On May 23, 2025, the Texas Supreme Court issued its opinion in Cromwell v. Anadarko E&P Onshore, LLC, No. 23-0927, reversing the decision of the Eighth Court of Appeals which held that a non-operating lessee cannot rely on a lessee cotenant’s production for the perpetuation of its oil and gas lease even when such lease contains a passive-voice habendum clause. This firm previously wrote about the Eighth Court of Appeals’ decision in Cromwell,[1] along with the same court’s very similar decision in Cimarex Energy Co. v. Anadarko Petroleum Corp.[2] Please refer to the following link for a more detailed analysis of the two cases: Non-Operators and the Obligation to Produce in the Wake of Cimarex and Cromwell.
In both Cromwell and Cimarex, the non-operating lessee requested a joint operating agreement (“JOA”) with the operator, Anadarko, but the requests were ignored. This practice of preventing a non-op owner from participating in production, and then acquiring a top lease from the non-op owner’s lessor, is commonly referred to as a “washout.” The Texas Supreme Court’s reversal of Cromwell means that an operator may not be able to “wash out” a non-op owner’s interest when the lease in question contains a passive-voice habendum clause.
Since we have previously discussed this case in detail (see link above), we will only provide a brief synopsis here. In 2009, David Cromwell acquired two oil and gas leases in Loving County providing him with a minor working interest in a tract of land in which Anadarko E&P Onshore LLC owned substantial working interests. The habendum clauses in Cromwell’s two leases provide, in part, as follows:
… as long thereafter as oil, gas or other minerals are produced from said land.
… as long thereafter as oil, gas, liquid hydrocarbons or their constituent products, or any of them, is produced in commercial paying quantities from the lands leased hereby.
The habendum clauses do not expressly state who must cause the production. As such, the clauses are written in the passive voice.
Cromwell requested a JOA with Anadarko several times, but his requests were disregarded. In August 2009, one of Anadarko’s wells reached payout. Anadarko sent Cromwell monthly joint interest billings (“JIBs”) for lease operating costs. Cromwell also signed an authorization for expenditure (“AFE”) to install a new compressor. The AFE listed Cromwell as a “Working Interest Owner,” and it was made “pursuant to the terms of the governing Operating Agreement.” The primary terms of Cromwell’s leases ended in February 2012 and March 2014. Notwithstanding, Anadarko acted as if the leases were still in force and effect by continuing to send Cromwell JIBs, listing him as a working interest owner in an exhibit to a JOA, and reporting one of his leases as held by production in its internal records.
In January 2017, Anadarko acquired top leases from Cromwell’s lessors, and in March 2018, Anadarko informed Cromwell that his leases had expired due to failure to execute a well election or JOA. Cromwell sued Anadarko for a declaratory judgment, trespass to try title, and other causes of action. Cromwell argued that he “constructively participated” in production by paying “his share of the costs, risks, and liabilities” of operating a well. The court of appeals was not swayed and stated that Cromwell only paid operating expenses ordinarily owed by a nonparticipating cotenant. The court relied on its decision in Cimarex and held that “Cromwell was required to take some action to cause production” on the leased premises to perpetuate his leases despite the use of the passive-voice in the leases’ habendum clauses.
The Texas Supreme Court disagreed and held that Cromwell’s leases were maintained by Anadarko’s production because the “plain language” of the habendum clauses does not specify who must produce to perpetuate the leases into their secondary terms. The habendum clauses could have required that production be caused by the lessee. However, when interpreting mineral leases and other contracts, courts “will not squint to discover requirements that the parties themselves chose not to write into the memorialization of their bargain.” The Court stated that a special limitation on the grant (i.e., a lease term that causes automatic termination of the lease upon the occurrence of a certain event) must be “clear, precise, and unequivocal.” In this case, neither habendum clause clearly and unequivocally requires Cromwell to produce, and the Court refused to write such a requirement into the leases. The Court held that a passive-voice habendum clause does not automatically require production by the lessee.
Additionally, the Court expressed its disapproval of Cimarex and two other cases upon which the court of appeals relied (Mattison v. Trotti[3] and Hughes v. Cantwell[4]) to the extent such cases held that passive-voice habendum clauses automatically require the lessee to personally produce. According to the Court, these cases deviate from the plain language of the leases and are based upon the incorrect premise that a lease’s “prime consideration” is the exploration and production of oil and gas, when rather, the prime consideration in an oil and gas lease is “royalties on mineral production.”
Finally, the Court noted that its holding does not leave operators without a remedy. Because they are cotenants, an operator can file suit against a non-operator for an accounting if the non-operator declines to pay its share of the reasonable and necessary costs of production.
[1] 676 S.W.3d 860 (Tex. App.–El Paso 2019, pet. denied)
[2] 574 S.W.3d 73 (Tex. App.–El Paso 2019, pet. denied)
[3] 262 F.2d 339 (5th Cir. 1959)
[4] 540 S.W.2d 742 (Tex. Civ. App.–El Paso 1976, writ ref’d n.r.e.)