Contract Disputes

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Co-author Ethan Wood

Merry Christmas and Happy Holidays from all of us at Gray Reed! Assuming that most of you have been good this year (stay tuned for 2019’s Bad Guys in Energy to see who hasn’t), we hope Santa brought you everything on your Amazon Wish List. Our sympathies go out to those in the oilfield services industry in Texas—it looks like you got a lump of coal. In Mesa Southern CWS Acquisition v. Deep Energy Exploration Partners the Houston Court of Appeals upended the long-held view that mineral lien waivers violate public policy. Bah Humbug!…
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Co-author Rusty Tucker

In Texan Land & Cattle II, Ltd. v. ExxonMobil Pipeline Company a Texas court of appeals ruled that “oil or gas” is not limited to “crude petroleum,” but includes refined petroleum products gasoline and diesel.

The easement

Texas Land’s property in Harris County is burdened by an easement obtained by ExxonMobil from Humble Oil Company in 1919 that granted the right to lay, maintain, operate, and remove a pipeline for the “transportation of oil or gas” across Texas Land’s property. The easement does not define oil or gas.

The arguments

The sole issue was the definition of oil and gas as used in the easement. Texas Land contended that “oil and gas” granted the right to transport only “crude oil” or “crude petroleum,” but not refined products. ExxonMobil argued that “oil and gas,” as used in the early 20th century, included refined products such as gasoline and diesel.…
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Under Louisiana law, does the operator’s bad faith preclude recovery for the non-operator’s breach of a joint operating agreement if the operator caused the non-operator to breach the JOA but did not itself breach?

Apache’s choice

In Apache Deepwater, LLC v. W&T Offshore, Inc., the litigants were parties to a JOA for operations on offshore deepwater wells. Apache proposed to use two drilling rigs or P&A three wells at a much higher cost than a vessel that had been considered for the operation. W&T contended that Apache’s proposal was for the purpose of offloading to W&T half of $1 million per day stacking costs of a bad rig contract. Apache’s AFE for the P&A using the two rigs was $81 to $104 million, which would be cheaper for them (but not in total) than the alternative. Apache’s story was that the federal regulators would not have approved the original vessel for the operation after Deepwater Horizon.

W&T declined to approve Apache’s AFE. Apache used the two rigs anyway. The work was successful and Apache billed W&T for its 49% share, or $68 million (Note to self: You can’t afford offshore operations). W&T paid $24 million, its share of the original estimate. Apache sued for breach of contract.

The ambiguous JOA

Section 6.2 of the JOA prohibited the operator from conducting any operation costing more than $200,000 without an AFE approved by the non-operator. But Section 18.4 directed the operator to conduct abandonments required by governmental authority and the risks and costs would be shared by the participating parties. No AFE was required.…
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Co-authors Lydia Webb and Rusty Tucker

Until Monarch Midstream v. Badlands Energy, midstream companies facing rejection of their contracts in a producer’s bankruptcy were left with Abraham Lincoln’s least favorite negotiating option: If the both law and the facts are against you, pound on the table. Under Sabine (which we covered here, here, and here) gathering agreements are not covenants running with the land and can be rejected in the producer’s bankruptcy. Sabine was the only law on the books, but now a Colorado bankruptcy court has determined that a gathering agreement was a covenant running with the land.…
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Reacting to Hurricane Barry, get it?
Co-author Chance Decker

In Barrow-Shaver Resources Company v. Carrizo Oil & Gas, Inc the Supreme Court of Texas has held again, here in a consent-to-assign dispute, that a contract means what the words say, even if in negotiations a landman said something he didn’t mean, … or changed his mind later, and even if “industry custom” is to the contrary.…
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Co-author Alexis Foster

Thanks to the power of the trucking lobby, the prevailing policy on the question of who wins and who loses if a carrier of goods goes unpaid favors the carrier over the broker, shipper, consignor and consignee. The rationale is that allowing shippers the benefit of carriage of goods without compensating the carrier would eventually cripple the shipping industry and the economy. Thus, the carrier will be paid, irrespective of the carrier’s failure to collect from the shipper or consignee or payment by one of the other parties to another.

The Bill of Lading …
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Confess … Confess!

When  you prepare, review and/or sign settlement agreements you sometimes pay less attention than you should to the details of those “standard” releases! Acme Energy Services, d/b/a Big Dog Drilling v. Staley et al. says, Beware the “boilerplate”; before signing consider what you are actually trying to accomplish.…
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Co-author Trevor Lawhorn

A lot, if the claim before the court is for fraudulent inducement. Points to remember:

  • Oral promises that contradict contract terms are pretty much worthless. In reviewing a fraudulent inducement claim, a court will assume the “victim” knows facts that would have been discovered by a reasonably prudent person similarly situated.
  • Which means ask questions. A negotiating party is rarely obliged to volunteer information.
  • If you want understandings to be binding, put them in the contract. A court will tell the plaintiff that he “… should have insisted on these [exclusivity] terms in the parties’ contract rather than agreeing in writing to the opposite.”
  • Merger clauses are there for a reason.

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