## Facts

- A September 1973 joint operating agreement (JOA) governed operations on certain oil and gas interests and allowed a working-interest owner to elect “nonconsent” as to a proposed operation.
- Under the JOA’s nonconsent provisions, consenting parties could recover a contractual nonconsent penalty from the nonconsenting party’s share of production before the nonconsenting party received proceeds.
- The JOA also addressed later-created, carved-out interests, providing that interests created out of a working interest could be charged with costs and expenses under the JOA in the same manner as if the carved-out interest were a working interest.
- BTA Oil Producers held a working interest subject to the JOA and later assigned James P. Boldrick an overriding royalty interest (ORRI) carved out of BTA’s working interest; the ORRI assignment was expressly made subject to the JOA.
- Chevron U.S.A., Inc., as operator under the JOA, drilled a producing well; BTA elected nonconsent for that well.
- During nonconsent payout, BTA received no production proceeds; because BTA received nothing, Boldrick received no ORRI payments.
- Boldrick sued BTA seeking current payment of ORRI proceeds notwithstanding BTA’s nonconsent status.
- On competing traditional summary-judgment motions, the trial court denied Boldrick’s motion, granted BTA’s motion, and declared that (1) Boldrick’s ORRI was not payable until the nonconsent penalties were fully recouped, and (2) BTA had no duty to cause payment until BTA received funds.

## Issues

1. Whether an ORRI carved out of a nonconsenting working interest, and expressly made subject to the JOA, is a “subsequently created interest” burdened by the JOA’s nonconsent penalty provisions such that payment may be withheld until the penalty is fully recouped and the working-interest owner receives proceeds.

## Decision

- The court of appeals affirmed the summary judgment for BTA.
- The court held that Boldrick’s ORRI was a subsequently created interest carved out of BTA’s working interest and was subject to the JOA, including the nonconsent penalty provisions.
- Because BTA’s share of production was applied to satisfy the nonconsent penalty and BTA received no proceeds during payout, BTA had no present obligation to pay Boldrick’s ORRI before payout.
- The court rejected arguments that division orders altered the payment obligation or that the ORRI assignment imposed an unconditional, out-of-pocket payment duty on BTA regardless of BTA’s receipt of production proceeds.
- The court did not decide potential future adjustments between Boldrick and BTA after payout, limiting the case to whether payment was currently due.

## Legal Principles

- Contract interpretation of a JOA and an ORRI assignment made “subject to” the JOA is a question of law suitable for summary judgment when material facts are undisputed.
- A JOA provision applying to later-created, carved-out interests can bind an ORRI created after the JOA and carved out of a working interest, including by allowing the carved-out interest to bear JOA burdens as if it were part of the working interest.
- When a working-interest owner elects nonconsent under a JOA and the JOA authorizes recovery of a nonconsent penalty from that owner’s share of production, payment streams associated with that owner’s burdened interest may be deferred until the penalty is fully recouped.
- Division orders generally do not modify underlying contractual rights and duties absent clear intent to amend the governing agreements.

## Conclusion

An overriding royalty interest created out of a working interest and expressly subordinated to a joint operating agreement was treated as a subsequently created interest subject to the agreement’s nonconsent penalty scheme; therefore, overriding royalties were not payable until the consenting parties recovered the nonconsent penalty and the working-interest owner began receiving production proceeds.


Boldrick v. BTA Oil Producers, 222 S.W.3d 672 (Tex. App.—Eastland 2007, no pet.)