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Texans seek class action certification in suit against Talisman Energy USA

If four South Texas landowners get their way, a federal judge will certify the individual lawsuits they filed against Talisman Energy USA in 2016 as a class action. The plaintiffs allege that Talisman shorted them on royalty payments for oil leases on their land.

The four recently filed a motion to have their lawsuits against Talisman joined as a class, arguing that as many as 4,000 other royalty owners from Eagle Ford Shale of South Texas and Marcellus Shale in Pennsylvania could join the ongoing litigation.

Bryan Blevins, a partner with Houston-based Provost Umphrey Law Firm LLP, said, “It’s clear that Talisman knew what they were doing when the company voluntarily commingled production from different wells and then allocated net sales in violation of best oil field practices and Texas law. We intend to prove that the amounts paid to the royalty owners were based on manipulated production volumes.” The plaintiffs are seeking to have Blevins and another member of his firm named as their lead counsel.

According to court filings, Talisman denies any wrongdoing.

The pending lawsuits claim Talisman manipulated production volumes for oil wells operated in the two shale basins named in the suit.

Talisman Energy USA is an indirect subsidiary of Calgary, Alberta–based Talisman Energy Inc., which was acquired by Repsol S.A. in 2015.

The case is Rayanne Regmund Chesser, Gloria Janssen, Michael Newberry and Carol Newberry v. Talisman EnergyUSA, Inc. No. 4:16-cv-02960 in the U.S. District Court for the Southern District of Texas, Houston Division.

Texas jury awards $100 million in lawsuit between oil companies over underpayments under joint operating agreement

A Texas jury issued an award of $100 million in a lawsuit between two oil companies.

Jurors found that Talisman Energy USA, a Canadian firm, underpaid Matrix Petroleum of Houston and breached a joint operating agreement for gas and oil production in the Eagle Ford Shale. Talisman was acquired by Repsol in 2015 and is now called Repsol Oil & Gas USA.

The joint operating agreement dates back to 1954 and governs drilling and production on 12,600 acres of the Cooke Ranch. Talisman acquired its interest in 2010, along with its joint venture partner Statoil. Matrix was a non-operating partner, but the lawsuit alleges that Matrix was treated as a passive investor instead, with Talisman assuming unilateral control and breaching governing documents related to Cooke Ranch operations.

According to the complaint, an early dispute arose when Talisman drilled wells on a nearby property within 100 feet of the Cooke Ranch, without drilling an offset well on Cooke Ranch as required by the lease. The lawsuit also claimed that Talisman used improperly sized meters which failed to accurately measure the gas and oil produced from the Cooke Ranch field, resulting in Matrix not being paid for all of the gas and oil that Talisman produced from the well. The complaint alleged that Talisman sold the gas and oil to a third party, profiting from the difference. Repsol is expected to appeal the verdict.

Texas appeals court rules on consent provision in oil lease case

A Texas appeals court eliminated a $27.7 million judgment against an oil and gas company in a dispute over a drilling farmout agreement, ruling that the contract permitted the company to withhold consent to an assignment of the agreement.

Carrizo Oil & Gas Inc. had appealed a jury verdict finding it liable for fraud, breach of contract and tortious interference with contract. The jury awarded Barrow-Shaver Resource Co. (BSR) $27.7 million on the breach of contract claim. Carrizo had signed a drilling farmout agreement with BSR, but when BSR signed a deal assigning the agreement to Raptor Petroleum II LLC, Carrizo refused to honor it.

The Twelfth District Court of Appeals reversed the lower court’s decision, holding that BSR should receive nothing. Chief Justice James T. Worthen wrote that a provision in the farmout agreement permits Carrizo to withhold consent to assignment of the agreement to another party, and the trial court should not have submitted that issue to the jury.

Judge Worthen wrote that because the contract was unambiguous, the jury should not have had the opportunity to decide the breach of contract issue. The appeals court also noted that the evidence of previous drafts and negotiations indicated that Carrizo intended to preserve its right to withhold consent. The evidence was that a preliminary draft of the agreement said that Carrizo could not “unreasonably” withhold consent, but that clause was deleted. The appeals court said that this evidence was not barred from admissibility by the parol evidence rule, and the trial court should not have excluded it.

Pipeline owners file $300 million breach of contract lawsuit against midstream operator

An amended breach of contract lawsuit was filed by Magellan Midstream Partners and Plains All American Pipeline against Stampede Energy, seeking over $300 million in damages over an oil transport deal.

The lawsuit claims that Stampede did not meet minimum volume obligations on the BridgeTex pipeline from March 2015 through 2016, breaching its contract. The BridgeTex pipeline carries around 300,000 barrels per day from Colorado City, Texas to the Gulf Coast. Stampede is a privately held midstream operator.

From mid-2014 to early 2016, oil prices dropped by more than 70 percent, prompting production cuts and leading several energy firms to declare bankruptcy. Pipelines function like toll roads, so they are generally considered to be better protected from commodity price fluctuations, but with fewer barrels to ship, pipelines have been affected by output declines.

An amended petition filed March 22 claimed that Stampede owed the plaintiffs over $311.8 million, including interest and late fees, for breaching its shipping obligations. The BridgeTex firms also filed a claim against Ballengee Interests, which guaranteed payments owed by Stampede.

According to court documents, Stampede agreed in August 2014 to ship 30,000 barrels per day of crude and condensate on BridgeTex, which is about 10 percent of the pipeline’s capacity. Court filings state that Stampede executed a Transportation Service Agreement calling for the company to ship on the pipeline for 29 quarters.

Texas property owners file class-action suit against Devon Energy over royalties

A class-action lawsuit has been filed by Texas property owners alleging that Devon Energy used sham transactions to underpay natural gas royalties.

On January 6, class-action status was granted by U.S. District Judge Ed Kinkeade in Dallas, allowing the four individuals who brought the lawsuit to represent the interests of thousands of landowners. The judge found that there were common legal issues, that Devon Energy owed a common duty to the members of the class, and that a formula can determine the damages owed to each class member, if any.

The landowners claim that the production arm of Devon Energy sold the natural gas to an affiliate, Devon Gas Services, at a low well head price. Devon Gas Services then used its Bridgeport plant to process the gas and deduct a 17.5 percent processing fee from royalty checks, the lawsuit alleges.

The plaintiffs called the processing fee “unreasonable and lucrative” and stated that Devon calculates royalties based on the “artificial” price it received from its own affiliate rather than what it was paid by unaffiliated third parties. The lawsuit also claims that after the gas left the processing plant, Devon and its affiliates made a profit selling the residue gas to third parties, but did not pay royalty owners a share of those profits.

Investment firms sue oil company, alleging breach of contract

An oil company was sued by two investment firms in Harris County District Court in Texas over an alleged breach of contract.

SSG Advisors, LLC and Chiron Financial LLC filed the lawsuit against Daybreak Oil and Gas Inc., claiming that Daybreak violated an agreement among the three companies. The investment firms claim they are owed approximately $1.1 million.

According to court documents, the relationship among the parties began in May 2015. The engagement agreement, which was renewed on two occasions, called for SSG and Chiron to provide investment banking services to Daybreak.

The lawsuit claims that Daybreak failed to submit payment for three months under the most recent engagement agreement, which the firms claim is still active. The lawsuit also names Platinum Partners, LP; Maximillian Resources, LLC; and Zach Weiner, a portfolio manager based in New York City, as co-defendants.

The investment firms allege that Daybreak and Weiner held discussions about restructuring the company, without informing them. The lawsuit claims that Daybreak and Maximillian sold a significant portion of Daybreak’s assets to a third party, which was allegedly a breach of the engagement agreement. According to court documents, SSG and Chiron learned of the sale by reading a press release issued by Daybreak.

Multi-million dollar oil and gas lawsuit set for trial

A lawsuit is set for trial in Texas between two well-known oil and gas names over revenue and ownership interests, with hundreds of millions of dollars in damages claimed.

Mesa Petroleum, founded by T. Boone Pickens, filed suit against J. Cleo Thompson and three exploration and production companies based in Midland. Mesa alleging that Patriot Resources, Baytech and Delaware Basin Resources violated the terms of an investment contract.

The complaint alleges that Thompson and the Midland companies are liable for fraud, breach of contract, tortious interference with a contract, and breach of fiduciary duty. The defendants deny the allegations. The trial in Pecos, Texas is expected to take several weeks.

In January 2007, Thompson and Baytech signed a “participation agreement” with Mesa that committed the companies to offering Mesa an ownership stake of 15 percent in asset acquisitions over five years. According to court documents, Mesa paid $125,000 to enter into the investment agreement and $1 million to participate in an investment known as the Red Bull Prospect.

Mesa claims that the company “elected to participate” in all of the investments that were offered, but the defendants allegedly took new investment opportunities for themselves, failing to offer interests to Mesa as required by the participation agreement. The investments that Mesa claims it missed out on include royalties, revenues, leases, easements, production payments, wells and facilities. Thompson and the other companies claim that they nullified the agreement.

Texas Appeals Court rules against lessee in offset well dispute

The Fourth Court of Appeals in San Antonio, Texas found that a lessee had failed to prove that it had drilled an offset well as required by oil and gas leases.

In the case, Shirley Adams et al. v. Murphy Exploration & Production Co.-USA, the lessors and royalty owners sued lessee Murphy for breach of contract, claiming that Murphy had failed to drill an offset well to protect two tracts of land against drainage.

Murphy was assigned oil and gas leases executed by lessors in the Eagle Ford Shale. The parties did not dispute that the leases required the lessee, if a well was completed, to drill an offset well to prevent drainage. A lower court granted Murphy’s motion for summary judgment based on evidence that a well had been drilled and Murphy’s expert’s testimony that it was an offset well.

The Fourth Court of Appeals held that in order for Murphy’s summary judgment burden to be met, Murphy had to conclusively prove that the well was an offset well as a matter of law, thus disproving the element of breach. However, the appeals court found that Murphy failed to meet that burden, as it failed to prove that the well met the commonly understood meaning of the term “offset well,” which is a well used for protection from drainage. The appeals court reversed the grant of summary judgment and remanded the case to the trial court for further proceedings.

Texas oil networking company files lawsuit for tortious interference, unfair competition

A lawsuit has been filed by a networking website for oil workers, claiming that a Texas man who founded the company stole data to launch a competing business.

Rigzone.com claims to host the resumes of over 2 million workers in the oil and gas industry. Workers post their resumes for free, and recruiters pay a fee for access. David W. Kent Jr. founded Rigzone in March 2000 and later sold it to DHI Group, subsequently starting Oilpro.com, a rival site. Rigzone and DHI Group sued Kent and Oilpro in federal court on June 10.

The lawsuit alleges that Kent owned approximately 70 percent of Rigzone when he sold it to DHI Group for $51 million in August 2010, while staying on as president under a consulting agreement. DHI Group claims that Kent received over $35 million from the sale, but the firm alleges that Kent set up a backdoor entry into Rigzone’s website and took its data.

According to the lawsuit, Kent set up Oilpro.com, a competing website, in 2013, posting an online timer that counted down to the minute when his non-compete agreement expired on Oct. 1, 2013. DHI Group also alleges that Kent convinced the core team that operated Rigzone to join him at Oilpro.

Kent was reported to have been arrested March 30 in Texas and faces federal criminal charges of conspiracy and wire fraud for allegedly hacking into Rigzone’s website. If found guilty, he could face up to 25 years in prison.

The lawsuit alleges that Kent sought to sell Oilpro to DHI Group for $20 million. According to the lawsuit, Kent wrote to the CEO of DHI Group saying that he built Oilpro with the purpose of selling it to them, saying that it “seemed to work for all parties before.”

Texas jury awards 1.5 million dollars to mineral rights owner

A Harris County, Texas jury awarded $1.5 million to Jack Grynberg and his family, finding that Exxon Mobil did not act in good faith in determining the mineral royalties the company owed him.

Grynberg says he is owed even more and is considering appealing the verdict. Grynberg says his royalties compensation could have been nearly $40 million if a damages expert he hired had been permitted to testify before the jury. Grynberg, an 84-year-old resident of Denver and graduate of the Colorado School of Mines, said that he had been in the oil business since 1953. Grynberg said he suspected something wrong when he noticed that his mineral royalties from Kinder Morgan were 40 percent higher than his royalties from Exxon Mobil.

“I will not be cheated,” said Grynberg.

The lawsuit and similar lawsuits filed recently may inspire other royalty owners to take legal action. A major problem for many royalty owners is that the royalty statements they receive from production companies are often a single page, with no information on how the royalties were calculated or what costs were deducted. Some lawsuits have accused companies of deducting “post-production” costs from royalty payments.

Grynberg’s land contains large reserves of carbon dioxide gas, which is used to boost production in oil wells. The jury found that Exxon Mobil paid royalties based on less than the market value of the carbon dioxide.

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