Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Burlington Resources Oil & Gas Co. LP v. Texas Crude Energy, LLC

Court of Appeals of Texas, Thirteenth District, Corpus Christi-Edinburg

March 2, 2017

BURLINGTON RESOURCES OIL & GAS COMPANY LP, Appellant,
v.
TEXAS CRUDE ENERGY, LLC AND AMBER HARVEST, LLC, Appellees.

         On appeal from the 156th District Court of Live Oak County, Texas.

          Before Justices Rodriguez, Contreras, [1] and Longoria

          OPINION

          DORI CONTRERAS, Justice

         In this permissive appeal, we are asked whether appellant Burlington Resources Oil & Gas Company LP ("Burlington") may deduct post-production expenses from overriding royalty payments made under certain assignment instruments. The trial court concluded that the assignments did not allow for the deduction of post-production expenses and it rendered summary judgment in favor of appellees Texas Crude Energy, LLC ("Texas Crude") and Amber Harvest, LLC ("Amber"). We affirm.

         I. Background

         In 2004, Burlington and Texas Crude entered into a Prospect Development Agreement ("PDA") and Joint Operating Agreement ("JOA") for the exploration and development of Sugarkane Field, an oil and gas producing area within the Eagle Ford Shale region in Atascosa, Bee, Karnes, and Live Oak Counties. The PDA also applied to any future leases acquired by the parties in an "Area of Mutual Interest." Under the PDA, Burlington was named operator of the field and each party was to acquire a percentage of the other's working interests[2] in oil and gas leases within the field which they had already acquired. Specifically, Burlington was to own 87.5% of the working interest in the leases previously acquired by either of the parties, and Texas Crude was to own the remaining 12.5%. As to any future leases acquired by either of the parties within the "Area of Mutual Interest, " the parties agreed to offer to the other party the same percentages specified for the existing leases-that is, Texas Crude would offer an 87.5% working interest in any leases it acquired to Burlington, and Burlington would offer a 12.5% working interest in any leases it acquired to Texas Crude.

         As consideration, the PDA also provided that Texas Crude would have the right to retain or be assigned an overriding royalty interest ("ORRI") in every lease that was owned or thereafter obtained by either party within the "Area of Mutual Interest."[3] On May 22, 2006, Texas Crude assigned Burlington an 87.5% interest in various leases owned within the "Area of Mutual Interest." The assignment stated that it is subject to the terms and conditions of the PDA and JOA, and that in the event of a conflict between the terms of the assignment and the terms of the PDA, the PDA terms shall control. Prior to making the assignment to Burlington, Texas Crude reserved ORRIs in accordance with the terms of the PDA and JOA, and it then conveyed those ORRIs to Amber, Texas Crude's affiliate.

         Over the next several years, Texas Crude acquired various other oil and gas leases within the "Area of Mutual Interest." As to each lease, Texas Crude assigned ORRIs in those leases to Amber prior to assigning the 87.5% working interest to Burlington, and each ORRI assignment to Burlington was made expressly "[s]ubject to all burdens of record" existing at the time of the assignment, including the previously-assigned ORRIs. Burlington also acquired leases within the "Area of Mutual Interest" and, pursuant to the PDA and JOA, it assigned the required ORRIs to Texas Crude, which then assigned the ORRIs to Amber.

         Each instrument conveying an ORRI, whether from Burlington to Texas Crude or from Texas Crude to Amber, provided substantially as follows in its granting clause:

[Assignor] does hereby ASSIGN, TRANSFER AND CONVEY unto [Assignee], its successors and assigns, an overriding royalty interest in the quantity described below in all oil, gas, condensate, drip gasoline and other hydrocarbons that may be produced and saved from those lands covered by those certain oil, gas and mineral leases described in Exhibit "A" attached hereto and made a part hereof for all purposes, and pursuant to the terms and conditions of the said oil, gas and mineral leases. Said overriding royalty interests shall be delivered to ASSIGNEE into the pipelines, tanks or other receptacles with which the wells may be connected, free and clear of all development, operating, production and other costs. However, ASSIGNEE shall in every case bear and pay all windfall profits, production and severance taxes assessed against such overriding royalty interest.

(Emphasis added.)

The assignments each further stated substantially as follows:
This Assignment and the interest assigned hereby shall be subject to the following terms and provisions, to wit:
. . . .
The overriding royalty interest share of production shall be delivered to ASSIGNEE or to its credit into the pipeline, tank or other receptacle to which any well or wells on such lands may be connected, free and clear of all royalties and all other burdens and all costs and expenses except the taxes thereon or attributable thereto, or ASSIGNOR, at ASSIGNEE's election, shall pay to ASSIGNEE, for ASSIGNEE's overriding royalty oil, gas or other minerals the applicable percentage of the value of the oil, gas or other minerals, as applicable, produced and saved under the leases. "Value", as used in this Assignment, shall refer to (i) in the event of an arm's length sale on the leases, the amount realized from such sale of such production and any products thereof, (ii) in the event of an arm's length sale off of the leases, the amount realized for the sale of such production and any products thereof, and (iii) in all other cases, the market value at the wells.

(Emphasis added.) Under these terms, if the owner of the ORRI chooses to receive its share of production in-kind, that share must be delivered "into the pipeline, tank or other receptacle to which any well or wells on such lands may be connected, free and clear of all royalties and all other burdens and all costs and expenses except the taxes thereon or attributable thereto." On the other hand, if the owner of the ORRI chooses not to receive its share in-kind but rather as a cash payment, the amount of the payment must be based on the "amount realized" from the sale of the minerals if sold in an "arm's length sale, " or based on the "market value at the wells" if not sold in an "arm's length sale."

         It is undisputed that, as operator of the field, Burlington sold all oil and gas produced under the leases at issue in "arm's length sales" and Amber elected to receive all royalties in cash. According to Burlington, the ORRI payments it made to Amber "clearly identified post-production deductions that were being taken within the royalty calculation, such as transportation and processing, both on a gross basis for 100% of the production and for [Amber]'s ORRI percentages."

         Eventually, numerous disagreements arose between the parties, and appellees filed suit, alleging that Burlington (1) incorrectly deducted post-production expenses from the ORRI payments to Amber and (2) failed to comply with its duties under the PDA and JOA in various other ways. Among other forms of relief, appellees requested breach of contract damages "equal to the difference between the amount of overriding royalties actually paid by Burlington for the wells [at ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.