Business Court Bars Third-Party Beneficiary Damages in Off-Lease Penetration Point Waiver Dispute
The Business Court of Texas granted in part Octane Energy's summary judgment motion in a dispute over a letter agreement that reciprocally waived objections to off-lease penetration point drilling permits, while also granting Octane's motion to strike untimely summary judgment evidence filed by Slant Operating and Slant WTX Holdings II. The plaintiffs had sought three categories of damages—lost revenue for six Gardendale Wells, lost revenue for 35 future unidentified wells, and drilling redesign costs—after Octane allegedly failed to provide a promised waiver for the Gardendale Wells.
Background and Contractual Framework
This dispute arose from a February 22, 2023 letter agreement between Slant Operating, LLC (the operator) and Octane Energy Operating, LLC concerning off-lease penetration point drilling permits. Under the agreement, Slant Operating waived its right to protest Octane's permit application to drill the Green Gables Wells from a penetration point on Slant Operating's leasehold. In exchange, Octane agreed to "waive its right to protest future Slant drilling permit applications insofar ... as they concern Off Lease Penetration Points where Octane is the offset operator of record." The parties also agreed to provide each other with "daily drilling, completion, and flowback reports for each of the [w]ells" and "[d]aily production data for each of the [w]ells."
The Parties and Their Relationship
Slant Operating and Slant WTX Holdings II, LLC are part of the same family of Slant entities—Slant Operating operates the wells and Slant Holdings owns the leasehold rights for the wells. According to the plaintiffs, the letter agreement "was intended to confer a direct benefit on" Slant Holdings as expressed by Octane's promise to waive its right to protest future Slant drilling permit applications concerning off-lease penetration points. The plaintiffs also alleged that Slant Operating's role as operator "is definitionally intended to benefit" Slant Holdings and that Octane understood this "because Octane is itself an oil and gas operator."
The Dispute Over Gardendale Wells
The plaintiffs alleged that Octane breached the letter agreement by not providing a waiver for Slant Operating to drill the Gardendale Wells off lease. The plaintiffs sought three categories of damages: (1) lost revenue for the six Gardendale Wells; (2) lost revenue for 35 additional future, unidentified wells; and (3) drilling redesign costs for the Gardendale Wells.
The Court's Rulings
Judge Jerry D. Bullard granted Octane's traditional and no-evidence motion for summary judgment on plaintiffs' damages in part and denied it in part. The court also granted Octane's motion to strike plaintiffs' untimely summary judgment evidence. Under Texas Rule of Civil Procedure 166a(c), a summary judgment nonmovant must file its response and opposing evidence no more than seven days before the hearing, except on leave of court. The court noted that late-filed summary judgment evidence is improperly before the trial court when the record lacks an order granting leave of court.