Samson Lone Star Limited Partnership, n/k/a Samson Lone Star, L.L.C. v. Charles G. Hooks, III, Individually and as Independent Executor of the Estate of Charles G. Hooks, Jr., as Trustee of the Scott Ira McKeever Trust and the David Wayne McKeever Trust, and on Behalf of Chas. G. Hooks & Son, a General Partnership, et al--Appeal from 60th District Court of Jefferson County (majority)
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Opinion issued March 1, 2012
In The
Court of Appeals
For The
First District of Texas
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NO. 01-09-00328-CV
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SAMSON LONE STAR, LIMITED PARTNERSHIP N/K/A SAMSON LONE
STAR L.L.C., Appellant
V.
CHARLES G. HOOKS III, INDIVIDUALLY AND AS INDEPENDENT
EXECUTOR OF THE ESTATE OF CHARLES G. HOOKS, JR., AS
TRUSTEE OF THE SCOTT IRA MCKEEVER TRUST AND THE DAVID
WAYNE MCKEEVER TRUST, AND ON BEHALF OF CHAS. G. HOOKS
& SON, A GENERAL PARTNERSHIP;MCKEEVER PARTNERSHIP,
LTD; CHARLES G. HOOKS III AND SUE ANN HOOKS, AS COTRUSTEES UNDER THE WILL OF CHARLES G. HOOKS, SR., Appellees
On Appeal from the 60th District Court
Jefferson County, Texas
Trial Court Case No. B173008-B1
1
Originally appealed to the Ninth Court of Appeals, this case was transferred to this
Court by the Texas Supreme Court pursuant to its docket equalization efforts. See
TEX. GOV’T CODE ANN. § 73.001 (Vernon 2005).
OPINION ON REHEARING
Appellees, Charles G. Hooks, et al. (“the Hooks”), filed a motion for
rehearing on September 23, 2011. We grant the motion for rehearing, withdraw
our opinion and judgment of August 25, 2011, and substitute this opinion and
judgment in their place.
This is an appeal from a final judgment against appellant Samson Lone Star,
Limited Partnership n/k/a Samson Lone Star L.L.C. (“Samson”) for more than $21
million in favor of the Hooks. Samson has a number of oil and gas leases from
landowners in Hardin and Jefferson Counties, including the Hooks. The judgment
arises from an oil and gas case in which the Hooks brought suit against Samson
with respect to three oil and gas leases, two in Hardin County, Texas (the “95-acre
Lease” and the “10-acre Lease,” collectively the “Hardin County Leases”) and one
in Jefferson County, Texas (the “Jefferson County Lease”). The Hooks sued
Samson for breach of contract, fraud, fraudulent concealment, statutory fraud,
negligent misrepresentation, violation of the Texas Natural Resources Code by
failure to properly pay royalties, statutory negligence, common law negligence per
se, injunctive relief, and declaratory judgment.
The trial court granted Samson’s motion for partial summary judgment on
whether it had breached certain offset obligations under the Leases. It also granted
the Hooks’ motions for summary judgment on claims for additional royalties
2
related to their claims of “unpooling” with respect to the Hardin County Leases
and breach of the “most favored nations” clause in both Hardin County Leases and
the Jefferson County Lease.
The questions of whether Samson committed fraud against the Hooks with
respect to a well drilled within the buffer zone of the Hooks’ Jefferson County
Lease and whether it underpaid royalties by not paying royalties for “formation
production” in all three Leases were tried to a jury. The trial court rendered
judgment on the verdict, holding Samson liable to the Hooks for fraud and
underpaid royalties, and it entered a final judgment that left intact the summary
judgment in Samson’s favor on offset obligations and the summary judgments in
favor of the Hooks on their unpooling claim and their most favored nations clause
claims. Samson has appealed the final judgment, and the Hooks have crossappealed.
In eight issues, Samson complains that (1) there is legally and factually
insufficient evidence of common law fraud; (2) there is legally and factually
insufficient evidence of statutory fraud; (3) the statute of limitations bars the
Hooks’ fraud claims; (4) there is legally and factually insufficient evidence to
support the jury’s finding on fraud damages; (5) the trial court erred in interpreting
the phrase “formation production” in the Hooks’ Leases as requiring Samson to
pay twice for molecules of gas produced as condensate; (6) the trial court erred in
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entering judgment in favor of the Hooks for additional royalties based on the
unpooling issue with respect to the Hardin County Leases and on the most favored
nations clauses in all three Leases; (7) the trial court erred in elevating lease
provisions into a permanent injunction, and there is no evidence to support the
injunction or attorney’s fees; and (8) the trial court erred by granting postjudgment interest at the rate of 18%, compounded annually. 2
In a single issue, the Hooks complain on cross-appeal that the trial court
erred in rendering summary judgment in favor of Samson on the issue of whether
Samson breached certain offset obligations in the Hooks’ leases. We affirm the
trial court’s summary judgment order in favor of Samson on its offset obligations.
With respect to Samson’s appeal, we affirm the portion of the trial court’s
judgment awarding the Hooks reimbursement for ad valorem taxes as stipulated by
the parties, and we reverse the remainder of the final judgment of the trial court
and render judgment that the Hooks take nothing on those claims.
I. SAMSON’S APPEAL
A. BACKGROUND
1. The Hooks’ Jefferson County Lease and the BSM No. 1 Unit
In 1999, the Hooks entered into the Jefferson County Lease with Samson.
This lease covered 640 acres owned by the Hooks in the Dyches survey in
2
This issue was added at Samson’s request by order dated June 10, 2010, and both
parties were required to and did file supplemental briefs thereon.
4
Jefferson County, Texas and was bordered by Pine Island Bayou, which also
serves as the county line between Jefferson and Hardin Counties.
Article VI of the Jefferson County Lease was a section called “Offset
Obligations.” In this section, Samson covenanted to operate the leased premises as
a reasonably prudent operator would and to protect the leased premises from
drainage. Article VI also contained specific obligations for Samson in case of
potential drainage. This Article provided that if a gas well were completed within
1,320 feet from the leased premises, then, within 90 days from the date of the sale
of first production from that well, Samson must take one of three actions: (1) drill
an offset well; (2) pay the Hooks “compensatory royalties”—in addition to any
royalties currently due—in a sum equal to the royalties that would be payable
under the Lease on the production from the adjacent or nearby producing well as if
it had been producing on the leased premises; or (3) release the offset acreage.3
The Jefferson County Lease did not provide for pooling.
3
Article VI(A) of the Jefferson County Lease provided, in pertinent part, as
follows:
[I]n the event a well producing from a unit not comprised of acreage
from the leased premises . . . which has been classified as
“gas” . . . is completed on adjacent or nearby lands not more than
one thousand three hundred and twenty feet (1,320’) from the leased
premises, or draining the leased premises, Lessee covenants and
agrees to, within ninety (90) days from the date production is first
sold, removed or otherwise marketed from said adjacent or nearby
producing well, either (1) commence with due diligence operations
for the actual drilling of an offset well on the leased premises to the
5
In April 2000, Samson began drilling a gas well, the Black Stone Minerals
No. 1 (the “BSM No. 1 well”), on a tract it owned in Hardin County adjacent to the
Hooks’ 640-acre Jefferson County Lease.
Hardin County.
This adjacent tract was located in
The surface drillsite was outside the 1,320-foot buffer zone
around the Hooks’ Jefferson County Lease that triggered Samson’s offset
obligations under Article VI(A) of the Lease. However, the well was a directional
well that slanted away from the surface drillsite. Originally, the BSM No. 1 well
base of the formation from which the adjacent or nearby producing
well is producing, (2) pay Lessors as compensatory royalty, in
addition to any royalties currently due, a sum equal to the royalties
which would be payable under this lease on the production from said
adjacent or nearby producing well had same been producing on the
leased premises, or (3) in lieu of drilling such offset well or paying
such compensatory royalty, release by recordable instrument the
offset acreage, as hereinafter defined. “Offset Acreage,” as used
hereinabove, shall be defined as a unit which would surround such a
well if same were completed on the leased premises; provided,
however, that if any portion of the offset acreage would be included
in a producing unit designated by Lessee hereunder, then if Lessee
elects to surrender and release such offset acreage, it may retain and
except from such release the producing stratum or strata included in
such producing unit, but such offset acreage must conform to the
depth, size and shape limitations contained in Paragraph V. herein.
The provisions hereof shall apply regardless of whether lands upon
which offset wells may be located are owned by Lessor or any of
them or not, and with regard to wells located within the hereinabove
prescribed distances from the leased premises, regardless of whether
drainage is actually proved to be taking place or not.
Notwithstanding anything herein to the contrary, Lessee shall have
no obligations under this Article VI in the event a producing well on
nearby or adjacent land is already offset by a well on the leased
premises or on acreage pooled therewith producing from the same
producing horizon from which production has been secured from
any well on nearby or adjacent lands.
6
was planned with a bottom hole location 1,080 feet from the Hooks’ lease line on
the east, a location within the 1,320-foot buffer zone of the Hooks’ Jefferson
County Lease. This proposed well location was reflected on a plat titled “Proposed
Well Location [BSM No.] 1 Walker Pettitt League, A-43, Hardin County, Texas,”
which was prepared and signed by a third-party surveyor on March 22, 2000. The
surveyor certified that “this is a true and correct plat based on a ground survey
made under my supervision on March 22, 2000.” This plat was filed with the
Railroad Commission of Texas (“Railroad Commission”).
The March 22, 2000 plat showed a 704-acre gas pooling unit (the “BSM No.
1 unit”) designated by Samson that ran along Pine Island Bayou, the Hardin
County/Jefferson County line, on the east. This line was also the western boundary
of the tract containing the Hooks’ Jefferson County Lease. The Hooks and their
co-owners of the tract on which their Jefferson County Lease was located were not
named as lessors in the table shown on the plat of the designated unit. An arrow
shown on the plat pointed to the location of the proposed bottom hole about at the
beginning of a line that ran to the eastern line of the unit at Pine Island Bayou, the
county line. Notations on the plat stated:
The Proposed Surface Location is:
630′ FSL x 1600′ FEL Survey
2750′+ Scaled FWL x 3834′ FNL Unit.
The Proposed Bottom Hole Location is:
330′ FSL x 330′ FEL Survey
7
870′+ Scaled FSL x 1080′+ Scaled′ FEL Unit.
It is undisputed that “FSL” meant “From the Southern Line” of the Walker Pettitt
Survey, “FNL” meant “From the Northern Line” of the Survey, and “FEL” meant
“From the Eastern Line” of the Survey, which was the Hardin County/Jefferson
County line at Pine Island Bayou. Thus, in this notation, the surface location of the
BSM No. 1 well was 1,600 feet from the eastern line of the survey at Pine Island
Bayou, and the proposed bottom hole location was about 1,080 feet from the
eastern line, which marked the western line of the Hooks’ Jefferson County Lease.
The proposed bottom hole was therefore within the 1,320-foot buffer zone for the
Jefferson County Lease.
Although the March 22, 2000 plat of the designated BSM No. 1 unit
estimated the location of the proposed bottom hole location of the BSM No. 1 well,
the exact bottom hole location of the well, following drilling, could only be
ascertained from a directional survey. This survey was completed in July 2000 and
was also filed with the Railroad Commission. Both parties agree that the survey
showed the BSM No. 1 well to be bottomed 1,184 feet from the Hooks’ Jefferson
County Lease, within the 1,320-foot buffer zone of the Lease. Thus, Samson had
an obligation under the terms of the “Offset Obligations” in the Hooks’ Jefferson
County Lease to (1) drill an offset well, (2) pay the Hooks “compensatory
8
royalties,” or (3) release the “offset acreage” within 90 days from the date
production was first “sold, removed, or otherwise marketed” from the well.
The BSM No. 1 well was completed in August 2000, and the first gas sales
occurred in late October 2000. Because the bottom hole of the well was within the
1,320-foot buffer zone of the Hooks’ Jefferson County Lease, the first gas sales
triggered Samson’s offset obligations under the terms of the Lease. The Hooks
complain, and the jury found, however, that Samson did not follow the provisions
in Article VI(A) of the Jefferson County Lease, which provided that, within 90
days of the first sale of gas from a well within its buffer zone, Samson must drill an
offset well, pay the Hooks compensatory royalties, or release the offset acreage.
Instead, the jury found that Samson attempted to avoid those obligations by
seeking to pool the Hooks’ interest in the production from the BSM No. 1 well
with those of other mineral owners, despite the lack of pooling authority in the
Jefferson County Lease, while concealing the bottom hole location of the BSM No.
1 well.
In December 2000, Samson filed a P-12 “Pooling Authority” form with the
Railroad Commission that reflected a reconfigured BSM No. 1 pooling unit. By
letter, Samson informed the Commission that a portion of the 704 acres in the
original BSM No. 1 unit was to be put into a separate 308.41-acre pooling unit for
the proposed Black Stone Minerals No. A-1 well (the “BSM A-1 well”). Attached
9
to the letter was a “Certificate of Pooling Authority,” which represented the
Broussard tract, on which the Hooks’ Jefferson County Lease lay, as one of the
tracts whose mineral-rights owners either had given Samson pooling authority
under an instrument currently in effect or had pooled their interests into the
reconfigured BSM No. 1 unit. Also attached was a plat of the redesignated 704acre pooling unit dated November 16, 2000 and certified by Samson’s land man,
Glenn Lanoue.
The arrows pointing to the surface and bottom hole locations on the
November 16 plat of the redesignated BSM No. 1 unit were the same as those
pointing to the proposed surface and bottom hole locations on the original March
22, 2000 plat of the unit. However, the acreage of the unit had been changed to
show a different 704-acre configuration for the BSM No. 1 unit from that
originally filed with the Railroad Commission. The redesignated BSM No. 1 unit,
unlike the previously designated BSM No. 1 unit, extended beyond the eastern line
of Hardin County at Pine Island Bayou into Jefferson County. The certificate,
signed by Lanoue, stated that “this is a true and correct plat based on the best of
my knowledge November 16, 2000.”
On February 15, 2001, Samson sent the Hooks a letter offering to pool 50
acres covered by the Hooks’ Jefferson County Lease into the redesignated BSM
No. 1 gas pooling unit for the BSM No. 1 well. Attached to the letter was a copy
10
of the plat of the reconfigured unit Samson had filed with the Railroad
Commission in December 2000.
On February 20, 2001, before accepting Samson’s offer to pool—which
would require amendment of Article VI of the Hooks’ Jefferson County Lease to
permit pooling—Charles Hooks, the landowner and an attorney who had
participated in a number of oil and gas deals, called Lanoue and sought more
information. Charles Hooks inquired about the BSM No. 1 well’s location and
about how his property fit in the unit. Lanoue told him that the well was about
1,500 feet away from Pine Island Bayou, the boundary between Hardin and
Jefferson Counties and the western line of the Hooks’ Jefferson County Lease.
Hooks requested a plat showing where his acreage would lie within the
proposed reconfigured BSM No. 1 unit. That same day, Lanoue sent Hooks the
scaled plat of the redesignated BSM No. 1 pooling unit that Samson had filed with
the Railroad Commission in December 2000. This plat was certified by Lanoue as
“a true and correct plat based on the best of my knowledge December 28, 2000.”
A number of changes had been made to the March 22, 2000 plat showing the
original BSM No. 1 gas pooling unit to reflect the redesignated unit. The plat of
the reconfigured unit had different boundaries extending further west and also
further east into Jefferson County, encompassing part of the Broussard tract on the
11
east that had not been included in the original unit designation. The plat had been
highlighted to show the location of the Hooks’ 50 acres east of Pine Island Bayou.
Like the March 2000 plat of the original BSM No. 1 unit, the plat of the
redesignated BSM No. 1 unit contained the arrow pointing to the location of the
bottom hole, but it gave slightly changed coordinates from those of the proposed
bottom hole of the BSM No. 1 well on the March 2000 plat. At trial, Lanoue
testified that he changed these coordinates with a ruler. Also, instead of a line
running from the proposed bottom hole location and showing +1,080 feet to the
eastern line of the unit at Pine Island Bayou, the plat showed a different line to the
bayou with an undesignated starting point. The plat also showed an eastern border
of the reconfigured BSM No. 1 unit beyond the bayou and encompassing a portion
of the Hooks’ Jefferson County Lease.
Above the line was the designation
“+1400′.” An arrow stating “BHL” and giving the well coordinates pointed to a
point on the line about one quarter of the way from the western starting point of the
line to the eastern end of the line at the bayou. Thus, if the designation “+1400′”
were interpreted as the distance from the bottom hole to the bayou, the bottom hole
of the BSM No. 1 well would be outside the 1,320 foot buffer zone for the
Jefferson County Lease. However, if the “+1400′ ” designation were interpreted as
the distance from the undesignated starting point of the line to the bayou and the
arrow one-quarter of the way along it were interpreted as the bottom hole location,
12
the bottom hole of the well would be within the buffer zone of the Hooks’ Lease,
triggering Samson’s offset obligations under Article VI(A) of the Jefferson County
Lease.
In addition, the plat stated:
The Bottom Hole Location is:
290′ FSL x 740′ FEL Survey
500′ Scaled FNL x 1400′ + Scaled′ FEL Unit.
This language in the plat thus expressly stated that the bottom hole of the BSM No.
1 well was located about 1,400 feet from the eastern line of the redesignated BSM
No. 1 unit, which encompassed the Hooks’ 50 acres from their Jefferson County
Lease between Pine Island Bayou and the eastern edge of the redesignated unit.
According to this notation, the bottom hole of the BSM No. 1 well was within
1,320 feet of the “leased premises,” and, therefore, inside the buffer zone for the
Hooks’ Jefferson County Lease
Lanoue testified at trial that he added the notation that showed the bottom
hole of the BSM No. 1 well to be + 1,400 feet from the eastern line of the unit in
August 2000 to reflect the newly shaped unit. He also testified that he got the
notation “740 feet from the east line and 290 feet from the south line” “from
myself.” He did not go to the directional survey which had been previously
completed to determine the exact location of the bottom hole.
13
However, he
intended the numbers to be “[a]s accurate as a land guy is using a ruler on a scaled
piece of paper that might not even be to scale.”
Hooks testified at trial, however, that Lanoue orally told him that the BSM
No. 1 well was 1,500 feet from Pine Island Bayou. He then looked at the plat and
concluded that the bottom hole location was approximately 1,400 feet west of Pine
Island Bayou and thus outside the line that would have triggered the 1,320 foot
offset provisions in the Jefferson County Lease. He made no other inquiries
regarding the plat or the bottom hole of the well, and he did not check the records
filed with the Railroad Commission to determine the exact location of the bottom
hole.
After making the pooling offer to the Hooks, Lanoue executed the
designation of the BSM No. 1 pooling unit in February 2001 and recorded it in the
county’s real property records on March 7, 2001, showing the Hooks as
participating in the pool for the BSM No. 1 unit. However, the Hooks did not
actually consent to pool the 50 acres from their Jefferson County Lease into the
BSM No. 1 unit until May 25, 2001, and they conditioned their assent on a formal
amendment to the lease which they were to prepare and submit to Samson. The
Hooks did not prepare the formal amendment, however, and the parties never
executed such an amendment. Instead, the Hooks agreed to a division order setting
out their percentage distribution of the unit’s proceeds, which stated that Samson
14
would pay the Hooks royalties based on a stated percentage of their acreage in the
unit to the entire acreage of the BSM No. 1 unit unless notified otherwise in
writing.
After the Hooks agreed to be included in the BSM No. 1 unit, Samson sent
royalty checks to them for their unit interest continuing through the time of trial,
and the Hooks cashed the royalty checks. However, the royalty checks did not
include additional compensatory royalties calculated under the terms of Article VI
of the Hooks’ Lease for a well drilled within the 1,320-foot buffer zone of the
Hooks’ Jefferson County Lease.
After the Hooks agreed to pool 50 acres of their Jefferson County Lease into
the BSM No. 1 unit, Samson drilled a second well, the Joyce DuJay No. 1 well
(“DuJay No. 1 well”), within the 1,320-foot buffer zone of the Hooks’ Jefferson
County Lease. That well was completed in January 2002 and made part of another
pooling unit, the DuJay No. 1 unit, in which the Hooks also participated and from
which they received royalties. This well was offset by the BSM No. 1 unit. Hooks
testified that he was not defrauded with respect to the DuJay No. 1 unit.
2. The Hooks’ Hardin County Leases, the BSM A-1 Well and Pooling
Unit, and the Hooks’ “Unpooling” Claim
In addition to their Jefferson County Lease, the Hooks also owned two
leases in Hardin County near the BSM No. 1 well, the 95-acre and 10-acre Hardin
County Leases. Unlike the Hooks’ Jefferson County Lease, these Leases did
15
provide for pooling in terms that were essentially the same with respect to the
manner and methods of pooling.
The Hardin County Leases both contained language calling for an
instrument “identifying and describing the pooled acreage” and stating that a
“pooled unit shall become effective on the date such instrument or instruments are
so filed for record.” Article V(E) of the pooling provision in each Lease also
stated that production from any part of a pooled unit that included the leased
premises was considered production from the leased premises “regardless of
whether . . . such production was secured before or after the date of this lease or
the date of the instrument designating the pooled unit.”
The 95-acre Lease
provided in Article V(E) as follows:
E. Lessee [Samson], at its option, is hereby given the right and power
in its discretion to pool or combine, as to any one or more formations,
the land covered by this Lease or any portion of said land, insofar
only as gas or gas condensate rights are concerned . . . with other
land, lease or leases in the immediate vicinity thereof, except to the
extent and in the manner hereinafter stipulated. With respect to any
such unit so formed, Lessee shall execute in writing an instrument or
instruments identifying and describing the pooled acreage, and file
same for recording in the office of the County Clerk in Hardin
County, Texas; and the pooled unit shall become effective on the date
such instrument or instruments are so filed for record.
Notwithstanding anything hereof to the contrary, pooled units created
hereunder and comprising all or part of the herein leased premises
shall not exceed the maximum acreage figures permitted for all
production units of oil or gas wells completed at certain depths under
Article V. hereof unless the Railroad Commission of Texas or any
governmental authority having and asserting jurisdiction over the
subject matter thereof prescribes for the drilling or operation of a well
16
at a regular location, or permits for the obtaining of the maximum
allowable from any well to be drilled, drilling, or already drilled,
larger pooled units than any of those herein permitted, then any such
pooled unit may be established or enlarged to conform to the size
either required of a well or permitted for the obtaining of the
maximum allowable. For any well drilled on and completed at depths
beneath the surface of a tract covered by this lease there shall be no
pooling with other lands, unless such tract is insufficient, due to either
its lack of size or prior unitization hereunder, to comprise the
maximum acreage figures permitted hereunder in which case all of
said tract (95 acres more or less) or the then un-unitized portion of
same shall be so pooled; and Lessee may include in such pooled unit
such other acreage as may be available to comprise the maximum
acreage figures permitted under the terms of this lease. For a well
drilled on or completed at depths beneath the surface of lands other
than the herein leased premises, not less than all (100%) of the lands
(95 acres more or less) or the then un-unitized portion of same shall
be so pooled; and Lessee may include in such pooled unit such other
acreage as may be available to comprise the maximum acreage
figures permitted under the terms of this lease.
Operations for drilling on or production of gas from any part of the
pooled unit which includes all or a portion of the Leased Premises,
regardless of whether such operations for drilling were commenced or
such production was secured before or after the date of this lease or
the date of the instrument designating the pooled unit, shall be
considered as operations for drilling on or production of gas from the
Leased Premises, whether or not the well or wells be located on the
Leased Premises, and the entire acreage constituting such unit or units
shall be treated for all purposes, except the payment of royalties on
production from the pooled unit, as if the same were included in this
Lease. The above right and power to pool may be exercised at any
time and from time to time and before or after a well has been drilled,
or while a well is being drilled. Lessee may vacate any unit formed by
it hereunder by instrument in writing filed for record in said county at
any time when there is no unitized substance being produced from
such unit. The pooling for gas hereunder by Lessee shall also pool
and unitize all liquid gas, and the royalty interest payable to Lessor
thereon shall be computed the same as on gas. For the purpose of
computing the royalties to which owners of royalties shall be entitled
17
on production from each production unit, there shall be allocated to
the applicable separate tract acreage included in such production unit
a pro rata portion of the production produced from such production
unit. Such allocation shall be on an acreage basis; that is to say, there
shall be allocated to the applicable separate tract acreage within the
unit that pro rata portion of the production produced from the
production unit which the number of surface acres covered by such
separate tract and included in the production unit bears to the total
number of surface acres included in the production unit, commencing
with the date of first production from the production unit.
(Emphasis added.)
In February 2001, Samson finished directionally drilling and completed the
BSM A-1 well north of the BSM No. 1 well on Samson’s own lease in Hardin
County (the “Black Stone Minerals/FirnBank lease”).
The mineral interests
underlying this lease were owned 87.5% by Black Stone Minerals and 12.5% by
FirnBank as cotenants.
Samson did not have the contractual authority to pool under its leases with
either Black Stone Minerals or FirnBank. Samson therefore negotiated with the
leaseholders for such a right and concluded that both of the lessors were in
agreement. Accordingly, on March 12, 2001, Samson filed a Unit Designation for
a 704-acre unit called the Black Stone Minerals “A” No. 1 Gas Unit (the “BSM A1 unit”).
The BSM A-1 unit designation unitized the Black Stone
Minerals/FirnBank lease, as well as the Hooks’ 10-acre and 95-acre Hardin County
Leases and other tracts, including leases beneath Pine Island Bayou owned by the
State.
The designation reflected that it was effective as of the date of first
18
production, and it included a list of the leases pooled, including the Hooks’ Hardin
County Leases. The designation for the BSM A-1 unit included gas production at
all depths between 6,000 and 13,800 feet, although the BSM A-1 well produced
gas only from the shallow EY5 formation.
FirnBank consented to be pooled into the BSM A-1 Unit in May 2001.
Samson also obtained written consent from the Hooks to pool their Hardin County
Leases into the BSM A-1 unit. In addition, it obtained the agreement of the Texas
General Land Office and the School Land Board (collectively, the “State of
Texas”), who owned adjacent land, to pool that land into the unit. However, Black
Stone Minerals, the 87.5% owner of the mineral interests underlying the drillsite,
declined to consent to the pooling unit.
Samson drilled and completed the BSM A-1 well, and the well began
producing in June 2001 from the depth range of the formation at the horizon from
12,304 to 12,332 feet. In December 2001, Samson finished another gas well, the
DuJay No. 1 well. The DuJay No. 1 well produced from some of the same land
designated to the BSM A-1 unit, but it reached from 13,150 to 13,176 feet—a
lower horizon than the BSM A-1 well. The DuJay No. 1 well began producing in
January 2002.
In February 2002, after failing to receive Black Stone Minerals’ consent to
the BSM A-1 pooling unit, Samson amended the BSM A-1 unit designation. It
19
executed and recorded a designation for a new unit, the Joyce DuJay No. 1 Gas
unit (“DuJay No. 1 unit”) that recited an effective date as of first production of the
DuJay No. 1 well, i.e., January 2002. The DuJay No. 1 unit designated a new,
smaller, 571-acre unit with a different name, different leases, different depths and
different boundaries from the BSM A-1 unit. The DuJay No. 1 unit included some
of the deeper strata of the originally designated BSM A-1 unit, but it excluded the
EY5 horizon from which the BSM A-1 well was producing at 12,304 to 12,332
feet. Instead, the designated DuJay No. 1 unit pooled its leases as to gas well
production from 12,800 feet and deeper, including some already-pooled depths
carved out of the BSM A-1 unit (12,400–13,800 feet) and deeper strata (below
13,800 feet). Because of its depth limitations, the DuJay No. 1 unit included the
DuJay No. 1 well, but not the shallower-completed BSM A-1 well. The designated
acreage excluded most of the Black Stone Minerals/FirnBank lease, but it included
the Hooks’ Hardin County Leases and the State’s leases.
Samson did not get consent from the Hooks to vacate or amend the BSM A1 unit or to “unpool” their interests from the BSM A-1 unit or well. However, it
informed the Hooks that the BSM A-1 unit had been amended and the unit name
had been changed. It stated, “Please note that the Unit Designation for the Black
Stone Minerals ‘A’ No. 1 is being amended and will now be called the Joyce
DuJay No. 1 unit. No additional action is needed on your part.” After the BSM A20
1 unit was amended, reconstituted, and renamed the DuJay No. 1 unit, Samson
paid, and the Hooks accepted, royalty payments from pooled production from the
DuJay No. 1 well from the date of first production until after commencement of
trial in the instant case. The BSM A-1 well was produced as a lease well on
Samson’s Black Stone Minerals/Firnbank leases and was not included in any unit.
Samson did not pay the Hooks royalties on the BSM A-1 well, and the Hooks took
no action to enforce any rights with respect to the original BSM A-1 unit.
Subsequently, Samson drilled another DuJay well (the “DuJay A-1 well”)
and created a separate pooling unit for that well. The DuJay A-1 unit differed from
the DuJay No. 1 unit by depth limitation and acreage. The DuJay A-1 well began
producing on September 25, 2002. However, Samson did not file the DuJay A-1
unit designation until July 2003. The Hooks’ Hardin County Leases were likewise
pooled into the designated DuJay A-1 unit, and the Hooks accepted royalties on the
production from that unit as well from the date of first production until after trial
had begun in the instant action.
3. The Hooks’ Hardin County Leases and the “Most Favored Nation”
Clause
The Hooks’ Hardin County Leases also contained a “most favored nation”
clause.
This clause provided that, under certain circumstances, the royalties
payable to the Hooks must be elevated to match the highest royalty payable to
Samson’s other lessors.
21
4. The Hooks’ Leases and the “Formation Production Clause”
Article III(K) of each of the Hooks’ Leases contained a “formation
production clause.” Article III provided that the Hooks were to receive as royalties
25% of “the market value at the wells” on the “gas, including casinghead gas or
other gaseous substances produced from said land,” or 25% of “the price received
therefor by Lessee.” Likewise, they were to receive as royalties 25% of “all liquid
hydrocarbons that may be produced from said land.” Article III(K) provided, “For
the purposes of calculating all royalties payable under Article III herein, it is
expressly provided that all such calculations shall be based on formation
production as reported on Texas Railroad Commission forms P-1 and P-2.”
B. PROCEDURAL HISTORY
1.
Trial Court Proceedings
In August 2004, several mineral-rights owners who had leased to Samson
filed a suit against Samson styled Joyce DuJay Lee v. Samson Lone Star. The
plaintiffs, who did not include the Hooks, complained about pooling issues
unrelated to the BSM No. 1 well. In December 2004, other landowners, also not
including the Hooks, filed a second action, styled Thomas Klorer et al. v. Samson,
complaining about the same issues. In August 2005, these two actions were
consolidated.
22
On his birthday in November 2006, Charles Hooks, as an oil and gas
attorney, attended a seminar for oil and gas attorneys. There, he met an attorney
who told him he was handling the Klorer and Lee cases against Samson.
On November 16, 2006, the Hooks were added to the consolidated suit in a
Fifth Amended Petition. This petition alleged against Samson various breaches of
contract and common law and statutory negligence related to the Hooks’ Jefferson
County Lease and their two Hardin County Leases. Among other things, the
Hooks claimed that Samson had breached the Jefferson County Lease by not
paying compensatory royalties based on the bottom hole of the BSM No. 1 well
being within 1,320 feet from their Lease. The Hooks also claimed that Samson
had improperly “unpooled” the BSM A-1 unit, and they sued to obtain all royalties
they would have received from that unit as if all the lessors, including Black Stone
Minerals, had agreed to pool, to be added to the royalties they received from the
DuJay No. 1 and DuJay A-1 units (the “unpooling claim”). The Hooks also asked
for a declaratory judgment regarding the construction of the “most favored
nations” clauses in their Leases, which they argued was triggered by a royalty paid
to the State of Texas under a pooling agreement with Samson that was higher than
the royalty paid to the Hooks under their pooling agreements. Finally, the Hooks
sought the payment of royalties to them on “formation production” under the terms
23
of all three Leases. The Hooks did not, however, plead any fraud claims at that
time.
The Hooks added fraud, fraudulent inducement, and statutory fraud claims
with respect to the Jefferson County Lease in a Sixth Amended Petition, filed on
May 7, 2007. The Hooks alleged in the alternative (1) that their Jefferson County
Lease had never been a part of the BSM No. 1 unit because no agreement to amend
that Lease to allow pooling was entered, and, therefore, they were entitled to
damages under the Lease for the loss of their rights to require Samson either to
drill an offset well, pay them compensatory royalties, or release their acreage, and
(2) that Samson had made false representations to them as to the configuration of
the BSM No. 1 unit and the location of the BSM No. 1 well to induce them to
agree to amend the Jefferson County Lease to allow a portion of it to be pooled in
the BSM No. 1 well and unit (the “offset obligations claim”). They contended that
Samson had falsely represented “that the [BSM No. 1] (gas) well was more than
1,320′ from the nearest lease line of the Hooks Jefferson County Lease” so that its
offset obligations were not triggered under the Lease. The Hooks claimed that the
representations were intended to save Samson from having to pay them the
substantially greater compensatory royalties that would have been payable under
the terms of the Lease for infringement of the 1,320-foot buffer zone.
24
In September 2007, the trial court severed the consolidated action against
Samson into three different actions, one of which was the Hooks’ action against
Samson for fraud and breach of contract. 4
Subsequently, the Hooks moved for partial summary judgment on several of
their claims based on the terms of their Leases. The Hooks moved for summary
judgment on the unpooling claim, claiming that Samson did not have authority to
vacate the BSM A-1 unit into which their Hardin County Leases were pooled and
that, therefore, Samson had breached its lease contract by failing to pay them
royalties on the BSM A-1 well. The Hooks also moved for summary judgment on
their most favored nation claim, formation production claim, and offset claims.
They argued that Samson failed to pay them “royalties based on a greater ‘Most
Favored Nations’ rate and compensatory royalties on certain offset encroaching
wells.”
Samson moved for partial summary judgment on the offset obligations
provision, on the formation production claims, and on the most favored nation
claim. Samson also moved for summary judgment on the Hooks’ unpooling claim
on the basis of limitations.
4
The severed lawsuits are Klorer v. Samson Lone Star, No. B-173,008; Bordages v.
Samson Lone Star, No. B-173,008-A; and Hooks v. Samson Lone Star, No. B173,008-B. Only Hooks has gone to trial. Klorer and Bordages remain pending.
25
The trial court granted the Hooks’ motion for summary judgment and denied
Samson’s motion on the unpooling claim. It assessed damages of $766,626.85
against Samson on the Hooks’ unpooling claim.
The trial court also granted the Hooks’ summary judgment motion on their
claim for breach of the most favored nations clause in their Hardin County Leases
and awarded them $848,854.01 in damages.
The trial court granted Samson’s motion for summary judgment for breach
of the offset obligations provision in the Jefferson County Lease on limistations,
and it denied the Hooks’ corresponding motion. The trial court also disposed of
some other contract claims by other partial summary judgment motions.
In 2008, the case went to trial solely on the Hooks’ fraud claims with respect
to the Jefferson County Lease and their formation production claims. The fraud
claims included the Hooks’ claims that Samson’s land man, Lanoue, had made
misrepresentations to them to get them to allow Samson to add their 50 acres
subject to the Jefferson County Lease to the BSM No. 1 pooling unit for the BSM
No. 1 well, which was within the 1,320-foot buffer zone for the Lease. The Hooks
contended Samson made these misrepresentations to avoid abiding by the terms of
Article VI(A) of the Jefferson County Lease, which they contended would have
required Samson to drill an offset well, release their acreage, or pay them
compensatory royalties, and, therefore, they were entitled to damages. The Hooks
26
also claimed that they were entitled to additional royalties under the formation
production clauses in both their Jefferson County and their Hardin County Leases.
The jury answered “yes” to the questions of whether Samson committed
fraud and statutory fraud with respect to the BSM No. 1 well. It assessed damages
against Samson for fraud in the amount of $20,081,638.07. The jury found that, in
the exercise of reasonable diligence, the Hooks should have discovered Samson’s
fraud by Charles “Hook’s Birthday April 2007.” It did not respond, however, to
the questions asking for a finding, by clear and convincing evidence, that the harm
to the Hooks resulted from fraud or that Samson had actual awareness of the falsity
of the representations or promise that the jury had found to be fraud.5 Therefore, it
did not award exemplary damages. The jury also did not respond to the question
requesting it to “find beyond a reasonable doubt that Samson secured execution by
the Hooks of a document by deception” and that the property had a value of $1,500
or more. 6
5
Question Four, the question asking for a finding that the harm to the Hooks
resulted from fraud, and Question Five, asking for a finding that Samson had
actual awareness of the falsity of the representation, instructed the jury to answer
the questions only if it unanimously answered “yes” to Questions One and Two.
Only eleven of the twelve jurors answered “yes” to Questions One and Two;
therefore, the jury properly refrained from answering Questions Four and Five.
6
Question Seven, seeking a finding that Samson secured execution of a document
by deception, instructed the jury to answer the question only if it unanimously
answered “yes” to Question Four or Five. Because the jury did not answer
Question Four or Five, it properly refrained from answering Question Seven.
27
Finally, the jury found that Samson’s failure to pay royalties based on
formation production resulted in underpayment of royalties on all three of the
Hooks’ Leases.
The trial court entered final judgment on the jury’s verdict, awarding the
Hooks $20,081,638.07 for damages proximately caused by Samson’s fraud with
respect to the BSM No. 1 well.
The final judgment also reaffirmed and
incorporated the trial court’s previous summary judgment rulings in favor of the
Hooks.
In addition to the fraud award, the judgment awarded the Hooks
$766,626.85 in damages for the “unpooling” claim related to the BSM A-1 well,
$848,854.01 in damages for breach of the Leases’ most favored nations clause, and
$52,257.22 in damages related to ad valorem taxes. 7 Finally, the final judgment
included an award of attorney’s fees, expert witness fees, costs for copies of
depositions, and pre- and post-judgment interest in favor of the Hooks.
2.
Claims on Appeal
Samson has appealed the judgment on the trial verdict and the partial
summary judgments entered against it, and the Hooks have cross-appealed the
partial summary judgments entered against them, all of which were incorporated in
the final judgment.
7
At trial, Samson stipulated that it owed the Hooks $52,257.22 for ad valorem taxes
that the Hooks had paid through November 2007. This stipulation and the amount
of ad valorem taxes owed by Samson to the Hooks is not challenged on appeal.
28
Samson contends on appeal that the trial court erred in entering judgment on
the jury’s finding that it committed fraud with respect to the Hooks’ Jefferson
County Lease and that it withheld royalties on formation production with respect to
all three of the Hooks’ claims. It also contends that the trial court erred in granting
the Hooks’ motion for summary judgment on their unpooling claim with respect to
the BSM A-1 well, in granting summary judgment on the Hooks’ claim for
royalties under the most favored nations clause in their Jefferson and Hardin
County Leases, and in denying its own motion for summary judgment on those
claims. Finally, Samson contends that the trial court erred by granting a permanent
injunction in its final judgment requiring Samson to fulfill certain contract
provisions on pain of contempt of court, that it erred in awarding attorney’s fees to
the Hooks, and that it erred in awarding the Hooks 18% post-judgment interest
compounded annually.
The Hooks contend on cross-appeal that the trial court erred in ruling in
Samson’s favor on their claims that Samson breached the offset obligations clause
in the Hardin County Leases.
C. DISCUSSION
1. The Trial Court’s Judgment on the Hooks’ Fraud Claims with
Respect to the Jefferson County Lease
In its third issue, Samson contends (1) that there is legally and factually
insufficient evidence to support the jury’s finding that the Hooks could not have
29
discovered their fraud claims until April 2007 and (2) that the statute of limitations
bars the Hooks’ claim for fraud, fraudulent inducement, and statutory fraud with
respect to the Jefferson County Lease.
To prove fraud, a plaintiff must show that the defendant made (1) a material
misrepresentation (2) that was either known to be false when made or was asserted
without knowledge of its truth (3) which was intended to be relied upon (4) which
was indeed relied upon and (5) which caused injury. Dow Chem. Co. v. Francis,
46 S.W.3d 237, 242 (Tex. 2001). To prove fraudulent inducement, these same
elements of fraud must be established as they relate to a contract. Coastal Bank
SSB v. Chase Bank of Tex., N.A., 135 S.W.3d 840, 843 (Tex. App.—Houston [1st
Dist.] 2004, no pet.). The statute of limitations for fraud is four years. TEX. CIV.
PRAC. & REM. CODE ANN. § 16.004 (Vernon 2002).
“Statutes of limitations are intended to compel plaintiffs to assert their
claims ‘within a reasonable period of time while the evidence is fresh in the minds
of the parties and witnesses.’” Wagner & Brown, Ltd. v. Horwood, 58 S.W.3d
732, 734 (Tex. 2001) (quoting Computer Assocs. Int’l, Inc. v. Altai, Inc., 918
S.W.2d 453, 455 (Tex. 1996)). “As a general rule, a cause of action accrues and
the statute of limitations begins to run when facts come into existence that
authorize a party to seek a judicial remedy.” Provident Life & Accident Ins. Co. v.
Knott, 128 S.W.3d 211, 221 (Tex. 2003). In most circumstances, “a cause of
30
action accrues when a wrongful act causes a legal injury, regardless of when the
plaintiff learns of that injury or if all resulting damages have yet to occur.” Id.
The statute of limitations for fraud is four years. TEX. CIV. PRAC. & REM.
CODE ANN. § 16.004(a)(4) (Vernon 2002); Exxon Corp. v. Emerald Oil & Gas Co.,
348 S.W.3d 194, 216 (Tex. 2011). “The statute of limitations for fraud begins to
run from the time the party knew of the misrepresentation.” Emerald Oil, 348
S.W.3d at 216; see also Little v. Smith, 943 S.W.2d 414, 420 (Tex. 1997)
(“Generally, in a case of fraud the statute of limitations does not commence to run
until the fraud is discovered or until it might have been discovered by the exercise
of reasonable diligence.”).
The Hooks claimed, and the jury found, that in making their determination
to agree to the pooling of 50 acres of their Jefferson County Lease in the BSM No.
1 unit, they relied solely on Lanoue’s oral statement that the BSM No. 1 well was
about 1,500 feet from their Lease line and on Charles Hooks’ interpretation of the
plat of the BSM No. 1 unit provided to him in response to his conversation with
Lanoue on February 15, 2001. The Hooks also contended, and the jury found, that
they did not discover that the bottom hole of the BSM No. 1 well was within their
1,320-foot buffer zone, entitling them to additional compensation royalties, until
31
well within the limitations period as extended by application of the discovery rule.8
Specifically, the Hooks claimed that they relied on Charles Hooks’ interpretation
of the designation “+ 1400′” on the line on the plat of the redesignated unit drawn
from an undesignated point to Pine Island Bayou as meaning that the bottom hole
of the BSM No. 1 well was about 1,400 feet, or more than 1,320 feet, from their
Lease, and, therefore, outside the buffer zone. They did not inquire into seemingly
contradictory information in that document showing an arrow pointing to the
bottom hole of the BSM No. 1 well about one-quarter of the way along the 1,400foot line from an undesignated point to Pine Island Bayou, the western line of their
Jefferson County Lease. Nor did they inquire into the notation that the bottom hole
was about 1,400 feet “FEL unit,” i.e., from the eastern line of the reconfigured
BSM No. 1 unit, which included 50 acres of their Jefferson County Lease. Both of
these notations would have indicated to them that the bottom hole of the BSM No.
1 well was clearly within the Lease’s 1,320-foot buffer zone. Similarly, the Hooks
did not seek available records from either Samson or the Railroad Commission that
would have shown them the actual location of the BSM No. 1 well’s bottom hole.
8
Although the jury found that the Hooks’ cause of action for fraud accrued on
“Hooks’ birthday April 2007,” the record shows that Hooks’ birthday was in
November and that it was on his birthday in November 2006 that he attended the
seminar for oil and gas attorneys where he first heard about the other mineralrights owners’ suits against Samson.
32
Had the Hooks exercised reasonable diligence, they should have known of
the exact location of the bottom hole when the directional survey was filed with the
Railroad Commission in July 2000. See Emerald Oil, 348 S.W.3d at 216; Little,
943 S.W.2d at 420.
Charles Hooks was an oil and gas attorney and had
participated in more than 100 oil and gas leases at the time of trial, and he knew
that Lanoue had certified the plat furnished to Hooks as being made on his own
knowledge in December 2000, but he never sought to investigate the results of the
directional survey filed with the Railroad Commission in July 2000, which showed
the exact location of the bottom hole. Nor did the Hooks conduct due diligence in
seeking the plat of the originally designated BSM No. 1 unit certified by the
surveyor in March 2000, showing the proposed bottom hole of the BSM No. 1
well, which was likewise filed with the Railroad Commission in July 2000. Both
of these publicly available documents would have shown that the well was
proposed to be and was bottomed within the 1,320-foot buffer zone of the
Jefferson County Lease, triggering Samson’s obligations to them under Article
VI(A) of that Lease. Any inquiry into the records available from the lessee,
Samson, or from the Railroad Commission would have shown the Hooks the actual
location of the BSM No. 1 well’s bottom hole in February 2001, when pooling was
first proposed to them.
33
The Hooks’ fraud claims were not filed until May 2007, more than six years
after pooling was proposed to them by Samson. We conclude that the Hooks knew
or should have known information that led to the discovery of the alleged fraud no
later than February 2001, as the necessary information was a matter of public
record at that time. See BP Am. Prod. Co v. Marshall, 342 S.W.3d 59, 66 (Tex.
2011) (holding that information disclosing lessee’s failure to continue good faith
efforts to develop oil and gas lease was available from public records and “from
several other sources, including the lessee”); HECI Exploration Co. v. Neel, 982
S.W.2d 881, 886 (Tex. 1998) (holding that, because several sources of information
about common reservoirs and operations are available to royalty owners, including
Railroad Commission records, discovery rule deferring accrual of cause of action
does not apply to claims of royalty owners for damage to common oil and gas
reservoir).
The statute of limitations for fraud begins to run when the claimant knew or
could have discovered the fraud by the exercise of reasonable diligence. See Little,
943 S.W.2d at 420. Thus, the statute of limitations began to run in February 2001,
but the Hooks did not file suit until May 2007, which is well outside the limitations
period. See Emerald Oil, 348 S.W.3d at 216. We hold that the Hooks’ fraud
claims are barred by limitations as a matter of law.
34
On rehearing, the Hooks argue that the issue of when they could have
discovered the fraud was a question for the jury, citing Lesley v. Veterans Land
Board, 352 S.W.3d 479, 485–86 (Tex. 2011). That case addressed an alleged
mistake in a reservation of a mineral interest. Id. The supreme court held that
there were fact issues as to whether this mistake was so plain as to charge the
grantor with knowledge of the mistake. Id. at 486. The court concluded, “In these
circumstances, it cannot be said that, as a matter of law, Lesley knew or should
have known of the mistake in her deed when she executed it. Whether her claim
for reformation is barred by limitations involves disputed facts.” Id. This scenario
is distinguishable from the present case.
When a cause of action accrues is normally a question of law. Emerald Oil,
348 S.W.3d at 202. Our analysis of when the Hooks knew or should have known
of facts that in the exercise of reasonable diligence would have led to the discovery
of the alleged wrongful act demonstrates that they should have known of the
alleged fraud, as a matter of law, in February 2001, more than six years before they
filed suit. There is no disputed fact issue here regarding whether this information
was plain enough to charge the Hooks with this knowledge—it is undisputed that
this information was readily available in Samson’s records and in the records filed
with the Railroad Commission.
Moreover, there was sufficient information
available on the plat of the redesignated BSM No. 1 unit—namely the information
35
that the bottom hole of the well was “+ 1400” feet from the eastern line of the unit
that encompassed their 50 acres—that should have put them on inquiry notice.
Thus, the reasoning in Lesley does not apply in this case.
We sustain Samson’s third issue.
2. Summary Judgments Entered Against Samson on the Hardin
County Leases
(a) Samson’s “Unpooling” of the BSM A-1 Unit
In its sixth issue, Samson challenges the trial court’s summary judgment
awarding the Hooks damages on their claim for royalties from the BSM A-1 unit
due to Samson’s improper unpooling of that unit.
Samson contends that because Black Stone Minerals, the 87.5% owner of
the mineral rights on the drillsite tract did not consent to pooling, (although
FirnBank, the owner of a 12.5% interest in the mineral rights did), the “essential
purpose for forming that unit had failed” and the BSM A-1 unit as originally
designated was not formed. Thus, the amendment of the unit to exclude the nonconsenting drillsite mineral owner, Black Stone Minerals, was justified. Samson
further argues that, after the BSM A-1 unit was amended and renamed the DuJay
No. 1 unit, the Hooks accepted royalty payments from production on both DuJay
units, which gave the Hooks a higher percentage of the production than they would
have received under the BSM A-1 unit. Samson argues that, by accepting the
royalty payments from the DuJay No. 1 well and the DuJay A-1 well, the Hooks
36
accepted the amendment to the BSM A-1 unit and they understood and
acknowledged that the BSM A-1 unit was not formed.
Alternatively, Samson argues that, if the amendment to the BSM A-1 unit
was improper, the BSM A-1 unit still exists and the Hooks should have been paid
in accordance with their interests in that unit, not in accordance with their interest
in the two DuJay units, which were improperly formed. Moreover, it argues that
the extent of the unit must be limited to FirnBank’s 12.5% interest in the drillsite
tract because only FirnBank consented to pool its undivided interest in the gas
produced from the BSM A-1 well.
The Hooks argue that the BSM A-1 unit was validly formed when FirnBank,
the owner of a 12.5% undivided interest in the mineral rights to the drillsite,
consented to the unit and that this pooled unit could not be vacated or amended so
long as gas continued to be produced from the BSM A-1 well. The Hooks agreed
to the pooling of their Hardin County Leases in the BSM A-1 unit. Therefore, they
argue, they are entitled to royalties from the BSM A-1 well in addition to the
royalties they accepted from their participation in the DuJay No. 1 and DuJay A-1
pooling units.
An oil and gas lease is a contract and is therefore interpreted as such.
Tittizer v. Union Gas Corp., 171 S.W.3d 857, 860 (Tex. 2005). When construing a
contract, the primary goal of the courts is to give effect to the parties’ written
37
expression of their intent.
PG&E Gas Transmission v. City of Edinburg, 59
S.W.3d 225, 227 (Tex. App.—Corpus Christi 2001, no pet.). The courts will
enforce the intentions of the parties to an unambiguous oil and gas lease as
expressed in the lease. Tittizer, 171 SW.3d at 860. In determining the agreement,
the court examines all parts of the contract and the circumstances surrounding its
formulation.
Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940
S.W.2d 587, 591 (Tex. 1996); PG&E Gas Transmission, 59 S.W.3d at 227–28.
With respect to royalty interest owners, “pooling results in ‘a crossconveyance of interests in land by agreement among the participating parties, each
of whom obtains an undivided joint ownership in the royalty earned from the land
in the “block” created by the agreement’” and each of whom receives royalty on
the basis of the percentage of that party’s acreage to the whole block. Browning
Oil Co. v. Luecke, 38 S.W.3d 625, 633 (Tex. App.—Austin 2000, pet. denied)
(quoting MCZ, Inc. v. Triolo, 708 S.W.2d 49, 52–53 (Tex. App.—Houston [1st
Dist.] 1986, writ ref’d n.r.e.)). In other words, pooling effects a cross-conveyance
among the owners of the minerals under the various tracts in the pool so that all
cotenants own undivided interests under the unitized tract in the proportion that
their contribution bears to the unitized tract. Montgomery v. Rittersbacher, 424
S.W.2d 210, 213 (Tex. 1968). Thus, when an oil and gas lease is executed by all
of the owners of different mineral interests in two or more tracts, the royalties
38
payable under the lease will be pooled, and all royalty interest owners in the land
subject to the lease will share in production, no matter where the well is drilled on
the leasehold. London v. Merriman, 756 S.W.2d 736, 739 (Tex. App.—Corpus
Christi 1988, writ denied).
An oil and gas lessee has no power to pool, however, without the lessor’s
express authorization, usually contained in the lease’s pooling clause. Tittizer, 171
S.W.3d at 860; Se. Pipe Line Co. v. Tichacek, 997 S.W.2d 166, 170 (Tex. 1999);
Luecke, 38 S.W.3d at 634 (holding that lessee’s authority to pool is derived solely
from terms of lease, and lessee has no power to pool absent express authority).
“For pooling to be valid, it must be done in accordance with the terms of the
methods and purposes specified in the lease.”
Tittizer, 171 S.W.3d at 860;
Tichacek, 997 S.W.2d at 170. Good-faith pooling can be exercised multiple times.
See Expando Prod. Co. v. Marshall, 407 S.W.2d 254, 259–60 (Tex. Civ. App.—
Fort Worth 1966, writ ref’d n.r.e.). However, “[t]he lessors’ land may be pooled
only to the extent stipulated in the lease.” Tittizer, 171 S.W.3d at 860 (quoting
Jones v. Killingsworth, 403 S.W.2d 325, 327–28 (Tex. 1965)).
Joinder by all interest owners is not necessary for a pooled unit to be valid.
See Ladd Petroleum Corp. v. Eagle Oil & Gas Co., 695 S.W.2d 99, 106 (Tex.
App.—Fort Worth 1985, writ ref’d n.r.e.); see also Whelan v. Placid Oil Co., 274
S.W.2d 125, 128 (Tex. Civ. App.—Texarkana 1954, writ ref’d n.r.e.) (holding that
39
tenant in common has right to execute lease on his undivided interest in common
property, notwithstanding nonjoinder of cotenant); Donnan v. Atl. Richfield, 732
S.W.2d 715, 717 (Tex. App.—Corpus Christi 1987, no writ) (stating that cotenant
has right to incorporate pooling agreement into oil or gas lease without consent or
joinder of cotenants, thereby binding his undivided interest). Rather, a tenant in
common has the legal right to incorporate a pooling agreement into an original oil
and gas lease without the consent or joinder of the other cotenants, creating a valid
contract binding the undivided interest of the cotenant making the agreement.
Whelan, 274 S.W.2d at 128. In such a case, the timely completion of a producing
well under the terms of the pooling agreement and within the unit area set out in
the unitization agreement will serve to continue the lease in full force and effect so
long as gas is being produced in commercial quantities. Id. A cotenant who enters
into such a lease binding its royalty interest in the completed and producing well
and who accepts its pro rata share in the royalties from the well calculated under
the terms of the unitization agreement is estopped to deny the validity of the
unitization agreement as to its interest therein. Id. at 129.
A lessee cannot unilaterally terminate a unit that has a producing pooled
well. See Ladd Petroleum Corp., 695 S.W.2d at 106–07. Rather, for a lessee to
terminate a unit, either the lessors must agree to the unpooling or the lease must
expressly authorize such termination.
Id. at 107; see Williamson v. Mobil
40
Producing Tex. & N.M., Inc., 737 S.W.2d 917, 921 (Tex. App.—Beaumont 1987,
writ denied) (“So, clearly, the lessee, if it is ‘after the discovery of the same,’ can
change the pooling unit only subsequent to the cessation of production. . . .”).
When a mineral interest owner—a lessor—accepts royalty checks from a
pooled unit, he has accepted that unit. See Montgomery, 424 S.W.2d at 214–15.
Under the doctrine of equitable estoppel, mineral interest owners can not repudiate
a unit designation after accepting royalties attributable to that unit. Cambridge
Prod. Inc. v. Geodyne Nominee Corp., 292 S.W.3d 725, 732 (Tex. App.—Amarillo
2009, pet. denied).
Here, The Hardin County Leases granted Samson the authority to pool those
leases with other land or leases. Under that authority, Samson obtained the Hooks’
agreement to pool their interests with the undivided interests of the two drillsite
lessors, Black Stone Minerals and FirnBank, in the BSM A-1 unit. One of the two
drillsite lessors—FirnBank—consented to the BSM A-1 unit. In addition, Samson
pooled other lands and its own working interests into that unit. However, Black
Stone Minerals refused to pool. Samson had no authority to pool Black Stone
Minerals’ interests without its express consent. See Tittizer, 171 S.W.3d at 860;
Tichacek, 997 S.W.2d at 170; Luecke, 38 S.W.3d at 634. But it did not lack
authority to form a gas production unit that included the mineral interests of Black
41
Stone Minerals’s cotenant, FirnBank. See Ladd Petroleum Corp., 695 S.W.2d at
106; Whelan, 274 S.W.2d at 128.
We agree with the Hooks that the originally designated BSM A-1 unit was
validly formed, creating a valid contract binding FirnBank, the cotenant making
the agreement, and the Hooks. See Whelan, 274 S.W.2d at 128. Thus, the Hardin
County Leases and FirnBank’s undivided 12.5% interest in the acreage of the
designated unit, as well as the leases of the other consenting landowners,
constituted a valid pooling unit.
However, FirnBank pooled only its own
undivided 12.5% interest in the production from the BSM A-1 unit. See id. at 129.
The BSM A-1 unit that was created for the BSM A-1 well did not include the
interest of Black Stone Minerals, who had not consented to pool its undivided
mineral interest in the drillsite lease, as a lessor. See Tittizer, 171 S.W.3d at 860;
Tichacek, 997 S.W.2d at 170; Luecke, 38 S.W.3d at 634. Neither FirnBank nor the
Hooks had the authority to bind Black Stone Minerals to their own agreement to
pool. See Montgomery, 424 S.W.2d at 213; Whelan, 274 S.W.2d at 128.
While there was production from the original BSM A-1 unit, Samson had no
authority to dissolve that unit. See Williamson, 737 S.W.2d at 921. Nevertheless,
when Black Stone Minerals refused to pool, Samson treated the BSM A-1 well as
continuing as an independent lease well on the Black Stone Minerals/FirnBank
Lease that was not pooled in any unit. Samson did not pay the Hooks royalties on
42
the production from the BSM A-1 well, nor did the Hooks complain that they were
not receiving royalties. Instead, it amended and redesignated the pooling unit to
exclude the BSM A-1 well and the EY5 formation from which it was producing,
which Samson renamed the DuJay No. 1 unit.
Samson pooled the Hooks’ interests and those of the other interest holders in
the originally designated BSM A-1 unit into both the DuJay No. 1 unit and the
DuJay A-1 unit, pursuant to its right under the Hardin County Leases to exercise
pooling authority multiple times, “at any time and from time to time . . . .” Samson
notified the Hooks, stating, “Please note that the Unit Designation for the Black
Stone Minerals ‘A’ No. 1 is being amended and will now be called the Joyce
Dujay No. 1 Unit. No additional action is needed on your part.”
The amended unit and redesignated pooling unit included reduced acreage
from the Black Stone Minerals/FirnBank lease as well as the Hooks’ Hardin
County Leases and others from the original BSM A-1 unit, including the State’s
leases. Although the new DuJay No. 1 unit did not include the horizon from which
the BSM A-1 well was producing, it did include deeper strata that had been
included in the original BSM A-1 unit, including the depths from which the DuJay
No. 1 well was producing. Subsequently, Samson designated a second new gas
production unit that overlapped with the original BSM A-1 unit, which it named
43
the DuJay A-1 unit. The DuJay A-1 unit included different strata not included in
the DuJay No. 1 unit.
The completion of a producing well, the BSM A-1, within the unit area set
out in the unitization agreement served to continue the leases granted to Samson by
FirnBank, the Hooks, and the other landowners in full force and effect so long as
any “unitized substance” continued to be produced from the BSM A-1 well,
subject to unpooling through agreement of the lessors or through cessation of the
production of unitized substance as provided in the habendum clause of the Hardin
County Leases. See Ladd Petroleum Corp., 695 S.W.2d at 107; Whelan, 274
S.W.2d at 128. Therefore, Samson’s redesignation of the BSM A-1 unit constituted
a breach of the Hardin County Leases by Samson, as did its faiure to pay the
Hooks royalties on the production from the BSM A-1 well unless the lessors
agreed to the unpooling.
The Hooks took no action to assert any rights under the originally designated
BSM A-1 unit in response to Samson’s amendment and redesignation of the BSM
A-1 unit as the DuJay No. 1 unit and its subsequent designation of the DuJay A-1
unit until they filed suit for breach of contract against Samson in November 2006,
more than four years from the date of first production and more than four years
from the date the BSM A-1 unit was amended and redesignated and the Hooks
were notified. Instead, the Hooks expressly agreed to accept the redesignation and
44
terms of the new units, binding themselves to accept royalties pursuant to their pro
rata share of the royalties from the DuJay No. 1 and DuJay A-1 units as calculated
under the terms of the DuJay No. 1 and DuJay A-1 unitization agreements, and
they did accept royalties from the production of both DuJay units until the time of
trial in this case.
We conclude that, by accepting royalty checks from the amended and
redesignated pooling units, the DuJay No. 1 and DuJay A-1 units, which they had
been notified replaced the BSM A-1 unit, and by not asserting any rights to
royalties from the original BSM A-1 unit or making any timely claim against
Samson in regard to the amendment and redesignation of the BSM A-1 unit, the
Hooks accepted and ratified the amendment and redesignation of the units. See
Fortune Prod. Co. v. Conoco, Inc., 52 S.W.3d 671, 678 (Tex. 2000) (stating that
ratification is adoption or confirmation by person with knowledge of all material
facts of prior act which he had right to repudiate); Montgomery, 424 S.W.2d at
214–15.
We hold, therefore, that the Hooks are estopped to assert an interest in
royalties from production from the BSM A-1 well by their ratification of the
amended and redesignated BSM A-1 unit.
We sustain Samson’s sixth issue.
45
(b) The Hooks’ Summary Judgment on the “Most Favored Nations”
Clause in the Jefferson and Hardin County Leases
In its seventh issue, Samson claims that the trial court erred in rendering
summary judgment in the Hooks’ favor on the “most favored nations” lease clause
contained in all three of the Hooks’ Leases. This clause provided that, under
certain circumstances, the royalties payable to the Hooks must be elevated to
match the highest royalty payable to Samson’s other lessors. Specifically, the
clause provides:
XXIX.
MOST FAVORED NATIONS CLAUSE
If Lessee shall enter into an oil and gas lease(s) part of which is
located within three (3) miles of any exterior boundary of the subject
lands covered by the Subject Lease, hereinafter referred to as “Third
Party Lease,” Lessee shall notify Lessor of such fact. If the reserved
royalty or the amount per acre payable for delay rentals, shut-in
rentals or minimum royalty, at any time payable under such Third
Party Lease, is higher than the like royalty and amounts payable as
provided in the Subject Lease, the royalty or amount payable per acre
in the Subject Lease, which is less than that provided in the Third
Party Lease shall be immediately increased so that it will equal the
royalty or other amounts payable under the Third Party Lease. The
subject Lease and the Third Party Lease must be calculated in
substantially the same manner, such that the comparison of the
Subject Lease and the Third Party Lease is based on the same
effective net royalty or other payments, and that same shall include or
deduct the same types of charges, taxes and other burdens from such
interests.
46
The trial court granted summary judgment in the Hooks’ favor, holding that
this clause was triggered by royalty paid to the State of Texas under a pooling
agreement with Samson that was higher than the royalty due to the Hooks.
It is undisputed that the State of Texas’s lease under Pine Island Bayou
(“State of Texas Lease”) is a “Third Party Lease” within the meaning of that term
in the most favored nations clause in the Leases in that it covers land located
within three miles of the lands covered by the Hooks’ Leases. The State, like
FirnBank and the Hooks, originally consented to pooling to form the BSM A-1
unit. It declined, however, to consent to the subsequent DuJay No. 1 unit. In order
to obtain the State’s consent to pool its lease under Pine Island Bayou into the
DuJay No. 1 unit, Samson entered into a pooling agreement wherein Samson
became obligated to pay the State a 28.28896% royalty on production from the
DuJay No. 1 well, as opposed to the 25% it had been paying the State and was
paying to the Hooks. The issue, therefore, is whether the pooling agreement
executed by Samson and the State constitutes a “Third Party Lease,” i.e., an oil and
gas lease located within three miles of any exterior boundary of any of the Hooks’
Leases with a higher royalty than that provided for in the Hooks’ Leases, so that
Samson’s obligation to pay the Hooks increased royalties under the most favored
nations clause in those leases was triggered.
47
A most favored nations clause is “a vendor protection clause [that] enables
the vendor to receive the benefit of increases in the market price of his product
over the term of a long range contract with a purchaser.” Lone Star Gas Co. v.
Howard Corp., 556 S.W.2d 372, 374 (Tex. Civ. App.—Texarkana 1977, writ ref’d
n.r.e.). Such a clause is enforced according to its terms. See id. at 375–76.
The most favored nations clause in the Leases referred specifically to
Samson’s obligation to pay the Hooks royalty per acre equal to that payable under
any Third Party “oil and gas lease(s) part of which is located within three (3) miles
of any exterior boundary of the subject lands covered by [the Hooks’] Lease that
Samson entered.” Here, however, Samson did not enter an “oil and gas lease” with
the State that required it to pay higher royalties per acre than it was paying the
Hooks under their Leases. It entered a settlement agreement, called a “Pooling
Agreement,” that raised only the royalty payable to the State on production from
the DuJay No. 1 unit.
The difference between the royalties payable to the State on production from
the DuJay No. 1 unit and the royalties paid to the Hooks did not represent a
difference in the market price of gas at the time the pooling agreement was
entered; nor did it represent a general increase in the royalty rate on the State’s
leases. It was an amount agreed upon by Samson and the State to induce the State
to accept the amended unit in place of the BSM A-1 unit and to compensate the
48
State for its loss of royalties from the BSM A-1 well due to Samson’s amendment
and redesignation of the BSM A-1 unit as the DuJay No. 1, excluding the BSM A1 well formation.
We conclude that, under its plain terms, the most favored nations clause in
the Hooks’ Leases does not apply to trigger royalties payable to the Hooks equal to
those payable under the settlement agreement reached between Samson and the
State. Therefore, we hold that the trial court erred in granting the Hooks’ motion
for summary judgment for damages under the most favored nations clause in the
Hardin County Leases.
We sustain Samson’s seventh issue.
3. The Hooks’ Claims Under the Formation Production Clause in the
Jefferson and Hardin County Leases
In its fifth issue, Samson complains about the jury’s finding, in response to
Question Number 8, that Samson’s failure to pay royalty based on formation
production resulted in underpayment of royalty under the Hooks’ Jefferson and
Hardin County Leases and the trial court’s judgment awarding the Hooks damages
based on the formation production clause in the Leases. Samson contends the
issue was erroneously submitted to the jury because the construction of the
contractual provision involved was a question of law for the trial court; therefore,
the jury’s response to Question Number 8 is immaterial. Samson argues that, as a
matter of law, the lease provision in question, properly construed, does not require
49
Samson to pay for formation production, as this would require it to pay twice for
molecules of gas produced at the surface of the well as liquid condensate. It also
contends that there is legally and factually insufficient evidence that the Hooks’
Leases required Samson to pay twice for those molecules of gas. It states that, by
giving effect to the jury’s answer to Question Number 8, the trial court increased
all the other categories of damages assessed against it.
Condensate consists of “hydrocarbons that exist in the form of gas when
contained in the natural gas reservoir underground, which condense into liquid
form when released from the reservoir’s higher pressure and temperature.”
Bowden v. Phillips Petroleum Co., 247 S.W.3d 690, 704 n.7 (Tex. 2008). When
gas is produced, it goes through a mechanical separator through which condensate
drops out as a liquid at the wellhead. The Railroad Commission has implemented
a system by which producers report the amount of gas in the reservoir before it is
produced. This system requires producers to use a formula to calculate the volume
of reservoir gas produced at the surface as a liquid. “Formation production” is thus
the calculation of the total amount of natural gas taken from the reservoir in
whatever form it arrives at the surface, whether in the form of gas or in the form of
liquid condensate.
Formation production calculations allow the Railroad
Commission to track the amount of gas coming out of the ground to avoid
overproduction.
50
Article III of each of the Hooks’ Leases contained several paragraphs
specifying how royalties were to be paid. It reads in pertinent part:
III
ROYALTIES:
Lessors reserve for themselves . . . the following royalties . . .
....
B. (1) On gas, including casinghead gas or other gaseous
substances produced from said land, Twenty-Five percent
(25%) of the market value at the wells of such gas, or TwentyFive percent (25%) of the price received therefor by Lessee,
whichever is greater . . .
D. An equal Twenty-Five percent (25%) part of all other liquid
hydrocarbons that may be produced from said land . . .
....
K. For the purposes of calculating all royalties payable under
Article III herein, it is expressly provided that all such
calculations shall be based on formation production as reported
on Texas Railroad Commission forms P-1 and P-2.
The Hooks base their formation production argument on Article III(K).
They contend that although this provision expressly refers to the entirety of Article
III, which covers payments for both liquids and gas, it requires that all calculations
shall be based on gas as it exists in the reservoir so that royalties must be paid on
liquid condensate both as it is produced in liquid form and as it exists in gaseous
form in the reservoir.
51
The interpretation of the formation production provision in the Hooks’
Leases is a matter of contract construction. Whether a contract is ambiguous is a
question of law for the court. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223,
229 (Tex. 2003). We construe the parties’ intentions as expressed in the document,
considering the entire writing and attempting to harmonize and give effect to all of
the contract’s provisions with reference to the whole agreement. Frost Nat’l Bank
v. L & F Distribs., 165 S.W.3d 310, 311–12 (Tex. 2005). “We construe contracts
‘from a utilitarian standpoint bearing in mind the particular business activity
sought to be served’ and ‘will avoid when possible and proper a construction
which is unreasonable, inequitable, and oppressive.’” Id.; accord Ace Ins. Co. v.
Zurich Am. Ins. Co., 59 S.W.3d 424, 428 (Tex. App.—Houston [1st Dist.] 2001,
pet. denied). If, after the rules of construction are applied, the contract can be
given a definite or certain legal meaning, it is unambiguous and we construe it as a
matter of law. Frost Nat’l Bank, 165 S.W.3d at 312.
Article III of the Hooks’ Leases, governing the payment of royalties,
addresses a number of royalty payment issues. In each case, it unambiguously
states that Samson will pay 25% of the proceeds it receives, whether for gas or for
liquids, as royalties to the Hooks unless the proceeds are below market value, in
which case it must pay 25% of market value. In no place do the Leases state that,
having paid royalties to the Hooks from the proceeds it receives on the sale of gas
52
or liquid condensate, Samson must pay for the condensate a second time as it
existed as gas in the reservoir. Article III does not state that Samson must pay a
25% royalty on “formation production” in addition to royalty on gas and liquids as
produced, and we decline to read that provision into the unambiguous language of
the Lease. See Mann Frankfort Stein & Lipp Advisors Inc. v. Fielding, 289 S.W.3d
844, 850 (Tex. 2009) (“[T]erms are to be implied in contract, not because they are
reasonable, but because they are necessarily involved in the contractual
relationship, such that the parties must have intended them and must have failed to
express them only because of sheer inadvertence or because they are too obvious to
need expression.”). We agree with Samson that the unambiguous meaning of these
lease provisions is that the Hooks are entitled to a 25% royalty on all gas and liquid
hydrocarbons at the time proceeds are received from their sale.
We hold that, under its plain language, the formation production clause in
Article III(K) of the Hooks’ Jefferson County and Hardin County Leases does not
operate to double the amount of royalties owed on the liquid condensate produced
from the well.
Therefore, the trial court erred in awarding the Hooks damages
calculated under the formation production clause in their Leases.
We sustain Samson’s fifth issue.
53
4. The Trial Court’s Grant of a Permanent Injunction
In its eighth issue, Samson claims that the trial court erred by granting a
permanent injunction in its judgment that requires it to fulfill certain contractual
provisions upon pain of contempt of court. Samson claims that no evidence was
presented of the elements necessary for a permanent injunction.
The first item of injunctive relief requires Samson to pay the Hooks royalty
on production from the BSM A-1 well commencing with production after May
2008. The fourth item states that Samson shall be liable for all ad valorem taxes on
the Hooks’ interests in the oil and gas leases at issue after November 2007, as long
as those leases are in effect. The fifth item requires Samson to provide the Hooks
with certain notices and information “as required by the oil and gas leases in this
case while those leases are in effect.”
A permanent injunction is proper only when there is evidence of four
elements: (1) a wrongful act; (2) imminent harm; (3) irreparable injury, and (4) no
adequate remedy at law. Jordon v. Landry’s Seafood Rest., Inc., 89 S.W.3d 737,
742 (Tex. App.—Houston [1st Dist.] 2002, pet. denied). The ruling is reviewed for
an abuse of discretion. Id. Courts do not enforce contractual rights by permanent
injunction unless the complaining party can show an inadequate remedy at law and
irreparable injury. Cytogenix, Inc. v. Waldroff, 213 S.W.3d 479, 487 (Tex. App.—
Houston [1st Dist.] 2006, pet. denied).
54
Moreover, in order to grant specific
performance of a contract via an injunction, present performance of the contract’s
terms must be possible.
Id.
“A court should not decree future contractual
performance by requiring a party to perform a continuous series of acts, extending
through a long period of time, over which the court exercises its supervision.” Id.
Unless a “significant public interest” is involved, parties to a contract are “left to
their remedies at law.” Id.
The Hooks have failed to cite to us any evidence showing that they are in
danger of imminent harm or irreparable injury from Samson’s failure to pay them
royalties on production from the BSM A-1 well or ad valorem taxes or failure to
provide them with lease notices and information. Nor have they shown that they
have no adequate remedy at law for their grievances. Moreover, at least three of
the items of injunctive relief decree future contractual performance, which is
forbidden by Cytogenix. Id. Accordingly, we conclude that the trial court abused
its discretion by including injunctive relief in its order (1) in the absence of any
evidence of the elements of a permanent injunction and (2) when the injunctive
relief decrees future contractual performance.
We sustain Samson’s fifth issue.9
9
In its eighth issue, Samson complains about the grant of attorney’s fees in the final
judgment. The parties stipulated that the Hooks’ right to collect attorney’s fees
was contingent on the Hooks’ prevailing at trial and on appeal. Additionally, in
two sentences in its appellate brief, Samson claimed that “[i]t was error to award
postjudgment interest of 18% compounded annually. Instead, the postjudgment
55
C. CONCLUSION
We reverse the trial court’s final judgment awarding the Hooks damages on
their fraud, fraudulent inducement, statutory fraud, and formation production
claims and render judgment that the Hooks take nothing by these claims. We
likewise reverse the trial court’s final judgment as it reaffirms and incorporates its
summary judgments on the Hooks’ unpooling and most favored nations claims,
and render judgment that the Hooks take nothing by these claims. Because of our
holding on these issues, we vacate the trial court’s award of attorney’s fees and
post-judgment interest.10
Finally, we vacate the permanent injunction entered
against Samson by the trial court.
interest should be at the same rate as a proper prejudgment interest rate.” We
asked for and received supplemental briefing from both parties on this issue. The
supplemental issue, as phrased by Samson, is as follows: “Should the
postjudgment interest rate be 5% as set by Texas Finance Code § 304.003, rather
than the rate of 18% as stated in the Final Judgment?” Because we have reversed
the judgment in favor of the Hooks so that they are not prevailing parties, upon
which their right to attorney’s fees and post-judgment interest are both contingent,
we do not reach these issues.
10
During trial, the parties stipulated that Samson owed the Hooks$52,257.22 related
to ad valorem taxes. The parties’ agreement as to Samson’s payment of ad
valorem taxes was not appealed. However, on rehearing, the Hooks argue that
they are entitled to their attorney’s fees because Samson’s stipulation regarding ad
valorem taxes meant that the Hooks prevailed on a claim, and, thus, they are
entitled to the stipulated attorney’s fees under the terms of a separate pre-trial fee
stipulation. The pre-trial fee stipulation provided that the stipulated amount of
attorney’s fees “are owed to [the Hooks] by [Samson] if [the Hooks] prevail on
any of their claims.” The agreement then provided specific exceptions for claims
not relevant here. An “agreement between the parties will not be given greater
effect than intended,” and “[a] stipulation will not be construed as an admission of
56
II. THE HOOKS’ CROSS-APPEAL
Before trial, the Hooks and Samson filed cross-motions for summary
judgment on the issue of whether Samson breached the offset obligations in the
Hardin County Leases. The trial court granted Samson’s motion and denied the
Hooks’ motion on this issue without stating its reasons.
The Hooks filed a cross-appeal claiming, in one issue, that the trial court
erred in granting Samson’s motion for summary judgment and denying their own.
The Hooks include in this issue sub-issues regarding the correct interpretation of
Samson’s offset obligations under the Jefferson County and Hardin County Leases,
an exception in the Leases for pre-existing wells, and the statute of limitations.
Samson contends that the Hooks have waived their appeal of the summary
judgments by failing to preserve it. It further argues that the trial court correctly
interpreted the Hardin County Leases with respect to the issues raised by the
Hooks on cross-appeal and correctly rendered summary judgment holding that the
Hooks’ offset claims are contract claims that are barred by limitations.
a fact intended to be controverted.” Austin v. Austin, 603 S.W.2d 204, 207 (Tex.
1980). Nothing in the ad valorem tax stipulation indicated that it was intended to
constitute an admission that the Hooks had prevailed on that issue. Thus, the
stipulated payment of ad valorem taxes does not entitle the Hooks to claim
attorney’s fees. See id.
57
A. STANDARD OF REVIEW
To prevail on a summary judgment motion, a movant has the burden of
proving that it is entitled to judgment as a matter of law and that there is no
genuine issue of material fact. TEX. R. CIV. P. 166a(c); Cathey v. Booth, 900
S.W.2d 339, 341 (Tex. 1995). Neither party herein argues that a genuine issue of
material fact exists which precludes summary judgment; instead, both claim that,
as a matter of law, they are entitled to summary judgment based on the language of
the Leases.
B. STATUTE OF LIMITATIONS
The Hooks’ claims that Samson breached its offset obligations are breach of
contract claims. The four-year statute of limitations applies to the Hooks’ contract
claims. See Stine v. Stewart, 80 S.W.3d 586, 592 (Tex. 2002); HECI Exploration
Co., 982 S.W.2d at 885. “It is well-settled law that a breach of contract claim
accrues when the contract is breached.” Stine, 80 S.W.3d at 592.
Here, Samson’s alleged breach of its offset obligations occurred ninety days
from the date of first production from the wells in question. For the BSM No. 1
well, the ninety days ran in January 2001. For the BSM A-1 well, the ninety days
ran in September of 2001. The Hooks did not file suit until November of 2006,
more than five years later.
58
We conclude that the Hooks’ cause of action for Samson’s breach of its
offset obligations was barred by the four-year statute of limitations.
Because our resolution of this issue is dispositive, we do not reach the other
sub-issues raised in the Hooks’ cross-appeal. 11
We overrule the Hooks’ issue on cross-appeal.
III.
CONCLUSION
We affirm the portion of the trial court’s judgment awarding the Hooks
$52,257.22 related to ad valorem taxes as stipulated by the parties. We reverse the
remaining portions of the final judgment of the trial court, including the awards to
the Hooks of $20,081,638.07 for damages proximately cause by fraud,
$848,854.01 for damages for breach of the most favored nations clause, and
$766,626.85 for damages for “unpooling” related to the BSM A-1 well, attorney’s
fees, other fees and costs, and pre- and post-judgment interest. We hold that the
Hooks take nothing by those claims, and we vacate the permanent injunction
entered against Samson.
Evelyn V. Keyes
Justice
Panel consists of Justices Keyes, Sharp, and Massengale.
Justice Sharp, concurring in part and dissenting in part.
11
Likewise, we do not reach Samson’s claims of waiver.
59
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