Samson Lone Star, Ltd. P'ship v. Hooks

• Decision Date: 01 March 2012
• Docket Number: No. 01–09–00328–CV.,01–09–00328–CV.
• Citation: 389 S.W.3d 409
• Parties: SAMSON LONE STAR, LIMITED PARTNERSHIP n/k/a Samson Lone Star L.L.C., Appellant, v. Charles G. HOOKS, III, Individually and as Independent Executor of the Estate of Charles G. Hooks, Jr., as Trustee of the Scott Ira McKeever Trust and the David Wayne McKeever Trust, and on behalf of Chas. G. Hooks & Son, a General Partnership; McKeever Partnership, Ltd.; Charles G. Hooks, III and Sue Ann Hooks, as Co–Trustees under the Will of Charles G. Hooks, Sr., Appellees.
• Court: Texas Court of Appeals

389 S.W.3d 409

SAMSON LONE STAR, LIMITED PARTNERSHIP n/k/a Samson Lone Star L.L.C., Appellant,

v.Charles G. HOOKS, III, Individually and as Independent Executor of the Estate of Charles G. Hooks, Jr., as Trustee of the Scott Ira McKeever Trust and the David Wayne McKeever Trust, and on behalf of Chas. G. Hooks & Son, a General Partnership; McKeever Partnership, Ltd.; Charles G. Hooks, III and Sue Ann Hooks, as Co–Trustees under the Will of Charles G. Hooks, Sr., Appellees.

No. 01–09–00328–CV.

Court of Appeals of Texas,

Houston (1st Dist.).

May 31, 2012.

Opinion Dissenting and Concurring on Rehearing March 1, 2012.

On Appeal from the 60th District Court, Jefferson County, Texas, Trial Court Case No. B173008–B.¹

Cynthia Keely Timms, Michael V. Powell, Locke Lord LLP, Dallas, TX, Dick Watt, Thomas Neal Nobles, Katherine W. Strange, Watt Beckworth Thompson Henneman & Sullivan, LLP, Houston, TX, M.C. Carrington, Mehaffy & Weber, Beaumont, TX, for Appellant.

David M. Gunn, Beck, Redden & Secrest, L.L.P., Paul F. Simpson, McGinnis, Lochridge & Kilgore, L.L.P., Houston, TX, Patton G. Lochridge, J. Derrick Price, Don. H. Magee, McGinnis, Lochridge & Kilgore, L.L.P., Austin, TX, Jon B. Burmeister, Moore Landry, Gerald R. Flatten, Beaumont, TX, for Appellees.

Panel consists of Justices KEYES, SHARP, and MASSENGALE.

OPINION ON REHEARING

EVELYN V. KEYES, Justice.

Following the issuance of our March 1, 2012 opinion and judgment on rehearing, appellant, Samson Lone Star, Limited Partnership n/k/a Samson Lone Star L.L.C. (“Samson”), moved for further rehearing on issues relating to the supersede as bond and surety. Appellees, Charles G. Hooks, et al. (“the Hooks”), moved for further rehearing asking this Court to clarify its ruling regarding post judgment interest. Subsequently, on April 16, 2012, the Hooks moved for en banc reconsideration of our March 1, 2012 opinion. We grant both motions for rehearing, withdraw our opinion and judgment of March 1, 2012, and issue this opinion and judgment in their stead. We dismiss the Hooks' April 16, 2012 motion for en banc reconsideration as moot.²

This is an appeal from a final judgment against Samson for more than $21 million in favor of the Hooks. Samson has a number of oil and gas leases from landowners in Hardin and Jefferson Counties, including the Hooks. The judgment arises from an oil and gas case in which the Hooks brought suit against Samson with respect to three oil and gas leases, two in Hardin County, Texas (the “95–acre Lease” and the “10–acre Lease,” collectively the “Hardin County Leases”) and one in Jefferson County, Texas (the “Jefferson County Lease”). The Hooks sued Samson for breach of contract, fraud, fraudulent concealment, statutory fraud, negligent misrepresentation, violation of the Texas Natural Resources Code by failure to properly pay royalties, statutory negligence, common law negligence per se, injunctive relief, and declaratory judgment.

The trial court granted Samson's motion for partial summary judgment on whether it had breached certain offset obligations under the Leases. It also granted the Hooks' motions for summary judgment on claims for additional royalties related to their claims of “unpooling” with respect to the Hardin County Leases and breach of the “most favored nations” clause in both Hardin County Leases and the Jefferson County Lease.

The questions of whether Samson committed fraud against the Hooks with respect to a well drilled within the buffer zone of the Hooks' Jefferson County Lease and whether it underpaid royalties by not paying royalties for “formation production” in all three Leases were tried to a jury. The trial court rendered judgment on the verdict, holding Samson liable to the Hooks for fraud and underpaid royalties, and it entered a final judgment that left intact the summary judgment in Samson's favor on offset obligations and the summary judgments in favor of the Hooks on their unpooling claim and their most favored nations clause claims. Samson has appealed the final judgment, and the Hooks have cross-appealed.

In eight issues, Samson complains that (1) there is legally and factually insufficient evidence of common law fraud; (2) there is legally and factually insufficient evidence of statutory fraud; (3) the statute of limitations bars the Hooks' fraud claims; (4) there is legally and factually insufficient evidence to support the jury's finding on fraud damages; (5) the trial court erred in interpreting the phrase “formation production” in the Hooks' Leases as requiring Samson to pay twice for molecules of gas produced as condensate; (6) the trial court erred in entering judgment in favor of the Hooks for additional royalties based on the unpooling issue with respect to the Hardin County Leases and on the most favored nations clauses in all three Leases; (7) the trial court erred in elevating lease provisions into a permanent injunction, and there is no evidence to support the injunction or attorney's fees; and (8) the trial court erred by granting post-judgment interest at the rate of 18%, compounded annually.³

In a single issue, the Hooks complain on cross-appeal that the trial court erred in rendering summary judgment in favor of Samson on the issue of whether Samson breached certain offset obligations in the Hooks' leases. We affirm the trial court's summary judgment order in favor of Samson on its offset obligations.

With respect to Samson's appeal, we affirm the portion of the trial court's judgment awarding the Hooks reimbursement for ad valorem taxes as stipulated by the parties, and we reverse the remainder of the final judgment of the trial court and render judgment that the Hooks take nothing on those claims.

I. SAMSON'S APPEAL

A. BACKGROUND

1. The Hooks' Jefferson County Lease and the BSM No. 1 Unit

In 1999, the Hooks entered into the Jefferson County Lease with Samson. This lease covered 640 acres owned by the Hooks in the Dyches survey in Jefferson County, Texas and was bordered by Pine Island Bayou, which also serves as the county line between Jefferson and Hardin Counties.

Article VI of the Jefferson County Lease was a section called “Offset Obligations.” In this section, Samson covenanted to operate the leased premises as a reasonably prudent operator would and to protect the leased premises from drainage. Article VI also contained specific obligations for Samson in case of potential drainage. This Article provided that if a gas well were completed within 1,320 feet from the leased premises, then, within 90 days from the date of the sale of first production from that well, Samson must take one of three actions: (1) drill an offset well; (2) pay the Hooks “compensatory royalties”—in addition to any royalties currently due—in a sum equal to the royalties that would be payable under the Lease on the production from the adjacent or nearby producing well as if it had been producing on the leased premises; or (3) release the offset acreage.⁴ The Jefferson County Lease did not provide for pooling.

In April 2000, Samson began drilling a gas well, the Black Stone Minerals No. 1 (the “BSM No. 1 well”), on a tract it owned in Hardin County adjacent to the Hooks' 640–acre Jefferson County Lease. This adjacent tract was located in Hardin County. The surface drillsite was outside the 1,320–foot buffer zone around the Hooks' Jefferson County Lease that triggered Samson's offset obligations under Article VI(A) of the Lease. However, the well was a directional well that slanted away from the surface drillsite. Originally, the BSM No. 1 well was planned with a bottom hole location 1,080 feet from the Hooks' lease line on the east, a location within the 1,320–foot buffer zone of the Hooks' Jefferson County Lease. This proposed well location was reflected on a plat titled “Proposed Well Location [BSM No.]1 Walker Pettitt League, A–43, Hardin County, Texas,” which was prepared and signed by a third-party surveyor on March 22, 2000. The surveyor certified that “this is a true and correct plat based on a ground survey made under my supervision on March 22, 2000.” This plat was filed with the Railroad Commission of Texas (“Railroad Commission”).

The March 22, 2000 plat showed a 704–acre gas pooling unit (the “BSM No. 1 unit”) designated by Samson that ran along Pine Island Bayou, the Hardin County/Jefferson County line, on the east. This line was also the western boundary of the tract containing the Hooks' Jefferson County Lease. The Hooks and their co-owners of the tract on which their JeffersonCounty Lease was located were not named as lessors in the table shown on the plat of the designated unit. An arrow shown on the plat pointed to the location of the proposed bottom hole about at the beginning of a line that ran to the eastern line of the unit at Pine Island Bayou, the county line. Notations on the plat stated:

The Proposed Surface Location is:

630' FSL x 1600' FEL Survey

2750'± Scaled FWL x 3834' FNL Unit.

The Proposed Bottom Hole Location is:

330' FSL x 330' FEL Survey

870'± Scaled FSL x 1080'± Scaled' FEL Unit.

It is undisputed that “FSL” meant “From the Southern Line” of the Walker Pettitt Survey, “FNL” meant “From the Northern Line” of the Survey, and “FEL” meant “From the Eastern Line” of the Survey, which was the Hardin County/Jefferson County line at Pine Island Bayou. Thus, in this notation, the surface location of the BSM No. 1 well was 1,600 feet from the eastern line of the survey at Pine Island Bayou, and the proposed bottom hole location was about 1,080 feet from the eastern line, which marked the western line of the Hooks' Jefferson County Lease. The proposed bottom hole was therefore within the 1,320–foot buffer zone for the Jefferson County Lease.

Although the March 22, 2000 plat of the designated BSM No. 1 unit estimated the location of the proposed bottom hole location of the BSM No. 1 well, the exact bottom hole location of the well, following drilling, could only be ascertained from...