Background and Parties

David W. Cromwell, as lessee and purported working interest owner of oil and gas wells, brought an action against Anadarko E&P Onshore, LLC, the operator and co-tenant of the wells, alleging trespass to try title, breach of partnership duties, and fraud, and seeking damages and declaratory judgment that his leases never expired. The 143rd District Court in Loving County granted Anadarko's traditional and no-evidence motions for summary judgment and denied Cromwell's motion for partial summary judgment. The El Paso Court of Appeals affirmed, and Cromwell petitioned the Texas Supreme Court for review.

The Habendum Clause Dispute

The central issue turned on the interpretation of passive-voice habendum clauses in two oil-and-gas leases. Anadarko contended that Cromwell's leases had automatically terminated at the end of their fixed terms under their respective habendum clauses because Cromwell himself did not personally produce minerals from the leased premises, even though production in commercial paying quantities had continuously occurred on the land. The habendum clauses provided that the leases would continue so long as minerals "were produced" from the land—without specifying who must undertake the production.

The Supreme Court's Analysis

Justice Sullivan, writing for the Court, applied general contract-interpretation principles, noting that an oil-and-gas lease is just another type of contract. The Court held that the plain language of both habendum clauses did not require Cromwell to personally produce minerals to maintain his interest in the leases. The Court emphasized that when interpreting an oil-and-gas lease, courts begin with the lease's text and seek to ascertain the parties' intent as expressed in the plain language of the written agreement.

Significantly, the Court invoked the default rule against forfeiture of mineral interests. Because the habendum clauses did not clearly, precisely, and unequivocally require personal production by Cromwell, and because production in commercial paying quantities had continuously occurred on the land, the Court held that the leases did not automatically terminate at the end of their fixed terms.

Precedent Disapproved

The Supreme Court expressly disapproved Hughes v. Cantwell, 540 S.W.2d 742, and Cimarex Energy Co. v. Anadarko Petroleum Corp., 574 S.W.3d 73, which had reached opposite conclusions regarding the interpretation of similar habendum clauses. The Court reversed the judgment of the El Paso Court of Appeals and remanded the case.