Lease Cancellation based on “Paying Quantities” Remains A Challenge

Recently, the Texas Supreme Court issued its opinion in BP America Production Company v. Laddex, Ltd., Case No. 15-0248 (Tex. 2017). In the Laddex case two issues were presented to the Court: 1) whether a top lease granted by the lessors had violated the rule against perpetuities, and was therefore void, and 2) whether the underlying lease had expired for failure to produce in paying quantities.

With regard to the Rule Against Perpetuities (RAP) question, the top leasing of existing oil and gas leases appears to be one of the few places in the law where the RAP can still be an issue of real concern. In the present case, the lessee, Laddex, was the party bringing the suit to cancel the underlying BP lease, and if the RAP had been violated, they would not have had standing to bring the case (a lessee of a void lease doesn’t have a dog in the fight, so to speak), so BP’s defense lawyers had to make the argument. In the end, the Court confirmed that the top lease had been properly drafted so as to avoid application of the RAP, so this case adds little to our understanding of the issue. However, it does provide a nice refresher on the RAP and an explanation of how the rule works, so if you are rusty on RAP with regard to top leases, this case provides a great analysis.

With regard to Production in Paying Quantities (PPQ) the case boiled down to how the jury charge at the trial court was structured. The Texas case of Clifton v. Koontz, 325 S.W.2d 684 (Tex 1959) established a two prong analysis for determining if a lease has expired for lack of production in paying quantities. First, an objective prong, measuring whether a well pays a profit over operating expenses. Note that this is only over operating expenses and not a recoupment of the capital investment. Also, the Laddex Court was careful to remind us that in the Clifton profit analysis “there can be no limit as to time, whether it be days, weeks, or months, to be taken into consideration in determining the question of whether paying production from the lease has ceased.” Clifton, 325 S.W.2d at 690. The Second prong of the analysis is whether, under all the relevant circumstances, a reasonably prudent operator would, for the purpose of making a profit and not merely for speculation, continue to operate the well as it had been operated.

The trial court in the Laddex case, while allowing evidence for a larger period of time, restricted the jury’s consideration to a specific 15-month period of production slowdown. BP argued that the months before and after the production slowdown should be included in the time period of consideration to show profitability. The Laddex Court held that any restriction to the period of time to be considered by the jury was impermissible. While this makes the objective prong of the test a little less amenable to an objective measurement, it appears clear that both sides are free to argue what should be considered reasonable, but the actual determination over the time period of profitability is to be left for the jury to decide. This holding continues to show how difficult it is to prosecute a case, and to cancel a lease, over paying quantities. By ruling that the trial court’s jury charge was improper on the objective prong, the Laddex court did not even get to the second prong of the test.

Under the Clifton 2-prong review, even if the jury finds that there was no actual profitable production over a given “reasonable” period of time, the second prong is then considered whether,

in light of all the circumstances, a reasonable and prudent operator would nevertheless continue to operate the well. As the second prong is a subjective measurement, it can arguably have an even wider impact for many cases, and its impact has been expanded in recent years. When the really low oil prices hit during the late 90s, many wells went underwater with regard to profitability. The industry held their leases, and a number of cases were brought seeking to cancel leases based upon PPQ. The subjective standard, and the prudence of the operator who may believe that better days are on the way, is also a question of fact for the jury, making any attempt to cancel a lease under PPQ problematic. The period of very low prices in the late 1990s didn’t last forever, and many wells indeed returned to profitability, and the operators that continued to operate their leases were vindicated (both in practice, and in the courts).

Lets apply the prudent operator subjective prong to the current market. With the fall from $100 oil to the $40-50 bounding range, doubtless there are wells that were once profitable that are now no longer so. All during this period of time we have had the market analysts, the corporate executives, and every manner of expert and pundit forecasting a future rise in the price of oil. The market bounce has thus far eluded us. There are still quite credible market players predicting $75 oil in the not-too-distant future. When the inevitable case arrives in the courts claiming lease failure for failure to produce in paying quantities (and the operator actually needs $60 oil to break even), where is the line of prudence, of reason, for holding out for better days? Clearly the entire industry is hopeful and expecting of higher prices in the not too distant future. At what point does that holding out become unreasonable? What do you think – would prudent operators hold on to wells and leases in the current market that only break even at $60 oil? What do you think a jury will say?

In any event, when these cases do come to trial, the Laddex case reminds us that the “reasonable” time period for determining if the well was producing in paying quantities should be left for the jury to decide.

Takeaways from the 2016 eSports Conference Presented by Kisaco Research

Written By: Joseph Clemko Esq. MBA Lead eSports Attorney

Last week, hundreds of eSports industry professionals and enthusiasts, from all over the globe, united together at the Westin Bonaventure in downtown Los Angeles for the 2016 eSports Conference presented by Kisaco Research. In only its second year, Kisaco built on their experiences from 2015 and made this year even better. Kisaco did an excellent job at bringing together industry leaders to present on various topics, setting up tours with Next Generation eSports and ESL, and the opportunities provided to network with all in attendance. Some of the presenters included, Ralf Reichert from ESL, former pro player Stephen “Snoopeh” Ellis now with Facebook, Travis Gafford from Yahoo, and Bryce Blum from IME Law. During the pre-show event alone, I was able to meet attendees from Singapore, Canada, Russia, UK, China, UAE, South Africa and Brazil to name a few. We also toured Next Generation eSports, where Andy Vander Woude, CEO/Co-Founder of NGE, gave us a tour of their operations, which included a behind the scenes look into the production of Rocket League, participation in the Super Magical Cup and a networking cocktail hour. This article will provide some key insight and takeaways from the conference.

1. eSports is seeing explosive growth year over year
Everyone involved is trying to catch up and figure out how to capitalize on the growth the industry has seen over the past few years with the addition of companies like Twitch. According to Pieter van den Heuvel with Newzoo, a leading Global Market Intelligence company, projects that eSports will reach a worldwide audience of 215M people in 2017 up from 148M projected to finish out 2016. In March, Intel Extreme Masters holds an annual event in Katowice, Poland, that rivals the NFL’s Super Bowl. This past March over 113,000 people converged on Katowice to watch professional eSports players compete for millions of dollars in prize money. Although Katowice draws the largest crowd, it was this year’s International DOTA 2 Championships held in Seattle, Washington, that provided the biggest prize pool in eSports history with over $20,000,000 being distributed to the contestants, of which, $9,139,002.00 went to the winning team. The only event that has a bigger prize pool is the World Series of Poker with a $25,000,000 pool in 2016.
Andy Swanson from Twitch capped off day one with an excellent presentation. He ended his discussion with his insight on how eSports can help foster its growth into the future. First, he would like to see true premiere leagues by individual games with cooperative representation for the league, the teams and the players. Second, he mentioned the benefit that clearly defined seasons would have on eSports, which would allow for the players to take advantage of time away from competition and provide advertisers the ability to strategically plan their marketing efforts. Lastly, Andy mentioned that he would like to see some type of regionalization to help grow the sport. By doing so it will allow fans to get behind their local teams by attending events with friends and by wearing team apparel. This will also create opportunities for brands to create excitement through giveaways and targeted advertisements at local events. During the Q&A session, an attendee asked Andy if he were a venture capitalist where does he see opportunities for investment. Andy responded that he believes there is ample opportunity in three main areas, Infrastructure, Regionalized Venues and Technology, such as, streaming, and combining virtual reality with eSports.

2. eSports Is Perfect for Non-Endemic Brands
During day one, a panel of experts analyzed how non-endemic brands can promote their brands and attract consumers. There are multiple avenues for endemic and non-endemic brands to capitalize on eSports. They can sponsor events, teams or players. Most players make majority of their income from streaming on platforms like Twitch, which provides a huge opportunity for brands to take advantage of player and fan engagement by providing products, coupon codes or giveaways to audiences. Another opportunity for brands would be to get more involved with teams by providing resources such as financial advising, legal services, health and nutrition sponsorships (protein bars, energy supplements, etc.). Philip Wride, CEO of HEERO, mentioned the key to engage non-endemic brands and capitalize on the global audience is to start with educating the brands about eSports and the power of the industry, then speak their language and utilize data analytics to bolster your discussions. With a projected global audience reach of 215,000,000 in 2017, can brands afford not to be involved with eSports?

3. eSports Pro Teams & Pro Players
On Thursday there was an interesting panel discussion on pro teams and player rights involving Noah Whinston, CEO of Immortals and Carlos “Ocelote” Rodriguez, a former pro player and CEO of G2 eSports. Both discussed the importance of ownership integrity and the need to take care of your players. One thing most outsiders may not realize is that eSports Pro Teams operate similarly to traditional pro sports teams, they have trainers, nutritionists, psychologists and other key personnel to ensure the players are performing at optimal levels. This discussion led into the need for the formation of trade associations to protect both teams and players. This segued into the breaking news of the day with the discussion of the formation of the Professional eSports Association (PEA). PEA is an association of seven professional North American eSports teams that have agreed to partner to enhance the eSports experience for all involved. PEA also will provide equal profit sharing between owners and players, as well as, health insurance and financial planning services to the players of the seven teams involved. Lastly PEA will provide its players a voice by including player representatives on Rules and Grievance committees.

4. Ensuring the Growth Continues
Many of the panelists and attendees expressed their eagerness to ensure that the growth of eSports continues for years to come. With major companies like Facebook, YouTube Gaming and Twitter jumping into eSports they will help lead the next evolution of the industry through live streaming and content. During the second half of day one there was a panel discussion led by Robb Charini from Ubisoft, which also included Yan Perng of Foster Peppers and Wim Stocks, COO for EGAMES. The panelists tackled the lack of diversity in eSports, more specifically the need to be more inclusive towards women because they represent less than 20% of the current players. The panelists discussed the importance of creating more all-women leagues and being more inclusive which will only help spur the growth of the industry and attract more brands into the space. The panel and other attendees touched on the growth of eSports on college campuses, through the development of eSports specific courses and the development of eSports as a collegiate sport. Other takeaways from the conference on areas of importance for the growth of the industry include building out the infrastructure, self-regulation, and developing the technology. Andy Vander Woude from NGE also mentioned, “Publishers need to continue producing high quality content because right now there is a shortage of content at the pro level.”

Having this many thought leaders, from around the world, in one place will greatly benefit the eSports ecosystem. eSports is still in its infancy with many challenges in front of it, but with conferences like this one where everyone within the industry comes together to continue working towards the common goal of making eSports a better and more efficient industry the ecosystem and all involved will flourish.

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Scott Beckmen, Stephen Crystal form legal team focusing on eSports and iGaming; in partnership with national law firm, Beckmen Law, PC

(Dallas-Fort Worth, Texas – August 11, 2016) — Attorneys Scott Beckmen and Stephen A. Crystal officially announced the formation of Beckmen Crystal Law ( to focus solely on eSports and iGaming, a practice area uniquely positioned to address the growing industry’s complex and dynamic needs. The new group is a partnership between Beckmen Law, PC, a national multi-dimensional firm headquartered in the Dallas-Fort Worth area, and Stephen A. Crystal. The firm will utilize offices in Dallas-Fort Worth, Las Vegas, NV, and Washington D.C.

“Our eSports/iGaming practice offers the expertise necessary to provide full- service legal counsel to owners, teams, leagues, individual players, advertising companies, sponsors, and others involved in eSports/iGaming-related transactions and disputes,” said Beckmen and Crystal jointly. “We have immersed ourselves in this rapidly expanding industry, enabling us to be not only strategic advisors but also part of the culture of the eSports/iGaming industry.”

The following are areas of their collective expertise.

For Organizations and Business:

  • Formation of Entities
  • Labor/Employment
  • Drafting and Negotiating Sponsorship Agreements
  • Player Appearance Contracts
  • Media/Advertising/Promotions
  • Registering, Monitoring and Enforcing Intellectual Property/Copyright/Trademark
  • Licensing and Distribution
  • Mergers and Acquisitions
  • Litigation and Dispute Resolution

For Players and Gamers:

  • Business and Charitable Entity Formation
  • Registering, Monitoring and Enforcing Intellectual Property/Copyright/Trademark
  • Drafting and Negotiating Contracts, Endorsements, etc.
  • Advising on Business, Brand Management, IP and other eSports related matters

Crystal has been directly involved in all aspects of the casino and gaming technology industry for more than 20 years, as president/CEO of public and private gaming companies as well as an attorney representing clients before state regulatory agencies. He has been recognized by Best Lawyers in America as one of the best gaming attorneys in the U.S.

Beckmen is founder/managing partner of Beckmen Law, PC, co-founder of Orange Energy Corporation, and founder of Quiris Capital Advisors, LLC. A graduate of The University of Texas in Austin and the University of Tulsa College of Law in 2006, he interned at British Telecom in London, working mainly on international corporate transactions and litigation.

About Beckmen Law.   A multi-dimensional firm headquartered in the Dallas-Fort Worth area, Beckmen Law advises and works to protect clients in business transactions; mergers and acquisitions; finance and security regulations; tax compliance, planning and resolution; complex property matters, and technology.   Founded in the energy sector, the firm applies its expertise and experience to clients large and small, in fast-paced and innovative industries, the most recent of which is the rapidly developing eSports and iGaming area.

About Stephen A. Crystal, Esq. He represents, consults with, and invests in gaming clients worldwide in various casino development, internet gaming, and gaming technology endeavors, including governmental affairs and lobbying, strategic advice, business consultancy services, investment advice, mergers and acquisitions advice, and capital raising.

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Consider Buying a Suppressor or NFA Title II Firearm Before the Law Changes

By: Joseph Clemko Esq. MBA
Associate Attorney
Beckmen Law Firm

ATF-41F becomes effective on July 13, 2016 and there are changes being made to the laws involving the purchase or transfer of NFA Title II firearms.

What is ATF-41F (formerly ATF-41P)?

On, January 4, 2016 the Attorney General signed final rule 41F which was subsequently published on January 15, 2016 in the Federal Register. Rule 41F amends the regulations the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) employs regarding the making or transferring under the National Firearms Act (NFA) and the new rule will go into effect on July 13, 2016. The purpose of the amended rule is to ensure the identification and background check requirements apply equally to individuals and legal entities seeking to purchase or transfer NFA restricted items. There is some ambiguity with the way the rule is written and its interpretations by the ATF that must still be resolved as they work to implement the rule by the July 13th deadline.

Regardless, the final rule, as it currently stands, requires “responsible persons” of trusts or legal entities to complete a new form (Form 5320.23), submit a passport photo, two FBI fingerprint cards (Form FD-258) and undergo a background check thorough NICS (National Instant Criminal Background Check System) for every responsible person. The Department of Justice (DOJ) has clarified the term “responsible person” for a trust or legal entity to include those persons with power and authority to direct the management and policies of the trust or legal entity to receive, possess, ship, transport, deliver, transfer, or otherwise dispose of a firearm for, or on behalf of, the trust or entity. In short, everyone on the trust with the exception of the beneficiary will be subject to the fingerprinting, photo and NICS requirement.

The amended rule further requires a copy of all applications be forwarded to the Chief Law Enforcement Officer (CLEO) of the locality in which an applicant, transferee or responsible person resides. CLEO certification is no longer required on any form. This change includes new individual applicants and is merely intended as a notice requirement. All of the new requirements are in addition to the submission of Form 1 (Application to Make and Register a Firearm, also known as 5320.1) or Form 4 (Application for Tax Paid Transfer and Registration of Firearm, also known as Form 5320.4).

Lastly, the rule addresses a few estate planning matters when there are firearms registered to a decedent. The person designated under state law or identified as an executor, personal representative of an estate may possess the firearms registered to the decedent during the probate process without the possession being treated as a transfer. At the close of probate, the firearm may be transferred to the beneficiaries of an estate as a tax exempt transfer, by way of ATF Form 5 (also known as 5320.5), however, transfers to non-lawful heirs will be subject to the transfer tax.

How will the changes affect me?

If you already have an NFA Trust, as of now, you do not have to be concerned about the changes, unless you purchase or transfer NFA items on or after July 13, 2016. If you currently have a trust and purchase NFA restricted items after July 13, 2016 you and all of your co-trustees will be subject to the new requirements.

Despite the changes in the law, an NFA Trust is still the best vehicle to use when purchasing NFA Title II items and still the ideal way to allow multiple parties to have access to restricted items. Our attorneys at the Beckmen Law Firm are ready to answer any questions you may have. Please contact us at (817) 756-1094 to ensure that you are ready for July 13, 2016 and that our attorneys have enough time to draft or amend your NFA Firearms Trust before the imminent deadline of ATF-41F.

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Collin Lensing, partner at Beckmen Law, named among 2016 Best Lawyers by D Magazine

Best D 2016D Magazine is the award-winning city magazine serving the leaders and influencers of Dallas. For the past 16 years, the magazine’s editors have conducted an annual survey of the city’s lawyers to determine who, among their peers, they consider the Best Lawyers in Dallas.

Almost 10,000 lawyers were polled this year, and Collin Lensing, partner at Beckmen Law, was named among the Best Lawyers in Energy Law for 2016. This prestigious recognition earns Collin the trusted recommendation of Dallas’ best attorneys in the only locally produced, independently verified legal ranking in the city.

Congratulations Collin!


Kate Lattimore Norris

Grapevine, TX – January 4, 2016 – Despite a downturn in the oil and gas industry, Beckmen Law, PC continues its growth and evolution from a small, single-focus law firm to a mid-sized, full-service law firm, under the guidance of founder, Scott Beckmen. The firm announced that Randolph Marsh, a leading oil, gas, and natural resources attorney is now Of Counsel for the firm’s Energy and Corporate practice groups.

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For immediate release

Beckmen Law, P.C. today (December 8, 2014) announced a major reorganization and expansion of its legal services and offices across the United States, according to Scott Beckmen, founder and managing partner. The nationwide law firm provides legal services in the energy, real estate, and corporate business sectors with a focus on transactional and regulatory compliance.

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