Texas Ruling Challenges Oil And Gas Anti-Washout Provisions

Law360 (June 1, 2020, 6:06 PM EDT) -- On May 15, the Texas Supreme Court issued an opinion in Yowell v. Granite Operating Co., which concerned a dispute over the continued validity of an anti-washout provision. The anti-washout provision at issue purported to extend overriding royalty interests to future leases. The Texas Supreme Court held that the anti-washout provision violated the rule against perpetuities, and must be reformed, if possible, in accordance with the Texas Property Code.

An overriding royalty interest is a nonpossessory share of production, or revenue from production, carved out of the lessee's interest under an oil and gas lease, free of production costs. Because an...

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