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Michael Jones obtains unanimous defense verdict in Harris County jury trial for the operator on claims of breach of a 1989 JOA.

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Michael Jones, partner in Jones Gill LLP, obtained a unanimous jury verdict for an Operator under a 1989 AAPL Model Form JOA case on January 16, 2014.  In Cause 2011-75737; Equitable Investors of Texas, LLC, et al v. Noxxe Oil and Gas, LLC, et al.; In the 269th Judicial District Court, Harris County, Texas, non-operating working interest owners sought their share of $40 million in damages for loss of reserves allegedly recoverable from a designated oil and gas unit.  The non-operators claimed that Noxxe, the operator, failed to conduct operations in a good and workmanlike fashion.  As a result, the non-operators alleged that the oil and gas leases lapsed.  When the oil and gas leases lapsed, the non-operators lost their acquisition costs and lost their alleged share of future production from the oil and gas unit.  The jury of 9 men and 3 women did not agree.  The jury instruction incorporated the new standard for breach of a 1989 JOA announced by the Texas Supreme Court in Reeder v. Wood County Energy, et al., 395 S.W.3d 789 (Tex. 2012).   Final judgment in favor of the operator was signed on February 4, 2014.

The American Association of Professional Landmen (“AAPL”) has published several versions of its standard form, beginning in 1956, with revisions in 1977, 1982, and 1989. These AAPL forms are commonly utilized for Texas onshore oil and gas joint operations, and are often used with various modifications.  The Texas Courts of Appeal had construed Article V of the 1982 AAPL Model Form JOA and earlier versions of the JOA in the context of claims by non-operators against the operator.  Article V of every version of the Model Form JOA describes and sets forth the duties, responsibilities, liabilities and rights of the Operator.  Of key significance here is the standard of liability imposed on the Operator.  All of the Model Forms excuse the Operator from liability arising from operations, i.e. drilling a well, side-tracking a well, deepening a well, re-completing a well, etc., except that liability that arises from the Operator’s gross negligence or willful misconduct.  The Model Forms before 1989 exculpated liability for operations under the JOA.  The 1989 JOA exculpated liability for “activities” performed under the JOA.

In the earlier reported cases, which did not involve claims concerning the operations on a well under the auspices of the JOA, simple breach of contract standards were employed rather than the gross negligence or willful misconduct standard urged by the operator.  Abraxas Petroleum Corp. v. Hornburg, 20 S.W.3d 741 (Tex. App.-El Paso 2000, no pet.); Castle Tex. Prod. Ltd. P’ship v. Long Trusts, 134 S.W.3d 267, 283 n. 4 (Tex.App.—Tyler 2003, pet. denied); IP Petroleum Co., Inc. v. Wevanco Energy, L.L.C., 116 S.W.3d 888 (Tex.App.—Houston [1st Dist.] 2003, no pet.); Cone v. Fagadau Energy Corp., 68 S.W.3d 147 (Tex.App.—Eastland 2001, pet. denied), but compare Stine v. Marathon Oil Co., 976 F.2d 254, 261 (5th Cir.1992).

The Reeder case, however, instructs that the gross negligence or willful misconduct standard is to be applied to breach of contract cases under the 1989 Model Form JOA.  As noted above, the 1989 JOA exculpates liability for “activities” whereas the earlier versions only exculpated liability for “operations.”

In the Noxxe case tried in January 2014, the jury instruction for the breach of contract issue used the gross negligence standard adopted by the Reeder court.  Post-verdict debriefing of some of the jury members disclosed that this standard did not figure in their verdict.  It seems the jury decided the alleged breach of contract on a standard evaluation.