Co-author David Pruitt
A question, not hypothetical: Can one provision in a comprehensive water purchase agreement lock a mineral lessee into a single alternative for every purpose under the sun? In Davenport v. EOG Resources, Inc., a court of appeals said “no”, affirming a $14.9 million jury verdict and judgment against Webb County, Texas, landowners who attempted to enforce one sentence of the agreement in isolation without considering the rest of the document. The agreement was sui-generis, but the court’s approach has broader implications.
The Facts
In 1967, the parties’ predecessors signed the Garner Lease, granting the lessee broad surface rights but restricting free use of water from the lessor’s wells. The Davenports acquired tracts burdened by that lease. Mineral lessee EOG and the Davenports signed a water purchase agreement in January 2022. In March 2023, against the Davenports’ wishes, EOG built a new access gate and caliche road. In response the Davenports sued.
Section 9 of the agreement: EOG “shall enter and exit” the ranch “through the Krueger Rd. gate”. If read alone, this appears to be an all-purpose restriction. But read on. The remainder of the clause tied the ingress and egress requirement to obtaining water “from Grantor’s Frac Pond … and/or designated water wells”.
Interpreting the contract
The trial court granted EOG summary judgment on the competing contract interpretations and on the Davenports’ fraud claims. A jury found the Davenports – not EOG – breached the agreement and awarded damages to EOG.
Texas courts take “a holistic approach” when analyzing the intent behind contractual language. Elsewhere in the agreement the parties used broader language, such as “oil and gas operations,” and “all operations”. The parties knew how to draft broadly when they meant to. Courts “do not interpret contracts as if to insert provisions the parties could have included”. Thus, the Krueger Road restriction applied only when EOG travels to or from the frac pond and designated wells – not for every purpose.
No free pass for oral promises
The Davenports claimed EOG orally promised to limit all access to Krueger Road, inducing them to sign. Dean Davenport was an oil-and-gas veteran, represented by counsel, who admittedly demanded that exact restriction during negotiations, but the final, signed agreement said otherwise. A sophisticated party “cannot justifiably rely on oral misrepresentations regarding the contract’s unambiguous terms.”, precluding Davenports’ fraud claims as a matter of law.
The verdict
Of two alleged breach dates, Dean Davenport himself disclaimed the first. On the second, EOG’s contractor drove through Rancho Derecho – not Krueger Road – but Dean Davenport never saw EOG reach the frac pond or designated water wells, and gate logs showed only fuel, light-tower, and trash deliveries by EOG. Without proof that EOG actually traveled to the frac pond or water wells via the wrong gate, the evidence supported the jury’s finding that EOG did not breach the agreement.
Dominant estate wins again
The Davenport’s accommodation-doctrine trespass claim about a new road, mulching, and powerlines fared no better. As the dominant mineral estate owner, EOG had the right to use as much of the surface as reasonably necessary to produce hydrocarbons. The Davenports offered no evidence their existing use was completely precluded or substantially impaired with no reasonable alternative, an essential element of an accommodation-doctrine claim.
- In a dispute over the meaning of a contract, isolated sentences lose to holistic contract construction, especially when other clauses show the parties knew how to draft in a way that conflicts with the isolated sentence.
- A sophisticated party with counsel cannot claim reliance on oral promises that contradict a signed contract.
- Accommodation-doctrine claims require proof of impairment, not mere inconvenience.
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