MRC Permian Co. v. Point Energy Partners Permian LLC
| Decision Date | 15 March 2021 |
| Docket Number | No. 08-19-00124-CV,08-19-00124-CV |
| Parties | MRC PERMIAN COMPANY, Appellant/Cross Appellee, v. POINT ENERGY PARTNERS PERMIAN LLC; HOLLAND ACQUISITIONS, INC., D/B/A HOLLAND SERVICES; TJ BAR, LLC; TUBB MEMORIAL, AN OREGON LIMITED PARTNERSHIP; PLAINSCAPITAL BANK, TRUSTEE FOR THE DEBORAH JACKSON REVOCABLE TRUST; BANK OF AMERICA, N.A., TRUSTEE FOR THE JANELLE JACKSON MARITAL TRUST PART M2, JANELLE JACKSON MARITAL TRUST PART M1, AND FAMILY CREDIT SHELTER TRUST PART B; VORTUS INVESTMENT ADVISORS, LLC; JOHN SABIA; and BRYAN MOODY, Appellees/Cross-Appellants. |
| Court | Texas Court of Appeals |
Appeal from the 143rd District Court of Loving County, Texas
(TC# 17-06-869)
This permissive appeal1 arises in the context of competing oil-and-gas leases coveringcertain acreage located in Loving County, Texas. Below, the trial court ruled on a number of competing motions for summary judgment—granting some and denying others—and permitted the parties to pursue an interlocutory appeal with respect to what it identified as three controlling questions of law. Those questions are: (1) whether the original leases were perpetuated in their entirety by the operation of their force majeure clauses, (2) if the original leases terminated, what acreage was retained in Production Units under those leases, and (3) if the leases did not terminate, whether the original lessee had valid claims of tortious interference against certain defendants.
We agreed that answers to the three identified questions of law would form a basis for either affirming or reversing most of the trial court's summary judgment rulings, and therefore granted permission for the interlocutory appeal.2 In answering the controlling questions, we first conclude that there is a genuine issue of material fact as to whether the original leases were perpetuated in their entirety by the operation of their force majeure clauses, such that the trial court's summary judgment ruling on this issue in favor of the defendants was error. We do not reach the second question because it is not ripe for decision due to the factual dispute arising in the first question. In response to the third question, we similarly determine there are genuine issues of material fact as to the original lessee's claims of tortious interference, except to the extent those claims are made against individuals or their agents for allegedly interfering with their own lease with MRC.
The answers to these questions produce mixed results as they relate to the trial court'srulings on summary judgment, as explained in greater detail below. In sum, we affirm in part and reverse and remand in part.
The original lessee of the subject tract3 is Appellant MRC Permian Company (MRC), who filed suit to protect its leasehold interests arising from leases executed with four mineral estate owners. Each of the four mineral owners executed their respective lease with MRC through an agent or trustee. The Lessors and their representatives include the following: (1) TJ Bar, LLC (through its agent Holland Acquisitions, Inc., d/b/a Holland Services (Holland)); (2) Tubb Memorial, LP (through its agent Bank of America, N.A.); (3) Bank of America, as trustee for three related trusts under the James D. Jackson Trust Agreement; and (4) PlainsCapital Bank, as trustee for The Deborah Jackson Revocable Trust (PlainsCapital).
The primary defendant in the case below is the subsequent lessee of the same minerals, Point Energy Partners Permian, LLC (Point Energy). Other defendants include the mineral owners and their representatives listed above, as well as John Sabia and Bryan Moody—both of whom are principals of Point Energy—and Vortus Investment Advisors, LLC (Vortus), a financial backer of Point Energy.
The original leases between MRC and the mineral owners were executed on February 28, 2014. Per lease terms, MRC obtained the exclusive right to drill for a three-year primary term expiring on February 28, 2017. Upon expiration of that period, MRC's interest automaticallyterminated "as to all lands and depths of the Leasehold Estate not then included in a Production Unit containing a Commercial Well . . . ." The lands and depths included in a production unit would then be subject to the secondary term of the lease, which would last "as long thereafter as oil or gas are produced from the Leasehold Estate in paying quantities . . . ." MRC could also suspend the automatic termination of the primary term by conducting a continuous drilling program, as defined by further lease terms.4 Under that program, so long as MRC began actual drilling5 of a new well within 180 days from the commencement of its drilling of a previous well, it maintained the leasehold estate for further development of new production units. Within industry terms, this type of continuous drilling requirement is known as "spud to spud" drilling.6
Relevant here, the lease included a force majeure clause providing that MRC could extend any continuous drilling deadline in the event of a non-economic event beyond its control which delayed its operations. So long as MRC furnished the lessors a reasonable written description of the problem encountered within 60 days after its commencement, the lease would remain in force and effect during the continuance of such delay and up to 90 days after the removal of the forcemajeure.
By February 28, 2017—the date the primary term was set to expire—MRC had successfully developed five wells on the leasehold estate. MRC had begun drilling the last of the primary-term wells on November 22, 2016. To extend the lease under the terms described above, the continuous drilling program required that MRC either begin drilling another well by May 21, 2017 (180 days from the spudding date of the previous well), or otherwise give timely and proper notice of a qualifying force-majeure event. Again, failure to do one or the other would result in automatic termination of MRC's leasehold interest with the Lessors except for all lands and depths then included in the production unit of a developed, commercial well.
It must be noted that under the terms described above, if MRC encountered a qualifying force-majeure event within 60 days of a continuous-drilling deadline, it would not be contractually obligated to provide notice of the force majeure until after the continuous-drilling deadline had passed. In such a case, built into the timelines established in the lease was a period where MRC could believe the lease was still in effect given the force majeure extension, but the Lessors might not yet be aware of such extension and prematurely believe the lease had terminated as to all acreage not then included in a production unit. As a result, when a force majeure event becomes of issue, the Lessors would not know for certain whether their leases had terminated until 60 days after MRC's failure to spud a new well by a continuous-drilling deadline. As it turned out, this is exactly what MRC claims happened.
Billy Goodwin, an MRC executive with 25 years' experience in operations located all over the world, testified about the higher-than-normal pressures encountered by drillers when operating in Loving County or the Delaware Basin, as a whole. Because of these challenges, MRC used aspecific rig—"Rig 295"—for drilling wells in the area, and it planned on continuing to do so for the next well it drilled on the leasehold estate. Goodwin described that Rig 295 was equipped with more experienced crewmen and specialized equipment. This rig had successfully drilled other wells off the acreage of the leasehold, including the Dorothy White #124, a horizontal well. To drill on the leasehold, MRC approved the scheduled spudding of its next new well, the Toot #211, on May 11, 2017; however, because of an administrative error, MRC later delayed Rig 295's spudding of Toot #211 until June 2017, which was beyond their continuous-drilling-program deadline.7
Yet, on April 21, 2017, while drilling another horizontal well nearby but off the leasehold estate, Rig 295's operations were otherwise delayed when the production casing on that well was compromised; and, consequently, there was unexpected wellbore instability that needed to be addressed. Rig 295 resolved the instability through a reaming process, which resulted in a roughly thirty-hour delay.
On June 13, 2017—53 days after the delay—MRC gave notice of the events recounted above by sending a letter to all four Lessors via their representatives. Notably, the date of MRC's letter was within the 60-day window required by the force majeure clause but after MRC's continuous drilling deadline of May 21, 2017. MRC asserts that the thirty-hour delay on April 21 was a qualifying force majeure, being a noneconomic event beyond MRC's control. MRC further asserts that it gave timely and proper notice of the force majeure event, pursuant to Paragraph 13of the lease. Also in the letter, MRC estimated that the rig would be arriving on the leasehold estate to drill the new well as early as the following week.
On June 15, 2017, Point Energy, through Bryan Moody, responded to MRC's letter to the mineral owners. Moody's letter stated "[t]he primary terms of [MRC's] leases have expired, and MRC is obligated to release all of its interest in the leases outside specified production units in the Lands upon the conclusion of the Continuous Development Program set out in the leases." Point Energy's letter then informed MRC that it had reviewed publicly available drilling data and conducted "a diligent review of the applicable facts and circumstances . . . ." The letter questioned whether MRC's drilling schedule had been sufficient to maintain the continuous development program. It then disclosed and gave notice that it had not only taken new leases from the mineral owners it had also acquired their rights to seek termination of MRC's leases. Point Energy asserted that neither...
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