Supreme Court of Texas Rules in Favor of Oil and Gas Operator’s Suspension of $1.5 Million in Production Payments Without Interest
Led by Gray Reed
The Texas Supreme Court ruled on May 19, 2023, in favor of an oil and gas operator finding the operator was authorized to suspend over $1.5 million in production payments, without interest, due to an underlying title dispute. The Court’s decision was based on the "safe harbor" statute found in the Texas Natural Resources Code, which shields operators from liability for interest and attorney’s fees when suspending production proceeds when there is a dispute concerning title that would affect distribution of payments or reasonable doubt that the payee has clear title to the production proceeds.
The Texas Supreme Court determined that the safe harbor statute applied as a matter of law, thereby exonerating the operator, Ovintiv USA Inc. and its predecessor Freeport-McMoRan Oil & Gas LLC. The underlying title dispute was embodied in a Final Judgment from another case in favor of Longview Energy Co. against 1776 Energy Partners, LLC, the plaintiff in the instant case, in which Longview was awarded title to the oil and gas leases and production proceeds at issue. When Longview’s judgment was finally reversed in December 2017, Ovintiv immediately paid the suspended production proceeds to 1776 Energy, but 1776 Energy continued to prosecute claims against Ovintiv for interest on the suspense funds and legal fees, arguing the safe harbor statute did not apply. The trial court applied the safe harbor statute and ruled in favor of Ovintiv, but the Fourth District Court of Appeals overturned that decision. The Texas Supreme Court agreed to hear the case and found the trial court had properly applied the safe harbor statute to the undisputed facts and reinstated the trial court’s final judgment in favor of Ovintiv and its predecessor.
Gray Reed Partner Jim Ormiston represented Ovintiv and Freeport-McMoRan and emphasized that the Court’s opinion reinforces the protections granted to oil and gas operators under Texas’s safe harbor statute. Notably, the Texas Oil & Gas Association also voiced its support for Ovintiv and other Texas operators by submitting an amicus brief advocating for the reversal of the court of appeals’ decision and reinstatement of the trial court’s judgment applying the safe harbor provision.
The victory was achieved through the efforts of Ormiston, who served as the lead counsel at trial and on appeal, and Gray Reed Partner David Leonard, who provided assistance during the case.
A copy of the Supreme Court’s 15-page opinion (Case No. 22-0095) is available here.
ABOUT GRAY REED
A full-service Texas law firm with offices in Dallas, Houston and Waco, Gray Reed provides legal services to companies ranging from start-up to Fortune 100 as well as high net worth individuals. Gray Reed attorneys assist clients with a myriad of legal issues including commercial litigation, corporate transactions, oil and gas, tax planning and litigation, real estate, construction, healthcare, trusts and estates, employment law, family law, intellectual property and bankruptcy. For more information, visit www.grayreed.com.