I recently had occasion to review the Texas Supreme Court’s decision on a long-running dispute between BP America and Laddex, Ltd. The case is centered around a disagreement of the terms in a decades old lease and its result has been significant for the energy industry. The case, known as BP America Production Co. v. Laddex, Ltd., began in 2007. British Petroleum America (BP) had been producing out of a single well on property in Roberts County, Texas since 1971, however Laddex believed BP’s lease expired and signed a top lease with the mineral owners. BP believed they still had rights to the land and so Laddex filed suit.
This case reached the Texas Supreme Court after both the initial jury and the Court of Appeals in Amarillo, Texas ruled in favor of Laddex. However, BP argued that the jury’s findings were incorrect as there was not sufficient evidence to support the jury’s verdict. BP also contended that Laddex’s lease is void under the Texas rule against perpetuities. Laddex argued that BP’s well had not been producing “payable quantities of oil” for 15 months and therefore any “prudent operator” would have halted all operations. Thus, according to Laddex, the terms of the BP lease stated that should BP’s production stop, the lease would be terminated and the rights given back to the lessor, allowing Laddex the right to sign a new lease and assume operations on the property.