Semco, LLC v. The Grand, LTD. is nominally about a $15 million liftboat construction contract and the legal issues one would expect after a long trial and a big verdict. This post is more about how to administer and perform a contract, especially one with a friend:

The lessons

  • Be Ronald Reagan: Trust but verify vague assurances.
  • Contract formalities have a purpose. Adhere to them.
  • “You snuck in that contract revision” = “I didn’t bother to read it”.
  • Didn’t warn of increased costs in writing? Why not?
  • “Money and friends are like oil and water.” Michael Corleone, Godfather Part III.
  • A disgruntled ex-employee is never good for your case.
  • Failure to sign an agreement to clarify increased costs = worse things to come.

Continue Reading Lessons from a Liftboat Contract

Like Les, except with an offense, Coach O congratulates the Tigers for subscribing to Energy and the Law

Lenders to Louisiana operators are likely to be reconsidering their business practices in light of Gloria’s Ranch v. Tauren et al.

A rather ordinary lease termination suit resulted in the lender Wells Fargo being solidarily liable with the lessees for $22.8 million in lost leasing opportunities, $242,000 in unpaid royalties, $484,000 in statutory damages, and almost $1 million in attorneys’ fees.

Here’s why: Continue Reading A New Day for Louisiana Oil and Gas Lenders?

Noble Energy Inc. v. ConocoPhillips Company, a 6-to-3 Texas Supreme Court decision, is a reminder of two things:

  • How parties to a property transaction describe what’s being acquired and what’s being left behind can have grave consequences. The purchaser can acquire specific obligations associated with purchased assets, excluding all others not mentioned. Or, he can acquire all obligations, disclaiming none, including those not even mentioned and those he doesn’t even know about. Here, the difference cost Noble $63 million.
  •  When given a choice, the Texas Supreme Court is likely to resolve a dispute by relying on the words in a contract rather than notions of equity.

Continue Reading Texas Supreme Court Dabbles in Bankruptcy Law

Co-author Chance Decker

We recently discussed Freeman v. Harleton. The opinion shows the transaction as a bunco job. Here’s more:

  • Bufkin and Wayne Freeman have done business together since the 1980s. They had a co-development agreement with Harleton.
  • Long-standing agreements among the three of them made it clear that Harleton owned 50 percent of the Geisler Unit.
  • Chesapeake never talked to the Freeman defendants, who were not parties to the letter agreement for the sale.
  • Chesapeake didn’t contract non-ops because Chesapeake believed the letter agreement prevented them from doing so.
  • Bufkin would bring non-ops to each closing, and they would receive offers to sell on the same terms as Buffco.
  • Wayne Freeman, who attended his closing, knew Harleton’s ownership interest in the unit but did not raise the issue because, ”It did not occur to him to do so.” He said “[I]t was Chesapeake’s obligation to figure out who owned what” in the unit.
  • As a non-op and non-signatory Freeman never made representations or warranties.
  • To Chesapeake it became obvious that Bufkin had known when he closed that the ownership in the Geisler Unit was different than what he said it was.
  • The due-diligence landman’s work was entirely from Buffco/Twin files. He didn’t check the county records because he was told by Bufkin and team that his title determination was correct.
  • The landman came to believe that Buffco removed materials from files that would have revealed Harleton’s interest in the deep rights.
  • See the opinion for federal Judge Gilstrap’s view of the defendants’ activities. it was adopted by the state court trial judge.

Continue Reading An Oil Patch Morality Play – Part 2

Co-author Chance Decker

Enterprise Products Partners, L.P. et al v. Energy Transfer Partners, L.P. et al reversed one of the largest jury verdicts in Texas history.  You will like this decision if:

  • You believe a party has the right to rely on the sanctity of a written contract.
  • You believe that it is proper for a court to be guided by “law and equity”.

You will not like it if:

  • You favor “partnership by ambush”, as one of Enterprise’s lawyers put it.
  • You regret that pesky pleading rules and required jury findings take the “Wild West” out of jury trials.

Continue Reading Pipeline Partnership Verdict Reversed

Co-author Chance Decker

You are selling properties. The buyer thinks you own the deep rights but you know your long-time partner owns them. You attend the closing. You don’t tell the buyer that he’s got the ownership wrong. You are protected by a contract. Do you fess up? What if it means $6.8 million?

In Freeman, et al v. Harleton Oil & Gas Chesapeake agreed to buy three-year term assignments of Buffco’s and Twin Eagle Resources’ interest in 14,000 acres in East Texas for $232 million. Continue Reading An Oil Patch Morality Play – Part 1

There’s no better place in the oil patch to play the blame game than 10,000 feet of leaky wellbore.

What went wrong?

In Justiss v. Oil Country Tubular Corporation, Justiss, a drilling contractor, entered into an IADC model turnkey drilling contract for a well in Beauregard Parish. The contract specified 12,500 feet of intermediate casing to be LTC pipe with buttress threads. The contract depth was 15,000 feet. Justiss purchased the casing from OCTC.

The operation was star-crossed. Justiss discovered a hole in the surface casing, which it repaired by cementing the casing in place. This made it impossible to remove the intermediate casing string when things got bad. Beginning at 3,500 feet the casing wouldn’t maintain adequate pressure and Justiss performed 13 squeeze jobs in an effort to remedy the problem. These and other efforts to fix the leaks lasted five weeks and cost millions of dollars.  At 13,596 feet the casing would not maintain pressure and, for fear of losing well control, the operation was terminated.

Read this if you sell a product or a service Continue Reading Blame Game Fails Louisiana Casing Vendor

A Black Rhino running towards the camera, Kruger National Park

Forest Oil Corporation v. El Rucio Land and Cattle Inc. et al deserves your attention for four reasons:

  • You won’t see another one involving damage to a rhinoceros pen.
  • It confirms that the Texas Railroad Commission does not have exclusive or primary jurisdiction over private claims for environmental contamination. Welcome to the courthouse.
  • The South Texas redistributionist approach to civil justice includes arbitrations.
  • For once, the Texas Supreme Court declined to eviscerate a multi-million dollar plaintiff victory.

Continue Reading Oil Field Contamination Award Upheld

james-cottonHow to distinguish an oil and gas lease from a mineral deed? In Richardson v. Mills, it was a deed when the instrument uses words like “forever” and imposes no duty to explore for and develop minerals.

An instrument from 1906, when Teddy Roosevelt was busting trusts and creating national parks, was between Mills on the one hand and Lindsey and Harris on the other. The document referred to the parties’ “desire” for “development, tests and demonstrations” and for Lindsay and Harris to manage the property so it would be developed for oil and gas or be sold.

The granting language referred to “an undivided one half interest in the oil, gas and other minerals … “ to Harris and Lindsay, and further rights and privileges necessary and proper for the performance of the work of prospecting, testing, operating, etc.

A 1908 release referred to “said contract or lease the time for said development has expired rendering null and void said lease.” There was a relinquishment of any right or claim held by Nacogdoches Land Company.

Trial and the clairvoyant expert – it’s a lease

Mills offered the opinion of an attorney who reviewed the contract (over 100 years after it was executed) and opined about what the (deceased!) parties possibly intended. It’s unknown whether his conclusion was absorbed from the cosmos or the result of a séance with the spirits of the dead.

The trial court determined that the instruments were ambiguous and allowed extrinsic evidence to determine the parties’ intent. Alternatively the 1906 instrument was released when Lindsay and Harris did not perform their obligations.

On appeal – it’s a deed

Reversed and rendered. The 1906 instrument was not ambiguous. It was a deed:

  • Harris and Lindsay had the right but not the duty to develop the minerals.
  • There was no time within which actions must be taken.
  • The consideration was services rendered.
  • The granting clause said “grant, bargain, sell and convey … ”.
  • The habendum and warranty clauses specified “forever”.

This was language of an unconditional conveyance, not for exploitation of minerals.

What about the 1908 release?

The 1908 release referred to an instrument dated July 9, 1907, whereas the document in question was dated July 9, 1906. The 1908 release described the document as a “contract or lease” but not as a deed. There were other discrepancies. No recording information for the 1906 document was mentioned in the 1908 release. Mills argued that there was a latent ambiguity (an ambiguity appearing by reason of some collateral matter). Mills contended that reference to 1907 really meant 1906.

Mills’ efforts were rejected, including the testimony from the lawyer. The 1908 release was unambiguous and there was no connection between the two instruments.

In an odd twist, the parties stipulated that if Mills lost they would nevertheless own a small interest in the property. Thus, Mills took nothing from the court but ended up with four percent of the minerals from the stipulation.

RIP, harmonica great James Cotton. He could do it with Howlin’ Wolf, Muddy Waters or his own band.