Those who continue to be horrified by Broadway National Bank, Trustee v. Yates Energy Corp. should be relieved that the result in Endeavor Energy Resources, LP v. Anderson was more equitable. In Yates, the Texas Supreme Court held that Texas Property Code Section 5.029 permitted original parties to a conveyance to execute a
Contract Disputes
Texas Court Addresses MSA Indemnity Obligations
At issue in RKI Exploration and Production LLC v. AmeriFlow Energy Services LLC and Crescent Services, LLC. were two Master Service Agreements. RKI was the operator of a well in Loving County; AmeriFlow and Crescent were contractors. A sand separator exploded at the well site injuring or killing three workers who worked for another subcontractor. The result was three suits in New Mexico and a mazelike series of indemnity demands, denials, settlements, and judgments, including settlement of one death case for $9.1 million.
To preserve your patience, and mine, let’s focus on the takeaways from this 72-page behemoth of an opinion based on a 10,000-page record.
Grammar lessons
The court defined a phrase common to Master Service Agreements: “arising in connection herewith”. Indemnitees AmeriFlow and Crescent argued that the phrase “encompasses all activities reasonably incident to or anticipated by the principal activity of the MSA, which was oil well operation”. No, it doesn’t. The court determined that the phrase requires a causal connection between the MSA and the claims for which the indemnitee sought indemnity. The scope of work envisioned in the MSA was defined by work orders, and the indemnity could go no further than the scope of work.
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Clause to Protect Mineral Lessor From Drainage Deemed Ambiguous
Co-author Carolina Cuppetilli*
Today we will skip our usual routine of explaining how court rulings on the question of the day might affect your interests. Instead we will discuss the fallout from abysmal document drafting. In Rosetta Resources Operating v. Martin, the Supreme Court of Texas cautioned that an express covenant to protect against…
A Texas Lien is Invalid if the Mineral Owner is Not Yet Obligated to Pay
Co-author Stephanie Snyder-Zuasnabar*
A subcontractor’s mineral lien in Texas is invalid when, at the time the mineral owner receives notice of the lien affidavit, the mineral owner is not yet obligated to pay the contract price to its contractor. So says Pearl Resources Operating Co., LLC v. Transcon Capital, LLC,
The real takeaway that…
Louisiana Court Considers Texas and Louisiana Oilfield Anti-Indemnity Acts
Federal Insurance Company et al v. Select Energy Services LLC and Exco et al. is a reminder for negotiators of indemnity and defense obligations in oilfield contracts that choice of law is important. Ignore it when drafting and it will be too late when litigating.
The events
Three workers were injured on an Exco drilling rig in DeSoto Parish. Two sued in Texas, one sued in Louisiana. In the Texas suit Exco demanded that Select indemnify and defend Exco under the parties’ service agreement; Select did, and paid $31MM to settle. In the Louisiana suit the roles were reversed. Exco (through Federal) agreed to defend Select. Exco then withdrew its defense and alleged that the indemnity provision was unenforceable because it contravened La. R.S. 9:2780 the Louisiana Oilfield Anti-Indemnity Act. Select filed a reconventional demand to recover the amount of the Texas settlement.
The choice of law provision called for Texas law to apply without regard to conflict of laws provisions. In case a court might choose to apply the Louisiana Act, there was a substitute indemnity provision: The indemnity and insurance obligations are separate and apart from each other. The insurance obligation would support, but not in any way limit, the defense and indemnity obligations set forth in the agreement.
The Louisiana and Texas Acts
The Louisiana Act was an attempt to avoid adhesionary contracts in which, due to unequal bargaining power, a contractor would have no choice but to agree to indemnify the oil company lest they risk losing the contract. The Act declares null and void any provision in any agreement which requires defense and/or indemnification where there is negligence or fault on the part of the indemnitee or an independent contractor who is directly responsible. If Louisiana law applied, the statute would invalidate Exco’s defense and indemnity obligations to Select.
On the other hand, the Texas Act generally invalidates oilfield indemnity agreements but allows enforcement of mutual indemnity obligations limited to the scope and amount of contractual indemnity insurance each party as indemnitor has agreed to provide to the other as indemnitee. Thus, a mutual obligation is enforceable but limited to the extent of coverage limits of contractual indemnity insurance.
The insurance provided by the parties in the contract brought the mutual indemnity agreement within the exception.
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Added Party Can’t Avoid Amended Master Service Agreement
Co-author Brittany Blakey
Let’s begin with a question: Master service agreements (“MSA’s” in the trade), once agreed upon, often remain in force for years. As time passes and circumstances change, the parties amend, sometimes losing sight of the original details. Was Stingray Pressure Pumping, LLC v. In re Gulfport Energy Corporation the result of forgetfulness…
Are There Other Ways to Look at the IPCC 6th Assessment?
I prepared this post before Ida. It might now be perceived as cynical, or unsympathetic to the plight of those affected in South Louisiana and the Northeast. Is the intensity of hurricanes exacerbated by global warming? Some say it is; some say it isn’t. Regardless, what to know and do about climate change…
Texas Court Re-iterates the Need For Clearly Defined Contract Terms
Co-author Rees LeMay*
In Apollo Exploration, LLC v. Apache Corp., Texas’ 11th Court of Appeals analyzed several provisions of purchase and sale agreements in a complex oil and gas transaction and demonstrated a measured, text-centered approach to the interpretation of contract language.
Significant parts of the holding hinged on the Court’s reference to…
A Long-Running Dispute Over an Acquisition Agreement is Returned to the Trial Court
Co-author Rusty Tucker
This is another chapter in the dispute between Eagle Oil & Gas Co. and. TRO-X, L.P. The litigation arises out of an agreement to acquire and sell oil and gas leases. Here, TRO-X alleges that Eagle failed to remit a share of revenues from production that commenced after the first suit between the parties ended.
Background
In 2005 TRO-X and Eagle entered into an acreage acquisition agreement for leases in Pecos and Reeves counties. The interests would be acquired in Eagle’s name for both parties. Each party could choose to retain a percentage of un-promoted working interests in the prospects, and the remaining interests would be sold to third parties. Profitable sales would yield either “cash proceeds” or “non-cash proceeds.” The agreement included an AMI.
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Ambiguity Foils Right of Way Agreement
Co-author Brittany Blakey
The central issue in the Texas case of Cook v. Cimarex Energy Co.: Did Cook grant Cimarex a right of way across Cook’s land to the location of two Cimarex wells. No he didn’t. Reversing the trial court, the court of appeals concluded that two Contracts of Release were ambiguous. Neither…