EOG Resources, Inc. v. Killam Oil Co., Ltd.

239 S.W.3d 293, 2007 WL 2253490
Court of Appeals of Texas·Decided September 27, 2007·No. 04-06-00794-CV·Published·Cited by 47 cases

Opinion

OPINION

SANDEE BRYAN MARION, Justice.

This is an appeal from a summary judgment rendered in favor of appellees. We affirm.

BACKGROUND

In this oil and gas case, the dispute centers on the interpretation of various agreements entered into between the parties’ predecessors. Killam & Hurd, Ltd., predecessor-in-title to Killam Oil Co., Ltd. and Hurd Enterprises, Ltd. (collectively, “Killam”), are the named lessees in three oil and gas leases located in Webb County, Texas. The leases are designated in the various documents as Lease “A,” Lease “B,” and Lease “C.” In October 1974, Kil-lam and Northern Natural Gas Company 1 (“NNG”) entered into a farmout agreement (“the NNG Farmout Agreement”), pursuant to which Killam agreed, if certain conditions were first satisfied, to execute in favor of NNG three assignments of a portion of the working interests in certain zones (“the InterNorth zones”) under the three leases. In 1981, NNG’s successor-in-interest, InterNorth, Inc., expressed an interest in selling its interests in the Inter-North zones. In December 1982, HNG acquired InterNorth, Inc.’s interests in the InterNorth zones and then assigned fifty percent of those interests to Killam. Although commercial production was initially obtained from the InterNorth zones under the NNG Farmout Agreement, production terminated between July 1994 and March 1998.

In April 1978, Killam and HNG Oil Company 2 (“HNG”) entered into a farm-out agreement (“the HNG Farmout Agreement”), pursuant to which Killam agreed to farmout certain zones covered by the same three leases (“the HNG zones”), but as to depths deeper than the InterNorth zones. The wells drilled under the HNG Farmout Agreement were operated pursuant to the terms of a November 20, 1978 Operating Agreement (“the 1978 OA”). Attached to the 1978 OA was an Exhibit A, which reflected the parties’ interests in the HNG zones.

*297 In April 1983, HNG and Killam executed a Letter Agreement (“the 1983 Letter Agreement”) for the purpose of combining the drilling and production operations in the HNG zones and the InterNorth zones under the 1978 OA. Attached to the 1983 Letter Agreement was an amended Exhibit A, which reflected the parties’ interests in the HNG zones and the InterNorth zones. Ultimately, Enron Oil & Gas succeeded to HNG’s interests, and EOG Resources, Inc. (“EOG”) succeeded to Enron’s interests.

Killam brought suit against EOG claiming that pursuant to the NNG Farmout Agreement, EOG lost record title in the InterNorth zones as a result of non-production from those zones beginning in 1994. EOG counterclaimed for a judgment declaring it had rights to production from the InterNorth zones for so long as the 1978 OA remained operative. The parties filed cross-motions for partial summary judgment. 3 The trial court denied EOG’s motion and granted Killam’s motion. Following trial on the issue of attorney’s fees, the trial court rendered final judgment in favor of Killam. EOG now appeals.

RIGHTS TO PRODUCTION IN THE INTERNORTH ZONES

In its summary judgment motion, Killam argued that both the NNG Farmout Agreement and the assignments made pursuant to the agreement terminated when production in the InterNorth zones ceased in 1994, resulting in EOG’s loss of its right to production from the Inter-North zones. 4 Killam asserts the parties amended Exhibit A for the sole purpose of making the 1978 OA applicable to all operations in both the InterNorth zones and the HNG zones, and, pursuant to the 1983 Letter Agreement, it did not waive rever-sionary rights under the NNG Farmout Agreement. Thus, according to Killam, the failure of title provision contained in the 1978 OA operates to reduce EOG’s interest in production from the InterNorth zones. Killam also asserts neither the 1983 Letter Agreement nor the amended Exhibit A changed this result.

EOG, on the other hand, argues that failure of title is irrelevant because it is still entitled to production from the Inter-North zones so long as the 1978 OA, as amended by Exhibit A, is operative. EOG contends the parties amended Exhibit A for two purposes: (1) to merge HNG’s and Killam’s interests under one operating agreement (the 1978 OA) and (2) to prevent loss of title in the shallower Inter-North zones pending joint development of the deeper HNG zones. EOG contends the amended Exhibit A accomplished the second goal by allocating to EOG a contractual right to share in production from the InterNorth zones, regardless of the terms of the original NNG Farmout Agreement, so long as the 1978 OA was in force due to development of other zones. Thus, according to EOG, the 1978 OA entitles EOG to a share of production as long as there is production from any party from any location within the area governed by the parties’ agreement. In support of its argument, EOG urges this court to consider the facts and circumstances surrounding the execution of the 1978 OA, the 1983 Letter Agreement, and the amended Exhibit A. 5

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EOG Resources, Inc. v. Killam Oil Co., Ltd., 239 S.W.3d 293, 2007 WL 2253490 (Tex. Ct. App. 2007).

239 S.W.3d 293 (EOG Resources, Inc. v. Killam Oil Co., Ltd.) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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