Crimson Exploration, Inc. v. Magnum Producing L. P.
13-15-00013-CV
| Tex. App. | Dec 28, 2017Background
- Magnum and Crimson executed a Master Settlement Agreement (MSA) in 2001 giving Magnum a 1% overriding royalty and a right to convert to a 26.25% working interest after a well on the Simpson Lease "paid out," with special larger rights in a reserved zone.
- The parties also signed a 2003 Letter Agreement addressing "Zalman" top leases taken by Crimson; the Letter Agreement stated such top leases "shall be considered for all purposes" as renewals/extensions under paragraph 9B of the MSA and expressed intent to assign settlement-share/farmout rights to Magnum.
- The Simpson Lease’s validity was later litigated; a 2006 Castle Judgment (to which Magnum was not a party) declared the Simpson Lease had terminated in 1996, creating activation potential for Crimson’s top leases (2001, 2003, 2006 Zalman Leases).
- Magnum elected its payout-conversion in 2004 for the Zalman No. 3 well; Crimson billed Magnum as a working-interest owner until it changed records in 2009 after Magnum later sought back payments.
- Magnum sued in 2010 for breach of contract and declaratory relief claiming an interest in the Zalman Leases and unpaid proceeds; summary judgment was granted for Magnum, awarding (after modification) ownership rights in the Zalman Leases and approximately $4.38 million in withheld proceeds; prejudgment interest was denied.
Issues
| Issue | Magnum's Argument | Crimson's Argument | Held |
|---|---|---|---|
| Whether the MSA and Letter Agreement conveyed a real-property interest in the Zalman top leases | Agreements (MSA + Letter) effectively conveyed/treated Zalman leases as renewals/extensions under MSA, giving Magnum settlement-share/working-interest rights | Instruments lacked formal deed language and thus did not convey a real-property interest; no formal assignment was executed | Court held the writings, read together, showed intent to convey and were sufficient to create a real-property interest in the Zalman leases (affirmed) |
| Whether the Letter Agreement was too indefinite (agreement-to-agree) to be enforceable/farmout | Letter Agreement contained sufficiently definite material terms; parties acted in reliance (drilling, billing), avoiding forfeiture | Letter Agreement lacked essential farmout terms and therefore was unenforceable | Court held the Letter Agreement was sufficiently definite and enforceable; reliance and actions by parties supported enforcement (overruled) |
| Whether declaratory relief was improper because Magnum didn’t request it in its motion for summary judgment | Magnum's motion sought a legal determination of rights under the MSA and Letter Agreement (sufficient to support declaratory relief) | Trial court erred by granting declaratory relief not expressly requested in the motion for summary judgment | Court held declaratory relief was derivative of the breach claim and the motion was broad enough; no amendment required (affirmed) |
| Whether prejudgment interest on withheld payments was recoverable | Prejudgment interest should be awarded on withheld proceeds | Withholding was justified by a bona fide title dispute/doubt about Magnum's title under Tex. Nat. Res. Code §91.402(b) | Court held prejudgment interest was not recoverable because Crimson reasonably and legitimately doubted title and a title dispute existed (overruled Magnum’s cross-issue) |
Key Cases Cited
- Matagorda Cty. Appraisal Dist. v. Coastal Liquids Partners, 165 S.W.3d 329 (Tex. 2005) (oil-and-gas lease interests are real property)
- Green v. Canon, 33 S.W.3d 855 (Tex. App.—Houston [14th Dist.] 2000) (no strict technical language required for conveyance; intent controls)
- Harlowe v. Hudgins, 19 S.W. 364 (Tex. 1892) (no precise technical words required to create a conveyance)
- Neeley v. Intercity Mgmt. Corp., 623 S.W.2d 942 (Tex. App.—Houston [1st Dist.] 1981) (‘‘assign’’ is an operative word of conveyance)
- Fischer v. CTMI, L.L.C., 479 S.W.3d 231 (Tex. 2016) (contract must be sufficiently definite as to material terms to be enforceable)
- Concord Oil Co. v. Pennzoil Expl. & Prod. Co., 966 S.W.2d 451 (Tex. 1998) (prejudgment interest not due when title disputes exist)
- Tex. Mun. Power Agency v. Pub. Util. Comm'n of Tex., 253 S.W.3d 184 (Tex. 2007) (appellate review and rendering of summary-judgment rulings)
- McConnell v. Southside Indep. Sch. Dist., 858 S.W.2d 337 (Tex. 1993) (party must specially except to unclear summary-judgment grounds)