Tawes v. Barnes
| Decision Date | 10 June 2011 |
| Docket Number | No. 10–0581.,10–0581. |
| Citation | 54 Tex. Sup. Ct. J. 857,340 S.W.3d 419 |
| Parties | O. Lee TAWES, III, Appellant,v.Doris BARNES, Individually and as Independent Executrix of the Estate of Leon McNair Barnes, Deceased, Appellee. |
| Court | Texas Supreme Court |
OPINION TEXT STARTS HERE
Barnet B. Skelton Jr., Barnet B. Skelton, Jr., PC, Russell S. Post, David M. Gunn, Beck Redden & Secrest, L.L.P., Houston, for O. Lee Tawes, III.Thomas Kirkendall, The Woodlands, Dick Watt, Hannah Sibiski, Watt Beckworth Thompson & Henneman, LLP, Houston, for Doris Barnes.Justice GREEN delivered the opinion of the Court.
In this case, which arose from an oil and gas lessor's claim for unpaid royalties, we consider the construction and application of a Working Interest Unit Agreement (WIUA) and a Joint Operating Agreement (JOA). The issues come to us on certified questions from the United States Court of Appeals for the Fifth Circuit. The Fifth Circuit asks first whether the lessor here, either as a third-party beneficiary or through privity of estate, can enforce the WIUA and JOA to recover unpaid royalties from an investor who consented to the drilling of two wells on a pooled gas unit, but did not operate the wells. See In re Moose Oil & Gas Co., 613 F.3d 521, 531 (5th Cir.2010). Pursuant to Article 5, Section 3–c of the Texas Constitution and Texas Rule of Appellate Procedure 58.1, we answer this question in the negative, and therefore do not reach the Fifth Circuit's remaining certified questions.
Moose Oil & Gas Company acquired several oil, gas, and mineral leases in Lavaca County (collectively, the Baker Lease). Moose sold a portion of its working interest in the Baker Lease to a group of investors (the Moose Assignees), including O. Lee Tawes, III. The owners of the land adjoining the Baker Lease, Leon M. Barnes, now deceased, and his wife, Doris Barnes, executed an oil and gas lease (the Barnes Lease) to American Exploration Company. Through a series of assignments, Dominion Oklahoma Texas Exploration & Production, Inc. eventually succeeded to American's interest as the Barneses' lessee.
In preparation for a contemplated joint drilling venture on the lands covered by the Baker and Barnes leases, Dominion, Moose, and the Moose Assignees, including Tawes, signed a WIUA and a JOA. These unambiguous agreements, referred to here collectively as the Dominion–Moose Agreements, provided for the initial drilling of one gas well. Beyond the drilling of the initial well, the JOA permitted any party to the Dominion–Moose Agreements to propose additional drilling operations. In the event a dispute arose regarding the likelihood that an additional well would actually produce in paying quantities, the JOA allowed any party to protect itself from the risk and expense associated with the proposed additional drilling by going non-consent, or opting out of participating in the operation. These risks would then be borne by the consenting parties in exchange for the non-consenting parties' temporary relinquishment of their “interest in the [non-consent] well and share of production therefrom.” After a specified period of time, each non-consenting party's interest in the non-consent well would revert back to that party so that its ownership interest in the well would be the same as if it had participated in the drilling from the outset.
The WIUA provides in relevant part: 1
PROVISION III
Each Party hereto shall bear and be responsible for their own lease burdens including, but not limited to their Lessor's royalty, overriding royalty along with any and all other royalty burdens which may have been created by the party contributing the lease or leases to this Working Interest Unit.
[Dominion] is designated Operator of the Working Interest Unit which will be governed by the Operating Agreement attached hereto....
Rentals, shut-in payments, or minimum royalties which may become due on leases committed hereto shall be paid by the contributor of the lease to the Working Interest Unit. It is the obligation of the contributing Lessee to maintain its own lease or Leases subject to this Agreement.
Dominion and Moose utilized the American Association of Petroleum Landmen's (AAPL) Form 610–1982 Model Form Operating Agreement as the basis for their JOA making several minor modifications to the standard terms. The JOA provides in relevant part:
INTERESTS OF PARTIES
....
B. Interests of Parties in Costs and Production:
Unless changed by other provisions, all costs and liabilities incurred in operations under this agreement shall be borne and paid, and all equipment and materials acquired in operations on the Contract Area shall be owned, by the parties as their interests are set forth in [the WIUA].
DRILLING AND DEVELOPMENT
....
B. Subsequent Operations:
....
2. Operations by Less than All Parties:
....
The entire cost and risk of conducting such operations shall be borne by the Consenting Parties in the proportions they have elected to bear.... Upon commencement of operations for the drilling ... of any such well by Consenting Parties in accordance with the provisions of this Article, each Non–Consenting Party shall be deemed to have relinquished to Consenting Parties, and the Consenting Parties shall own and be entitled to receive, in proportion to their respective interests, all of such Non–Consenting Party's interest in the well and share of production therefrom until the proceeds of the sale of such share ... shall equal the total of the following:
a) 100% of each such Non–Consenting Party's share of the cost of any newly acquired surface equipment ... plus 100% of each such Non–Consenting Party's share of the cost of operation of the well commencing with first production and continuing until each such Non–Consenting Party's relinquished interest shall revert to it ...; and b) 400% of that portion of the costs and expenses of drilling ... and 400% of that portion of the cost of newly acquired equipment in the well....
....
a) During the period of time Consenting Parties are entitled to receive Non–Consenting Party's share of production, or the proceeds therefrom, Consenting Parties shall be responsible for the payment of all production, severance, excise, gathering and other taxes, and all royalty, overriding royalty and other burdens applicable to Non–Consenting Party's share of production....
....
C. Payments and Accounting:
Except as herein otherwise specifically provided, Operator shall promptly pay and discharge expenses incurred in the development and operation of the Contract Area pursuant to this agreement and shall charge each of the parties hereto with their respective proportionate shares upon the expense basis provided in Exhibit “C”. Operator shall keep an accurate record of the joint account hereunder....
....
E. Rentals, Shut-in Well Payments and Minimum Royalties:
Rentals, shut-in well payments and minimum royalties which may be required under the terms of any lease shall be paid by the Operator and billed to the Joint Account....
In July 1998, Dominion and Moose, acting for itself and on behalf of Tawes and the other Moose Assignees, formed the pooled gas unit (the Baker Unit) contemplated at the time they executed the Dominion–Moose Agreements.2 Of the total 640 pooled acres, the Barnes Lease comprised approximately 54% of the land. Initially, the Dominion–Moose Agreements designated Dominion as the operator of all wells drilled on the Baker Unit. After the initial well, David Baker No. 1, was successfully drilled, Moose proposed drilling two additional gas wells, the Baker–Barnes No. 1 and No. 2 wells. Tawes and Moose consented to the proposed additional drilling, while Dominion opted to go non-consent. Because non-consenting parties cannot act as operators, Moose replaced Dominion as the operator of the two non-consent wells.
In addition to bearing all costs associated with drilling the non-consent wells, JOA Article VI.B.2 required the consenting parties to pay the royalties which would have been owed to the lessors of leases contributed to the Baker Unit by the non-consenting parties had they consented to the additional operations from the beginning. This provision, which we refer to as the JOA Royalty Provision, is principally at issue here.
The parties do not dispute that Barnes owns a 9.675% royalty in each well drilled on the Baker Unit. In 2000, Barnes, individually and as the independent executrix of her late husband's estate, commenced an action against Moose and Dominion in a Lavaca County state district court seeking to recover an additional 8.241% or, 17.916% total, royalty on the Baker–Barnes No. 1 and No. 2 non-consent wells. In response to Barnes's suit, Dominion filed a counterclaim and joined Tawes and the other Moose Assignees. In 2002, Dominion removed the entire action to the United States Bankruptcy Court for the Southern District of Texas, Houston Division, after Moose filed a voluntary Chapter 7 bankruptcy petition. The bankruptcy court appointed an operator to replace Moose and ordered all proceeds from production on the non-consent wells to be placed in suspense accounts. At a February 2002 foreclosure sale, Tawes acquired Moose's undivided working interest in the Baker Unit as well as in the non-consent, Baker–Barnes No. 1 and No. 2 wells. In September 2003, the bankruptcy court granted a partial summary judgment in favor of Barnes, holding Dominion liable for $291,846.00—the unpaid amount of Barnes's undisputed 9.675% royalty on the Baker–Barnes No. 1 and No. 2 wells. Dominion then sought contribution from Moose, Tawes, and the other Moose Assignees. Barnes, however, continued to pursue her claims against Dominion for the full 17.916% royalty she claimed she was owed on each Baker Unit well. Before her claims...
To continue reading
Request your trial
-
United Neurology, P.A. v. Hartford Lloyd's Ins. Co.
...purportedly meant. Id. “ ‘All doubts must be resolved against conferring third-party beneficiary status.’ ” Id., quoting Tawes v. Barnes, 340 S.W.3d 419, 425 (Tex.2011) ( “Traditionally, Texas courts have maintained a presumption against third-party beneficiary agreements.”). “The fact that......
-
Bancroft Life & Cas. Icc, Ltd. v. FFD Res. II, LLC
...v. Lexington Ins. Co., 371 S.W.3d 417, 424–25 (Tex.App.-Houston [1st Dist.], 2012) (citations omitted). See also Tawes v. Barnes, 340 S.W.3d 419, 425 (Tex.2011) (“[I]n the absence of a clear and unequivocal expression of the contracting parties' intent to directly benefit a third party, cou......
-
Chartis Specialty Ins. Co. v. Tesoro Corp.
...courts must examine the entire agreement and give effect to each provision so that none is rendered meaningless." Tawes v. Barnes, 340 S.W.3d 419, 425 (Tex.2011). As such, "[a] court will not create a third-party beneficiary contract by implication. The intention to contract or confer a dir......
-
Freeman v. Harleton Oil & Gas, Inc., 06-16-00034-CV
...is ambiguous.35 "The construction of an unambiguous contract is a question of law which we review de novo." Id. (citing Tawes v. Barnes, 340 S.W.3d 419, 425 (Tex. 2011) ). "The parol evidence rule prohibits, in the absence of fraud, accident or mistake, the introduction into evidence of ora......