The Texas Supreme Court recently provided guidance on the practice of backdated pooling agreements when it denied review of a memorandum decision issued in June 2012 by the Eleventh Court of Appeals. Eddie E. Godfrey, individually, and Eddie E. Godfrey and Jay Ranley Godfrey, co-trustees of the Emmitt I. Godfrey Marital Trust (“Godfrey”) sued several defendants, including Chesapeake Exploration, LLC, alleging that an oil and gas lease had terminated as to 84.07 acres. In the original trial, the trial court concluded that the lease remained in full force and effect due to pooled units that were properly created under the terms of the lease. Godfrey appealed this decision to the Eleventh Court of Appeals of Texas, arguing that the lease and the three Designations of Pooled Units (“DPUs”) filed showed that the lease had terminated as to the disputed 84.07 acres.

Specifically, the primary term of the lease, with extensions, expired on October 17, 2004. The lease provided for partial termination of acreage that was not allocated to a unit. The lease also set out the following pooling clause:

Pooling in one or more instances shall not exhaust Lessee’s pooling rights hereunder, and Lessees shall have the recurring right but not the obligation to revise any unit formed hereunder by expansion or contraction or both, either before or after commencement of production . . . . To revise a unit hereunder, Lessee shall file of record a written declaration describing the revised unit and stating the effective date of revision.

The first DPU was filed for record just before the expiration of the primary term, on October 1, 2004. This DPU, creating a second unit but also including the disputed acreage, had a stated effective date of September 28, 2004. The second DPU was filed for record on March 10, 2005, also included the disputed acreage, and provided for an effective date of February 23, 2005. The third DPU, which amended the first DPU by removing the 84.07 acres from the original unit created, was filed on March 21, 2005. Like the other DPUs, it provided for a retroactive effective date, which was September 28, 2004. Godfrey argued that since the effective date of the third and amended DPU was September 28, 2004, the 84.07 acres were not allocated to a unit when the primary term of the lease expired. Therefore, Godfrey asserted, the lease, as to those acres, had terminated pursuant to the partial termination provision in the lease.

The Eleventh Court of Appeals disagreed. It held that “[a]lthough the lease at issue in this case provides that the lessee shall file of record a designation stating the effective date of the pooling or of the revision, the lease contains no provision authorizing the effective date of any such designation to be retroactive.” The Court went on to explain that the DPUs could not be made effective retroactively, and most certainly could not “change history”. Instead, as is the case with most DPUs, the effective date is the date of recordation, unless specific language in the lease modifies this general rule. Therefore, the Court held that “[o]n the actual date of October 17, 2004, the Godfrey lease, including the 84.07 acres, was held in effect by the [unit] pursuant to the original […] DPU.” Further, the third DPU, which removed the 84.07 acres from the original unit, was filed after the second DPU, which included those acres in a second unit.

The Supreme Court declined to review the decision. As a result, we should assume, at least for now, that Texas Courts will continue to recognize the filing date, rather than the “effective date” set forth in the agreement, to determine whether a pooling agreement holds leased acreage, unless the lease at issue specifically authorizes retroactive effective dates in DPUs.