The recent case of Devon Energy Production Co. v. Apache Corporation, Case No. 11-16-00105-CV (Tex.Civ.App.- Eastland 2018, pet. filed) addressed a novel question under Texas law about whether an oil company cotenant owed royalty payments to the other co-tenant oil company’s lessors. The trial court said no and the Court of Appeals affirmed.
In Devon Energy, a part-owner — Norma Jean Hester — of a certain mineral interest under lands located in Glasscock County leased her interest to Apache Corporation. The other part-owners (having the remaining two thirds of the ownership) leased their interest to Devon Energy Production Company. Hestor and the other lessors reserved royalty payments of 25% under the two separate leases.
The legal effect of two leases covering the entirety of a mineral estate was to create a co-tenancy relationship between Apache and Devon. This is because, under Texas law, a typical oil and gas lease conveys the mineral estate (less those portions expressly reserved, such as royalty) as a determinable fee. When two production companies share ownership over the same mineral estate, they become co-tenants.