Harkins v. N. Shore Energy, L.L.C.

• Decision Date: 01 May 2014
• Docket Number: No. 13–12–00504–CV.,13–12–00504–CV.
• Citation: 505 S.W.3d 1
• Parties: John James HARKINS, et al., Appellants, v. NORTH SHORE ENERGY, L.L.C., Appellee.
• Court: Texas Court of Appeals

505 S.W.3d 1

John James HARKINS, et al., Appellants,

v.NORTH SHORE ENERGY, L.L.C., Appellee.

No. 13–12–00504–CV.

Court of Appeals of Texas, Corpus Christi–Edinburg.

May 1, 2014.

David F. Johnson, Winstead PC, Ft. Worth, TX, Melissa A. Prentice-Lorber, Attorney at Law, Austin, TX, for Appellant.

J. Robert Goldsmith Jr., Goldsmith & Bogisch, Austin, TX, for Appellee.

Before Justices RODRIGUEZ, GARZA and PERKES.

Memorandum Opinion by Justice GARZA.MEMORANDUM OPINION ON REHEARING

We issued our original memorandum opinion in this case on December 12, 2013. Appellants, John James Harkins et al.¹ ("Harkins") and Dynamic Production, Inc. ("Dynamic"), filed motions for rehearing and for en banc reconsideration. See TEX.R.APP. P. 49.1, 49.7. Appellee North Shore Energy ("North Shore") filed a response to the motions pursuant to our request, and appellants filed a reply to that response. We grant the motion for rehearing in part and deny it in part, dismiss the motion for en banc reconsideration as moot, withdraw our previous memorandum opinion and judgment, and substitute the following memorandum opinion and accompanying judgment in their place.

This sprawling oil and gas dispute involves a well drilled by North Shore on certain Goliad County land owned by Harkins. Harkins argues by three issues that the trial court erred by concluding that the well did not trespass on his property and by granting summary judgment to North Shore on that basis. Dynamic asserts by thirteen issues² that the trial court erred by rendering partial summary judgment in favor of North Shore and by rendering judgment against Dynamic after trial on the issue of tortious interference with contract. We reverse and remand.

I. BACKGROUND

A. The Option Agreement

On June 3, 2009, Harkins and North Shore entered into an agreement (the "Option Agreement") giving North Shore the exclusive right to acquire one or more oil and gas leases on a portion of Harkins' property. In exchange for the option, North Shore paid $140,000, representing $50 per acre, as consideration. The Option Agreement provided, in relevant part:

[Harkins] hereby grants to [North Shore] the exclusive right on and under the following described lands, situated in Goliad County, Texas, to-wit:

All that certain property more fully described on EXHIBIT "A" attached hereto and made a part hereof for all purposes.

(hereinafter called "Said Land"), the exclusive option to acquire oil and gas leases on all or a portion of Said Land under the terms and provisions of that certain Oil and Gas Lease form set forth on Exhibit "B" attached hereto and made a part hereof for all intents and purposes, subject to the following terms and conditions:

1. For a period of twenty-four (24) months from the date hereof (hereinafter called the "Option Term"), [North Shore] shall have the exclusive option on Said Land.

2. At any time and from time to time during the Option Term, [North Shore] has the right to exercise its exclusive option to acquire an Oil and Gas Lease covering all or a portion (as hereinafter provided) of Said Land pursuant to the terms and provisions set forth on the Oil and Gas Lease form attached as Exhibit "B", (hereinafter called the "Oil and Gas Lease") by tendering a check payable to [Harkins] in an amount equal to Two Hundred Dollars ($200.00) per net mineral acre for each net acre owned by [Harkins] selected by [North Shore] out of Said Land, on which such option and/or options are exercised by [North Shore] ....

....

7. At such time as [North Shore] elects to exercise its option to acquire an Oil and Gas lease on Said Land pursuant to this Agreement, then such option as to such selected acreage shall expire and said Oil and Gas Lease shall become effective....

....

14. This Option to Purchase Oil and Gas Lease is expressly made subject to the Oil, Gas, and Mineral Lease covering part of Said Land, and [North Shore] will be responsible for obtaining any consent from the Lessee that may be required. [North Shore]'s right to exercise its option to take an Oil and Gas Lease is also subject to the existing Lease on part of Said Land.

Exhibit "A" to the Option Agreement described two tracts of land, "Tract 1" and "Tract 2." Pertinent to this case, "Tract 2" was described as follows:

Being 1,210.8224 acres of land, more or less, out of the 1673.69 acres out of the Caleb Bennett Survey, A–5, Goliad County, Texas and being the same land described in that certain Memorandum of Oil and Gas Lease dated March 14, 1996 from The Estate of Janie Frances Harkins, Deceased, to Export Petroleum Corporation and being recorded in Volume 50 at Page 454 of the Official Public Records of Goliad County, Texas to which deed reference is here made for a more complete description of said land.

The March 14, 1996 Memorandum of Oil and Gas Lease referenced above (the "Export Lease") described the land to which it applied as follows:

Being 1273.54 acres situated in Goliad County, Texas, and being all of the 1673.69 acre tract described on EXHIBIT "A" attached hereto, SAVE AND EXCEPT a 400.15 acre tract described in a Memorandum of Oil and Gas Lease between the Estate of Janie Frances Harkins, deceased, and Hamm[a]n Oil & Refining, dated March 13, 1995, recorded in Volume ____, Page ____ ^{[3 ]}, of the Public Records of Goliad County, Texas.

The March 13, 1995 Memorandum of Oil and Gas Lease (the "Hamman Lease"), in turn, contained a metes and bounds description of the 400.15–acre tract referenced in the Export Lease. Exhibit "A" to the Export Lease states:

Field notes of a 1673.69 acre tract, being a part of a tract of land conveyed from Cyrus B. Lucas, et al., to John J. O'Brien by Deed dated February 7, 1931, and recorded in Volume 66, Page 325 of the Deed Records of Goliad County, Texas;

Said 1673.69 acre tract is comprised of a portion of the Solon Bartlett Survey, Abstract 4 and the Caleb Bennett Survey, Abstract 5, is situated in Goliad County, Texas, approximately 4 miles north of the town of Blanconia and is described by metes and bounds as follows:

Beginning at a point in the center of Sarco Creek ...

[most of lengthy description omitted]

....

Thence S 82° 09' W a distance of 8663.39 feet to the place of beginning, containing 1673.69 acres, more or less. Save and Except a 400.15 tract described in Participation Agreement dated November 8, 1995, between Hamman Oil and Refining Company and Alia Mesa Resources, Inc., et al., recorded in the Deed Records of Goliad County, Texas.^[4]

B. North Shore's Attempt to Secure Leases

In September 2009, North Shore paid Harkins nearly $33,000 with the objective of securing a lease on a 169.9–acre area enclosed entirely within "Tract 2" as defined in Exhibit "A" to the Option Agreement.⁵ A formal lease agreement was never executed.⁶ Nevertheless, North Shore proceeded to drill a well on the 169.9–acre tract that it identified. In December 2009, North Shore and Harkins executed an easement so that the well could be connected to a gas purchaser's pipeline. According to an affidavit by Catherine Schaper, one of North Shore's co-owners, North Shore paid Harkins and other surface rights owners over $17,000 for the easement, and the easement instrument contained a detailed survey plat showing the location of the well in relation to local boundaries and landmarks. Schaper further averred that North Shore spent over $700,000 to drill and complete the well. The well commenced production in January 2010.

Harkins knew that North Shore had built a well and initially assumed that it was situated on land covered by the Option Agreement. However, in March 2010, Harkins, relying on the advice of landman Bill Bishop, came to believe that the well had in fact been drilled on land that was excluded from the Option Agreement. In particular, Harkins believed that the well was actually situated on the 400.15–acre tract which was described in the Hamman Lease and referenced in the Export Lease. According to Harkins, this 400.15–acre tract was specifically excluded from the description of land in the Option Agreement. Harkins therefore believed that the well constituted a trespass on his property. Harkins' attorneys informed North Shore of the problem and offered North Shore the opportunity to negotiate a valid lease of the land upon which the well was already situated. Those negotiations failed.

C. Dynamic's Involvement

Meanwhile, Dynamic had expressed its interest in conducting seismic exploration activities on much of Harkins' land, including on the tract purportedly leased by North Shore. Initially, Dynamic approached North Shore about obtaining permission to conduct those activities; however, after negotiations with North Shore failed in February 2010, Dynamic took the position that the right to approve seismic exploration actually belonged to Harkins. Dynamic then proceeded to negotiate directly with Harkins about acquiring seismic exploration rights. On March 19, 2010, Dynamic sent to Harkins a "Letter of Intent to Acquire Oil and Gas Lease" (the "Letter of Intent") on the 400.15–acre tract identified in Exhibit "A" to the Hamman Lease.⁷ Subsequently, in April of 2010, Dynamic and Harkins executed an agreement (the "Seismic Permit") granting Dynamic the right to conduct seismic exploration on various tracts of land, including:

1673.69 acres of land, more or less, situated in the Caleb Bennett Survey, A–5, Goliad County, Texas, being more fully described by metes and bounds in Exhibit "A" to that certain Memorandum of Oil and Gas Lease dated March 14, 1996 from the Estate of Janie Frances Harkins to Export Petroleum Corporation, recorded in Volume 50, Page 454, Official Public Records, Goliad County, Texas.

On June 17, 2010, Harkins and Dynamic entered into an oil and gas lease agreement (the "Dynamic Lease") based upon the Letter of Intent sent by Dynamic in March. The Dynamic Lease was largely based on the form lease agreement attached as Exhibit "B" to North Shore's Option Agreement. However, it contained additional...