Clayton Williams Energy, Inc. v. BMT O & G TX, L.P.

473 S.W.3d 341, 2015 Tex. App. LEXIS 7027, 2015 WL 4134577
CourtCourt of Appeals of Texas
DecidedJuly 8, 2015
DocketNo. 08-14-00133-CV
StatusPublished
Cited by14 cases

This text of 473 S.W.3d 341 (Clayton Williams Energy, Inc. v. BMT O & G TX, L.P.) is published on Counsel Stack Legal Research, covering Court of Appeals of Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Clayton Williams Energy, Inc. v. BMT O & G TX, L.P., 473 S.W.3d 341, 2015 Tex. App. LEXIS 7027, 2015 WL 4134577 (Tex. Ct. App. 2015).

Opinion

OPINION

YVONNE T. RODRIGUEZ, Justice

In this case, we must decide whether a group of mineral right owners can obtain damages for alleged breaches of a lease’s assignment and operation clauses when the lessee, without notice, agreed to “farm out” part of the leasehold to a subcontractor in exchange for drilling services. No party disputes that the subcontractor performed the drilling activities necessary to perpetuate the lease; the only issue here is whether the lease expired or allowed for termination when the subcontractor tried to step into the lessee’s shoes as drilling operator. We hold it did not. We vacate the portion of the trial judgment granting an award to a non-party, reverse the remainder of the trial court’s judgment, and render a take-nothing judgment against the lessors.

BACKGROUND

Factual History

The Bass Lease

The lessors in this case are BMT O & G TX, L.P.; Goliad O & G TX, L.P.; WD O & G TX, L.P.; Keystone O & G TX, L.P.; and Thru Line O & G TX, L.P. (collectively Lessors). It is undisputed that on June 1, 2008, the Lessors and Appellant Chesapeake Exploration, L.L.C. (Chesapeake) signed an oil and gas lease covering tracts of land in Reeves County, Texas, including the Disputed Tract (the Bass Lease). The Bass Lease’s habendum clause in Paragraph 2 sets out the term length of the lease and what Chesapeake had to do to perpetuate the lease. Specifically:

Subject to the other provisions herein contained, this Lease shall remain in force for three (3) years from the Effective Date hereof (hereinafter referred to as the ‘Primary Term’) and as long thereafter as drilling operations are being conducted hereunder, as hereinafter provided, or this Lease is being maintained by other provisions hereof or oil and gas, or either one of them, are being produced in paying quantities hereunder. ...

[345]*345Under Paragraph 6, Chesapeake was “deemed to be engaged in continuous drilling operations if the interval between the deemed date of completion of one well and the commencement of actual drilling operations ... for the next succeeding well is - not more than one-hundred and eighty (180) consecutive days.” While Paragraph 26 states that the lease creates covenants that run with the land and bind each party’s “respective successors,. legal representatives, heirs, assigns, lessees, and sublessees[,]” Paragraph 9 also creates limitations on the parties’ ability to assign their rights under the lease (the Assignment Clause):

9. Assignment. _ Any assignment, sale or transfer of, or agreement to sell, assign or transfer any interest or interests of Lessee. in or under this Lease, may not be made by Lessee, other than to Assignee’s [sic]1 subsidiaries, affiliates, internal partners, AMI partners and Petro-Hunt ,L,L.C., without the prior written consent of Lessor, which consent shall not be unreasonably withheld and any assignment, sale or transfer so made shall expressly be subject to all the terms and provisions of this Lease, and the assignee expressly agrees to be bound by the terms hereof in writing. Lessee shall furnish Assign- or [sic] a fully-executed copy of any such sale, assignment or transfer.

Paragraph 10 sets out the lease’s operational requirements (the Operator Clause):

10. Operator. Lessee shall be designated Operator as to all operations of every nature conducted on the Leased Premises including but in no way limited to, the operation of all wells on this Lease and any approved geophysical, seismic, or other operations conducted on the Leased Premises. Lessee shall remain primarily liable and obligated to Lessor for the fulfillment of all covenants, both expressed and implied, and all legal.and contractual obligations imposed upon Lessee as designated Operator hereunder. Operator must at all times adhere to all Federal, State and Local laws and regulations and maintain good partnership or corporate standing. Operator must maintain the -property free and clear of liens at all times and further must act as a prudent Operator in accordance with the provisions of this Lease and standard industry practices. Adherence to the provisions of this paragraph are material to the granting of this Lease and any violation or failure to perform the reqüirements 'of this provision' shall be considered a material breach. Any assignments to third parties of rights hereunder shall specifically notify and' set forth the requirements of this provision.

Finally, Paragraph 19 sets out both the effect of -any breach by Lessee and the lease’s notice-and-cure provisions (the Default Clause):

19. Default. The breech [sic] or default by Lessee of any of the obligations arising hereunder shall not work á forfeiture or termination ’of this lease nor cause a termination or1 reversion óf the estate created hereby nor be grounds for cancellation hereof in whole or in part until Lessor has provided written notice to Lessee that Lessor considers Lessee to be in breech [sic] or default and Lessee fails to reasonably curé or remedy such default' within sixty (60) days of Lessee’s receipt of such notice.

[346]*346 Chesapeake Farms Out Drilling Operations to Clayton Williams Energy

The Bass Lease’s primary term began June 1, 2008 and was slated to end three years later ón June 1, 2011 per the haben-dum clause. At that time, the lease would terminate automatically unless Chesapeake had begun- drilling operations. As the Bass Lease’s primary term drew to a close, Chesapeake and co-Appellant Clayton Williams Energy, Inc. (Clayton Williams Energy) executed a “farmout agreement” on March 1, 2011 (the Farm-out Agreement).2 The terms of .the Farm out Agreement specified that Chesapeake and Clayton Williams Energy were “AMI partners.”3 Under the Farmout Agreement, Qlayton Williams Energy agreed to drill at least twenty carried wells on various Chesapeake leaseholds, including the Bass Lease, at no cost to Chesapeake by March 1, 2012. In exchange, Clayton Williams Energy would receive a 75 percent interest in 640 acres from Chesapeake’s leaseholds upon completion. If Clayton Williams Energy failed to drill the required wells,. it could face up to $15 million in penalties. Neither Chesapeake nor Clayton Williams Energy informed the Lessors about the Farmout Agreement.

At trial, the Lessors stipulated that “Clayton Williams, as operator, commenced the drilling of the 21 well [located on Bass Lease land] before the expiration of the primary term and maintained continuous operations as defined in the lease until the time of our notice on October 24th[.]”

Lessors’ Discovery of the Farmout Agreement, Petrohawk’s Offer, and Aftermath

While Appellants were entering into an agreement to drill the Bass Lease, the Lessors were also apparently entertaining offers on the Bass Lease in anticipation of its primary term expiring -without drilling operations. The Lessors were unaware of Appellants’ partnership or the Farmout Agreement.

' On July 29, 2011, nearly two months after the Bass Lease’s primary term ended, the Lessors sought to obtain a signed release of the Bass Lease from Chesapeake.

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Cite This Page — Counsel Stack

Bluebook (online)
473 S.W.3d 341, 2015 Tex. App. LEXIS 7027, 2015 WL 4134577, Counsel Stack Legal Research, https://law.counselstack.com/opinion/clayton-williams-energy-inc-v-bmt-o-g-tx-lp-texapp-2015.