Hill v. Heritage Resources, Inc.
| Decision Date | 31 December 1997 |
| Docket Number | No. 08-93-00266-CV,08-93-00266-CV |
| Citation | 964 S.W.2d 89 |
| Parties | Margaret Hunt HILL, Individually, Margaret Hunt Hill, Executrix (of the Estate of Al G. Hill, Deceased), Margaret Hunt Hill, Trustee (of the Margaret Hunt Hill Marital Trust), Chester J. Donnally, Jr., Trustee (of the Margaret Hunt Hill--Albert G. Hill, III, Trust, Heather Victoria Hill Trust, Elisa Margaret Hill Trust, Michael Busch Wisenbaker, Jr. Trust, Wesley Hill Wisenbaker Trust, Cody McArthur Wilert Trust and the Margretta Hill Wilkert Trust), Lyda Hill, U.S. Financial Corp., Seven Falls Co., Stuart Hunt, Sherman Hunt, Hara Hunt, Hilre Hunt, and The Kickham Group, Inc., Appellants, v. HERITAGE RESOURCES, INC., Wise Oil Ventures, Crittendon Acquisition Co., Michael B. Wisenbaker and The Chase Avenue Corp., and Van Oliver, As Trustee for Certain Trade Creditors of Heritage Resources, Inc., Appellees. |
| Court | Texas Court of Appeals |
W. Alan Wright, Thomas E. Kurth, Haynes & Boone, Dallas, Michael L. Fostel, Dist. Atty., Kermit, Ronald Holman, Holman, Robertson, Eldridge, Biddle & McCorkindale, Dallas, Ken Slavin, Brower & Slavin , El Paso, Julia E. Vaughan, Cotton, Bledsoe, Tighe & Dawson, Midland, for Appellants.
Cynthia S. Anderson, Kemp, Smith, Duncan & Hammond, P.C., El Paso, Stephen F. Malouf, Edward Wayne Malouf, Marcellene Malouf, Dallas, L. Wayne Scott, San Antonio, Steve Cundra, Thompson, Hine & Flory, Washington, DC, D. Ronald Reneker, Douglas James Buncher, Craig Madison Patrick, Bush Craddock & Reneker, L.L.P., Dallas, for Appellees.
Before LARSEN, McCLURE and CHEW, JJ.
This is yet another oil and gas case originating from the attempted removal of the Operator of a Joint Operating Agreement. In this case, the Operator and its affiliates filed suit against a confederated group of the largest Non-Operators alleging multiple tort and breach of contract claims. The Non-Operators responded with counterclaims for breach of contract by the Operator and injunctive relief to remove the Operator. The case was tried to a Winkler County jury, and the Operator won on all issues and was awarded a judgment of over $83 million dollars in damages and prejudgment interest and approximately $21 million dollars in attorneys' fees. In this appeal, the Non-Operators have challenged the jury's findings on all issues and the Operator has cross-appealed on the issues of prejudgment interest and attorney's fees.
The Operator and its affiliates, plaintiffs below and Appellees here, are Heritage Resources, Inc., Wise Oil Ventures, Michael B. Wisenbaker, Chase Avenue Corporation, and Crittendon Acquisition Company. They are also joined by Van Oliver, as trustee for trade creditors of Heritage Resources, Inc., an intervening party. Michael Wisenbaker is the principal of all the corporations except for Wise Oil Ventures, which is owned by his father. Wisenbaker, a self-described oilman, has been an independent oil and gas venturer since the early 1970s. He was once married to the daughter of Mr. A.G. Hill, Sr. and Mrs. Margaret Hunt Hill. The Appellees are hereafter referred to as "Heritage."
The Non-Operators, defendants below and Hunt/Hill here, principally consist of two related families. The first family was headed by A.G. Hill, Sr., a prominent oil and gas businessman, who died shortly after this litigation began. He was survived by his wife, Margaret Hunt Hill, who was named a defendant, individually and as Executrix and Trustee of her husband's estate. Also named in the suit were the trusts of the Hills' seven grandchildren and their daughter, Lyda Hill. They comprise, together with two closely held family corporations, Seven Falls Company and U.S. Financial Corporation, what will be referred to as the "Hill Group." The other family includes the brothers, Sherman and Stuart Hunt, and their closely held corporation, the Kickham Group, Inc., and two Hunt daughters, Hara and Hilre. They are collectively referred to as the "Hunt Group." The Appellants as a whole will be referred to as "Hunt/Hill."
In the early 1980s, Heritage acquired oil and gas leases in several sections of the
Crittendon Field in Winkler County, Texas. Heritage sold substantial, partial interests in these leases to A.G. Hill, Tribal Drilling (a Hunt family partnership), and the Hunt brothers individually. In November 1984, Heritage, as the Operator, entered into a Joint Operating Agreement ("22 J.O.A.") for Section 22 of the Crittendon Field with Tribal Drilling Company and A.G. Hill and a number of other smaller working interest owners, using A.A.P.L. Form 610-1982 Model Form Operating Agreement. The contract area defined by Exhibit "A" of the 22 J.O.A. was for all of Section 22 "[t]o a depth of 20,000' or to a depth sufficient to thoroughly test the Fusselman formation, whichever is the lesser depth."
From our review of the 14,000 plus page record, we have distilled the facts of the case to the following narrative chronology beginning in 1985:
1985
October 23 A Joint Operating Agreement for the adjacent Section 21 was entered into by essentially the same parties as the 22 J.O.A.
August Heritage circulated an Authorization for Expenditures "AFE," which proposed the 22-2 well. The AFE requested consent for drilling a new well with an objective depth limitation of the lesser of 22,000 feet or depth sufficient to test the Ellenburger formation (a geological stratum located in the Crittendon Field at an approximate depth of 21,500 to 22,000 feet below the surface and approximately 1000 feet thick). Heritage and all the Non-Operators, except Hunt/Hill, consented to the AFE. For their part, Hunt/Hill agree to a second AFE which provided for a depth limitation of the lesser of 20,000 feet or depth necessary to test the Fusselman formation (a geological stratum located in the Crittendon Field at a depth of approximately 19,300 feet below the surface and approximately 800 feet thick).
November 2 The 22-2 well was spudded.
November 18 Heritage and the two Hunt brothers entered into a Letter Agreement for 22-2 well and "subsequent" wells which authorizes deeper drilling, in stages, of the 22-2 well beyond 20,000 feet, with the Hunts' prior consent.
April 29 Tribal Drilling Company, Sherman Hunt, Stuart Hunt, and other members of the Hunt Group entered into a letter of agreement stipulating their proportionate shares of the drilling, testing, and completing costs attributable to the proposed 22-2 well and any subsequent wells in Section 22. The letter acknowledged that Sherman and Stuart Hunt agreed to pay 37.5 percent of all costs attributable to the 22-2 well and 18.75 percent of all costs attributable to any subsequent wells drilled in Section 22 pursuant to their letter of agreement with Heritage dated November 18, 1986.
May As drilling on the 22-2 well neared 19,000 feet, the operations became more tenuous. Hunt/Hill requested that the 22-2 well's drilling cease and that the well be put into production, but Heritage continued the drilling.
May 10 Heritage and Oxford Oil and Gas, Inc. "Oxford" entered into a letter of agreement whereby Oxford agreed to pay 64.5 percent of the drilling costs of the 22-3 well in exchange for an assignment of a 33.333334 percent working interest in the 22-3 well. Oxford had the option to quit paying at any time and to receive a proportionately reduced interest once the well was completed. The agreement was expressly subject to the terms of the 22 J.O.A. .
May 19 The 22-2 well blew out, but drilling operations were restored within several days. A meeting of interest owners was held and the Hills and Hunts orally agreed to participate in a subsequent well, the 22-3 well, provided that the drilling on the 22-2 well stopped and it was put into production.
May 22 The 22-2 well reached the Silurian formation (a geological stratum located
in the Crittendon Field at an approximate depth of 18,900 to 19,300 feet below the surface and approximately 300 feet thick).
June 20 The 22-2 well was completed at a depth of 19,062 feet below the surface and placed in production. Production pressure tests indicated a potential Texas record for gas reserves.
June 30 Heritage issued an AFE proposal for the new or substitute well--the 22-3. The AFE was for a new location and a depth of 22,000 feet or a depth sufficient to test the Ellenburger formation, whichever was less. Hills and Hunts did not respond to the AFE. The Hunts began an analysis of their investment in the Crittendon Field and began negotiations with Lyco Energy Corp. to sell their entire interest in the Crittendon Field.
September 25 The Hunt Brothers secretly recorded a conversation with Michael Wisenbaker. The Hunts told Wisenbaker that: (1) they were not contemplating the sale of their interests in the Crittendon Field; (2) they wanted a Joint Operating Committee to oversee Crittendon Operations with J.R. Latimer as Operator for the committee; (3) they wanted to stop all drilling activities in Section 22; and (4) they had the requisite votes to remove Heritage as Operator and would do so unless Wisenbaker agreed with the Hunts. They were informed that Heritage was in negotiations with Enserch Gas Company and Lone Star Gas Company "Enserch/Lone Star" for prepayment gas contracts, and that Heritage was going forward with the 22-3 well and would not resign as Operator.
September 25 Heritage sent the working interest owners an Ellenburger AFE for the proposed 22-3 well. The AFE proposed a total depth of 22,000' or to a depth sufficient to test the Ellenburger formation whichever was shallower.
September 27 Tribal Drilling notified Heritage that it is opposed to the 22-3 well.
September 28 The Hunts notified...
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