For an example of a case gone wrong in so many ways, look no further than Evans Resources LP et al v. Diamondback E & P.
The facts
There were three agreements between several Evans entities and Diamondback for Evans‘ 651 acres in Midland County, Texas: An oil and gas lease allowing pooling with lessor’s consent, a surface use agreement, and a net profits interest agreement. Diamondback was allowed to drill and produce horizontal wells from prior-approved horizontal well pads. Evans’ surface entity Mockingbird received a share of monthly profits from wells drilled on the surface locations.
Diamondback sought permits from the Railroad Commission to drill the horizontal wells and the parties agreed regarding the precise location and configuration of the well pads. Diamondback attempted to reach agreements regarding water, roads and frack pits. Instead of drilling horizontally from the well pads Diamondback drilled three vertical wells on the property to keep the lease alive and ultimately drilled horizontal wells on a tract north of the Evans tract. Those wellbores traversed the Evans tract.
The trial court granted summary judgment for Diamondback on several claims. The remaining claims went to trial.
Breach of the lease – unpaid royalties
The court excluded testimony from Evans’ expert about royalty payments that was based on untimely reports that doubled the amount claimed. The expert’s spreadsheet on interest to be paid on royalties was never disclosed and therefore stricken. Because the jury found that Diamondback did not underpay royalties, the experts’ opinions didn’t matter.
Fraud – reliance not justified
Evans’ witnesses at trial testified that in discussions to allow the original lessee to assign the agreements to Diamondback, Diamondback represented that it would drill wells from the well pads. The court dismissed that fraud claim based on the proposition that reliance on an oral representation directly contradicted by express, unambiguous terms of the written agreement between the parties is not justified as a matter of law.
Breach of the surface agreement
Evans claimed that Diamondback breached the surface agreement by failing to downsize vertical well pads after drilling and by failing to consent to zoning variance requests for setback reductions to be made to the Midland City Council. The claim was rejected. Evans’ expert testimony regarding the variances was excluded because the experts improperly assumed that the variance requests would be granted even though they were never applied for, objected to, or considered by the City Council. The opinions were unreliable because they were based on assumed facts that varied from actual facts.
The court rejected the testimony of Evans principal Jonathan Evans because the amount and method of calculating damages was not timely disclosed and Diamondback was unfairly surprised.
Rule against perpetuities (nerding out on the law)
The Rule: “No interest in property is valid unless it must vest, if at all, within 21 years after the death of some life or lives in being at the time of the conveyance.” This claim was rejected because the lease immediately granted the land for exploring for and producing oil and gas. It was not a perpetual right. The three-year primary term and habendum clause did not violate the Rule. The surface agreement describing the location of the four well pads vested Diamondback with the immediate, fixed right to drill from the well pads. The Rule does not apply to interests that vest immediately.
Non consent to pool waived
Evans said in open court that they would not put on evidence on their claim that Diamondback failed to obtain their consent to pool the lease. Counsel recant later in the trial but it was too late, said the judge. The original statement constituted a stipulation that limited issues to be considered at trial.
You gotta wonder
For what it’s worth, the jury heard that over the years Evans entities were paid more than $20MM in royalties. How much sympathy was there for Evans for damage claims in far lower amounts?