATIONS DIRECTOR Matt McCauley, CPL Comstock Resources, Inc. mmccauley@comstockreources.com (972) EDUCATION DIRECTOR Nick Peters Merit Energy nick.peters@meritenergy.com (972) NGL & MEMBERSHIP CO-DIRECTOR Ryan Boschetti, RPL Hunt Oil Company rboschetti@huntoil.com (214) ADVERTISING DIRECTOR Yaroslav Andrus, CPL Pioneer Natural Resources yaroslav.andrus@pxd.com (972) IMMEDIATE PAST PRESIDENT Josh Raley, CPL EXCO Resources, Inc. jraley@excoresources.com (214) AAPL DIRECTOR Iris Bradley, CPL/ESA Northern Trust Ilb1@ntrs.com (972) MARK YOUR CALENDARS DAPL September Formal Meeting September 14, 2015 Dallas Petroleum Club DAPL invites you to its September Formal Meeting. It will be held on Monday, September 14, 2015 from 5:30 pm 8:30 pm at the Dallas Petroleum Club: 2200 Ross Avenue, Suite 3900, Dallas, Texas. This event is free to current Active & Associate Members of the DAPL. There is a cost of $60 per person for Guest, Non-Resident Members, and Senior Members. Additional information and registration for the event is available at 2

3 Letter from the President To my fellow Landmen, DAPL Newsletter I am truly honored to be serving as DAPL s President for , and I would like to extend my appreciation to all the members for providing me with this great opportunity. I ve been a member of DAPL since 2003 and this is my second term serving on the DAPL Board. Joining DAPL and volunteering my time towards supporting our great organization has been one of the best decisions I ve made from both a professional and personal standpoint. One of the themes the DAPL Board would like to focus on this year is the importance of maintaining membership participation during down cycles in our industry. DAPL s membership is down 33% from There is no doubt this is a difficult time in our industry and we all have friends and family that have been negatively impacted by this latest downturn. However, this is the time that we should stay involved with excellent organizations like DAPL in order to provide support and encouragement to all of our fellow Landmen. A great quote and one that holds true for DAPL and all organizations is Your organization is only as strong as the members who support it. If you are a member that has drifted away from attending our member meetings and volunteer events, the DAPL Board would like to welcome you back this year and encourage you to become more involved during a time when DAPL needs support from our membership more than ever. The DAPL Board is very excited about this upcoming year and the events we have planned. Our September Kick Off meeting is scheduled for Monday, September 14 th at the Dallas Petroleum Club. The 53 rd Annual DAPL Golf Tournament benefitting the Texas Scottish Rite Hospital is scheduled for Monday, October 19 th at Brookhaven Country Club. Due to the success of our annual Special Olympics Volunteer event held every spring, the board is also in the process of organizing a second philanthropic volunteer event to be held this winter. I would like to recognize and congratulate Iris Bradley on her appointment as DAPL s AAPL Director along with DAPL member Kevin Dickerson on his appointment as AAPL Secretary. Through their leadership, the DAPL membership will maintain a strong and positive influence at the national level. Following are a few important updates from AAPL: 1. Melanie Bell has been announced as the new AAPL Executive Vice President. 2. AAPL renewals have been extended. However, after 9/30/2015 non-renewing members will lose log-in access to the AAPL website. 3. AAPL invites members to stop by and visit the new headquarters in Fort Worth. AAPL is planning an open house in November. 4. AAPL recently approved a new Energy Management program through the McCombs School of Business at the University of Texas. On behalf of the Board, we are thankful for the opportunity to serve the members of the DAPL and should you have any questions or concerns, please feel free to contact the DAPL ( Sincerely, Adam S. Griffin Adam S. Griffin, CPL J-W Operating Company Adam S. Griffin, CPL 3

4 A Primer on Oil and Gas Regulation in Texas: Spacing, Density, Permits, Exceptions BY BRANDON E. DURRETT PROFESSIONAL LANDMEN are often called upon to play roles that go beyond their customary duties of buying, selling, leasing and curative, especially when working for a small independent operator or a startup with a lean budget. One responsibility that landmen often acquire is that of a regulatory analyst. Overcoming regulatory barriers to operations and production like obtaining permits and seeking rule exceptions requires not only expertise in regulatory matters, but also a detailed knowledge of the features of your land. When the time comes to wade into the regulatory waters, a healthy working knowledge of the laws and rules governing such matters can save unnecessary delay and frustration in drilling and completing a well. This article summarizes some of the Texas Railroad Commission rules, guidelines and procedures most frequently encountered by land professionals, and it provides some practical advice for working through common regulatory problems. Specifically, this article discusses the regulatory systems pertaining to spacing, density and proration rules, with special attention to recent developments in the regulation of horizontal drilling. Additionally, this article addresses the regulatory process of permitting and completing a well, including the basics of permit exceptions and protested permits. When the time comes to wade into the regulatory waters, a healthy working knowledge of the laws and rules governing such matters can save unnecessary delay and frustration in drilling and completing a well. 4

5 SPACING RULES Among other goals, the commission is charged to prevent waste of natural resources and protect correlative rights of owners over common oil and gas reservoirs. 1 The commission does this in part by regulating the proximity of wells to each other. Spacing rules set the minimum distance between your well and (a) the boundary lines of adjacent tracts and (b) other wells on your lease. Lease line spacing under Statewide Rule 37 prohibits the location of a well nearer than 467 feet from any property line, lease line or subdivision line. 2 Betweenwell spacing under Rule 37 prohibits location of a well nearer than 1,200 feet from any well completed in or drilling to the same horizon on the same tract or farm. As such, between-well spacing does not apply as between wells located on different leases and/or producing from different fields. Rule 37 applies to all oil and gas wells in Texas to the extent it has not been pre-empted by special field rules. A property line for lease-line spacing purposes is any tract boundary over which the ownership of mineral or working interest differs from that of your lease or pooled unit, even in the smallest degree. 3 Pooling erases property lines between unit tracts, but nonjoinder of any mineral or working interest owner in any pooled unit tract will create a property line. Although a difference in ownership of royalty or overriding royalty will technically create a subdivision, the commission follows a policy that owners of such interests, being nonpossessory revenueonly interests, are not entitled to notice of Rule 37 spacing exceptions. This commission policy has been upheld in Texas courts based in part on the rationale that such owners interests are aligned with and represented by their respective operators or lessees, who are entitled to notice under Rule Rule 11 requires that [a]ll wells shall be drilled as nearly vertical as possible by normal, prudent, practical drilling operations. 5 In issuing drilling permits, the commission generally assumes vertical wells will be drilled vertically, i.e., the surface location will be the same as the bottomhole location. However, as any engineer will tell you, vertical wells are never truly vertical. If not carefully monitored, sidetracking or unintentional deviations may cause your well to bottom at an irregular location, or even offlease. To control for deviations, the commission requires an inclination survey for most new vertical wells, which reports downhole locations at regular intervals along the wellbore (Form W-12). 6 If the incline of the wellbore is so large as to be potentially off-lease, the commission requires a directional survey, which is a more detailed (and expensive) downhole survey that will determine whether the bottomhole location actually violates spacing rules. 7 If so, the well will require a spacing exception. Of course, some wellbores are intentionally deviated for various reasons, such as directional wells. Rule 11 provides additional permitting rules for intentionally deviated wells, which generally require more preliminary filings. 8 Directional wells require a directional survey to ensure that they reach their target bottomhole location. DENSITY AND PRORATION RULES In addition to spacing, the commission controls well locations using density and proration rules, which are designed to prevent clustering of wells and overproduction of the common reservoir. Density and proration are related concepts under commission rules but should be carefully distinguished. Density regulates the minimum amount of acreage to be assigned to a well for issuance of a drilling permit, known as a drilling unit. 9 Proration regulates the volume of oil or gas that may be produced from a completed well, known as an allowable. A proration unit is the productive acreage assigned SIDE NOTES 1 See Tex. Nat. Res. Code , et seq., , et seq. (Vernon 1993); Railroad Commission v. Shell Oil Co., 380 S.W.2d 556 (Tex. 1965) Tex. Admin. Code 3.37(a)(1). 3 2 Ernest E. Smith & Jacqueline Lang Weaver, Texas Law of Oil & Gas 9.3(A) (2d ed. 2000); see 16 Tex. Admin. Code 40(a); see Brian R. Sullivan, P.E., Rule 37: Any Well Drilled in Violation of this Rule Shall be Plugged, 22nd Annual Advanced Oil, Gas, and Energy Resources Law Course, Chapter 6 (Sept. 30, 2004-Oct. 1, 2004). 4 H.G. Sledge Inc. v. Prospective Inv. & Trading Co., 36 S.W.3d 597 (Tex. App. Austin 2000, pet. denied); see Sullivan, supra note Tex. Admin. Code 3.11(a). 6 Id. at 3.11(b). 7 Id. at 3.11(c). 8 Id. at 3.11(d). 9 Id. at 3.38(a)(2). 10 Id. at 3.38(a)(3). 11 Id. at 3.40(d). 12 Id. at 3.38(b)(2)(A). 13 Smith & Weaver, supra note 3, at 10.1(B)(2) Tex. Admin. Code 3.39(a). 15 Smith & Weaver, supra note 3, at 9.3(B). 5

6 to a well to obtain an allowable and is typically the same size and shape as the well s drilling unit. 10 Acreage that is committed to a drilling and/or proration unit for an existing well may not also be assigned to a new well completed in the same field or reservoir. 11 A landman should be familiar with the density and proration rules applicable to his lease in order to maximize developable acreage. Under Statewide Rule 38, the drilling unit size for wells subject to statewide rules is 40 acres, though special field rules may set different density requirements. 12 For vertical wells, proration units are purely a creation of special field rules; although they are subject to production volume limits under statewide rules, they are technically not assigned proration units. 13 A drilling or proration unit generally must be composed of contiguous acreage. 14 Otherwise, a drilling unit may be most any shape, provided it contains the minimum acreage and does not violate spacing rules. However, special field rules for some vertical wells prescribe a diagonal rule, which usually requires that the length of the unit not exceed twice the width in order to prevent formation of long, awkwardly shaped units. 15 After a lease is drilled to density, there often remains unassigned surplus acreage that is not big enough to support a regular drilling unit. Rule 38 allows surplus acreage to be drilled if it is at least half the size of a regular drilling unit, among other requirements; field rules often contain similar provisions. 16 Also note that some special field rules prescribe a standard unit size with the option to form larger units, often with 6 the benefit of an increased allowable; however, an operator may not drill on substandard acreage in exchange for a reduced allowable, as allowed in some other jurisdictions. 17 But, as with spacing, density compliance is often achieved by pooling to obtain sufficient acreage. Density rules become especially important when applied to the terms of an oil and gas lease. Pooling authority in a lease is often limited by the size of the well unit prescribed or permitted for the field by applicable governmental authority. 18 Similarly, a lease may contain a retained acreage provision, Pugh clause or continuous development program that can effect a partial lease severance based on the acreage minimums required by the commission. If so, density rules will be a crucial factor in the development plans for the lease. The commission s actual methods and criteria for assigning allowables are highly technical and beyond the scope of this article, but a brief summary is helpful. The top allowable for a statewide field is governed by a yardstick formula under Rule 45, which is then allocated among the wells in that field. SIDE NOTES Tex. Admin. Code 3.38(c). 17 See Jones v. Killingsworth, 403 S.W.2d 325 (Tex. 1965); see Smith & Weaver, supra note 3, at 9.3(B). 18 See id. 19 Smith & Weaver, supra note 3, at 10.1(B). 20 Id. at 10.3(C). 21 Id. at 10.4(A) Tex. Admin. Code 3.86(d) (5). 23 Id. at 3.45(c); id. at 3.31(j) Tex. Admin. Code (3.5(c)). 25 Oil & Gas Filing Checklist from Allowables may be further limited by market demand for the sake of price stability; however, the commission has not done this since The top allowable for a field may be increased by proving at hearing that the maximum efficiency rate or MER for the field is higher than the yardstick, meaning it can be produced at a higher rate without causing waste. 20 Proration for gas wells is more complex than for oil due in part to the challenges of transportation and marketing, but it generally follows the same principles. 21 Allowables for horizontal wells are controlled by formula under Statewide Rule 86, unless pre-empted by special field rules. 22 Note that not all wells are subject to proration; some fields are exempt or classified openflow, meaning they have effectively no restriction on production volume. 23 THE PERMITTING AND COMPLETION PROCESS The commission enforces spacing, density and proration regulations in part by issuing drilling permits designed to ensure that oil and gas wells Prospect to Production, state.tx.us/forms/forms/og/checklist. php. 26 Drilling Permits Online Filing User s Guide, tx.us/forms/publications/dpmanual/ index.php. 27 Oil & Gas Field Information Query, 28 Gas well completions are governed by Statewide Rules 28 and 31 (Forms G-1, G-5, and G-10) and oil wells by Rules 16 and 51 (Forms W-2 and W-10) Tex. Admin. Code 3.11.

7 are drilled at regular locations in compliance with applicable rules. Commission rules state that [o]perations of drilling, deepening, plugging back, or reentering shall not be commenced until the permit has been granted by the commission. 24 The commission maintains an online filing system for permitting wells and also publishes guidance to walk you through the steps of obtaining a permit. You can find a general checklist for the permitting and compliance process on the commission s website. 25 The process begins by submitting a drilling permit application (Form W-1) accompanied by a well location plat, as well as a certificate of pooling authority (Form P-12) if the well is in a pooled unit. Guidance for submitting data and forms for the drilling permit application can also be found online. 26 The commission s online application system will walk you through entry of the required data, including survey and acreage information, measured distances from adjacent tracts and nearby wells and target producing zones. It will also help identify any necessary rule exceptions; however, note that if you are drilling a horizontal well under special field rules, you may have to identify such exceptions due to system limitations, which requires careful review of the field rules for your well. Most active fields today use special field rules, though statewide rules may still apply in wildcat areas. Highly productive areas often have several sets of field rules, each tailored to a particular productive zone, geological feature or development technique. You can research the applicable rules for your field on the commission s website. 27 Upon completion of the new well, the commission requires submission of completion report forms to gather data such as producing depths and formations, wellhead pressure, production potential test results and the attributes of the produced hydrocarbons. 28 This data is used to classify the well as oil or gas and make determinations about safety and environmental requirements, among other uses. The completion data also determines the allowable for your well, if applicable (Form P-15). Also, an inclination report is required for all new wells, which reflects wellbore deviations that may require a downhole directional well survey (Form W-12). 29 Permitting and compliance for some wells can be relatively easy, especially if you have already completed similar wells in the same field; others are a nightmare from beginning to end. DAPL Newsletter Note that this is merely a brief summary of some of the permit and reporting requirements applicable to most wells. The commission requires a host of other forms and reports that are beyond the scope of this article, some of which require multiple submissions or regular reporting throughout the life of a well. Even after the well is online and in compliance, failure to submit required filings or otherwise comply with the terms of the permit may result in a violation letter from the commission, which if ignored may lead to heavy fines and possibly a plugging order. Also keep in mind that every well is different than the last. Permitting and compliance for some wells can be relatively easy, especially if you have already completed similar wells in the same field; others are a nightmare from beginning to end. The landman responsible for a well s regulatory compliance should proactively research the commission rules and guidance materials and contact the commission regularly to ensure all bases are covered for the new well. RULE EXCEPTIONS A variety of circumstances may arise that prevent you from drilling at a regular location. Factors such as geology, surface conditions or the size and features of the lease may force you to drill too close to a property line or even off-lease. Regulatory problems are often unanticipated, such as when title examination reveals an unexpected mineral strip or subdivision or an old survey error results in noncompliance. Even when you have found a regular location, spacing and density rules can create a very small drilling target such that even a minor location error or unintentional wellbore deviation can result in a spacing exception. For example, imagine a vertical well drilled in the center of a 40-acre square tract under statewide rules: A spacing violation would occur if that well location were moved only 244 feet toward a property line. Even more alarming, a spacing violation would also occur if that well location were moved off-center a mere 120 feet, or 1/50 of a mile, toward a well centered on an adjacent 40-acre drilling unit. With such a slim margin for error, knowing how to identify and resolve a spacing exception is crucial to the process of completing the well. If a spacing or density violation cannot be avoided, the 7

8 drilling permit will require an exception. This process begins by submitting a service list with names and addresses of affected parties in adjacent tracts known as offsets, which include: (a) the designated operator under all existing oil and gas leases or all working interest owners of record for leases with no designated operator and (b) all unleased mineral owners. 30 For lease-line spacing exceptions, the applicant must submit offsets for all tracts closer than the greater of the lease-line spacing and one-half of the between-well spacing. For between-well spacing exceptions, offsets must be submitted for all tracts adjacent to your well tract, regardless of distance. The commission s online Public GIS Map Viewer is a useful tool for identifying offsets and researching well data generally. 31 A spacing exception may be granted administratively, meaning without a formal hearing before the commission, if the applicant submits written waivers of objection to the permit from all offsets or if all offsets fail to object within 10 days of receipt of notice of the exception application. 32 For offsets that cannot be located or identified, the commission allows notice by publication. 33 Attention to detail is paramount in the notification process because failure to give proper notice to all applicable offsets per the strict terms of Rule 37 will result in voidance of the permit and a plugging order for the well, even if the offset you failed to notify had actual knowledge of the irregular location. 34 PROTESTED PERMITS Of course, securing an administrative exception is the best-case scenario. If any offset timely objects to the 8 permit, the commission will schedule a hearing in which the applicant must demonstrate that granting its exception is necessary to either: (a) prevent waste of oil and gas or (b) prevent confiscation of oil and gas. 35 For example, waste may occur when a reservoir can be effectively drained only with denser well spacing. Likewise, confiscation may occur when the commission denies a permit on a substandard-size tract because no regular drilling location exists. The specific criteria for satisfying these narrow standards are beyond the scope of this article, but other publications discuss in them detail. 36 Needless to say, however, you should be represented by legal counsel if your case is protested. The voluntary subdivision rule is an obstacle frequently encountered in seeking a confiscation exception to Rule The rule essentially bars the commission from granting a spacing exception on small tracts created by a voluntary subdivision by deed occurring prior to the date of first discovery in the field and on small tracts created by an oil and gas lease. This description is oversimplified, but the rule is designed to prevent applicants from circumventing spacing and density rules by deliberately subdividing their land into substandard- size lots and then seeking a small tract confiscation exception. Exception permits are often protested due to title-related disputes. The commission issues permits based on the applicant s demonstration of a good faith claim to an interest in the drillsite; likewise, it may deny a permit if the applicant s claim is rebutted by protesting parties. 38 The commission lacks jurisdiction to resolve genuine title disputes; such matters must be resolved privately or in the Texas civil court system before the commission will consider whether to issue or deny a permit. 39 REGULATION OF HORIZONTAL DEVELOPMENT Statewide Rule 86 governs spacing, density and proration for horizontal wells, to the extent they are not pre-empted by special field rules. A horizontal drainhole well, as distinguished from vertical and directional wells, is any well developed with one or more horizontal drainholes having a horizontal drainhole displacement of at least 100 feet. 40 Like Rule 37, Rule 86 requires 467-foot lease line spacing and 1,200-foot between-well spacing, though the rule language is slightly modified to apply to horizontal development. 41 However, Rule 86 prescribes density and proration rules using specific formulae for allocating acreage and allowables, which differ significantly from those applicable to vertical wells. 42 Essentially, Essentially, the size of the Rule 86 allows unit is proportional to the for a horizontal drilling length of the drainhole. and proration unit of the applicable acreage for a vertical well in the same field, plus additional acreage in 20-acre intervals based on the length of the drainhole displacement, which is the portion of the wellbore lying within the producing formation or correlative interval. 43 Essentially, the size of the unit is proportional to the length of the drainhole. Rule 86 also prescribes a diagonal rule, which limits the diagonal

9 length of a horizontal proration unit to the length of the drainhole displacement plus 2,100 feet. 44 This not only puts limits on the shape of the unit, but also acts as a secondary restriction on unit size. Also, unlike most vertical wells, all horizontal wells must have directional surveys to verify that the well was actually drilled in conformity with the permit. 45 Most horizontally developed fields are operated under special field rules, many of which share common regulatory concepts developed in recent years. They typically have 330-foot lease line spacing and often no between- well spacing or diagonal requirements at all. 46 The box rule has been adopted in several fields, which allows a drainhole to deviate a certain distance, usually 33 feet, from either side of the permitted drainhole location without the necessity of a spacing exception. 47 This gives operators some leeway when they must make minor unplanned deviations, which is helpful when spacing rules create an especially narrow drilling path. Rule 86 specifically allows drilling of multiple drainholes from a single surface location, known as multilateral wells, and treats them as a single well for permitting purposes. 48 However, many special field rules also allow stacked laterals, which are multiple drainholes located on top of one another and drilled from different surface locations but still treated as a single well. 49 The stacked lateral rule takes advantage of the lack of between-well spacing, allowing the operator to manage the distances between his own drainholes. Surface location is generally irrelevant to the permitting process for horizontal wells, and off-lease surface locations are common. However, many special field rules have gone a step further to allow off-lease penetration of the producing formation itself. 50 This allows the operator to locate the first take point as close as permitted to the lease line and thereby drain more valuable lease acreage. Off-lease penetration requires a notice and objection process similar to that required for an administratively granted exception to spacing or density rules. Of course, a landman must secure appropriate surface and subsurface rights from the owners of the penetration point tract, unless he is his own offset. In 2011, the commission attempted to formally adopt the box rule and stacked laterals on a statewide basis by amending Rules 79 and 86, as well as the concepts of PSAs and NPZs, though the proposed rulemaking has since been withdrawn. 51 For now, these regulatory concepts will continue to be utilized solely in the context of special field rules. SIDE NOTES 30 Id. at 3.37(a)(2)(A). 31 Online Research Queries, data/online/index.php# Tex. Admin. Code 3.37(h)(2). 33 Id. at Anadarko E&P Co. L.P. v. R.R. Comm n of Tex., 2009 Tex. App. LEXIS 2618 (Tex. App. Austin 2009, no subsq. history) Tex. Admin. Code 37(a)(3); Railroad Comm n v. Williams, 163 Tex. 370, 356 S.W.2d 131 (Tex. 1961). 36 See Smith & Weaver, supra note 3, at ; see Sullivan, supra note 3; see Eric C. Camp, Dealing with Missing Persons & Holdouts: Using Rule 37 and MIPA for Urban Gas Development, Dallas Bar Association, Energy Law Section Luncheon (Jan. 19, 2011) Tex. Admin. Code 3.37(g). 38 Magnolia Petroleum Co. v. R.R. Comm n, 141 Tex. 96, 170 S.W.2d 189 (1943). 39 Pan Am. Petroleum Corp. v. Railroad Comm n, 318 S.W.2d 17 (Tex. Civ. App. Austin 1958, no writ). 40 Id. at 3.86(a)(4). 41 Id. at 3.86(b)(1-3). 42 Id. at 3.86(d). 43 Id. at 3.86(d)(1). 44 Id. at 3.86(d)(6). 45 Id. at 3.86(f)(3). 46 See Final Order Amending Field Rules for the Carthage, North (Bossier Shale) Field, Harrison, Nacogdoches, Panola, Rusk and Shelby Counties, Texas (Nov. 3, 2009) (Railroad Commission Oil & Gas Docket No ); see Order Nunc Pro Tunc Amending and Making Permanent the Field Rules for the Eagleville (Eagle Ford-2) Field, DeWitt, Karnes, Lavaca and Live Oak Counties, Texas (June 26, 2012) (Railroad Commission Oil & Gas Docket No ); see Final Order Amending Field Rules for the Clark Martin (Granite Wash) Field, Roberts County, Texas (Oct. 11, 2011) (Railroad Commission Oil & Gas Docket No ). 47 See Order Nunc Pro Tunc Adopting Field Rules for the Atlee (Olmos) Field, LaSalle County, Texas (May 7, 2012) (Railroad Commission Oil & Gas Docket No ); see Final Order Amending Field Rules for the Dowdy Ranch (Cotton Valley) Field, Freestone and Leon Counties, Texas (June 22, 2010) (Railroad Commission Oil & Gas Docket No ) Tex. Admin. Code 3.86(e). 49 See supra note 47. 9

10 THE TAKE POINT RULE AND NPZS Due to their lateral length, horizontal wells usually transect multiple tracts. All tracts transected by the productive portion of a horizontal wellbore are considered drillsite tracts, which means the owners of interests However, questions arise therein are when an interest owner entitled to in any tract necessary to their share permit the horizontal well of oil and cannot be leased and/or gas actually pooled. produced from their tract. 52 A critical step in the process of drilling a horizontal well is determining the basis for distributing the proceeds of production among the owners in the various tracts, which is usually accomplished by pooling. A landman must often lease and pool adjacent nondrillsite tracts in order to comply with applicable spacing rules, even though the drainhole will not transect such tracts. However, questions arise when an interest owner in any tract necessary to permit the horizontal well cannot be leased and/or pooled. A common problem in horizontal development is a mineral owner in an adjacent nondrillsite tract who refuses to lease or otherwise participate, which results in a spacing violation that would normally require a spacing exception. However, under special field rules for most new horizontal fields, the commission adopted a take point rule, which applies the spacing distance minimum only to the points along the drainhole casing that are perforated for draining the formation and not to the entire length 10 of the drainhole. 53 The take point rule allows operators to avoid a spacing exception simply by not perforating that portion of the wellbore that is located too close to the offset tract, known as the no-perf zone or NPZ, provided the well meets certain casing and cementing criteria. This procedure may result in a slightly less productive well but is certainly better than forfeiting it entirely. Note that the take point rule has not been adopted on a statewide basis, so spacing restrictions apply to the entire length of the drainhole in areas still governed by Rule 86. PSA PERMITS AND ALLOCATION WELLS Another problem encountered in horizontal development is lack of power to pool leases. As noted, pooling is regularly used to combine separate adjacent leases into a single unit big enough to accommodate a long lateral drainhole, and the commission requires the operator thereof to verify its pooling authority as part of the permitting process. However, in Texas, a lessee s power to pool is derived solely from the terms of his lease, and not all leases authorize pooling. Perhaps a lease authorizes pooling for gas but not oil. Or perhaps the pooling power under a lease was exhausted when it was pooled into a pre-existing unit. Texas allows forced pooling only in certain uncommon circumstances, and all attempts to enact broad forced pooling legislation have failed. An operator may have a clear right to drill each of his adjacent leases, but how can he develop them together horizontally if he cannot pool them? To address this issue, landmen SIDE NOTES 50 See Final Order Adopting Field Rule Nos. 5 and 6 for the Phantom (Wolfcamp) Field, Loving, Reeves, Ward and Winker Counties, Texas (June 12, 2012) (Railroad Commission Oil & Gas Docket No ); see Final Order Adopting Field Rules for the Pearsall (Buda, S.) Field, Frio and Zavala Counties, Texas (Nov. 6, 2012) (Railroad Commission Oil & Gas Docket No ) Tex. Reg. 198 (2011) (proposed Jan. 21, 2011; withdrawn July 21, 2011) (Tex. R.R. Comm n); see H. Philip Whitworth & D. Davin McGinnis, Square Pegs, Round Holes: The Application and Evolution of Traditional Legal and Regulatory Concepts for Horizontal Wells, 7 Tex. J. Oil Gas & Energy L. 177 ( ). 52 Browning Oil Co. Inc. v. Luecke, 38 S.W.3d. 625 (Tex. App. Austin 2000, pet. denied). 53 See supra note See Robert D. Jowers and Mickey R. Olmstead, Drafting Production Sharing Agreements, 39th Annual Ernest E. Smith Oil, Gas and Mineral Law Institute (March 22, 2013). 55 See id. 56 See Final Order and Proposal for Decision in Application of EOG Resources Inc. for its Klotzman Lease (Allocation) Well No. 1H (Status No ), Eagleville (Eagle Ford-2) Field, DeWitt County, Texas, as an Allocation Well Drilled on Acreage Assigned from Two Leases (Final Order dated Sept. 24, 2013; Proposal for Decision dated June 25, 2013) (Railroad Commission Oil & Gas Docket No ) Tex. Admin. Code 3.107(e)(1). 58 Id. at 3.37(e). 59 Id. at 3.2(a-b). 60 Id. at 1.85.

11 who could not secure pooling authority began using production sharing agreements (or PSAs) in lieu of formal pooling. A PSA is essentially a contractual stipulation among the royalty and working interest owners in a horizontal well as to how the proceeds of production shall be allocated among the tracts composing the well unit. The commission informally adopted a policy of issuing drilling permits based on the operator s representation that it has secured a PSA joined by at least 65 percent of the royalty interest and 65 percent of the working interest for each lease involved (Form PSA-12). 54 The commission form (Form PSA- 12) is based on net acreage contributed to the well, like a typical pooling agreement. However, the form may be accompanied by a more sophisticated agreement also based on acreage contribution or sometimes on the proportion of productive lateral transecting each drillsite tract or the location of perforation points. A PSA does not address allocation of well expenses among working interest owners, such as the costs of drilling and operations. And unlike a pooling agreement, a PSA will not perpetuate a participating lease as if it were actually producing; however, this is usually unnecessary because a horizontal well by its nature will actually produce from all drillsite tracts. Although the PSA permit procedure remains an informal policy, not a formally adopted rule, the commission currently issues hundreds of PSA permits annually. 55 However, PSA permits are still in their infancy, and the policies and procedures governing them will likely undergo significant change in the coming years. The commission has also issued a number of allocation well permits, which are based solely on the operator s good faith assertion of its right to drill laterally through multiple tracts without a pooling agreement or PSA in place. However, the legality and advisability of allocation wells is currently in dispute at the commission, and their future use is uncertain. 56 PENALTIES FOR NONCOMPLIANCE Failure to comply with commission rules results in steep fines and penalties, even for seemingly minor reporting violations. Drilling without an approved permit can cost upwards of $10,000 in penalty fees. 57 More worrying than fines, however, is the risk of incurring the death penalty for the well: a plugging order from the commission. Keep in mind that any well drilled without a proper permit or in violation of spacing or density rules or in noncompliance with a commission order shall be plugged. 58 Generally, the commission will work with you to resolve regulatory problems in good faith, to the extent allowed under the law; but remember that its rules and orders have the power of the state behind them, which is no small matter. The commission has power to enter an operator s lease premises, test wells and inspect facilities at any time and for any reason. 59 During hearings, the commission has essentially the same power as a court to compel testimony and disclosure of evidence by order or subpoena, such as well logs, geological data, service contracts and environmental reports. 60 Also, commission enforcement is not subject to a statute of limitations, so permit problems will not be cured by passage of time. In sum, potential regulatory violations should be taken seriously as a genuine threat to the value of your wells and leases. CONCLUSION A good landman should be familiar with the rules and regulations of the Railroad Commission of Texas, both for the field he is working in and on a statewide basis. Even if not directly involved in the formal well permitting process, a landman can avoid many regulatory pitfalls by ensuring that his land has the spacing and density features necessary to carry out his operator s development plans. Keeping up with new regulatory schemes in field rules for horizontal drilling is especially important given the broad range of recent developments in this area. Furthermore, given the high level of risk presented by drilling permit violations, compliance with commission rules should not be seen as a mere formality, but an essential component of the right to drill, which deserves a landman s careful attention. The process of permitting and completing a well can often be overwhelmingly complex, though the commission provides a wealth of online guidance materials to aid in the process. Permit exceptions can arise in any number of ways, and a good landman should be familiar with the steps to secure an exception, especially when called upon to notify and obtain waivers from affected landowners. A potential permit violation is a major financial risk to an operator, and such compliance matters should be given due attention. 11

12 About the Author BRANDON MAINTAINS a diverse oil and gas practice focused on identifying and solving problems his clients encounter in the exploration, development, operation, production, sale, and leveraging of oil and gas properties. Brandon handles all phases of acquisition and divestiture of oil and gas assets, including negotiation, drafting, and closing of purchase and sale agreements, associated financing transactions, and large-scale due diligence projects. He also frequently negotiates and manages upstream and midstream transactions involving leasing, pooling, farmouts, operating agreements, joint development, production allocation, seismic exploration, rights-of-way, surface use contracts, gas gathering and sales, and custom instruments to fit his client s needs. Brandon frequently represents clients in regulatory compliance matters before the Railroad Commission of Texas regarding drilling permits, saltwater disposal well permits, spacing and density exceptions, assignment of allowables, and pooling and production allocation matters. He also advises clients in operational disputes, pooling and unitization issues, and lease acquisition and maintenance matters before the General Land Office of Texas, the New Mexico State Land Office, and the U.S. Bureau of Land Management. Licensed and practicing in Texas 12 and New Mexico, Brandon has extensive experience examining oil and gas title to fee, state, and federal lands, including complex producing leaseholds and large unitized acreages, on both a stand-up and abstract basis. Brandon has represented clients in various disputes and litigation matters such as adverse possession claims and lease termination disputes, as well as several disputes arising under operating agreements involving calculation of non-consent penalties, exercise of preferential rights, notice requirements, and tax liability. He has also advised clients in real estate transactions, including sales of large ranch and mineral acreage, water rights, and pipeline and gathering systems, as well as settlement of survey disputes and riparian boundaries. PUBLICATIONS & PRESENTATIONS Three Ways Density and Proration Rules Will Bust Your Oil and Gas Lease, presented at Burleson LLP s Trends, Terms and Lessons Learned, San Antonio, Texas, January 15, 2015 A Primer on Oil and Gas Regulation in Texas: Spacing, Density, Permits, and Exceptions, Landman Magazine, Winter Title Examination Fundamentals, Presented to the San Antonio Bar Association, Natural Resources Section, September 13, 2012 Nuts and Bolts of the Division Order Title Opinion, Presented at Half Moon Seminar s Agreements and Disputes in Oil and Gas Production, Midland, Texas, July 12, 2012 The New Organic Texas Tea?: National Energy Security Implications of a Regulatory Clean Fuel Ban on Texas Biodiesel, Texas Tech Law Review, Volume 40, June 2008 PRACTICE AREAS & INDUSTRIES Regulatory Oil and Gas Transactions Commercial Agreements Real Estate Upstream Oil and Gas Title Rapid Response Due Diligence Texas Tech University School of Law (J.D., Cum Laude, 2009) Brigham Young University (B.A., With honors, 2006) New Mexico, 2010 Texas, 2009 Best Brief Award and Quarter finalist, National Appellate Advocacy Competition, National Championship Outstanding Student Article Award, presented by the Executive Staff of the Texas Tech Law Review, Volume 40 CALI Excellence for the Future Awards: Oil & Gas Law and ACTIVITIES State Bar of Texas, Oil, Gas, and Energy Resources Law Section Mid-winter Seminar Chair, San Antonio Association of Professional Landmen Permian Basin Landmen s Association CONTACT INFORMATION Brandon Durrett Senior Associate, Burleson LLP Weston Centre 112 East Pecan St, Ste. 700 San Antonio, TX bdurrett@burlesonllp.com Direct: Main:

13 DAPL Incoming President DAPL Newsletter Adam Griffin, CPL Adam S. Griffin, CPL ADAM IS currently the Vice President of Land for J-W Operating Company. Adam oversees the Land Department, dedicating his efforts towards helping his team achieve continued efficiencies in all areas within the Land Department while supporting the operations team in multi-county drilling programs within the ARK-LA-TEX region. Adam oversees the business development function as well focusing on growth potential for the company. He is a 2002 graduate from The University of Oklahoma with a degree in Energy Management and a minor in Finance. Adam began his career in 2001 with Southwestern Energy Company as a summer land intern. After graduating from OU, Adam joined J-W Operating Company as an Associate Landman on March 3, Since that time, he has held the positions of Landman, Land Manager, and moving into his current position of Vice President of Land in October of Adam has been an AAPL member since 2001, and he previously served on the DAPL board as Treasurer from Adam is originally from Oklahoma and grew up in a small town outside of Tulsa. Adam currently resides in Dallas in the Lakewood area with his wife, Leigh Ann, and two sons, Graham and Grady. MARK YOUR CALENDARS 2015 DAPL GOLF TOURNAMENT October 19, 2015 Brookhaven Country Club DAPL invites you to its 2015 DAPL Golf Tournament benefiting Texas Scottish Rite Hospital for Children. The tournament will be held on Monday, October 19, 2015 from 12:00 pm 5:00 pm at Brookhaven Country Club: 3333 Golfing Green Drive, Farmers Branch, Texas The DAPL donates the proceeds to our local Texas Scottish Rite Hospital for Children (TSRH). If you are interested in supporting this great organization by becoming a sponsor, please do not hesitate to golf.tournament@dapl.org Additional information on registration and the tournament will is available on our website. Please check our website, for more details. 13

14 DAPL Incoming Board of Directors D.J. Cherry 1 st Vice President (Entertainment) D.J. Cherry DAVID CHERRY, JR (DJ CHERRY) is the Vice President of Land at PetroVen, Inc in Plano, TX. PetroVen is a privately held oil and gas exploration and development company, founded in The company s core focus areas are in Oklahoma, Texas, New Mexico and Louisiana. The primary business of Petroven is to assemble drilling prospects, farm outs and direct participation interests for itself and its investors. Mr. Cherry began his career in 2008 as a Landman I at Linn Energy, LLC in Oklahoma City and was quickly promoted to Landman II. Mr. Cherry initially worked for the Oklahoma asset team with the Production Land group covering Linn s Mid-Continent properties. He later was moved to Linn s Texas Panhandle asset team and began working the company s Granite Wash assets in January 2010 when Linn began their horizontal drilling program. The Granite Wash asset started out as a one rig program and eventually grew to a nine rig program over his 2 years of working the asset and became the company s core driver of organic growth. Mr. Cherry graduated from the University of Oklahoma in 2008 with a Bachelors of Business Administration degree in Energy Management and minors in Finance and Sociology and is an American Association of Professional Landmen Registered Professional Landman. He is also a member of the, OCAPL, DAPL and is active in the YPE in both Oklahoma City and Dallas. Mr. Cherry has also been on the Oklahoma Indepe andent Producers Association Future Leaders Advisory Council (FLAC) for the past two years. Mr. Cherry is married to Chelsea Wolfe and they currently live in Dallas, Texas with their 9 year old Golden Retriever Hank. They enjoy spending their free time golfing, hunting, fishing and going to OU football games Keri Sweet, CPL 2 nd Vice President (Membership) KERI K. SWEET is a Vice President and Trust Property Manager with the Oil, Gas & Minerals Management team in the Bent Tree office of Northern Trust. Keri is responsible for the identification of mineral assets held in trust and agency accounts, the collection of revenues and payments of operating expenses and monthly reporting, the negotiation of leases, farmouts, gas purchase contracts and similar proposals, valuations of mineral assets for sales and tax purposes and the overall management of the day to day mineral assets held in trust, estate and agency accounts. Keri Sweet, CPL Prior to joining Northern Trust in 2010, she worked independently as a landman in Texas and Oklahoma. Keri also has experience as an Independent Right of Way agent in Texas. Keri holds a BBA from The University of North 14 (continued on next page)

15 Texas and a MA from Texas Tech University. She holds a certificate as a Certified Professional Landman. Keri is actively involved in the American Association of Professional Landmen where she serves as a Certification Committee Member. She is also involved with the Young Professionals in Energy, and this is her first year to serve on the Board of the Dallas Association of Petroleum Landmen. Keri and her husband Kane have two girls; Keeli 9 and Kanie 3. Keri is an avid runner and enjoys hunting, cooking, watching Texas Tech Football and spending time with family and friends. She is also actively involved with her daughters sports teams. Jerry Padilla, RPL 3 rd Vice President (Website) Jerry Padilla, RPL JERRY PADILLA is a Managing Partner with the Dallas/Fort Worth firm Land Management Partners LLC. Jerry graduated from Texas Tech University in 2001, and found his passion for the oil and gas industry in After gaining experience as an Independent Landman in running title, due diligence, curative, right-of-way, and lease negotiations in the Barnett Shale he became responsible for overseeing teams on priority projects within the State of Texas. Jerry has since expanded his experience to basins in the Northeast, Midwest, and Southern regions for an array of valuable clients. In 2015, Jerry joined two long time colleagues and with their visions aligned created Land Management Partners, a firm focused on providing land services to specific clientele within the industry. Jerry and his wife, Deanna, currently reside in Little Elm with both of their pride and joys, Davis, who turns 4 years old this June, and their belated Christmas gift on December 26, 2014, Court Jaxson Padilla, who is now 5 months old. In addition to being excited about having another son, Jerry enjoys tennis, scuba diving, golf, and cheering on the Texas Tech Red Raiders. Jerry has been an AAPL member since 2007, and is currently on the AAPL Publications Committee, as well as Co-VP of Membership with the Texas Energy Council. Previously, he served as the DAPL s Publication Director from , and this will mark the beginning of his second 3 year term to serve on the DAPL Board of Directors. Alicia Surratt Treasurer ALICIA IS a Dallas native and graduated from Austin College with a major in Economics and minor in Business. She is currently with J.P. Morgan as an oil & gas property manager. You didn t always find her in the oil & gas industry, as she originally had a career in investments and financial planning. Alicia left the corporate world and moved to San Antonio where she attended St. Mary s Law School. While in law school she clerked for an oil & gas firm which paved the way for her career as a Landman. This is her second year on the Board. In her spare time, Alicia enjoys hunting, being outdoors with her labrador, and spending time with her friends and family. Alicia Surratt 15

16 Brooks Yates Ryan Boschetti Ryan Boschetti, RPL NGL & Membership Co-Director RYAN BOSCHETTI started his career as an intern at Southwestern Energy Company and joined J-W Operating Company after graduating from The University of Texas at Austin with a BA in Psychology in Ryan managed Barnett and Haynesville prospects during his 5 years at J-W. He has recently moved to Hunt Oil Company s North American Exploration Team in January In addition to being on the DAPL Board, Ryan is on the Advisory Board for YPE. One of Ryan s most notable accomplishments is completing his private pilot s license in the summer of Ryan and his wife, Leslie, are high school sweethearts. Leslie is an RN at Parkland in the Surgical ICU. Ryan and Leslie welcomed their beautiful baby girl, Sofia Rose in May of They both enjoy all kinds of sports, the outdoors, their two labs, and spending time with family and friends. 16 Brooks Yates Secretary BROOKS YATES is Vice President of Ventex Oil & Gas, Inc. in Dallas, Texas where he has been since Yates previously held positions at Hunt Energy Corporation and Placid Oil Company in Jackson, Shreveport and Dallas in the 80 s, and then Land Manager of The Rudman Partnership, Dallas, in most of the 90 s. He is a member of the American Association of Professional Landmen where he has served on the Executive Committee as Treasurer, a director for three terms, Chairman of the NAPE Operators, Marketing, Publications, and Education Foundation Fundraising Committees. Yates has been on various other committees throughout his tenure and presently is Assistant Chairman of the NAPE Advisory Board and AAPL s liaison to the Southwest Land Institute. Locally Yates has served the Dallas Association of Petroleum Joel Robbins, CPL Sergeant At Arms JOEL ROBBINS is a graduate of Texas Tech University where he received a Bachelors in Public Relations with research in Psychology. After his stint in Lubbock, Joel worked as a field landman at Craig S. Charbonnet, Inc., where he gained valuable oil and gas training on the ground. Following his field work, Joel joined Harding Energy Partners in Dallas working the Barnett for several years, then BBX Operating in Austin, where he managed portions of an East Texas drilling schedule, GIS mapping and land database conversions. Joel Landmen as Chairman of the Education Committee in , three board terms, and was President in 1992 and He served as Chairman of the DAPL golf tournament multiple years, and is proud of the association he had by tagging along with Frank McColloch and Granger Anderson visiting the Texas Scottish Rite Hospital when the marriage began between it and DAPL. Yates was awarded the Landman of the Year award in 2009, and one of TIPRO s Top Producers in Yates is presently on the University of Texas Energy Management Advisory Board. Yates has served as a deacon and on various committees at Highland Park Presbyterian Church, has been married to his wife Linda for 28 years, and has three children, Jack, Liza and Ford, two of which are off subsidies for the most part, and one who is far from it! Joel Robbins, CPL currently works a Hugoton Basin drilling schedule with Merit Energy Company, with whom he joined in Last year, Joel served as the DAPL Education Director. He enjoys rooting on the Red Raiders, traveling, live music and anything outdoors with family and friends.

17 Matt McCauley, CPL Publication Director Nicholas G. Peters Nicholas G. Peters Education Director NICK IS Corporate Counsel and Land Manager for Merit Energy Company. Prior to joining Merit, Nick was in private practice with Gardere, Wynne & Sewell LLP, where he handled general corporate and mergers and acquisitions matters. Nick received a B.S. in Business Administration from Washington & Lee University in 2002 and a J.D. from Southern Methodist University s Dedman School of Law in In addition, Nick received a Petroleum Land Management Certificate from Texas Christian University in This is Nick s first year to serve on the DAPL Board of Directors. You may also know Nick from his previous stint as the bassist for the band Fever Duck or his current gig contributing rhythm guitar and vocals to the Dallas indie music scene darlings, Goodnight Farm. In his free time, Nick can be found hanging out with his wife and three children, riding his road bike or playing guitar. Matt McCauley, CPL MATT IS a graduate of Texas Tech University with a Bachelors of Business Administration in Finance. He began his career in the oil and gas industry in 2006 as a contract field landman at Texhoma Land Consultants in Ft. Worth, Texas. In November 2007 he joined AED Group, LLC, a land service firm based in Dallas, Texas. He spent the next 7 years in numerous roles within AED. He served as Project Manager of AED s largest long-term land crew of 30+ landmen working primarily in the Northern Barnett Shale from The experience and education Yaroslav Andrus, CPL YAROSLAV IS a graduate of University of Oklahoma with a BBA in Energy Management. Yaroslav started his career with an internship at Kerr- McGee Corporation in Denver. Upon graduation, Yaroslav accepted a Landman position at Petrogulf Corporation where he worked the Rockies and California assets. In 2007, Yaroslav joined Pioneer Natural Resources USA, Inc., where he is currently a Senior Landman working received from AED Group and their client EOG Resources, Inc. eventually led him to his current position with Comstock Resources, Inc. In September 2014 he joined Comstock Resources, Inc. as a contract in-house landman and became an employee in December He currently works Comstock s Texas Assets. Matt has been a member of the AAPL since 2007 and received his CPL certification in This is his first year to serve on the DAPL Board of Directors. Matt currently resides in Little Elm, Texas with his two daughter s Madison and Kennedy. He enjoys spending time with his family, coaching and/or participating in his daughter s numerous activities, golfing, hunting, and the outdoors. Yaroslav Andrus, CPL Advertising Director the horizontal Wolfcamp project in the Permian Basin. Prior to the Permian project, Yaroslav has worked Pioneer s Barnett Shale and Rockies assets. In addition to his Landman duties, Yaroslav co-manages Pioneer s Land recruitment process for summer interns and entry-level Landmen. Yaroslav currently lives in Highland Village, Texas with his wife, Leslie and daughters, Lily and Abigail. Yaroslav enjoys spending time with his family, traveling, and watching Sooner football. Yaroslav has been an AAPL member since 2002, and this is his third year to serve on the DAPL Board of Directors. 17

18 Iris Bradley, CPL/ESA AAPL Director THIS IS Iris Bradley s third term on the Board, having served as AAPL Director, Sergeant-At-Arms and President in previous terms. She has also chaired AAPL Awards, Certification, Environmental, Ethics, Industry Affairs and Publications Committees over the years. Iris is Chairman of the AAPL Ethics Committee for She is active in Highland Park United Methodist Church, has served two (2) terms as President of the Highland Park Alumni Association, and has been on the PwC SMU Athletic Forum Board of Directors for many years in addition to several other civic and charitable organizations. Iris is currently works at Northern Trust Bank, as a Vice President/Landman/ Oil, Gas and Mineral Property Manager. Prior to Iris joining Northern Trust, she was a Senior Landman with Merit Energy Company most recently working Wyoming. Iris has also worked in Permian Basin, Barnett Shale, Louisiana, Arkansas, New Mexico and the Rockies. Prior to Merit, Iris was with JPMorgan Chase Bank managing the Metroplex Trust Oil and Gas Group. She began her career with Hunt Oil Company working Oklahoma. Iris is a graduate of SMU with a degree in Journalism. She can boast about being one of the few native Dallasites and living no further than five (5) miles from where she was born. She is the proud mother of Susan Gleiser, a 2011 graduate of Vanderbilt, currently employed with Vanderbilt Law School in the Development Department. Iris is married to Floyd Stanley and they are the proud pet parents of Jackson and Watson. Iris Bradley, CPL/ESA Joshua Raley, CPL Immediate Past President Joshua Raley, CPL JOSH IS a graduate of The University of Oklahoma where he double majored in Energy Management and Finance. While in college he began his career in the oil and gas industry by working for DrillingInfo. He also completed an internship at Hunt Petroleum Corporation in the Summer of Upon graduation from OU he started out as an independent landman, eventually working on a southern Oklahoma prospect for Carla 18 Petroleum. This ultimately led to his first in-house position at CH4 Energy, LLC in Fort Worth. Josh worked there until CH4 sold. Following the sale of CH4, he worked in-house for Cimarex and EnCana. Since June 2009, Josh has been employed at EXCO Resources, Inc., where he is currently the Land Manager for EXCO s South Texas Asset. Over his career, Josh has worked Wyoming, Oklahoma, SE New Mexico, West Texas and North Louisiana. In February 2010, he was designated a Certified Professional Landman from the AAPL. In , Josh led the History Committee in the research of the history of the DAPL. After collecting extensive research through interviews with former members of the organization and chronicling past presidents, Josh shared his findings, revealing facts and funny stories in a report that can viewed on this website. Since 2011 Josh has served on the DAPL Board of Directors as the Education and NGL Director ( ), Treasurer ( ), 1st Vice President ( ) and most recently as President ( ). In his free time Josh enjoys spending it with his wife, Jessica and their 3 year old Goldendoodle Sammy. Josh s hobbies include: traveling, reading, golfing, and Oklahoma Football.

19 Landmen We Will Miss Jamie Renee Heathington Bizell It is with a heavy heart that we share this information. On Friday, August 7, 2015 Jamie Renee Heathington Bizzell passed away after a sudden illness. She was a devoted member, award winner and volunteer of the DAPL. In her short time she made a positive impact on our association and our industry. She started her career at Encana Oil and Gas eventually made her way to Pioneer Natural Resources. Jamie is survived by her loving husband, Kolby Bizzell; precious son, Kash Bizzell; mother, Tina Heathington; father, Jim Heathington; brother, Chris Milsap and his wife, Valerie Wynn; sister, Diana Milsap and her husband, Doug Harrison; half brother, John Heathington and his wife Misty; half sister, Ann Rainey; and many other extended family and friends. In lieu of flowers, the family would like to ask that you visit their GoFundMe account to help contribute to a savings account being set up for the benefit of Jamie s son, Kash. To Donate: 19

20

21 PICKERING YOUR POISON THE EFFECTS OF ELECTRONIC NEGOTIATIONS ON OIL AND GAS AGREEMENTS Patrick S. Weir and Thomas R. Dixon Jr. with contributions made by Clinton M. Biggs I. Introduction Binding Agreements Created by ? The Fourteenth District Court of Appeals has recently considered whether two energy companies created a binding agreement through a series of s. 1 The dispute involved Carrizo's Blair-Pickering Barnett Shale Prospect. Carrizo contended that the string resulted in an enforceable Amended Participation Agreement and obtained a trial court judgment for more than ten million dollars. Trinity argued that the s were legally insufficient to create a binding agreement. Although the Court of Appeals agreed with Trinity, Justice Seymore warned in his concurring opinion, This holding is confined to the facts of this case. There may be other fact patterns in which a jury issue arises regarding intent of the parties to be bound by s, without specific language reflecting mutual assent to be bound. 2 Energy companies may soon face the frightening choice of Pickering their poison about whether to conduct binding electronic negotiations. Someday an energy company will find itself poisoned by an unexpected final judgment determining that it made an enforceable electronic agreement even if it did not specifically agree to conduct binding electronic negotiations. Trinity is only the tip of the iceberg on the issue of the effect of electronic communications on common agreements in the oil and gas industry Trinity Fund, LLC v. Carrizo Oil & Gas, Inc., 393 S.W.3d 442, 449 (Tex. App. Houston [14th Dist.] 2012, pet. denied). 2 Id. at 465 (Seymore, C., concurring). The use of s, text messages, and other electronic communications as a medium for conducting business is increasing at a startling rate. One estimate suggests that accounts are expected to increase from nearly 3.9 billion accounts in 2013 to over 4.9 billion accounts by the end of 2017, which equals an average annual growth rate of about 6% over the next four years. 3 As of 2013, 929 million of those accounts are believed to be associated with businesses, and that number is expected to grow by about 5% over the next four years. 4 Incredibly, over 100 billion s are sent each day by businesses. 5 Such extensive use of electronic communications requires the development of statutes and case law clearly defining the effect of electronic negotiations in business transactions including contract formation in the oil and gas industry. Texas has adopted the Texas Uniform Electronic Transactions Act ( TUETA ) to help facilitate electronic transactions with other applicable law. 6 An Official Comment to the 2012 Electronic Pocket Part Update to TUETA states [t]he purpose of the [T]UETA is to remove barriers to electronic commerce by validating and effectuating electronic 3 Radicati Team, Statistics Report, at 3, THE RADICATI GROUP, INC. (Apr. 22, 2013), content/uploads/2013/04/ -statistics- Report Executive-Summary.pdf. 4 Id. at 2. 5 Id. at 4. 6 Tex. Bus. & Com. Code (West 2013). 21

22 records and signatures. 7 But questions remain: what constitutes an electronic record or signature and what consequences do these electronic communications have on oil and gas lessors and lessees, operators and non-operators, and buyers and sellers of mineral properties? This paper focuses on contract formation by electronic means and how electronic negotiations may affect your oil and gas clients. We ll make practical recommendations on two key issues: (1) how to avoid making an electronic contract and (2) how to successfully conduct binding electronic negotiations. Ultimately, you and your energy clients must Pickering your poison here: does your client want to conduct binding negotiations via electronic communications or not? II. Contract Formation and Electronic Communications A. An Enforceable Contract May Be Formed by Electronic Communications The general rules of contract formation apply to agreements in the energy business. To create an enforceable contract, there must be (1) an offer, (2) acceptance in strict compliance with the terms of the offer, (3) a meeting of the minds, (4) each party's consent to the terms, and (5) execution and delivery of the contract with the intent that it be mutual and binding. 8 The statute of frauds requires certain contracts to be in writing. 9 To satisfy the statute of frauds, there must be a written memorandum which is complete within itself in every material detail, and which contains all of the 7 Tex. Bus. & Com. Code T. 10, Subt. B, Ch. 322, Refs & Annos (West 2013) Trinity Fund, LLC v. Carrizo Oil & Gas, Inc., 393 S.W.3d 442, 449 (Tex. App. Houston [14th Dist.] 2012, pet. denied). 9 Tex. Bus. & Com. Code (West 2013). 22 essential elements of the agreement, so that the contract can be ascertained from the writings without resorting to oral testimony. 10 However, the written memorandum is not required to be contained in one document. 11 An agreement to lease real property for a period greater than a year or for the sale of real estate is unenforceable unless the promise or agreement, or a memorandum of the agreement is in writing, and subscribed by the party to be charged or by the party s agent. 12 Accordingly, the statute of frauds applies to many oil and gas transactions, including mineral leasing and the sale of oil and gas interests (which are transfers of real property under Texas law). 13 The first question raised by the use of electronic communications in business is whether an or even a text message is a writing. Under Texas law, a writing is an expression of words, letters, characters, numbers, symbols, figures, or other textual information that is inscribed on a tangible medium or that is stored in an electronic or other medium that is retrievable in a perceivable form. 14 Additionally, the term writing includes stored or transmitted electronic data, electronic transmissions, and reproductions of writings. 15 The Texas Supreme Court held in Padilla v. La France that a series of letters satisfied the writing requirement under Rule 11 of the Texas Rules of Civil Procedure and therefore created a binding 10 Cohen v. McCutchin, 565 S.W.2d 230, 232 (Tex. 1978). 11 Padilla v. La France, 907 S.W.2d 454, 460 (Tex. 1995). 12 Tex. Bus. & Com. Code 26.01(a), (b)(4), (b)(5) (West 2013). 13 See infra Part C of this article (discussing the designation of oil and gas leases as transfers of real property and the effect of electronic communications). 14 Tex. Bus. Orgs. Code 1.002(89) (West 2013). 15 Id.

23 settlement agreement as a matter of law. 16 The series of letters were complete within themselves; they contained all of the essential elements of the settlement agreement. 17 The Court analyzed the alleged settlement agreement by analogy to the statute of frauds. Padilla supports this startling conclusion: a series of s or even text messages can create a written agreement which satisfies the statute of frauds. While the Texas Supreme Court has yet to rule on the issue of contract formation via s, in Dittman v. Cerone, the Court held that the statute of frauds was satisfied because the three s, construed together, revealed all of the essential terms of an enforceable two year option to purchase a tract of real property. 18 The s in Dittman provided only barebones evidence of the option agreement: Dittman would give Cerone a two year option to purchase a tract known as the Stable Property for $2.75 per square foot. The consideration for the option was that Cerone was required to close a purchase of another tract known as the Pasture Property by October 21, 2007 and not terminate what the Court of Appeals called the Pasture Property deal. 19 If the sparse details of the agreement in Dittman created an option to purchase the Stable Property, it is not hard to imagine a court finding an enforceable electronic option to make an oil and gas lease provided that all of the essential elements of the deal are contained in the s Padilla, 907 S.W.2d 454, (Tex. 1995). 17 Id. 18 No CV, 2013 Tex. App. LEXIS 2343, at *3 8 (Tex. App. Corpus Christi Mar , no pet. h.) (mem. op.). 19 Id. 20 See Green v. Midland Mortg. Co., 342 S.W.3d 686, 691 (Tex. App. Houston [14th Dist.] 2011, no pet.) (finding a series of An or text is essentially the same as a letter, and TUETA provides that [i]f a law requires a record to be in writing, an electronic record satisfies the law. 21 Recent decisions support the conclusion that s may satisfy the writing requirement. 22 Therefore, the parties can make an enforceable contract even if an electronic record is used to substantiate its terms. 23 In addition to the writing requirement, the law requires a signature in order to validly create many types of agreements. However, [i]f a law requires a signature, an electronic signature satisfies the law. 24 Thus in addition to considering whether a series of s creates a valid contract, the courts have struggled with the issue of what constitutes an electronic signature. An electronic signature is an electronic sound, symbol, or process attached to... a record and executed or adopted by a person with the intent to sign the record. 25 The electronic signature will be attributed to a person if it was the act of the person. 26 To determine whether the signature was the act of the person, the court must look to the context and surrounding circumstances at the time of its creation, execution, or adoption, including the parties' agreement, if any, and otherwise as provided by law. 27 The act of the person may be shown in any manner, including a s to create a binding settlement agreement); Williamson v. Bank of N.Y. Mellon, No. 3:12-CV-1079-N, 2013 U.S. Dist. LEXIS 77709, at *8 (N.D. Tex. May 16, 2013) (same). 21 Tex. Bus. & Com. Code (c) (West 2013). 22 Williamson, 2013 U.S. Dist. LEXIS 77709, at *7 8; Green, 342 S.W.3d at 691; Dittman 2013 Tex. App. LEXIS 2343, at * Tex. Bus. & Com. Code Ann (West 2013). 24 Id (a) (b). 23

24 showing of the efficacy of any security procedure applied to determine the person to which the electronic record or electronic signature was attributable. 28 Intentionally identifying yourself by name in an will be considered an electronic signature. 29 For example, in Tricon Energy, in an exchange of s between two parties, each party typed their full names at the bottom of their s. 30 There was no evidence indicating that either party did not intend to adopt the content of their s as their own writing. 31 Therefore, the court held that the s represented a signed writing. 32 The law is not as clear with regard to signature blocks which are often appended to the end of s. Courts are split on whether a signature block, that is, a block of information that gives the sender s name followed by his contact information, is a signature which creates an enforceable contract. The court in Cunningham v. Zurich Am. Ins. Co., found that an attorney s signature block was not an electronic signature. 33 In Williamson, the (a). 29 Dittman, 2013 Tex. App. LEXIS 2343, at *7 8; Tricon Energy, Ltd. v. Vinmar Int'l, Ltd., No. 4:10-CV-05260, 2011 U.S. Dist. LEXIS , at *32 (S.D. Tex. Sept. 21, 2011). See also, e.g., Copeland Corp. v. Choice Fabricators Inc., 345 F. App'x 74, 77 (6th Cir. 2009) (describing a signed writing as any writing with a symbol adopted by a party with present intention to authenticate that writing ); Cloud Corp. v. Hasbro, Inc., 314 F.3d 289, 296 (7th Cir. 2002) ( [W]e conclude... that the sender s name on an satisfies the signature requirement of the statute of frauds. ). 30 Tricon Energy, Ltd., 2011 U.S. Dist. LEXIS , at * Id. 32 Id S.W.3d 519, 530 (Tex. App. Fort Worth 2011, pet. denied). 24 U.S. District Court disagreed with Cunningham. 34 In response to a take it or leave it settlement offer, a party s attorney in Cunningham sent the following This confirms that you have made a take or leave it demand to HealthFirst and [Ezukanma] and their carriers... for payment of $650,000 plus the amount... currently in the court s registry, in exchange for a complete release of those parties and dismissal of all proceedings against such parties; and further that this demand expires at noon today, Friday, May 23, Based on that understanding, Zurich, on behalf of HealthFirst and [Ezukanma], agrees to pay [Cunningham] $650,000, provided that such amount is combined with payment of [Ezukanma s] JUA policy (and upon any necessary consents to same), in exchange for [Cunningham s] complete release of the above parties and dismissal of the proceedings. Zurich s agreement to do so is further conditions on execution of a satisfactory Rule 11 agreement by counsel... and a subsequent execution of a more formal agreement and release by the parties. 35 The court observed that, because the contained an agreement to pay in exchange for a release of liability, it contained the essential terms of a settlement agreement. 36 Only the fact that the Court of Appeals held that the attorney s signature block did not constitute an electronic signature prevented the creation of an enforceable settlement agreement. The court held that the signature block was 34 Williamson v. Bank of N.Y. Mellon, No. 3:12-CV-1079-N, 2013 U.S. Dist. LEXIS 77709, at *13 14 (N.D. Tex. May 16, 2013). 35 Cunningham, 352 S.W.3d at Id. at 529.

25 not an electronic signature because there was no evidence to suggest that the information was typed purposefully rather than generated automatically. 37 Additionally, the court stated that there was no evidence that the sender intended the typing of her name to be her signature or that the parties had previously agreed that this action would constitute a signature. 38 Because there was no evidence of an electronic signature, the court held that the settlement agreement reflected by the was not signed. 39 However, the U.S. District Court for the Northern District of Texas (considering a motion to enforce a settlement agreement) disagreed with Cunningham. The court found that an automatic signature block was an electronic signature. 40 The attorney in Cunningham vigorously denied making a settlement agreement. This may have given the Court of Appeals an incentive to carefully consider whether or not the signature block on her constituted an electronic signature. In Williamson, all of the parties who showed up in court agreed that the series of s documented a settlement agreement. These parties had notified the court of their settlement and ultimately filed a motion to enforce their agreement when Ms. Williamson failed to perform her end of the bargain. By the time the Court heard the motion, Ms. Williamson had fired her attorney (who had agreed to the settlement) and was representing herself pro se. Ms. Williamson not only failed to present a vigorous denial that she had settled the dispute, but she did not even appear at the hearing. Nevertheless, the Williamson court thoroughly considered whether her attorney had signed the settlement agreement. The Court stated that there is no 37 Id. at Id. 39 Id. 40 Williamson, 2013 U.S. Dist. LEXIS 77709, at *15. fundamental difference between, on one hand, manually typing a signature block into a series of s and, on the other, typing the block once and instructing a computer program to append it to future messages. 41 Thus, the court found that the lawyers for all parties (including counsel for Ms. Williamson) intended to sign and effectuate their agreement by way of their s to one another. 42 Perhaps the most persuasive part of the Williamson order for those in favor of widespread use of electronic communications in business and legal transactions was the court s observation that a broad view of what constitutes a valid electronic signature corresponds with TUETA s intent. The Court specifically cited the Official Comment to the 2012 Electronic Pocket Part Update of the statute. Moreover, the Court asserted that its interpretation was consistent with TUETA s requirement that courts construe and apply the statute consistently with reasonable practices in electronic transactions and in light of the statute s goal to expand the scope of binding electronic transactions. Cunningham and Williamson illustrate that whether or not there is an electronic signature depends on the court s determination of the intent of the sender. This means that the trier of fact (a jury in a jury trial and the court in a bench trial) must determine whether the sender intended to form a contract. Both cases had substantially similar facts in the sense that the s in question clearly evidenced not only the intention to settle, but also the terms and provisions of the settlement agreement. In Cunningham, a key surrounding circumstance, the attorney s vigorous denial of making a binding settlement, may have prompted the court to find that she did not sign the agreement. The Williamson court had an easier chore: all parties who appeared at the hearing agreed that the s created a 41 Id. at * Id. at *15. 25

26 binding settlement agreement; Ms. Williamson did not even appear at the hearing. Under these circumstances, the parties certainly intended to conduct electronic settlement negotiations and to electronically sign the settlement agreement. Yet even the Cunningham court agreed that the simple created a settlement agreement but for the fact that the attorney did not sign it. Setting aside the issue of signature, the courts in Dittman and Cunningham both found that some fairly simple s (lacking a great deal of detail) were sufficient to create agreements. The Williamson court is correct that electronic business negotiations are here to stay and that TUETA is intended to facilitate such transactions. Given the current status of the law (and electronic commerce itself), energy companies must carefully weigh the decision to engage, or not engage, in binding electronic negotiations. A company seeking to avoid making a binding agreement via texts or s cannot rely upon a court s finding that a signature block of one of its employees, or even its attorneys, is not an electronic signature. So, if simple agreements can be formed electronically, what about something more complicated such as a joint operating agreement or perhaps a participation agreement? B. An Electronically Amended Participation Agreement? Against the background that parties clearly can create binding obligations via electronic communications, we ll now take a closer look at the Trinity case a dispute involving a much more complicated document than those considered in Dittman, Cunningham and Williamson. In Trinity, two oil and gas companies were embroiled in a contract dispute regarding the alleged formation of an amended participation agreement through a series of s. 43 Carrizo owned oil and gas interests in the Barnett Shale. [It] was drilling or planning to drill wells to keep certain of these leases from expiring. 44 Trinity was interested in participating in certain of Carrizo s Barnett Shale drilling prospects. 45 Thus, the parties entered into a Barnett Shale Participation Agreement on October 10, The pertinent parts of the Participation Agreement were set forth by the Court of Appeals as follows: Subject to the provisions of the Participation Agreement, Trinity has the potential to earn a portion of Carrizo's leasehold rights and interest in and to various leases described in the Participation Agreement. (article 1.5). Carrizo will drill and Trinity will commit to participate in nineteen wells specified in article 2.2 of the Participation Agreement ( Commitment Wells ) before the expiration date of the relevant leases, so as to prevent the expiration of the leases. (article 2.1). Carrizo will provide the drilling rig for the two Commitment Wells on the Blair-Pickering Prospect. For the remaining wells, Trinity shall provide the drilling rig with specifications approved in advance by Carrizo's Chief Operations Officer. Carrizo reserves the right to utilize its own drilling rig for any wells drilled hereunder in the event that the drilling rig provided by Trinity does not meet with Carrizo's Trinity Fund, LLC v. Carrizo Oil & Gas, Inc., 393 S.W.3d 442, 444 (Tex. App. Houston [14th Dist.] 2012, pet. denied). Id. at 445. Id. 26

27 approval. (article 2.3). All Commitment Wells drilled under the Participation Agreement will be on the cost basis specified in the Participation Agreement, in which a certain cost percentage is allocated to Trinity as to each prospect area in which the Commitment Wells are to be drilled. (article 2.8(a)). [P]ayment by Trinity for its respective share of drilling and casing costs for [the] first well on the Blair-Pickering Prospect shall be received by Carrizo on or before October 19, 2007, or this Agreement shall automatically terminate. (article 2.8(b)). If Trinity has complied with all requirements, conditions and obligations of this Agreement, then Trinity shall earn the following right, title and interest in the Leases with respect to each Earning Well in a Prospect Area: [interests specified]. (article 3.1(c)). Within thirty days after Trinity has earned its respective working interest in the leases attributable to a Commitment Well, Carrizo shall prepare, execute, and deliver to Trinity an assignment of that interest. (article 3.2). Time is of the essence under this Agreement. Thus, all time limits shall be strictly construed and enforced. (article 7.3). If Trinity has not complied with each and all of the provisions of this Agreement, then (i) Carrizo shall be relieved of its obligations to make the assignment(s) specified herein and (ii) Trinity shall have no further rights to earn additional rights hereunder or to undertake additional operations hereunder. (article 7.3). Trinity's failure to pay [to] Carrizo Trinity's respective share of drilling and casing costs for the first well on the Blair-Pickering Prospect on or before October 19, 2007, is a failure to comply with the Participation Agreement causing automatic termination of the agreement, but such a failure is not an active and material breach of the Participation Agreement. (article 9.5). This instrument contains the final and entire agreement of [Carrizo and Trinity] with respect to the matters covered by this Agreement and supersedes all prior communications and agreements (written, oral or otherwise) in this regard. (article 9.11). 46 Trinity failed to pay its share of the costs for the first Blair-Pickering well by the October 19, 2007 deadline. Article 9.5 of the Participation Agreement unambiguously stated that Trinity s failure to pay these costs automatically terminated the agreement. One reason given by Trinity for its failure to pay the costs was that Trinity expected to provide all of the rigs for drilling the Commitment Wells except for the first two. However, Trinity learned that Carrizo preferred to use its own rigs and planned to refuse to approve any Trinity rig and invoke its rights under Article 2.3 of the Participation Agreement to use its own rigs. 47 Although the Participation Agreement terminated automatically when Trinity failed to pay its share of costs by October 19, 2007, a string of negotiations between representatives of the companies ensued. The overall gist of the s was summarized by the Court of Appeals as follows: 46 Trinity, 393 S.W.3d at Id. at

28 Between October 31, 2007, and January 2, 2008, David Friedman, on behalf of Carrizo, and Rob Arrowood, on behalf of Trinity, exchanged a series of s that, according to Carrizo, constituted a written agreement by Carrizo and Trinity to continue under the terms of the Participation Agreement without a termination date associated with the non-payment of costs for the first well on the Blair-Pickering Prospect and with a new provision under which Trinity would receive a 1% rebate (hereinafter Alleged Agreement ). Carrizo alleges that Trinity breached this Alleged Agreement by not paying Carrizo any amount for the costs of any of the Commitment Wells. 48 When Trinity did not pay the costs, Carrizo sued for breach of contract, quantum merit, and promissory estoppel to enforce an Amended Participation Agreement allegedly created through the string. Following a trial in which the jury found for Carrizo on all key contract formation issues, the trial court entered a judgment against Trinity for $10,841,000 plus prejudgment interest. 49 With interest, the total judgment against Trinity was more than $12 million. 50 As the Court of Appeals noted, the only possible basis for the jury findings in Carrizo s favor (on the issue of creating an enforceable Amended Participation Agreement) was the following string of s which occurred between October 31, 2007 and January 2, 2008: On October 31, 2007, Friedman [of Carrizo] sent an to Arrowood [of Trinity] (1) stating that Brad Fisher of Carrizo was uncomfortable with using a Trinity rig to drill any wells, (2) 48 Id. 49 Id. at Id. indicating that Carrizo was unwilling to use any of Trinity's drilling rigs, and (3) stating that Carrizo realized that the use of Trinity's rigs represented a part of the compensation Trinity expected from the parties' agreement. In an effort to compensate Trinity for the failure to use any of its rigs, Friedman suggested amending the Participation Agreement to provide that Carrizo pay a full 1% more in costs on each of the wells that [Trinity] would have used [its] own rig, which Friedman stated were the wells on four of the seven prospects listed in the Participation Agreement. Friedman stated that all other terms of the Participation Agreement would remain the same. On November 2, 2007, Arrowood ed Friedman saying, I accept in principle but need to have this interest flow directly back to me. Arrowood stated that he had agreements with his investors and that he was not planning on including them in the compensation received from the use of Trinity's rigs. Arrowood stated that [t]he compensation on the rigs was going directly to me. Arrowood asked Friedman if he could figure out a way to have the additional compensation go directly to him. On the same day, Friedman responded that [w]hat we can do is send a 1% rebate for each well directly to you. Friedman stated that, [i]f you are in agreement in principle, then I'm assuming we can work out the mechanics. Friedman told Arrowood that Carrizo needed to know that day whether Trinity planned to pay Carrizo and exactly when it planned to pay. Arrowood responded that day with the following two sentences: That will work. I will try to call before the day is over and give you an exact time. Three days later, on November 5, 2007, Friedman ed Arrowood 28

29 asking him to provide a final answer on that day as to whether and when Trinity planned to pay Carrizo. Friedman stated that [a]fter today it will be out of my hands. Arrowood responded: Yes, has been my final answer. I will give you the final date asap. I am waiting on a couple more executed documents and will proceed with all payments. Friedman responded, [w]e need a definitive payment date now. Friedman also stated that Carrizo needed to receive a wire transfer by the next day in order to keep this agreement alive. Friedman reiterated that after that day, it would be out of his hands. Arrowood responded that [i]t was just [November 2, 2007,] that we agreed to a supplement to this agreement that you changed last minute [sic]. Arrowood stated that if Carrizo wanted Trinity to submit the funds, then Carrizo had to wait until Trinity had all of the executed documents between Trinity and its investors. Arrowood asked for certain exhibits that he said he needed to attach to Trinity's agreement with its investors. Friedman responded the next day on November 6, 2007, angrily accusing Trinity of having had no intention to pay Carrizo all along and complaining that Trinity was always blaming its problems on Carrizo. The next in evidence is dated one month later on December 7, 2007, from Arrowood to Friedman. In this short Arrowood claims that his funding is finally in. Nonetheless, no payment was forthcoming from Trinity to Carrizo. On December 12, 2007, counsel retained by Carrizo sent a letter to Trinity demanding payment of Trinity's respective share of the drilling and casing costs for the first well on the Blair-Pickering Prospect under the Participation Agreement. In this letter, counsel for Carrizo demanded that Trinity pay these costs and other sums by December 20, Carrizo stated that if Trinity did not pay its respective share of the drilling and casing costs for the Blair-Pickering wells by that date, Carrizo intended to exercise all rights and remedies available to it, including filing suit against Trinity to recover the amounts due to Carrizo under the Participation Agreement. In the demand letter, Carrizo does not mention the Alleged Agreement. On December 14, 2007, Arrowood sent an to Friedman stating that his attorney would have the agreement ready by December 18 and that once the agreement was executed, Arrowood would forward funds. On December 18, 2007, Arrowood sent Friedman a draft of a document amending the Participation Agreement, asking Friedman to review the document and advise if he wanted to make any changes. The next day, Friedman responded that Carrizo was analyzing Trinity's proposed agreement and noted that the compensation specified in the proposed agreement was different from the compensation we agreed to with you on 11/2/07. The evidence indicates that, sometime between December 19, 2007, and December 30, 2007, Carrizo sent Trinity a draft of a document amending the Participation Agreement. This document was lost and is not in our record. On December 30, 2007, Carrizo sent Trinity a different draft of a First Amendment to Barnett Shale Participation Agreement and asked Trinity to disregard the previous draft. Carrizo asked that, by January 4, 2008, Trinity (1) execute the proposed amendment to the Participation Agreement, (2) wire to Carrizo the amount corresponding to Trinity's respective share of the drilling and 29

30 casing costs for the Blair-Pickering wells, and (3) make secure arrangements for payment of Trinity's share of all other costs for the other Commitment Wells. Three days later, Carrizo forwarded a copy of the First Amendment to Barnett Shale Participation Agreement that was signed by Carrizo. Trinity never executed this document, nor did it ever pay Carrizo any amount for the costs of any of the Commitment Wells. 51 The jury found that these s constituted a signed written agreement between the companies. 52 However, the Court of Appeals held that the s did not reflect a meeting of the minds and that there was no enforceable agreement. 53 The court found, as a matter of law, that the s established that there was no mutual understanding and assent by the parties to a written agreement to continue with the Participation Agreement without a termination date associated with the nonoperator s failure to pay the costs for the first well. 54 If the automatic termination date was left out, the non-operator would be obligating itself to pay millions of dollars in costs, but would have no ability to earn or receive any interest in any lease relating to the Commitment Wells. 55 The Court observed, Continuing forward with the Participation Agreement without a termination date raises various issues, including: (1) whether the due date for the non-operator s cost payment would be considered as past due, (2) if the payment would still be considered past due, whether articles under the original agreement should be changed so that nonoperator would still have a potential ability to earn and receive an interest in the leases 51 Id. at Id. at Id. at Id. at Id. related to the Commitment Wells, and (3) whether the due date for the non-operator s cost payment could be changed to a future date so that the payment might be made timely by the non-operator. 56 The Court concluded that none of these issues were addressed in the series of s. 57 Since the Court of Appeals viewed a termination date as a material item to the formation of a valid amended participation agreement, the lack of agreement on that point established that there was no meeting of the minds. 58 Justice Seymour asserted in his concurring opinion that there was no agreement because the parties had not agreed to conduct their negotiations by electronic means. 59 TUETA applies only to transactions between parties each of which has agreed to conduct transactions by electronic means. 60 The original Participation Agreement stated that no amendments would be effective without a writing signed by the parties. The concurring opinion argued that that the parties never expressly agreed that they would be contractually bound by verbiage in electronic communications. 61 Because of the parties verbiage and multiple efforts to obtain signatures on a written or printed amendment, there was no agreement by the parties to be bound by their s. 62 Justice Seymour concluded, Courts should be hesitant to imply or infer an agreement to transact business or negotiate contracts electronically merely because s were exchanged. 63 But Justice Seymour emphasized that Trinity is confined to its facts. 64 There could 56 Id. at Id. 58 Id. at Id. at Tex. Bus. & Com. Code (b) (West 2013). 61 Trinity, 393 S.W.3d at Id. 63 Id. 64 Id. at 465 n.5. 30

31 be other fact patterns where a jury issue arises regarding whether the parties intend to create a binding agreement via s. And a jury might well find the elements of an enforceable agreement, even if the communications lacked specific language reflecting material consent to conduct binding electronic negotiations. The first lesson from Trinity is that a jury can be persuaded to find the basis of an enforceable contract in a series of s regarding a complex transaction. While the Court of Appeals bailed out Trinity by finding that the parties did not make a binding agreement as a matter of law, Trinity might have avoided the entire dispute (or at least obtained a summary judgment) if its s had clearly stated that the electronic communications were not intended to create a binding agreement. Trinity s s could have further stated that Trinity would be bound only by an agreement reduced to writing, on paper, and signed by its authorized representative. Trinity mandates a careful focus upon the language used in each . If a party wants to create a contract, it must ensure that every essential term is contained in the electronic communications and that there is evidence that each side agreed to conduct the transaction by electronic means. 65 If a party chooses to avoid creating a contract by electronic communications, it should clearly state in each that the communications are not final and that it has not agreed to create a binding agreement by electronic means. 66 As energy attorneys, we must help our clients achieve their electronic goals whether the objective is to make an electronic agreement or to avoid the formation of one. In that light, we ll next consider how electronic communications 65 See Tex. Bus. & Com. Code (b) (West 2013) ( This chapter applies only to transactions between parties each of which has agreed to conduct transactions by electronic means. ). 66 Id. may affect several common oil and gas agreements. C. Electronic Communications and Typical Oil and Gas Agreements 1. Oil and Gas Leases In Texas, an Oil and Gas Lease is both a conveyance of real property and a contract. First, a lease conveys to the lessee a determinable fee interest in the oil and gas in place, and is the transfer of an interest in realty. 67 Second, Texas courts have also held that an oil and gas lease will be construed in accordance with the rules applicable to contracts. 68 Because a lease creates an interest in real property, leases are subject to the statute of frauds as applied to the sale of real estate. 69 The lease must contain certain essential terms in order to be enforceable. The essential elements of an oil and gas lease generally are: the term of the lease, the drilling commencement date, the time and amount of payments in lieu of drilling operations, and amounts to be paid as royalties on production. 70 Additionally, the character, extent, and duration of the rights to the oil and gas in place are also essential terms. 71 If an agreement lacks these essential terms, it is at most an agreement to agree, and not an enforceable oil and gas lease Cherokee Water Co. v. Forderhause, 641 S.W.2d 522, 525 (Tex. 1982); Mills v. Brown, 316 S.W.2d 720, 723 (Tex. 1958). 68 Tittizer v. Union Gas Corp., 171 S.W.3d 857, 860 (Tex. 2005). 69 Tex. Bus. & Com. Code 26.01(b)(4) (West 2013). 70 Cantrell v. Garrard, 240 S.W. 533, 534 (Tex. Comm'n App. 1922, judgm't adopted); Oakrock Exploration Co. v. Killam, 87 S.W.3d 685, (Tex. App. San Antonio 2002, pet. denied). 71 Oakrock Exploration Co., 87 S.W.3d at Id. at

32 a. Texas Recording Statutes Of critical importance in the discussion of electronic communication in the oil and gas arena are the Texas Recording Statutes. Texas maintains a pure notice statute, and oil and gas leases, as well as other instruments relating to real property, are subject to the recording statues. 73 Generally speaking, once an instrument is filed of record, any subsequent purchasers are statutorily deemed to have notice of the instrument, and their transfer is made subject to the prior transfer to the extent there is any conflict. Texas law provides for the recording of any instrument concerning real or personal property that has been acknowledged or sworn to with a proper jurat. 74 Once such instrument is recorded, all persons are considered to have notice of the instrument. 75 Unless an instrument has been properly filed of record, it is void as to a creditor or subsequent purchaser for valuable consideration without notice. 76 Therefore, persons acquiring interests in real estate, including lessees under an oil and gas lease, are strongly encouraged to record their conveyances immediately to avoid potential notice issues. To take advantage of the recording statutes, a subsequent purchaser must be a bona fide purchaser. A bona fide purchaser is a purchaser who acquires an apparent legal title to property in good faith, for valuable consideration, and without notice of a claim or interest of a third person under a common source of title. 77 The three 73 Tex. Prop. Code Ann (West 1984 & Supp. 1998). 74 Tex. Prop Code Ann. Sec (a) (West 2004). 75 Tex. Prop Code Ann. Sec (West 2004). 76 Tex. Prop Code Ann. Sec (b) (West 2004). 77 Madison v. Gordon, 39 S.W.3d 604, 606 (Tex. 2001). essential elements are: good faith, valuable consideration, and absence of notice. 78 There are several types of notice. First, there is actual notice, which is the result of seeing or being told of the claim. Second, there is constructive notice, which is notice implied by law and is the result of properly recording the instrument. Lastly, there is inquiry notice. A person is on inquiry notice if a reasonable purchaser would be aware of facts that would lead to an investigation and reveal an adverse prior claim. Accordingly, a subsequent claimant will usually take priority over an earlier unrecorded instrument provided that the subsequent claimant took without notice of the interest created by the instrument. Where does electronic communication fall into the picture? It seems clear that because electronic communication would not satisfy the acknowledged or sworn to with a proper jurat requirement, electronic communications and agreements could not be recorded. At most, they could be an agreement to agree and to execute subsequent recordable instruments that would complete the transaction. However, it is becoming increasingly more common today for Lessors and Lessees to simply agree to record a Memorandum of Oil and Gas Lease that refers to an Oil and Gas Lease Agreement entered into by and between the parties, but the actual Lease is not recorded and the precise terms of the deal are not disclosed. A scenario might exist where two parties agree and enter into a lease, or a lease modification or amendment pursuant to a string of s, and thereafter only file of record a Memorandum of Lease or Extension/Amendment, thus providing constructive notice to all subsequent purchasers of lease agreement. But is that sufficient to provide constructive notice of the terms of the electronic agreement? 78 Id. 32

33 b. The Westland Case Texas law mandates that purchasers search the records and be on notice of the existence of recorded deeds and other instruments executed by the grantor and the grantor s predecessors in title encumbering the property. 79 Further, purchasers are held not only to notice of the contents of those recorded instruments but also any information that a prudent inquiry into known facts would have revealed. 80 Most Texas title lawyers are familiar with the inquiry requirements detailed in the prominent case of Westland Oil Dev. Corp. v. Gulf Oil Corp. 81 In Westland, six sections of land were leased to Mobil Oil Company. Mobil and the plaintiff entered into a farmout agreement covering part of Mobil s interest in three of the sections. 82 The plaintiff then transferred its rights and obligations under the farmout to the C & K partnership. 83 This transfer was accomplished through a letter agreement and provided that the plaintiffs would receive overriding royalties and production payments in the farmout acreage. 84 The provision stated that it was to bind both the transferee and all assignees of the transferee. 85 Thereafter, C & K earned the farmout acreage and received an assignment of one-half of Mobil s leasehold interest in the three sections covered by the farmout. 86 The assignment referred to an operating agreement between Mobil and C & K. 87 The operating agreement made reference to the letter agreement between plaintiff and C & K 79 Leonard v. Benford Lumber Co., 110 Tex. 83, 89, 216 S.W. 382, 384 (1919). 80 Jenkins v. Adams, 71 Tex. 1, 5, 8 S.W. 603, 604 (1888) S.W.2d 903, (Tex. 1982). 82 Id. at Id. 84 Id. 85 Id. 86 Id. at Id. at 906. but did not reveal any of its terms. 88 C & K later entered into farmouts covering its interest in the three sections, and these farmouts were eventually assigned to the defendants under agreements which made reference to the operating agreement between Mobil and C & K. 89 Mobil subsequently entered into another farmout covering interests in its leases in all six sections, which included Mobil s remaining interests in the three sections covered by the original farmout and its interest in the three sections not covered by that agreement. 90 This last farmout agreement, which was eventually assigned to the defendants, made specific reference to the operating agreement between Mobil and C & K but did not make any express references to the letter agreement between the plaintiff and C & K. 91 Upon learning of the last assignment, the plaintiff brought suit against the defendants, seeking to enforce its overriding royalty and other rights in all of the leasehold interests that the defendants had acquired through the assignments referencing the various farmouts. 92 The Texas Supreme Court held that the references in the various assignments and farmouts to the operating agreement between C & K and Mobil put the defendants on notice as a matter of law of everything contained in the operating agreement, including the reference to the letter agreement. 93 The Westland court stated that it is well settled that a purchaser is bound by every recital, reference and reservation contained in or fairly disclosed by any instrument that forms an essential link in the chain of title under which he 88 Id. 89 Id. 90 Id. at Id. at Id. 93 Id. at

34 claims. The court went on to quote Loomis v. Cobb: 94 The rationale of the rule is that any description, recital of fact, or reference to other documents puts the purchaser upon inquiry, and he is bound to follow up this inquiry, step by step, from one discovery to another and from one instrument to another, until the whole series of title deeds is exhausted and a complete knowledge of all the matter referred to and affecting the estate is obtained. 95 The defendants were charged with notice of the contents of that letter and were not afforded the protections of an innocent purchaser. 96 This case illustrates that every assignee of a farmout agreement, lease, or any other type of mineral interest should thoroughly investigate every document referred to by any instrument referenced in his chain-of-title. 97 c. Extensions and Modifications An oil and gas lease may be extended, but if the extension goes beyond the fixed term, there must be a written instrument satisfying the statute of frauds. 98 Additionally, because the general rules of contract formation apply to oil and gas leases, an oil and gas lease may be amended or modified only if there is a meeting of the minds supported by consideration. 99 Thus, under the TUETA, an oil and gas lease may be created, extended, or amended by an as long as the is signed and includes all of the essential terms. 100 For example, let s assume that the primary term of an oil and gas lease is scheduled to end January 1, On December 15, 2013, one of the parties sends an to the other stating that he would pay $50,000 to extend the lease for another year. The other party responds by saying that he accepts the offer, and he types his name on the . Thereafter, the Lessee delivers the extension payment which is accepted and deposited by the Lessor. Under the TUETA, this will likely create an enforceable contract (as between the parties to the ). 101 Of course, this electronic lease extension is almost certainly unenforceable against innocent third parties. 102 However, what if the lease contains an extension option executable by the lessee by providing notice and payment to the lessor by a certain date? d. Other Considerations Taking the Westland case into consideration, it is consistent that if a recorded instrument refers to an electronic communication, or refers to some other unrecorded instrument that leads a reasonable inquiry to an electronic communication or file, the assignee will be S.W. 305 (Tex. Civ. App. El Paso 1913, writ ref d). 95 Westland Oil, 637 S.W.2d at 908 (quoting Loomis v. Cobb, 159 S.W. 305, 307 (Tex. Civ. App. El Paso 1913, writ ref d)). 96 Id. 97 See id. (charging defendants with notice of the contents of the agreement defendants signed). 98 Sunac Petroleum Corp. v. Parkes, 416 S.W.2d 798, (Tex. 1967); Watson v. Rochmill, 155 S.W.2d 783, (Tex. 1941). 99 Hathaway v. General Mills, Inc., 711 S.W.2d 227, 228 (Tex. 1986). 100 See Tittizer v. Union Gas Corp., 171 S.W.3d 857, (Tex. 2005); Tex. Bus. & Com. Code Ann (West 2013). 101 See 2001 Trinity Fund, LLC v. Carrizo Oil & Gas, Inc., 393 S.W.3d 442, 449 (Tex. App. Houston [14th Dist.] 2012, pet. denied) (finding a series of s to constitute a meeting of the minds and an agreement). 102 See supra Part C.1.a. of this article (discussing the Texas Recording Statutes). 34

35 charged with notice of the contents of that communication as a matter of law. But how far down the rabbit hole does this general rule require a subsequent purchaser to go? The Westland case seems to indicate that a purchaser has a duty to inquire only if known facts or circumstances would induce an ordinary prudent purchaser to do so. This potentially creates the burden of having subsequent purchasers examine the contents of every or electronic file discovered through a reasonably diligent inquiry of the chain of title affecting the estate to be examined or purchased. Alternatively, in Cornerstone Land, Ltd. v. Pierce, a Texas Court of Appeals held that a reference in a deed to the contract for sale applicable to the transaction was insufficient to place a subsequent purchaser on notice of the reservation of minerals contained within the contract for sale based on the doctrine of merger by deed. 103 Applying the merger doctrine, the Court of Appeals held that the sales contract was not an essential link in the chain of title. The deed was the essential link in the chain of title, and the sales contract merged into the deed. Under Westland, any and all references to unrecorded instruments appears to trigger unlimited due diligence and inquiry requirements. The Cornerstone case at least seems to put some limit on the requirements of Westland. Thus, an assignee of an oil and gas lease must thoroughly investigate every document revealed by the recorded documents in the chain of title affecting the interest being assigned, including electronic documents and files. Assignees should conduct a thorough investigation of each and every document, step by step leading to subsequent documents and further information which presumptively affects title to the interests being assigned. 103 Cornerstone Land, No CV, 2010 WL , at *3 4 (Tex. App. Waco Oct. 27, 2010, pet. denied) (mem. op.). D. Farmout Agreements In the typical farmout agreement, a party (the farmee ) contracts with another (the farmor ) to perform drilling or exploratory operations on land subject to leases owned by the farmor. The primary characteristic of the farmout is the obligation of the assignee to drill one or more wells on the acreage as a prerequisite to completion of the transfer. 104 Such contracts can be very simple letter agreements or complex and detailed agreements that cover all aspects of the operation. It appears that most farmouts are not recorded. 105 Among the reasons for not recording them are: (1) a party does not want to disclose the terms of its deal ; (2) the parties do not want to add too many documents to the public records, thus increasing the future costs of title examinations; and (3) the farmee trusts the farmor to honor the agreement. 106 However, if the farmout covers numerous areas in different states and requires drilling multiple wells over a long period of time, it is wise to record the farmout. 107 A farmout may be extended or amended, and the general rules applicable to contracts will apply Young Ref. Corp. v. Pennzoil Co., 46 S.W.3d 380, 389 (Tex. App. Houston [1st Dist.] 2001, pet. denied). 105 John R. Scott, How to Prepare an Oil and Gas Farmout Agreement, 33 Baylor L. Rev. 63, 65 (1981). 106 Id. at Id. 108 See Tittizer v. Union Gas Corp., 171 S.W.3d 857, 860 (Tex. 2005) ( An oil and gas lease is a contract, and its terms are interpreted as such. ); Hathaway v. General Mills, Inc., 711 S.W.2d 227, 228 (Tex. 1986) ( A modification must satisfy the elements of a contract: a meeting of the minds supported by consideration. ); Cambridge Oil Co. v. Huggins, 765 S.W.2d 540, 543(Tex. App. Corpus Christi 1989, writ denied) ( In construing a written contract, the court should ascertain the true intentions of the parties as expressed in the instrument. ). 35

36 Thus, under the TUETA, a farmout could be created, extended, or amended by an so long as the is signed and includes all of the essential terms. 109 E. Joint Operating Agreements Joint operating agreements ( JOAs ) are contract[s] typical to the oil and gas industry whose function is to designate an operator, describe the scope of the operator's authority, provide for the allocation of costs and production among the parties to the agreement, and provide for recourse among the parties if one or more default in their obligations. 110 A joint operating agreement is a contract to be construed like any other agreement, and the general rules of contract construction apply. 111 Additionally, the statute of frauds can apply to joint operating agreements. 112 It is common practice to conduct mineral development under a joint operating agreement. 113 A joint operating agreement may be amended or modified, but this requires additional consideration and the consent of all parties to the agreement. 114 Taking into account recent court decisions, a joint operating agreement could well be 109 See Tittizer, 171 S.W.3d at 860; Tex. Bus. & Com. Code Ann (West 2013). 110 Seagull Energy E & P, Inc. v. Eland Energy, Inc., 207 S.W.3d 342, 344 n.1 (Tex. 2006) (quoting 3 Ernest E. Smith & Jacqueline L. Weaver, TEXAS LAW OF OIL AND GAS 17.3 at 17 7 (2d ed. 2006)). 111 ExxonMobil Corp. v. Valence Operating Co., 174 S.W.3d 303, 312 (Tex. App. Houston [1st Dist.] 2005, pet. denied). 112 Hill v. Heritage Res., Inc., 964 S.W.2d 89, 134 (Tex. App. El Paso 1997, pet. denied). 113 IP Petroleum Co., Inc. v. Wevanco Energy, L.L.C., 116 S.W.3d 888, 892 (Tex. App. Houston [1st Dist.] 2003, no pet.). 114 Hill, 964 S.W.2d at 113. created by An or series of s might satisfy both the general rules of contract construction and the statute of frauds. 116 Provided that an or series of s discussing joint operations is signed and contains all of the essential terms of the agreement, an enforceable agreement may be created. 117 Moreover, under the TUETA, amendments and extensions to a joint operating agreement could also be accomplished by or other electronic mediums. 118 III. Conclusion and Practical Advice Electronic communication is becoming an increasingly important means of doing business. Today, instant messages, text messages, and s are considered to be writings. These writings may constitute an enforceable agreement between two or more parties. Thus, parties must not act carelessly when conversing about prospective business transactions through electronic mediums. Additionally, if parties, who are obtaining an interest in land, for example, do intend to create agreements through electronic mediums, those parties must remember to additionally create a recordable instrument detailing the requisite terms of the transaction so that they are protected from subsequent claimants. Hopefully Texas courts will continue to clarify the law surrounding the formation and consequences of electronic agreements, including attempts to define what a sufficient level of inquiry might be. 115 See 2001 Trinity Fund, LLC v. Carrizo Oil & Gas, Inc., 393 S.W.3d 442, (Tex. App. Houston [14th Dist.] 2012, pet. denied) (finding that a series of s constituted an agreement to continue under the terms of a terminated JOA). 116 See Dittman v. Cerone, 2013 Tex. App. LEXIS 2343, at *18 (Tex. App. Corpus Christi Mar , no pet. h.) (mem. op.) (finding correspondence to be sufficient for a binding agreement). 117 Id. 118 Id. 36

37 Additionally, the Westland court, in dicta, left open the possibility of a scenario where a sufficient inquiry was made, but the information is unavailable or no longer exists. The persuasiveness of arguments made by innocent purchasers and centered on unavailable or non-existent documents after a sufficient inquiry is yet to be decided by a Texas court. Until the law is clarified, it is wise for businesses to take practical steps that will insure protection from unwanted contract disputes. If a business does not want to create contracts by , one step a business should consider is adding a statement to each that is sent from the business that states that such does not constitute a written agreement, or that any agreement is expressly subject to upper management approval. This could be accomplished by adding the statement conspicuously at the top or bottom of the body of the . A statement could read something such as this: This is not intended to create or form a contract or bind the sender except pursuant to an express written agreement on paper and approved by the Vice President. On the other hand, if a business does wish to create contracts by , it is wise to include a statement in each that states that such communication represents an agreement by the parties to contract with each other through electronic mediums. This helps to enforce a contract formed by because it expressly shows that TUETA applies. 119 As seen above, TUETA applies only to transactions between parties each of which has agreed to conduct transactions by electronic means. 120 Adding a statement that expressly indicates that the party wishes to conduct transactions by electronic means will increase the chances of a court enforcing a contract. 121 A statement could read something like this: This and any response to it are expressly intended to be used in conducting transactions by electronic means. In conclusion, it is clear that an or even a text message can create a contract. But, it is not clear when a court will find such a contract to be enforceable. Many things can prevent a series of s from becoming an enforceable contract. Questions that are likely to appear in oil and gas cases regarding the enforceability of a contract include: (1) whether or not there was a signature; (2) whether there was a meeting of the minds; and (3) whether the parties agreed to conduct transactions by electronic means. Depending on how these questions are answered, a contract may or may not be enforceable. In the future, energy companies should be clear and definite in all of their electronic communications in order to avoid disputes and litigation. Nothing contained in this paper constitutes legal advice. Consult counsel in any matter involving legal issues. The materials in this article were accurate as of Fall 2013, but the authors have not updated it since that date. 119 See Tex. Bus. & Com. Code (b) (West 2013) (stating that the chapter only applies to parties who have agreed to conduct transactions by electronic means). 120 Id. 121 See 2001 Trinity Fund, LLC v. Carrizo Oil & Gas, Inc., 393 S.W.3d 442, 465 (Tex. App. Houston [14th Dist.] 2012, pet. denied) (Seymore, C concurring) (searching for an express agreement to conduct transactions by electronic means). 37

38 About the Authors Patrick Weir AREAS OF PRACTICE Oil, Gas and Mineral Law Business Law Real Estate Law BAR/COURT ADMISSIONS State Bar of Texas, 2007 ACTIVITIES AND AFFILIATIONS American Bar Association Amarillo Area Bar Association Amarillo Area Young Lawyers Association Texas Young Lawyers Association Texas A&M 12th Man Foundation Panhandle Producers and Royalty Owners Association The Bridge Children s Advocacy Center, Board Member Big Brothers Big Sisters, Board of Directors United Way, Loaned Executive 2008 Named a Texas Rising Star by Texas Lawyer, 2010 PATRICK WEIR focuses his practice in the areas of Oil, Gas and Mineral law, and general business and corporate transactional matters. In 2012, Mr. Weir earned the qualification of Board Certified Oil, Gas & Mineral Law by the Texas Board of Legal Specialization becoming the youngest with that qualification in Amarillo. As a Board Certified Oil and Gas lawyer, Patrick is committed to the continued development of energy production in the Texas Panhandle. Patrick s Oil, Gas and Mineral practice includes the representation of clients involved in acquisition, development and exploration of CONTACT INFORMATION Patrick S. Weir UNDERWOOD LAW FIRM, P.C. 500 S. Taylor, Suite 1200 Amarillo, Texas Ph: (806) Fax (806) patrick.weir@uwlaw.com oil and gas properties, the drafting oil and gas contracts and leases, the preparation of drilling and division order title opinions, and the resolution of disputes involving title or lease issues, surface damages, sub-surface easements and royalty issues. His transactional practice includes advising new businesses on entity selection, resolving disputes between business owners, assisting clients with the purchase or sale of a business including researching company value issues and drafting buy-sell and merger agreements, drafting residential, commercial, and governmental leases, and resolving real property disputes. Nothing contained in this paper constitutes legal advice. Consult counsel in any matter involving legal issues. The materials in this article were accurate as of Fall 2013, but the authors have not updated it since that date. 38

39 About the Authors Ray Dixon RAY DIXON S principal areas of practice are oil, gas, and mineral law; the representation of non-profit institutions and banking and creditors rights. Ray is Board Certified in Oil, Gas and Mineral Law by the Texas Board of Legal Specialization and is licensed to practice in Texas and Oklahoma. AREAS OF PRACTICE Oil, Gas and Mineral Law BAR/COURT ADMISSIONS State Bar of Texas, 1977 State Bar of Oklahoma, 2011 U.S. Court of Appeals, Fifth Circuit U.S. District Court, Northern District of Texas U.S. District Court, District of Colorado ACTIVITIES AND AFFILIATIONS State Bar of Texas, Oil, Gas and Energy Resources Law Section Texas Panhandle Bankruptcy Bar Association Board Certified in Oil, Gas and Mineral Law by the Texas Board of Legal Specialization American Association of Petroleum Landmen He has tried cases in state, federal, and bankruptcy court, and represented the prevailing defendant in Judice v. Mewbourne Oil Company, one of the leading Texas Supreme Court cases on the question of the deduction of postproduction costs from gas royalties in bankruptcy court; and the prevailing party in Cambridge v. Geodyne Resources Company, the leading Texas case regarding application of the doctrine of quasi-estoppel to a claim of termination of a pooled gas unit. Ray s oil, gas and mineral practice includes representing clients in leasing and land title transactions including documenting loans secured by oil and gas properties and preparing acquisition, drilling and division order title opinions; the purchase and sale of producing properties; and litigation including title disputes, cases involving interpretation of joint operating agreements, claims regarding failure to reasonably develop a property and royalty litigation. His banking and creditors rights practice includes representing banks, savings and loans, and other financial institutions in loan transactions and litigation; and Ray represents non-profit entities in a wide variety of corporate, litigation, and transaction matters including formation of nonprofit entities. CONTACT INFORMATION Ray Dixon UNDERWOOD LAW FIRM, P.C. 500 S. Taylor, Suite 1200 Amarillo, Texas Ph: (806) Fax (806) Ray.Dixon@uwlaw.com Nothing contained in this paper constitutes legal advice. Consult counsel in any matter involving legal issues. The materials in this article were accurate as of Fall 2013, but the authors have not updated it since that date. 39

40 About the Authors Clinton M. Biggs AREAS OF PRACTICE Business Law Estate Planning and Probate Oil, Gas and Mineral Law Real Estate Law BAR/COURT ADMISSIONS State Bar of Texas, 2009 ACTIVITIES AND AFFILIATIONS State Bar of Texas - Oil, Gas & Energy Law Section Tarrant County Bar Association - Energy Section American Association of Professional Landmen Fort Worth Association of Professional Landmen Fort Worth Chamber of Commerce - Vision Group CLINT BIGGS S current practice is focused on Oil, Gas & Mineral Law, Real Estate, Estate Planning and general business and corporate transactions. Clint s Oil, Gas & Mineral Law practice includes title examination and the preparation of drilling and division order title opinions, oil & gas leases, assignments, easements and other related contracts, as well as the representation of clients regarding various matters ranging from the sale and acquisition of oil & gas assets to development and the resolution of disputes arising out of issues related thereto. CONTACT INFORMATION Clinton M. Biggs UNDERWOOD LAW FIRM, P.C Macon Street, Suite 101 Fort Worth, Texas Ph: (817) Fax (817) clint.biggs@uwlaw.com Clint s transactional practice includes assisting clients with business formation, reorganization and dissolution, as well as transactional matters such as the purchase and sale of real property or other corporate assets. He also has experience in handling certain Estate Planning matters, including the drafting of wills, trusts and other related instruments. Nothing contained in this paper constitutes legal advice. Consult counsel in any matter involving legal issues. The materials in this article were accurate as of Fall 2013, but the authors have not updated it since that date. 40

41

42 DAPL Annual Golf Tournament Benefiting Texas Scottish Rite Hospital for Children Monday, October 19, :00 PM 5:00 PM Brookhaven Country Club, 3333 Golfing Green Drive, Farmers Branch, TX This year s tournament will be a flighted four-man scramble. Fee includes lunch, dinner, refreshments on and off the course, and unlimited use of the driving range. Due to the tournaments popularity, the tournament will be held on two (2) courses. The Championship Course and the Master Course. You will be slotted into either golf course, based upon a first full-team paid basis. We ask that you assemble your foursome with all verifiable handicaps as well as contact phone number, address, and SHIRT SIZE. A handicap must be listed for each member in order to properly flight the teams. This year, $10,000 cash will be given away as a HOLE-IN- ONE prize, plus many other gifts and prizes. A large crowd is expected the ENTRY DEADLINE is OCTOBER 12, To ensure your spot in the Tournament and for our planning purposes, please have your entry form and payment in as early as possible. The 12:00 tee time will be granted on a first come, first serve basis (entry form/fee received). Should you have any questions or concerns, please do not hesitate to contact DJ Cherry at (214) or golf.tournament@dapl.org. Last year, DAPL donated approximately $32,000 to our local Texas Scottish Rite Hospital for Children (TSRH). Please see attached list of SPONSORSHIP OPPORTUNITIES available as we strive to set a new record. Any TSRH donations are to be made out to TSRH GOLF TOURNAMENT. TO PAY BY CHECK Checks payable to: DAPL TSRH Golf Tournament Mail to: Attn: DJ Cherry 5949 Sherry Lane, Suite 835 Dallas, Texas TO PAY ONLINE form to: golf.tournament@dapl.org Click on Contact Us tab, click on payment/donations, then choose from the drop down menu for golf entry fee and enter your CC information. Please note: A processing fee of 1% will be assessed for online payments. Directions: 3333 Golfing Green Drive, Farmers Branch, Texas If you are not interested in playing golf, but you would like to join us for dinner, you are welcome to join us. Complete the entry form as dinner only and mail with your check payable to DAPL TSRH Golf Tournament in the amount of $ WOULD YOU LIKE TO VOLUNTEER? WE SURE COULD USE YOUR HELP! CALL OR FOR DETAILS. 42

43 ***************PLEASE RETURN THIS PORTION WITH YOUR PAYMENT*************** FOUR PERSON SCRAMBLE TEAM ENTRY FORM PLEASE PRINT Team Captain Name Company/Independent Address Phone/fax To secure a guaranteed spot in the tournament, the TOTAL AMOUNT DUE for the entire team must accompany the entry form. Player Name (please print) Entry Fee DAPL Member $225 Non-Member $250 Handicap Shirt Size *Women sizes available 1 Captain TOTAL DINNER & PRIZES IMMEDIATELY FOLLOWING PLAY TO PAY BY CHECK TO PAY ONLINE Checks payable to: DAPL TSRH Golf Tournament form to: golf.tournament@dapl.org Mail to: Attn: DJ Cherry Click on Contact Us tab, click on payment/donations, then choose from the drop down menu for golf entry fee and enter your CC 5949 Sherry Lane, Suite 835 Please note: A processing fee of 1% will be assessed for online Dallas, Texas payments. ENTRY DEADLINE IS OCTOBER 12, To ensure your spot in the tournament and for planning purposes, please have your entry form and payment in as early as possible. Please direct questions to DJ Cherry at (972) or golf.tournament@dapl.org. Benefiting: 43

44 SPONSORSHIP FORM DAPL ANNUAL GOLF TOURNAMENT Benefiting Texas Scottish Rite Hospital for Children Monday, October 19, 2015 Please check the box you or your company desires and forward this form and donation, along with a completed entry form and any applicable entry fees by October 12, 2015 to: TO PAY BY CHECK TO PAY ONLINE Checks payable to: DAPL TSRH Golf Tournament form to: golf.tournament@dapl.org Mail to: Attn: DJ Cherry Click on Contact Us tab, click on payment/donations, then 5949 Sherry Lane, Suite 835 choose from the drop down menu for golf entry fee and Dallas, Texas enter your cc information. Please note: A processing fee of 1% will be assessed for online payments. DIAMOND -Polo Shirt Sponsor $5000 (Sold) Includes four (4) players (lunch, dinner, golf, etc.) COMPANY LOGO on Polo golf shirts, Sponsor Board, Hole Sign DAPL Newsletter and DAPL Website recognition for a full year. Plus, as added benefit that is exclusive only to Diamond & Platinum Sponsors, their LOGO will be displayed on the DAPL website with a link to their website. PLATINUM -Dinner Sponsor $3000 Includes four (4) players (lunch, dinner, golf, etc.) Sponsor Board and Hole Sign DAPL Newsletter and DAPL Website recognition for a full year. Plus, as added benefit that is exclusive only to Diamond & Platinum Sponsors, their LOGO will be displayed on the DAPL website with a link to their website. GOLD - Lunch Sponsor $2500 Includes two (2) players (lunch, dinner, golf, etc.) Recognition at lunch, Sponsor Board, and Hole Sign DAPL Newsletter and DAPL website recognition for a full year. SILVER - HOLE-IN-ONE Sponsor $2000 Includes one (1) player1 (lunch, dinner, golf, etc.) Sponsor Board and Hole Sign DAPL Newsletter and DAPL website recognition for a full year. BEVERAGE STATION $1500 Includes 50% on one (1) player (lunch, dinner, golf, etc.) Beverage Station sign, Sponsor Board and Hole Sign. DAPL Newsletter and DAPL website recognition for a full year. PUTTING CONTEST $750 Sponsor Board and Hole Sign DAPL Newsletter and DAPL website recognition for a full year. Sponsor Form 44

45 OIL AND GAS LAND REVIEW CPL/RPL EXAM November 10 13, 2015 Fort Worth, Texas MARK YOUR CALENDARS AAPL invites you to its Oil and Gas Land Review, CPL/RPL Exam. The program is November 10 13, 2015 in Ft. Worth, Texas at the North Conference Center: 304 Houston St., Fort Worth, TX The Oil and Gas Land Review is a fast-paced, intensive study of the topics covered by the CPL and RPL certification exams. Day one of the review covers both CPL and RPL review material and days two and three cover CPL material only. The CPL exam will be offered on Friday, November 13 th, following the three-day review. The RPL exam will be offered on Wednesday, November 11 th following the one-day review, as well as on Friday, November 13 th. This class is accredited by AAPL for 18 CPL/RPL/RL credits, including one ethics credit. The RPL early registration cost is $300 for AAPL members and the CPL early registration cost is $ for AAPL members if you pay by October 27, After that date, the price goes up by $ Register online at Your Industry is our Industry Energy companies like yours have never had a greater need for legal advice you can trust from attorneys who understand the increasingly complex issues you face in this challenging and rapidly evolving industry. Gray Reed & McGraw, P.C. provides a full spectrum of legal services to publicly traded and private energy companies. In addition, Gray Reed currently employs attorneys who primarily focus their work on title examination for onshore properties in Texas, Colorado, Wyoming, Montana, New Mexico, Utah, North Dakota, Louisiana, and other oil and gas producing states. Our proven experience in the industry extends upstream and downstream covering almost every facet of your industry which, in a sense, makes it our industry too. GrayReed.com Dallas HOUSTON 45

46 AAPL Education Calendar *Discount for Active Members of the AAPL 50% off AAPL Education Courses & Videos and 25% off Books. Discount applied automatically at checkout. See for details. 9/1/2015 9/4/2015 Oil and Gas Land Review, CPL/RPL Exam Houston, TX CEU/1.00 CEU ETHICS 9/10/ Santa Fe Land Institute Santa FE, NM 6.00 CEU/1.00 CEU ETHICS 9/11/2015 WI/NRI Workshop Houston, TX 6.00 CEU 9/12/2015 WI/NRI Workshop Shreveport, LA 6.00 CEU 9/17/2015 Ethics 360 Denver, CO 4.00 CEU ETHICS 9/18/2015 Negotiations Seminar Dallas, TX 6.00 CEU 9/21/ Texas Land Institute Houston, TX 6.00 CEU/1.00 CEU ETHICS 9/24/2015 Oil and Gas Lease Fundamentals Midland, TX 9/24/2015 Field Landman Seminar Midland, TX 9/25/2015 CPL EXAM ONLY Grand Raids, MI 9/25/2015 RPL EXAM Grand Raids, MI 9/28/2015 Pooling Seminar Denver, CO 5.00 CEU 10/1/ /2/ Appalachian Land Institute (Live Webinar Option Available) Washington, PA 10/2/2015 WI/NRI Workshop Midland, TX 6.00 CEU 10/7/2015 Marketable Title Ft. Worth, TX 5.00 CEU CEU/1.00 CEU ETH- ICS 10/13/ /16/2015 Oil and Gas Land Review, CPL/RPL Exam San Antonio, TX CEU/1.00 CEU ETHICS 10/15/2015 Field Landman Seminar Tulsa, OK 10/22/ /23/ Gulf Coast Land Institute Lafayette, LA 9.00 CEU/1.00 CEU ETHICS 10/26/ /27/2015 Fundamentals of Land Practices & Optional RPL Exam Midland, TX 10/27/ /28/2015 JOA Workshop The Woodlands, TX 10/30/2015 Due Diligence Seminar Dallas, TX 5.00 CEU 11/4/2015 Negotiations Seminar San Antonio, TX 6.00 CEU 11/5/2015 Oil and Gas Lease Fundamentals Oklahoma City, OK 6.00 CEU 6.00 CEU/1.00 CEU ETHICS 11/6/2015 Ethics 360 Tulsa, OK 4.00 CEU ETHICS 11/7/2015 CPL EXAM ONLY Greeley, CO 11/7/2015 RPL EXAM ONLY Greeley, CO 11/10/ /13/2015 Oil and Gas Land Review, CPL/RPL Exam Fort Worth, TX 6.00 CEU/1.00 CEU ETHICS 11/17/ /18/2015 Fundamentals of Land Practices & Optional RPL Exam Coraopolis, PA 11/18/2015 CPL EXAM ONLY Coraopolis, PA 11/19/2015 Marketable Title Houston, TX 5.00 CEU 12/1/ /2/2015 JOA Workshop Denver, CO CEU 12/4/2015 Negotiations Seminar Oklahoma City, OK 6.00 CEU 12/7/2015 Due Diligence Seminar The Woodlands, TX 5.00 CEU 12/14/2015 WI/NRI Workshop San Antonio, TX 6.00 CEU 12/15/ / Fundamentals of Land Practices & Optional RPL Exam Tyler, TX 3/10/2016 3/11/ Mining & Land Resources Institute Reno, NV 6.00 CEU/1.00 CEU ETHICS 6.00 CEU/1.00 CEU ETHICS 46 Note: Dates are subject to change, please check the AAPL Website at for event details.

47 DAPL Welcomes New Members Logan Graham Active US Trust Bank of America 901 Main Street Dallas, TX Brandon Sims Active Production Gathering Company 8080 North Central Expressway, Ste 1090 Dallas, TX William Blake Harris Active Casa Energy Partners, LLC P.O. Box Dallas, TX William Christopher Caudill Active Matador Resources Company 5400 LBJ Freeway, Suite 1500 Dallas, TX Troy Wall Associate Matador Resources Company 5400 LBJ Freeway, Suite 1500 Dallas, TX Thomas Edwards Associate Five States Energy 4423 Greenville Ave., Suite 1220 Dallas, TX Susan Spencer Active CGI Technologies & Solutions, Inc Landmark Blvd, Ste. 300 Dallas, TX Jodi McCauley Active Trunk Bay Royalty Partners, Ltd N. Central Expressway, Ste 1400 Dallas, TX ext. 305 William Blomdahl Non Resident Lake Ronel Oil Co. P.O. Box 179 Tyler, TX Spouse Tax Relief Appeals IRS Tax Lien Assistance IRS Tax Investigations Currently Non- Collectable Status Abatement Of Penalties And Interest IRS Tax Installment Agreement Bank Levies, Wage Levies Or Garnishments Payroll Tax Solutions Offers In Compromise Unified Tax Returns Revenue Officer Assistance TAX (0829) TAX (0829) 47

48 Newsletter and Website Advertisement Guidelines DAPL News is the Monthly newsletter of the Dallas Association of Petroleum Landmen. DAPL Newsletters 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 $ Skyscraper 120 x 640 pixels 20k $610