In Cromwell v. Anadarko E&P Onshore, LCC , the Supreme Court of Texas reaffirmed its commitment to legal certainty and predictability by focusing on the plain language of the lease to determine the parties’ intent. At issue was whether a lessee must personally conduct production to maintain a lease under a habendum clause written in the passive voice. The Court held that when such a clause does not specify who must produce, the lease may remain in effect as long as there is production in paying quantities—regardless of whether the lessee is the party actually producing. This opens the door for lessees in Texas to potentially rely on third-party production to satisfy the requirements of a passive-voice habendum clause.
The Cromwell Facts
This case centers on a dispute between David W. Cromwell and Anadarko E&P Onshore over whether Cromwell’s leases remained valid despite his not personally initiating production. Both parties owned working interests as co-tenants on land in Loving County, Texas, part of the resource-rich Permian Basin.
In 2009, Cromwell entered into two leases—the Ferrer and Tantalo Leases. Each included a habendum clause in the passive voice, differing from the typical “produced by the lessee” language:
Ferrer Lease: “. . . as long thereafter as oil, gas or other minerals are produced from said land.”
Tantalo Lease: “. . . “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.”
Anadarko had already drilled wells on the land and declined Cromwell’s efforts to sign a joint operating agreement (JOA). However, Anadarko treated Cromwell as a working interest owner—billing him for expenses, sending him an AFE for compressor costs (which he paid), and distributing revenue when applicable.
Later, Anadarko claimed Cromwell’s leases expired at the end of their primary terms due to his failure to initiate production or enter a JOA. Despite this, Anadarko continued sending him invoices and listing him as a working interest owner. Over a year after beginning to suspect lease termination, Anadarko obtained top leases from the original lessors and asserted that Cromwell’s rights had lapsed. Cromwell sought a declaratory judgment that his leases remained in effect based on Anadarko’s continued production.
The Court’s Decision
The key issue presented in this case was whether a habendum clause stating a lease continues “as long as oil or gas is produced” requires that production come specifically from the lessee. The Texas Supreme Court held it does not. Because the clause was written in the passive voice and did not identify the lessee, the lease remained effective so long as anyone—here, Anadarko—produced minerals in paying quantities.
The Court declined to imply a production requirement where the lease language was silent. Under Texas law, courts interpret contracts based strictly on their plain language and will not insert terms the parties did not include. Ambiguities are resolved in favor of avoiding forfeiture, and courts disfavor rewriting contracts to impose obligations not clearly expressed.
Accordingly, since neither lease required the lessee to produce, and production occurred at all relevant times, Cromwell’s leases remained in force. The Court expressly disapproved prior decisions, including Mattison v. Trotti, Hughes v. Cantwell, and Cimarex Energy Co. v. Anadarko Petroleum Corp., to the extent they imposed a lessee-specific production requirement under passive habendum clauses.
Protections for the Operator
The Court also emphasized that its decision does not leave operators without recourse. The Court identified the following remedies available to operators when a non-producing lessee relies on a passive-voice habendum clause without contributing.
First, if a lessee refuses to join a proposed joint operating agreement (JOA), that lack of cooperation—similar to the conduct at issue in Mattison—may support a claim that the lease terminated at the end of the primary term, particularly if the lessee failed to act in good faith. Although Cromwell overruled Mattison’s automatic termination rule, such conduct could still justify termination under a case-specific analysis. Second, if a non-operator refuses to pay their share of expenses, an operator may seek an accounting to recover those unpaid costs.
While neither of these circumstances occurred in Cromwell, the Court clarified that such remedies remain available to operators dealing with uncooperative or non-contributing lessees.
What Cromwell Means for Operators: Royalties Rule, But Risk Remains
While the Supreme Court’s reaffirmation of royalties as the central consideration in oil and gas leases brings clarity and consistency to Texas jurisprudence, it also invites debate. By prioritizing royalty payments over drilling obligations, even for non-operating lessees, the Court upheld the enduring principle that continuous production, coupled with royalty payments, sustains the lease. However, critics may view this as a departure from the parties’ expressed intent in certain leases, particularly those emphasizing exploration and development in their granting clauses.
Ultimately, the decision underscores tension in Texas oil and gas law: the balance between legal precedent and evolving industry expectations. While the ruling protects lessors’ right to royalties regardless of who operates the well, it may also encourage passive lessees to rely on the efforts of others, raising legitimate concerns about fairness and risk-sharing in the industry.
Kuiper Law Firm, PLLC specializes in oil and gas issues; if you have any questions about the information in this article, or how it applies to you and your operations, do not hesitate to contact us.