Repsol Oil and Gas USA, LLC as Successor of Talisman Energy USA Inc, Statoil Texas Onshore Properties, LLC, and Statoil Pipelines, LLC, and OGE, LLC v. Matrix Petroleum, LLC, Matrix Petroleum Holdings LLC, JAR Resources Holdings, L.P., and TMRX Petroleum, LLC
Date Filed2023-12-27
Docket04-18-00411-CV
Cited0 times
StatusPublished
Full Opinion (html_with_citations)
Fourth Court of Appeals
San Antonio, Texas
OPINION
No. 04-18-00411-CV
REPSOL OIL AND GAS USA, LLC, as successor to Talisman Energy USA Inc., Statoil Texas
Onshore Properties LLC, and Statoil Pipelines LLC,
Appellants
v.
MATRIX PETROLEUM, LLC, Matrix Petroleum Holdings, LLC, JAR Resources Holdings,
L.P., TMRX Petroleum LLC, and OGE, LLC,
Appellees
From the 218th Judicial District Court, La Salle County, Texas
Trial Court No. 14-08-00158-CVL
Honorable Russell Wilson, Judge Presiding
Opinion by: Rebeca C. Martinez, Chief Justice
Concurring Opinion by: Beth Watkins, Justice
Sitting: Rebeca C. Martinez, Chief Justice
Luz Elena D. Chapa, Justice
Beth Watkins, Justice
Delivered and Filed: December 27, 2023
AFFIRMED IN PART; REVERSED AND RENDERED IN PART; REVERSED AND
REMANDED IN PART; DISMISSED IN PART
This is a cross-appeal from an oil-and-gas jury trial. Although much of the final judgment
is unchallenged, all parties, save two, appeal aspects of the judgment. 1 For the reasons that follow,
we affirm part of the judgment, reverse part of the judgment, render judgment in part, and remand
1
The parties that did not appeal are Statoil Pipelines LLC and Matrix Petroleum LLC; however, each filed appelleeâs
briefs.
04-18-00411-CV
for further proceedings on attorneysâ fees. We also dismiss a part of one appeal for lack of
jurisdiction.
BACKGROUND
The parties to this lawsuit were working interest owners in the Cooke Ranch. In 1954, the
predecessors to the parties signed a joint operating agreement (the âJOAâ). The JOA governs the
working interest ownersâ obligations to produce and share oil and gas. All of the parties took their
interests in the Cooke Ranch subject to the terms of the JOA. In addition to the JOA, in 2010,
certain of the working interest owners or their predecessors entered into term assignments (the
âTerm Assignmentsâ or âAssignmentsâ), in which the parties to the Assignments made further
commitments to drill wells.
The partiesâ working relationships eventually deteriorated and led to this lawsuit. After a
jury trial, the trial court entered an Amended Final Judgment, from which the parties now appeal.
There is some overlap as to the appeals. In general, Repsol Oil and Gas USA, LLC, as successor
to Talisman Energy USA Inc. (âTalismanâ), and Statoil Texas Onshore Properties LLC (âStatoil
Texasâ) and Statoil Pipelines LLC (âStatoil Pipelinesâ and collectively with Statoil Texas,
âStatoilâ) 2 are on one side. Talisman and Statoil Texas obtained their working interests subject to
the Term Assignments, and, at the time of trial, Talisman and Statoil Texas collectively held
leasehold working interests in the Cooke Ranch of just over 63%. After trial, Statoil Texas sold
its interest to Talisman, and, as a result of this sale, Statoil Texasâs appeal is the subject of two
pending motions to dismiss on the grounds that Statoil Texas lacks standing and that its appeal is
moot. Statoil Pipelines transported and processed oil and gas produced from Cooke Ranch wells.
On appeal, Talisman and Statoil Texas contend the majority of the damages awards against them
2
Statoil Texas and Statoil Pipelines are now known respectively as Equinor Texas Onshore Properties LLC and
Equinor Pipelines LLC.
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04-18-00411-CV
cannot be sustained, and they challenge certain of the trial courtâs declarations as based on
improper contract interpretations. Statoil Pipelines is an appellee only, and it seeks to sustain the
damages awards in its favor.
On the other side are OGE, LLC (âOGEâ), Matrix Petroleum, LLC (âMatrix Petroleumâ),
Matrix Petroleum Holdings, LLC (âMatrix Holdingsâ), JAR Resources Holdings, L.P. (âJARâ),
and TMRX Petroleum LLC (âTMRXâ and collectively with Matrix Petroleum, Matrix Holdings,
and JAR, âMatrixâ 3). OGE, Matrix Holdings, JAR, and TMRX hold the remaining leasehold
working interests in the Cooke Ranch. 4 Matrix Holdings and JAR hold their interests subject to
the Term Assignments. TMRX and OGE do not. Matrixâs and OGEâs challenges to the judgment
relate principally to the damages awards against them for fees charged by Talisman and Statoil
Pipelines. Among these fee disputes are disputes related to the construction and operation of a
central delivery point (the âCDPâ), at which hydrocarbons produced from wells on the Cooke
Ranch and from wells on four other leases were commingled and then sold. Additionally, Matrix
challenges several of the trial courtâs declarations.
Last, all appealing parties challenge aspects of the attorneysâ fees awards. We decide the
partiesâ issues by topic, beginning first with damages against Talisman related to âmissing
volumesâ of production.
DISCUSSION
I. âMissing Volumesâ of Production
Approximately $79 million of the money judgment against Talisman relates to âmissing
volumesâ of production reported as being sold through the CDP. In several issues, Talisman
3
The term âMatrixâ includes four parties; however, we use singular verbs with Matrix when necessary to avoid
awkward constructions.
4
At one point, Matrix Petroleum held a working interest, but, by the time of trial, it had assigned its interest to Matrix
Holdings and JAR.
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04-18-00411-CV
argues that these awards for âmissing volumesâ must be reversed. We address only Talismanâs
issue on the adequacy of the pleadings and hold that Matrix and OGE did not plead âmissing
volumesâ claims that could support the damages awards. We also hold that the parties did not try
the issue by consent and that Talisman did not waive its complaint of pleading deficiency.
Consequently, the judgment as to the âmissing volumesâ awards must be reversed, and we render
a take-nothing judgment on this issue.
A. Pleading Deficiency
1. Standard of Review and Applicable Law
Rule 301 of the Texas Rules of Civil Procedure requires that the judgment of the trial court
must be supported by the pleadings. TEX. R. CIV. P. 301. In Texas, pleadings must give âfair
notice of the claim involved.â Id. R. 47(a); see also R. 45(b). This âfair noticeâ pleading standard
âlooks to whether the opposing party can ascertain from the pleading the nature and basic issues
of the controversy and what testimony will be relevant.â Horizon/CMS Healthcare Corp. v. Auld,
34 S.W.3d 887, 896(Tex. 2000); see also Taylor v. Taylor,337 S.W.3d 398, 401
(Tex. App.â Fort Worth 2011, no pet.) (âGenerally, a pleading provides fair notice of a claim when an opposing attorney of reasonable competence can examine the pleadings and ascertain the nature and basic issues of the controversy and the relevant testimony.â). âA petition is sufficient if it gives fair and adequate notice of the facts upon which the pleader bases his claim. The purpose of this rule is to give the opposing party information sufficient to enable him to prepare a defense.â Horizon/CMS Healthcare,34 S.W.3d at 896
. âUltimately, the purpose of pleadings is to give the adversary parties notice of each parties[â] claims and defenses, as well as notice of the relief sought.â Perez v. Briercroft Serv. Corp.,809 S.W.2d 216, 218
(Tex. 1991). When, as here, no special exceptions
are filed, we construe the pleadings liberally in favor of the pleader. Med. Imaging Sols. Group,
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04-18-00411-CV
Inc. of Tex. v. Westlake Surgical, LP, 554 S.W.3d 152, 159 (Tex. App.âSan Antonio 2018, no
pet.).
2. Analysis
Because the âmissing volumesâ claims are complex, we begin our discussion with the relief
awarded. See Perez, 809 S.W.2d at 218. We then consider the evidence and the theories Matrix and OGE use to support this relief. Last, we look at the pleadings to determine if an opposing counsel of reasonable competence could examine the pleadings and ascertain the nature and basic issues of the controversy and the testimony that would be relevant. See Horizon/CMS Healthcare,34 S.W.3d at 896
.
a. The Relief Awarded
The judgment orders that Matrix obtain from Talisman: âDisgorgement of the Matrix
Parties,[5] and TMRXâs, net revenue interest percentage share of the net revenues from the missing
volumes of production reported as being sold through the CDP from the date of first production
through February 1, 2017, in the amount of $67,591,369.â Likewise, the judgment provides that
OGE obtain relief in the amount of $11,265,228. Matrix elected to recover its award based on its
breach of contract claim, and OGE asserted its election to recover under both its breach of contract
and breach of fiduciary duty claims.
b. Matrixâs and OGEâs Breach of Contract Claims
On appeal, Matrix describes its disgorgement award as an âaward under Humble Oilâ and
asserts that its âclaim is based on Humble Oil.â OGE argues that the award satisfies the
ârestitutionary formula under Humble Oil,â which is a âspecific protocol for assessing restitution.â
5
The trial court defined âMatrix Partiesâ as Matrix Petroleum, Matrix Holdings, and JAR.
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04-18-00411-CV
Because Humble Oil & Refining Co. v. West, 508 S.W.2d 812 (Tex. 1974) forms the bases of the
partiesâ âmissing volumesâ claims, we consider it in detail.
i. Humble Oil
Humble Oil concerned a contract between parties and âexisting circumstancesâ related to
an oilfield reservoir approaching depletion. Id. at 814. As the supreme court described, the Wests conveyed to Humble Oil fee title to certain lands but retained royalties from oil and gas âproduced and savedâ from the lands.Id. at 813
. When the mineral reservoir beneath the lands approached depletion, Humble Oil concluded that the injection of extraneous gas was necessary to preserve the reservoir from destruction by water encroachment.Id.
The Wests sued to enjoin the injection of gas into the reservoir, and alternatively, they sought declaratory judgment that Humble Oil must account to them for their royalty interest in all gas produced from the reservoir whether native or stored.Id.
at 813â14.
The Texas Supreme Court concluded that the Wests were not entitled to an injunction under
âthe accepted principles of accommodationâ between competing interests. Id. at 816. That, however, left the question of how to account in royalties for production from the reservoir, which after injection of non-native gas, would include both native and stored gas.Id.
Looking first to the deed, the supreme court determined that language specifying the Wests would retain royalties from oil and gas âproduced and savedâ did no more than reserve the royalty interest in the native gas in the reservoir.Id. at 817
.
This determination was contrary to the trial courtâs determination that Humble Oil must
account to the Wests for their royalty interest in all gas produced from the reservoir; therefore, the
supreme court next considered whether a confusion-of-goods theory could sustain the trial courtâs
judgment. Id. According to the supreme court, after the injection of stored gas into the reservoir,
the question became âone of determining whether Humble [Oil]âs intentional âconfusionâ of the
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04-18-00411-CV
two bodies of gas should result in the forfeiture of its exclusive rights to the extraneous gas.â Id.
at 818. The court noted the general rule that âthe burden is on the one commingling the goods to properly identify the aliquot share of each owner; thus, if goods are so confused as to render the mixture incapable of proper division according to the pre-existing rights of the parties, the loss must fall on the one who occasioned the mixture.âId.
After reviewing the evidence, the supreme
court ordered a remand for further evidentiary development, stating:
As we have indicated, it is our view that the act of commingling native and
extraneous gas did not impose upon Humble [Oil] the obligation of paying royalties
on all gas thereafter produced from the reservoir, if the evidence establishes with
reasonable certainty the volume of gas reserves upon which the Wests would have
been entitled to royalties, absent injection of extraneous gas. The burden of this
showing devolves upon Humble [Oil] after proof by the Wests of their royalty
interests, together with proof of Humble [Oil]âs commingling of extraneous and
native gas. The threshold question for determination is whether the requisite
computation of reserves is capable of establishment with reasonable certainty; and,
if so, the further question to be resolved is whether the burden defined above is
discharged by Humble [Oil] under the evidence.
Id. at 819.
ii. Matrix and OGEâs Confusion-of-Goods Theory
Matrix and OGE look to Humble Oil and its discussion on confusion of goods for the legal
underpinnings of their âmissing volumesâ claims. While in Humble Oil, the dispute was about the
initial volume of native gas in a reservoir prior to the injection of extraneous gas, here the dispute
is over the total amount of oil and gas commingled at a central delivery point, the CDP. See id.;
see also Exxon Corp. v. West, 543 S.W.2d 667, 674 (Tex. Civ. App.âHouston [1st Dist.] 1976,
writ refâd n.r.e.) (determining on remand that successor to Humble Oil was not required to account
to Wests for gas produced in excess of maximum amount of native gas, as established by expert
testimony). In other words, the dispute here is about the âsize of the pie,â as the parties put it â
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04-18-00411-CV
that is, the total amount of hydrocarbons comingled at the CDP. The parties contest who, under
the precedent of Humble Oil, bore the burden of establishing this total amount commingled. 6
In brief, this dispute over the total production commingled at the CDP arose because
Talisman amended oil and gas production reports filed with the Texas Railroad Commission
(âRRCâ). The CDP gathers hydrocarbons produced from the Cooke Ranch and from the Reed,
Hinkel, Cartwright and Belows leases. Unlike with production from the Cooke Ranch, Talisman
and Statoil owned all of the royalties relating to production from the Hinkel and Reed leases. The
amended RRC reports, filed between 2015 and 2017, report additional volumes of oil and gas
produced from the Hinkel and Reed leases for the years 2013 and 2014. Matrixâs and OGEâs
theory for their âmissing volumesâ of production claims is that Talisman, as the one commingling
production at the CDP, bore the burden under Humble Oil to establish the working interest ownersâ
aliquot share of hydrocarbons commingled at the CDP. Matrix and OGE argue that Talisman did
not meet its burden with respect to the additional volumes of production reflected in the amended
RRC reports for the Hinkel and Reed leases because Talisman did not establish a valid basis to
attribute all of the additional production (the so-called âmissing volumesâ) back to the Hinkel and
Reed leases, rather than to the Cooke Ranch or to the Cartwright and Belows leases.
For its part, Talisman asserts that the amended RRC reports simply correct an earlier
reporting mistake and do not reflect additional volumes of oil and gas commingled at the CDP. In
other words, it asserts there are no âmissing volumes,â and consequently, the Humble Oil
framework does not apply. Further, and as relevant to this analysis, Talisman argues that the
pleadings did not give fair notice of Matrixâs and OGEâs âmissing volumesâ claims.
6
The parties also dispute the methodology for allocating the commingled volume. The dispute about methodology is
the basis of separate claims and monetary awards that Talisman did not appeal, as explained further below.
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iii. The Evidence
We review the evidence Matrix and OGE assert supports their claims, so we can then
review the pleadings to determine if the pleadings gave fair notice of âthe nature and basic issues
of the controversy and what testimony [would] be relevant.â Horizon/CMS Healthcare, 34 S.W.3d
at 896. Evidence for the âmissing volumesâ claims consists chiefly of the voluminous RRC reports
admitted into evidence and testimony by Matrixâs penultimate witness at trial, David Reeves.
David Reeves was Matrixâs manager of reservoir engineering. He testified about a
metering problem affecting wells on the Cooke Ranch that lasted for eight months in 2013. He
also testified about a dispute over the method for allocating the working interest ownersâ share of
production of hydrocarbons commingled at the CDP. Reeves explained that because production
from dozens of wells on five leases was collected at the CDP, a methodology had to be applied to
allocate production back to each lease and each individual well. Talisman applied a volumetric
allocation methodology, and Reeves opined that a flash allocation methodology was more
accurate. In his export report, he calculated that $663,626 was the additional payment due to
Matrix if a flash allocation methodology had been utilized instead of a volumetric allocation
methodology. The jury awarded Matrix this amount in answer to a jury question on the
â[a]mount[] that Talisman should have paid for production if it had used the proper allocation
methodology from the first date of production through March 31, 2016.â These matters regarding
metering and allocation methodology were indisputably raised by the partiesâ pleadings and tried.
The juryâs resolution favored Matrix, and Talisman did not appeal the final judgment in Matrixâs
favor on metering and allocation methodology.
Reevesâs testimony continued on several other matters until Reeves was asked whether he
had an opportunity to review the RRC reports, and he affirmed he had. Reeves testified that a
production report for the Hinkel lease for the month of September 2013 reported that a certain
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number of barrels of oil had been sold. This report was filed with the RRC in November 2013,
and the report was followed by another report for the same month but with a time stamp a minute
later than the first report that listed a different number of barrels sold than the first report. This
second report was followed by a third report filed another minute later with yet a different number
of barrels reported as having been sold. Nearly two years later in 2015, a final amended report
was filed, which reported a much higher number of barrels sold than in any of the three reports
filed in November 2013. Reeves testified that this pattern of amendments in quick succession
followed by a final amendment years later was consistent across RRC reports for the Hinkel and
Reed leases related to production from 2013 and 2014.
Reeves testified that he reviewed the amended RRC reports after his second deposition in
June 2017, which was just two months before trial. After reviewing the reports, he determined
that âthe size of the pie physically grew,â and he calculated the value of the increased âpie,â as
reflected by the additional sales reported in the amended RRC reports filed from 2015 to 2017 for
the Hinkel and Reed leases, to be $380,000,000. After deducting for taxes, royalty burdens, and
operating expenses, the ânet revenue increaseâ was $278,000,000, which amounted to â91 percent
[of the] size of the pie for the CDP.â Thus, according to Reeves, the amendments reflected that
significantly more oil and gas was commingled at the CDP than previously reported. Reeves
calculated that Talismanâs decision to attribute all of the additional volumes of production reflected
in the amended RRC reports to the Hinkel and Reed leases resulted in a ârevenue lossâ to Matrix
of nearly $68,000,000. Reeves affirmed, when questioned by OGEâs counsel, that âOGE [would]
have roughly a sixth of that number.â
Later at trial, Talisman called its lead production accountant, Corinne Bugamelli, to testify
in an attempt to establish that the amended reports did not reflect additional production but simply
corrected a mistake. The production accountant testified that the initial burst of reports filed
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04-18-00411-CV
minutes apart was the result of human error. According to the accountant, the employee who filed
the initial reports filed reports for each well on the Hinkel and Reed leases when he should have
filed a single report for each lease that aggregated production from all of the wells on the lease.
The result was that by the end of these initial bursts of filings, only production from one well for
each lease was reported to the RRC each month. Bugamelli testified that from 2015 to 2017,
Talisman filed amended reports to correct its earlier mistakes. She testified that Talisman paid
royalties to Matrix and OGE based on correct, internal production data, and not based on the RRC
reports.
While Bugamelliâs explanation is simple, verification is more complex. Talisman did not
present an expert who had reviewed all of the relevant RRC reports and compared those reports
against internal production data, adjusted for any metering failures and improper allocation
methodologies, or against reports filed with other regulatory agencies. To support its explanation,
Talisman asks that we take judicial notice of regulatory filings it made with the Texas Comptroller
for severance tax purposes. According to Talisman, filings with the Comptroller in 2013 and 2014
reflect the same volumes of oil and gas reported in the final amended RRC reports. We deny
Talismanâs request as moot. 7 For the reasons that follow, we hold that Matrixâs and OGEâs
pleadings did not give fair notice to Talisman of the âmissing volumesâ claims or the evidence that
would be relevant to give rise to such a claim.
c. OGEâs Claim for Breach of Fiduciary Duty
Before looking at the pleadings, we note OGE argues that its claim for breach of fiduciary
duty also supports the disgorgement award to OGE. The jury charge instructed that Talisman
7
Because we deny Talismanâs request and do not rely on its filings with the Comptroller, we also deny as moot Matrix
and OGEâs motion to strike references in Talismanâs reply brief to filings with the Comptroller and their motion to
file a sur-reply addressing Talismanâs arguments in its reply brief regarding filings with the Comptroller.
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owed non-operator working interest owners, such as OGE, (i) a duty to account for the monies
received for selling the production, (ii) a duty to avoid conflicts of interest when selling the
production, and (iii) a duty not to act as an adverse party in its capacity as the seller of the
production. The jury found that Talisman did not comply with all of these duties. OGE argues
that a remedy for Talismanâs breach of fiduciary duty is disgorgement of Talismanâs âsecret gain
or benefitâ that it wrongfully obtained as an agent for OGE. Kinzbach Tool Co. v. Corbett-Wallace
Corp., 160 S.W.2d 509, 514(1942); see In re Longview Energy Co.,464 S.W.3d 353, 361
(Tex.
2015) (âDisgorgement is an equitable forfeiture of benefits wrongfully obtained.â). OGE further
argues that Humble Oil provides a protocol for assessing restitution.
d. Matrixâs Petition
Matrixâs live pleading at the time of trial was its Ninth Amended Petition. The petition is
71 pages long, with 31 pages of factual background. The factual background begins with a history
of the Cooke Ranch and continues with a section regarding âInitial Breachesâ of the JOA by
Talisman and Statoil. The section describes that, during or about 2010 and 2011, Talisman drilled
wells on four leases adjacent to the Cooke Ranch, which included the Hinkel and Reed leases.
This is the only specific mention of the Hinkel or Reed leases in the petition. Matrix further alleges
in the Initial Breaches section that Talisman and Statoil unilaterally decided âto commingle the
production from the leases adjacent to the Cooke Ranch with that of production on the Cooke
Ranchâ at the CDP. The section states that Talisman entered into right-of-way agreements for the
CDP, incurred expenditures for various operations, and intended to act and did act unilaterally or
in concert with Statoil only, âwithout compliance with the written contracts that it executed and/or
assumed upon acquiring its interest in the Cooke Ranch.â
The petition continues with a section on âInitial Accounting and Disclosure Issues on the
Cooke Ranch,â in which Matrix alleges that since October 2012, when wells began producing oil
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and gas from the Cooke Ranch, Talisman and Statoil have failed to pay Matrix for its share of
production in violation of the Texas Natural Resources Code. The allegation continues that
Talisman and Statoil, instead, have improperly and illegally retained the proceeds of Matrixâs
production and,
breached the partiesâ agreements by including, but not limited to, misallocation,
mismetering, charging [Matrix] fees based on their working interest ownership
instead of their net revenue interest ownership percentage, calculating [Matrixâs]
production revenue on prices less than those which [Talisman and Statoil]
received[,] charging [Matrix] for expenditures not authorized by the partiesâ
agreements, charging [Matrix] an unfair rate for the use of a pipeline gathering
system and Cooke Ranch CDP, . . . failing to compensate [Matrix] for their
production used to satisfy [Talisman and Statoilâs] line fill requirements with third
parties, failing to cure audit exceptions timely raised by [Matrix], failing to
reimburse [Matrix] for credits received by the joint account from third parties,
selling and failing to account and pay [Matrix] for their proportionate share of
proceeds received from all production derived from the Cooke Ranch wells and
failing to timely pay [Matrix] for their share of production in accordance with the
prompt payment requirements of Section 91.402 of the Texas Natural Resources
Code.
The petition continues with a section on âMetering Issues,â in which Matrix alleges that
for a period of nine months in 2013, meters for a number of Cooke Ranch wells and for off-lease
wells whose production was commingled with Cooke Ranch production were not accurately
recording production.
Following this section is one on âAllocation Issues.â In this section, Matrix asserts that
Talisman and Statoil were not using a âflash allocation methodology that both [Matrix] and
Talisman agreed was necessary to properly allocate the production from the Cooke Ranch wells,
after it had been comingled with off-lease production.â The section explains that Talisman and
Statoil applied a âvolumetric allocation methodology,â which may be appropriate for âdry gasâ
but was not appropriate for the âwet gasâ found in the Eagle Ford Shale. Matrix explains further:
47. Talisman quickly learned that the volumetric allocation methodology it used
was not accurate because the chemical compositions of the various wells feeding
into the Cooke Ranch CDP were not the same because certain wells would
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experience less flash [i.e., shrinkage that occurs in the collection, transportation,
and processing of oil and gas] than others based on the chemical composition of the
production being produced by the well. So lumping together or commingling all
of the wellsâ production from multiple leases with different interest owners would
result in some wells being paid based on a greater percentage of production volumes
than the wells actually produced, while other wells were paid on amounts less than
they actually produced.
48. In this particular case, there are a number of wells that feed into the CDP. Some
of these wells are located on the Cooke Ranch and are owned by Talisman, Statoil
and [Matrix], among others, while other wells are located on properties adjacent to
the Cooke Ranch and are owned in large part solely by Talisman and Statoil.
[Matrix] will show that [Talisman and Statoilâs] decision to commingle the
production and apply volumetric allocation to all of these wells resulted in the off-
lease wells owned solely by Talisman and Statoil receiving more than their fair
share of production and associated revenue and, in turn, those wells located on the
Cooke Ranch, in which [Matrix] ha[s] an interest, received less than their fair share
of production and associated revenue.
The section concludes:
53 . . . [Matrix] seek[s] damages incurred by the continued use of this admittedly
flawed allocation methodology/model. Moreover, to the extent that Statoil received
a portion of [Matrixâs] production from the inception of production to present as a
result of the use of flawed allocation models by Talisman and/or Statoil, [Matrix]
seek[s] damages from Statoil as well.
54. In an effort to hide its misallocation from [Matrix], Talisman and Statoil
routinely filed reports with the Texas Railroad Commission, which Talisman knew
were false in direct violation of Texas Natural Resource Code § 91.143.
The petition continues with allegations related to various other matters. After this lengthy
factual background, the petition identifies âClaims and Causes of Action.â This section begins
with an enumeration of Talismanâs and Statoilâs allegedly wrongful acts, which include:
n. Improperly commingling production from [Matrixâs] Cooke Ranch wells;
...
p. Knowingly selling production volumes from Cooke Ranch wells belonging to
[Matrix] without remitting payment to [Matrix] for their production sold;
q. Knowingly using an inaccurate, unreliable allocation methodology to apportion
revenue between âon-Leaseâ wells, in which [Matrix] own working interests, and
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âoff-Leaseâ wells, which are owned entirely by Talisman, Statoil and other working
interest owners unaffiliated with [Matrix];
...
nn. Co-mingling production from the Cooke Ranch with off-lease wells which
resulted in [Matrix] receiving payments for less than the amount of oil and gas
actually produced from the Cooke Ranch wells as a result of Talisman and Statoilâs
flawed volumetric allocation methodology which on information and belief is still
being used to allocate production back to each well which flows through the Cooke
Ranch CDP;
...
xx. The loss of certain volumes that were never accounted to [Matrix], such as the
loss of 8,000 barrels from production in March of 2016 [TLM034846] and 30,000
barrels in 2012 & 2013 [TLM033165 & TLM033163];[8]
...
aaa. Filing false reports with the Texas Railroad Commission in violation of Texas
Natural Resource Code §91.143[.]
The claims section then asserts a claim for breach of contract, which lists Talismanâs and
Statoilâs breaches as including, for each, âImproperly commingling production from [Matrixâs]
Cooke Ranch wells.â Next, a fraud claim lists Talismanâs fraudulent acts as including,
âKnowingly using an inaccurate, unreliable allocation methodology to apportion revenue between
âon-Leaseâ wells, in which [Matrix] own[s] working interests, and âoff-Leaseâ wells, which are
owned entirely by Talisman and other working interest owners unaffiliated with [Matrix].â The
claims section asserts several additional claims, drawing upon the initial list of wrongful acts, and
the petition concludes with a section entitled âRequest for Relief,â which includes a request for
âdisgorgement.â
8
Brackets around âTLM034846â and âTLM033165 & TLM033163â are original.
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e. Analysis as to Matrixâs Petition
Matrix describes its claim as one âunder Humble Oil;â however, it does not specifically
state a claim referencing Humble Oil or specifically reference âconfusion of goodsâ or âmissing
volumesâ of production in any claim. See Humble Oil, 508 S.W.2d at 817â18. While not
dispositive on its own, the omission of a claim clearly related to a confusion-of-goods theory is
notable. The Texas Rules of Civil Procedure require a pleading to give fair notice âof the claim
involved.â TEX. R. CIV. P. 47(a). âProviding only fair notice of factual allegations does not
provide fair notice of claims or causes of action asserted based on . . . alleged facts.â Montelongo
v. Abrea, 622 S.W.3d 290, 300 (Tex. 2021).
Matrix elected to recover its disgorgement award under its breach of contract claim. Absent
from this claim are allegations related to the âallocationâ of commingled production. The breach
of contract claim contains a statement that Talisman breached the JOA by â[i]mproperly
commingling production from [Matrixâs] Cooke Ranch wells.â However, as Humble Oil makes
clear, improper commingling is not equivalent to failing to establish aliquot shares. See Humble
Oil, 508 S.W.2d at 818. In Humble Oil, the supreme court determined that commingling was proper, and it followed this determination with a discussion as to whether Humble Oil had established aliquot shares with reasonable certainty. Seeid. at 816, 818
. Nowhere within Matrixâs
breach of contract claim is there an allegation that Talisman breached a contract with Matrix by
confusing oil and gas at the CDP and by failing to establish aliquot shares with reasonable
certainty. More generally, there is no statement that Talisman breached a contract by failing to
allocate royalties in accordance with contractual rights.
Matrix directs us to various allegations throughout its petition regarding allocation matters.
As described above, the petition includes a factual background section on âAllocation Issues;â
however, the allegations in this background section make clear that the allocation issues Matrix
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04-18-00411-CV
complains about concern the methodology utilized to allocate production back to individual leases
and wells after oil and gas was commingled at the CDP. According to the petition, Matrix argued
that a flash allocation methodology was appropriate, and Talisman and Statoil utilized a volumetric
allocation methodology. The âAllocation Issueâ allegations do not concern amended RRC reports
for the Hinkel and Reed leases for production from specific months in 2013 and 2014. The claims
section restates the allocation issues in terms of a âflawed volumetric allocation methodologyâ and
âunreliable allocation methodology.â
Matrix also points to a statement that Talisman and Statoil âroutinely filed reports with the
Texas Railroad Commission, which Talisman knew were false.â This statement appears within
the âAllocation Issuesâ section. In its context, an opposing attorney of reasonable competence
would read the statement as alleging that Talisman and Statoil filed false RRC reports because
each reported production numbers based on a flawed, volumetric allocation methodology.
Relatedly, Matrix directs us to an enumerated wrongful act, described as:
xx. The loss of certain volumes that were never accounted to [Matrix], such as the
loss of 8,000 barrels from production in March of 2016 [TLM034846] and 30,000
barrels in 2012 & 2013 [TLM033165 & TLM033163][.]
This allegation first appeared in an amended petition, and it references documents Talisman
produced in discovery. The March 2016, 8,000-barrel reference is related to Matrixâs claim that
Talisman underpaid Matrix as shown by discrepancies between production reported on a
Production Volume Reporting system (âPVRâ) and marketed volumes. A Matrix expert witness
produced a report shortly after Matrixâs Seventh Amended Petition was filed that explains this
alleged discrepancy and cites to TLM034846. Ultimately, the jury determined a question related
to this alleged discrepancy against Matrix. The reference to â30,000 barrels in 2012 & 2013â was
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04-18-00411-CV
never discussed at trial. 9 An opposing attorney of reasonable competence would not read Matrixâs
isolated allegation about â[t]he loss of certain volumesâ in 2012, 2013, and 2016 and understand
that it could implicate production from the Hinkel and Reed leases in 2013 and 2014. The specific
examples in the petition do not implicate a confusion-of-goods claim based on amended RRC
reports from off-lease wells, and an opposing attorney of reasonable competence would not
ascertain a âmissing volumesâ claim from Matrixâs examples in its pleading.
Likewise, Matrixâs general request for âdisgorgementâ in its âRequest for Reliefâ refers to
and is controlled by the preceding specific allegations and does not raise a new claim or theory
that the preceding allegations had not. See Heritage Gulf Coast Props., 416 S.W.3d at 660; cf.
Monsanto Co. v. Milam, 494 S.W.2d 534, 536 (Tex. 1973) (âThe specific allegation controls over
the general allegation.â). Here, the theory for Matrixâs claims, as stated repeatedly in its petition,
was that Talisman employed a flawed allocation methodology; this theory does not concern
missing volumes of production related to wells that are not on the Cooke Ranch, and the petition
does not give fair notice of a separate claim for âmissing volumes of production.â 10
Moreover, this is not a case in which the discovery process revealed that the parties
understood that a âmissing volumesâ claim would be tried. Cf. Hammer v. Dall. Transit Co., 400
S.W.2d 885, 889(Tex. 1966) (noting that discovery admission suggested defendant knew plaintiff 9 An expert report from a Matrix witness indicates that TLM033165 & TLM033163 show production from the Cooke Ranch. 10 We held similarly in The Huff Energy Fund, L.P. v. Longview Energy Co. A majority of this court determined that references to âcompetitionâ in a petition were made in connection with a claim for breach of fiduciary duty by usurpation of a corporate opportunity and that the petition did not give fair notice of a separate claim for breach of fiduciary duty by engaging in competition with the corporation. See482 S.W.3d 184
, 197â98 (Tex. App.âSan Antonio 2015) (en banc), affâd sub nom. Longview Energy Co. v. Huff Energy Fund LP,533 S.W.3d 866
(Tex. 2017); see also id. at 199 (Barnard, J., concurring in analysis). We rejected the plaintiffâs argument that a competition claim was raised based on isolated references to competition because the âthemeâ that was carried through the petition was one of âappropriating an opportunity.â Id. at 195, 197; cf. Heritage Gulf Coast Props., Ltd. v. Sandalwood Apartments, Inc.,416 S.W.3d 642
, 658â62 (Tex. App.âHouston [14th Dist.] 2013, no pet.) (holding request for attorneyâs fees in
pleading gave fair notice that recovery was based on specific theories listed and did not give fair notice that recovery
was also sought under theory omitted from list).
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04-18-00411-CV
was relying on allegation of negligence stated in factual background of petition but not restated in
claims section). Reevesâs expert report filed in March 2017 does not discuss a âmissing volumesâ
claim. He affirmed at his second deposition, in June 2017, that he did not anticipate providing
expertise on claims other than those discussed; a âmissing volumesâ claim was not discussed. In
September 2017, Reeves testified at trial that he reviewed the RRC reports related to the Hinkel
and Reed leases and developed the theory for the âmissing volumesâ claim earlier that summer.
This timeline shows that Reeves did not develop his theory for the âmissing volumesâ
claim until after Matrix filed its Eighth Amended Petition in May 2017. While not the live
pleading, the Eighth Amended Petition includes all of the allegations that Matrix directs us to on
appeal concerning its live Ninth Amended Petition. We cannot say that a reasonably competent
opposing counsel would have ascertained from allegations made in the Eighth Amended Petition,
and carried over into the Ninth Amended Petition, a theory or claim for âmissing volumesâ that
Matrix had not yet developed when Matrix first stated the relevant allegations.
In short, we must read a petition in its entirety and construe facts alleged in conjunction
with the claims expressly pled. See Huff Energy Fund, 482 S.W.3d at 197â98. In doing so, we
cannot reasonably infer that Matrixâs live petition contains a âmissing volumesâ claim, and,
therefore, even under a liberal construction, we must conclude that the petition does not. See id.
at 198. Because a âmissing volumesâ claim cannot be reasonably inferred, Talisman had no
obligation to file special exceptions. See id.; Heritage Gulf Coast Props., 416 S.W.3d at 662; Roberts v. Sw. Tex. Methodist Hosp.,811 S.W.2d 141, 145
(Tex. App.âSan Antonio 1991, writ
denied) (âOne who is sued on two specific theories of recovery has no duty to except to the petition
and ask whether there are other theories that the pleader wants to allege.â).
âA trial court may not enter judgment on a claim that was not sufficiently pled or otherwise
tried by consent.â JPMorgan Chase Bank, N.A. v. Profâl Pharmacy II, 508 S.W.3d 391, 420 (Tex.
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04-18-00411-CV
App.âFort Worth 2014, no pet.) (citing TEX. R. CIV. P. 67, 301; Stoner v. Thompson, 578 S.W.2d
679, 682â83 (Tex. 1979)). We hold the âmissing volumesâ claim was not sufficiently pled in
Matrixâs live Ninth Amended Petition. Before rendering a take-nothing judgment on this claim,
we first consider OGEâs petition, and then we consider Matrixâs argument that its âmissing
volumesâ claim was tried by consent.
f. OGEâs Petition and Analysis
As with Matrixâs petition, OGEâs live petition, its Third Amended Original Petition in
Intervention, does not mention Humble Oil or confusion of goods. The petition describes the CDP
as a processing facility at which Talisman commingled production from wells on the Cooke Ranch
with production from âoff-Leaseâ wells, but it does not mention the Hinkel and Reed leases by
name. OGE alleges, as does Matrix, that Talisman âimproperly commingled productionâ from the
Cooke Ranch wells through the CDP. The only statement in the petition regarding allocation is
that Talisman engaged in willful misconduct by:
Using inaccurate, unreliable allocation methodology to apportion revenue between
on-Lease wells in which OGE owns working interest and off-Lease wells which are
owned entirely by Talisman and other working interest owners unaffiliated with
OGE[.]
(Emphasis added.)
We hold, as with Matrixâs petition, that allegations regarding âimproper comminglingâ and
âunreliable allocation methodologyâ do not give fair notice of a âmissing volumesâ claim related
to amended RRC reports for the Hinkle and Reed leases. An opposing counsel of reasonable
competence would not ascertain from OGEâs pleadings an allocation dispute related to amended
RRC reports; an opposing counsel of reasonable competence would ascertain only an allocation
dispute regarding the methodology for allocating commingled production.
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04-18-00411-CV
We acknowledge that OGE alleged that Talisman owed it a fiduciary duty, which included
accounting for profits, and that OGE pled for disgorgement; however, its general allegations
regarding fiduciary duty and its request for disgorgement are controlled by the specific allegations
about improper commingling and an unreliable allocation methodology. See Monsanto, 494
S.W.2d at 536. These specific allegations do not give fair notice of an allocation dispute related to production reflected in amended RRC reports for off-Lease wells. See Huff Energy,482 S.W.3d at 198
; Heritage Gulf Coast Props.,416 S.W.3d at 660
; cf. Monsanto,494 S.W.2d at 536
. OGE did not plead facts that apprised Talisman of the nature and basic issues of the âmissing volumesâ controversy or the testimony that would be relevant under either its breach of contract claim or its breach of fiduciary duty claim. See Horizon/CMS Healthcare Corp.,34 S.W.3d at 896
. 11
As with Matrix, OGE argues that the âmissing volumesâ claim was nevertheless tried by
consent.
B. Trial by Consent
1. Standard of Review and Applicable Law
Issues not raised by the pleadings may be tried by express or implied consent of the parties
and treated as if they had been raised in the pleadings. TEX. R. CIV. P. 67. Trial by consent applies
only when it appears from the record that the issue was actually tried. Med. Imaging, 554 S.W.3d
at 160. To make this determination, the trial court must review the record not for evidence of the issue, but rather for evidence of trial of the issue.Id.
The doctrine of trial by consent is only
intended to cover the exceptional case in which it clearly appears from the record as a whole that
11
We deny as moot Talismanâs request to supplement its opening brief with a sentence to clarify that it challenges the
disgorgement award under both a contract basis and a breach of fiduciary duty basis. Since its opening brief, Talisman
has maintained that OGE did not plead a âmissing volumesâ claim. This argument necessarily encompasses the
argument that OGEâs pleading as to its breach of fiduciary duty claim does not raise a âmissing volumesâ claim.
Because we hold that Talisman has challenged all bases for the disgorgement award, we reject OGEâs argument that
Talisman waived the right to challenge the award by failing to specifically challenge a breach of fiduciary duty basis
for the award.
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04-18-00411-CV
the parties tried the unpleaded issue, and it is not intended to establish a general rule of practice.
Kebodeaux v. Kebodeaux, No. 04-20-00147-CV, 2021 WL 3639814, at *3 (Tex. App.âSan Antonio Aug. 18, 2021, no pet.) (mem. op.). Consent may be found only where evidence regarding the unpleaded issue is developed under circumstances indicating that both parties understood the issue was in the case, and the other party failed to make an appropriate complaint.Id.
A trial court has broad discretion in determining whether an unpleaded issue was tried by consent.Id.
However, it abuses its discretion if it acts arbitrarily or in an unreasonable manner without reference to any guiding rules or principles.Id.
Although âdiscretion is to be exercised liberally
in favor of justice, trial by consent is the exception, not the rule, and should not be inferred in
doubtful cases.â Id.
2. Analysis
In their opening briefs, Matrix and OGE argue that Talisman waived objections to Reevesâs
testimony by failing to object when the need became apparent. However, this argument conflates
admission of testimony with trial by consent. Trial by consent occurs â[w]hen both parties present
evidence on an issue and the issue is developed during trial without objection.â Ingram v. Deere,
288 S.W.3d 886, 893(Tex. 2009); see TEX. R. CIV. P. 67. An objection to prevent trial by consent can occur as late as the charge conference. See Huff Energy, 482 S.W.3d at 194â95 (holding no trial by consent where appellants objected to submission of jury question on the basis that an issue was not pled). The supreme court has explained: â[A]lthough the complaining party does not object to the testimony on the issues but does object to their submission on some tenable ground, he cannot be regarded as impliedly consenting that they be tried when not raised by the pleadings, as contemplated by Rule 67.â Harkey v. Tex. Emps.â Ins. Assân,208 S.W.2d 919, 922
(1948). 12
12
Rule 67 provides: âWhen issues not raised by the pleadings are tried by express or implied consent of the parties,
they shall be treated in all respects as if they had been raised in the pleadings.â TEX. R. CIV. P. 67.
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04-18-00411-CV
Here, Talisman objected much earlier than the charge conference. Midway through
Reevesâs testimony and prior to admission of an exhibit showing his calculations, Talismanâs
counsel objected, stating: âYour Honor, this is a claim for damages thatâs not in their pleadings
and itâs not designated at all.â The parties argued the matter at length, and Talisman moved for a
mistrial on the matter. The trial court denied the motion. Reeves continued his testimony, and the
trial court admitted the exhibit showing Reevesâs calculations.
Although Talisman presented rebuttal witnesses after its objection was overruled, it did not
try the issue by consent. See Green Tree Servicing, LLC v. Sanders, No. 04-13-00156-CV, 2014
WL 2443811, at *5 (Tex. App.âSan Antonio May 28, 2014, no pet.) (mem. op.) (âThere is no trial by consent where a party objects to the introduction of evidence.â); Sorrell v. Elsey,748 S.W.2d 584, 589
(Tex. App.âSan Antonio 1988, writ denied). The cases Matrix and OGE rely on to suggest that consent occurs when a party offers evidence on an issue are distinguished by the fact that in each of those cases, there was no objection to trial on the issue. See Ingram,288 S.W.3d at 893
; Dukatt v. Dukatt,355 S.W.3d 231, 237
(Tex. App.âDallas 2011, pet. denied).
Here, in contrast, Talisman objected, and the trial court overruled the objection. Only then did
Talisman offer evidence in its defense.
Because Matrix and OGE did not plead âmissing volumesâ claims to support the
disgorgement awards and the issue was not tried by consent, we hold the trial court erred by
entering the awards. Therefore, we reverse the judgment as to these awards and render judgment
that Matrix and Talisman take nothing on their âmissing volumesâ claims.
II. Jurisdiction over Statoil Texasâs Appeal
Besides the âmissing volumesâ awards, Talisman appeals awards and declarations related
to specific provisions in the JOA and Term Assignments. Statoil Texas challenges many of the
same declarations, and it challenges the failure of the trial court to declare other matters in its favor
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04-18-00411-CV
and the trial courtâs failure to award it damages. 13 Matrix and OGE filed motions to dismiss Statoil
Texasâs appeal for lack of jurisdiction. They contend that Statoil Texas does not have standing
and that its appeal is moot. In light of these challenges, we consider our jurisdiction over Statoil
Texasâs appeal. 14
A. Background
In 2010, Talisman and Statoil Texas received their leasehold interests in the Cooke Ranch.
By the time of trial, Talisman and Statoil Texas together owned approximately 63% of the
leasehold working interests. 15 After trial, Statoil Texas sold its entire leasehold working interest
to Talisman.
In addition, all working interest owners in the Cooke Ranch hold their interests subject to
the terms of the JOA. The JOA provides for an âOperatorâ who, âsubject to the terms and
provisions of [the JOA], [shall] have exclusive, full and complete management and control of the
exploration, development and operation of the leased acreage for the production of oil and gas.â
At all relevant times prior to entry of the final judgment, Talisman was the Operator and Statoil
Texas was its âcontract operator,â to whom Talisman had delegated its duties as Operator. 16 Statoil
Texas acknowledges in briefing that it is no longer the contract operator.
13
Talisman joins in Statoil Texasâs challenges to the declarations, see TEX. R. APP. P. 9.7, but there remain some
matters, such as the trial courtâs failure to award Statoil Texas damages, that Statoil Texas alone pursues.
14
The parties have extensively briefed the issue of jurisdiction. We carried with the appeal a motion by Statoil Texas
to file sur-responses to Matrixâs and OGEâs motions to dismiss. We grant Statoil Texasâs motion, and we refuse
Matrixâs and OGEâs requests (conditioned on our granting Statoil Texasâs motion) to file further briefing on the issue.
15
Talisman and Statoil Texas initially held this interest in equal shares, but, by the time of trial, Talisman had assigned
to Statoil Texas a portion of Talismanâs working interest. Statoil Texas represents that it owned approximately 39%
of the working interest in the Cooke Ranch at the time of trial.
16
Although Talisman was never formally elected as Operator, at trial, all parties acknowledged that Talisman was the
Operator. Prior to entry of the final judgment, however, Statoil requested a declaration that âin the absence of an
Operator, the 1954 JOA is an unenforceable contract.â The trial court denied the declaration, and Statoil has not
appealed this denial. In briefing, Statoil Texas asserts: âThe apparent disagreement over whether Talisman was truly
and legally the capital âOâ Operator is a tempest in a teapot. . . . All parties proceeded as though Talisman had the
operating rights under the 1954 JOA.â We proceed the same way.
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04-18-00411-CV
Based on these post-judgment developments, Matrix and OGE argue that Statoil Texas has
no standing to bring its appeal and that its appeal is moot.
B. Standard of Review and Applicable Law
A party may move to dismiss all or some part of an appellantâs appeal. See TEX. R. APP.
P. 42.3; Williams v. Lara, 52 S.W.3d 171, 184, 194â95 (Tex. 2001) (dismissing certain claims for lack of jurisdiction). To determine its jurisdiction, an appellate court may consider documents submitted by the parties that are outside of the courtâs record. See TEX. GOVâT CODE ANN. § 22.220(c); Sabine Offshore Serv., Inc. v. City of Port Arthur,595 S.W.2d 840, 841
(Tex. 1979); Burgess v. State,313 S.W.3d 844
, 848 n.5 (Tex. App.âFort Worth 2010, no pet.).
Subject matter jurisdiction is essential to the authority of a court to decide a case, and
standing is implicit in the concept of subject matter jurisdiction. Tex. Assân of Bus. v. Tex. Air
Control Bd., 852 S.W.2d 440, 443(Tex. 1993). Standing cannot be waived and may be raised for the first time on appeal. Meyers v. JDC/Firethorne, Ltd.,548 S.W.3d 477, 484
(Tex. 2018). âFor standing, a plaintiff must be personally aggrieved; his alleged injury must be concrete and particularized, actual or imminent, not hypothetical.â DaimlerChrysler Corp. v. Inman,252 S.W.3d 299
, 304â05 (Tex. 2008) (citations omitted). âA plaintiff does not lack standing simply because he cannot prevail on the merits of his claim; he lacks standing because his claim of injury is too slight for a court to afford redress.âId. at 305
. When, as here, a plaintiff seeks a judicial declaration, standing limits subject matter jurisdiction to cases âinvolving a distinct injury to the plaintiff . . . and a real controversy between the parties, which will be actually determined by the judicial declaration sought.â Brown v. Todd,53 S.W.3d 297, 305
(Tex. 2001) (citation and ellipses
omitted).
âFor a plaintiff to have standing, a controversy must exist between the parties at every stage
of the legal proceedings, including the appeal.â Williams, 52 S.W.3d at 184. If a controversy
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04-18-00411-CV
ceases to exist because the parties lack a legally cognizable interest in the outcome, the case
becomes moot. Id.âAn appeal is moot when a courtâs action on the merits cannot affect the rights of the parties.â Zipp v. Wuemling,218 S.W.3d 71, 73
(Tex. 2007).
C. Analysis
Statoil Texasâs appeal is comprised of eight issues. The issues primarily concern contract
interpretation of the JOA and Term Assignments. Issue 1, part of Issue 2, and Issue 5 challenge
declarations the trial court made. The other part of Issue 2, and Issues 3, 6, and 7 challenge the
trial courtâs failure to make additional declarations. 17 Issue 4 is a challenge that the trial court
erred by failing to award Statoil Texas damages against Matrix Holdings and JAR. Issue 8 is a
challenge that the trial court erred by awarding any declaratory relief to OGE against Statoil Texas
because OGE did not sue Statoil Texas. We analyze our jurisdiction by the issues.
1. Issue 4
By its fourth issue, Statoil Texas challenges the trial courtâs failure to award it damages in
the amount of $131,963.89 against Matrix Holdings and $2,280,424.59 against JAR âfor their
share of the drilling and completion costs of the October 2016 Wells.â As discussed in greater
detail below, the October 2016 Wells are three wells that Statoil Texas drilled as the contract
operator on behalf of Talisman, the Operator. Statoil Texas also represents that it drilled nine
additional wells after the trial court entered its final judgment â three wells each in 2018, 2019,
and 2020.
By its Issue 4, Statoil Texas seeks to recover specific costs already expended related to the
three wells drilled in October 2016. Matrix argues that Statoil Texas has no standing to seek this
17
We note that Issue 3 concerns the trial courtâs failure to declare a matter because the âparties have not joined issue
on the question.â Although Statoil Texas frames its issue in terms of a matter declared, the dispute is one over a matter
the trial court did not declare. The judgment specifies that Statoilâs requested declaration is âNot Declared.â
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04-18-00411-CV
recovery because, under the JOA, only Talisman, as the Operator, had the right to bill and charge
non-operating working interest owners. OGE asserts a similar argument that â[b]ecause Statoil
[Texas] is not and has never been the Operator of the Cooke Ranch, it lacks standing.â 18
In their arguments, the parties direct us to a Contract Operating Agreement (âCOAâ),
entered into by Statoil Texas and Talisman only. The COA became effective on April 1, 2016.
Under the COA, Talisman remained the Operator under the JOA, and Statoil Texas became its
âcontract-operatorâ to âperform the services and carry out all the duties to be performed by
Talisman as operator under the 1954 JOA.â The COA further provides:
Statoil [Texas] shall be entitled to reimbursement from Talisman for all costs and
expenditures incurred by Statoil [Texas] in its performance of the Services to the
extent the same are properly incurred and authorized under the 1954 JOA in a
manner such that the operator is in turn authorized and able to recover the same
from the joint interest owners under the 1954 JOA. As consideration for the
performance of the Services, Statoil [Texas] shall be entitled to all overhead
actually payable to the operator under the 1954 JOA for those periods of time in
which it is acting as contract-operator hereunder, in accordance with the accounting
procedure attached to the 1954 JOA as if Statoil [Texas] had performed such
Services as the operator under the 1954 JOA, provided that if any portion of the
overhead is not collected from any joint interest owner other than Talisman,
Talisman will not be obligated to pay such uncollected portion to Statoil [Texas]
but will, at Statoil [Texas]âs election and to the extent legally possible, assign the
claim to Statoil [Texas] for collection. Talisman, in its capacity as the operator
under the 1954 JOA, will charge each non-operator party under the 1954 JOA for
such non-operatorâs proportionate share of such costs and expenditures and
overhead, provided that Statoil [Texas], on behalf of Talisman, will send the bills
for such charges to each non-operator party and collect the payments due.
With its Issue 4, Statoil Texas seeks to recover costs it is owed pursuant to the COA and
JOA for wells drilled while Statoil Texas was the contract operator. Statoil Texas asserts an issue
based on specific amounts of money allegedly owed to it; therefore, its grievance is personal and
concrete. See DaimlerChrysler, 252 S.W.3d at 304â05.
18
Although OGEâs argument addresses declarations and not damages awards, we consider it here because it dovetails
with Matrixâs argument that Statoil Texas does not have standing because it was not the Operator.
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04-18-00411-CV
Nevertheless, OGE argues that Statoil Texas does not have standing because OGE is not a
party to the COA and because the JOA and the trial courtâs declarations interpreting the JOA
concern only Talismanâs authority, as Operator. In its reply, Matrix compares the relationship
between Talisman, as Operator, and Statoil Texas, as contract operator, to that of a general
contractor to a subcontractor. According to Matrix, a subcontractor can make no claim against an
owner and must look to the general contractor for payment. Under this analogy, Matrix argues
that Statoil Texas cannot look to payment from the working interest owners and must look only to
Talisman, the Operator.
We disagree with OGE that only Talisman, as Operator, has standing to appeal, and we
disagree with Matrix that the law as to delegation of duties and assignments of claims is so
constrained as to prohibit Talismanâs contract operator, Statoil Texas, from seeking recovery for
costs allegedly owed to it. âAs a general rule, all contractual duties are delegable.â OBO, Inc. v.
Apache Corp., 566 S.W.3d 26, 31(Tex. App.âHouston [14th Dist.] 2018, no pet.) (citing Crim Truck & Tractor Co. v. Navistar Intâl Transp. Corp.,823 S.W.2d 591, 596
(Tex. 1992) and Restatement (Second) of Contracts § 318 (1981)). âAbsent specific circumstances . . . , causes of action in Texas are freely assignable.â City of San Antonio v. Valemas, Inc., No. 04-11-00768- CV,2012 WL 2126932
, at *8 (Tex. App.âSan Antonio June 13, 2012, no pet.) (mem. op.) (citing State Farm Fire & Cas. Co. v. Gandy,925 S.W.2d 696
, 705â07 (Tex. 1996)). Under these principles, courts have determined that an assignee of claims has standing to sue upon the assigned claims. See e.g., Esty v. Beal Bank S.S.B.,298 S.W.3d 280, 293
(Tex. App.âDallas 2009, no pet.) (assignment of claims through bankruptcy); All Metals Fabricating, Inc. v. Ramer Concrete, Inc.,338 S.W.3d 557, 562
(Tex. App.âEl Paso 2009, no pet.) (assignment of claims held by a property
owner).
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04-18-00411-CV
We see no reason to curtail this generally allowed delegation of duties and assignment of
claims, which is expressly provided for in the COA. The COA provides that Talisman âwill, at
Statoil [Texas]âs election and to the extent legally possible, assign the claim to Statoil [Texas] for
collection.â The case Matrix cites in the contractor/subcontractor context is inapposite because,
in that case, there was no agreement comparable to the COA. See City of LaPorte v. Taylor, 836
S.W.2d 829, 831â32 (Tex. App.âHouston [1st Dist.] 1992, no writ); see also OBO, 566 S.W.3d
at 30â33 (holding Apache Corporation, an entity that performed âoperator servicesâ for a âUnit
Operatorâ pursuant to contract, acted on behalf of Unit Operator when it prosecuted lawsuit against
working interest owners).
We hold that Statoil Texas has standing to pursue an appeal as to its Issue 4.
2. Issues 1, 2, 3, 5, 6, and 7
Issues 1, 2, 3, 5, 6, and 7 concern declarations, rather than damages. âA declaratory
judgment, by its nature, is forward looking; it is designed to resolve a controversy and prevent
future damages. It affects a partyâs behavior or alters the partiesâ legal relationship on a going-
forward basis.â Intercontinental Group Pâship v. KB Home Lone Star L.P., 295 S.W.3d 650, 660
(Tex. 2009) (citation omitted). Matrix and OGE argue that Statoil Texas, having sold its working
interest and resigned as contract operator, has no standing and that its appeal is moot as to these
forward-looking declarations. Statoil Texas responds that the declarations affect its right to
recover costs incurred during the timeframe between entry of the final judgment and termination
of its working interest and its role as contract operator. Specifically, it asserts that the declarations
impact its rights to recover costs related to wells it drilled while contract operator in 2016, 2018,
2019, and 2020, periods which are now, no longer, forward looking.
We hold that Statoil Texas has a legally cognizable interest in the outcome of its Issue 1,
the part of Issue 2 concerning construction of the Term Assignments with the JOA, and Issues 6
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04-18-00411-CV
and 7. See Williams, 52 S.W.3d at 184. Each of these issues concern Statoil Texasâs costs to drill wells, for which recovery is disputed, and Statoil Texas retained âall rights, claims and causes of action . . . with respect to [the instant case]â when it sold its interests in the Cooke Ranch to Talisman. See AMI Assân Mgmt., Inc. v. Sprecher, No. 01-15-00791-CV,2017 WL 3526762
, at
*4 (Tex. App.âHouston [1st Dist.], Aug. 17, 2017, no pet.) (mem. op.) (holding former
condominium owners retained standing after sale because former owners had not obtained relief
for alleged injuries that occurred during their period of ownership).
However, Statoil Texas does not have a legally cognizable interest in the outcome of its
Issue 3 and the part of Issue 2 that concerns the trial courtâs failure to declare that the Term
Assignments âobligated the Term Assignment Assignees to each other to drill three wells per
year.â Statoil Texasâs Issue 3 is a challenge to the trial courtâs failure to make this declaration
because the trial court determined that the parties âhave not joined issue on the question.â The
Term Assignments are discussed in greater detail below. For purposes of standing, it is enough to
note that the record and Statoil Texasâs representations provide that Statoil Texas drilled three
wells per year while it retained a working interest in the Cooke Ranch as a âTerm Assignment
Assignee.â Thus, the obligation in the Term Assignments to drill three wells per year was satisfied
for those years, and there is no unresolved controversy that could be resolved by the requested
declaration as to those years. Because Statoil Texas is not a Term Assignment Assignee after the
sale of its interest in the Cooke Ranch, it has no standing on appeal to challenge the trial courtâs
failure to render a forward-looking declaration as to the Term Assignment Assigneesâ rights and
obligations to drill wells in future years to meet any three-well-per-year obligation. See Williams,
52 S.W.3d at 184. 19 Accordingly, we dismiss Statoil Texasâs appeal as to its Issue 3 and the part
19
Talisman does not join in Statoil Texasâs issues regarding the trial courtâs failure to declare any matter; Talismanâs
challenges concern only declarations made.
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of Issue 2 that concerns the purported three-well-per-year drilling obligation in the Term
Assignments.
Statoil Texas also does not have a legally cognizable interest in the outcome of its Issue 5.
Issue 5 concerns the trial courtâs declaration that the Operator must ensure there are âsufficient
facilitiesâ to allow a working interest owner to take production in kind. Statoil Texas
acknowledges:
[It] will not be impacted as to future wells. But as to the twelve existing wells
[drilled between 2016 and 2020], if the declaration is sustained, it will create a
claim that Statoil [Texas] failed to implement the declaration while it was the
operator, which Matrix may seek to enforce as an action for damages.
Matrix, however, has not indicated an intent to pursue such a claim. With only this hypothetical
dispute, Statoil Texas lacks standing. See DaimlerChrysler, 252 S.W.3d at 304â05. Consequently,
we dismiss Statoil Texasâs appeal as to its Issue 5 for want of jurisdiction. See TEX. R. APP. P.
42.3; Williams, 52 S.W.3d at 184, 194â95. Nevertheless, we consider the matter of âsufficient
facilitiesâ because Talisman joined in Statoil Texasâs challenge to the trial courtâs declaration, and
Talismanâs standing, as Operator, is unchallenged. See TEX. R. APP. P. 9.7.
3. Issue 8
Statoil Texasâs eighth issue challenges the trial courtâs award of any declaratory relief to
OGE against Statoil Texas based on the ground that OGE did not sue Statoil Texas. OGE responds
that no reasonable construction of the judgment suggests that OGE obtained any relief against
Statoil Texas and its argument is âsimply misdirection.â Further it asserts: âOGE agrees that it did
not sue Statoil-Texas and so is not entitled to recover against Statoil-Texas.â
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Statoil Texas has directed us to only one declaration in OGEâs favor obtained against it. 20
This declaration concerns the October 2016 Wells, and it was declared in an interlocutory
judgment, which was incorporated into the final judgment. For the reasons given above, Statoil
Texas has standing to challenge declarations regarding the October 2016 Wells, and we consider
those declarations below. 21 Statoil Texas has not directed us to any other declarations in OGEâs
favor against it. Instead, all other declarations Statoil Texas references in its appellate brief apply
against the âOperator,â which is Talisman, or to working interest owners in the Cooke Ranch,
which group does not include Statoil Texas after the sale of its interest. Moreover, Statoil Texas
is no longer the contract operator. Statoil Texas has not explained how OGE could enforce any of
the additional declarations in OGEâs favor against Statoil Texas, and OGE has asserted no
entitlement to recovery against Statoil Texas. Therefore, we hold Statoil Texas has not established
an actual or imminent injury as to these additional declarations, and we dismiss Statoil Texasâs
appeal as to its Issue 8, except to the extent Issue 8 challenges declarations in OGEâs favor
regarding the October 2016 Wells. See DaimlerChrysler, 252 S.W.3d at 304â05.
III. JOA Section 8
Having determined our jurisdiction, we turn to the remaining disputes. These disputes, in
large part, concern contract interpretations of the JOA and Term Assignments. We begin by
interpreting JOA Section 8, considering any impact the Term Assignments may have on our
interpretation. We then consider the trial courtâs challenged awards and declarations as to Section
8.
20
The declaration provides: â[I]f Statoil [defined to include Statoil Texas] and/or Talisman Energy USA Inc. proceed
in the drilling of the Proposed [October 2016] Wells without the unanimous consent of the working interest owners,
it/they will be in breach of the JOA.â
21
Because we sustain Statoil Texasâs Issue 1 as to the October 2016 Wells, we ultimately do not reach Statoil Texasâs
Issue 8.
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A. Background
In 1954, Paul Kayser and Plymouth Oil Company (âPlymouthâ) executed the JOA. The
JOA originally designated Kayser as âOperatorâ and Plymouth as âNon-operator.â After various
assignments, Talisman, Statoil Texas, Matrix Holdings, JAR, TMRX, and OGE came to be the
only working interest owners in the Cooke Ranch. All of these partiesâ interests were subject to
the JOA, and at all relevant times, the parties considered Talisman to be the Operator and Statoil
Texas, Matrix Holdings, JAR, TMRX, and OGE to be non-operators. 22
Matrix Holdings, JAR, Talisman, and Statoil Texas derived their holdings pursuant to a
series of assignments of oil and gas leases, the Term Assignments, entered into by these parties or
their predecessors in 2010. Consequently, the working interests of Matrix Holdings, JAR,
Talisman, and Statoil Texas are subject to the Term Assignments; the working interests of TMRX
and OGE are not. 23 The Term Assignments require the term assignees to drill a well on the Cooke
Ranch during the primary term, which has now expired. The Term Assignments further provided
that they can be maintained in force after the primary term ends if additional wells are drilled:
After the Primary Term, Assignees shall commence, or cause to be commenced,
actual drilling operations on Eagle Ford Wells on the Land at the rate of at least
three (3) new Eagle Ford Wells per year. Assignees shall be in compliance with
this three-well obligation if, on or before each annual anniversary date of the
expiration of the Primary Term, the cumulative number of Eagle Ford Wells on
which Assignees have commenced, caused to be commenced, or participated in
actual drilling operations after expiration of the Primary Term in compliance with
22
Talisman delegated some of its duties as Operator to Statoil Texas, but that delegation did not alter Statoil Texasâs
status as a non-operator in its own right.
23
To facilitate understanding, this table displays which parties are subject to which agreements:
Party Subject to JOA Subject to Term Assignments
Talisman Yes, Operator Yes
Statoil Texas Yes Yes
Matrix Holdings Yes Yes
JAR Yes Yes
TMRX Yes No
OGE Yes No
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04-18-00411-CV
this Assignment is at least three times the number of anniversary dates that have
followed the expiration of the Primary Term.
Talisman and Statoil Texas argue that this clause impacts whether Matrix Holdings and JAR can
withhold consent to drill wells.
Prior to commencement of this litigation, Talisman drilled 13 wells on the Cooke Ranch,
and it drilled three more wells, the October 2016 Wells, a year before trial. Matrix Holdings, JAR,
TMRX, and OGE attempted to withhold consent to the drilling of the October 2016 Wells. After
trial, Talisman, through its contract operator Statoil Texas, drilled 12 additional wells.
The partiesâ disputes regarding JOA Section 8, in general, concern how the parties share
costs and revenues related to the October 2016 Wells and any future wells. Section 8 concerns
consent to drill as well as cost and revenue sharing absent consent. Section 8 provides in full:
Except as is otherwise provided in the preceding Section 7 or in this Section 8, no
well shall be drilled on the leased acreage in search of oil or gas unless all parties
hereto consent to the drilling of such well; provided, however, that neither the
provisions of said Section 7 nor this Section 8 shall operate to relieve either party
hereto from the obligations of reasonable development of the leased acreage for oil
and gas or the obligation to prevent drainage of oil and gas from the leased acreage
imposed by the jointly owned leases, as certain of such leases are modified by this
agreement. In the event the parties hereto cannot agree upon the drilling of any
well for oil or gas, which well is not covered by the provisions of the preceding
Section 7, then the party desiring to drill such well shall give the other party written
notice of such desire, specifying the location, proposed depth and estimated cost of
such well. The other party shall have thirty days after receipt of such notice within
which to notify the party desiring that such well be drilled whether or not he or it
elects to participate in the cost of drilling such well at such location. Failure to give
such notice within such period of thirty days shall be construed as an election by
said other party not to participate in the cost of drilling such well at such location.
Any well drilled under the provisions of this section shall be drilled at the sole cost,
risk and expense of the party electing to drill. If any party shall elect not to
participate in the drilling of such well at such location, then within thirty days after
the expiration of said period of thirty days, the party desiring to drill shall
commence operations for the drilling of such well at such location, and thereafter
complete such well with due diligence in order to be entitled to the benefits of this
section. If any such well shall be a producer of oil or gas in paying quantities, the
party drilling such well shall own the same and all of the working interest oil and
gas produced from such well until he or it shall receive out of the value of such
production an amount (after first deducting operating expenses) equal to 200% of
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04-18-00411-CV
the cost of drilling, testing, completing and equipping such well. Thereafter, all
expenses of operating such well shall be borne by the parties hereto in the
proportions as specified in Section 4 hereof and such well and its equipment and
the production from such well shall be owned by the parties hereto in the
proportions as stated in Section 2 hereof.
1. The Trial Courtâs Interpretations
The trial court made numerous declarations interpreting Section 8 and specifying cost and
revenue sharing based on the JOA and Term Assignments. The trial court also ordered that OGE
recover from Talisman $122,681 as OGEâs share of production from the October 2016 Wells.
The trial court declared as to Section 8:
The JOA provides that no new well may be drilled without the consent of all
members of the JOA, unless the members are obliged to drill it, under obligations
in the underlying leases, to prevent drainage, and/or to reasonably develop.
Through this declaration, the trial court determined that Section 8 permitted three and only three
exceptions to the requirement of unanimous consent to drill: obligations in the underlying leases,
to prevent drainage, and/or to reasonably develop. The trial court also declared, as to the October
2016 Wells, that there had not been unanimous consent to drill and that none of the three exceptions
applied.
Nevertheless, Talisman, as Operator, and Statoil Texas, as Talismanâs contract operator,
had drilled the October 2016 Wells. In light of this reality, the trial court provided definitions in
its judgment and made several declarations to establish the partiesâ rights regarding wells drilled
without consent and when consent was disputed. In the final judgment, the trial court defined
âParticipating member,â âNonparticipating member,â and âNonconsenting memberâ as follows:
âParticipating memberâ refers to the status of a party to the JOA, when that party
has, with regard to a particular well, both consented to the drilling of the well, and
elected to participate in the drilling of the well.
âNonparticipating memberâ refers to the status of a party to the JOA, when that
party has, with regard to a particular well, consented to the drilling of the well, but
not has [sic] elected to participate in the drilling of the well.
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04-18-00411-CV
âNonconsenting memberâ refers to the status of a party to the JOA, when that party
has, with regard to a particular well, not consented to the drilling of the well, and
has not elected to participate in the drilling of the well.
The trial court declared that the parties to the Term Assignments (i.e., Talisman, Matrix Holdings,
and JAR) âhave consented, among themselves for purposes of JOA § 8, to the drilling of the
minimum number of [wells]â required to keep the Term Assignments in force. Based on this
âconsentâ given only through the Term Assignments, the trial court declared that Matrix Holdings
and JAR are ânonparticipating membersâ as to the October 2016 Wells. The trial court declared
that the JOA awards participating members the production of nonparticipating members until the
participating members have received, after operating expenses, 200% of the costs to drill a well.
The trial court also declared TMRX and OGE (i.e., the parties not subject to the Term
Assignments) to be ânonconsenting membersâ as to the October 2016 Wells. The trial court
determined that the JOA did not provide for the Operator to charge nonconsenting members any
costs to drill; therefore, it awarded OGE its share of production from the October 2016 Wells
without OGE paying any costs to drill.
2. The Partiesâ Challenges
Talisman and Statoil Texas challenge the trial courtâs interpretation that JOA Section 8
requires unanimous consent to drill absent one of the three exceptions noted by the trial court.
Statoil Texas additionally challenges the trial courtâs failure to declare that the Term Assignments
suspend provisions of Section 8. In addition, Talisman and Statoil Texas challenge the trial courtâs
framework of participating, nonparticipating, and nonconsenting members. Talisman also
challenges the award to OGE of $122,681, which represents cost-free revenue, and Statoil Texas
challenges the trial courtâs failure to award it damages from Matrix Holdings and JAR for costs to
drill the October 2016 Wells.
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04-18-00411-CV
Matrix Holdings, JAR, and OGE generally defend the trial courtâs judgment within the
framework of participating, nonparticipating, and nonconsenting members. Matrix Holdings and
JAR, however, challenge the trial courtâs determination that they consented to the October 2016
Wells through the Term Assignments. JAR additionally asserts that the trial court erred by
disregarding a jury finding awarding JAR damages, arguing on appeal that the trial court
erroneously concluded that JAR was a ânonparticipating memberâ when the evidence showed it
to be a ânonconsenting member.â
B. Standard of Review and Applicable Law
The construction of an unambiguous contract is a question of law that we review de novo.
Tawes v. Barnes, 340 S.W.3d 419, 425(Tex. 2011). â[T]he primary concern of the court is to ascertain the true intentions of the parties as expressed in the instrument.â Valence Operating Co. v. Dorsett,164 S.W.3d 656, 662
(Tex. 2005). âTo achieve this objective, [we] should examine and consider the entire writing in an effort to harmonize and give effect to all the provisions of the contract so that none will be rendered meaningless.âId.
âWe 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.â Frost Natâl Bank v. L & F Distribs., Ltd.,165 S.W.3d 310, 312
(Tex. 2005) (citation omitted).
C. Analysis
We agree with the parties that the JOA and Term Assignments are unambiguous. See
Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118, 121 (Tex. 1996) (explaining ambiguity is a
question of law for the court). We disagree, however, with the trial courtâs determination that
there are only three exceptions to consent and its determination that the parties to the Term
Assignments have given consent through the Assignments. We also disagree that a party can
consent but not participate, which is the ânonparticipating memberâ category defined by the trial
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04-18-00411-CV
court. The JOA allows only for members who consent/participate and for members who do not
consent/do not participate, and the JOA uses the terms âconsentâ and âparticipateâ
interchangeably. We consider first the JOA alone, and then we construe the JOA in light of the
Term Assignments.
1. Construction of JOA Section 8
The first sentence of JOA Section 8 states the prohibition against drilling wells without
unanimous consent:
Except as is otherwise provided in the preceding Section 7 or in this Section 8, no
well shall be drilled on the leased acreage in search of oil or gas unless all parties
hereto consent to the drilling of such well; provided, however, that neither the
provisions of said Section 7 nor this Section 8 shall operate to relieve either party
hereto from the obligations of reasonable development of the leased acreage for oil
and gas or the obligation to prevent drainage of oil and gas from the leased acreage
imposed by the jointly owned leases, as certain of such leases are modified by this
agreement.
Matrix argues that this first sentence contains two exceptions to unanimous consent: reasonable
development and to prevent drainage. OGE argues that the sentence states three exceptions: â(1)
Section 7; and the express caveat for wells that the members are obliged to drill (2) to prevent
drainage or (3) to reasonably develop.â The trial court determined there to be only three exceptions
to unanimous consent: âobligations in the underlying leases, to prevent drainage, and/or to
reasonably develop.â
The second sentence of Section 8 states:
In the event the parties hereto cannot agree upon the drilling of any well for oil or
gas, which well is not covered by the provisions of the preceding Section 7, then
the party desiring to drill such well shall give the other party written notice of such
desire, specifying the location, proposed depth and estimated cost of such well.
The sentences that follow give additional details regarding notice and cost and revenue sharing
when a well is drilled without the partiesâ unanimous agreement. These provisions that follow
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specify a balloting procedure and a non-consent penalty of 200%. 24 Wells drilled under these
balloting provisions âshall be drilled at the sole cost, risk and expense of the party electing to drill.â
Harmonizing the introductory clause of Section 8 and the second sentence through the end,
requires us to read an exception to the requirement of unanimous consent for wells drilled without
consent but pursuant to the provisions for reallocating risks and costs to the consenting parties.
See Valence, 164 S.W.3d at 662. The first clause of sentence one provides: âExcept as is otherwise
provided in the preceding Section 7 or in this Section 8 . . . .â This introduction indicates that the
requirement for unanimous consent to drill a well, stated later in the sentence, is limited by Section
7 (which is not implicated here) and provisions that follow in Section 8. What follows in
subsequent sentences are the balloting provisions and the non-consent penalty â[i]n the event the
parties hereto cannot agree.â
Our interpretation does not render meaningless the phrase âno well shall be drilled . . .
unless all parties hereto consentâ because this phrase provides a baseline â no drilling without
consent â from which a deviation to reallocate costs and risks can be made. The 1956 Model
Form Operating Agreement (Form 610) of the American Association of Petroleum Landmen
includes a similar structure. The form provides in its Section 11: âWithout the consent of all
parties: (a) No well shall be drilled on the Unit Area except any well expressly provided for in this
agreement and except any well drilled pursuant to the provisions of Section 12 of this agreement
. . . .â Section 12 of the form provides for a balloting procedure and a non-consent penalty â[i]f
all the parties cannot mutually agree upon the drilling of any well . . . .â In summarizing these
24
As the supreme court explained, ânon-consent penaltyâ is the industryâs nomenclature for a provision that in effect
gives a bonus to working interest owners who consent; it is not âas its name suggests, a forfeiture or punitive
provision.â See Valence, 164 S.W.3d at 659n.2;id. at 666
(Brister, J., concurring); see alsoid. at 664
(âThe non-
consent penalty provision . . . is the mechanism utilized to allow the consenting parties the opportunity to recover their
investments and receive defined returns from future operations. For such operations, they undertake a financial risk
that the non-consenting parties do not.â).
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04-18-00411-CV
provisions, the Fifth Circuit remarked: âDeclining to participate or failing to make an election
causes a party to be a non-consenting party. Consenting parties bear the cost and risk of drilling.
Non-consenting parties avoid those risks, but are subject to a penalty.â Bonn Operating Co. v.
Devon Energy Prod. Co., L.P., 613 F.3d 532, 533 (5th Cir. 2010). The Fifth Circuit had no
difficulty drawing this meaning for these provisions. Its interpretation gives effect to the no-well-
shall-be-drilled language while still allowing for drilling absent unanimous consent.
Matrix and OGE argue also that the âprovided, howeverâ clause in the first sentence limits
the balloting provisions in the remaining sentences to only those exceptions stated in the âprovided,
howeverâ clause. We disagree that the clause imposes the limit that Matrix and OGE suggest,
which the trial court adopted. The âprovided, howeverâ clause qualifies or modifies what it applies
to. See Knight v. Chicago Corp., 144 Tex. 98,188 S.W.2d 564, 566
(1945) (âprovided, howeverâ specifies a âlimitation or restraint upon the authority defined in the clause immediately preceding itâ); see also ConocoPhillips Co. v. Ramirez, No. 04-05-00488-CV,2006 WL 1748584
, at *3 (Tex.
App.âSan Antonio June 28, 2006, no pet.) (mem. op.) (citing Knight approvingly). By its terms,
the clause applies to the âprovisions of . . . this Section 8,â which include the unanimous consent
provision and the balloting procedures used âin the event the parties hereto cannot agree.â The
clause serves the purpose, not applicable here, of prohibiting a party from withholding consent
when a well is necessary to satisfy either âthe obligations of reasonable developmentâ or âthe
obligation to prevent drainage.â Matrixâs interpretation of the âprovided, howeverâ clause would
rewrite rather than harmonize Section 8 to turn the qualifying clause into an absolute bar on the
use of balloting unless one of two conditions is satisfied â the proposed well is necessary for
reasonable development or the proposed well is necessary to prevent drainage.
We also do not read Section 8 to establish three categories of âparticipating member,â
ânonparticipating member,â and ânonconsenting member,â as the trial court did. The balloting
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04-18-00411-CV
provisions contain only two categories â âthe party desiring to drillâ and âthe other party.â These
provisions apply â[i]n the event the parties hereto cannot agree upon the drilling of any well.â In
such a case, the working interest owners are described as either âthe party desiring to drillâ or âthe
other party.â Upon receiving notice of a proposed well, â[t]he other partyâ has thirty days in which
to notify the âparty desiring [to] drill[]â whether it âelects to participate.â âIf any party shall elect
not to participateâ then the âparty desiring to drillâ may âbe entitled to the benefits of this section.â
Those benefits are ownership of the well and recoupment of the 200% non-consent penalty. A
ânonconsenting memberâ is thus within this framework, not outside of it, as the trial court held. 25
Our interpretation is not unreasonable, inequitable, or oppressive, and it effectuates the
business purpose of the JOA, which as stated in a recital, is to develop and operate leases for the
production of oil and gas. See Frost Natâl Bank, 165 S.W.3d at 312. Our construction, consistent
with the plain language of JOA Section 8, allows for development by reallocating risks and rewards
when agreement is lacking. Moreover, our interpretation is consistent with other provisions
throughout the JOA that allow the parties to proceed despite disagreements. 26
2. Impact of the Term Assignments
Section 8 allows a party âdesiring to drillâ to proceed despite non-consent from other
working interest owners. If the balloting procedures are followed, âthe party desiring to drillâ
proceeds at its âsole cost, risk and expenseâ but is entitled to the benefits of ownership of the well
and oil and gas produced until the 200% non-consent penalty is satisfied. Talisman and Statoil
25
Courts construing similar balloting provisions have construed only two categories of consenting and non-consenting
owners and have used the terms âconsentâ and âparticipateâ interchangeably. See, e.g., Bonn, 613 F.3d at 533; Dimock v. Kadane,100 S.W.3d 602, 605
(Tex. App.âEastland 2003, pet. denied); Valence,164 S.W.3d at 664
; XTO Energy Inc. v. Smith Prod. Inc.,282 S.W.3d 672, 678
(Tex. App.âHouston [14th Dist.] 2009, pet. dismâd).
26
These provisions include Section 5, discussed below; Section 7, which specifies balloting procedures and a non-
consent penalty similar to those in Section 8 for wells that do not fall under Section 8; Section 11, which allows for
abandonment of wells despite disagreement; and Section 12, which allows for the surrender of leases despite
disagreement. Sections 11 and 12 reallocate risks and rewards to the party desiring to maintain a well or a lease,
respectively.
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04-18-00411-CV
Texas argue that the Term Assignments require Matrix Holdings and JAR to consent to the drilling
of wells proposed under Section 8. We, however, hold that the Term Assignments do not mandate
consent from Matrix Holdings and JAR for wells drilled under Section 8 of the JOA. Stated
differently, we hold the Term Assignments do not impact Section 8.
By the Term Assignments, Paul Kayserâs successors (the âAssignorsâ) assigned all of their
rights under the JOA to the predecessors of Matrix Holdings, JAR, Talisman, and Statoil Texas
(collectively, the âAssigneesâ). 27 It is undisputed that Matrix Holdings, JAR, Talisman, and
Statoil Texas hold their working interests in the Cooke Ranch subject to the Term Assignments.
Under the Term Assignments, the Assignees assumed the rights, title, and working interests in the
Cooke Ranch leases âsubject to the termsâ of the JOA. These Assignees also assumed and agreed
to perform all the âduties, obligations and liabilitiesâ of the JOA, âunless otherwise limited
elsewhereâ in the Assignments.
The Term Assignments required the Assignees to drill one well during a primary term that
began in 2010 and lasted for four months. The Assignments would continue as long thereafter as
they were maintained in force under their terms. Those terms include the following provision:
After the Primary Term, Assignees shall commence, or cause to be commenced,
actual drilling operations on Eagle Ford Wells on the Land at the rate of at least
three (3) new Eagle Ford Wells per year. Assignees shall be in compliance with
this three-well obligation if, on or before each annual anniversary date of the
expiration of the Primary Term, the cumulative number of Eagle Ford Wells on
which Assignees have commenced, caused to be commenced, or participated in
actual drilling operations after expiration of the Primary Term in compliance with
this Assignment is at least three times the number of anniversary dates that have
followed the expiration of the Primary Term.
Another provision in the Term Assignments provides:
27
For simplicity, the term âAssigneesâ includes, when necessary, the predecessors to Matrix Holdings, JAR, Talisman,
and Statoil Texas, which were the original assignees; however, the focus of our analysis is on Matrix Holdings, JAR,
Talisman, and Statoil Texas.
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04-18-00411-CV
Notwithstanding anything to the contrary in this Assignment, if Assignees fail to
timely commence actual drilling operations on all Eagle Ford Wells or to conduct
operations on them as required by this Assignment, the Assignor shall have the
unconditional right to terminate this Assignment outside any Retained Tracts.[28]
The Term Assignments also provide that, upon termination, the Assignees shall lose all interests
in the assigned leases, which automatically revert to the Assignors.
Talisman argues that the Assignees necessarily consented to drilling the wells required to
meet the three-well-per-year obligation of the Term Assignments. Statoil Texas argues that the
obligations to drill are inconsistent with and prevail over the non-consent provisions of JOA
Section 8. The trial court declared: âAll Term Assignees have consented, among themselves, for
purpose of JOA § 8, to the drilling of the minimum number of [wells].â
We see no inconstancy between the Term Assignments and the JOA. â[W]hen two
contracts between the same parties are inconsistent, we conclusively presume the later contract
supersedes the earlier contract.â Cohen-sagi v. ProFinance Assocs., Inc., No. 04-08-00181-CV,
2009 WL 540217, at *3 (Tex. App.âSan Antonio Mar. 4, 2009, pet. denied) (mem. op.) (citing Willeke v. Bailey,189 S.W.2d 477, 479
(1945) and IP Petroleum Co. v. Wevanco Energy, L.L.C.,116 S.W.3d 888, 899
(Tex. App.âHouston [1st Dist.] 2003, pet. denied). âIf the determination of whether a later agreement supersedes a former agreement must be made by determining whether the language of the two contracts is inconsistent, the issue is a question of law.âId.
According to Statoil Texas, an inconsistency exists because the Term Assignments, on the
one hand, do not contain a non-consent provision but require the drilling of three wells per year,
while JOA Section 8, on the other hand, allows each owner a right to withhold consent. The
contracts, however, can be harmonized. See Courage Co., L.L.C. v. Chemshare Corp., 93 S.W.3d
323, 333 (Tex. App.âHouston [14th Dist.] 2002, no pet.) (explaining first contract is enforceable
28
A âRetained Tractâ is generally defined as the surface area around a producing well.
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04-18-00411-CV
to extent not in conflict with later contract). The Assignees, through JOA Section 8, may withhold
consent to a proposed well and still comply with the three-well-per-year drilling obligation of the
Term Assignments, so long as the proposed wells are drilled (after balloting and the reallocation
of risk) or so long as other wells are proposed and receive unanimous consent. In fact, the
circumstances of this case prove the point. Matrix Holdings and JAR withheld their consent to
drill the October 2016 Wells pursuant to JOA Section 8. Nevertheless, the wells were drilled. The
Term Assignments remained in force because the three-well-per-year requirement of the
Assignments was satisfied for the year.
In short, JOA Section 8 is not impacted by the Term Assignments. Our interpretation gives
full effect to the provision of the Term Assignments that the Assignees take their interests âsubject
to the termsâ of the JOA, and, as we have determined, the terms of the JOA are not inconsistent
with the terms of the Assignments. See EOG Res., Inc. v. Hanson Prod. Co., 94 S.W.3d 697, 702
(Tex. App.âSan Antonio 2002, no pet.) (âUsed in its ordinary sense, the term âsubject toâ means
âsubservient toâ or âsubordinate toâ or âlimited by.ââ).
3. Declarations
With our constructions in mind, we turn now to the declarations and then to specific
damages awards. The trial court made approximately 24 declarations, some with multiple parts.
Talisman and Statoil Texas have challenged only certain of these declarations, and we address
only those declarations. See TEX. R. APP. P. 38.1; see also ERI Consulting Engârs, Inc. v. Swinnea,
318 S.W.3d 867, 880 (Tex. 2010).
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Based on our analysis, we hold the trial erred by declaring:
The JOA provides that no new well may be drilled without the consent of all
members of the JOA, unless the members are obliged to drill it, under obligations
in the underlying leases, to prevent drainage, and/or to reasonably develop.[29]
Talisman does not request that we render any declarations, and Statoil Texas asks that we
render judgment âwith the correct construction of Section 8.â 30 A court of appeals has a duty to
render the declaratory judgment that the trial court should have rendered. See Cobb v. Harrington,
190 S.W.2d 709, 715(1945); GRCDallasHomes LLC v. Caldwell,619 S.W.3d 301
, 305 (Tex. App.âFort Worth 2021, pet. denied); see also TEX. R. APP. P. 43.3. A declaration must serve a useful purpose or terminate a controversy between the parties. See Bonham State Bank v. Beadle,907 S.W.2d 465, 468
(Tex. 1995). The purpose of the Uniform Declaratory Judgments Act, under which we render judgment, is âto settle and to afford relief from uncertainty and insecurity with respect to rights, status, and other legal relations; and it is to be liberally construed and administered.â TEX. CIV. PRAC. & REM. CODE ANN. § 37.002(b); see Allstate Ins. Co. v. Irwin,627 S.W.3d 263
, 269 (Tex. 2021); see also TEX. CIV. PRAC. & REM. CODE ANN. § 37.003(a) (âA
court of record within its jurisdiction has power to declare rights, status, and other legal relations
whether or not further relief is or could be claimed.â). We render the following declaration:
The JOA provides that no new well may be drilled without the consent of all
members of the JOA, unless the members are obliged to drill it, under obligations
in the underlying leases, to prevent drainage, and/or to reasonably develop, or if the
balloting and non-consent-penalty provisions of Section 8 are complied with.
29
The trial court made declarations by stating in one column a partyâs requested declaration (e.g., Matrix Requested
Declaration 1, designated âMRD 1â) and in a second column stating the trial courtâs action, such as âNot declaredâ or
âThe Court Declares: . . . .â To assist the parties, we specify which of the trial courtâs declarations we reverse by
reference to the requested declaration. For example, the trial courtâs declaration that this footnote appends is the trial
courtâs action in response to MRD 2.1. Under our nomenclature, this is âDeclaration MRD 2.1,â which we reverse.
30
Statoil Texas also requests that we render certain specific judgments that it sought but was denied as well as
declarations regarding wells drilled after the trial courtâs final judgment. We consider those requests to render below.
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Based on our analysis, we also hold the trial court erred by establishing three categories of
âparticipating member,â ânonparticipating member,â and ânonconsenting member,â and we
reverse the trial courtâs declarations specifically challenged by Talisman and Statoil Texas which
(1) establish these categories, (2) state the rights and obligations of members of these categories,
and (3) state any partyâs status as a âparticipating,â ânonparticipating,â or ânonconsentingâ
member. 31 We do not render declarations in place of those we reverse because we entirely reject
the trial courtâs framework of âparticipating,â ânonparticipating,â and ânonconsentingâ member.
As described above, the balloting and non-consent-penalty provisions provide only for âthe party
desiring to drillâ and âthe other party.â
We also disagree with the trial courtâs interpretation that the Term Assignees consented to
drill wells, for purposes of Section 8, through the Assignments. We reverse the trial courtâs
declarations to this effect. 32 We render the following declaration: âThe Term Assignments do not
mandate that a Term Assignee consent to the drilling of a well under JOA Section 8.â
What remains are the rights and statuses of the parties as to wells that have been drilled â
in other words, whether the 200% non-consent penalty applies to any of Matrix Holdings, JAR,
TMRX, and OGE for the three October 2016 Wells. All of these parties did not agree with
Talisman and Statoil Texas to drill the wells. The trial court declared Matrix Holdings and JAR
to be ânonparticipatingâ as to these wells and TMRX and OGE to be ânonconsenting.â This
distinction resulted from the trial courtâs interpretation of the contracts to require Term Assignees
31
Specifically, we reverse Declarations MRD 2.2, 2.3, 2.4, 3.1, and the two paragraphs of Declaration MRD 3.2
beginning âThe JOA makes no provision forâ and ending âdoes not apply to nonconsenting members.â We also
reverse Declaration ORD d.2 and Declaration SRD 38. The trial courtâs judgment provides that it incorporates
interlocutory orders into the final judgment and that the final judgment prevails to the extent of any conflict. Statoil
Texas challenges declarations in interlocutory orders. Therefore, we render the following judgment: âTo the extent,
if any, the Orders incorporated into the trial courtâs Amended Final Judgment conflict with the judgment of the Fourth
Court of Appeals, the judgment of the Fourth Court of Appeals prevails.â
32
We reverse Declarations SRD 33 and 34.
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to consent to some wells for purposes of Section 8. Again, we disagree with that interpretation.
We render judgment as follows: âMatrix Holdings, JAR, TMRX, and OGE did not agree to drill
any of the October 2016 Wells, and each is subject to a non-consent penalty, pursuant to JOA
Section 8, as to these wells.â
We refuse to render some declarations that Statoil Texas requests. Statoil Texas asserts
that the trial court erred by failing to declare that the Term Assignmentsâ three-well-per-year
drilling obligation supersedes the JOA Section 8 consent/non-consent provision. We disagree,
and, therefore, do not render a declaration in Statoil Texasâs favor on this matter. We also do not
render a related declaration that the Term Assignmentsâ three-well-per-year drilling obligation
âwas enforceable by Statoil Texas against Matrix and JAR for their share of the $13 million drilling
and completion costs found by the jury [for the October 2016 Wells].â Matrix Holdings and JAR
did not consent to the October 2016 Wells; consequently, they are subject to non-consent penalties,
but they are not obligated to share in costs. We also overrule Statoil Texasâs Issue 4, which
reframes the issue in terms of damages. By Issue 4, Statoil Texas challenges the trial courtâs failure
to award it damages representing the share of costs Matrix Holdings and JAR would have borne
had they consented to the October 2016 Wells. We deny Statoil Texasâs request, in its Issue 6, for
a declaration that the JOA does not grant ownership of production to a working interest owner
without the payment of costs because the JOA does just that after the non-consent penalties are
recouped. 33
33
We also deny Statoil Texasâs related declaration, requested through its Issue 7, that a working interest ownerâs right
to take production in kind is limited by the condition that it pay costs. As discussed in greater detail below, Section
13 of the JOA allows a working interest owner to receive its proportionate share of production in kind. The JOA does
not condition taking production in kind on the payment of costs. With application of a non-consent penalty, it is
possible for a working interest owner to own production after the non-consent penalty has been recouped and, under
Section 13, to take production in kind thereafter without ever paying costs.
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We also refuse Statoil Texasâs requested declarations regarding whether the Term
Assignees have an obligation to each other to drill three wells per year because, as discussed in
our jurisdiction analysis, Statoil Texas does not have standing to pursue forward-looking
declarations that do not resolve past disputes. In all years when Statoil Texas was a working
interest owner and contract operator, at least three wells per year were drilled. 34
We also do not declare, as Statoil Texas requests, the rights and statuses of the parties as
to wells drilled in 2018, 2019, and 2020, after the trial court entered its final judgment. The record
contains no evidence as to these wells, including whether the parties consented or did not consent
to drilling. Absent any evidence regarding these wells, the trial court could not have entered
declaratory judgment, and neither can we. See Cobb v. Harrington, 144 Tex. at 370; GRCDallasHomes LLC, 619 S.W.3d at 305; Modular Tech. Corp., Metal Bd. Div. v. City of Lubbock,529 S.W.2d 273, 276
(Tex. Civ. App.âAmarillo 1975, writ refâd n.r.e.) (holding appellate court could not render declaratory judgment when parties did not file pleadings addressing matter and fact questions remained to be resolved); see also Waldrop v. Waldrop,552 S.W.3d 396
, 411 n.9 (Tex. App.âFort Worth 2018, no pet.) (âThe Uniform Declaratory Judgments Act gives the trial court no power to pass upon hypothetical or contingent situations or to determine questions not then essential to the decision of an actual controversy, even though such questions may in the future require adjudication.â). 35 34 Statoil Texas also does not have standing to appeal whether â[t]he district court erred by declaring that the parties did not join issue on the enforceability of the Term Assignment three-well-per-year drilling obligation between the Term Assignment assignees.â 35 We have addressed or dismissed Statoil Texasâs eight issues that are stated in the âIssues Presentedâ portion of its appellantâs brief, and âevery subsidiary question that is fairly included.â TEX. R. APP. P. 38.1(f); see also St. John Missionary Baptist Church v. Flakes,595 S.W.3d 211
, 214 (Tex. 2020) (per curiam). Statoil Texas also provides, in
an appendix to its brief, a âList of Unbriefed Issues Raised in the Trial Court Affected by the Courtâs Section 8 Consent
Unanimity Ruling.â Two of these âunbriefed issuesâ we have already considered and resolved because they present
subsidiary questions to Statoil Texasâs broad Issue 1 challenging the trial courtâs interpretation of Section 8. These
subsidiary questions we have considered and resolved are: Unbriefed Issue 1: âError in declaring that Cooke Ranch
working interest owners were participating/non-participating, consenting/non-consenting, based on error in declaring
that Section 8 required consent unanimity;â and Unbriefed Issue 7: âError in failing to declare that Statoil Texas was
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4. Damages Award to OGE
The trial court instructed the jury:
If Talisman proceeded in the drilling of the October 2016 Wells, it will be in breach
of the JOA. TMRX and OGE have not consented under the JOA to the drilling of
the October 2016 Wells. TMRX and OGE will be entitled to their share of
production from the October 2016 Wells.
The jury awarded OGE $122,681 in damages, representing revenue from the October 2016 Wells
without any deduction for the 200% non-consent penalty provided for by JOA Section 8. 36 As we
have held, JOA Section 8 does not provide for a nonconsenting party, such as OGE, to receive
production without satisfying the 200% non-consent penalty. Therefore, we reverse the trial
courtâs award to OGE and render judgment that OGE takes nothing on its claim for revenue from
the October 2016 Wells. 37
5. Failure to Award JAR Damages
The trial court set aside the juryâs award to JAR of damages for unpaid revenue from three
wells drilled without JARâs consent and without deducting any costs or a non-consent penalty. On
appeal, JAR asserts that it is a ânonconsenting member,â entitled to revenue without the
application of the 200% non-consent penalty. Because we hold that an owner which does not
entitled to drill the three October 2016 Wells without the consent and over the objection of the Matrix Parties and
OGE.â We overrule the remaining âunbriefed issues,â due to inadequate briefing. See TEX. R. APP. P. 38.1(i); see
also St. John, 595 S.W.3d at 214; Carlo Motors Inc. v. De Los Santos, No. 04-19-00055-CV, 2019 WL 3642655, at
*2 (Tex. App.âSan Antonio Aug. 7, 2019, no pet.) (mem. op.) (âAn appellant waives any issues that are not
adequately briefed because nothing is presented for our review when the appellant fails to cite relevant authority,
provide relevant citations to the record, or provide substantive analysis of the issue raised in the brief.â). The
âunbriefed issuesâ that we overrule are: Unbriefed Issue 2: âError in awarding a non-breach of contract remedy to
OGE and TMRX for the declared breach of JOA Section 8 as to the October 2016 Wells;â Unbriefed Issue 3: âError
in awarding money damages to OGE and TMRX for the declared breach of JOA Section 8 as to the October 2016
Wells;â Unbriefed Issue 4: âError in awarding money damages to OGE and TMRX in the absence of both pleading
and proof of compensatory or special damages;â Unbriefed Issue 5: âError in failing to declare that JOA Section 5
does not entitle OGE and TMRX to production revenues as a remedy for breach of Section 8;â and Unbriefed Issue 6:
âError in failing to hold that JOA Section 8 does not entitle OGE and TMRX to production revenues as a remedy for
breach of JOA Section 8.â
36
The final judgment does not include a similar award for TMRX, which like OGE, is not subject to the Term
Assignments.
37
OGE does not contest that oil and gas produced from the wells has not exceeded 200% of costs.
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consent under Section 8 must pay the non-consent penalty, the trial court did not err by setting
aside the juryâs award, albeit for a different reason. See JSC Neftegas-Impex v. Citibank, N.A.,
365 S.W.3d 387, 396(Tex. App.âHouston [1st Dist.] 2011, pet. denied) (âJNOV or directed verdict is . . . proper when a legal principle precludes recovery.â); Rush v. Barrios,56 S.W.3d 88, 94
(Tex. App.âHouston [14th Dist.] 2001, pet. denied) (âWe will affirm a JNOV if . . . the
evidence establishes an issue as a matter of law.â). 38
IV. JOA Section 5
The parties also disagree on the interpretation of JOA Section 5 and the Term Assignments
impact on this section, if any.
A. Background
Section 5 provides:
Operator shall make no single expenditure in excess of $2,500.00 without first
obtaining the consent thereto by Non-operator; provided, however, that when
Operator and Non-operator have agreed upon the drilling of any well on the leased
acreage, Operator shall be authorized to incur any expenditure necessary in the
drilling, equipping and completing of such well and the saving of the production
therefrom without securing the additional consent of Non-operator.
The trial court instructed the jury:
Section 5 of the JOA requires Talisman, as Operator, to obtain the consent of
Matrix, JAR, TMRX, and OGE, as Non-Operators, before Talisman can make any
expenditure in excess of $2,500.00. If Talisman, as Operator, and Matrix, JAR,
TMRX, and OGE, as Non-Operators, agree upon the drilling of any well, Talisman
is permitted to incur any expenditures after such agreement provided that any such
expenditures are necessary in the drilling, equipping, and completing of such well
and the saving of the production therefrom without needing additional consent.
(Emphasis added.)
38
The trial court reached the same result we do by determining JAR was a consenting member through the Term
Assignments. We held above, the Term Assignments do not mandate consent.
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Under the trial courtâs interpretation, the blanket authorization allowed under the
âprovided, howeverâ clause of Section 5 extended only to expenditures incurred after the
agreement to drill. Based on this instruction, the jury awarded Matrix $6,108,276 for âthe amount
that [Matrix] paid for expenses that Talisman incurred above $2,500 on a well before [Matrix]
granted [its] consent to the drilling of that well.â 39
Talisman argues that the trial court erred in its interpretation of Section 5. Talisman argues
that the âprovided, howeverâ clause allowed it to incur and charge other working interest owners
for expenses made either before or after Talisman received consent to drill, so long as Talisman
ultimately received consent. It asks that we render judgment that Matrix takes nothing on its claim
for expenditures over $2,500 made prior to receipt of consent. Statoil Texas challenges two
declarations the trial court made regarding Section 5. 40 In support of the trial courtâs interpretation,
Matrix argues that the plain language of Section 5 limits the blanket authorization allowed under
the âprovided, howeverâ clause to only those expenditures incurred after the parties have agreed
on the drilling of a well.
B. Analysis
We hold, and the parties agree, that Section 5 is unambiguous. See Tawes, 340 S.W.3d at
425. The sentence the parties look to in Section 5 begins with a clear temporal element: âOperator
shall make no single expenditure in excess of $2,500.00 without first obtaining the consent thereto
by Non-operator.â (Emphasis added.) This plain language requires consent prior to an expenditure
in excess of $2,500.
39
This award applies only to wells for which Talisman ultimately received Matrixâs consent to drill.
40
It also argues that the Term Assignments supersede Section 5 because Section 5 conflicts with the Term
Assignments. In its brief, Statoil Texas directs us to arguments it made with respect to Section 8, without adding new
arguments. Accordingly, we reject its arguments as to Section 5 for the reasons discussed above as to Section 8. See
TEX. R. APP. P. 38.1(i.).
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The âprovided, however,â clause that follows alters this general provision. See Knight,
188 S.W.2d at 566; ConocoPhillips,2006 WL 1748584
, at *3. The âprovided, howeverâ clause states that it applies âwhen Operator and Non-operator have agreed upon the drilling of any well on the leased acreage.â (Emphasis added.) Matrix argues that the past tense used in the clause indicates that the exception applies only after the parties âhave agreed.â Talisman directs us to Valence Operating Co. v. Dorsett,164 S.W.3d 656
(Tex. 2005), and argues that the clause does
not bar âearlyâ expenditures but places upon Talisman the risk that it might bear all costs for early
expenditures if other working interest owners do not later consent.
In Valence, the supreme court considered a contract that required a party desiring to drill a
well to give thirty daysâ notice of âthe proposed operationâ to other working interest owners. Id.
at 659. These owners could then elect to participate in the proposed drilling or, if not, be subject to a non-consent penalty.Id.
The operating agreement further provided:
the party or parties giving the notice and such other parties as shall elect to
participate in the operation shall, within sixty (60) days after the expiration of the
notice period of thirty (30) days . . . actually commence work on the proposed
operation and complete it with due diligence . . . .
Id.A working interest owner who did not consent sued and argued that the non-consent penalty did not apply because the operator did not âactually commence workâ on âthe proposed operationâ âafter the expiration of the notice period;â instead, the operator, commenced work prior to giving notice.Id.
at 660â61. The supreme court determined that the contract did not place restrictions on when the operator may commence drilling and that nothing forbade the operator from commencing work before the end of the notice period.Id.
at 662â63. The court stated:
We recognize that this interpretation allows an operator to commence a new
operation before the thirty-day notice period has expired; however, potential
benefits may accrue to the owners for an operatorâs âearlyâ commencement. For
example, an early start may avoid detrimental occurrences such as the draining of
an oil field by a neighboring operator or the expiration of an oil and gas lease.
Moreover, the risk of early commencement of such operations falls entirely on the
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operator because if none of the working interest owners consent to participation
within thirty days, the operator bears the full cost of operations.
Id. at 663.
Similar to the contract in Valence, nothing in the âprovided, howeverâ clause of Section 5
specifies that the authorization applies only to expenses incurred after consent, as the trial court
instructed. The clause simply provides that âwhen Operator and Non-operator have agreed upon
the drilling of any well . . . Operator shall be authorized to incur any expenditures necessary . . .
without securing the additional consent of Non-operator.â We agree with Matrix that the clause
only applies after âOperator and Non-operator have agreed,â but the clause does not prohibit
authorization, once given, from extending to past expenses. Like the election clause in Valence,
Section 5 places the risk of âearlyâ expenditures entirely upon the Operator. See id.Without an agreement to drill, the Operator has no basis to recover for expenditures made in excess of $2,500 and made without prior approval. Seeid.
However, when working interest owners give consent
to drill (so as to share in production without paying non-consent penalties under Section 8), those
consenting owners authorize the Operator to incur any expenditures ânecessary in the drilling,
equipping, and completingâ of the wells under the blanket authorization allowed by the âprovided,
howeverâ clause.
As in Valence, our interpretation provides a potential benefit to working interest owners
from an operatorâs âearlyâ expenditures because it allows working interest owners to assess costs
already incurred before consenting. See id.; see also Bonn, 613 F.3d at 535(applying Valence when notice had been given after well had been completed and âafter the majority of the risks associated with drilling had been determinedâ). Our interpretation is also in harmony with Section 8âs explicit calibration of risks and rewards to the parties that consent to drill. See Coker v. Coker,650 S.W.2d 391, 393
(Tex. 1983). Section 8 provides: âAny well drilled under the provisions of
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04-18-00411-CV
this section [8] shall be drilled at the sole cost, risk and expense of the party electing to drill.â The
plain language of the JOA and its calibration of risk and reward, however, does not support the
trial courtâs contrary interpretation that would allow Matrix to avoid sharing in the burden of
necessary expenditures on wells it consented to.
Therefore, we reverse the trial courtâs declaration stating its erroneous interpretation of
Section 5, but we do not render a declaration because Talisman and Statoil Texas have not
specifically requested that we do so as to Section 5. See TEX. R. APP. P. 38.1(j). 41 We also reverse
the trial courtâs judgment to Matrix of $6,108,276, and we render judgment that Matrix takes
nothing on its claim for expenditures over $2,500 prior to Talismanâs receipt of consent.
V. JOA Section 13
In cross-issues, Matrix and Talisman challenge the trial courtâs declarations regarding
Section 13 of the JOA. 42 Section 13 allows a working interest owner to take its share of production
in kind. Talisman requested declarations that it was not required to install facilities for the joint
account of the working interest owners; it argues that owners wishing to take in kind must install
any required facilities. Matrix requested declarations that would allow it to take production in
kind by âtappingâ into an 8-inch pipeline on the gathering system that led to the CDP (the âD8â
Pipelineâ). The trial court denied both sidesâ requests. It denied Matrixâs requested declarations
that it could tap into the D8â Pipeline, and it declared that the Operator had to insure âsufficient
facilitiesâ at each well for a working interest owner to install âappropriate facilitiesâ to take
production in kind. We review first Talismanâs issue concerning whether it must install any
41
We reverse Declaration MRD 1.
42
Talisman joined in Statoil Texasâs challenge. See TEX. R. APP. P. 9.7. Because Statoil Texas does not have standing
to pursue its issue related to Section 13, we discuss the issue as Talismanâs.
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facilities for taking in kind. We then consider Matrixâs issue regarding whether it can tap into the
D8â Pipeline.
A. Sufficient Facilities
1. Background
Section 13 provides, in pertinent part:
Subject to the other provisions of this agreement, all oil and gas produced and saved
from the leased acreage and not required in the conduct of operations hereunder
shall be shared by the parties hereto, and owned in severalty, in proportion to their
respective interests, and each party hereto shall be entitled to separately dispose of
or receive in kind his or its proportionate share thereof, subject, however, to the
following provisions:
(a) Should any party hereto require facilities for the taking in kind or
separate disposition of his or its share of such oil and gas, which facilities
are in addition to those installed by Operator for the benefit of the joint
account of the parties hereto, such party shall bear and pay in cash any
additional expense incident to the construction, installation and
maintenance of such additional facilities.
The trial court declared:
Operator has not deprived another member of the JOA of its right to take its
production in kind, without payment of facility use fees, so long as it insures that
there are sufficient facilities owned by the joint account at each well to allow the
member to install appropriate facilities for taking in kind.[43]
2. Analysis
In its appellantâs brief, Statoil argues, â[t]he district court declared that the Operator must
insure that there are âsufficient facilities,â chargeable to the joint account, to allow a member who
desires to take production in kind to install appropriate facilities for that purpose. . . . The Operator
owes no such duty.â TMRX responds, âbecause the [working interest] owners must have the
ability to [take in kind] somewhere, the trial court declared that the Operator must have âsufficient
43
The trial court defined âfacility use feesâ in the first part of the declaration. Because Talisman has not challenged
this first part, we affirm it without further consideration, and we consider only Talismanâs challenge to the quoted
language.
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facilities owned by the joint account at each well to allow the member to install appropriate
facilities for taking in kind.ââ Statoil replies, âMatrix may take in kind at the wellhead of each
Cooke Ranch well, because those locations are the only locations of facilities charged to the joint
account.â To the extent the trial court declared that Section 13 of the JOA requires the Operator
to construct, install, or maintain facilities in addition to the existing facilities installed by the
Operator for the benefit of the joint account of the parties, the trial court erred.
Section 13 provides that, if âany party . . . require[s] facilities for the taking in kind . . .
such party shall bear and pay in cash any additional expense incident to the construction,
installation and maintenance of such additional facilities.â This plain language imposes upon the
party that ârequire[s] facilitiesâ the obligation to âbear and payâ âany additional expense incident
to the construction, installation and maintenance of such additional facilities.â See Heritage Res.,
Inc. v. NationsBank, 939 S.W.2d 118, 124 (Tex. 1996) (Owen, J., concurring) (âParties to a lease
may allocate costs, including post-production or marketing costs, as they choose.â).
Section 13 places no obligation upon the Operator to insure that there are facilities â
required, sufficient, appropriate, or otherwise. Section 13 acknowledges that there may exist
âfacilities . . . installed by Operator for the benefit of the joint account of the parties;â however,
this acknowledgement simply makes clear that facilities an owner may require for taking in kind
â and for which the owner alone is financially responsible â are those in addition to facilities
provided for the benefit of the joint account, which are paid for jointly. The parties recognize that
the Operator has some obligation to install facilities to âproduce and saveâ oil and gas; however,
the Operatorâs obligation to produce and save does not imply an obligation to install facilities for
taking in kind, which only occurs after production and saving. See Exxon Corp. v. Middleton, 613
S.W.2d 240, 244(Tex. 1981) (âProduction means actual physical extraction of the mineral from the land.â); cf. Burlington Res. Oil & Gas Co. LP v. Tex. Crude Energy, LLC,573 S.W.3d 198
,
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201, 207, 211 (Tex. 2019) (determining parties agreed to an âat the wellâ valuation when
assignment of royalty interests in oil and gas âproduced and savedâ specified that delivery was to
be into pipelines, tanks, or other receptacles connected to wells).
We hold the plain language of Section 13 places the obligation to construct, install, and
maintain additional facilities upon the working interest owner requiring any such facilities to take
production in kind. Consequently, to the extent the trial courtâs declaration requires the Operator
to construct facilities for the benefit of the joint account in addition to the wellheads to allow the
working interest owners to take in kind, we reverse the trial courtâs declaration that requires the
Operator to insure âsufficient facilities.â 44
B. D8â Pipeline
1. Background
As explained above, Section 13 provides that a working interest owner may take production
in kind, and it must âbear and pay in cash any additional expense incident to the construction,
installation and maintenance of . . . additional facilities.â âAdditional facilitiesâ do not encompass
âthose installed by Operator for the benefit of the joint account of the parties.â Matrix argues that
the D8â Pipeline is a facility installed by Talisman for the benefit of the joint account, and Matrix
seeks to tap into the D8â Pipeline to take production in kind. It asserts that the D8â Pipeline is
â[t]he best and most reasonable placeâ for it to exercise its right to take in kind because tapping
the D8â Pipeline would allow âa single tap in the gathering system before the Cooke Ranch
production reaches the CDP â and not separate taps at each of the wellheads.â
44
We reverse the portion of Declaration MRD 5, quoted above, which begins âOperator has not deprivedâ and ends
âfor taking in kind.â We do not reverse Declarations SRD 9 and SRD 31, as requested, because there is nothing to
reverse. The trial court did âNot Declare[]â any matters with respect to SRD 9 and SRD 31 but only referred back to
MRD 5. We do not render declarations as to Section 13 because Talisman did not specifically request that we do so.
See TEX. R. APP. P. 38.1(i), (j).
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On appeal, Matrix challenges several determinations by the trial court. First, it challenges
the trial courtâs determination that Matrix has no ownership interest in the D8â Pipeline. The trial
court made this determination in an interlocutory judgment, which it incorporated into the final
judgment. Second, Matrix challenges the trial courtâs denial of several of its requested declarations
concerning a purported entitlement to tap into the D8â Pipeline. We look first at the trial courtâs
ownership determination and then at the denied declarations.
2. Ownership of the D8â Pipeline
Talisman pled for a declaration that the JOA does not grant Matrix an ownership interest
in the CDP and its gathering facilities, including the D8â Pipeline. Conversely, Matrix pled for a
declaration that the parties own the CDP and its gathering facilities in proportion to their working
interest ownerships. Prior to trial, the parties moved for partial summary judgment, and in an
amended order on Talismanâs cross motion for partial summary judgment on ownership, the trial
court declared: âThe JOA does not automatically grant non-operators an ownership interest in the
facilities used for processing and gathering located physically on or near the Cooke Ranch,
construed [sic] by Talisman and Statoil for their own use even if the facilities also provide services
charged to the joint account.â The order identifies 23 facilities for which the trial court granted
Talismanâs motion, including facilities that comprise the CDP. The order lists four facilities for
which the trial court denied the motion, including the D8â Pipeline. Ownership of the D8â Pipeline
remained a live issue heading into trial. The parties dispute whether, at trial, Matrixâs counsel
conceded ownership of the D8â Pipeline to Talisman and Statoil by judicial admissions.
A âtrueâ judicial admission is a formal waiver of proof usually found in a pleading or
stipulation of a party. Mendoza v. Fid. & Guar. Ins. Underwriters, Inc., 606 S.W.2d 692, 694
(Tex. 1980). A counselâs statement on behalf of a client may serve as a judicial admission if five
elements are met: (1) a statement made during the course of a judicial proceeding; (2) that is
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contrary to an essential fact or defense asserted by the person making the admission; (3) that is
deliberate, clear, and unequivocal; (4) that, if given conclusive effect, would be consistent with
public policy; and (5) that is not destructive of the opposing partyâs theory of recovery. In re
M.M.O., 981 S.W.2d 72, 84â85 (Tex. App.âSan Antonio 1998, no pet.). Matrix contends that
counselâs statements conceded ownership only as to the 23 facilities determined by the trial courtâs
interlocutory summary judgment order, but not as to the D8â Pipeline and the three other facilities
whose ownership the trial court had not resolved prior to trial.
After reviewing the record and the context in which Matrixâs counsel made his statements,
we agree with Talisman that Matrixâs counsel deliberately, clearly, and unequivocally conceded
ownership of the D8â Pipeline. Matrixâs counsel made the strategic decision to concede ownership
of the CDP and all gathering facilities, including the D8â Pipeline, and argued instead only that
the facilities were âfor the benefit of the joint account.â
Talisman directs us to five statements made by Matrixâs counsel on the trial record in which
he conceded ownership. First, Statoilâs counsel interrupted a question posed to a witness by
Matrixâs counsel that touched upon ownership of the CDP. The partiesâ counsel and the trial court
discussed the courtâs interlocutory ownership ruling, including the unresolved ownership of four
facilities, and then Matrixâs counsel stated:
If he would have let me finish this last question, I said even if you donât own the
CDP. So Iâm not going to contest the ownership, as [Statoilâs counsel] is objecting
to. But No. 2, your [interlocutory order on ownership] left open the issue as to
whether the CDP, regardless of ownership, was for the benefit of the joint account.
Second, regarding another question to the same witness, counsel and the trial court again
discussed the interlocutory order. Matrixâs counsel asserted: âThe Court specifically, in the
[interlocutory order], left open the issue of whether the CDP â whether equitable title would
inure[.]â The trial court commented that ownership of four facilities remained unresolved because
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all working interest owners had been billed at one time for those facilities. Matrixâs counsel then
asserted: âWhich doesnât address the benefit of the joint account. Itâs a difference.â Soon
thereafter, Matrixâs counsel asserted:
To be clear, I understand the Courtâs ruling, although the language that was being
used [in a question to the witness] was âfor the benefit of the joint accountsâ which
is verbatim from Section 13 of the Joint Operating Agreement and has nothing to
do with the ownership of the CDP and the gathering lines, which I havenât argued
for.
Third, on another day of trial and regarding a question asked of another witness, Matrixâs
counsel asserted: âI am not questioning ownership. Judge, Iâve consistently said that Iâm not
contesting ownership. I understand the Courtâs ruling.â
Fourth, as to another question posed to a witness regarding CDP fees, Matrixâs counsel
objected, stating: âGetting into ownership again. Iâve argued ownership. Iâve conceded.â
Fifth, when discussing the jury charge, Matrixâs counsel stated: âI think thereâs some
misconception that weâre asking for ownership of the CDP, because weâre not. But we are
contesting, especially with respect to the gathering lines, whether itâs for the use of the joint
account.â
By these statements, Matrixâs counsel judicially conceded ownership of the CDP and its
gathering facilities, including the D8â Pipeline. Counsel did not withhold his concession from
applying to the four facilities left unresolved after partial summary judgment; instead, he made
clear only that his concession did not apply to the matter of whether the CDP and its gathering
facilities were âfor the benefit of the joint account.â Matrixâs counsel made clear that he was not
arguing for âownership of the CDP and the gathering lines,â that he âargued ownershipâ and
âconceded,â and that Matrix âcontest[ed], especially with respect to the gathering lines, whether
itâs for the use of the joint account.â On this record, Matrixâs counsel deliberately, clearly, and
unequivocally stated on the trial record a concession of ownership of the CDP and its gathering
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facilities, including the D8â Pipeline. See In re M.M.O., 981 S.W.2d at 84â85. The concession is
contrary to Matrixâs defense to requested declarations of ownership in Talismanâs favor, and the
concession is not destructive to Talismanâs theory of recovery. See id.Giving effect to Matrixâs concession is consistent with public policy because it would be unjust to permit Matrix to recover after it had disclaimed ownership. See Laredo Med. Grp. Corp. v. Mireles,155 S.W.3d 417, 429
(Tex. App.âSan Antonio 2004, pet. denied) (âThis rule [for a judicial admission] is based on the
public policy that it would be unjust to permit a party to recover after he has sworn himself out of
court by a clear, unequivocal statement.â).
After trial, the trial court entered an interlocutory judgment on ownership of the CDP and
its gathering facilities, in which the trial court declared: â[T]he JOA does not grant [Matrix and
OGE] any ownership interest in any of Talisman and Statoilâs processing and gathering facilities
located physically on or near the Cooke Ranch, including but not limited to the CDP Facilities
described in this Judgment, and any other post-production facilities associated with the Cooke
Ranch.â The interlocutory judgment specifies that it applies to the D8â Pipeline. Later, the trial
court incorporated the interlocutory judgment on ownership into the final judgment. We overrule
Matrixâs challenge to the trial courtâs determination that Matrix has no ownership interest in the
D8â Pipeline.
3. Right to Tap into the D8â Pipeline
Matrix argues that the trial court erred by denying its requested declarations that would
entitle Matrix to tap into the D8â Pipeline to take production in kind. Matrix argues the trial courtâs
denial followed from its declaration that Matrix does not have an ownership interest in the D8â
Pipeline. It further asserts that the D8â Pipeline is its joint property and that we should remand for
reconsideration of the requested declarations. Matrix also argues that the âbest and most
reasonable placeâ to take production in kind would be at a single tap on the D8â Pipeline.
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Matrixâs arguments do not establish that the trial court erred or that Matrix is entitled to
declaratory relief. A party seeking declaratory relief has the burden of proving that it is entitled to
the requested relief. Harkins v. Crews, 907 S.W.2d 51, 58 (Tex. App.âSan Antonio 1995, writ
denied). As discussed above, Matrix conceded ownership of the D8â Pipeline; consequently, the
trial court did not err by denying declarations to the extent its denial was based on Matrixâs lack
of a joint ownership interest in the CDP and its gathering facilities. The trial court also did not err
by denying Matrixâs requested declarations if denial was based on Matrixâs assertion that the D8â
Pipeline is the âbest and most reasonable placeâ to take production in kind. Regardless of whether
the evidence bears out this assertion, Matrix has not established how the fact would entitle it to tap
into the D8â Pipeline pursuant to the JOA or otherwise. 45 In short, Matrix has not shown an
entitlement to its requested declarations regarding tapping into the CDP gathering facilities,
including the D8â Pipeline, and we hold the trial court did not err by denying Matrixâs requested
declarations on the matter. 46
VI. Damages Awarded Pursuant to Jury Questions 1b(7), (11), (14), (16), and (18)
In a broad issue, Talisman argues no evidence supports âmiscellaneous damagesâ awarded
to Matrix and OGE against Talisman pursuant to jury questions 1b(7), (11), (14), (16), and (18)
because the evidence conclusively establishes the opposite of a vital fact as to each of the awards.
A. Standard of Review
When considering whether legally sufficient evidence supports a juryâs verdict, we must
consider the evidence that favors the verdict if a reasonable factfinder could, and disregard contrary
evidence unless a reasonable factfinder could not. See City of Keller v. Wilson, 168 S.W.3d 802,
45
Relatedly, Matrix has not shown that the trial courtâs ruling âshuts the Matrix parties out of the Cooke Ranch.â
Under Section 13 of the JOA, Matrix may take production in kind by installing the facilities it requires to do so.
46
Specifically, we affirm the trial courtâs final judgment to the extent it denies Matrixâs requested Declarations MRD
4.4, 4.5, and 4.6.
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827 (Tex. 2005). We view the evidence in the light most favorable to the verdict and indulge every
reasonable inference to support it. Id. at 822. Evidence is legally sufficient if it would enable a reasonable factfinder âto reach the verdict under review.âId. at 827
. We may not sustain a legal sufficiency, or âno evidence,â point unless the record demonstrates (1) a complete absence of evidence of a vital fact; (2) that the court is barred by rules of law or of evidence from giving weight to the only evidence offered to prove a vital fact; (3) that the evidence offered to prove a vital fact is no more than a mere scintilla; or (4) that the evidence conclusively establishes the opposite of the vital fact.Id. at 810
. Talisman argues the last category.
B. Jury Questions 1b(7), (16), and (18)
As to the juryâs findings to questions 1b(7), (16), and (18), Talisman argues âthe âevidence
conclusively establishes the opposite of [the] vital factâ found by the jury: Talisman paid all the[]
amountsâ at issue. (quoting id. at 814). Matrix and OGE argue that the record contains conflicting
evidence from which the jury was entitled to draw its own conclusions regarding whether Talisman
had paid the amounts the jury found were owing.
1. Jury Question 1(b)(7): Line Fill
Line fill consists of oil and gas used to fill a pipeline to ensure flow through the pipeline.
The jury was asked to state, âthe amount that Talisman should have paid the plaintiffs for use of
gas production to fill pipelines.â It answered $733,557 as to Matrix and $165,093 as to OGE, and
the trial court awarded judgment in these amounts.
Matrix directs us to testimony to support the award. Matrixâs Vice President of Finance,
Steve Ives, explained in his trial testimony that line fill is measured in terms of âdaysâ worthâ of
production. Ives testified that in 2013 or 2014, the pipeline operators serving the Cooke Ranch
required an increase in line fill from five to twenty daysâ worth of production. Ives analyzed the
billing statements Matrix received from Talisman and determined that in certain months, Matrix
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was paid much less in revenue for lower production volumes of ethane, propane, butane, and
pentane (collectively, natural gas liquids or âNGLsâ) and for oil. Ives concluded that, for those
months, production of NGLs and oil was used as line fill, rather than sold. Ives testified that he
found no evidence in the billing statements that the production used as line fill for NGLs and oil
was ever paid to Matrix, although he acknowledged there were adjustments for condensate.
Matrixâs accounting expert, Jeffrey Spilker, testified that he and Ives search all of the joint interest
billing statements (âJIBsâ). Spilker determined that Talisman gave Matrix credit for production
from 2013 that was used as line fill but that no credit was given for production from 2014 used as
line fill.
In contrast, Talismanâs head of accounting, Brian Robertson, testified that Matrix and OGE
were âfully paidâ for production used as line fill. Talismanâs lead accountant for revenue
accounting, Corinne Bugamelli, testified that she reviewed accounting records to verify payment.
She testified that payment occurred in March 2016, when Statoil took over operations. Bugamelli
stated that Talisman created accounting spreadsheets that showed production delivered as line fill
in April, May, and June 2013, and that corrections were done to ârelease the linefillâ in March
2016. She explained that one could look at JIBs to determine if the working interest owners were
paid.
The evidence does not conclusively establish that Talisman paid Matrix and OGE for their
share of production used as line fill, as Talisman contends. Robertsonâs testimony is conclusory
and does not establish the disputed fact of payment as a matter of law. See Rockwall Commons
Assocs., Ltd. v. MRC Mortg. Grantor Tr. I, 331 S.W.3d 500, 512 (Tex. App.âEl Paso 2010, no
pet.) (âLegal conclusions and conclusory statements in an affidavit, without more, are insufficient
to establish a right to summary judgment as a matter of law.â). Bugamelliâs explanation does not
necessarily contradict Spilkerâs testimony. Bugamelli testified as to production from 2013, and
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Spilker testified that Talisman gave Matrix a credit related to production from 2013. Spilker,
however, testified that his review of JIBs showed that no credit was given for production from
2014 used as line fill. Ultimately, the evidence on the matter consists of conflicting statements by
accountants who reviewed relevant records and reached different conclusions as to whether
Talisman had paid for production used as line fill. Under these circumstances, Talismanâs payment
was a disputed factual matter that the jury was free to resolve. See In re S.R.B., No. 11-12-00310-
CV, 2014 WL 2767116, at *2 (Tex. App.âEastland June 12, 2014, no pet.) (mem. op.) (recognizing fact question existed as to whether child support was paid where mother claimed she had not received checks and father testified he mailed checks and presented bank statements that showed checks had been cashed); cf. McKeehan v. Wilmington Sav. Fund Socây, FSB,554 S.W.3d 692, 700
(Tex. App.âHouston [1st Dist.] 2018, no pet.) (plaintiffs did not prove bank misapplied payments because there was some evidence from bankâs records to support both plaintiffsâ contention of misapplication and bankâs position of correct application); Tex. Emps.â Ins. Assân v. Locke,224 S.W.2d 755, 759
(Tex. Civ. App.âFort Worth 1949, writ refâd n.r.e.) (remarking as
to proving a negative as a fact: âGenerally, if a witness shows to have been in a position to know
a fact and says in effect that he did not see or hear it, or that it did not happen in so far as he knows,
such testimony has probative value . . . .â).
2. Jury Question 1b(16): Targa Condensate
Similarly, as to fluid condensate, the record contains conflicting statements by witnesses
who reviewed relevant payment records. Under these circumstances, the jury was free to
determine the disputed matter of whether payment had been made and to conclude, as it did, that
Talisman failed to pay Matrix $156,731 and OGE $37,080 âfor condensate (Targa fluid
condensate) sold but not accounted for in revenues to plaintiffs.â
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Fluid condensate is oil that condenses from gas. The condensate at issue resulted when gas
flowed through a pipeline to a purchaser, Targa. Targa collected the liquid and paid Talisman for
it. David Reeves testified that Targaâs payment to Talisman occurred through an âaccounting
balance.â He testified that he reviewed Talismanâs revenue statements, which showed how much
money Targa paid Talisman, and determined Matrixâs interest in Targaâs payment to Talisman for
the condensate. He also testified that he âreviewed some, [but] not all of the joint interest billings,â
and saw no evidence that Talisman paid Matrix for its share of the condensate.
Talisman directs us to Robertsonâs conclusory statement of full payment discussed above,
which does not prove payment as a matter of law. See Rockwall Commons Assocs., 331 S.W.3d
at 512. It also directs us to testimony from its damages expert, David Lerman. Lerman testified
that Talisman produced a âliquid sales by contract reportâ every month. Lerman presented the
May 2015 report as an example to explain how the report shows the payment of condensate
revenue to all working interest owners. Lerman, however, did not explain if the condensate
revenue was reported in JIBs and, if so, why Reevesâs analysis based on the JIBs was invalid. As
with the issue of line fill payment, the trial record regarding condensate payment consists of
competing testimony by witnesses who reviewed invoice and billing records to reach different
conclusions regarding whether the records reflected full payment. On this record, we reject
Talismanâs argument that it conclusively proved payment to Matrix and OGE for condensate sold
to Targa.
3. Jury Question 1b(18): Off-Spec Y-Grade NGLs
The last category for which Talisman asserts it conclusively proved payment to Matrix and
OGE is for âoff-spec Y-grade NGLs.â This category concerns an NGL mixture sold by Talisman
for which Matrix and OGE claim they did not receive payment. Based on the juryâs findings, the
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trial court awarded Matrix $166,098 and OGE $39,298 as â[r]evenues not paid due to the improper
accounting of Off-Spec Y-Grade NGLs that Talisman sold.â
As with line fill and condensate, competing testimony regarding payment of the NGL
mixture was introduced. Reeves testified that he reviewed some JIBs and did not see evidence
that Matrix was paid for off-spec Y-grade NGLs. Robertson testified that Talisman made a âcatch-
upâ payment to Matrix in April 2014 and that payment for the NGLs was paid monthly thereafter.
Bugamelli testified, similarly to Robertson, that no working interest owner was paid for Y-grade
NGLs âearly on,â but âlooking at the records, it shows . . . that all the historical trucked Y grade
from December 2012 through to February of 2014 was paid in April of 2014.â Bugamelli
explained that the records she reviewed were produced from a âdata pullâ from Talismanâs
accounting system. According to Bugamelli, after April 2014, the process was fixed to provide
for monthly payments to working interest owners.
As with the condensate payments, Reeves reviewed JIBs while Talismanâs witness
reviewed reports created through Talismanâs accounting system. Talismanâs witness did not
address JIBs or Reevesâs analysis. Based on competing conclusions drawn by witnesses from their
reviews of different records, we hold that, as to off-spec Y-grade NGLs, Talisman did not
conclusively prove payment to Matrix and OGE.
C. Jury Questions 1b(11), and (14)
Talisman argues as to the amounts awarded pursuant to the juryâs answers to questions
1b(11) and (14) that the evidence establishes the opposite of a vital fact: these amounts were never
owed.
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1. Jury Question 1b(11): TEAK Pipeline Bonus
The trial court awarded Matrix $123,653 and OGE $29,830 based on the juryâs answer to
question 1b(11), which asked for the âTEAK pipeline bonus amounts that Talisman should have
passed on to the plaintiffs.â 47
Matrixâs accounting expert, Jeffrey Spilker, testified that Matrixâs claim related to a
transportation prepayment Talisman made to a pipeline operator to ensure Talisman could utilize
the pipeline. The pipeline operator, TEAK, would refund the prepayment if Talisman used the
pipeline. Spilker calculated that Matrixâs share of the refunded prepayment was $123,653 and
OGE share was $29,830, based on the partiesâ working interest ownerships. Spilker, however, did
not know whether Talisman charged Matrix for its share of the prepayment, which could entitle
Matrix to a share of the refund. He testified:
I sat down with Mr. Ives [Matrixâs Vice President of Finance]. Even went over to
his office. We couldnât identify whether or not those costs were actually charged
or if they were, because â there were a lot of different transportation and marketing
charges.
Talismanâs damages expert, Lerman, on the other hand, testified: âTalisman did not charge the
joint accounts for those extra costs. . . . Itâs not in the joint account books and records.â
Here, Lermanâs undisputed testimony is dispositive. â[A]n appellate court conducting a
legal sufficiency review cannot disregard undisputed evidence that allows of only one logical
inference.â City of Keller, 168 S.W.3d at 814 (citation omitted). Lerman stated that he reviewed
the relevant records and determined Matrix and OGE were not charged for the prepayment.
Consistent with Lermanâs testimony, Spilker testified that he could not identify whether the
47
OGE asserts that Talisman waived this issue by not moving to disregard the juryâs answer to this question; however,
Talisman did just that in its motion to modify the judgment.
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prepayment was charged to Matrix. Because the jury was not free to reach a verdict contrary to
Lermanâs undisputed testimony, we reverse the judgment as to the TEAK pipeline bonus. See id.
2. Jury Question 1(b)(14): Marketing Fees
The last of Talismanâs legal sufficiency challenges to âmiscellaneous damagesâ relates to
the juryâs finding under question 1b(14) that Matrix sustained $265,118 in damages for â[a]mounts
Talisman charged for internal marketing fees the JOA did not authorize.â As with the TEAK
pipeline bonus, undisputed testimony establishes that Matrix was not charged unauthorized
internal marketing fees.
Matrixâs claim regarding marketing fees arises based on a âDecision Summaryâ which
states Talismanâs decision to charge Matrix unauthorized internal marketing fees. 48 The Decision
Summary states: âDecision is made to charge all well working interest owners, other than Statoil
or those who Take in Kind, a marketing fee as compensation for handling all aspects of marketing
and selling their product.â An âAuthorizationâ section at the end of the document is followed by
six blank signature lines. Talisman argues the unsigned document indicates that the decision to
charge internal marketing fees was never implemented. Internal Talisman emails reveal a
discussion about whether to charge marketing fees. In an email dated July 1, 2015, a Talisman
employee discussed edits to the âDecision Summary.â A recipient to that email responded on July
16, 2015: âDid you ever get full internal buy-in to the marketing fees?â The original sender
responded the next day: âIt looks like we would charge Matrix $635.95 . . . .â The record also
contains an invoice Talisman sent to JAR dated July 28, 2015. This invoice lists an item for
âMarketing Fees (see schedule)â and below that specifies fees for âGas,â âOil/Cond,â and âNGLsâ
48
Internal marketing fees are marketing fees Talisman purportedly charged the working interest owners. External
marketing fees are marketing fees charged by companies that are not parties to the JOA. Talisman does not dispute
that internal marketing fees would be unauthorized under the JOA; it argues that such fees were not charged. We
assume, without deciding, that the fees would be unauthorized if charged.
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of $34,324.77, $29,275.55, and $64,446.06, respectively. The exhibit does not include any
additional schedule, and the parties have not directed us to another exhibit with a schedule of
charges.
Matrix argues that the jury could have inferred, based on the unsigned Decision Summary,
the emails, and the invoice that followed shortly after the emails, that the âMarketing Feesâ in the
invoice related to the unauthorized internal marketing fees discussed in the Decision Summary and
emails. Matrixâs accounting expert, Spilker, could not say whether internal marketing fees were
charged through the invoice because the JIBs and other accounting data he reviewed were not
detailed enough to establish the exact nature of the marketing fees charged.
Talismanâs witnesses, on the other hand, stated that internal marketing fees were not
charged to Matrix or OGE based on their knowledge of Talismanâs accounting system and review
of documents. Bugamelli testified that the process to assess internal marketing fees would have
been implemented by her group through their Production Accounting Solutions (âPASâ) system,
but â[i]t did not get implemented.â Talismanâs damages expert, Lerman, testified that he looked
into the âbooks and records of the joint accountâ and only found that external marketing fees were
charged.
Bugamelliâs and Lermanâs testimony that internal marketing fees were not charged is
disputed only by inferences that (1) a Decision Summary was authorized despite the fact that
signature lines in an âAuthorizationâ section were blank and (2) âMarketing Feesâ in an invoice
were for unauthorized internal marketing fees, rather than authorized external marketing fees,
because the possibility of charging internal marketing fees was discussed by email two weeks
before the invoice was sent. For his part, Spilker could not say whether the fees were unauthorized
because the records he reviewed were not sufficiently detailed. The two inferences required by
the jury to reach its verdict violate the equal inference rule, âwhich provides that a jury may not
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reasonably infer an ultimate fact from meager circumstantial evidence which could give rise to
any number of inferences, none more probable than another.â Hancock v. Variyam, 400 S.W.3d
59, 70â71 (Tex. 2013) (citation omitted). The inferences necessary to support the juryâs answer to question 1b(14) were no more probable than the opposite inferences that the Decision Summary was never authorized and that the Marketing Fees charged on the invoice were for authorized external marking services. Without the disallowed inferences, Bugamelliâs and Lermanâs testimony that internal marketing fees were not charged is uncontradicted. Therefore, the evidence conclusively establishes the opposite of a vital fact, and we reverse the judgment as to internal marketing fees. See City of Keller,168 S.W.3d at 814
.
VII. Interim CDP Fees
In their appeals, Matrix and OGE challenge the trial courtâs awards to Statoil Pipelines of
âinterim CDP fees.â The final judgment states:
The Court RENDERS JUDGMENT for Statoil Pipelines, against the Matrix
Parties, TMRX, and OGE, for interim CDP fees, under the May 5, 2016, Rule 11
Agreement, for the period of June 2016, through November, 2017, for gas, and
December, 2017, for oil, as follows:
1. Matrix Holdings: $36,268.
2. JAR Resources: $231,310.
3. TMRX Resources: $291,295.
4. OGE: $150,708.
Matrix and OGE challenge the award on several grounds. We consider first OGEâs jurisdictional
challenge, and then we consider a dispositive challenge: that Statoil Pipelines failed to seek or
obtain a jury finding on the elements of a cause of action that could support the awards.
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A. Background
On May 5, 2016, the parties entered into a Rule 11 agreement â[i]n lieu of an injunction.â
The parties agreed that Matrix and OGE could take their share of production in kind âon the
downstream side of the CDP.â They also âagreed to interim rates for fees charged for volumes
delivered through the gathering system and CDP,â and these rates were set out in a separate Rule
11 agreement at $0.25 per mcf for natural gas and $1.325 per barrel for condensate. The Rule 11
agreement further states: âThe parties agree that these interim rates shall be applicable until the
entry of a final judgment in the trial court in this case.â The agreement also provides: âThe parties
are preserving all rights to contest the rates set out in this agreement and the Rule 11 on rates and
to seek damages at trial.â Another term provides: â[Talisman]/Statoil may demand it[s] full rates
for transport and process through [the] gathering system and CDP as damages at the trial.â
Pursuant to the agreement, Matrix and OGE paid Statoil interim CDP fees before trial.
After entering the agreement, Statoil filed a counterclaim against Matrix and OGE for
breach of contract related to the JOA and the Rule 11 agreement. Statoilâs counterclaim against
Matrix asserts: âThe Matrix Defendants have failed to remit payment for the fees associated with
the use of the processing and gathering facilities, including the CDP, to market their production
from the date of first production to the present.â The pleading acknowledges that Statoil and
Talisman âexpressly reserved their rights to seek as damages the full rates for transport and process
through the gathering system and CDP at the trial on the merits of this case.â The next paragraph
states:
As set forth herein, the Matrix Defendantsâ breach has resulted in damages to
Statoil. Statoil seeks recovery of the full rates for transport and process through the
gathering system and CDP, less credit for any or interim payments paid and
received pursuant to the terms of the [May 5, 2016] Rule 11 Agreement.
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The breach of contract claim against OGE is similar. Statoil also asserted claims against Matrix,
but not OGE, for unjust enrichment, restitution, and breach of implied contract for Matrixâs use of
the CDP as well as a claim for âsuit on open account for use of the CDPâ and a claim for âtrespass
upon the CDP.â
At trial, Statoil did not request jury questions on elements of these causes of action against
Matrix and OGE. The jury charge contained question 10a related to CDP fees, which asked:
What is a reasonable fee for transportation to and treatment at the Cooke Ranch
CDP of the following?
Answer in dollars and cents, if any.
(a) Natural gas per mfc:
(b) Oil, condensate, and liquids per barrel:
The jury answered $0.60 for natural gas per mfc and $2.65 for oil, condensate, and liquids per
barrel.
After trial, Statoil asserted in a motion for entry of judgment that Matrix and OGE owed
CDP fees because the parties agreed to âbargain-basementâ interim fees and the Rule 11 agreement
âcontemplated the recovery of fees to and through entry of a final judgment . . . .â (Emphasis
original.) Statoilâs motion cites the juryâs answers to question 10a as a basis to calculate fees, and
the amount Statoil requested ânetted outâ Matrixâs and OGEâs payment of CDP fees at the lower
rates agreed to before trial. Statoil also moved to reopen the evidence to add information about
CDP fees that Statoil wished to impose after trial and before entry of the final judgment, arguing
the CDP fees were âdue under the May 5, 2016 Rule 11 Agreement.â The trial court granted
Statoilâs motion, and later entered final judgment, awarding Statoil Pipelines approximately
$700,000 as interim CDP fees.
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B. OGEâs Jurisdictional Challenge
We address OGEâs jurisdictional challenge first because absent jurisdiction, we cannot
address the merits. RSL Funding, LLC v. Pippins, 499 S.W.3d 423, 429(Tex. 2016). OGE argues that Statoil Pipelines lacks âstandingâ to make a claim for recovery of CDP fees because it was not a party to the JOA or to the Rule 11 agreement. Statoil Pipelines does not dispute that it was not a party to the JOA or that it was not a party to this case when the Rule 11 agreement was entered. Instead, Statoil Pipelines argues that OGE waived its challenge to standing by failing to object in the trial court. OGE responds that it objected, and, in any event, it argues that a challenge to subject matter jurisdiction can be raised for the first time on appeal. See id.; see also Linegar v. DLA Piper LLP (US),495 S.W.3d 276, 279
(Tex. 2016) (âA partyâs standing to sue is implicit in the concept of subject-matter jurisdiction. . . .â); L.D. Brinkman Inv. Corp. v. Brinkman, No. 04- 16-00651-CV,2017 WL 1684836
, at *2 (Tex. App.âSan Antonio Apr. 26, 2017, no pet.) (mem.
op.) (âStanding may be challenged for the first time on appeal.â).
Although OGE frames its challenge as one directed at standing, which would implicate our
subject matter jurisdiction, its challenge instead goes to capacity to sue, which is not jurisdictional.
See Estate of Matthews III, 510 S.W.3d 106, 113â14 (Tex. App.âSan Antonio 2016, pet. denied) (explaining relationship between standing and capacity). âWhile the question of whether a party is entitled to sue on a contract is often informally referred to as a question of âstanding,â it is not truly a standing issue because it does not affect the jurisdiction of the court; it is, instead, a decision on the merits.â Heartland Holdings Inc. v. U.S. Tr. Co. of Tex.,316 S.W.3d 1
, 6â7 (Tex. App.â Houston [14th Dist.] 2010, no pet.); see also Moody v. Moody,613 S.W.3d 707
, 713â14 (Tex.
App.âHouston [14th Dist.] 2020, pet. denied). âA plaintiff has standing when it is personally
aggrieved, regardless of whether it is acting with legal authority; a party has capacity when it has
the legal authority to act, regardless of whether it has a justiciable interest in the controversy.â
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Austin Nursing Ctr., Inc. v. Lovato, 171 S.W.3d 845, 848â49 (Tex. 2005) (citation omitted). OGEâs challenge to whether Statoil Pipelines was a party to the JOA and the Rule 11 agreement is a challenge to Statoil Pipelinesâ privity of contract. See John C. Flood of DC, Inc. v. SuperMedia, L.L.C.,408 S.W.3d 645
, 651â52 (Tex. App.âDallas 2013, pet. denied) (â[P]rivity is established by proving the defendant was a party to an enforceable contract with either the plaintiff or someone who assigned its cause of action to the plaintiff.â). âTexas law is clear that a challenge to a partyâs privity of contract is a challenge to capacity, not standing.â Douglas-Peters v. Cho, Choe & Holen, P.C., No. 05-15-01538-CV,2017 WL 836848
, at *10 (Tex. App.âDallas
Mar. 3, 2017, no pet.) (mem. op.); see also John C. Flood, 408 S.W.3d at 651â52; Heartland
Holdings, 316 S.W.3d at 6â7.
Because OGEâs âstandingâ challenge goes to Statoil Pipelinesâ capacity to sue on the Rule
11 agreement, the challenge does not implicate our jurisdiction. See John C. Flood, 408 S.W.3d
at 651â52; Heartland Holdings, 316 S.W.3d at 6â7. Therefore, we are not required to address it
as a threshold matter, and we do not. Cf. RSL Funding, 499 S.W.3d at 429. Instead, we turn to an
alternative merits issue that both Matrix and OGE assert: that Statoil failed to seek or obtain a jury
finding on the elements of a cause of action that could support the interim CDP awards. 49
C. Missing Jury Questions
Matrix and OGE both contend that interim CDP fees should not have been awarded
because Statoil did not request jury questions â or secure jury findings â on any element of any
claim that could support the awards. They argue the Rule 11 agreement did not relieve Statoil
49
Although standing is not implicated by OGEâs capacity challenge, we are satisfied that Statoil Pipelines has a
justiciable interest in the outcome of the appeal as to interim CDP fees, such that it has standing. See Austin Nursing
Ctr., 171 S.W.3d at 848 (âThe issue of standing focuses on whether a party has a sufficient relationship with the
lawsuit so as to have a âjusticiable interestâ in its outcome . . . .â). It is uncontested that Statoil Pipelines had an
ownership interest in the CDP during the relevant timeframe and that Statoil Pipelines would be entitled to receive
additional interim CDP fees if such fees were paid or awarded.
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from the burden of prevailing on a pleaded claim at trial. Statoil responds that the trial court
awarded fees pursuant to the Rule 11 agreement. In addition, it argues the awards were supported
by its claim for breach of an implied contract for services.
All parties agree that the Rule 11 agreement is a contract. As a contract, construction of
the Rule 11 agreement is governed by legal principles applicable to contracts generally. Garza v.
Villarreal, 345 S.W.3d 473, 479(Tex. App.âSan Antonio 2011, pet. denied); accord Estate of Matthews III,510 S.W.3d at 111
. The parties, however, dispute the Rule 11 agreementâs scope.
According to Matrix and OGE, the agreement merely authorized Statoil to demand additional CDP
fees as damages at trial. Statoil argues that the agreement was a contract,
for [Statoil] to provide transportation and processing services to the Matrix Parties
and OGE for their proportionate shares of production volumes for a specific period
of time, at less than market rates, in return for the right to apply market rates (as
found by the jury) to those volumes, to be assessed as damages in the final
judgment.
We agree with Matrix and OGE and hold the Rule 11 agreement allowed only for the
recovery of additional fees as damages through a claim proved at trial. The Rule 11 agreement
expressly states the partiesâ agreement on âinterim rates for fees charged for volumes delivered
through the gathering system and CDP.â However, the agreement contains no statement that a
jury will be asked to determine a reasonable fee and that Matrix and OGE will owe Statoil for
underpayments based upon a juryâs determination.
The agreement leaves open the possibility for âdamages at trial.â One term states: âThe
parties are preserving all rights to contest the rates set out in this agreement and the Rule 11 on
rates and to seek damages at trial.â Another term provides: â[Talisman]/Statoil may demand it[s]
full rates for transport and process through [the] gathering system and CDP as damages at the
trial.â The Blackâs Law Dictionary defines âdamagesâ as â[m]oney claimed by, or ordered to be
paid to, a person as compensation for loss or injury.â Damages, Blackâs Law Dictionary (11th ed.
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04-18-00411-CV
2019). The agreement gives a âpartyâ â and elsewhere âTalisman/Statoilâ â a right to contest
rates and demand full rates as damages. We construe the agreement to generally provide any party
a right to prove an injury at trial giving rise to a money claim, but hold that it does not specifically
provide for Matrix and OGE to pay Statoil an adjustment based upon a jury determination, without
regard to whether Statoil has established a claim. Cf DiGiuseppe v. Lawler, 269 S.W.3d 588, 597â
98 (Tex. 2008) (holding contract allowing party to âseek to enforceâ specific performance did not
impose specific performance automatically upon default but required party to establish the legal
elements of specific performance before the remedy would be imposed).
While the Rule 11 agreement allowed Statoil (or any party) to seek damages, Statoil did
not request jury questions or obtain jury findings on any of its claims that could support the trial
courtâs award. Statoilâs claims also were not conclusively established. Under these circumstances,
Statoil has waived its grounds for recovery. Rule 279 of the Texas Rules of Civil Procedure
provides: âUpon appeal all independent grounds of recovery or of defense not conclusively
established under the evidence and no element of which is submitted [to the jury] or requested are
waived.â TEX. R. CIV. P. 279. Statoilâs claim for breach of contract, as pled, was based on the
JOA and the Rule 11 agreement. As discussed, the Rule 11 agreement did not require Matrix and
OGE to pay Statoil additional CDP fees based upon the juryâs determination of reasonable fees,
and, on appeal, Statoil asserts the JOA âhas nothing to do with the charging of CDP fees.â Statoil
also argues on appeal that its claim for breach of an implied contract for services can support the
interim CDP fee awards. However, the evidence does not conclusively establish an implied
contract between Matrix (or OGE) and Statoil. Rather, the JOA provides an express mechanism
for the Operator, which at the time was Talisman, to subtract costs from net revenue owed to a
working interest owner, such as Matrix. This mechanism would defeat the need for a direct
contract, either express or implied, between Matrix (or OGE) and Statoil.
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Because Statoil did not submit any jury questions on any of its claims for damages related
to interim CDP fees and its claims for interim CDP fees are not conclusively established, we cannot
deem findings in support of the trial courtâs awards. See TEX. R. CIV. P. 279; DiGiuseppe, 269
S.W.3d at 599; J & C Drilling Co. v. Salaiz,866 S.W.2d 632, 638
(Tex. App.âSan Antonio 1993, no writ). Therefore, we reverse the trial courtâs awards for interim CDP fees and its declaration that Statoil Pipelines is entitled to the awards under the Rule 11 agreement. See TEX. R. CIV. P. 279; DiGiuseppe,269 S.W.3d at 599
; J & C Drilling Co.,866 S.W.2d at 638
. 50
VIII. Damages against Matrix for Unpaid Expenses
Matrix also challenges the damages awards totaling $4,651,440 to Talisman for unpaid
expenses related to 13 wells Talisman drilled prior to commencement of this litigation. The trial
court made the award, but it did not award prejudgment interest based upon the juryâs finding to
question 9c that Matrixâs âfailure to comply with the JOA in a timely manner [was] excused.â
Matrix argues that this finding of excused failure to timely comply should apply to the entire
award, so that it owes nothing. Talisman argues the trial court correctly awarded damages without
prejudgment interest because the phrase âin a timely mannerâ in the jury question limited the
question to prejudgment interest only. Matrix responds that the jury would not have read the words
âin a timely mannerâ as narrowing the scope of the question to prejudgment interest only. In
essence, this dispute turns on the proper construction of jury question 9c. 51
50
We specifically reverse Declaration SRD 21.
51
As a threshold matter, we reject Matrixâs contention that Talisman waived its arguments in support of the judgment
by failing to specifically object to any ambiguity in the jury question because (1) Matrix, not Talisman, asserts error
on appeal, see TEX. R. APP. P. 33.1(a); (2) Matrix, not Talisman, had the burden to submit the issue of its affirmative
defense of excuse to the jury, see Casa El Sol-Acapulco, S.A. v. Fontenot, 919 S.W.2d 709, 715(Tex. App.âHouston [14th Dist.] 1996, writ dismâd by agr.); and (3) Matrix relies on authority concerning the omission of jury questions from a charge, rather than authority addressing the ambiguity of jury questions within the charge. Compare Mason v. S. Pac. Transp. Co.,892 S.W.2d 115, 117
(Tex. App.âHouston [1st Dist.] 1994, writ denied) (waiver where party failed to object to omission of question) with Jackson v. U.S. Fid. & Guar. Co.,689 S.W.2d 408, 409
(Tex. 1985)
(construing ambiguous jury charge submitted without objection).
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A. Standard of Review
A trial courtâs judgment must conform to the verdict. See TEX. R. CIV. P. 301; see also
Daneshjou v. Bateman, 396 S.W.3d 112, 115(Tex. App.âHouston [14th Dist.] 2013, pet. denied) (plurality op.). When faced with competing interpretations of the verdict, we give the jury charge a âcommonsense interpretation, gleaned from both the text of the charge and the context of the case.â Memâl Hermann Health Sys. v. Gomez,649 S.W.3d 415
, 423 (Tex. 2022). âWhen faced with ambiguous jury findings, a reviewing court must interpret the charge such that the findings uphold the judgment.âId.
We âread jury instructions like jurors do â with common sense.â Nip v. Checkpoint Sys., Inc.,154 S.W.3d 767
, 772 n.3 (Tex. App.âHouston [14th Dist.] 2004, no pet.). If only one interpretation is reasonable, the verdict must be read in accordance with that interpretation, even if an unreasonable interpretation would better align with the judgment. See Memâl Hermann, 649 S.W.3d at 423â24. However, if two interpretations are reasonable, we must interpret the verdict so as to uphold the trial courtâs judgment. See Jackson,689 S.W.2d at 412
;
see also Memâl Hermann, 649 S.W.3d at 423â24.
B. Analysis
Talismanâs proposed interpretation of jury question 9c is reasonable and supports the trial
courtâs judgment. See Jackson, 689 S.W.2d at 412. Jury question 9a asked: âDid [Matrix] fail to
comply with the JOA by failing to pay Talisman [Matrixâs] share of costs and expenses . . . ?â The
jury answered âYes.â Question 9b asked: âWhat sum of money, if any, if paid now in cash, would
fairly and reasonably compensate Talisman for its damages, if any, that resulted from such failure
to comply?â The jury responded, specifying damages. Question 9c asked: âWas [Matrixâs] failure
to comply with the JOA in a timely manner excused?â (Emphasis added.)
Talismanâs assertion that question 9c concerns only prejudgment interest flows naturally
from reading the charge as a whole. See L & S Meats, LLC v. USA Feedyard, LP, No. 07-18-
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04-18-00411-CV
00030-CV, 2020 WL 371726, at *3 (Tex. App.âAmarillo Jan. 22, 2020, pet. denied) (mem. op.) (appellate courts review jury questions from the âviewpoint . . . of a juror untrained in the lawâ and âafford[] a reasonable, as opposed to technical, constructionâ). Question 9c added the phrase âin a timely manner,â which is absent from questions 9a and 9b. Talismanâs narrowing construction gives effect to this phrase, which Matrix would read out of the charge. Cf. Burlington Res.,573 S.W.3d at 203
(âWe examine and consider the entire writing in an effort to harmonize
and give effect to all the provisions of [a] contract so that none will be rendered meaningless.â
(citation omitted)). 52
Context also confirms the reasonableness of Talismanâs proposed construction. See Memâl
Hermann, 649 S.W.3d at 423 (considering âcontext of the caseâ and evidence adduced when
determining reasonableness of proposed construction). Evidence at trial suggested that the
timeliness of Matrixâs expense payments to Talisman was in dispute. The jury heard testimony
that before December 2013, Matrix withheld payment to Talisman after discovering billing
discrepancies. In December 2013, Matrix paid Talisman the expenses it had withheld in an effort
to restore the partiesâ relationship. The relationship eventually deteriorated again. The jury
reasonably could have understood from this trial testimony that Matrixâs excuse for withholding
payments that were later paid raised an issue of timeliness of payments that was distinct from the
issue of whether payments were owed at all. In addition, Matrix pleaded for prejudgment interest.
See id. at *7 (pleadings can assist our interpretation).
52
Question 9c also departs from the language of the pattern jury charge, which, like questions 9a and 9b, does not
include timeliness language. See TEX. PATTERN JURY CHARGES: Business PJC 101.21 (2016) (âWas Don Davisâs
failure to comply excused?â).
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In short, we hold Talisman offers a reasonable interpretation of question 9c, which the trial
court adopted; therefore, we must uphold the trial courtâs judgment based on this reasonable
interpretation. See Jackson, 689 S.W.2d at 412.
IX. Texas Natural Resources Code Penalties
The trial court awarded Matrix $3,000,719 as a penalty under the Texas Natural Resources
Code as interest on amounts due, but untimely paid, from Talisman to Matrix. Section 91.402 of
the Natural Resources Code requires, with some exceptions not applicable here, that proceeds from
the sale of oil must be paid to a working interest owner within sixty days after the end of the month
in which subsequent oil production is sold and, for gas, within ninety days. See TEX. NAT. RES.
CODE ANN. § 91.402(a). The jury charge, in question 8a, asked whether Talisman failed to timely
pay Matrix under these deadlines, and the jury answered âYes.â In question 8b, the charge asked:
âWhat sum of money, if any, if paid now in cash, would fairly and reasonably compensate [Matrix]
for its damages, if any, that resulted from failure to pay those proceeds.â The jury answered
$12,584,940. On appeal, Matrix argues that it is entitled to the full $12,584,940 amount found by
the jury in addition to the $3,000,719 penalty amount, which the trial court calculated based off
the juryâs $12,594.940 finding. Talisman argues that there is no jury finding that it never paid;
therefore, according to Talisman, only the penalty award the trial court calculated could be
supported by the verdict.
We agree with Talisman that jury question 8 concerns only late payment of proceeds under
the Natural Resources Code and that the question does not concern whether payment was ever
made; therefore, the verdict can only support the penalty award calculated by the trial court.
Question 8a(a) asked: âDid Talisman fail to pay [Matrix] proceeds due on oil production 60 days
after the end of the calendar month in which subsequent oil production is sold?â Question 8a(b)
asked: âDid Talisman fail to pay [Matrix] proceeds due on gas production within 90 days after the
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end of the calendar month in which subsequent gas production is sold?â These questions reflect
the deadlines stated in the Natural Resources Code, and they solicit answers regarding timely
payment, not ultimate payment. Question 8b requires an affirmative response to question 8a before
it is reached, and it asks: âWhat sum of money, if any, if paid now in cash, would fairly and
reasonably compensate [Matrix] for its damages, if any, that resulted from failure to pay those
proceeds.â Because question 8b references question 8a, âdamages . . . from failure to pay those
proceeds,â reasonably means only damages from Talismanâs failure to pay proceeds within the
sixty- and ninety-day deadlines referenced in question 8a. See Memâl Hermann, 649 S.W.3d at
423â24; L & S Meats, 2020 WL 371726, at *4.
The context of the case confirms our commonsense reading of question 8b. See Memâl
Hermann, 649 S.W.3d at 418 (â[T]he plain text of the charge must be given its commonsense
meaning in the context of the case.â). At the jury charge conference, counsel for Talisman stated
that question 8a concerned whether Talisman failed to pay proceeds of production within sixty or
ninety days. Counsel argued that the question was duplicative of the underlying liability findings.
Counsel for Matrix described question 8b as a question concerning âhow much [Talisman] didnât
pay.â In post-trial briefing, Matrix stated:
Questions 8a and 8b relate to [Matrixâs] recovery under Section 91.402 and 91.403
of the [Texas Natural Resources Code]. Section 91.402 requires the payor (here,
Talisman) to make timely payments, and Section 91.403(a) authorizes an award of
interest if the payor fails to do so. Questions 8a and 8b did exactly what the statute
required, which is to ask whether Talisman made untimely payments, and then to
ask the amount of the untimely payments. It is then the trial courtâs role to calculate
the amount of interest owned [sic] on the untimely payments.
See TEX. NAT. RES. CODE ANN. §§ 91.402(a), .403. The trial court calculated the interest amount,
just as Matrix described.
We hold Question 8 concerned only untimely payment, and Matrix did not request a jury
finding on whether Talisman ever paid proceeds of production. Whether Talisman ultimately paid
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was disputed at trial. Matrixâs Vice President of Finance, Steve Ives, acknowledged that Talisman
âon the eve of trialâ gave Matrix a âcredit against . . . disputed charges.â 53 Because Talismanâs
failure to ultimately pay is not conclusively established by the evidence, Matrix waived its ground
of recovery by failing to request and have submitted to the jury a question regarding ultimate
payment. See TEX. R. CIV. P. 279; T.O. Stanley Boot Co., Inc. v. Bank of El Paso, 847 S.W.2d
218, 222â23 (Tex. 1992). We overrule Matrixâs issue that the trial court erred by failing to award
Matrix $12,584,940, in addition to the penalty amount for untimely payment.
X. Attorneysâ Fees
Last, the parties contest the attorneysâ fees awards.
A. Attorneysâ Fees Awards to Matrix and OGE against Talisman
The trial court awarded Matrix $3,053,735 and OGE $328,650 as attorneysâ fees under the
Texas Natural Resources Code. Talisman argues for reversal of these awards and for a new trial
on fees under the Natural Resources Code because Matrix failed to prove the amount of reasonable
and necessary attorneysâ fees and failed to segregate time spent on its various claims. Matrix does
not oppose a remand for a new trial on fees.
Likewise, Talisman argues that OGE failed to segregate its time spent on its Natural
Resources Code claim from time spent on all other claims. OGE opposes a remand and asserts,
without providing record cites, that its counselâs fee affidavit segregated fees by claim and by
party. Having reviewed the affidavit, we agree with Talisman that OGE has not segregated fees
related to its Natural Resources Code claim from all other claims. Counselâs affidavit only
53
Citing only section 91.402(a), Matrix argues that a producer does not comply with the requirement to timely âpayâ
by crediting proceeds against amounts owed. We reject this contention. Section 91.402(d) provides a form division
order that allows for payment âless taxes,â and âpay,â broadly understood, encompasses the action âto make
satisfaction.â See TEX. NAT. RES. CODE ANN. §§ 91.402(d); Pay, Blackâs Law Dictionary (11th ed. 2019); see also
Thompson v. Tex. Depât of Licensing & Regul., 455 S.W.3d 569, 570 (Tex. 2014) (per curiam) (âWhere a statutory
term is undefined, that term is imbued with the plain meaning as commonly understood at the time of enactment.â).
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segregates fees related to claims for conversion and breach of fiduciary duty, but it leaves fees
related to all other claims combined. Because OGEâs attorneysâ fees are allowed only for its
Natural Resources Code claim, we reverse the attorneysâ fees award and remand for a new trial on
fees. See Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 314 (Tex. 2006). 54 Likewise,
because Matrixâs attorneysâ fees are allowed only for its Natural Resources Code claim and
because Matrix does not dispute that its fees are unsegregated, we reverse the attorneysâ fees award
to Matrix and remand for a new trial on fees.
B. Attorneysâ Fees Award to Statoil against Matrix
Matrix appeals the trial courtâs award to Statoil of attorneysâ fees in the amount of
$300,000. 55 Statoil requested attorneysâ fees pursuant to Chapter 37 of the Texas Civil Practice
and Remedies Code, which authorizes a trial court to award fees âas are equitable and justâ in a
proceeding for declaratory judgment. See TEX. CIV. PRAC. & REM. CODE ANN. § 37.009. â[A]fter
a declaratory judgment is reversed on appeal, an attorneyâs fees award may no longer be equitable
and just.â Kartsotis v. Bloch, 503 S.W.3d 506, 520(Tex. App.âDallas 2016, pet. denied). Here, we reverse declarations in Statoilâs favor related to the Term Assigneesâ consent to drill wells. Statoilâs motion for attorneysâ fees argued for an award of fees based, in part, on Statoilâs success in obtaining these declarations, and the record is silent as to whether the trial court would deem its attorneysâ fees award to Statoil against Matrix equitable and just absent these declarations. Therefore, in the interest of justice, we remand the case to the trial court for a determination as to what award of attorneysâ fees, if any, to Statoil against Matrix is equitable and just in light of our 54 Talisman requests that we suggest a remittitur of OGEâs fees to $150. See TEX. R. APP. P. 46.3. OGE asks that if we reverse the attorneysâ fees award, we remand. Based on OGEâs request, we remand for a new trial on OGEâs attorneysâ fees. See Larson v. Cactus Util. Co.,730 S.W.2d 640, 642
(Tex. 1987) (party prevailing in trial court is given option of accepting remittitur or having case remanded for new trial); see also Arkoma Basin Expl. Co., Inc. v. FMF Assocs. 1990-A, Ltd.,249 S.W.3d 380, 390
(Tex. 2008).
55
The trial court also awarded Statoil attorneysâ fees under the Natural Resources Code against OGE in the amount
of $75,000, but OGE does not appeal this award; therefore, we leave it undisturbed.
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holdings. See TEX. R. APP. P. 43.3(b); TEX. CIV. PRAC. & REM. CODE ANN. § 37.009; Kartsotis,
503 S.W.3d at 521; see also Waldrop v. Waldrop,552 S.W.3d 396
, 411â12 (Tex. App.âFort Worth 2018, no pet.); Grohman-Kahlig v. Kahlig, No. 04-07-00468-CV,2008 WL 5377704
, at *1
(Tex. App.âSan Antonio Dec. 17, 2008, no pet.) (mem. op.).
C. Denial of Attorneysâ Fees Award to Matrix against Talisman
When Matrix filed its lawsuit in 2014, it asserted claims against Talisman Energy USA,
Inc., a corporation. During the course of litigation, the corporation changed names and converted
into the limited liability company Repsol Oil and Gas USA, LLC (which we have defined as
âTalismanâ). When the trial court entered its initial judgment and later its amended final judgment,
Talisman was a limited liability company. At that time, the version of Chapter 38 of the Texas
Civil Practice and Remedies Code in effect allowed for an award of attorneysâ fees on a breach of
contract claim against a corporation but not against a limited liability company. See Act of May
17, 1985, 69th Leg., R.S., ch. 959, § 1, 1985 Tex. Gen. Laws 3242(amended 2021) (current version at TEX. CIV. PRAC. & REM. CODE ANN. § 38.001); 8305 Broadway Inc. v. J & J Martindale Ventures, LLC, No. 04-16-00447-CV,2017 WL 2791322
, at *5 (Tex. App.âSan Antonio June
28, 2017, no pet.) (mem. op.). 56 Because Talisman was a limited liability company when the trial
court entered its judgment, the trial court denied Matrix an attorneysâ fees award against Talisman
under Chapter 38.
Matrix appeals this denial. It argues that Talisman breached the JOA when it was a
corporation and that Talisman, as a corporation, incurred a âcontingent liabilityâ for attorneysâ
56
The current version of the statute, which took effect in 2021, permits recovery of attorneysâ fees against a limited
liability company. See TEX. CIV. PRAC. & REM. CODE ANN. § 38.001(a) (incorporating Business Organizations Code
meaning of âorganizationâ); TEX. BUS. ORGS. CODE ANN. § 1.002(62) (defining âorganizationâ to include a limited
liability company); see also Target Corp. v. D&H Props., LLC, 637 S.W.3d 816, 840 n.7 (Tex. App.âHouston [14th
Dist.] 2021, pet. denied).
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04-18-00411-CV
fees related to the breach that Talisman remained liable for after its conversion to a limited liability
company. Texas Business Organizations Code section 10.106(3) provides: âall liabilities and
obligations of [a] converting entity continue to be liabilities and obligations of the converted entity
in the new organizational form without impairment or diminution because of the conversion.â
TEX. BUS. ORGS. CODE ANN. § 10.106(3). Pointing to this section, Matrix argues that a limited
liability company, after conversion from a corporation, can be liable for attorneysâ fees arising
from claims based on the actions of the corporation. Talisman responds that section 10.106(3) is
not applicable because Talisman had not incurred a liability or obligation related to attorneysâ fees
at the time of conversion. According to Talisman, liability for attorneysâ fees arises only after a
party prevails on an underlying claim and recovers damages.
We do not resolve the matter of whether attorneysâ fees are âcontingent liabilitiesâ which
a converted entity may be liable for after conversion under section 10.106(3) of the Business
Organizations Code because section 38.001 of the Civil Practice and Remedies Code focuses on
ârecover[y]â from entities, and not liability. The statute lists the persons from whom a prevailing
party âmay recoverâ attorneysâ fees. The applicable version provides: âA person may recover
reasonable attorneyâs fees from an individual or corporation . . . if the claim is for: . . . an oral or
written contract.â Act of May 17, 1985, 69th Leg., R.S., ch. 959, § 1, 1985 Tex. Gen. Laws 3242(amended 2021). Regardless of whether Talisman may be liable for attorneysâ fees under the Business Organizations Code, the Civil Practice and Remedies Code, by its plain language, precludes Matrixâs recovery of such fees from a limited liability company on a contract claim. See 8305 Broadway,2017 WL 2791322
, at *5; see also Maxim Crane Works, L.P. v. Zurich Am. Ins. Co.,642 S.W.3d 551
, 557 (Tex. 2022) (âWhen construing a statute, our primary objective is to
determine the Legislatureâs intent which, when possible, we discern from the plain meaning of the
words chosen.â). Because it is undisputed that Talisman was a limited liability company when the
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trial court entered its judgment, we hold the trial court did not err by denying Matrixâs request for
recovery of attorneysâ fees from that limited liability company under Chapter 38.
CONCLUSION
We dismiss Statoil Texasâs appeal as to its issues challenging the trial courtâs failure to
declare that the Term Assignmentsâ three-well-per-year drilling obligation obligated the Term
Assignees to each other to drill three wells per year; challenging the trial courtâs determination
that the parties did not join issue on the enforceability of the Term Assignments three-well-per-
year drilling obligation between the Term Assignees; challenging the trial courtâs declaration that
the Operator must ensure there are âsufficient facilitiesâ to allow a working interest owner to take
production in kind; and challenging whether the trial court erred by awarding declaratory relief to
OGE against Statoil Texas, except as to declarations regarding the October 2016 Wells.
We reverse the trial courtâs award relating to the âmissing volumesâ of production and
render judgment that Matrix and OGE take nothing on this claim.
We reverse the trial courtâs award to OGE as to its share of production from the October
2016 Wells and render judgment that OGE takes nothing on this claim.
We reverse the trial courtâs declarations regarding unanimous consent to drill; establishing
three categories of âparticipating member,â ânonparticipating member,â and ânonconsenting
member;â and regarding the Term Assigneesâ consent to drill. We render the following
declarations:
The JOA provides that no new well may be drilled without the consent of all
members of the JOA, unless the members are obliged to drill it, under obligations
in the underlying leases, to prevent drainage, and/or to reasonably develop, or if the
balloting and non-consent-penalty provisions of Section 8 are complied with.
The Term Assignments do not mandate that a Term Assignee consent to the drilling
of a well under JOA Section 8.
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04-18-00411-CV
Matrix Holdings, JAR, TMRX, and OGE did not agree to drill any of the October
2016 Wells, and each is subject to a non-consent penalty, pursuant to JOA Section
8, as to these wells.
We reverse the trial courtâs award of damages to Matrix for expenses incurred above
$2,500 before Matrix granted its consent to drill as well as related declarations, and we render
judgment that Matrix takes nothing on this claim.
We reverse the trial courtâs award to Matrix as to the TEAK pipeline bonus and render
judgment that Matrix takes nothing on this claim.
We reverse the trial courtâs award to Matrix as to internal marketing fees and render
judgment that Matrix takes nothing on this claim.
We reverse the trial courtâs award to Statoil Pipelines as to interim CDP fees and render
judgment that Statoil Pipelines takes nothing on this claim.
We reverse the trial courtâs attorneysâ fees awards for Matrix and for OGE against
Talisman under the Texas Natural Resources Code, and we reverse the trial courtâs attorneysâ fees
award to Statoil against Matrix under Chapter 37 of the Civil Practice and Remedies Code. We
remand the case for a new trial on attorneysâ fees consistent with this opinion.
We otherwise affirm the trial courtâs Amended Final Judgment.
Rebeca C. Martinez, Chief Justice
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