631 S.W.3d 502
Tex. App.2021Background:
- Appellants (Apollo, Cogent, SellmoCo) and Gunn Oil sold 75% of their combined working interests in 109 Panhandle oil & gas leases to Apache in March 2011 and executed substantially identical PSAs.
- Key PSA provisions in dispute: Section 2.5 (Seller "back‑in" option triggered at "200% of Project Payout") and Section 4.1–4.2 (annual budgeted drilling Commitment; if Commitment contemplates loss/release, Purchaser must offer "all of Purchaser’s interest in the affected Leases" to Seller; Purchaser must provide annual payout statements).
- Gunn Oil sold its remaining interest to Apache in 2014. Appellants later sued Apache for breaches of the PSAs and related torts, alleging Apache failed to provide payout statements, failed to offer leases per Section 4.1, mispaid proceeds, and interfered with Appellants’ back‑in rights.
- Apache moved to (1) construe several contract terms, (2) exclude Appellants’ damages experts (Patterson, Huddleston, Graves), and (3) obtain a no‑evidence partial summary judgment on damages after the experts were excluded; the trial court granted multiple rulings and entered final judgment awarding Apache attorneys’ fees.
- The court of appeals affirmed some contract constructions and exclusions, reversed others (notably the Gunn Oil interest ruling, the Back‑In Trigger ruling, the North Block lease expiration ruling, and the complete no‑evidence dismissal of breach/fraud/negligence/gross negligence damages), and remanded for further proceedings.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Meaning of "Leases" and "affected Leases" in §4.1 | "Leases" should include overlapping fractional leases covering same acreage; "affected Leases" covers more than the single lease unit lost | Term refers to the 109 scheduled leases and means those of those 109 whose loss is contemplated by a Commitment | Affirmed: "Leases" limited to the 109 in Schedule 1.2(a); "affected Leases" = those of the 109 whose loss or release is contemplated or would result from a Commitment |
| Whether Apache must offer interest originally owned by Gunn Oil | Appellants: Apache must offer "all" of its interest (including Gunn Oil's previously acquired interest) to Sellers | Apache: only required to offer each Seller the proportionate share it acquired; offering all interests to multiple sellers is impracticable and would cause forfeiture/perpetuities issues | Reversed trial court: court of appeals held §4.1 requires offering Apache’s full interest (including Gunn Oil’s) and rejected the proportionate‑share limitation; trial court erred in giving opposite construction |
| Construction/enforceability of §2.5 "Back‑In Trigger" ("200% of Project Payout") | Appellants: Back‑in defined by PSA terms; Seller may back in at defined Project Payout or earlier by paying remaining balance | Apache: "200% of Project Payout" means Apache must achieve a 2:1 return on its investment; alternatively §2.5 is too indefinite | Reversed trial court: PSA definitions control; trial court erred to extent it adopted Apache’s 2:1 investment framing or held §2.5 unenforceable; genuine issues remain about included costs and audit adjustments |
| Expiration date of Bivins Ranch North Block lease | Appellants: factual evidence (Memorandum, recorded release effective 12/31/2015, landman statement) shows possible termination 12/31/2015 | Apache: lease language/anniversary computation yields 1/1/2016; Appellants made admissions | Reversed trial court: genuine fact issues exist whether lease expired or was released in 2015; trial court erred to grant summary judgment and exclude expert testimony tied to a 12/31/2015 expiry |
| Exclusion and timeliness of damages experts (Patterson, Huddleston, Graves) | Experts’ methods were accepted valuation methods and issues go to weight | Apache: Patterson unreliable (used 2014 data to value 2011–13; wrong play characterization), Huddleston untimely/didn’t revise after rulings, Graves’ supplemental opinions untimely | Mixed: Patterson and Graves exclusions affirmed (methodology/timeliness problems); Huddleston exclusion reversed (trial court improperly required updates tied to erroneous rulings) |
| No‑evidence SJ on damages & attorneys’ fees / final judgment | Appellants: submitted more than scintilla via Huddleston and other evidence; no‑evidence motion legally insufficient in places | Apache: with experts excluded, Appellants have no evidence of damages; entitled to fees for declaratory relief wins | Reversed in part: appellate court reversed no‑evidence dismissal of breach/fraud/negligence/gross negligence (Huddleston provides > scintilla); conversion claim and fee award affirmed/altered as to some claims; attorneys’ fees and final judgment reversed and remanded for further proceedings |
Key Cases Cited
- Eagle Oil & Gas Co. v. TRO‑X, L.P., 619 S.W.3d 699 (Tex. 2021) (standard of review for summary judgment)
- Lightning Oil Co. v. Anadarko E&P Onshore, LLC, 520 S.W.3d 39 (Tex. 2017) (summary judgment/no‑evidence review principles)
- Barrow‑Shaver Res. Co. v. Carrizo Oil & Gas, Inc., 590 S.W.3d 471 (Tex. 2019) (contract interpretation; parol evidence limits)
- Bombardier Aerospace Corp. v. SPEP Aircraft Holdings, LLC, 572 S.W.3d 213 (Tex. 2019) (freedom of contract and enforcing parties’ written intent)
- URI, Inc. v. Kleberg Cnty., 543 S.W.3d 755 (Tex. 2018) (objective manifestations control contract interpretation)
- Gharda USA, Inc. v. Control Sols., Inc., 464 S.W.3d 338 (Tex. 2015) (expert testimony — analytical gap doctrine)
- Robinson (E.I. du Pont de Nemours & Co. v. Robinson), 923 S.W.2d 549 (Tex. 1995) (expert admissibility under Rule 702)
- City of Harlingen v. Estate of Sharboneau, 48 S.W.3d 177 (Tex. 2001) (valuation approaches; income/DCF appropriate only when market would price property by income)
- Archer v. Tregellas, 566 S.W.3d 281 (Tex. 2018) (definition and effect of right of first refusal/preferential purchase right)
- ConocoPhillips Co. v. Koopmann, 547 S.W.3d 858 (Tex. 2018) (rule against perpetuities analysis)