Opinion
01-21-00721-CV
12-29-2022
SIANA OIL & GAS CO. LLC, Appellant v. WHITE OAK OPERATING COMPANY, LLC AND WHITE OAK RESOURCES VI, LLC, Appellees
On Appeal from the 164th District Court Harris County, Texas Trial Court Case No. 2015-45224
Panel consists of Chief Justice Radack and Justices Countiss and Rivas-Molloy.
MEMORANDUM OPINION
Julie Countiss Justice
Appellant, Siana Oil and Gas Co. LLC ("Siana"), challenges the trial court's rendition of summary judgment in favor of appellees, White Oak Operating Company, LLC ("White Oak Operating") and White Oak Resources VI, LLC ("White Oak Resources") (collectively, "White Oak"), in White Oak's suit against Siana for breach of contract, a declaratory judgment, and injunctive relief. In four issues, Siana contends that the trial court erred in failing to strike White Oak's summary-judgment motion, striking certain documents of Siana's proffered experts, sustaining certain of evidentiary objections made by White Oak, and granting summary judgment in favor of White Oak.
We affirm in part and reverse and remand in part.
Background
This is the second appeal that we have heard in this case. In the first appeal, Siana challenged the trial court's rendition of summary judgment in favor of White Oak, and this Court reversed the trial court's judgment and remanded the case to the trial court for further proceedings consistent with our opinion.
In White Oak Operating's fourth amended petition and White Oak Resources's second amended petition in intervention, White Oak alleged that in 2013, Siana, an oil and gas exploration and operating company, bought an approximately 44% working interest in the oil and gas properties on the South Callaghan Ranch in Webb County, Texas (the "South Callaghan properties") from certain Exxon/Mobil entities ("Mobil"). This acquisition included land subject to a Joint Operating Agreement ("JOA"), which governed the rights and obligations of the operator and non-operator of the South Callaghan properties, including the expenses that the operator could charge to the non-operator, i.e., Siana, in joint interest billings.
According to White Oak, when Siana purchased Mobil's interest in the South Callaghan properties, PetroPoint Energy Operating, LLC ("PetroPoint") was the operator under the JOA. In May 2014, White Oak Resources bought PetroPoint's interest and became the operator of the South Callaghan properties. In August 2014, White Oak Resources became the operator of the South Callaghan properties under the JOA.
White Oak explained that the JOA required "Siana, as a non-operator," to "pay to White Oak [Resources]," as operator, "certain expenses for the[] wells within thirty (30) days of receipt of the joint billing expenses." Specifically, the JOA required Siana to "pay a fixed rate of $1,400 per active well." "The fixed rate [wa]s adjusted on April 1 of each year by multiplying the rate currently in use, by the percentage increase or decrease recommended by [the Council of Petroleum Accountants Societies ("COPAS")] each year."
According to White Oak, when White Oak Resources took over as operator for the South Callaghan properties, it retained White Oak Operating to perform certain duties for White Oak Resources under a 2012 Contract Operating Agreement ("COA"). Under the COA, White Oak Operating performed the operator's day-to-day duties and services under the JOA.
White Oak further alleged that the wells that it operated under the JOA produced oil, natural gas liquids, and residue gas. And White Oak collected oil from the wells in tanks at or near the well site. In keeping with the JOA, White Oak Operating submitted joint interest billings to Siana for certain operating expenses. From August 2014 through November 2014, Siana paid the joint interest billings in full, sending a check payable to White Oak Operating each month.
In December 2014, Siana stopped paying the joint interest billings submitted by White Oak Operating. In May 2015, Siana proposed to reduce the fixed rate, as adjusted, under the JOA from $2,285.36 per well to $1,000 per well. But White Oak never accepted Siana's proposal.
White Oak eventually notified Siana that it was in default under the JOA, and in December 2014, White Oak began charging Siana's account on a monthly basis for operating expenses, totaling $2,700,605.14. By August 2015, Siana still had not paid White Oak for its share of the expenses owed under the JOA. Thus, White Oak brought a claim against Siana for breach of contract and sought a declaration of its rights under the JOA as well as attorney's fees and injunctive relief.
On October 21, 2016, the trial court signed an agreed docket control order that required the parties to designate all expert witnesses no later than November 28, 2016, file "all dispositive motions and pleas" and all amended and supplemental pleadings by January 13, 2017, and complete discovery by January 16, 2017.
On January 13, 2017, Siana filed an amended answer and amended counterclaim in which it generally denied the allegations in White Oak Operating's amended petition and White Oak Resource's amended petition in intervention. Siana also asserted the affirmative defenses of waiver and equitable estoppel.
In its amended counterclaim, Siana alleged that White Oak Resources "breached [an] [a]sset [a]greement by failing to obtain Siana's written consent to designate [White Oak Operating] as operator." Siana also asserted that White Oak Resources breached implied covenants owed by a reasonably prudent operator by charging Siana "monthly operating expenses that exceed[ed] the value of the resources produced." Thus, Siana brought counterclaims against White Oak Resources for breach of contract and breach of implied covenants. Siana also alleged a claim against White Oak Resources for unjust enrichment, asserting that White Oak Resources was "unjustly enriched by using Siana's fixed expense to pay for the expenses of its other wells." And Siana alleged a counterclaim for civil conspiracy against White Oak, asserting that White Oak had engaged in a civil conspiracy "to maximize economic return for itself and to the detriment of Siana."
After this Court remanded the case to the trial court following the parties' first appeal, on August 20, 2021, the trial court signed an order resetting trial "for the two[-]week period beginning [November 29, 2021]." The order also provided that "[a]ll previous pre-trial deadlines remain[ed] in effect, unless changed by the [trial] court."
On October 12, 2021, White Oak filed a motion for summary judgment, asserting that it was entitled to judgment as a matter of law on its claims for breach of contract, a declaratory judgment, injunctive relief, and attorney's fees. White Oak also asserted that it was entitled to judgment as a matter of law on Siana's counterclaim for unjust enrichment, and there was no evidence to support Siana's counterclaims for unjust enrichment, breach of contract, breach of implied covenants, and civil conspiracy.
As to its claim for breach of contract, White Oak argued that it was entitled to judgment as a matter of law because a valid, enforceable agreement between the parties existed, White Oak performed all of its obligations under the JOA, Siana breached the JOA by failing to pay its proportionate share of expenses, and White Oak incurred damages. As White Oak explained, it and Siana were parties to the JOA, which was a "valid, enforceable agreement," and White Oak was a party to the COA, "under which White Oak Operating agreed to perform the day-to-day duties and services of the operator under the [JOA]." Under the COA, White Oak Resources gave White Oak Operating "the right to "pursue [the] [c]laims of [White Oak Resources] against third parties, with respect to the [South Callaghan properties] or any oil and gas from the [South Callaghan properties] and all production attributable thereto, including the employment or use of counsel for the prosecution or defense of litigation."
White Oak noted that Siana's president, Tom Ragsdale, conceded in his deposition "that White Oak [wa]s the operator under the [COA]." White Oak also explained that White Oak Resources did not "transfer[] or assign[] the operational duties and responsibilities under the [COA]." White Oak Resources "simply retained White Oak Operating to assist it in the day-to-day operations" of the South Callaghan properties and gave White Oak Operating "certain rights" under the JOA. According to White Oak, Siana waived any complaint about White Oak Operating serving as operator under the JOA because Siana "wrote four checks to White Oak Operating for Siana's share of the joint interest billing" before it "stopped paying its bills." And by paying White Oak Operating, Siana ratified and consented to White Oak Operating's conduct.
White Oak argued that Siana had breached the JOA "by failing to pay its proportionate share of the expenses associated with the wells" because, as Ragsdale admitted in his deposition, the South Callaghan properties were "losing money," which was not a valid reason for nonpayment.