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Monday, December 3, 2007
Liskow & Lewis attorneys have recently submitted
briefs on behalf of amicus curiae in three significant oil and gas cases before
the Supreme Court of Texas.
 Energy Service Co. v. Superior Snubbing
Services, Inc., No. 05‑0202
(Tex. Aug.
24, 2007). The Supreme Court of
Texas recently held that an oilfield service contractor sued by an injured
employee of another contractor is entitled to enforce the indemnity provision
in a Master Service Agreement between the operator and the contractor whose
employee was injured. This is an
important decision that upholds current oilfield practices under common mutual
indemnity provisions in Master Service Agreements. The Court quoted the amicus brief in
noting the importance of such provisions in these types of agreements.
Energy Service Company and Superior Snubbing Services, Inc.
were both service contractors on a well site operated by Mitchell Energy
Corporation. One of Superior’s
employees was injured on the job. Because Superior
was a workers compensation subscriber, Superior’s
employee could not sue Superior
for his injuries. He did sue Energy, however, which demanded indemnity from Superior. Energy and Superior had each executed separate Master
Service Agreements (“MSA”) with Mitchell, containing an identical
indemnification provision that provided for indemnification to the operator and the operator’s other
contractors. Energy and Superior, did not, on the
other hand, directly execute any indemnification agreement with each other.
The Court considered whether, “under section 417.004
of the Texas Labor Code, . . . a subscribing employer’s written agreement
to indemnify a person and that person’s contractors [may] be enforced by
one of those contractors even though the agreement was not executed by that
contractor?” The majority
held that the answer was yes, notwithstanding the revised wording in the
statute that an employer with workers’ compensation coverage is not
liable to indemnify a third party “unless the employer executed . . . a
written agreement with the third party to assume the liability.” A
majority of the justices decided that by adopting new wording for §
417.004 in 1989, the Texas Legislature did not intend to make any substantive
change in prior law, which permitted such agreements as long as they were in
writing, even if not executed directly between the indemnifying parties. The majority concluded that Energy was,
in fact, a third-party beneficiary to the written agreement between Mitchell
and Superior. Four justices dissented from the
court’s holding, arguing that the plain language of § 417.004, as
amended in 1989, bars indemnification of one contractor for claims by another
contractor’s employees in the absence of a written agreement directly
between the contractor seeking indemnity and the contractor from whom indemnity
is sought.
Mission Resources, Inc. v. Garza Energy Trust, 166 S.W.3d 301 (Tex. App. – Corpus Christi-Edinburg 2005), pending
in Texas
Supreme Court, No. 05-0466. The
appeal court held that hydraulic fracturing can result in subsurface
trespass. Trespass need not be in
person but may be made “by causing or permitting a thing to cross the
boundary of the premises.” Subsurface trespass will occur if “the
invasion alleged is direct and the action taken is intentional.” The court declined to follow a
conflicting opinion in Geo-Viking, Inc.
v. Tex-Less Operating Co., 817 S.W.2d 357 (Tex. App. – Texarkana
1991), which relied on the rule of capture to refute the argument that
hydraulic fracturing could result in a subsurface trespass. Plaintiffs, non-participating royalty
owners, had standing because (1) they suffered an injury caused by defendants;
and (2) their injury was redressable by the financial relief requested. The
court found that defendant acted with specific intent to cause a substantial
injury by draining gas and thereby causing them substantial financial
loss. These actions constituted
felony theft, removing the statutory cap on punitive damages.
This case is currently on appeal to the Texas Supreme
Court. The petitioner and amicus
curiae have challenged the
appellate court’s finding that Texas
recognizes an action for subsurface trespass by hydraulic fractioning. They also assert that the owner of the
leasehold estate is the proper party with standing for such a claim, not the
non-participating royalty owners, because a cause of action for trespass
requires a present right of possession.
The matter has been submitted and argued, and a decision could be
rendered at any time.
Exxon Corp. v. Miesch, 180
S.W.3d 299 (Tex.
App.—Corpus Christi 2005, pet. granted). This case involves several issues
arising out of a complaint that Exxon committed waste in plugging and
abandoning wells, such that the wellbores were unusable by a subsequent
lessee. Finding in favor of the lessors,
the trial jury awarded $5 million for (1) the cost to drill new wells; (2) the
value of the minerals that cannot be recovered; and (3) the loss of bonus
payments, and an additional $10 million in punitive damages. The court of appeal affirmed, holding, among
other things, that Texas Natural Resources Code provides for a private cause of
action for statutory waste. An
important concern of amicus curiae is that the appeal court decision may be
read as imposing an implied duty to preserve for the lessor (and subsequent
lessees) any oil or gas well that is not currently economical for the lessee,
but which might be economically viable for reentry by some other party under
some other circumstances. The case
has been briefed and submitted, and a decision is pending in the Supreme Court.
For more
information, please contact Robert L. Theriot at rltheriot@liskow.com, or Jana L. Grauberger at jlgrauberger@liskow.com or go to www.liskow.com.
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