In Scout Energy Management, LLC v. Taylor Properties, 704 S.W.3d 544 (2024), the Texas Supreme Court addressed a case where the Plaintiff claimed that two leases had terminated because a shut in royalty payment was made late.
The leases in question had a pretty standard shut in royalty clause that allowed a payment of $50.00 per well per year to maintain the leases when there was neither sale nor use of produced gas. Production on the only well ceased in September 2017. Scout’s predecessor, ConocoPhillips, made shut in royalty payments for each lease to the Lessor in September 2017. Then in October 2017, Scout made second shut in royalty payments to the Lessor on both leases.
Scout next made shut in royalty payments to the Lessor in December 2018. The Lessor sued and requested declaratory judgment that the leases had terminated.
The Supreme Court held that the leases had not terminated because the October 2017 payment was an early shut in royalty payment for the second year. The Court noted that to decide otherwise would have required the operator to, in effect, make two shut in royalty payments for the same year.
Hard to understand why this case was even filed.