Court of Appeals of Texas, Seventh District, Amarillo
DIMOCK OPERATING COMPANY AND JOE W. DIMOCK D/B/A DIMOCK PETROLEUM, APPELLANTS
SUTHERLAND ENERGY CO., LLC, APPELLEE
Appeal from the 46th District Court Hardeman County, Texas
Trial Court No. 11098, Honorable Dan Mike Bird, Presiding
QUINN, C.J., and CAMPBELL and PARKER, JJ.
MEMORANDUM OPINION ON REHEARING
C. Parker, Justice
our opinion and judgment of March 13, 2018, both parties
moved for rehearing. We deny both motions. We withdraw our
March 13 opinion and judgment and substitute the following
opinion and corresponding judgment in its place.
an appeal from three partial summary judgment orders, an
order denying joinder of parties, and a final judgment, all
arising from disputes over an oil and gas farmout agreement.
Appellants raise sixty-six issues on appeal. We affirm in
part and reverse and remand in part.
November 20, 2012, Sutherland Energy Co., LLC, and Dimock
Operating Company and Joe W. Dimock, d/b/a Dimock Petroleum
(collectively "Dimock"), signed a Seismic
Exploration and Farmout Agreement (SEFA). The two primary
aims of the SEFA were drilling a replacement well for the Roy
Hamrick No.1 well on Dimock's lease and exploring and
developing a surrounding fifteen-section area of Hardeman
County, which the parties called the "Hamrick Area 3D
Shoot." In conjunction with the SEFA, the parties signed
an Operating Agreement, also dated November 20, 2012.
was the "farmee" under the SEFA and, as such,
fronted the costs and assumed the risks of drilling the
replacement well. Sutherland had 240 days to spud the
replacement well. If the well was not spud within 240 days,
Sutherland would forfeit the $50, 000 drilling deposit it had
paid Dimock and lose all funds it had spent on the project.
If, however, the well was successfully completed, Dimock
would assign its interest (100% of the working interest) in
the drilling unit to Sutherland and Sutherland could recover
two times its costs from the well's production revenue as
compensation. The SEFA provided, "When the Farmee's
cumulative revenue equals two (2) times the Farmee's
capital cost the Initial Earning Well will have reached
'project payout.'" The parties agreed that upon
"project payout, " Sutherland would assign well
operations and 51% of the working interest back to Dimock,
while the remaining 49% of the working interest would be
assigned to various charities.
addition to the drilling obligation, Sutherland had the right
to conduct seismic exploration operations on the area covered
by the SEFA. Under the agreement, Sutherland and Dimock would
share all seismic data obtained from the project, and Dimock
would have the option of participating in any wells
Sutherland successfully drilled on Dimock's leases or on
acreage pooled with those leases. The SEFA provided that
Sutherland "shall use its sole discretion to determine
the type, nature, timing and extent of all Seismic
Exploration Operations." Sutherland began its
exploration and development efforts in the Hamrick Area 3D
Shoot shortly after the SEFA was signed.
timely completed a replacement well, named the Hamrick #3.
The Hamrick #3 began producing oil in June of 2013 and,
pursuant to the terms of the SEFA, Dimock refunded
Sutherland's $50, 000 drilling deposit and assigned its
interest in the well to Sutherland. Sutherland did not
perform any seismic shooting prior to drilling the
early November of 2013, production revenue from the Hamrick
#3 had reached just over $1, 000, 000, approximately the
amount it had cost to drill and complete the well. Meanwhile,
Sutherland's seismic exploration and development efforts
continued elsewhere on the Hamrick Area 3D Shoot.
March of 2014, revenue from the Hamrick #3 totaled $2, 195,
191. Because this amount was greater than double
Sutherland's stated costs of $1, 007, 445 for drilling
and completing the well, Dimock claimed that project payout
had been reached. Accordingly, in April of 2014, Dimock
instructed Sutherland to refrain from incurring further
capital costs on the project. Dimock asserted that the
capital costs Sutherland was entitled to recover (times two)
were limited to those expended for the Hamrick #3, and that
costs Sutherland incurred related to other portions of the
Hamrick Area 3D Shoot were not recoverable from the Hamrick
#3's revenues. Based on its belief that project payout
had occurred, Dimock demanded that Sutherland assign a 51%
working interest and deliver operations of the Hamrick #3 to
Dimock. Sutherland responded that project payout had not yet
occurred and the SEFA authorized its continued expenditures.
In response, Dimock contacted the buyer of the Hamrick
#3's oil in an effort to have payments to Sutherland
then filed the underlying lawsuit, alleging breach of
contract by Dimock and seeking declaratory judgment as to the
legal effect of the SEFA's terms. Dimock filed
counterclaims for breach of contract, breach of fiduciary
duty, fraud, and declaratory judgment. The parties amended
their pleadings several times over the course of the case and
most claims were resolved through a series of partial summary
judgment motions, which are more fully addressed below.
Additionally, the parties reached a partial settlement of
their claims in August of 2015, while the suit was pending. A
jury trial resolved the matter of attorney's fees.
appeal, Dimock claims the trial court erred in granting
Sutherland's first, third, and fourth motions for partial
summary judgment, in denying Dimock's Motion for Leave to
Join Parties, and in entering the Final Judgment.
Judgment Standard of Review
review the trial court's summary judgment de novo.
Provident Life & Accident Ins. Co. v. Knott, 128
S.W.3d 211, 215 (Tex. 2003). Summary judgment is proper only
when there is no genuine issue of material fact and the
movant is entitled to judgment as a matter of law. Shah
v. Moss, 67 S.W.3d 836, 842 (Tex. 2001); Tex.R.Civ.P.
166a(c). When reviewing a summary judgment, we take as true
all evidence favorable to the nonmovant, and we indulge every
reasonable inference and resolve any doubts in the
nonmovant's favor. Knott, 128 S.W.3d at 215.
as to First Partial Summary Judgment
reflected in their pleadings, the parties disputed what
expenditures were properly included as capital costs that
were to be considered in determining when project payout
occurred. In its first motion for partial summary judgment,
Sutherland sought summary judgment on two issues: (1) on its
declaratory judgment action on the basis that "project
payout" is clearly defined in the SEFA and the
definition of capital costs includes land and seismic
expenditures, and (2) that "project payout" had not
yet occurred. The trial court granted Sutherland's
motion. Dimock raises seventeen issues challenging this
partial summary judgment.
first address the matter of project payout. At the hearing on
the first motion for summary judgment, Sutherland's
counsel announced that it was not pursuing summary judgment
on the second basis stated in its motion, i.e., the
non-occurrence of project payout. Counsel stated, "We
ask for two points of relief in the Motion for Summary
Judgment. Today, we're only going to ask for one.
We're not going to ask for a ruling from the Court that a
project payout has actually occurred. We believe if the Court
rules on the issue we are asking you to rule upon, that issue
will be resolved." Our review of the order indicates that it
does not address Sutherland's project payout claim. Thus,
because Sutherland withdrew its request for summary judgment
on its claim that project payout had not occurred and because
the order granting partial summary judgment does not address
the project payout claim, there was no adjudication that
project payout had not been reached. Therefore, because the
summary judgment did not encompass this issue, we overrule
Dimock's issues which assert that Sutherland failed to
establish, as a matter of law, that project payout had not
Judgment Regarding "Capital Costs"
next to the declaratory judgment issue. By this issue,
Sutherland sought a declaration that costs incurred for land
and seismic for the Hamrick Area 3D Shoot are included in the
calculation of capital costs when determining project payout.
The dispute on the inclusion of land and seismic costs
centers on two provisions, one of which is in Exhibit A to
the SEFA and one of which is in the Operating Agreement,
Exhibit C to the SEFA.
A to the SEFA provides the following instruction: "When
the Farmee's cumulative revenue equals two (2) times the
Farmee's capital cost the Initial Earning Well will have
reached "project payout." Exhibit A also provides,
"The Farmee's capital cost is defined as cost
incurred by Farmee for land and seismic for the Hamrick Area
3D Shoot (defined in Exhibit B), a fifty thousand dollar
($50, 000) prospect fee, and cost for drilling, testing,
completing, and equipping, the Initial Earning Well."
Further, section 2.1 of the SEFA provides:
Farmor [Dimock] grants to Farmee [Sutherland] the sole,
exclusive, and irrevocable right to conduct Seismic
Exploration Operations on, under, and in the Subject Leases
during the term of this Agreement, including any appropriate
or necessary related rights of ingress and egress. In
conducting all operations under this Agreement, Farmee shall
use its sole discretion to determine the type, nature,
timing, and extent of all Seismic Exploration Operations.
relies on these provisions to support its position that its
land and seismic operations for the Hamrick Area 3D Shoot are
recoverable as capital costs.
on the other hand, points to provisions in the parties'
Operating Agreement, signed at the same time as the SEFA, for
its claim that not all of Sutherland's expenditures for
land and seismic are recoverable. Specifically, Dimock notes
that the Operating Agreement provides, "Operator
[Sutherland] shall not undertake any single project
reasonably estimated to require an expenditure in excess of
twenty-five thousand Dollars ($25, 000.00) except in
connection with the drilling, Sidetracking, Reworking,
Deepening, Completing, Recompleting or Plugging Back of a
well that has been previously authorized by or pursuant to
this agreement . . . ." Based on this provision, Dimock
urges that Sutherland's seismic expenses and land
expenses, unless previously authorized by Dimock, are subject
to a contractual limit of $25, 000.
counters that the Operating Agreement does not apply. While
it acknowledges that the Operating Agreement was signed and
made effective on the same date as the SEFA, Sutherland urges
that the Operating Agreement could not and did not become
operative until later, when there was joint ownership of the
leasehold interest. Thus, Sutherland contends that the
parties did not intend for the Operating Agreement to be
effective on the stated effective date, but on some other,
future date. Moreover, Sutherland observes, the SEFA
provides, "The Operating Agreement shall be subject to
this Agreement so that in the event of any conflict between
the Operating Agreement and this Agreement, this Agreement
shall be the governing Agreement."
Sutherland sought a declaration that costs incurred for land
and seismic for the Hamrick Area 3D Shoot were properly
included in the calculation of capital costs, which in turn
determine project payout. In granting Sutherland's
partial motion for summary judgment, the trial court made
four determinations, two of which are pertinent to our
analysis of this issue: First, that Sutherland's
"costs incurred for land and seismic operations for the
Hamrick Area 3D Shoot are 'capital costs' to be
considered in determining 'project payout' under the
Agreement, " and second, that Sutherland's ability
to incur such costs "is not restricted by the
parties' joint operating agreement."
the first determination, we agree. Based on the language of
the parties' agreement set forth above, Sutherland was
entitled to judgment as a matter of law that land and seismic
operations for the Hamrick Area 3D Shoot are capital costs.
Again, Sutherland's capital cost is expressly defined by
the agreement as "cost incurred by Farmee [Sutherland]
for land and seismic for the Hamrick Area 3D Shoot (defined
in Exhibit B), a fifty thousand dollar ($50, 000) prospect
fee, and cost for drilling, testing, completing, and
equipping, the Initial Earning Well."
argues that, due to the placement of the comma after the word
"equipping, " the definition of "capital
costs" is ambiguous. Dimock suggests that this comma
creates a limiting clause, signifying that "the Initial
Earning Well" modifies all three elements in the series
(land and seismic for the Hamrick Area 3D Shoot, the prospect
fee, and cost for drilling, testing, completing, and
equipping). We reject this argument. The placement of this
comma to indicate a modifying element is not grammatically
correct. We read the definition of capital costs to include
three components: (1) land and seismic for the Hamrick Area
3D shoot, (2) the prospect fee, and (3) cost for drilling,
testing, completing, and equipping the Initial Earning Well.
We find additional support for this construction by looking
at the contract as a whole. In light of the parties'
overall intent to explore a fifteen-section tract of land and
drill multiple wells, we cannot conclude the comma directs us
to the meaning suggested by Dimock.
the court's second determination, we again agree. The
trial court did not specify the reason it concluded that
Sutherland's ability to incur land and seismic costs is
not restricted by the Operating Agreement, e.g., whether it
was because the Operating Agreement was not yet in effect, or
because the terms of the SEFA controlled over the terms of
the Operating Agreement. If the trial court does not specify
a basis for granting summary judgment, the judgment will be
affirmed if any ground asserted in the motion has merit.
Star-Telegram, Inc. v. Doe, 915 S.W.2d 471, 473
opinion, although it has not been established as a matter of
law that the stated effective date of November 20, 2012, is
not the effective date of the Operating Agreement, it has
been established that the terms of the SEFA control to the
extent they conflict with the terms of the Operating
Agreement. The SEFA gives Sutherland discretion "to
determine the type, nature, timing, and extent" of
seismic operations. We conclude that this authorization
controls over the Operating Agreement's restriction
providing that Sutherland was not to undertake any project
reasonably estimated to cost more than $25, 000. Therefore,
we overrule Dimock's issues on this point.
Issues in First Partial Summary Judgment
overrule Dimock's issue by which it argues that the trial
court erred in granting summary judgment because an adequate
time for discovery had not passed. Sutherland's first
motion for partial summary judgment does not state that it is
a no-evidence motion, nor does it refer to Texas Rule of
Civil Procedure 166a(i). The motion does not challenge any
specific elements of a claim. However, the motion does attach
evidence, as is required in a traditional motion. See
Tex.R.Civ.P. 166a(c). We therefore conclude that
Sutherland's first motion is, in substance, a traditional
motion for summary judgment and will construe it as such.
Accordingly, there is no requirement for an adequate time for
discovery to have passed before the trial court considered