Thirteenth Court Reverses Summary Judgment on JOA Operator's Duty to Commence Drilling Operations After All Parties Consent
The Corpus Christi-Edinburg Court of Appeals reversed a trial court's ruling that an operator's failure to timely commence proposed drilling operations in the Sugarloaf Prospect Area was not a breach of a 1982 AAPL-form JOA where all parties had elected to participate. The dispute centered on whether Article VI.B.1's resubmittal provision provided the exclusive remedy when Burlington Resources refused to drill wells, despite having elected to participate and the absence of force majeure conditions.
Background and Parties
Texas Crude Energy, LLC and Burlington Resources Oil & Gas Company, LP entered into a 2005 prospect development agreement for the Sugarloaf Prospect Area spanning Live Oak, Bee, and Karnes Counties, with Burlington holding an 87.5% working interest and serving as operator under a joint operating agreement modeled on the 1982 AAPL form. After Warwick-Athena, LLC acquired a 10% working interest from Texas Crude in 2014, reducing Texas Crude's interest to 2.5%, disputes arose over Burlington's refusal to commence drilling operations for wells proposed by the non-operators.
The Contractual Dispute
The litigation turned on competing interpretations of two key JOA provisions. Article VI.B.1 states that when all parties elect to participate in a proposed operation, the "Operator shall, within ninety (90) days after expiration of the notice period of thirty (30) days ... actually commence the proposed operation and complete it with due diligence." The article further provides that if operations are not timely commenced, "written notice proposing same must be resubmitted to the other parties in accordance with the provisions hereof as if no prior proposal had been made." Burlington argued this resubmittal language provided the exclusive remedy. Burlington also invoked Article V.A., which requires the operator to "conduct all such operations in a good and workmanlike manner" but limits liability to losses resulting from "gross negligence or willful misconduct."
Trial Court Rulings
The trial court denied Texas Crude and Warwick's motion for partial summary judgment and granted Burlington's motions for summary judgment. The trial court concluded that while the JOA requires the operator to commence proposed operations within the stated deadline, resubmittal is the only recourse for a party wishing to proceed with an operation not timely commenced, and that an operator's failure to timely commence is not a breach of the JOA.
Appellate Court's Decision
The Thirteenth Court of Appeals reversed the trial court's summary judgment in favor of Burlington on Texas Crude's breach of contract and declaratory judgment claims. The court issued a memorandum opinion authored by Justice Peña, with the panel also including Justices Longoria and Silva. The appellate court reversed and rendered in part and reversed and remanded in part, finding error in the trial court's denial of Texas Crude's motion for partial summary judgment and its grant of Burlington's motions for summary judgment.