Brian C. Boyle 2017-12-20 04:57:02
The energy industry faces a legal landscape that continues to shift amid rebounding production and a changing regulatory framework.1 But perhaps the biggest takeaway last year is that no case is over until the appeals run out, as 2017 was highlighted by several appellate decisions in cases that have been percolating for years. Possibly the most notable decision, given the size of the trial court judgment and the implications for deal-making in the industry, came in Enterprise Products Partners LP v. Energy Transfer Partners LP,2 where the 5th Court of Appeals in Dallas reversed a $535 million verdict in which the jury found Enterprise had breached duties owed under a partnership formed with Energy Transfer Partners in connection with a proposed pipeline project. The court held that formation of a partnership was precluded as a matter of law due to unperformed conditions precedent set forth in the parties’ initial written agreements related to the venture. As it stands, the case provides important guidance for energy companies seeking to manage the risk of creating partnership obligations when negotiating joint ventures in Texas. Another important decision was handed down by the Texas Supreme Court in Lightning Oil Co. v. Anadarko E&P Onshore LLC,3 which found that Anadarko did not commit a trespass when, with the permission of the surface owner, it drilled horizontally through Lightning’s mineral estate to reach Anadarko’s mineral estate on an adjacent tract of land. The court explained that Anadarko’s drilling through Lightning’s mineral estate constitutes a trespass only if it infringes on Lightning’s ability to develop the minerals, which was not likely given well spacing rules and the flexibility provided by the accommodation doctrine. The court also found that the loss of small amounts of minerals due to Anadarko drilling a well through Lightning’s mineral estate is not a sufficient injury to support a trespass. In other notable cases, the Texas Supreme Court denied a lessee’s efforts to avoid contractual obligations to pay royalties for production from pooled units;4 found that an operator of a carbon dioxide pipeline was a common carrier with eminent domain powers based on the likely future “public use” of the pipeline;5 addressed production in paying quantities issues affecting termination of bottom leases;6 found that the Railroad Commission of Texas does not have exclusive or primary jurisdiction over environmental contamination claims;7 and took a close look at the statute of limitations for contamination and nuisance claims related to production operations.8 And in Aruba Petroleum Inc. v. Parr, the 5th Court of Appeals in Dallas addressed the evidence required to prove a nuisance claim, reversing a $2.9 million jury verdict in favor of landowners who claimed nearby natural gas wells made them sick and caused discomfort.9 Finally, some important cases to watch this year include XOG Operating LLC v. Chesapeake Exploration LP, which will address the interpretation of retained acreage clauses,10 and Murphy Exploration & Production Co. USA v. Adams, which will consider offset well requirements in leases.11 With Texas appellate courts showing a willingness to scrutinize judgments in the energy space, we are bound to see significant decisions in the coming year. Notes 1) Changes to energy regulations and enforcement will continue this year in light of the recent executive order to review regulatory hurdles burdening domestic energy production. 2) No. 05-14-01383-CV, 2017 WL 3033312 (Tex. App.—Dallas July 18, 2017). 3) 520 S.W.3d 39 (Tex. 2017). 4) Samson Exploration LLC v. T.S. Reed Properties, Inc., 521 S.W.3d 766 (Tex. 2017). 5) Denbury Green Pipeline-Texas, LLC v. Texas Rice Land Partners, Ltd., 510 S.W.3d 909 (Tex. 2017). 6) See BP America Production Company v. Laddex, Ltd., 513 S.W.3d 476 (Tex. 2017); BP America Production Company v. Red Deer Resources, LLC, 526 S.W.3d 389 (Tex. 2017). 7) ExxonMobil Corp. v. Lazy R Ranch, LP, 511 S.W.3d 538 (Tex. 2017). 8) See Forest Oil Corp. v. El Rucio Land and Cattle Co., Inc., 518 S.W.3d 422 (Tex 2017); Town of Dish v. Atmos Energy Corp., 519 S.W.3d 605 (Tex. 2017). 9) No. 05-14-01285-CV, 2017 WL 462340 (Tex. App.—Dallas Feb. 1, 2017). 10) Case No. 15-0935, in the Supreme Court of Texas. 11) Case No. 16-0505, in the Supreme Court of Texas. BRIAN C. BOYLE is a partner in the Houston office of Norton Rose Fulbright. His practice focuses on commercial litigation and arbitration, with an emphasis on energy industry matters.
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