Fourth Court Affirms $14.9 Million Breach Award Against Surface Owner in Water Purchase Agreement Dispute Over Access Rights
The San Antonio Court of Appeals affirmed a $14.9 million breach of contract judgment against surface owners Dean Davenport and related entities in a dispute with EOG Resources over a 2022 water purchase agreement. The Davenports had sought to restrict all of EOG's access to a single gate under the agreement, while EOG contended the restriction applied only to water-related operations, with the trial court granting summary judgment in EOG's favor before proceeding to a jury trial on damages.
Background and Business Context
This dispute arose from a water purchase agreement between surface owners Dean Davenport and related entities and EOG Resources, Inc., the mineral lessee under a 1967 oil, gas and mineral lease known as the Garner Lease in Webb County, Texas. The Davenports began purchasing tracts burdened by the Garner Lease in January 2020, when EOG was not actively drilling. In October or November 2021, Dean Davenport became aware that EOG planned to resume drilling operations under the Garner Lease. Shortly thereafter, EOG approached the Davenports with an offer to purchase water from their wells, which the Davenports accepted, and on January 31, 2022, the parties entered into a non-exclusive take-or-pay water purchase agreement (WPA).
The Access Dispute
On March 24, 2023, EOG informed the Davenports of their plan to construct a new access gate—the Rancho Derecho gate—and road through their property due to the inaccessibility and disrepair of the existing entry point along Krueger Road. The Davenports objected to EOG's plan and suggested alternative routes. Despite the Davenports' objection, EOG proceeded to construct the Rancho Derecho gate and a caliche road over the Davenports' ranch, prompting this litigation.
Procedural History
The parties moved for summary judgment on competing declaratory judgment claims, each seeking an interpretation of the terms of the WPA. The Davenports sought to declare that the WPA restricted all of EOG's ingress and egress to the Krueger Road gate. EOG sought a declaration that this restriction only applied when traversing to and from the frac pond and designated water wells. Additionally, EOG sought summary judgment against the Davenports' fraudulent inducement and statutory fraud claims. The trial court ultimately granted EOG's summary judgment motions and denied the Davenports' motion.
A jury trial on the merits was held on September 23, 2024. Prior to resting their case-in-chief, the Davenports requested leave to amend their petition to include the affirmative defense of excuse by prior material breach. The trial court denied this request. The case proceeded to verdict, with the court ultimately awarding EOG Resources $14,954,784 in damages for breach of contract.
The Appeal
On appeal, the Davenports challenged the trial court's grant of summary judgment and directed verdict motions, contested the sufficiency of the evidence, and asserted that the trial court abused its discretion by denying their mid-trial request to amend their pleadings. The San Antonio Court of Appeals affirmed the judgment in favor of EOG Resources.