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Glassell Non-Operated Interests, Ltd. v. Enerquest Oil & Gas, L.L.C.

United States Court of Appeals, Fifth Circuit

June 12, 2019

ENERQUEST OIL & GAS, L.L.C., Defendant-Appellant

          Appeal from the United States District Court for the Southern District of Texas

          Before HIGGINBOTHAM, ELROD, and HO, Circuit Judges.


         A group of oil companies agreed to cooperatively develop oil prospects in Texas. One of the parties, EnerQuest Oil & Gas L.L.C., acquired an interest in the specified area after the agreement took effect, but then refused to offer a share of those interests to the other parties. After the acquisition, other parties to the agreement-Glassell Non-Operated Interests, Ltd., Yates Energy Corporation, and ACG3 Mineral Interests, Ltd. (collectively, "Appellees")-filed suit against EnerQuest. Appellees alleged that EnerQuest breached the contract by refusing to offer a pro-rata share of the newly acquired interests. Upon examination of the agreement, we conclude that EnerQuest did not breach.

         Although the contract requires that the parties share interests acquired within the area of mutual interest ("AMI"), the contract excludes interests already owned by parties from the AMI. What is excluded from the AMI at the outset may never be included without a new agreement. Accordingly, we reverse the judgment of the district court and render judgment for EnerQuest.


         EnerQuest, Glassell, Yates, and several others entered into a Letter Agreement to develop the Dubose Field, an area in Texas. Shortly after the Parties signed the Letter Agreement, additional parties sought to join the endeavor. The original parties allowed the new parties to ratify the agreement (the "Amendment") and then the new parties officially ratified that Letter Agreement (the "Ratification"). The Letter Agreement, Amendment, and Ratification compose the Development Agreement.

         The Letter Agreement contains an AMI provision. The parties generally describe the AMI in § 2.1, which states that the AMI shall cover all lands within the Dubose Field that are acquired after August 1, 2010-the "Effective Date." Section 2.1 then defines those interests within the AMI that are acquired after the Effective Date as "Acquired Interest."[1]

         But the Letter Agreement excludes some interests from the AMI. Section 2.3 of the Letter Agreement excludes "[a]ll interests, leases or agreements owned by a Party prior to the Effective Date." Sections 1.4 of the Amendment and 1.5 of the Ratification include substantially the same provision, so the exclusions apply to both the original parties and new parties.

         The parties agreed to share interests that they acquired within the AMI. The Letter Agreement's sharing obligation-found in §§ 2.6 and 2.7-directs that, "[w]ithin thirty (30) business days after a Party acquires an Acquired Interest within the AMI after the execution of this Agreement, such Party shall promptly notify the other Parties in writing of the details of the acquisition of such Acquired Interest." And after an acquiring party has informed the other parties of the gained interests, a party "may elect in writing to acquire its pro-rata share of such Acquired Interest."

         A few years after entering the Development Agreement, EnerQuest sought to acquire the Dubose Field interests of DKE and Pati-Dubose (the "DKE/Pati-Dubose interests"). Both DKE and Pati-Dubose were new parties to the Development Agreement. EnerQuest's president emailed Yates' president about the potential acquisition, stating that EnerQuest would be offering the interest to the other parties pursuant to the Development Agreement. But after the transaction closed, EnerQuest determined that the DKE/Pati-Dubose interests were not subject to the AMI. Therefore, according to EnerQuest, the sharing obligation did not apply.

         Appellees sued EnerQuest for breach of contract. EnerQuest contested Appellees' construction of the Development Agreement and asserted an affirmative defense that the Development Agreement was unenforceable under the Texas Statute of Frauds. See Tex. Bus. & Com. Code § 26.01(a), (b)(4), (5). The district court granted Appellees' motion for summary judgment on liability for breach of contract and denied EnerQuest's motion for summary judgment on the affirmative defense of a violation of the Texas Statute of Frauds. EnerQuest appeals.


         A grant of summary judgment is reviewed de novo. Wallace v. Texas Tech Univ., 80 F.3d 1042, 1046 (5th Cir. 1996) (citing Neff v. Am. Dairy Queen Corp., 58 F.3d 1063, 1065 (5th Cir. 1995)). "The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact ...

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