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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.

Oil lawsuit filed in Texas court over alleged breach of joint operating agreement

In a lawsuit filed in Texas, a small oil company alleges that its partner drillers in Guinea breached a joint operating agreement on offshore drilling.

Hyperdynamics Corp. filed suit claiming that Dana Petroleum PLC and Tullow PLC used a now-settled foreign corruption investigation under the U.S. Foreign Corrupt Practices Act to delay drilling activities long after the investigation was resolved. The lawsuit claims that the delays are putting in jeopardy the drilling of a well that a contract requires to be completed by September. According to the lawsuit, the small company could lose its concession, which is its sole asset, if the well is not completed on time.

Hyperdynamics claims that the defendants are in breach of the joint operating agreement and is acting in bad faith, because its supposed reason for failing to proceed has no foundation, as the investigation is now settled. Hyperdynamics said that it had provided its partners with new contract assurances from the government of Guinea. Previously, the partners had claimed that they were concerned that the government of Guinea could invalidate the concession.

Hyperdynamics has requested an injunction from the U.S. District Court for the Southern District of Texas, requiring Tullow to begin drilling operations again. Hyperdynamics has also filed an arbitration request seeking “further damages.”

Hyperdynamics resolved the corruption investigation with a $75,000 settlement, which was seen as a victory for the company, but the allegations have continued to cause problems.

Texas appeals court rules in lawsuit over gas well blowout costs

A Texas appeals court issued a ruling in a lawsuit over costs associated with the blowout of a gas well.

The Eleventh Court of Appeals issued its opinion Aug. 31, 2015 in the case of St. Paul Fire & Marine Insurance Company and St. Paul Surplus Lines Insurance Company, Appellants v. Petroplex Energy, Inc, Appellee, on appeal from the 142nd District Court, Midland County, Texas.

The case involved a gas well, the Quinn 1-6H Well in Reeves County, Texas, that was operated by Petroplex Energy and insured by the appellant insurance companies. The Quinn Well was intended to be operated as a partnership between Petroplex and Endeavor Energy Resources, LP, but the two companies disagreed over certain matters including blowout insurance, and a joint operating agreement was never signed. A partial assignment of the Quinn Well to Endeavor was executed, but the 80 percent interest was subsequently reassigned to Petroplex.

On Sept. 14, 2007, a buildup of gas caused the Quinn Well to blow out, and Petroplex lost control of the well. As a result, equipment owned by third parties was damaged, and Endeavor advanced blowout expenses to Petroplex. A well-control policy and commercial liability policy were held by Petroplex, but the insurance companies claimed that Petroplex did not own 100 percent of the working interest in the Quinn Well, that it was not an insured well, and Petroplex could not recover under the policies.

The appeals court affirmed the trial court’s judgment in favor of Petroplex on all issues presented.

Texas jury awards over 60 million dollars in oil and gas lease breach of fiduciary duty case

A Texas jury awarded over $60 million to investors in an oil and gas breach of fiduciary duty case.

The plaintiff investors claimed that their business partners gave themselves credit for financial contributions that were not actually made and excluded the investors from a lease acquisition project when the defendants learned that it would be extremely profitable.

The case is Tiburon Land and Cattle LP and Trek Resources on behalf of The Three Finger/Black Shale Prospect Partnership v. Sarah Kate Jones, as Independent Executrix of the Estate of Thomas J. Taylor, deceased, et al.

The plaintiffs presented evidence that although they shared in the first 30,000 acres of leases that the project acquired, they were excluded from a later acquisition of 16,000 acres. According to the plaintiffs, the defendants, including Abilene oil man Thomas J. Taylor, Kerwin Stephens and Chester Carroll, used a second set of accounting books to hide profits and make it appear as if they had made contributions that were not actually made by them.

The jury awarded $24 million in actual damages and $9 million in exemplary damages to one set of plaintiffs, and $28 million to another group of investors who intervened in the case.

The jury found that the fiduciary breaches by Stephens constituted theft, strengthening the total verdict amount.

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