CHIEFTAIN EXPLORATION COMPANY INC v. GASTAR EXPLORATION INC AND CUBIC ASSETS LLC

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Court of Appeals of Texas, Waco.

CHIEFTAIN EXPLORATION COMPANY, INC., Appellant v. GASTAR EXPLORATION INC. AND CUBIC ASSETS, LLC. Appellee

No. 10-15-00037-CV

Decided: August 30, 2017

Before Chief Justice Gray, Justice Davis, and Justice Scoggins

MEMORANDUM OPINION

Chieftain Exploration Company, Inc. appeals the trial court's summary judgment in favor of Gastar Exploration, Ltd. and Gastar Exploration Texas, L.P. (now Gastar Exploration Inc.) and Cubic Assets, LLC. Gastar also appeals the denial of its request for attorney's fees. Because the trial court did not err in granting Gastar's and Cubic's motions for summary judgment but did err in denying Gastar's request for attorney's fees, the trial court's Final Summary Judgment is reversed and remanded in part and, to the extent not expressly reversed and remanded, is affirmed.

BACKGROUND

The Streater Gas Unit, a pooled unit, was formed in 2010 by Gastar and two other entities (Presco, Inc. and Navasota Resources, Ltd., LLP) which had executed various oil and gas leases included in the Unit. The Unit was comprised of 56 leases, covering 702.3 acres of land. These leases are listed in the Unit Designation. Tract 17, which was comprised of 56 surface acres, was included in the Unit. The Streater Well was drilled on the Unit but not on Tract 17.

Title to the minerals in Tract 17, the 56 acre tract, is divided, with two parties each owning an undivided one-half of the minerals: the McBeth Family Limited Partnership and Lone Oak.1 An undivided 1//4 nonparticipating royalty interest, now owed by Chieftain, was carved out of Lone Oak's mineral estate.

Before Chieftain acquired its NPRI, two oil and gas leases were executed, each covering the lessor's one-half of the mineral estate in the 56 acre tract: the McBeth Lease, executed by the McBeth Family Limited Partnership, and the Lone Oak Lease, executed by Lone Oak. The Lone Oak Lease covered 3,466 acres, including the 56 acre tract. The McBeth Lease covered 591.3 acres, which also included the 56 acre tract.

CHIEFTAIN'S APPEAL

Chieftain sued Gastar asserting violations of the Natural Resources Code, breach of contract, and violations of the Texas Theft Liability Act and claiming it was owed oil and gas royalties from a well drilled in a pooled unit. As a successor in interest to Gastar's rights in the Streater Unit, Cubic intervened in the suit. Each party filed competing motions for summary judgment. Gastar filed a traditional motion for partial summary judgment asserting Chieftain's claims fail as a matter of law because Chieftain is not owed any royalties. Cubic filed a traditional motion for summary judgment asserting that the terms of a Ratification and the Lone Oak Lease defeat Chieftain's claims as a matter of law. Chieftain also filed a traditional motion for partial summary judgment on its claims. The trial court granted Gastar's and Cubic's motions and denied Chieftain's motion.

Summary Judgment Review

We review a trial court's order granting summary judgment de novo, taking as true all evidence favorable to the nonmovant, and indulging every reasonable inference and resolving any doubts in the nonmovant's favor. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). A party moving for traditional summary judgment has the burden to prove that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. TEX. R. CIV. P. 166a(c); Seabright Ins. Co. v. Lopez, 465 S.W.3d 637, 641 (Tex. 2015). When both sides move for summary judgment on the same issue and the trial court grants one motion and denies the other, we review the summary judgment evidence presented by both sides, determine all questions presented, and render the judgment the trial court should have rendered. See Seabright, 465 S.W.3d at 641-642.

Issues

Asserted by various issues, Chieftain's appeal centers on its desire to be paid what it alleges to be its share of royalties from the Streater Well located in the Streater Unit. We first discuss whether the Lone Oak Lease was pooled in the Streater Unit, which would entitle Chieftain to payment. If the Lease was not pooled, we then will address other reasons for payment asserted by Chieftain

Pooling of the Lease/Land

Oil and gas leases in general, and pooling clauses in particular, are a matter of contract. Samson Expl., LLC v. T.S. Reed Props., Inc., No. 15-0886, 60 Tex. Sup. Ct. J. 1413, 2017 Tex. LEXIS 599, at *13 (June 23, 2017); Wagner & Brown, Ltd. v. Sheppard, 282 S.W.3d 419, 424 (Tex. 2008). A lessee's authority to pool requires the lessor's consent, which is typically furnished through a pooling provision in the mineral lease. Samson, at *13; Se. Pipe Line Co. v. Tichacek, 997 S.W.2d 166, 170 (Tex. 1999). Pooling is valid only if done “in accordance with the method and purposes specified in the lease.” Id. A pooling agreement that does not comply with the terms of the lease is invalid and unenforceable absent the lessor's ratification. See Samson, at *14.

Contrary to Gastar's and Cubic's arguments that the Lone Oak Lease had terminated by the time the Streater Unit had been formed, Chieftain contends that the Lease was viable or was revived and included within the Streater Unit. Regardless of whether the Lone Oak Lease was alive or revived, the plain language of the Unit Designation indicated the Lease was not pooled into the Unit. First, the Lease was not listed as being one of the 56 leases included within the Streater Unit. Further, the Lease provided that Presco, the lessee, “may pool all or any portion of the leased premises” into a unit of up to 640 acres with the leased premises comprising at least 50 percent of the unit. The Streater Unit was composed of over 700 acres; and Tract 17, the 56 acres in which half of the minerals were the subject of the Lone Oak Lease, did not make up at least 50 percent of the Unit. Thus, the Lease, by its own terms, could not have been pooled. Had it been pooled, the pooling agreement, in this case the Unit Designation, would have been invalid and unenforceable. See Samson Expl., LLC v. T.S. Reed Props., Inc., No. 15-0886, 60 Tex. Sup. Ct. J. 1413, 2017 Tex. LEXIS 599, at *14 (June 23, 2017). Therefore, Chieftain is not entitled to payment under this theory.

But Chieftain argues that the Unit Designation pooled lands as well as leases, thus including Chieftain's NPRI in the pooled Unit regardless of whether the Lone Oak Lease had expired. This is the argument that it is the lands, being the area or acreage, that is pooled, not just leases. We disagree with Chieftain.

Chieftain relies on the Texas Supreme Court opinion in Wagner & Brown, Ltd. v. Sheppard, 282 S.W.3d 419, 422 (Tex. 2008) and the Fort Worth Court of Appeals opinion in Ladd Petroleum Corp. v. Eagle Oil & Gas Co., 695 S.W.2d 99, 106 (Tex. App.—Fort Worth 1985, writ ref'd n.r.e.) for the proposition that lands can be pooled without a lease. While this may be true, these cases are not on point with the circumstances at hand.

In both Wagner and Ladd, the courts determined that because of language included in the leases and in the pooling agreements, the pooled units at issue did not terminate when a lease pooled in the unit expired or was released. That is not the situation here. As we stated earlier, the Lone Oak Lease was not pooled into the Streater Unit. Additionally the language in the Lease and Unit Designation is different than in Wagner and Ladd. In Wagner, the language in the lease contained the standard pooling language that the lessee had the right to pool the premises with “any other lands or interests.” Wagner & Brown, Ltd. v. Sheppard, 282 S.W.3d 419, 422 (Tex. 2008). Further, the pooling agreement in Wagner permitted the lessees to “hereby pool and combine said leases and the lands․into a single pooled unit․.” (Emphasis added). Id. In Ladd, the language in the lease provided for a primary term which would continue for as long thereafter 2 as oil, gas, or other mineral is produced from “said land or land with which said land is pooled hereunder.” Ladd Petroleum Corp. v. Eagle Oil & Gas Co., 695 S.W.2d 99, 106 (Tex. App.—Fort Worth 1985, writ ref'd n.r.e.). The language in the pooling agreement in Ladd provided that the parties “hereby declare that the lease acreage hereinafter expressly designated is hereby pooled into a tract or unit․.” (Emphasis added). Id.

Here, we do not have similar language. Although the Lone Oak Lease permitted pooling “with other lands․,” the Streater Unit Designation did not. The Unit Designation provided that the “Leases, insofar and only insofar as the leases cover the lands described and delineated on Exhibits “B” and “C” attached․, are hereby combined, unitized and/or pooled into a single, consolidated pooled unit․.” (Emphasis added). Thus, only the leases were combined, not the lands. Chieftain cites to the “insofar as” language as proof that the Unit Designation specifically combined the lands as well as the leases. We disagree. The “in so far as” language acts to limit the portion of the leases included in the Unit, not to expand the scope of the leases included in the pooled Unit. Thus, the land, including the mineral estate out of which Chieftain's NPRI was carved, was not pooled, and Chieftain is not entitled to payment under that theory.

Ratification

Chieftain also argues that it is entitled to payment because its predecessor in interest, Ann Devon Donelson, ratified the Streater Unit Designation. Donelson signed a Ratification of Oil, Gas and Mineral Lease purporting to ratify both the McBeth and the Lone Oak Leases “in all of their terms and provisions․.” The Ratification provided that

pooling or unitization shall occur only by the Lessee's exercise of the pooling provision of the above referenced lease and in such event the royalty interest of the undersigned shall be pooled or unitized to the extent, and only to the extent, that the tract or land in which the royalty interest is owned is included within such unit․. (Emphasis added.)

According to the Ratification, only in the event Gastar exercised the pooling provision of the lease would Donelson's royalty interest be pooled. Chieftain contends that this language in the Ratification is part of an “anti-pooling provision” which has been held to be ineffective and does not prevent Chieftain from being paid. The cases relied upon by Chieftain do not support Chieftain's argument. See London v. Merriman, 756 S.W.2d 736 (Tex. App.—Corpus Christi 1988, writ denied); Verble v. Coffman, 680 S.W.2d 69 (Tex. App.—Austin 1984, no writ). London and Verble each held that “anti-pooling” language in a lease, which was used to try and prevent an NPRI owner from being able to ratify and thus be pooled with other minerals covered by the same lease, was ineffective. London, 756 S.W.2d at 740; Verble, 680 S.W.2d at 70. That is not the situation we have here. First, Donelson did not ratify a lease. Second, the “anti-pooling” language in the Ratification did not attempt to prevent Donelson from receiving benefits under the Lone Oak Lease. On the contrary, had the Lone Oak Lease been pooled as part of the Streater Unit, the Ratification provided that the NPRI would be included to the extent that the minerals covered by the Lone Oak Lease were also included in the Streater Unit.

As we stated earlier, Gastar did not include the Lone Oak Lease in the Streater Unit; thus, Gastar never exercised the pooling provision of the Lease. Consequently, the royalty interest was not pooled and thus, the mineral interest owner, Lone Oak/Preston, nor the NPRI owner, Donelson/Chieftain, were entitled to royalties from the Unit. The fact that Donelson ratified the Lone Oak Lease and “let said land and premises” to Gastar, “in accordance with all of the terms and provisions of said lease․as if I/we had originally been named as a Lessor in said lease,” is of no help to Chieftain when the Lone Oak Lease was not included in the Unit.

Chieftain further argues that because Donelson ratified the McBeth Lease, which was pooled in the Streater Unit, Donelson, and thus, Chieftain, was entitled to royalty payments. Neither Chieftain nor Donelson owned an NPRI in the minerals covered by the McBeth Lease. The case authority cited by Chieftain supports the proposition that an NPRI owner can ratify or repudiate a lease containing provisions which affect the NPRI owner's interest and which the holder of the executive rights or the mineral interest owner burdened by the NPRI had no authority to insert in a lease. See e.g., Montgomery v. Rittersbacher, 424 S.W.2d 210, 215 (Tex. 1968); Brown v. Smith, 174 S.W.2d 43 (Tex. 1943); London v. Merriman, 756 S.W.2d 736 (Tex. App.—Corpus Christi 1988, no writ); Verble v. Coffman, 680 S.W.2d 69 (Tex. App.—Austin 1984, no writ); Ruiz v. Martin, 559 S.W.2d 839 (Tex. Civ. App.—San Antonio 1977, writ ref'd n.r.e.). Chieftain has not provided any case authority to support its argument that an NPRI owner, such as Donelson, can ratify a lease, such as the McBeth Lease, that is not burdened by the NPRI. Based on the lack of case authority supporting Chieftain's theory, we cannot say that Donelson's purported “ratification” of the McBeth Lease had any legal effect on who was entitled to royalties for production from the Streater Unit. Thus, Chieftain is not entitled to the payment of royalties under this theory.

Revivor

Chieftain additionally argues that it is entitled to payment because an NPRI is entitled to revive a dead lease. As we stated previously, the Lone Oak Lease was not included in the Streater Unit. It makes no difference, therefore, if the Lease was revived. It was not included in the Unit, and Chieftain is not entitled to the payment of royalties under this theory.

Freestanding Royalty

Chieftain also contends that it is entitled to payment because it has a freestanding royalty which was pooled into the Streater Unit. Chieftain's freestanding royalty claim is simply a remix of its claim that the Unit Designation permitted the pooling of land, not just leases. We have held to the contrary.

Further, the additional authorities cited by Chieftain to support this claim do not stand for the propositions cited and do not support Chieftain's claim for relief. For example, although the Texas Supreme Court said in Lesley v. Veterans Land Board that “[t]he law has never left non-executive interest owners wholly at the mercy of the executive[,]” the issue in the case was not about whether a freestanding NPRI was entitled to royalty payments. See Lesley v. Veterans Land Bd., 352 S.W.3d 479, 487 (Tex. 2011). Rather, the principle issue in that case concerned “the nature of the duty that the owner of the executive right owes to the non-executive interest owner, and whether that duty has been breached.” Id. Additionally, Section 329 of Williams and Meyers' Oil and Gas Law discusses the rights an NPRI may have in the event the executive or mineral owner self-develops, rather than leases. WILLIAMS & MEYERS, Oil and Gas Law § 329 (2014). There is nothing to indicate in this case that Lone Oak or the Preston Trust has self-developed. Furthermore, Comanche Land & Cattle Co., cited for the proposition that a freestanding NPRI is entitled to payment once production takes place, is not a case about a freestanding royalty. See Comanche Land & Cattle Co. v. Adams, 688 S.W.2d 914 (Tex. App.—Eastland 1985, no pet.). Rather, the issue in that case was whether the owner of the leasing rights to a mineral estate had violated a duty of “utmost good faith” owed to the owner of a term nonparticipating royalty interest when the owner of the executive right purposely entered into an agreement that was calculated to defeat the rights of the royalty owner. Id. at 915, 916.

Accordingly, based on our previous holding, Chieftain is not entitled to payment pursuant to its free-standing royalty claim.3

Texas Theft Liability Act

Finally, Chieftain contends it presented sufficient evidence of a fact issue to prevent summary judgment on its Texas Theft Liability Act claim. According to the Act, a person who commits theft is liable for the damages resulting from the theft. TEX. CIV. PRAC. & REM. CODE ANN. § 134.003(a) (West 2011). A person commits theft if the person unlawfully appropriates property with the intent to deprive the owner of the property. TEX. PENAL CODE ANN. § 31.03(a) (West 2011). Appropriation of property is unlawful if it is without the owner's effective consent. Id. (b)(1).

Chieftain claims that Gastar stole its royalties. We have held that Chieftain is not entitled to the payment of royalties under any of the theories Chieftain alleged on appeal. Because Chieftain was not entitled to royalties, it cannot be said that Chieftain was the owner thereof or that Gastar unlawfully appropriated royalties that were owned by Chieftain.

Conclusion

All of Chieftain's claims in the trial court and on appeal depend on a finding that Chieftain was entitled to royalty payments. Because Chieftain is not entitled to royalty payments, there is no breach of contract, no violation of the Natural Resources Code, and no violation of the TTLA.4 In light of the discussions above, Chieftain's first, fourth, fifth, and sixth issues are overruled. Further, because of our ruling on Chieftain's first issue, we need not address Chieftain's second and third issues regarding whether Gastar and Cubic are estopped from claiming the Lone Oak Lease terminated and whether the Lone Oak Lease is alive.5

Accordingly, the trial court did not err in granting summary judgment in favor of Gastar and Cubic and against Chieftain.

GASTAR'S APPEAL

Gastar appeals the trial court's denial of its request for attorney's fees. When Chieftain alleged a theft pursuant to the TTLA, Gastar specifically denied the claim and requested attorney's fees. At the hearing on the entry of judgment, after Gastar's and Cubic's motions for summary judgment were granted, the trial court specifically declined Gastar's request for attorney's fees. Gastar objected and filed a motion to modify the judgment which the trial court denied. In two issues, Gastar contends the trial court erred in failing to award attorney's fees to Gastar.

The availability of attorney's fees under a particular statute is a question of law that we review de novo. Arrow Marble, LLC v. Killion, 441 S.W.3d 702, 705 (Tex. App.—Houston [1st Dist.] 2014, no pet.). Section 134.005(b) of the TTLA provides that “[e]ach person who prevails in a suit under this chapter shall be awarded court costs and reasonable and necessary attorney's fees.” TEX. CIV. PRAC. & REM. CODE ANN. § 134.005(b) (West 2011). The award of fees to a prevailing party in a TTLA action is mandatory. Arrow Marble, 441 S.W.3d at 705; see Bocquet v. Herring, 972 S.W.2d 19, 20 (Tex. 1998) (“Statutes providing that a party 'may recover,' 'shall be awarded,' or 'is entitled to' attorney fees are not discretionary.”). The statute requires attorney's fees to be awarded to a party that successfully prosecutes or defends a TTLA claim, and an award is not dependent on a recovery of damages. See In re Corral-Lerma, 451 S.W.3d 385, 386 (Tex. 2014) (no damages recovery needed); Air Routing Int'l Corp. v. Britannia Airways, Ltd., 150 S.W.3d 682, 686 (Tex. App.—Houston [14th Dist.] 2004, no pet.) (attorney's fees to successful defendant of TTLA claim); Johns v. Ram-Forwarding, Inc., 29 S.W.3d 635, 638 (Tex. App.—Houston [1st Dist.] 2000, no pet.) (prevailing party is one who successfully prosecutes or defends an action). Further, when a plaintiff's claims are dismissed with prejudice, the defendant is the prevailing party. See Arrow Marble, LLC v. Killion, 441 S.W.3d 702, 707-708 (Tex. App.—Houston [1st Dist.] 2014, no pet.).

Chieftain contends Gastar was not a prevailing party because Gastar did not prove it did not commit theft of the royalties. We have already held that because Chieftain was not entitled to royalties, Gastar was not liable to Chieftain for theft. Summary judgment was granted in favor of Gastar and all of Chieftain's claims, including its claim under the TTLA, were dismissed with prejudice. Therefore, Gastar was entitled to attorney's fees, and the trial court erred in denying Gastar's request for attorney's fees.

Gastar's second issue is sustained. Because of our disposition of Gastar's second issue, we need not discuss Gastar's first issue.

CONCLUSION

Having overruled Chieftain's issues necessary to the appeal but having granted one of Gastar's issue necessary to the appeal, we reverse the trial court's Final Summary Judgment, only to the extent that it does not award attorney's fees to Gastar, and remand this appeal to the trial court for a determination of reasonable and necessary attorney's fees for Gastar's defense of Chieftain's TTLA claim. The trial court's Final Summary Judgment is affirmed in all other respects.

Affirmed in part; Reversed and remanded in part

[CV06]

FOOTNOTES

1.   The Lone Oak portion is now owned by the Preston Trust.

2.   This phrase, “as long thereafter” is not the exact language of the lease interpreted in Ladd. This particular language was a paraphrase of the lease by the Fort Worth Court of Appeals.

3.   We do not address what remedies, if any, Chieftain may have against the owner of the executive rights over the mineral interest from which its NPRI was carved.

4.   That being said, this conclusion is not to be construed in any way as validating Gastar's and Cubic's ownership of the royalty that would have been paid to Chieftain if the Lone Oak Lease had been included in the Streater Unit. Whether those funds are owned by Gastar/Cubic or proportionally by the other owners of the pooled leases is an issue that is not before the Court in this appeal.

5.   Chieftain's seventh issue is moot since the Gastar entities sued have merged.

TOM GRAY Chief Justice