Sparks Bros. Drilling Co. v. Texas Moran Exploration Co.
| Decision Date | 03 December 1991 |
| Docket Number | No. 71214,71214 |
| Parties | SPARKS BROTHERS DRILLING CO., a Texas Corporation, Appellee, v. TEXAS MORAN EXPLORATION COMPANY, Appellant, and J.W. Pump & Supply, Inc., Appellee, and Pintex Petroleum Corp.; Sally A. Niver; Illana Beigleman; Yvonne Wood; Adrienne A. Powell; Glenn F. Thomas; Raymond E. Cooper, Jr.; John E. Morris; Garth Jones; Homer J. Clark; Ollie Kinney; Hali, Inc.; IMR Oil and Gas Program; Frank Mahnich; G. Douglas Pritchard; James H. Etzel; Arnold S. Leonard; John Edward Shimota; Sheldon I. Greenburg; Dr. Gilbert Zeilder; Jo Ann Thomas; Gatesby Energy, Inc.; Rick Scrimshire; Evelyn I. Whaley; Dr. Ronald Barlow; Glenco Petroleum Corporation; Robert Shimota; Dowell Schlumberger; Incorporated, a Delaware Corporation; Leo Smith Oil Company; and Howard Drilling Co., A Partnership, Phillip Howard, Partner, Defendants. |
| Court | Oklahoma Supreme Court |
On Appeal from the District Court, Ellis County; Charles L. Goodwin, Judge.
Driller of oil and gas well sued to establish priority of its lien vis-a-vis other lien holders and for money judgment against operator and working-interest owners for services provided to operator. After bench trial, district court entered judgment against working-interest owner for services of plaintiff, driller, and materials supplied by cross-claimant.
TRIAL COURT'S JUDGMENT REVERSED AND CAUSE REMANDED.
Otis C. Shearer, Lemon, Shearer & Ehrlich, Booker, for appellant.
Joe Jackson, Shattuck, for appellee Sparks Bros. Drilling Co.
G.W. Armor, Laverne, for appellee J.W. Pump & Supply.
W. Blank Williamson, Thomas P. Schroedter, Donald S. Smith, Prayer, Walker, Jackman, Williamson & Marlar, Tulsa, for amicus curiae Oklahoma Independent Petroleum Ass'n.
This case is appealed from a district court decision holding the defendant, Texas Moran Exploration Company (Texas Moran), liable for services and materials furnished in the completion of a well. The dispositive issue is whether Texas Moran was a mining partner of the operator of the well. If a mining partnership exists, then Texas Moran is jointly and severally liable for the costs incurred. See Oklahoma Co. v. O'Neil, 440 P.2d 978 (Okla.1968). If there is not a mining partnership, then Texas Moran is severally liable, that is liable only to the extent of its interest in the well. Watts, Contingent liability of the Passive Working Interest Investor Under Operating Agreements in Oklahoma, 54 Okla.B.J. 2797 (1983).
The claims in the case arose over a well known as the 1-29 South Otter Creek Prospect (1-29). Texas Moran was the owner of a recorded 25 percent interest in the well. PinTex Petroleum Company (PinTex) was the operator. Texas Moran invested in the 1-29 well after a recommendation from a consultant, J. Spencer Collins (Collins). Collins had also recommended that Texas Moran invest in another well operated by PinTex called the 2-11 Linscott (2-11).
Texas Moran and PinTex first entered into an operating agreement on the 2-11 well. After PinTex did not pay the bills on that well, Texas Moran assumed operation of the well pursuant to the operating agreement. As part of the assumption of the operation of the well, Texas Moran paid off the debts incurred in the drilling of that well.
Meanwhile, Texas Moran employed Collins as a consultant on its possible investment in the 1-29 well. Collins' also represented several other investors in the 1-29 well. Collins' was paid for his services and his employment officially ended when Texas Moran and PinTex agreed on Texas Moran's investment in the 1-29 well.
The operating agreement between Texas Moran and PinTex on the 1-29 well, which was similar to the operating agreement on the 2-11 well, gave each party the right to take its share of the oil and gas in kind and to dispose separately of that share. In two paragraphs, it specifically provided that the parties were severally, not jointly or collectively, liable and that the agreement should not be construed as creating a mining partnership. It also provided that each party was responsible "only for its share of the costs of developing and operating the [1-29] well." The agreement provided that the relationship would be treated as a partnership for tax purposes only.
As to control of the well, the agreement provided that PinTex would have full and direct control of all operations. However, there was a provision providing for an override of this control by the parties "chargeable with the costs" of the operation by a vote of the parties in proportion to their obligations for the costs. This voting control was never exercised.
Sparks Brothers Drilling Company (Sparks), plaintiff, drilled the well. During the drilling, Collins became concerned about the investments of his clients. At his own expense and after his employment with Texas Moran was ended, he met with Glen Thomas (Thomas), president of PinTex, in Denver. Thomas stated that he consulted Collins about the drilling operations. Collins was not acting for Texas Moran when Thomas allegedly consulted him about the drilling or the completion of the 1-29 well. In fact, J.W. Wood, an officer of PinTex during the initial part of the drilling, testified that Thomas acted "100 on his own initiative and did not consult with anyone to make any decisions about drilling any wells or what he did in the field." And Aubrey Ewing, who was at the 1-29 well location "24 hours a day" never saw anyone from Texas Moran at the site. He did not even know Collins.
Thomas would also report to Collins on the progress of the well. Collins would relay the reports to Texas Moran. In addition to relaying reports to Texas Moran, Thomas gave the other investors daily status reports.
Sparks was paid $20,000 for its services. It is undisputed that Sparks was not paid an additional $66,870 that was properly owed. It is also undisputed that defendant, J.W. Pump & Supply, Inc. (J.W. Pump), furnished casing supplies costing $23,269.91 that were not paid for. Sparks and J.W. Pump, along with other suppliers, filed liens.
Sparks did not know that Texas Moran was an investor until after it had drilled the well. J.W. Pump did not know that Texas Moran was an investor until after it supplied the casing materials and filed its lien. Neither Sparks nor J.W. Pump relied on any act of Texas Moran or Collins in deciding to drill the well or to supply the casing materials.
The 1-29 well was never productive. When the operator did not pay for the supplies and services, Sparks and J.W. Pump perfected their liens. Sparks brought suit against the operator, Texas Moran, and other working-interest owners seeking a money judgment and against other lien claimants to establish the priority of its lien. J.W. Pump filed a cross-claim for the value of the casing supplies. At the close of Sparks' evidence the district court judge allowed Sparks to amend its petition to include a cause of action against Texas Moran as a mining partner in the 1-29 well and to seek recovery for the unpaid amount owing it. During the proceedings, partial summary adjudications were rendered in favor of J.W. Pump and other lien holders against PinTex and in favor of one of the working-interest owners against Sparks, J.W. Pump and other lien holders. The parties waived a jury trial.
Applying the test for determining the existence of a mining partnership, the district court judge found that PinTex and Texas Moran had agreed to share in the profits and losses, that PinTex and Texas Moran had a joint interest in the property, and that Texas Moran cooperated in the drilling of the 1-29. The judge also found that Texas Moran had a 25% interest in the 1-29 and held Texas Moran liable for the whole amount owing Sparks and J.W. Pump. Texas Moran appealed.
Whether a mining partnership exists must be determined on the facts of each case. Jenkins v. Pappas, 383 P.2d 645, 647 (Okla.1963). In every case, the three elements of a mining partnership are: (1) a joint interest in the property, (2) either an express or implied agreement to share in the profits and losses, and (3) cooperation in the project. Id.
All parties apparently agree that there is a joint interest in the property. Texas Moran argues that the second prong of the test is missing in the present case. Because we find that the third prong of the test has not been met, we need not address the second prong.
This Court has defined cooperation in a project as "actively joining in the promotion, conduct or management" of a project. Id. An operating agreement in itself does not create a mining partnership. However, a mining partnership can arise from the behavior of the parties. Enterprise Mgmt. Consul. v. Tax Comm'n, 768 P.2d 359, 362 n. 12 (Okla.1989); Hinson v. Cameron, 742 P.2d 549, 557 n. 32 (Okla.1987).
Sparks and J.W. Pump point to several acts of Texas Moran, both acting personally and through Collins, which they argue show cooperation. For Sparks and J.W. Pump to show cooperation from the acts of Collins, they must show that Collins was an agent of Texas Moran. They do not argue that Collins was authorized to act as an agent of Texas Moran. Sparks and J.W. Pump do argue that Collins was the apparent agent of Texas Moran when he allegedly advised Thomas about drilling operations.
" 'Apparent authority' of an agent is such authority as the principal knowingly permits the agent to assume or which he holds the agent out as possessing." Rosser-Moon Furniture Co. v. Oklahoma State Bank, 192 Okl. 169, 135 P.2d 336, 338 (1943). Three elements must exist before a third party can hold a principal liable for the acts of another on an apparent-agency principal: "(a) conduct of the principal [which would reasonably lead the third party to believe that the agent was authorized to act on behalf of the principal], (b) reliance thereon by [the] third person, and (c) change of position by the third party to his...
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