Background and Parties

Evans Resources, L.P., along with various Evans family entities and individuals, brought suit in the 238th District Court of Midland County against Diamondback E&P, LLC and Diamondback O&G, LLC, asserting claims for fraud, breach of contract, bad faith pooling, accounting of profits, and declaratory judgment. The dispute arose from the assignment of oil and gas lease interests and related surface agreements. The landowners alleged that Diamondback made oral representations that it would timely drill horizontal wells on certain horizontal well pads if the landowners agreed to the assignment of the lessee's interest in the oil and gas agreements. The lease at issue was a paid-up lease—one under which all delay rentals are paid in advance and the single payment maintains the lease during the primary term.

The Fraud Claim and Justifiable Reliance

Central to the appeal was whether the landowners could maintain a fraud claim based on Diamondback's alleged oral promises to drill horizontal wells. The trial court granted Diamondback's motion for partial summary judgment on the fraud claim, and the Court of Appeals affirmed. The court applied the four-element test for fraud: (1) a material representation that was false, (2) knowledge the representation was false or made recklessly, (3) intent to induce reliance, and (4) actual and justifiable reliance resulting in injury. The court focused on the justifiable reliance element, which requires both that the plaintiff actually relied on the representation and that such reliance was justifiable.

The court held that the lease terms were inconsistent with Diamondback's alleged oral representations. Specifically, the lease granted Diamondback "the right to develop the minerals for the primary term of three years" but did not require drilling. As the court noted, the agreements stated that beyond initial drilling obligations,

"[a]dditional wells and their locations will be at the discretion of the Lessee."

Because the written lease terms directly contradicted the alleged oral promises of mandatory timely drilling, the court concluded that any reliance by the landowners on such oral representations was unjustifiable as a matter of law. This ruling effectively disposed of the fraud claim on summary judgment.

Expert Testimony and Surface Agreement Claims

The appellate court also addressed multiple evidentiary rulings concerning expert testimony. The landowners challenged the trial court's exclusion of expert opinions regarding the city's approval of variances and damages for breach of the surface agreement. The Court of Appeals held that the opinions were unreliable and therefore inadmissible under the standards governing expert testimony—that qualified experts may offer opinion testimony only if it is both relevant and based on a reliable foundation. The court emphasized that

"a claim will not stand or fall on the mere ipse dixit of a credentialed witness,"

and that it is the basis of the witness's opinions, not bare credentials alone, that can satisfy evidentiary requirements. The court also affirmed the trial court's exclusion of portions of a landowner's affidavit regarding damages, finding no abuse of discretion in that evidentiary ruling.

Rule Against Perpetuities and Remaining Claims

The landowners also sought declaratory judgment that Diamondback's claimed "perpetual option" to use certain horizontal well pads violated the rule against perpetuities. The Court of Appeals rejected this argument, holding that the surface agreement did not violate the rule. Additionally, the court found that the landowners had abandoned their claim for breach of lease based on Diamondback's alleged failure to obtain consent to pool. On the royalty payment and accounting claims that proceeded to jury trial, the court conducted both legal and factual sufficiency reviews. The jury found that Diamondback did not fail to pay royalties and that although Diamondback failed to account to landowners as mineral cotenants, the landowners suffered zero dollars in damages. The Court of Appeals affirmed these findings as supported by legally and factually sufficient evidence.

Implications for Practitioners

This decision reinforces the principle that oral representations contradicting express lease terms will not support fraud claims where reliance on such representations is unjustifiable. For operators and landowners negotiating lease assignments and surface use agreements in the Permian Basin and elsewhere, the case underscores the importance of ensuring that all material terms—particularly drilling obligations and timelines—are expressly stated in written agreements. The ruling also highlights the rigorous standards Texas courts apply to expert testimony in oil and gas disputes, requiring reliable foundations beyond mere credentials. Practitioners should note that paid-up leases with discretionary drilling provisions will be strictly construed according to their terms, and parties cannot rely on parol evidence to create mandatory drilling obligations where none exist in the written instrument. The Texas Supreme Court denied review on July 3, 2026, leaving the Eastland Court's analysis as binding precedent for similar disputes involving lease interpretation and fraud claims premised on alleged oral modifications.