Nat. Gas Pipeline Co. v. Pool

• Decision Date: 12 October 2000
• Citation: 30 S.W.3d 618
• Parties: (Tex.App.-Amarillo 2000) NATURAL GAS PIPELINE COMPANY OF AMERICA, ET AL., APPELLANTS V. JOSEPH H. POOL, ET AL., APPELLEES NO. 07-99-0429-CV
• Court: Texas Court of Appeals

Page 618

30 S.W.3d 618 (Tex.App.-Amarillo 2000)

NATURAL GAS PIPELINE COMPANY OF AMERICA, ET AL., APPELLANTS

V.

JOSEPH H. POOL, ET AL., APPELLEES

NO. 07-99-0429-CV

IN THE COURT OF APPEALS FOR THE SEVENTH DISTRICT OF TEXAS AT AMARILLO PANEL B

OCTOBER 12, 2000

Rehearing Overruled November 21, 2000.

FROM THE 69TH DISTRICT COURT OF MOORE COUNTY; NO. 98-36; HONORABLE RON ENNS, JUDGE

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Before BOYD, C.J., and QUINN and JOHNSON, JJ.

John T. Boyd, Chief Justice.

This dispute is between parties to a gas lease in which the lessors claim that the lease has terminated due to a cessation in production. Appellants Natural Gas Pipeline Company of America (NGPL), MidCon Gas Services Corp. (MidCon), and Chesapeake Panhandle Limited Partnership (Chesapeake) appeal from a judgment rendered against them in favor of appellees¹ that the subject gas lease terminated pursuant to the terms of the habendum clause of the lease and which awarded damages and attorney's fees.

In 13 points, appellants claim that (1) the trial court erred in granting summary judgment that the lease terminated because of cessation of production; (2) they established the affirmative defense of laches as a matter of law; (3) they established the affirmative defense of revivor as a matter of law; (4) they established title by adverse possession as a matter of law; (5) the trial court erred in awarding damages for bad faith trespass since appellants' possession of the mineral estate following termination of the lease was permissive; (6) the trial court erred in admitting the deposition testimony of Don Darsey; (7) the evidence was legally and factually insufficient to support the finding of fraud and the award of exemplary damages; (8) the evidence was legally and factually insufficient to support the finding that appellants produced gas in bad faith; the trial court erred in awarding (9) damages for the four-year period preceding the filing of the lawsuit; (10) attorney's fees; (11) prejudgment interest; (12) a judgment jointly and severally for actual damages; and (13) to appellees the well and lease equipment. For the reasons set forth below, we modify the judgment and, as modified, affirm it.

On January 5, 1937, J. T. Sneed, Jr. and Elizabeth Sneed Pool, each individually and as independent executors of the estate of Zella Sneed, Deceased, executed a gas mining lease in favor of Texoma Natural Gas Company covering Section 8, Section 9, the southwest quarter of Section 7, and 200 acres of the southeast portion of Section 6 in Block B-12, D&P Ry. Co. Survey, Moore County, Texas. The lease was to remain in force subject to other provisions in the lease "pending the commencement and continuation of drilling operations on said land as hereinafter provided, and as long thereafter as natural gas is produced and marketed from any well on said land." Appellants are successors-in-interest to Texoma Natural Gas Company.

Two gas wells, the J. T. Sneed SN11 and the J. T. Sneed SN15, were drilled on portions of the land covered by the lease or on lands consolidated therewith, and there is apparently no dispute that the initial gas production was timely obtained. A third well was drilled on the lease in 1996. On May 20, 1998, successors-in-interest to the lessors of the lease filed this lawsuit alleging that there was no production on the lease from either the SN11 or the SN15 wells during the following periods: August 1959, July - August 1960, June - July 1961, June - October 1963, July - August 1964, and June 1969.² They sought a decree that the lease terminated automatically by its own terms as well as damages for conversion. In addition to denying the allegations and asserting various counterclaims, appellees also asserted affirmative defenses of the statute of limitations, title by adverse possession, ratification, revivor, estoppel, quasi estoppel, laches and waiver.

In its February 16, 1999 order granting partial summary judgment, the trial court determined that the lease "has lapsed and ended pursuant to the terms of its habendum clause due to one or more cessations of production from said land." The case subsequently went to trial on the remaining issues, including appellants' affirmative defenses. The jury returned a verdict that appellants had acted in bad faith in producing gas from the lease after August 1964, such gas was produced as a result of fraud, the failure to produce gas was not excused, appellants did not acquire title by adverse possession, and the lease was not revived. The jury awarded exemplary damages as well as attorney's fees. The trial court entered judgment on the jury's verdict.

In their first issue, appellants claim that the trial court erred in granting its partial summary judgment that the lease terminated because of a cessation in production. Appellees had moved for partial summary judgment under Texas Rule of Civil Procedure 166a(a) and (i). To be entitled to summary judgment, the moving party must show that there is no genuine issue of material fact as to the essential elements of the cause of action. Gibbs v. General Motors Corp., 450 S.W.2d 827, 828 (Tex. 1970); Abraham Inv. Co. v. Payne Ranch, Inc., 968 S.W.2d 518, 523 (Tex.App.--Amarillo 1998, pet denied). To attack a "no-evidence" summary judgment motion, the non-movant must show that he produced more than a scintilla of probative evidence to raise a fact issue on the material questions presented. Kimber v. Sideris, 8 S.W.3d 672, 675-76 (Tex.App.--Amarillo 1999, no pet.). A "no-evidence" summary judgment motion may be made only with respect to claims on which the adverse party would have the burden of proof. Tex. R. Civ. P. 166a(i).

To establish the lack of production during the referenced periods, appellees attached certified copies of Texas Railroad Commission production records for the SN11 and SN15 wells to their motion for summary judgment. Copies of those records were attached for 1962, 1963, 1964, 1965 and 1969. According to the terms of this particular lease, production anywhere on the land covered by the lease perpetuated the entire lease. Therefore, it is only time periods when both wells failed to produce that are relevant to our discussion of this issue. Those time periods for which records were provided are June - October 1963, July and August 1964, and June 1969. Appellees also attached a copy of the lease to their motion.

Appellants argue it was appellees' burden to prove that there were no wells other than the SN11 and the SN15 producing on the lease during those time periods, and that they failed to do so. Only genuine issues of material fact preclude summary judgment. Sasser v. Dantex Oil & Gas, Inc., 906 S.W.2d 599, 604 (Tex.App.--San Antonio 1995, writ denied). Where the summary judgment evidence raises no more than a surmise or suspicion of a fact issue, no genuine issue of material fact exists to defeat summary judgment. Booth v. Cathey, 893 S.W.2d 715, 719 (Tex.App.--Texarkana), rev'd in part on other grounds, 900 S.W.2d 339 (Tex. 1995). A fact is established as a matter of law if ordinary minds cannot differ as to the conclusion to be drawn from the evidence. See Triton Oil & Gas Corp. v. Marine Contractors and Supply, Inc., 644 S.W.2d 443, 446 (Tex. 1982); Ellert v. Lutz, 930 S.W.2d 152, 155 (Tex.App.--Dallas 1996, no writ). Summary judgment should not be granted when the cause of action depends on proof of facts not ordinarily subject to absolute verification or denial, e.g., intent, reliance, reasonable care or uncertainty. Villacana v. Campbell, 929 S.W.2d 69, 73 (Tex.App.--Corpus Christi 1996, writ denied).

It is true that a summary judgment motion must stand on its own merits, and the non-movant has no burden to respond to the motion. Rhone-Poulenc, Inc. v. Steel, 997 S.W.2d 217, 222-23 (Tex. 1999). However, appellants did respond to this motion. The affidavit of Bobby Montgomery, operations manager for NGPL, states that "one or more of the wells on the lease sought to be terminated have been continually produced without interruption since July 1969." If there had been a well other than the SN11 and SN15 producing on the lease during the critical time periods for which production records were not provided by appellees, that fact should have been easily controvertible by Montgomery through records of NGPL or the Railroad Commission. We do not believe that reasonable minds would differ as to the conclusion to be drawn from the evidence that was before the court, i.e., that there were only two producing wells on the lease during the time periods for which cessations of production were established.³

Appellants also rely on the argument that appellees must show there was no production in paying quantities, and in order to do so, must prove that production did not yield a profit after deducting operating and marketing costs, and that a prudent operator would continue to operate the well for a profit and not speculation. See Pshigoda v. Texaco, Inc., 703 S.W.2d 416, 418 (Tex.App.--Amarillo 1986, writ ref'd n.r.e.). It is the rule that an oil or gas lease may be kept alive after the primary term only by production in paying quantities or a savings clause, such as a shut-in royalty clause, continuous operations clause, drilling operations clause, etc. Hydrocarbon Management, Inc. v. Tracker Exploration, Inc. , 861 S.W.2d 427, 431 (Tex.App.--Amarillo 1993, no writ); Shown v. Getty Oil Co., 645 S.W.2d 555, 559 (Tex.App.--San Antonio 1982, writ ref'd). In situations where there are periods of no gas production and no "savings clauses," the courts imply a "temporary cessation" doctrine, which requires that the cessation must be "due to a sudden stoppage of the well or some mechanical breakdown of the equipment used in connection therewith, or the like," and production must be resumed within "a reasonable time." Watson v....