People outside of Texas sometimes ask if you own an oil well -- or raise cattle or wear boots and a Stetson or really want to secede -- right after they learn you live in any of the 254 counties that comprise the Lone Star State. You'd expect that sort of thing from outlanders. We've done such a good job of branding ourselves as Hicks with Hydrocarbons, you can't really blame them for saying things they think might flatter us.
Last Friday, eight judges deemed a subgroup of Texans -- owners of oil and gas royalty interests -- presumptive experts on the science of drilling wells. Texas judges. Who should know better.
The highest court in Austin threw out a verdict and judgment for the royalty owners on the ground that no reasonable jury could reject -- as the actual jury did reject -- the defendants' statute of limitations defense. The royalty owners claimed that British Petroleum had hoodwinked them into thinking it wanted to keep trying to make a well produce when in fact BP only pretended to rework the well so that it could keep the lease from ending due to inactivity. BP said the royalty owners could have deciphered the truth about the prospects for the well, which proved a duster, and divined what BP really thought about the well's chances if they'd sent a geological expert to "read together" two separate reports that BP filed at the Texas Railroad Commission's offices in Austin and Corpus Christi, respectively.
The court thus held, as a matter of law, that BP's fraud -- in sending the royalty owners a three-page letter misrepresenting its efforts to make the well produce oil and gas -- didn't matter:
While the Marshalls are correct in pointing out that the well log did not list BP’s operations in the Upper Wilcox [formation], the plugging report filed with the Commission’s Corpus Christi district office on October 6, 1981, well within the limitations period, did. These public documents, the well log [in the Commission's Austin office] and the plugging report [in Corpus Christi], read together, would have led the Marshalls to discover that BP conducted operations at an interval incapable of production. Moreover, Stanley Marshall testified that he was a sophisticated lessor who subscribed to industry publications, worked as a driller when he was younger, and thus understood the oil and gas industry. Consequently, as a matter of law, the Marshalls would have been able to discover BP’s fraud though the use of reasonable diligence. We therefore hold that the Marshalls’ claims are barred by the statute of limitations, and reverse and render for BP.
BP Am. Production Co. v. Marshall, No. 09-939, slip op. at 13 (Tex. May 13, 2011).
Blawgletter wishes the Court had spent a bit more time saying why royalty owners fail to exercise "reasonable diligence" in detecting fraud, as a matter of law, if someone, having expertise the royalty owners did not possess, could in theory have discovered the fraud by going to two different cities 218 miles apart and read two different reports "together" to determine that the lessee may have lied because the reports "together" show that the well likely couldn't have produced from a formation segment (the "upper Wilcox" instead of the "middle" or "lower") the lessee claimed it wanted to produce from.
Because it seems to us that, after Marshall, we have in Texas a rule that charges royalty owners with expertise in geology AND knowledge of the contents of public records anywhere in the state AND the duty to read the highly technical data in those public records "together" AND the obligation to figure out that the lessee lied in that three-page letter to you.
Yikes.
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