Texas Judiciary Online - HTML Opinion

XTO=20 submitted two affidavits from an expert purporting to address the = custom=20 and usage of the oil and gas industry. By this evidence, XTO = did not=20 purport to provide the meaning of any technical or specialized = terms used=20 in the JOAs. XTO tried to use this evidence to show that its = interpretation of Article VI is reasonable and to assist in the=20 construction of the JOAs. Presuming, without deciding, that = it would=20 be proper to use evidence of custom and usage in the oil and gas = industry=20 for these purposes, we conclude that XTO=3Ds expert=20 did not show that the alleged custom and usage to which he = testified is so=20 general and universal that the parties to the JOAs are charged = with=20 knowledge of its existence to such an extent to raise a = presumption that=20 they dealt with reference to it. See State Nat. Bank of = Houston=20 v. Woodfin, 146 S.W.2d 284, 286 (Tex. Civ. App.CGalveston=20 1940, writ ref=3Dd)=20 (stating that A[i]t has=20 been uniformly held in this State that a custom, in order to = constitute an=20 element of contract, must be either shown to have been known = personally to=20 the parties to the contract, or to have been so general and = universal that=20 the parties are charged with knowledge of its existence to such an = extent=20 as to raise a presumption that they dealt with reference to = it@);=20 Energen Res. MAQ, Inc. v. Dalbosco, 23 S.W.3d 551, = 554B56 (Tex.=20 App.CHouston=20 [1st Dist.] 2000, pet. denied) (stating same legal standard as=20 Woodfin and concluding that testimony was sufficient to = raise a=20 fact issue as to custom and usage in case in which witnesses = testified=20 that the alleged custom and usage was typical and Acommon=20 knowledge in the industry@);=20 Grube v. Donnell Exploration Co., 286 S.W.2d 179, = 180B81 (Tex.=20 Civ. App.CEl Paso=20 1955, writ ref=3Dd n.r.e.)=20 (holding that purported evidence of custom regarding drilling of = oil and=20 gas wells was insufficient because it did not show that the = alleged custom=20 was established for a sufficient length of time to have become = generally=20 known, certain, and uniform). Therefore, even if the trial = court=20 erred in striking this evidence, it would not be reversible = error. =20 Even if the this court could consider alleged custom and usage in = the oil=20 and gas industry in giving effect to the unambiguous JOAs, XTO did = not=20 prove any such custom and usage. Therefore, the testimony of = XTO=3Ds expert=20 does not change our analysis.

= ; = &= nbsp; &n= bsp;=20 V. Conclusion

^{^[1]} The joint operating agreements = are both=20 based on the American Association of Petroleum Landmen Model = Form=20 Operating Agreement 610-1982.

^{^[2]} This provision is often = called a=20 Anon-consent penalty,@ although one member of the Supreme = Court of Texas=20 has suggested that it would be more appropriate to call this = provision a=20 Aliquidated bonus clause.@ See Valence Operating Co. v. = Dorsett, 164=20 S.W.3d 656, 659 n.2, 663B65 (Tex. 2005); id. at = 665B66 (Brister, J., = concurring).

^{^[3]} XTO also asserts that the trial = court erred=20 in denying its motion for partial summary judgment; however, we = cannot=20 review XTO=3Ds motion because, in this motion, XTO = did not seek=20 a final judgment. See CU Lloyd=3Ds of Tex. v. Feldman, 977 S.W.2d 568, 569 (Tex.1998) (stating = that,=20 before a court of appeals may review an order denying a = cross-motion for=20 summary judgment not covered by an interlocutory appeal statute, = both=20 parties must have sought final judgment in their cross-motions for = summary=20 judgment, unless an exception applies that is not applicable to = the=20 instant case).

^{^[4]} This case involves the drilling = of four=20 additional wells. Therefore, we limit our analysis to the = provisions=20 of the JOAs dealing with additional operations for drilling = additional=20 wells.

^{^[5]} Our dissenting colleague asserts = that,=20 under the JOAs, the parties expressly provide that the Notice = Period=20 expires thirty days after the receiving party receives the = notice. =20 See post at pp. 6,7,9. This is incorrect. The = parties=20 expressly provide that each receiving party has thirty days = after=20 receipt of the notice within which to notify the proposing party=20 whether that receiving party elects to participate in the = cost of=20 the proposed operation. This is not an express agreement = that the=20 Notice Period always lasts thirty days. It is an express = agreement=20 that the receiving parties have thirty days to give the proposing = party=20 notice of their respective elections. Under this agreement, = the=20 receiving parties may choose to take the entire thirty days, or = they may=20 give notice in less than thirty days. In the latter case, = the Notice=20 Period does not last thirty days.

^{^[6]} After stating that the receiving = parties=20 have thirty days after receipt of notice to reply to the proposing = party,=20 the parties agreed that failure of a receiving party to reply = Awithin the period above = fixed@ constitutes an election by that party = not to=20 participate. Our dissenting colleague focuses on the word=20 Afixed@ and concludes that the parties = expressly agreed=20 that the Notice Period cannot expire in less than thirty = days. =20 See post at p.6. However, this language simply refers back = to the=20 Notice Period established when the parties agreed that the = receiving=20 parties Ahave thirty (30) days after receipt of = the notice=20 within which to notify the party wishing to do the work whether = they elect=20 to participate in the cost of the proposed operation.@ Therefore, the words emphasized = by our=20 dissenting colleague refer to an earlier sentence and do not aid = in this=20 court=3Ds construction of that earlier=20 sentence.

^{^[7]} Our dissenting colleague = concludes that the=20 JOAs are ambiguous and that this court should reverse and remand = so that a=20 jury may determine the parties=3D mutual intent in agreeing to the = language of this=20 Model Form. See post at pp. 9B10. In reaching this conclusion, = our=20 dissenting colleague relies on Oxley v. General Atlantic Res.,=20 Inc. See 936 P.2d 943, 944B46 (Okla. 1997). The Oxley = case did=20 not involve Article VI; rather, it involved language regarding the = selection of a new operator under an agreement based on the = American=20 Association of Petroleum Landmen Model Form Operating Agreement=20 610-1956. See id. The issue in Oxley was = whether a=20 party to a joint operating agreement could change its vote for = successor=20 operator. See id. This issue is somewhat = similar to the=20 issue in the instant case; nonetheless, the relevant contract = language in=20 Oxley was different. See id. In = addition, the=20 Oxley court held that the operating agreement in that case = was=20 ambiguous because, under Oklahoma law, if a contract does not = expressly=20 address the issue in question, then that contract is = ambiguous. =20 See id. at 945. The Oxley court only addressed = evidence regarding custom and usage because it previously had = determined=20 that the contract was ambiguous. See id. at 946. = However, the=20 Oxley court=3Ds ambiguity analysis is contrary to = Texas law,=20 under which the failure of the parties to expressly address an = issue in=20 their contract does not make the contract ambiguous. See = Seagull=20 Energy E&P, Inc. v. Eland Energy, Inc., 207 SW.W.3d 342, = 345, 347=20 (Tex. 2006); Columbia Gas Transmission Corp. v. New Ulm Gas, = Ltd.,=20 940 S.W.2d 587, 591 (Tex. 1996). Under Texas law, even = absent an=20 express agreement, the issue remains whether there is only one = reasonable=20 interpretation, and there may be only one reasonable = interpretation based=20 on a review of the language of the contract. See Seagull Energy = E&P, Inc., 207 SW.W.3d at 345; Columbia Gas = Transmission=20 Corp., 940 S.W.2d at 591. Because of this fundamental = difference=20 between Oklahoma law and Texas law, the Oxley = court=3Ds analysis is not on point or persuasive = as to the=20 issues before this court today.

^{^[8]} XTO cites Lenape Res. Corp. v. = Tenn. Gas=20 Pipeline Co. See 925 S.W.2d 565, 573B74 (Tex. 1996). However, contrary = to=20 XTO=3Ds assertions, there are substantial = differences=20 between Tennessee Gas Pipeline=3Ds contract construction arguments and=20 Smith=3Ds arguments in the instant case. See = id. In=20 addition, the contract language in Lenape is not similar to = the=20 language in the JOAs. See id. Lenape is not on = point.=20

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