Ohrt v. Union Gas Corp.

Decision Date11 December 2012
Docket NumberNo. 13–05–00621–CV.,13–05–00621–CV.
Citation398 S.W.3d 315
PartiesDavid OHRT, Sandra Hester, and Judy Sinast, Appellants, v. UNION GAS CORPORATION, Union Gas Funding I, LP, Endeavor Natural Gas, LLC, Randall K. Lowry Jr., Russell Chabaud, John Moffitt, N.L. Vannaman, Stephens Group, Inc. d/b/a Stephens Production Company, Dean Chilcoat, Jeanette Chilcoat, Viola Eliot, and WDC Ventures, Ltd., Appellees.
CourtTexas Court of Appeals

OPINION TEXT STARTS HERE

Thomas H. Crofts, Jr., Crofts & Callaway, San Antonio, Robert C. Mckay, Cole, Cole & Easley, P.C., Victoria, for Appellants.

Cynthia T. Sheppard, Cuero, for Cross-Appellants.

Paul S. Francis, Farrell Hochmuth, S. Shawn Stephens, Baker & Hostetler, Houston, Andrew M. Greenwell, L.L.P., Harris & Greenwell, L.L.P., Corpus Christi, for Appellees.

Before Justices GARZA, VELA and PERKES.

OPINION

Opinion by Justice PERKES.

This is an oil and gas case.1 Appellants, David Ohrt, Sandra Hester and Judy Sinast (collectively appellants or “Ohrts”), the lessors of an oil and gas lease, brought suit against appellees, Union Gas Corporation (the lessee) (“Union Gas”), Union Gas Funding I, LP, Endeavor Natural Gas, LLC, Randall K. Lowry Jr., Russell Chabaud,John Moffitt, N.L. Vannaman, Stephens Group, Inc. d/b/a Stephens Production Company, and Calpine Natural Gas Company (defendants below), alleging breach of lease and bad faith pooling. Appellants sought to have the pooled unit cancelled, to recover pre-pooling unpaid royalties from the date of first production of the pooled unit to the day of filing of the unit designation, and to recover 100% of the royalties attributable to the well's production. Union Gas subsequently filed a third party action impleading the other lessors in the pooled unit—the McAdamses 2, the Chilcoats,3 and the Heinolds.4 After the jury returned a verdict against appellants, the trial court rendered judgment approving of Union Gas's exercise of its pooling powers and declaring the percentage interests of the respective lessors in the pooled unit.5 We affirm.

I. Background

Between 1999 and 2000, Union Gas entered into separate oil and gas leases in Victoria County with Burnette Ohrt,6 David Ohrt, the McAdams, the Heinolds, the Chilcoats, and Ronald Albrecht.7 Each of these leases gave Union Gas “the right, at its option, to pool or unitize any land covered by [the] lease” with “any other land, lease, or leases, as to any or all minerals or horizons.” Appellants' leases also provided that [l]essee shall exercise said option as to each desired unit by executing an instrument identifying such unit and filing it for record in the public office in which the lease is recorded.” After obtaining the leases, Union Gas contracted with Union Gas Operating Company (UGOC), its wholly owned subsidiary, to act as operator.8

In July 2000, UGOC drilled and completed the Ohrt–Albrecht No. 1 Well on land owned by Ronald Albrecht. At or around that time, Union Gas and appellants negotiated an amendment to their leases regarding contingencies in the event that Union Gas exercised its option to pool acreage for gas production. In August to September 2000, UGOC drilled and completed the Ohrt–Heinold No. 1 Well on land appellants owned. By the end of September 2000, production of gas was established.

Union Gas exercised its option to pool and formed the Ohrt–Albrecht Gas Unit and the Ohrt–Heinold Gas Unit. On October 10, 2000, UGOC filed a Designation of Pooled Unit in the public records in Victoria County creating the Ohrt–Albrecht Gas Unit, comprised of 697.4935 acres, including 82 acres of appellants' land. The Designation stated that it was effective as of the date of first production of the Ohrt–Albrecht Well in July 2000.

On January 15, 2001, UGOC filed a Designation of Pooled Unit creating the Ohrt–Heinold Gas Unit, comprised of 690.73 acres, which stated that its effective date was the date of first production from the Ohrt–Heinold No. 1 Well. The Ohrt–Heinold Gas Unit pooled together part of appellants' property, the entirety of the Chilcoats' property, the entirety of the Heinolds' property, and part of the McAdamses' property. The litigation at issue arises from the formation of this unit. The oil and gas leases and resulting pooling is shown, as follows:

+---------------------------------------------------------------+
                ¦Lessor         ¦Leased Acreage ¦Acres Included ¦Acres Included ¦
                +---------------+---------------+---------------+---------------¦
                ¦               ¦               ¦Ohrt–Heinold   ¦Ohrt–Albrecht  ¦
                +---------------+---------------+---------------+---------------¦
                ¦               ¦               ¦Gas Unit       ¦Gas Unit       ¦
                +---------------+---------------+---------------+---------------¦
                ¦Burnette Ohrt  ¦209.21         ¦149.21         ¦60             ¦
                +---------------+---------------+---------------+---------------¦
                ¦David Ohrt     ¦161.39         ¦138.5          ¦22             ¦
                +---------------+---------------+---------------+---------------¦
                ¦Chilcoat       ¦160.19         ¦160.19         ¦0              ¦
                +---------------+---------------+---------------+---------------¦
                ¦Heinold        ¦121.47         ¦121.47         ¦0              ¦
                +---------------+---------------+---------------+---------------¦
                ¦McAdams        ¦375.10         ¦120            ¦0              ¦
                +---------------+---------------+---------------+---------------¦
                ¦Ronald Albrecht¦32.98          ¦0              ¦32.98          ¦
                +---------------+---------------+---------------+---------------¦
                ¦Misc. Others   ¦582.51         ¦0              ¦582.51         ¦
                +---------------------------------------------------------------+
                
+---------------------------+
                ¦TOTAL ¦      ¦690.73¦697.49¦
                +---------------------------+
                

Around January 19, 2001, UGOC sent division orders to appellants containing the identity and size of the unit and stating its effective date as the date of first production. Appellants executed the division orders, wherein they certified their ownership of their decimal unit interest in production and agreed to notify UGOC in writing of any change in their decimal interest in the Unit.9 In March 2001, Union Gas began paying royalties on production from the Unit to appellants in accordance with the decimal royalty interests shown in the division orders.10 Appellants subsequently received and cashed monthly royalty checks, accompanied by statements of production and calculations.

On October 30, 2001, appellants' counsel sent a demand letter to Union Gas demanding 100% royalties from the date of first production of the Ohrt–Heinold Well through January 14, 2001 (the day before Union Gas filed a Designation of Pooled Unit creating the Ohrt–Heinhold Unit). On November 12, 2001, Union Gas suspended royalty payments to all unit royalty owners, thereafter holding all royalties in a suspense account pending the resolutionof the Ohrts' claim. This lawsuit ensued.

This matter was tried to a jury on appellants' claims for bad-faith pooling and breach of lease. The jury rendered a unanimous verdict in favor of appellees. The jury found that appellees did not breach their duty to pool the Burnette Ohrt lease into the Ohrt–Heinold Gas Unit or their duty to pool the David Ohrt lease into the Ohrt–Heinold Unit in good faith. The jury further found that appellants' conduct constituted “ratification, waiver, and/or estoppel,” which excused appellees from paying a full 3/16th royalty on production prior to the date of the filing of the Unit Designation on January 15, 2001. Finally, the jury found that appellants' conduct constituted “ratification, waiver, and/or estoppel,” which excused “any failure to comply with the lease term that only 320 acres +10% tolerance could be pooled as to depths 9000 feet and shallower for the production of gas.” The trial court entered judgment in accordance with the verdict.

Appellants present four issues, supported by numerous sub-issues, wherein they contend: (1) they are conclusively entitled to recover unpaid pre-pooling royalty in the amount of $838,399.26; (2) because the designation of the pooled unit failed to comply with the depth limitation in the Ohrt leases, the appellees' attempt to pool the lease with others is invalid, as a result of which appellants are entitled to 3/16th of production from the Ohrt–Heinold No. 1 Well; (3) the cause should be remanded for a new trial on appellants' claim for attorney's fees and, alternatively, a new trial on their breach of lease claims if their “no evidence” contentions in issues one and two are not sustained; and (4) the take-nothing judgment on appellants' bad faith pooling claim should be reversed and remanded for a new trial.

II. Standard of Review

“An oil and gas lease is a contract, and its terms are interpreted as such.” Exxon Corp. v. Emerald Oil & Gas Co., 348 S.W.3d 194, 210–11 (Tex.2011) (quoting Tittizer v. Union Gas Corp., 171 S.W.3d 857, 860 (Tex.2005)); accord Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 662 (Tex.2005). When we construe an unambiguous oil and gas lease, we seek to enforce the parties' intention as expressed in the lease. Exxon Corp., 348 S.W.3d at 211;Tittizer, 171 S.W.3d at 860;PG & E Gas Transmission v. City of Edinburg, 59 S.W.3d 225, 227 (Tex.App.-Corpus Christi 2001), aff'd in part & rev'd in part on other grounds, S. Union Co. v. City of Edinburg, 129 S.W.3d 74 (Tex.2003). We enforce an unambiguous document as it is written. See Tittizer, 171 S.W.3d at 860;Sun Oil Co. v. Madeley, 626 S.W.2d 726, 728 (Tex.1981). We examine all parts of the contract and the circumstances surrounding its formulation. See Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 591 (Tex.1996); PG & E Gas Transmission, 59 S.W.3d at 227–28. Instruments pertaining to the same transaction may be read together to ascertain the parties' intent, even if the instruments were executed at different times and do not expressly refer to each...

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