Stroud Production, L.L.C. v. Hosford

405 S.W.3d 794, 182 Oil & Gas Rep. 640, 2013 Tex. App. LEXIS 2119, 2013 WL 811454
CourtCourt of Appeals of Texas
DecidedMarch 5, 2013
DocketNo. 01-11-00593-CV
StatusPublished
Cited by13 cases

This text of 405 S.W.3d 794 (Stroud Production, L.L.C. v. Hosford) 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
Stroud Production, L.L.C. v. Hosford, 405 S.W.3d 794, 182 Oil & Gas Rep. 640, 2013 Tex. App. LEXIS 2119, 2013 WL 811454 (Tex. Ct. App. 2013).

Opinions

OPINION

TERRY JENNINGS, Justice.

Appellants, Stroud Production, L.L.C. (“Stroud Production”), Plantation Petroleum Corporation (“Plantation”), and Robert A. Stroud (collectively, the “Stroud defendants”),1 challenge the trial court’s judgment, entered after a jury trial, in favor of appellees, Patrick E. Hosford, Morris L. Etheredge, David T. Threinen, and Nelson E. Woods, in appellees’ suit against the Stroud defendants for breach of contract, “intentional termination” of overriding royalty interests, conversion, tortious interference, and conspiracy. In twelve issues,2 the Stroud defendants contend that appellees’ “intentional termination claim does not exist under Texas law” and is not supported by legally- or factually-sufficient evidence; there is no evidence to support the “only damages” awarded by the jury; appellees’ conversion claim is “barred by the economic loss doctrine and fails for lack of evidence;” there is no evidence that Stroud Production tor-tiously interfered with appellees’ contract [798]*798with Plantation; appellees’ alter ego and conspiracy claims “are barred” and are not supported by legally- or factually-sufficient evidence; the trial court’s award of prejudgment interest is not supported by legally- or factually-sufficient evidence; there is no evidence that Plantation breached its obligations to appellees regarding payments owed for overriding royalties from January 2004; the trial court’s award of attorney’s fees was “on the wrong cause of action” and the fees were “improperly segregated;” the jury’s alter ego findings conflict with its tortious interference and conspiracy findings; the trial court’s judgment “suggests a quadruple recovery of attorney’s fees;” and a new trial is required in light of appellees’ “concealment of evidence” and the trial court’s various erroneous evidentiary rulings.

We reverse and render in part, and we remand for a new trial on the issue of attorney’s fees and a recalculation of prejudgment interest.

Background

In June 1978, the Houston Domestic Oil Company (“HDOC”) obtained from two corporate lessors, Ruth M. Bowers and John B. Gordon, two oil and gas leases (the “B & G leases”) on a 50-acre parcel of land located in the High Island area of Galveston County, Texas. Hosford signed the leases in his capacity as president of HDOC, and, pursuant to the terms of the B & G leases, the lessors, Bowers and Gordon, each retained a 25% “royalty interest” and HDOC obtained a 75% “working interest.”3 The B & G leases had a primary term of one year, were to remain in effect thereafter for so long as oil or gas was produced in commercial quantities, and were to terminate if production ceased for 90 continuous days without the commencement of “additional drilling or reworking operations.”

In September 1978, HDOC granted Hosford a 2% overriding royalty interest4 in any oil and gas produced from the leases. Shortly thereafter, HDOC granted Etheredge a 2% overriding royalty interest and Threinen and Woods each a one-half percent overriding royalty interest. Thus, appellees collectively obtained from HDOC a 5% overriding royalty interest in production from the B & G leases.

HDOC drilled wells that produced oil in commercial quantities, and appellees, according to their assignments, received payments for their overriding royalty interests. Although ownership of the B & G leases subsequently changed hands several times, appellees retained their overriding royalty interests and continued to receive their payments for production until the end of December 2003, when Plantation acquired the leases.

[799]*799In late 2002 and early 2003, Stroud, who held other lease interests, became interested in acquiring the B & G leases because he had concluded that the Bowers and Gordon properties were “capable of more production” and contained “substantial” untapped reserves. Stroud Production, owned and managed solely by Stroud, hired a landman to investigate the prospect. And Stroud learned that Union Seaboard held the B & G leases, appellees possessed, collectively, their 5% overriding royalty interest, and Bowers and Gordon (and their assigns) retained a 25% royalty interest. In August 2003, Stroud Production offered to purchase the B & G leases from Union Seaboard for $58,000.

Plantation, a company of which Stroud was president and the sole employee, bought the B & G leases on December 1, 2003 for $58,000. Stroud Production became the operator of the leases, under which there was only one producing well operating. Union Seaboard, the prior lessor, had been reporting the ongoing production from the well to the Texas Railroad Commission. It is undisputed that this well continued to produce oil in December 2003 and part of January 2004. Although the Stroud defendants paid ap-pellees their overriding royalty interests from the well’s production in December 2004, they did not pay appellees for their overriding royalty interests for the January 2004 oil production until April 2010, shortly before the underlying trial. The Stroud defendants asserted that they did not pay appellees for this month of production because of an oversight.

On January 13, 2004, Stroud Production’s landman obtained copies of the assignments of appellees’ overriding royalty interests, and he advised Stroud Production that none of appellees’ assignments contained “renewals and extensions” clauses. The evidence reveals that “renewals and extensions” clauses may be used to protect overriding royalty interests by ensuring that such interests apply to any leases that qualify as renewals or extensions of prior leases. Stroud admitted that it was “probably a mistake” on his part not to have included a renewal s-and-extensions clause in the instrument assigning him his overriding royalty interest, but he had not anticipated a need for such a clause and did not realize that his interest would be subsequently “wash[ed] out” by a lessee. On January 20, 2004, a few days after Stroud Production received notice that appellees did not have renewals and extensions clauses in their assignments, a “polished rod” on the only producing well operating under the leases broke, and production ceased. Stroud’s lawyer advised him that he had no obligation to pay the overriding royalty interest owners once the well had ceased production.

In his testimony, Stroud agreed that he was the “decision maker” for both Stroud Production and Plantation. And he knew that after the only remaining producing well operating under the B & G leases ceased production, the Stroud defendants had 90 days to commence work under the leases or they would terminate. Stroud explained that he did not order repairs to the well because of the expenses, but also because he had already offered interests in the property to other investors, albeit under other leases, which are discussed in more detail below. Although Stroud acknowledged that the necessary repairs for the broken well “weren’t out of the normal,” none of the Stroud defendants conducted repairs or undertook “additional drilling or reworking operations” during the 90-day period after the well had ceased production. Because nothing was done during the 90-day period, the B & G leases terminated on April 20, 2004. Stroud admitted that he intentionally returned the well to production in June 2004 [800]*800only after the B & G leases had terminated, new leases had been obtained, and the 90-day continuous-operations period had passed.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Ricky Gonzales, Jr. v. Shannon Marie Gonzales
Court of Appeals of Texas, 2024
Universal Plant Servs., Inc. v. Dresser-Rand Grp., Inc.
571 S.W.3d 346 (Court of Appeals of Texas, 2018)
Cypress Creek EMS v. Dolcefino
548 S.W.3d 673 (Court of Appeals of Texas, 2018)
XTO Energy Inc. v. Elton Goodwin
Court of Appeals of Texas, 2017
Anadarko Petroleum Corp. v. TRO-X
511 S.W.3d 778 (Court of Appeals of Texas, 2016)

Cite This Page — Counsel Stack

Bluebook (online)
405 S.W.3d 794, 182 Oil & Gas Rep. 640, 2013 Tex. App. LEXIS 2119, 2013 WL 811454, Counsel Stack Legal Research, https://law.counselstack.com/opinion/stroud-production-llc-v-hosford-texapp-2013.