Co-author Justin Cowan
Does a former working-interest owner of a well bear continuing responsibility for a defective gas line despite having conveyed its ownership interest? The line was constructed by the former owner as operator of record, and it received a fee as operator. (One could assume there was a RRC Form P-4 on file and a Model Form JOA, but the court doesn’t say.)This was the question before the Texas Supreme Court in In re Eagleridge Operating, LLC.
Aruba Petroleum owned a minority working interest in the Donnell 2-H well and was operator of record, for which it received a fee with the consent of the majority working-interest owner, USG Properties Barnett II. As operator Aruba was responsible for drilling, operating, and servicing the well and securing proper equipment. In 2013, while Aruba was a working interest owner and operator, a gas line was installed on the property. Aruba and USG paid their proportionate share of the construction expenses.
Four years later Aruba conveyed its working interest to USG and ceased serving as operator. Eagleridge subsequently entered into a written contract with USG to serve as operator and assumed control of the well in 2017. A few months later the gas line ruptured and injured Lovern, the plaintiff in the underlying negligence suit.
Eagleridge sought to designate Aruba as a responsible third party, asserting that Aruba, as a prior owner-operator, caused or contributed to Lovern’s injuries because Aruba was responsible for installing the gas line, selecting the materials, and determining its placement on the property.
Lovern moved to strike Arbua’s designation and sought a partial summary judgment. He argued that, under the Supreme Court’s opinion in Occidental Chemical Corp. v. Jenkins, a former premises owner owes no duty (and has no responsibility) related to the condition of the premises after conveying its ownership. Occidental involved a sole owner-operator’s improvements. On the other hand, Aruba was not just a property owner—it also received a fee as operator and made improvements in that capacity. Accordingly, said Eagleridge, Aruba had a duty as an independent contractor, and that duty did not terminate when its control over the property ceased.
The trial court granted both of Lovern’s motions and the court of appeals denied Eagleridge’s request for mandamus relief. The Supreme Court’s review was confined to whether Occidental precluded Aruba’s responsibility for defects in the pipeline and whether the trial court erroneously struck Aruba’s designation as a responsible third party.
The Supreme Court agreed with the lower courts and denied mandamus relief, reaffirming its position that Occidental precludes the “dual-role” analysis Eagleridge proposed. A property owner, when making improvements on its own property, acts solely in its capacity as an owner and not as an independent contractor. That analysis is not altered by the fact that USG paid Aruba to operate the well. The core holding in Occidental is based on ownership, and the Court held that Aruba was a property owner exercising its possessory right to develop its property when it installed the gas line.
Aruba’s responsibility for premises defects did not survive conveyance of its ownership interest to USG. Aruba and USG were tenants-in-common, and each could construct improvements on the property without the other’s consent. Aruba’s right to construct the pipeline was independent of, did not arise from, and was not extinguished by its agreement to serve as operator of record. Aruba’s receipt of compensation as operator neither transformed it from an owner into an independent contractor nor materially distinguished the case from Occidental.