Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Click here for the full text of this decision FACTS:ExxonMobil and Valence are the successors-in-interest to companies that entered into a joint operating agreement (JOA) in 1983 governing oil and gas leases in Gregg and Upshur Counties known as the Gladewater Gas Unit No. 16. ExxonMobil’s predecessor was designated operator of the unit. It owned 82 percent of Unit 16, and Valence’s predecessor owned 18 percent. As part of the JOA, the parties agreed to a maintenance of interest (MOI) provision that limited their right to transfer or assign their interests in Unit 16. After the JOA was executed, ExxonMobil’s predecessor drilled wells in Unit 16 through the Cotton Valley Sand formation and into the Cotton Valley Lime formation, three of which produced gas. In 1996, ExxonMobil entered into a farm out agreement with Wagner & Brown, Ltd. (WB) and C.W. Resources (CW), giving them the right to drill a well in Unit 16 to a depth sufficient to test the Cotton Valley Sand formation and the opportunity to earn a conveyance of a segregated portion of ExxonMobil’s interest in Unit 16 upon the fulfillment of certain conditions. WB and CW proposed two new wells to Valence. Not knowing that WB and CW had a relationship with Unit 16, Valence did not respond to the new well proposals. Instead, it wrote to ExxonMobil and made inquiries. ExxonMobil informed Valence about the farm out agreement. Valence still did not respond to WB’s and CW’s proposals and was deemed non-consenting on the two wells. WB and CW subsequently proposed three more wells to Valence, who elected to participate “under protest.” The new wells produced. Valence was assessed non-consent penalties on the first two wells pursuant to the JOA. In March 1998, Valence sued ExxonMobil for breach of contract, alleging that ExxonMobil’s decision to farm out a portion of its interest in Unit 16 violated the maintenance of interest provision of the JOA. Valence alleged that the MOI provision prevented the parties from transferring interests covered by the JOA unless the conveying party transferred either an undivided interest or the party’s entire interest in the unit. Valence sought to recover the non-consent penalties it had incurred and continued to incur for failing to claim its right to participate in the first two wells drilled by WB and CW and to recover its percentage of the farmees’ cost of drilling the three additional wells to the Cotton Valley Sand. It contended that the Cotton Valley Sand formation could have been accessed less expensively from the existing wellbores that accessed the Cotton Valley Lime formation. On Oct. 10, 1998, ExxonMobil assigned a segregated portion of its interest in Unit 16 to WB and CW, in accordance with the farmout agreement. This factor is significant because Valence sued ExxonMobil before the date of the assignment, and its original pleadings were premised on the sale of a segregated interest that had not yet happened. The trial court scheduled the case for trial on Feb. 18, 2000, by a scheduling order dated Nov. 1, 1999. On Feb. 3, 2000, in anticipation of a new trial setting and scheduling order, the parties executed a written Rule 11 agreement extending those deadlines in the Nov. 1, 1999 scheduling order that had not yet not arrived and establishing March 10, 2000 as the deadline for discovery, motions for summary judgment, and amendments or supplements to the pleadings. The parties agreed that the deadlines established by the court in its new scheduling order would control over the deadlines for those events established in the Nov. 1, 1999, scheduling order. Subsequently, on Feb. 9, 2000, the trial court issued a new scheduling order setting the case for trial on April 11, 2000, but leaving blank all other deadlines. On April 11, 2000, when trial was not reached, the parties executed a second Rule 11 agreement in contemplation of a later trial setting, in which they agreed that “the deadline for amending pleadings in the above-styled case was March 10, 2000.” In the April Rule 11 Agreement, ExxonMobil agreed not to oppose Valence’s filing of its First Amended Petition so long as Valence did not make any changes other than to correct the defendant’s name from Exxon Company U.S.A. to ExxonMobil Corporation. Like the Feb. Rule 11 Agreement, the April Rule 11 Agreement is written, entitled “Rule 11 Agreement,” signed by counsel for both parties, and filed as part of the clerk’s record. Three days later, ExxonMobil filed a sworn “Agreed Motion for Continuance,” requesting a continuance until May 9, 2000. The trial court granted the motion for continuance on the same day. Also on that same day, Valence filed a Second Amended Petition, amending the section entitled “Breach of Contract,” adding the word “assignment” for the first time in regard to the farm out transaction, and seeking for the first time to establish its entitlement to special damages. ExxonMobil opposed the filing of Valence’s Second Amended Petition and moved to strike it as forbidden by the April Rule 11 Agreement, which it sought to enforce. The trial court subsequently reset the case for trial on six different occasions. By orders entered February 25, 2002, the court denied ExxonMobil’s motion to enforce the parties’ Rule 11 Agreement, denied ExxonMobil’s motion to strike Valence’s Second Amended Petition, and granted Valence’s motion to file the Second Amended Petition. Following a bench trial on March 5, 2002, the trial court ruled in favor of Valence and entered findings of fact and conclusions of law. This appeal followed. HOLDING:Affirmed as reformed. Viewing the February and April Rule 11 Agreements in light of the circumstances surrounding their execution, the early state of the pleadings when the agreements were made, the procedural history of this case, and the dispute between the parties, the court holds that the trial court did not abuse its discretion in refusing to interpret either the parties’ February or April Rule 11 Agreements as binding Valence to a stipulation that the live pleadings as of March 10, 2002, could not be amended. The court holds that the trial court did not err in denying ExxonMobil’s motion to enforce the parties’ Rule 11 Agreements or in permitting Valence to file its Second Amended Petition. The court holds that the trial court did not err in finding that ExxonMobil breached the JOA. The court holds, therefore, that the trial court correctly concluded that ExxonMobil’s breach of the notice provision in the JOA relieved Valence of the burden of paying non-consent penalties. In effect, although it never formally proposed to drill deeper in the existing well bores, Valence is seeking to recover for the opportunity it contends it lost to implement such a proposal. The award of damages for this allegedly lost opportunity also presupposes that a series of events would have happened to result in this opportunity, without sufficient evidence in the record to sustain the supposition. The contract is silent as to how competing proposals will be addressed. There is also no evidence in the record to show that the drilling of additional wells permanently foreclosed the opportunity to develop the existing wells. A party cannot recover breach of contract damages that are remote, contingent, speculative or conjectural. Accordingly, the court holds that the trial court erred in awarding additional damages of $310,867. In its Second Amended Petition, Valence states that all conditions precedent to recovery have been performed. In its response, ExxonMobil did not deny that all conditions precedent had been performed. Accordingly, the award of attorney’s fees without presentment or proof was not error. The court holds that the trial court did not err in awarding prejudgment interest of 10 percent per year on the non-consent penalties. OPINION:Evelyn V. Keyes, J.; Nuchia, Jennings and Keyes, JJ.

Want to continue reading?
Become a Free ALM Digital Reader.

Benefits of a Digital Membership:

  • Free access to 1 article* every 30 days
  • Access to the entire ALM network of websites
  • Unlimited access to the ALM suite of newsletters
  • Build custom alerts on any search topic of your choosing
  • Search by a wide range of topics

*May exclude premium content
Already have an account?

Reprints & Licensing
Mentioned in a Law.com story?

License our industry-leading legal content to extend your thought leadership and build your brand.


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.