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Click here for the full text of this decision FACTS:Pioneer Natural Resources was an oil and gas lessee on a 103.75-acre tract owned by W.L. Ranch in Burleson County. The lease included a primary term for one year, starting Aug. 20, 1993, and as long thereafter as “operations” were conducted on the land. The lease authorized pooling or unitization with other lands, upon which “operations” could be conducted, to extend the primary term. In an amendment to the lease on June 28, 1994, W.L. Ranch increased the maximum size of a production unit from 320 acres to 380 acres. Pioneer pooled the original 103.75-acre tract with three other tracts, to form a 378.72-acre production unit called the “Newberry Unit.” Pursuant to a permit from the Texas Railroad Commission, Pioneer began drilling a horizontal well from the Newberry Unit. The well went under W.L. Ranch, but it did not actually penetrate the ranch’s land until after Aug. 20, 1994. From Oct. 18, 1994, until the well was plugged on Jan. 16, 1999, Pioneer’s drilling expenses were $1,677,700 and its production expenses were $221,213. Its production revenues were $644,893, and W.L. Ranch received $43,163 in royalties. W.L. Ranch sued Pioneer for trespass, negligence, common-law fraud and statutory fraud arising out of the horizontal well’s drilling. The trial court granted a partial summary judgment for W.L. Ranch, agreeing that the lease had terminated. The remainder of the claims were submitted to a jury, which ruled for W.L. Ranch, who was awarded trespass damages, $511,000 for fraud damages and $299,000 in exemplary damages. At a subsequent bench trial on fees, W.L. Ranch was awarded more than $390,000 in attorneys’ fees, prejudgment interest and expert witness fees. On appeal, Pioneer claims that the drilling of the well did not constitute trespass because unitization kept the oil and gas lease between the parties in force and effect at all times during the drilling of the well. Pioneer also claims there is no evidence of negligence, fraud or damages. HOLDING:Reversed and rendered. The court first addresses the partial summary judgment. W.L. Ranch contends that the addendum executed in June 1994 conflicts with the original lease and should be read to eliminate the option to pool the leases. The court, however, notes that when contract provisions appear to conflict, they should be harmonized if possible. The court reads all the provisions together to conclude that there is no express language prohibiting or limiting pooling. “In the instant case, the [Pioneer and W.L. Ranch] agreed to a unitized lease without an express agreement that the lease could not be extended by commencement of operation or production on land other than [W.L. Ranch's]. Even if there were a conflict . . . it is not an irreconcilable conflict, and it is reasonable to conclude the parties intended to agree to the pooling or unitization which was effected by [Pioneer].” The court thus holds that the drilling operations commenced on the Newberry tract effectively extended the primary term of the lease by virtue of the unitization with other tracts into the Newberry production unit. The court next considers whether Pioneer was negligent in the way it drilled the horizontal well. The court points out that W.L. Ranch’s expert witness was an expert in vertical and general drilling, but not in horizontal drilling; therefore, the ranch was not able to establish what the requisite standard of care was supposed to be. The fact that problems were encountered during the drilling process cannot serve as the basis of a negligence cause of action. The court finds no other evidence of negligence in the record. The court adds that even if it had found the existence of any negligence, W.L. Ranch could not prove that Pioneer was the proximate cause of any perceived damages. W.L. Ranch received royalties on all available reserves; there can be no royalties without reserves. There was no drainage or loss of the reserves and no evidence that the mineral estate was not marketable. The court rejects W.L. Ranch’s assertion that it was fraudulently induced into making the addendum and increasing the production unit size. The court finds that Pioneer was entitled to drill the Newberry well even without the amendment, so the fraud, if any, was not material. Furthermore, W.L. Ranch’s expert did not adequately connect any possible fraud to any possible damages the ranch may have suffered. The jury instruction was improperly submitted, also, and probably led to the rendition of an improper judgment. Finally, based on its prior holdings, the court overturns the award of exemplary damages and the awards for costs and attorneys’ fees. OPINION:Amidei, J.; Hinojosa, Dorsey and Amidei, JJ.

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