After an energy transaction closes, unsatisfied parties increasingly are claiming that the other side misrepresented some material issue during the course of the deal. Not surprisingly, this phenomenon often occurs during rapid or unanticipated movements in commodity prices, cost of capital, development costs, regulation and the like.
Such fraud claims often focus on representations concerning the prospects of oil and gas production, including reserve estimates and general remarks concerning future production from certain leases or wells. Given the risk of such claims, in-house counsel need to ensure that company representatives know what they can and cannot say about the prospects for production when buying or selling energy assets.
Since the Texas Supreme Court's 1983 decision in Trenholm v. Ratcliff, pure expressions of opinion generally cannot form the basis of a fraud claim; even if those opinions are later determined to be incorrect, they are not considered factual misrepresentations.
This distinction between factual statements and opinions, however, depends on not only what someone said but also the circumstances in which he made the statement. As noted in Trenholm and subsequent cases, an opinion may give rise to fraud in three situations.
First, the speaker knows the statement is false.
Second, the speaker purports to have special knowledge of facts underlying the opinion and has reason to know that the other party would rely on that knowledge. An example would be when those facts are not equally available to both parties.
Third, the opinion is based on or intertwined with false statements of fact. In this respect, a court may consider "the speaker's knowledge, the comparative levels of the speaker's and the hearer's knowledge, and whether the statement relates to the present or the future" in determining whether a statement is one of fact or opinion, noted the Texas Supreme Court in Transport Insurance Co. v. Faircloth (1995).
Courts generally consider statements about future events, such as the prospects for production, to be opinions that alone are insufficient to support a fraud claim. But this may change when such an opinion is contrary to factual information known by the speaker or bolstered by special knowledge of facts that will occur in the future.
For example, it can be risky to make general statements concerning the prospects of production when others may view such statements as conflicting with undisclosed production data. In the 13th Court of Appeals' decision in Exxon Corp. v. Miesch (2012), the court addressed lessors' allegation that the lessee's representatives stated during lease renegotiations that the reserves under lease were depleted, "there is nothing there" or they would last only a couple more years, and the lessee "could not continue to produce" the fields under lease.
The lessors claimed that the lessee refused to turn over well logs and interpretive data supporting its assertions. Further, the lessors claimed that such information indicated materially more reserves than represented and revealed undeveloped fields ignored in the lessee's analysis.