Background

David W. Cromwell, a purported working interest owner in oil and gas wells located in Loving County, brought suit against Anadarko E&P Onshore, LLC, the operator of the wells and his co-tenant. Cromwell alleged trespass to try title, breach of partnership duties, and fraud, seeking damages and a declaratory judgment that his oil and gas leases never expired. The dispute centered on whether Cromwell's leases automatically terminated at the end of their fixed terms under the habendum clauses when Cromwell himself did not personally produce minerals from the land, despite continuous production by the operator. Both the trial court and the El Paso Court of Appeals ruled against Cromwell, granting summary judgment to Anadarko.

The Habendum Clause Dispute

The central issue before the Texas Supreme Court was whether the plain language of the habendum clauses in Cromwell's oil and gas leases required Cromwell to personally produce minerals to maintain his leasehold interest. The habendum clauses provided that the leases would continue "so long as minerals were produced from the land." Anadarko argued, relying on the El Paso Court of Appeals' prior decision in Cimarex Energy Co. v. Anadarko Petroleum Corp., that the passive voice construction required the lessee himself to produce, and that production by a co-tenant operator was insufficient to maintain the lease. The lower courts had agreed with this interpretation, effectively terminating Cromwell's leasehold interests.

The Supreme Court's Holding

Writing for the Court, Justice Sullivan held that the plain language of the habendum clauses in the two oil-and-gas leases did not require Cromwell to personally produce minerals to maintain his interest in the leases. The Court found that production in commercial paying quantities had continuously occurred on the land, and thus the leases did not automatically terminate at the end of the fixed term.

Significantly, the Court explicitly disapproved Hughes v. Cantwell, 540 S.W.2d 742, and Cimarex Energy Co. v. Anadarko Petroleum Corp., 574 S.W.3d 73, both of which had reached contrary conclusions regarding passive-voice habendum clauses. The Court applied the default rule against forfeiture of mineral interests, reversing the lower courts' grant of summary judgment to Anadarko.

Significance

The decision reverses decades of precedent and clarifies that habendum clauses using passive voice do not impose a personal production requirement on lessees. Where production in commercial paying quantities continuously occurs on the land, leases will not automatically terminate at the end of their fixed terms, regardless of whether the lessee or a co-tenant operator is responsible for that production. The case was reversed and remanded to the trial court.