Petrohawk Properties, L.P., and P-H Energy, L.L.C. v. Noel Diane Jones

455 S.W.3d 753
CourtCourt of Appeals of Texas
DecidedJanuary 19, 2015
Docket06-14-00003-CV
StatusPublished
Cited by21 cases

This text of 455 S.W.3d 753 (Petrohawk Properties, L.P., and P-H Energy, L.L.C. v. Noel Diane Jones) 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
Petrohawk Properties, L.P., and P-H Energy, L.L.C. v. Noel Diane Jones, 455 S.W.3d 753 (Tex. Ct. App. 2015).

Opinion

OPINION •

Bailey C. Moseley, Justice

1. Background

In 2008, oil and gas companies descended on east Texas and Louisiana seeking to acquire leases to exploit the Haynesville Shale formation, which they viewed as having enormous potential. The atmosphere created by these companies was described as “unreal,” “a land rush,” and comparable to a gold rush. David Deffenbaugh, Petro-hawk Properties, L.P.’s, vice president of land — midcontinent at the time, testified that in his thirty years in the industry, he had never seen bonus prices and activity accelerate as quickly as it did during the Haynesville Shale heyday.

To identify mineral interests that were available to lease, it was necessary to employ landmen to conduct title searches in the local county clerks’ offices. In Harrison County, the clerk’s office was overwhelmed with 80-100 landmen, causing the deputy clerks to limit the time each land-man could use the office computers. This made it almost impossible to finish the title searches in a timely fashion.

During this time, Petrohawk 1 was in heated competition with other companies to acquire acreage in the Haynesville Shale; because of the contests among the oil companies to acquire leases, the lease bonuses 2 shot up from around $200.00 per acre to a high of $30,000.00 per acre. Pe-trohawk engaged in an aggressive leasing program, seeking to gain leases as quickly as possible in what its land manager, John Walsh, described as “a short ... window of time.” Petrohawk hired RWT Land *760 Services (RWT) to identify mineral interests in the Haynesville Shale formation available to lease; research the titles to the mineral interests; and identify any title defects, liens, or other encumbrances associated with those interests. The land-man in charge of the project for RWT was Brent Chadwick. One way to acquire leases of substantial acreage in the shortest period of time was to identify landowners having large quantities of mineral interests in the Haynesville Shale stratum that were not subject to prior leases. RWT identified the Appellees and their family members 3 (collectively, the Family) as owning substantial available mineral interests. 4

Negotiations began in June 2008 between the Family and RWT, acting on behalf of Petrohawk, for Petrohawk to lease the Family’s available mineral interests. As negotiations progressed, Petro-hawk’s executive vice president, Steve Herod, became directly involved in finalizing the contract. The Family was willing to enter into a lease for an amount that was not the highest price per acre being paid by some other oil companies so long as the lessee would agree to lease every “open” mineral interest in the area (i.e., all of the minerals in which the Haynesville Shale depth stratum was not subject to a prior lease) held by the Family. Petro-hawk and the Family entered into the “Agreement to Lease Oil and Gas Mineral Interests” (the Agreement) on July 11, 2008.

The Agreement provided that Petro-hawk, within specified limitations, would lease all of the Family’s unleased mineral interests situated east of Highway 59 in Harrison County, Texas (including, but not limited to, an extensive list of properties attached as Exhibit A to the contract), provided that the interests included rights in the Haynesville Shale stratum and, if unleased, the Bossier Shale stratum. 5 The Agreement provided for the “Closing” of the sale of the leasehold estates to take place on August 15, 2008, when the Family members, as applicable, would “execute and deliver” to Petrohawk counterpart oil and gas leases for each separate tract in a form to be agreed upon by the parties. It provided that Petrohawk would pay the Family $23,500.00 per net mineral acre lease bonus for each net mineral acre that the Family delivered free and clear of Title Defects. The term “title defects” was defined to mean any matter that would cause *761 the title to the properties to fail to qualify as “defensible title,” a term defined in the contract as

title that: (i) is customarily accepted in oil and gas property purchase transactions; (ii) that [sic] is free and clear from liens and encumbrances that would reduce, impair or prevent Petrohawk from receiving payment from the purchasers of production, and (iii) the title to the properties comprising the Subject Interests includes all rights in the Haynesville Shale and rights owned by Lessors in the Bossier Shale. [6]

It also limited Petrohawk’s obligation to lease to not more than 8,500 net mineral acres. In addition, the Agreement provided that Petrohawk would place $10,000,000.00 in escrow, which was to be applied to the purchase price at the closing. If the Family was unable to deliver oil and gas leases without title defects and having a net mineral acreage lease value that exceeded $10,000,000.00, or if Petro-hawk and the Family did not agree to a lease form, then Petrohawk could terminate the Agreement without further liability, and the escrow would be returned to Petrohawk. On the other hand, if the Family delivered conforming leases with sufficient acreage and a lease value exceeding $10,000,000.00 and a lease form was agreed upon but Petrohawk refused to close the transaction, the escrow would be forfeited to the Family as liquidated damages.

Under the Agreement, the Family agreed to make their lease and title files, and any other information or documents they possessed, available to Petrohawk. Petrohawk agreed to keep the Family informed of the results of its title examination and give them the opportunity to cure any title defects in the tracts that were discovered in the search. Petrohawk agreed to notify the Family of any title defects not later than five days before closing. If the Family was unable to cure the title defects before closing, then it was given thirty days to cure any remaining title defects. At that time, the Family could execute additional leases covering those interests, and Petrohawk would pay the same $23,500.00 per acre lease bonus as with the other tracts.

At the time the Agreement was signed, Petrohawk did not know precisely the gross amount of the Family’s mineral interests that were going to be available to be leased. However, it knew before the Agreement was signed that the Family had at least 4,800 mineral acres that may be available to lease. Petrohawk’s Herod testified that his understanding was that Petrohawk would be leasing all of the net mineral acres that the Family owned east of Highway 59 in Harrison County that included the Haynesville Shale and that was unencumbered by a previous lease.

After the Agreement was signed, RWT began conducting due diligence regarding titles on behalf of Petrohawk, locating mineral interests owned by the Family covered by the Agreement, determining the interest owned by each member of the Family, reporting its results to Petrohawk, and preparing property descriptions (Exhibit A’s) for each lease. As the title search work progressed, RWT’s Chadwick kept the Family informed of the results of the title examination made by it on behalf of Petrohawk.

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Bluebook (online)
455 S.W.3d 753, Counsel Stack Legal Research, https://law.counselstack.com/opinion/petrohawk-properties-lp-and-p-h-energy-llc-v-noel-diane-jones-texapp-2015.