Sw. Energy Prod. Co. v. Berry-Helfand

• Citation: 411 S.W.3d 581
• Decision Date: 04 November 2013
• Docket Number: No. 12–11–00370–CV.,12–11–00370–CV.
• Parties: SOUTHWESTERN ENERGY PRODUCTION COMPANY, Appellant/Cross–Appellee v. Toby BERRY–HELFAND and Gery Muncey, Appellees/Cross–Appellants.
• Court: Court of Appeals of Texas

411 S.W.3d 581

SOUTHWESTERN ENERGY PRODUCTION COMPANY, Appellant/Cross–Appellee

v.Toby BERRY–HELFAND and Gery Muncey, Appellees/Cross–Appellants.

No. 12–11–00370–CV.

Court of Appeals of Texas,

Tyler.

July 10, 2013.

Rehearing Overruled Nov. 4, 2013.

David M. Gunn, John S. Adcock, F. Lee Butler, Bradley A. Waters, William B. Davis, Houston, Mike Hatchell, Austin, Constance H. Pfeiffer, for Appellant.

Harriet O'Neill, Daniel M. Downey, Austin, George E. Chandler, W. Perry Zivley, Percy L. Isgitt, Michael T. Gallagher, Scott Hanson McLemore, Houston, Don Wheeler, Center, Gregory D. Smith, Darrin Walker, Nolan Smith, C. Zan Turcotte, for Appellees.

Panel consisted of WORTHEN, C.J., HOYLE, J., and BASS, Retired Justice, Twelfth Court of Appeals, sitting by assignment.

OPINION

BILL BASS, Justice.

In this trade secret case, Southwestern Energy Production Company (Sepco) appeals a judgment for almost $40 million, including attorney's fees, rendered in favor of Toby Berry–Helfand and Gery Muncey after a jury trial. Sepco raises five issues on appeal. We reverse and render in part, affirm in part, and remand the cause for determination and award of attorney's fees due Sepco as the prevailing party in a suit brought under the Texas Theft Liability Act.

Background

Toby Berry–Helfand has a Master of Science degree in petroleum engineering with a minor in geology. Her primary professional experience has been as a reservoir engineer. Gery Muncey received a Bachelor of Science degree in geology from the University of Texas in 1981 and has been actively employed as a geologist in the oil and gas business since graduation.

Helfand and Muncey's Study

Helfand conceived the idea of doing an extensive geological and engineering study of the potential for gas production from the James Lime formation underlying Nacogdoches, Shelby, Angelina, San Augustine,and Cherokee Counties. The James Lime is a formation 100 to 150 feet in width at an approximate depth of 9,000 feet. Some James Lime wells had been completed in the five counties before 1997. However, few had been profitable because the formation typically has such low permeability that it reluctantly yields the hydrocarbons it contains. Helfand believed that the emerging horizontal drilling technology could make the James Lime very productive.

In November 1997, Helfand and Muncey embarked on a comprehensive program of research and analysis of all available material bearing on the James Lime in the 2,750,000 acre five county area. Their object was to precisely identify the most favorable locations for the recovery of natural gas from the James Lime using underbalanced horizontal drilling and fracturing. They also sought to identify the locations for “multiple stacked pays” in which a James Lime well would have the best chance of finding oil and gas in other formations. The effort was to consume all their time for the next three and one-half years.

Together Helfand and Muncey studied historical production data from 453 wells in the five counties, including thirty-three James Lime vertical wells. They researched and analyzed electric logs, 187 porosity logs, and 128 density neutron logs. Helfand prepared a cross-section of the James Lime formation for all the wells that had a porosity log and annotated in detail a geological structure map for the wells. Using her methodology, Helfand and Muncey identified nineteen prospects, later refined to ten, favorable for the production of oil and gas from the James Lime and multiple stacked pays. The research and analysis of the production data and logs, and the preparation of spreadsheets, cross-sections, and geomaps, required thousands of hours. Although most of the information they used in their analysis was gleaned from the public records, the evidence shows that theirs was probably the most detailed and comprehensive study ever made of the James Lime in the five county area.

In 2000, David Michael Grimes drilled the Chandler # 1 Well in Nacogdoches County in the Black Bayou prospect that Helfand had identified as a James Lime sweet spot using her methodology. Helfand, Muncey, and Grimes were partners in the well. The Chandler # 1 was a failure.

In April 2001, Muncey ceased to work with Helfand. However, he remained in contact with her, and, he testified, he retained a 20% interest in the results of their joint research and the methodology derived from it.

In 2003, Helfand met another geologist, Leon Wells, who agreed to help her in conducting further research and in refining her methodology. During 2003 and 2004, they researched and analyzed data from 100 new wells drilled after Muncey had left the project. They named their partnership “Team Works.” Helfand had a 60% interest, Wells a 20% interest, and Anderson, their title lawyer and lease agent, a 20% interest. By 2004, they had identified two promising locations where leases were available—Pearson and Pearson Northeast. With money from investors, they began leasing with the object of selling, for cash and an overriding royalty interest, a drill-ready prospect, preferably to an exploration company large enough to develop with Team Works its other identified sweet spots.

Sepco's Activity

During 2002 and 2003, Carl Knudson, a Sepco geologist, had conducted an exploratory study of the James Lime trend extending into Louisiana studying the public information available for all the James Lime wells drilled in the area up until that time. Knudson concluded that the James Lime was not a profitable play for Sepco to pursue. In 2003, Sepco had declined to participate in an East Texas Horizontal James Lime play proposed by Sonerra Resources. In April 2004, Jeff Wells, Leon Wells's son, went to work for Sepco as a petroleum engineer. Wells was aware that his father, Leon, and Helfand were putting together the Pearson and Pearson Northeast prospects. Sometime during July 2004, he told Helfand that Sepco might be interested in their James Lime prospects. He learned, however, that at that time, Sepco had no interest in the James Lime. They had never drilled a James Lime well but were actively exploring the deeper Travis Peak formation and continuing to develop the Cotton Valley formation in the Overton field.

Within the same month that Jeff Wells made Sepco's initial contact with Helfand, Sepco concluded an Area of Mutual Interest agreement (AMI) with Endeavor Natural Gas covering a 360 square mile area in Cherokee, Nacogdoches, and Angelina Counties. The northern boundary of the AMI with Endeavor was just south of the city of Nacogdoches. The AMI did not include the two Pearson prospects but did include five of the sweet spots for James Lime development identified by Team Works. At this point, Team Works had not presented Sepco with the results of its research and analysis identifying the sweet spots for James Lime development.

During the autumn of 2004, Team Works attempted to interest Patriot Resources, Par Minerals Synergy, Winn Exploration, Adams Resources, and Chalker Energy in its Pearson prospects. In their presentations to Patriot Resources, Team Works provided almost the same information shown later in their offer to Sepco. A meeting at the North American Prospects Expo (NAPE) in January 2005 between Sepco's chief landman, Jon Pruett, and Helfand, Wells, and Anderson (Team Works) led to Team Works' presentation to Sepco. Before the presentation, Team Works asked Sepco to sign a confidentiality agreement regarding the materials to be presented on February 15, 2005. Sepco asked that the term be shortened to one year and the AMI be restricted to the land shown in Exhibit “A,” the Pearson prospects. Team Works agreed.

The confidentiality agreement obligated Sepco (1) to use the confidential information provided by Team Works solely for evaluation of the Pearson prospects, (2) not to disclose the information to third parties, and (3) not to acquire any leases “within the area identified on Attachment ‘A’ (the Pearson prospects) unless it acquires such interest through Team Works.”

At the conclusion of the February 15, 2005 meeting, Sepco asked for time to consider Team Works' proposal. A couple of weeks later, Sepco asked for more information. Team Works promptly provided additional maps and data. But by early April, Team Works had received no acceptance of its offer. In May, Sepco returned the material it had received from Team Works and declined to participate in the Pearson prospects. Shortly thereafter, Helfand made a presentation to Petrohawk. Petrohawk purchased the Pearson prospects from Helfand for $1.8 million and an overriding royalty interest. Helfand and Petrohawk also entered a Prospect Identification Agreement covering Nacogdoches, Shelby, and Angelina Counties. By this agreement, Petrohawk retained Helfand to locate prospects in the three counties for $15,000 per month for six months, and, for any prospect in which Petrohawk elected to participate, an overridingroyalty dependent upon the existing royalty burden and a 6.25% “back in” working interest. Petrohawk's initial well in the Pearson prospect was not a success. Sepco continued to drill wells to the deeper Travis Peak formation under its July 2004 agreement with Endeavor.

In 2006, Sepco bought a large block of leases in Shelby and San Augustine Counties from Exxon. The purchase agreement required Sepco to drill four wells within the next eighteen months. In drilling to the deeper targeted Travis Peak formation, the well logs revealed natural gas in the James Lime.

The Exxon purchase gave Sepco holdings bordering Cabot Oil and Gas. In order to drill a horizontal James Lime well without trespassing under Sepco's acreage, Cabot agreed to give Sepco 15% ownership in a proposed well and access to all data. The Cabot well was very successful. Sepco then drilled its first James Lime well in October 2007.

Sepco continued to lease land in the five county area in addition to its Exxon acquisition and Endeavor agreement....