Argos Resources, Inc. v. May Petroleum Inc.

• Decision Date: 17 May 1985
• Docket Number: No. 05-84-01139-CV,05-84-01139-CV
• Citation: 693 S.W.2d 663
• Parties: ARGOS RESOURCES, INC., Appellant, v. MAY PETROLEUM INC., Appellee.
• Court: Texas Court of Appeals

Page 663

693 S.W.2d 663

ARGOS RESOURCES, INC., Appellant, v. MAY PETROLEUM INC., Appellee.

No. 05-84-01139-CV.

Court of Appeals of Texas,

Dallas.

May 17, 1985.

Rehearing Denied July 10, 1985.

Scott A. Henderson, Dallas, for appellant.

William J. Albright, Johnson & Swanson, Dallas, for appellee.

Before SPARLING, WHITHAM and DEVANY, JJ.

WHITHAM, Justice.

Appellant, Argos Resources, Inc., appeals from a judgment in favor of appellee, May Petroleum Inc. We find no merit in any of Argos' eight points of error. Accordingly, we affirm.

May sued Argos on an oilfield operating agreement dated October 21, 1981. The agreement provided that May, the operator, would commence drilling of a well on or before December 31, 1981. Argos was required to pay 15% of the costs and liabilities May incurred in drilling the well. On or about December 31, 1981, Argos paid May $32,925.00, 15% of the estimated drilling cost. May actually did not begin drilling the well until January 24, 1982. Fifteen percent of the actual cost of drilling the well turned out to be $49,735.66, $16,810.66 more than the amount Argos had already paid. May sued Argos for what it considered the balance due for the actual drilling costs. The trial court entered a judgment awarding May $16,810.66.

We first note that Argos has cited no authority under its points of error three, four, six and seven. Argos has consequently waived these points of error. Hatch v. Davis, 621 S.W.2d 443, 447 (Tex.Civ.App.--Corpus Christi 1981, writ ref'd n.r.e.). Therefore, we turn to the merits of Argos' remaining points.

In its first point of error, Argos contends that the trial court erred in finding that time was not of the essence. Argos' apparent position is that since May failed to begin drilling by December 31, 1981, May cannot recover, given the principle that when time is of the essence of a contract a party must perform in strict compliance within the time prescribed to be entitled to any relief. Neco Engineering Co. of Texas v. Lee, 487 S.W.2d 185, 187 (Tex.Civ.App.--Waco 1972, no writ); see Liedeker v. Grossman, 146 Tex. 308, 313, 206 S.W.2d 232, 234-35 (1947).

In support of its position, Argos cites Investors Utility Corp. v. Challacombe, 39 S.W.2d 175 (Tex.Civ.App.--Waco 1931, no writ). The court in Challacombe did state that "it is generally held that in oil and gas mining leases and contracts for the drilling of oil and gas wells time is of the essence of the contract...." Challacombe, 39 S.W.2d at 178. However, the court's rationale for this observation was that "[t]his is because of the vagrant and fugitive nature of oil and gas, their liability to wander or be drawn elsewhere, if not developed, the constant shifting of the field of operation, and the fluctuation in value and the opportunity of the lessee to injure or oppress the lessor by delaying developments." Challacombe, 39 S.W.2d at 178. Thus, the court's stated rationale makes it plain that the "contracts for drilling of oil and gas wells" it had spoken of earlier were drilling contracts connected with oil or gas lease arrangements. Argos also cites 14 TEX.JUR.3d Contracts § 227 (1981) and 42 TEX.JUR.2d Oil and Gas § 110 (1963). We have examined the cases cited in these sections and we have found that all of them concern either lease arrangements or sales of mineral rights. None of them concern either an operating agreement, such as in the present case, or even a simple contract for the drilling of a well.

We conclude, rather, that the most relevant authorities indicate that time is not necessarily of the essence in an oilfield operating agreement. See Matador Drilling Co., Inc. v. Post, 662 F.2d 1190, 1197 (5th Cir.1981); cf., Williams v. Shamrock Oil & Gas Co., 128 Tex. 146, 152-55, 95 S.W.2d 1292, 1295-96 (1936) (in drilling contract, time not necessarily of the essence with respect to all provisions and all parties). The fact that the contract states a date for performance does not, of itself, mean that time is of the essence. Laredo Hides Co., Inc. v. H & H Meat Products Co., Inc., 513 S.W.2d 210, 217 (Tex.Civ.App.--Corpus Christi 1974, writ ref'd n.r.e.). Ordinarily, time is not of the essence of a contract. Laredo Hides, 513 S.W.2d at 216. Oilwell drilling contracts which are not part of lease arrangements are subject to the substantial performance doctrine. Triton Oil & Gas Corp. v. E.W. Moran Drilling Co., 509 S.W.2d 678, 682 (Tex.Civ.App.--Fort Worth 1974, writ ref'd n.r.e.). This means that a party to the contract may recover for substantial performance though his performance is less than literal and complete. Matador, 662 F.2d at 1194-95. Atkinson v. Jackson Bros., 270 S.W. 848, 851 (Tex.Comm'n App.1925, holding approved); Perryman v. Sims, 506 S.W.2d 753, 754-56 (Tex.Civ.App.--Tyler 1974, writ ref'd n.r.e.). Therefore, in the absence of some definite indication that the parties intend time to be of the essence, a driller's failure to begin drilling on a specified date will not of itself vitiate the drilling contract, unless the drilling contract is part of an oil or gas lease arrangement. Houy v. Davis Oil Co., 175 Colo. 180, 486 P.2d 18, 21 (1971); see also Langley v. Norris, 167 S.W.2d 603, 612 (Tex.Civ.App.--Eastland 1942), aff'd, 141 Tex. 405, 173 S.W.2d 454 (1943). Argos has referred this court to nothing in the contract or surrounding circumstances which would indicate that time...