Background and Parties

Absolute Oil + Gas, LLC ("AOG") is a minority working interest owner in oil and gas wells in the Williston Basin in North Dakota operated by Chord Energy Corporation (formerly Oasis Petroleum Inc.) and Oasis Petroleum North America, LLC (collectively, the "Chord Parties"). AOG acquired its interests through a 2020 purchase from a third party, and the Subject Wells are governed by a 1999 Joint Operating Agreement and related agreements between the parties' predecessors-in-interest. In 2017, OPNA contracted with Crestwood Midstream Partners LP (formerly Oasis Midstream Partners LP) and related entities (collectively, the "Crestwood Parties") to provide midstream services on the Subject Wells through the 2017 Midstream Agreements.

The Dispute: Alleged Midstream Cost Inflation Scheme

AOG alleged that the appellees engaged in a scheme to inflate midstream costs, asserting that "the 2017 Midstream Agreements passed artificially high midstream costs to AOG." AOG brought ten claims against the Chord Parties, Crestwood Parties, and certain executives (the "Executive Parties"), including breach of contract theories under the 1999 JOA and various tort claims such as fraud, civil conspiracy, negligence, gross negligence, tortious interference, breach of fiduciary duty, and alter ego theories. The appellees moved to dismiss under Texas Rule of Civil Procedure 91a, with the Chord Parties' "only briefed basis for dismissing the fraud, negligence, and gross negligence claims" being that the economic loss rule barred those claims. The trial court dismissed with prejudice all tort claims against the Chord Parties and all claims against the Crestwood Parties and Executive Parties, but left intact the breach of contract and unjust enrichment claims against the Chord Parties. The trial court then severed the dismissed claims over the Chord Parties' opposition.

The Court's Analysis: Interwoven Claims

The First Court of Appeals reversed, holding that the trial court abused its discretion in severing claims that were interwoven with the remaining action. Under the Guaranty Federal Savings Bank v. Horseshoe Operating Co. framework, severance is improper when "the severed claim is so interwoven with the remaining action that the actions involve the same facts and issues." The court found that "each claim incorporates and is based on AOG's allegation that the Chord Parties, the Crestwood Parties, and the Executive Parties collusively agreed to artificially inflate gas processing costs that were passed to AOG." The court emphasized that AOG's breach of contract claim "explicitly includes allegations of 'gross negligence and willful misconduct' and 'actual fraud,'" and that "AOG's breach of contract claim stems from the 1999 Joint Operating Agreement, but so do AOG's claims for civil conspiracy, negligence, tortious interference, and alter ego."

The court was particularly troubled by the severance of the unjust enrichment claim, which was dismissed as to the Crestwood Parties and Executive Parties but remained pending against the Chord Parties. The court noted this "risks inconsistent rulings, including on whether an express contract bars restitution," explaining that one factfinder might conclude the benefits are governed by the 1999 Agreement while another might find no existing contract governs. The court also highlighted that AOG's live petition overlapped the parties through its definitions of "Oasis" and "Subsidiary Defendants," both of which included some Chord Parties and Crestwood Parties, and through allegations that all appellees "were agents and/or co-conspirators of each other and acted at all material times on behalf of each other."

Implications for Oil and Gas Practitioners

This decision provides important guidance on severance in complex oil and gas disputes involving multiple related entities and overlapping contract and tort theories. Operators and midstream service providers facing allegations of collusive cost inflation should be aware that courts will scrutinize severance orders that attempt to split claims based on the same core factual allegations, even when some claims are dismissed on procedural grounds like the economic loss rule. The decision is particularly significant for JOA disputes where minority working interest owners allege that operators and affiliated midstream entities have engaged in self-dealing through inflated service costs.

The court's concern about inconsistent rulings on the contract-bars-restitution issue highlights a recurring problem in oil and gas litigation: when unjust enrichment claims are asserted against multiple defendants, some of whom are parties to the governing agreements and some of whom are not, severance can create irreconcilable outcomes. Practitioners should carefully consider how their pleadings define parties and incorporate allegations across multiple claims, as overlapping definitions and conspiracy allegations can make severance impossible even when different legal theories are asserted against different defendants. The case also serves as a reminder that trial courts must exercise "sound and legal discretion within limits created by the circumstances of the particular case" when ruling on severance motions, and cannot simply sever dismissed claims without analyzing whether they share common facts and issues with surviving claims.