Opinion

Court: Texas Court of Appeals, 1st District (Houston)
Filed: Aug 25, 2011
Status: Published
Cited by: 0 cases
Authority: More cited than 42.2%

holding that, because several sources of information about common reservoirs and operations are available to royalty owners, including Railroad Commission records, discovery rule does not apply to claims of royalty owners for damage to common oil and gas reservoir

How later courts described this case

holding that, because several sources of information about common reservoirs and operations are available to royalty owners, including Railroad Commission records, discovery rule does not apply to claims of royalty owners for damage to common oil and gas reservoir
holding that, under doctrine of equitable estoppel, mineral interest owners could not repudiate unit designation after accepting royalties attributable to unit
holding that lessee’s authority to pool is derived solely from terms of lease, and lessee has no power to pool absent express authority
holding information disclosing lessee’s failure to continue good faith efforts to develop oil and gas lease was available from same sources recognized in HECI and Wagner & Brown , including public records

Written by the judges who cited it.

The opinion

Opinion issued August 25, 2011.

In The

Court of Appeals

For The

First District of Texas

————————————

NO. 01-09-00328-CV

———————————

Samson Lone

Star, Limited Partnership n/k/a Samson Lone Star L.L.C. , Appellant

Charles G.

Hooks III, Individually and as Independent Executor of the EState of Charles G.

Hooks, Jr., as Trustee of the Scott IRA McKeever Trust and the David Wayne

McKeever Trust, and on behalf of Chas. G. Hooks & Son, a General

Partnership;McKeever Partnership, LTD; Charles G. Hooks III and Sue Ann Hooks,

as Co-Trustees under the Will of Charles G. Hooks, Sr. , Appellees

On Appeal from the 60th District

Court

Jefferson County, Texas

Trial

Court Case No. B173008-B [1]

O P I N I O N

This is an appeal from a final judgment

against appellant Samson Lone Star, Limited Partnership n/k/a Samson Lone Star L.L.C.

(“Samson”) for more than $21 million in favor of appellees Charles G. Hooks, et

al. (“the Hooks”). Samson has a number

of oil and gas leases from landowners in Hardin and Jefferson Counties. The judgment arises from an oil and gas case

in which the Hooks brought suit against Samson with respect to three oil and

gas leases, two in Hardin County, Texas (the “95-acre Lease” and the “10-acre

Lease,” collectively the “Hardin County Leases”) and one in Jefferson County,

Texas (the “Jefferson County Lease”).

The Hooks sued Samson for breach of contract, fraud, fraudulent

concealment, statutory fraud, negligent misrepresentation, violation of the

Texas Natural Resources Code for failure to properly pay royalties, statutory

negligence, common law negligence per se, injunctive relief, and declaratory

judgment. The trial court granted Samson’s motion for

partial summary judgment on whether it had breached certain offset obligations

under the leases. It also granted the

Hooks’ motions for summary judgment on claims for additional royalties related

to their claims of “unpooling” with respect to the Hardin County Leases and

breach of the “most favored nations” clause in both Hardin County Leases and

the Jefferson County Lease.

The questions of whether

Samson committed fraud against the Hooks with respect to a well drilled within

the buffer zone of the Hooks’ Jefferson County Lease and whether it underpaid

royalties by not paying royalties for “formation production” in all three

Leases were tried to a jury. The trial

court rendered judgment on the verdict, holding Samson liable to the Hooks for

fraud and underpaid royalties, and it entered a final judgment that left intact

the summary judgment in Samson’s favor on offset obligations and the summary

judgments in favor of the Hooks on their unpooling claim and their most favored

nations clause claims. Samson has

appealed the final judgment and the Hooks have cross-appealed.

In eight issues, Samson complains that (1) there is

legally and factually insufficient evidence of common law fraud; (2) there is

legally and factually insufficient evidence of statutory fraud; (3) the statute

of limitations bars the Hooks’ fraud claims; (4) there is legally and factually

insufficient evidence to support the jury’s finding on fraud damages; (5) the

trial court erred in interpreting the phrase “formation production” in the

Hooks’ Leases as requiring Samson to pay twice for molecules of gas produced as

condensate; (6) the trial court erred in entering judgment in favor of the

Hooks for additional royalties based on the unpooling issue with respect to the

Hardin County Leases and on the most favored nations clauses in all three Leases;

(7) the trial court erred in elevating lease provisions into a permanent

injunction, and there is no evidence to support the injunction or attorney’s

fees; and (8) the trial court erred by granting post-judgment interest at the

rate of 18%, compounded annually. [2]

In a single issue, the Hooks

complain on cross-appeal that the trial court erred in rendering summary

judgment in favor of Samson on the issue of whether Samson breached certain

offset obligations in the Hooks’ leases.

We affirm the trial court’s summary judgment order in favor of Samson on

its offset obligations.

With respect to Samson’s

appeal, we reverse the final judgment of the trial court and render judgment that

the Hooks take nothing.

SAMSON’S APPEAL

BACKGROUND

1. Facts Related to the Jefferson County

Lease and the BSM 1 Unit

In 1999, the Hooks entered into the Jefferson County Lease

with Samson. This lease covered 640

acres owned by the Hooks in the Dyches survey in Jefferson County, Texas and

was bordered by Pine Island Bayou, which also serves as the county line between

Jefferson and Hardin Counties.

Article VI

of the Jefferson County Lease was a section called “Offset Obligations.” In this section, Samson covenanted to operate

the leased premises as a reasonably prudent operator would and to protect the

leased premises from drainage. Article

VI also contained specific obligations for Samson in case of potential drainage. This Article provided that if a gas well were

completed within 1,320 feet from the leased premises, then, within 90 days from

the date of the sale of first production from that well, Samson must take one

of three actions: (1) drill an offset well; (2) pay the Hooks “compensatory

royalties” — in addition to any royalties

currently due — in a sum equal to the

royalties that would be payable under the Lease on the production from the adjacent

or nearby producing well if it had been producing on the leased premises; or (3)

release the offset acreage. [3] The Jefferson County Lease did not provide

for pooling.

In April 2000, Samson began drilling a gas well, the Black

Stone Minerals No. 1 (the “BSM 1 well”), on a tract adjacent to the Hooks’ 640-acre

Jefferson County Lease. This adjacent

tract was located in Hardin County. The

surface drillsite was outside the 1,320-foot buffer zone around the Jefferson

County Lease that triggered Samson’s offset obligations under Article VI(A) of

the Lease. However, the BSM 1 was a

directional well that slanted away from the surface drillsite. Originally, the well was planned with a bottom

hole location 1,080 feet from the Hooks’ lease line, a location within the

1,320-foot buffer zone. This proposed

well location was reflected on a plat titled “Proposed Well Location [BSM]1

Walker Pettitt League, A-43, Hardin County, Texas,” which was prepared and

signed by a third-party surveyor on March 22, 2000. The surveyor certified that “this is a true

and correct plat based on a ground survey made under my supervision on March

22, 2000.” This plat was filed with the

Railroad Commission of Texas (“Railroad Commission”).

The March 22, 2000 plat showed a

704.00 acre gas pooling unit designated by Samson that ran along Pine Island Bayou,

the Jefferson County line, on the east.

This line was also the western boundary of the tract containing the

Hooks’ Jefferson County Lease. The Hooks

and their co-owners of the tract on which their Jefferson County Lease was

located were not named as lessors in the table shown on the plat of the

designated unit. An arrow shown on the

plat pointed to the location of the proposed bottom hole about at the beginning

of a line that ran to the eastern line of the unit at Pine Island Bayou. Notations on the plat stated:

The

Proposed Surface Location is:

630 ′

FSL x 1600 ′ FEL Survey

2750 ′ + Scaled FWL x 3834 ′

FNL Unit.

The

Proposed Bottom Hole Location is:

330 ′

FSL x 330 ′ FEL Survey

870 ′ + Scaled FSL x 1080 ′ + Scaled ′

FEL Unit.

It is undisputed that “FSL”

meant “From the Southern Line” of the Walker Pettitt Survey, “FNL” meant “From

the Northern Line” of the Survey, and “FEL” meant “From the Eastern Line” of

the Survey, which was the Jefferson County line at Pine Island Bayou. Thus, in this notation, the surface location

of the BSM 1 well was 1,600 feet from the eastern line of the survey, and the

proposed bottom hole location was about 1,080 feet from the eastern line, which

marked the western line of the Hooks’ Jefferson County Lease. The proposed bottom hole was therefore within

the 1,320-foot buffer zone for the Hooks’ Lease.

Although

the March 22, 2000 plat of the designated BSM 1 unit estimated the location of

the proposed bottom hole location of the BSM 1 well, the exact bottom hole

location of the well, following drilling, could only be ascertained from a

directional survey. This survey was

completed in July 2000 and was also filed with the Railroad Commission. Both parties agree that the survey showed the

BSM 1 well to be bottomed 1,184 feet from the Jefferson County Lease, within

the 1,320-foot buffer.

The BSM 1 well

was completed in August 2000, and the first gas sales occurred in late October

2000. Because the bottom hole of the

well was within the 1,320-foot buffer zone of the Jefferson County Lease, the

first gas sales triggered Samson’s offset obligations under the terms of the

Lease. The Hooks complain, and the jury

found, however, that Samson did not follow the provisions in Article VI(A) of

the Hooks’ Lease which provided that, within 90 days of the first sale of gas

from a well within its buffer zone, Samson must drill an offset well, pay the Hooks

compensatory royalties, or release the offset acreage. Instead, the jury found that Samson attempted

to avoid those obligations by seeking to pool the Hooks’ interest with those of

other mineral owners despite the lack of pooling authority in the Jefferson

County Lease while concealing the bottom hole location of the BSM 1 well.

In December

2000, Samson filed a P-12 “Pooling Authority” form with the Railroad Commission

that reflected an amended pooling unit. By

letter, Samson informed the Commission that a portion of the 704 acres in the

original BSM 1 unit was to be put into a separate 308.41-acre pooling unit for

the proposed Black Stone Minerals No. A-1 well (“BSM A-1 well”). Attached to the letter was a “Certificate of

Pooling Authority,” which represented the Broussard tract, on which the

Jefferson County Lease lay, as one of the tracts whose mineral-rights owners either

had given Samson pooling authority under an instrument currently in effect or

had pooled their interests into the amended BSM 1 unit. Also attached was a plat of a revised 704-acre

pooling unit dated November 16, 2000 and certified by Samson’s land man, Glenn Lanoue.

The arrows

pointing to the surface and bottom hole locations on the November 16 plat of

the redesignated BSM 1 unit were the same as those pointing to the proposed

surface and bottom hole locations on the original March 22, 2000 plat of the

unit. However, the acreage of the unit had

been changed to show a different 704-acre BSM 1 unit from that originally filed

with the Railroad Commission. This unit,

unlike the previously designated BSM 1 unit, extended beyond the eastern line of

Pine Island Bayou into Jefferson County.

The certificate, signed by Lanoue, stated that “this is a true and

correct plat based on the best of my knowledge November 16, 2000.”

On February

15, 2001, Samson sent the Hooks a letter offering to pool 50 acres covered by

the Hooks’ Jefferson County Lease into the redesignated gas pooling unit for

the BSM 1 well. Attached to the letter

was a copy of the revised plat Samson had filed with the Railroad Commission in

December 2000.

On February

20, 2001, before accepting Samson’s offer to pool — which would require amendment of Article VI of the Jefferson County Lease

to permit pooling — Charles

Hooks, an attorney who had participated in a number of oil and gas deals,

called Lanoue and sought more information.

Charles Hooks inquired about the well’s location and about how his

property fit in the unit. Lanoue told

him that the well was about 1,500 feet away from Pine Island Bayou, the

boundary between Hardin and Jefferson Counties and the western line of the Hooks’

Jefferson County Lease. Hooks requested

a plat showing where his acreage would lie within the proposed configuration of

the unit.

That same

day, Lanoue sent Hooks the same scaled plat of the redesignated pooling unit that

Samson had filed with the Railroad Commission in December 2000, except that

this version highlighted the configuration of the Hooks’ acreage on the eastern

side of the lease between Pine Island Bayou and the eastern line of the

reconfigured pooling unit. This plat was

certified by Lanoue as “a true and correct plat based on the best of my

knowledge December 28, 2000.”

A number of changes had been made to

the original March 28, 2000 plat to reflect the redesignated BSM 1 unit. The plat of the unit had been changed to

reflect a substantially reconfigured unit with different boundaries extending

further west and also further east into Jefferson County, encompassing part of

the Broussard tract on the east that had not been included in the original unit

designation. The plat had been

highlighted to show the location of the Hooks’ 50 acres. East/west coordinates of the bottom hole of

the BSM 1 well had been changed from those of the proposed bottom hole on the

March 2000 plat. At trial, Lanoue

testified that he changed these coordinates with a ruler.

Like the March 2000 plat, the plat of

the redesignated BSM 1 unit contained the arrow pointing to the location of the

bottom hole, but it gave slightly changed coordinates. And, instead of a line running from the

proposed bottom hole location and showing + 1,080 feet to the eastern

line of the unit at Pine Island Bayou, the plat showed a different line to the

bayou with an undesignated starting point. It also showed an eastern border of the unit

beyond the bayou and encompassing a portion of the Hooks’ Lease. Above the line was the designation “ + 1400 ′ .”

An arrow stating “BHL” and giving the well coordinates pointed to a

point on the line about one quarter of the way from the western starting point

of the line to the eastern end of the line at the bayou. Thus, if the designation “ + 1400 ′ ” were interpreted as the distance

from the bottom hole to the bayou, the bottom hole of the BSM 1 well would be

outside the 1,320 foot buffer zone for the

Jefferson County Lease. If the “ + 1400 ′ ” designation were interpreted as

the distance from the undesignated starting point of the line to the bayou and

the arrow one-quarter of the way along it were interpreted as the bottom hole

location, the bottom hole of the well would be within the buffer zone of the

Hooks’ Lease, triggering Samson’s offset obligations.

In addition, the plat stated:

The

Bottom Hole Location is:

290 ′

FSL x 740 ′ FEL Survey

500 ′

Scaled FNL x 1400 ′ + Scaled ′

FEL Unit.

This language in the plat

thus expressly stated that the bottom hole of the BSM 1 well was located about

1,400 feet from the eastern line of the redesignated unit, which encompassed

the Hooks’ 50 acres from their Jefferson County Lease. According to this notation, the bottom hole

of the BSM 1 well was inside the buffer zone for the Hooks’ Lease.

Lanoue testified at trial that he added the notation that

showed the bottom hole to be + 1,400 feet from the eastern line of the

unit in August 2000 to reflect the newly shaped unit. He also testified that he got the notation

“740 feet from the east line and 290 feet from the south line” “from myself.” He did not go to the directional survey which

had been previously completed to determine the exact location of the bottom

hole. However, he intended the numbers

to be “[a]s accurate as a land guy is using a ruler on a scaled piece of paper

that might not even be to scale.”

Hooks

testified at trial that Lanoue orally told him that the well was 1,500 feet

from Pine Island Bayou. He then looked

at the plat and concluded that the bottom hole location was approximately 1,400

feet west of Pine Island Bayou and thus outside the line that would have

triggered the offset provisions in the Jefferson County Lease. He made no other inquiries regarding the plat

or the bottom hole of the well, and he did not check the records filed with the

Railroad Commission to determine the exact location of the bottom hole.

After making the pooling offer to the Hooks, Lanoue filed

paperwork in the county’s real property records in February 2001 showing the

Hooks as participating in the pool for the BSM 1 unit. However, the Hooks did not actually consent

to pool the 50 acres from the Jefferson County Lease into the BSM 1 unit until

May 25, 2001, and they conditioned their assent on a formal amendment to the

lease which they were to prepare and submit to Samson. The Hooks did not prepare the formal

amendment, however, and the parties never executed such an amendment. Instead, the Hooks agreed to a division order

setting out their percentage distribution of the unit’s proceeds, which stated

that Samson would pay the Hooks royalties based on a stated percentage of their

acreage in the unit to the entire acreage of the BSM 1 unit unless notified

otherwise in writing.

After the Hooks agreed to be included in the BSM 1 unit,

Samson sent royalty checks to them for their unit interest continuing through

the time of trial, and the Hooks cashed the royalty checks. However, the royalty checks did not include the

additional compensatory royalties as calculated under the terms of Article VI

of Hooks’ Lease for a well drilled within the 1,320-foot buffer zone of the Hooks’

Jefferson County Lease.

After the

Hooks agreed to pool 50 acres of their Jefferson County Lease into the BSM 1

unit, Samson drilled a second well, the Joyce DuJay No. 1 well (“DuJay 1 well”),

within the 1,320-foot buffer zone of the Hooks’ Jefferson County Lease. That well was completed in January 2002 and

made part of another pooling unit, the DuJay 1 unit, in which the Hooks also

participated and from which they received royalties. This well was offset by the BSM 1 unit. Hooks testified that he was not defrauded with

respect to the DuJay 1 unit.

Facts

Related to the Hardin County Leases and the Hooks’ “Unpooling” Claim

In addition

to their Jefferson County Lease, the Hooks also owned two leases in Hardin

County near the BSM 1 well, the 95-acre and 10-acre Hardin County Leases. Unlike the Hooks’ Jefferson County Lease, these

Leases did provide for pooling in terms that were essentially the same with

respect to the manner and methods of pooling.

The

Hardin County Leases both contained language calling for an instrument

“identifying and describing the pooled acreage” and stating that a “pooled unit

shall become effective on the date such instrument or instruments are so filed

for record.” Article V(E) of the pooling

provision in each Lease also stated that production from any part of a pooled

unit that included the leased premises was considered production from the

leased premises “regardless of whether . . . such production was secured before

or after the date of this lease or the date of the instrument designating the

pooled unit.” The 95-acre Lease provided in Article V(E) as follows:

E. Lessee [Samson], at its option, is hereby

given the right and power in its discretion to pool or combine, as to any one

or more formations, the land covered by this Lease or any portion of said land,

insofar only as gas or gas condensate rights are concerned . . . with other

land, lease or leases in the immediate vicinity thereof, except to the extent

and in the manner hereinafter stipulated.

With respect to any such unit so formed, Lessee shall execute in writing an instrument or instruments

identifying and describing the pooled acreage, and file same for recording in

the office of the County Clerk in Hardin County, Texas; and the pooled unit

shall become effective on the date such instrument or instruments are so filed

for record. Notwithstanding anything

hereof to the contrary, pooled units

created hereunder and comprising all or part of the herein leased premises shall not exceed the maximum acreage figures

permitted for all production units of oil or gas wells completed at certain

depths under Article V. hereof unless the Railroad Commission of Texas or

any governmental authority having and asserting jurisdiction over the subject

matter thereof prescribes for the

drilling or operation of a well at a regular location, or permits for the

obtaining of the maximum allowable from any well to be drilled, drilling, or

already drilled, larger pooled units than any of those herein permitted,

then any such pooled unit may be established or enlarged to conform to the size

either required of a well or permitted for the obtaining of the maximum

allowable. For any well drilled on and

completed at depths beneath the surface of a tract covered by this lease there

shall be no pooling with other lands, unless such tract is insufficient, due to

either its lack of size or prior unitization hereunder, to comprise the maximum

acreage figures permitted hereunder in which case all of said tract (95 acres

more or less) or the then un-unitized portion of same shall be so pooled; and

Lessee may include in such pooled unit such other acreage as may be available

to comprise the maximum acreage figures permitted under the terms of this lease. For a

well drilled on or completed at depths beneath the surface of lands other than

the herein leased premises, not less than all (100%) of the lands (95 acres

more or less) or the then un-unitized portion of same shall be so pooled; and

Lessee may include in such pooled unit such other acreage as may be available

to comprise the maximum acreage figures permitted under the terms of this

lease.

Operations for drilling on

or production of gas from any part of the pooled unit which includes all or a portion

of the Leased Premises, regardless of whether such operations for drilling were

commenced or such production was secured before or after the date of this lease

or the date of the instrument designating the pooled unit, shall be considered

as operations for drilling on or production of gas from the Leased Premises,

whether or not the well or wells be located on the Leased Premises, and the

entire acreage constituting such unit or units shall be treated for all purposes, except the payment of royalties on

production from the pooled unit, as if the same were included in this Lease .

The above right and power to pool may be exercised at any time and from time to

time and before or after a well has been drilled, or while a well is being

drilled. Lessee may vacate any unit formed by it hereunder by instrument in

writing filed for record in said county at any time when there is no unitized

substance being produced from such unit .

The pooling for gas hereunder by Lessee shall also pool and unitize all

liquid gas, and the royalty interest payable to Lessor thereon shall be

computed the same as on gas. For the

purpose of computing the royalties to which owners of royalties shall be

entitled on production from each production unit , there shall be allocated to the applicable separate tract acreage

included in such production unit a pro rata portion of the production produced

from such production unit . Such

allocation shall be on an acreage basis; that is to say, there shall be

allocated to the applicable separate tract acreage within the unit that pro

rata portion of the production produced from the production unit which the

number of surface acres covered by such separate tract and included in the

production unit bears to the total number of surface acres included in the

production unit, commencing with the date of first production from the

production unit.

(Emphasis added.)

Early in 2001, Samson drilled the BSM

A-1 well on Samson’s own lease in Hardin County. The mineral interests underlying this lease

were owned 87.5% by Black Stone Minerals and 12.5% by FirnBank as cotenants.

Samson did not have the contractual

authority to pool under its leases with either Black Stone Minerals or

FirnBank. Samson therefore negotiated

with the leaseholders for such a right and concluded that both of the lessors

were in agreement. Accordingly, on March

12, 2001, Samson filed a Unit Designation for a 704-acre unit called the Black

Stone Minerals “A” No. 1 Gas Unit (the “BSM A-1 unit”). This unit designation unitized the Black

Stone Minerals/FirnBank lease, as well as the Hooks’ 10-acre and 95-acre Hardin

County Leases and other tracts, including leases beneath Pine Island Bayou

owned by the State. The designation

reflected that it was effective as of the date of first production, and it included

a list of the leases pooled, including the Hardin County Leases. The designation for the BSM A-1 unit included

gas production at all depths between 6,000 and 13,800 feet.

FirnBank consented to be pooled into

the BSM A-1 Unit in May 2001. Samson

also obtained written consent from the Hooks to pool their lease into the BSM

A-1 unit. In addition, it obtained the

agreement of the Texas General Land Office and the School Land Board

(collectively, the “State of Texas”), who owned adjacent land, to pool that

land into the unit. However, Black Stone

Minerals, the 87.5% owner of the mineral interests underlying the drillsite, declined

to consent.

Samson

drilled and completed the BSM A-1 well, and it began producing in June 2001

from the depth range of the BSM A-1 unit designated by Samson, specifically at

the horizon from 12,304 to 12,332 feet.

In December 2001, Samson finished

another gas well, the DuJay 1 well. The

DuJay 1 well produced from some of the same land designated to the BSM A-1 unit,

but it reached from 13,150 to 13,176 feet — lower strata than the BSM A-1 well. The DuJay 1 well was within the area and

depth limits of the BSM A-1 unit. The DuJay

1 well began producing in January 2002.

February 2002, after failing to receive Black Stone Minerals’ consent to the

BSM A-1 unit, Samson executed and recorded a designation for a new unit, the

Joyce DuJay No. 1 Gas unit (“DuJay 1 unit”) that recited an effective date as

of first production of the DuJay 1 well.

Samson called the designation of the DuJay 1 well an “amendment” of the

704-acre BSM A-1 unit designation, but it designated a new, smaller, 571-acre

unit with a different name, different leases, different depths and different

boundaries from the BSM A-1 unit. The DuJay

1 unit included some of the deeper strata of the originally designated BSM A-1

unit, but it excluded the horizon from which the BSM A-1 well was producing at

12,304 to 12,332 feet. Instead, the

designated DuJay 1 unit pooled its leases as to gas well production from 12,800

feet and deeper, including some already-pooled depths carved out of the BSM A-1

unit (12,400–13,800 feet) and deeper strata (below 13,800 feet). Because of its depth limitations, the DuJay 1

unit included the DuJay 1 well, but not the shallower-completed BSM A-1 well. The designated acreage excluded most of the

Black Stone/FirnBank lease, but it included the Hooks’ Hardin County Leases and

the State’s leases.

Samson

did not get consent from the Hooks to vacate or amend the BSM A-1 unit or to

“unpool” their interests from the BSM A-1 unit or well. Rather, it informed the Hooks that the BSM

A-1 unit had been amended and the unit name changed. After the BSM A-1 unit was amended,

reconstituted, and renamed the DuJay 1 unit, Samson paid, and the Hooks

accepted, royalty payments from pooled production from the DuJay 1 well. Thereafter, the BSM A-1 well was produced as

a lease well and was not included in any unit. Samson did not pay the Hooks royalties on the

BSM A-1 well.

Subsequently,

Samson drilled another DuJay well (the “DuJay A-1 well”) and created a separate

pooling unit for that well. The DuJay

A-1 unit differed from the DuJay 1 unit by depth limitation and acreage. The DuJay A-1 well began producing on

September 25, 2002. However, Samson did

not file the DuJay A-1 unit designation until July 2003. The Hardin County Leases were likewise pooled

into the DuJay A-1 unit, and the Hooks accepted royalties on the production

from that unit.

The

Hardin County Leases also contained a “most favored nation” clause. This clause provided that, under certain

circumstances, the royalties payable to the Hooks must be elevated to match the

highest royalty payable to Samson’s other lessors.

Procedural History

In August

2004, several mineral-rights owners who had leased to Samson filed a suit against

Samson styled Joyce DuJay Lee v. Samson

Lone Star . The plaintiffs, who did

not include the Hooks, complained about pooling issues unrelated to the BSM 1

well. In December 2004, other

landowners, also not including the Hooks, filed a second action, styled Thomas Klorer et al. v. Samson , complaining

about the same issues. In August 2005,

these two actions were consolidated.

On his

birthday in November 2006, Charles Hooks, as an oil and gas attorney, attended

a seminar for oil and gas attorneys.

There, he met an attorney who told him he was handling the Klorer and Lee cases against Samson.

November 16, 2006, the Hooks were added to the consolidated suit in a Fifth

Amended Petition. This petition alleged

against Samson various breaches of contract and common law and statutory

negligence related to both the Hooks’ Jefferson County Lease and their two Hardin

County Leases. Among other things, t he Hooks claimed Samson had

improperly unpooled the BSM A-1 unit, and they sued to obtain all royalties

they would have received from that unit as if all the lessors, including Black

Stone Minerals, had agreed to pool, to be added to all royalties they received

from the DuJay 1 and DuJay A-1 units (the “unpooling claim”). The

Hooks also asked for a declaratory judgment regarding the construction of the

“most favored nation” clauses in their Leases, which they argued was

triggered by the royalty paid to the State of Texas under a pooling agreement

with Samson that was higher than the royalty due to the Hooks. Finally,

they sought the payment of royalties on “formation production” under the terms

of all three Leases. T he Hooks did not, however, plead any fraud

claims at that time.

The Hooks added

their fraud, fraudulent inducement, and statutory fraud claims in a Sixth

Amended Petition, filed on May 7, 2007. The

Hooks alleged in the alternative (1) that their Jefferson County Lease had

never been a part of the BSM 1 unit because no agreement to amend their lease

to allow pooling was entered, and, therefore, they were entitled to damages

under the Lease for the loss of their rights to require Samson either to drill

an offset well, pay them compensatory royalties, or release their acreage, and

(2) that Samson had made false representations as to the configuration of the BSM

1 unit and the location of the BSM 1 well to induce the Hooks to agree to amend

the Jefferson County Lease to allow a portion of it to be pooled in the BSM 1

well and unit (the “offset obligations claim”).

They contended that Samson had represented “that the [BSM 1] (gas) well

was more than 1,320 ′ from the

nearest lease line of the Hooks Jefferson County Lease” so that its offset

obligations were not triggered under the Lease.

The Hooks claimed that the representations were intended to save Samson

from having to pay them the substantially greater compensatory royalties that

would have been payable under the terms of the Lease for infringement of the 1,320-foot

buffer zone. The Hooks contended

alternatively that, if their interests were pooled, they were entitled to

damages at least equal to the difference between the value they would have

received from Samson’s compliance with the terms of the Lease and the royalties

they actually received.

September 2007, the trial court severed the consolidated action against Samson into

three different actions, one of which was the Hooks’ action against Samson for

fraud and breach of contract. [4]

Subsequently, the Hooks moved for partial summary judgment

on several of their claims based on the terms of their leases. The Hooks moved for summary judgment on the

unpooling claim, claiming

that Samson did not have authority to vacate the BSM A-1 unit into which their

Hardin County Leases were pooled and that, therefore, Samson had breached its

lease contract by failing to pay them royalties on the BSM A-1 well. The Hooks also moved for summary judgment on

their most-favored-nations claim, formation production claim, and offset

claims. They argued that Samson failed

to pay them “royalties based on a greater ‘Most Favored Nations’ rate and

compensatory royalties on certain offset encroaching wells.”

Samson moved for partial summary

judgment on the offset obligations provision, on the formation production

claims, and on the most favored nation claim.

Samson also moved for summary judgment on the Hooks’ unpooling claim on

the basis of limitations.

The trial court granted the Hooks’

motion and denied Samson’s motion on the unpooling claim. It assessed damages of $766,626.85 against

Samson on the Hooks’ unpooling claim. The

trial court also granted the Hooks’ summary judgment motion on their claim for

breach of the most favored nations clause in their Hardin County Leases and

awarded $848,854.01 in damages.

The trial

court granted Samson’s motion on the offset obligations provision and denied

the Hooks’ corresponding motions. The

trial court also disposed of some other contract claims by other partial

summary judgment motions.

In 2008, the

case went to trial solely on the Hooks’ fraud claims and the formation

production claims. These included the

Hooks’ claims that Samson’s land man, Lanoue, had made misrepresentations to

them to get them to allow Samson to add their 50 acres subject to the Jefferson

County Lease to the BSM 1 pooling unit for the BSM 1 well, which was within the

1,320-foot buffer zone for the Lease.

The Hooks contended Samson made these misrepresentations to avoid

abiding by the terms of Article VI(A) of the Jefferson County Lease, which

would have required Samson to drill an offset well, release their acreage, or

pay them compensatory royalties, and, therefore, they were entitled to damages.

The Hooks also claimed that they were

entitled to additional royalties under the formation production clauses in their

Jefferson County and Hardin County Leases.

The jury

answered “yes” to the questions of whether Samson committed fraud and statutory

fraud with respect to the Hooks’ claims regarding the BSM 1 well. It assessed damages against Samson for fraud

in the amount of $20,081,638.07. The

jury further found that Samson’s failure to pay royalties based on formation

production resulted in underpayment of royalties from the Hooks’ Leases. The jury found that, in the exercise of

reasonable diligence, the Hooks should have discovered Samson’s fraud by

Charles “Hook’s Birthday April 2007.” It

did not respond, however, to the questions asking for a finding, by clear and

convincing evidence, that the harm to the Hooks resulted from fraud or that Samson

had actual awareness of the falsity of the representation or promise that the

jury had found to be fraud. [5] Therefore, it did not award exemplary

damages. The jury also did not respond

to the question requesting it to “find beyond a reasonable doubt that Samson

secured execution by the Hooks of a document by deception” and that the

property had a value of $1,500 or more. [6]

Finally,

the jury found that Samson’s failure to pay royalties based on formation

production resulted in underpayment of royalties on all three of the Hooks’ Leases.

The trial

court entered final judgment on the jury’s verdict, awarding the Hooks

$20,081,638.07 for damages proximately caused by Samson’s fraud with respect to

the BSM 1 well. The final judgment also

reaffirmed and incorporated the trial court’s previous summary judgment rulings

in favor of the Hooks. In addition to

the fraud award, the judgment awarded the Hooks $766,626.85 in damages for the “unpooling” claim

related to BSM A-1 well, $848,854.01 in damages for breach of the Leases’ most

favored nations clause, and $52,257.22 in damages related to ad valorem taxes. Finally, the final judgment included an award

of attorney’s fees and pre- and post-judgment interest in favor of the Hooks.

4. Claims

on Appeal

Samson has

appealed the judgment on the trial verdict and the partial summary judgments entered

against it, and the Hooks have cross-appealed the partial summary judgments

entered against them, all of which were incorporated in the final judgment.

Samson

contends on appeal that the trial court erred in entering judgment on the

jury’s finding that it committed fraud with respect to the Hooks’ Jefferson

County Lease and that it withheld royalties on formation production with

respect to all three of the Hooks’ claims.

It also contends that the trial court erred in granting the Hooks’

motion for summary judgment on their unpooling claim with respect to the BSM

A-1 well, in granting summary judgment on the Hooks’ claim for royalties under

the most favored nations clause in their Jefferson and Hardin County Leases,

and in denying its own motion for summary judgment on those claims. Finally, Samson contends that the trial court

erred by granting a permanent injunction in its final judgment requiring Samson

to fulfill certain contract provisions on pain of contempt of court, that it

erred in awarding attorney’s fees to the Hooks, and that it erred in awarding

the Hooks 18% post-judgment interest compounded annually.

The

Hooks contend on cross-appeal that the trial court erred in ruling in Samson’s

favor on their claims that Samson breached the “Offset Obligations” clause in

the Hardin County Leases.

DISCUSSION

1. The Trial Court’s Judgment on the Hooks’ Fraud Claims

with Respect to the Jefferson County Lease

its third issue, Samson contends (1) that there is legally and factually

insufficient evidence to support the jury’s finding that the Hooks could not

have discovered their fraud claims until April 2007 and (2) that the statute of

limitations bars the Hooks’ claim for fraud, fraudulent inducement, and statutory

fraud with respect to the Jefferson County Lease.

To prove fraud, a plaintiff must show

that the defendant made (1) a material misrepresentation (2) that was either

known to be false when made or was asserted without knowledge of its truth (3)

which was intended to be relied upon (4) which was indeed relied upon and (5)

which caused injury. Dow Chem. Co. v. Francis , 46 S.W.3d 237,

242 (Tex. 2001). To prove fraudulent

inducement, these same elements of fraud must be established as they relate to

a contract. Coastal Bank SSB v. Chase Bank of Tex., N.A. , 135 S.W.3d 840, 843

(Tex. App.—Houston [1st Dist.] 2004, no pet.).

The statute of limitations for fraud is four years. Tex.

Civ. Prac. & Rem. Code Ann. §

16.004 (Vernon 2002).

“Statutes of limitations are

intended to compel plaintiffs to assert their claims ‘within a reasonable

period of time while the evidence is fresh in the minds of the parties and

witnesses.’” Wagner & Brown, Ltd.

v. Horwood , 58 S.W.3d 732, 734 (Tex. 2001) (quoting Computer Assocs. Int’l,

Inc. v. Altai, Inc ., 918 S.W.2d 453, 455 (Tex. 1996)). “As a general rule, a cause of action accrues

and the statute of limitations begins to run when facts come into existence

that authorize a party to seek a judicial remedy.” Provident Life & Accident Ins. Co. v.

Knott , 128 S.W.3d 211, 221 (Tex. 2003).

In most circumstances, “a cause of action accrues when a wrongful act

causes a legal injury, regardless of when the plaintiff learns of that injury

or if all resulting damages have yet to occur.”

Id . However, the discovery

rule exception to the statute of limitations operates to defer accrual of a

cause of action until the plaintiff knew or, by exercising reasonable

diligence, should have known of the facts giving rise to the cause of action. Computer

Assocs ., 918 S.W.2d at 455 .

The

application of the discovery rule is permitted only in instances in which “the

nature of the injury incurred is inherently undiscoverable and the evidence of

injury is objectively verifiable.” BP Am. Prod. Co. v. Marshall , 342 S.W.3d

59 , 65–66 (Tex. 2011); Computer Assocs. ,

918 S.W.2d at 456 . “An injury is

inherently undiscoverable if it is, by its nature, unlikely to be discovered

within the prescribed limitations period despite due diligence.” Wagner & Brown , 58 S.W.3d at

734–35; see Marshall , 342 S.W.3d at

66 . “The requirement of inherent

undiscoverability recognizes that the discovery rule exception should be

permitted only in circumstances where ‘it is difficult for the injured party to

learn of the negligent act or omission.’”

Computer Assocs ., 918 S.W.2d at 456 (quoting Willis v.

Maverick , 760 S.W.2d 642, 645 (Tex. 1988)).

“Recognizing the social benefit in granting repose after a reasonable

time,” the Texas Supreme Court has “described the rule as a ‘very limited

exception to statutes of limitations.’” Marshall , 342 S.W.3d at 66 (quoting Wagner

& Brown , 58 S.W.3d at 734 ).

The

discovery rule “categorically does not apply to defer the accrual of royalty

owners’ claims for underpayments” or the accrual of claims arising from a lesseee’s

failure to continue good faith efforts to develop an oil and gas lease, because

royalty owners can timely discover such injuries through the exercise of due

diligence. Marshall , 342 S.W.3d at 66 ; Wagner & Brown , 58 S.W.3d at

737 . Even when information that would

have revealed the injury is not available from public records, it may nevertheless

be “available from several other sources, including the lessee.” Marshall ,

342 S.W.3d at 66 (holding information disclosing lessee’s failure to continue good

faith efforts to develop oil and gas lease was available from same sources

recognized in HECI and Wagner

& Brown , including public records); see

HECI Exploration Co. v. Neel , 982

S.W.2d 881, 886 (Tex. 1998) (holding that, because several sources of

information about common reservoirs and operations are available to royalty

owners, including Railroad Commission records, discovery rule does not apply to

claims of royalty owners for damage to common oil and gas reservoir).

The Hooks

claimed, and the jury found, that in making their determination to agree to the

pooling of 50 acres of their Jefferson County Lease in the BSM 1 unit, they

relied solely on Lanoue’s oral statement that the BSM 1 well was about 1,500

feet from their Lease line and on Charles Hooks’ interpretation of the plat of

the BSM 1 unit provided to him in response to his conversation with Lanoue on

February 15, 2001. They also contended,

and the jury found, that they did not discover that the bottom hole of the BSM

1 well was within their 1,320-foot buffer zone, entitling them to additional

compensation royalties, until well within the limitations period as extended by

application of the discovery rule. [7] Specifically, the Hooks claimed that they

relied on Charles Hooks’ interpretation of the designation “ + 1400 ′ ” on the line on the plat of the

redesignated unit drawn from an undesignated point to Pine Island Bayou as

meaning that the bottom hole of the BSM 1 well was about 1,400 feet, or more

than 1,320 feet, from their Lease, and, therefore, outside the buffer zone. They did not inquire into seemingly

contradictory information in that document showing an arrow pointing to the

bottom hole of the BSM 1 well about one-quarter of the way along the 1,400-foot

line from an undesignated point to Pine Island Bayou, the western line of their

Jefferson County Lease. Nor did they

inquire into the notation that the bottom hole was about 1,400 feet “FEL unit,”

i.e., from the eastern line of the reconfigured BSM 1 unit, which included 50

acres of their Jefferson County Lease.

Both of these notations would indicate that the bottom hole of the BSM 1

well was clearly within the Lease’s 1,320-foot buffer zone.

Although Charles

Hooks was an oil and gas attorney and had participated in more than 100 oil and

gas leases at the time of trial, and although he knew that Lanoue had certified

the plat furnished to Hooks as being made on his own knowledge in December

2000, the Hooks never sought to investigate the results of the directional

survey filed with the Railroad Commission in July 2000, which showed the exact

location of the bottom hole. Nor did

they conduct due diligence in seeking the plat of the originally designated BSM

1 unit certified by the surveyor in March 2000, showing the proposed bottom

hole of the BSM 1 well, which was likewise filed with the Railroad Commission

in July 2000. Both of these publicly

available documents would have shown that the well was proposed to be and was

bottomed within the 1,320-foot buffer zone of their Jefferson County Lease,

triggering Samson’s obligations to them under Article VI(A) of the Lease. Any inquiry into the records available from

the lessee, Samson, or from the Railroad Commission would have shown the Hooks

the actual location of the BSM 1 well’s bottom hole in February 2001, when

pooling was first proposed to them. The

Hooks’ fraud claims were not filed until May 2007, more than six years later.

We conclude

that, under Marshall , Wagner & Brown , and HECI , the nature of the Hooks’ injury

was not inherently undiscoverable. The

discovery rule, therefore, does not apply to the Hooks’ fraud, fraudulent

inducement, and statutory fraud claims. See Marshall , 342 S.W.3d at 65–66; Wagner & Brown , 58 S.W.3d at 737 ; HECI Exploration Co ., 982 S.W.2d at 886 . We hold that those claims are barred by

limitations as a matter of law.

We sustain

Samson’s third issue.

Summary

Judgments Entered Against Samson on the Hardin County Leases

(a) Samson’s “Unpooling” of the BSM A-1 Unit

In its sixth issue, Samson challenges the trial

court’s summary judgment awarding the Hooks damages on their claim for

royalties from the BSM A-1 unit due to Samson’s improper unpooling of that unit. Samson contends that because Black Stone

Minerals, the 87.5% owner of the mineral rights on the drillsite tract

(FirnBank being the owner of 12.5%), did not consent to pooling, the “essential

purpose for forming that unit had failed” and the BSM A-1 unit as originally

designated was not formed. Thus, the

amendment of the unit to exclude the non-consenting drillsite mineral owner,

Black Stone Minerals, was justified. Samson

contends that after the BSM A-1 unit was amended and renamed the DuJay 1 unit,

the Hooks accepted royalty payments from production on both DuJay units, which

gave the Hooks a higher percentage of the production than they would have

received under the BSM A-1 unit. Samson

argues that, by accepting these royalty payments, the Hooks accepted the

amendment to the BSM A-1 unit. Alternatively,

it argues that if the amendment to the BSM A-1 unit was improper, the BSM A-1

unit still exists and the Hooks should have been paid in accordance with their

interests in that unit, not their interest in the two DuJay units, which were

improperly formed. Finally, it argues

that, if the BSM A-1 unit still exists, the extent of the unit must be limited

to FirnBank’s 12.5% interest in the drillsite tract because only FirnBank

consented to pool its undivided interest in the gas produced from the BSM A-1

well.

An oil and gas lease is a contract and is therefore

interpreted as such. Tittizer v. Union Gas Corp ., 171 S.W.3d

857, 860 (Tex. 2005). When construing a

contract, the primary goal of the courts is to give effect to the parties’

written expression of their intent. PG&E Gas Transmission v. City of

Edinburg , 59 S.W.3d 225, 227 (Tex. App.—Corpus Christi 2001, no pet.). The courts will enforce the intentions of the

parties to an unambiguous oil and gas lease as expressed in the lease. Tittizer ,

171 SW.3d at 860 . In determining the

agreement, the court examines all parts of the contract and the circumstances

surrounding its formulation. Columbia Gas Transmission Corp. v. New Ulm

Gas, Ltd ., 940 S.W.2d 587, 591 (Tex. 1996); PG&E Gas Transmission , 59 S.W.3d at 227–28.

Regulations of the Railroad Commission contain spacing

requirements that limit the number of oil and gas wells and locate them in particular

positions to maximize recovery. Browning Oil Co.v. Luecke , 38 S.W.3d

625, 633 (Tex. App.—Austin 2000, pet. denied).

These regulations prescribe minimum distances between a proposed well

and other wells drilled in the same area and between wells and property lines. Id.

Acreage is assigned to a well in

accordance in with spacing regulations to form a drilling unit before the well

may be drilled. Id. After the well is

drilled, density rules require the assignment of a specified number of acres to

the well so that the wells in a specific field may be drained efficiently. Id. Frequently, when a tract is too small to

satisfy state spacing or density requirements, lessees will pool acreage from

different leased tracts into a single unit.

Id. at 634 . “Operations anywhere within the unit are

treated as if they occurred on all the land within the unit, and production

from a well on the pooled unit is treated as occurring on all the tracts pooled

into the unit.” Id.

With respect to royalty interest owners, “pooling

results in ‘a cross-conveyance of interests in land by agreement among the

participating parties, each of whom obtains an undivided joint ownership in the

royalty earned from the land in the “block” created by the agreement’” and each

of whom receives royalty on the basis of the percentage of that party’s acreage

to the whole block. Id. (quoting MCZ, Inc. v.

Triolo , 708 S.W.2d 49 , 52–53 (Tex. App.—Houston [1st Dist.] 1986, writ

ref’d n.r.e.)). In other words, pooling

effects a cross-conveyance among the owners of the minerals under the various

tracts in the pool so that all cotenants own undivided interests under the

unitized tract in the proportion that their contribution bears to the unitized

tract. Montgomery v. Rittersbacher , 424 S.W.2d

210, 213 (Tex. 1968). Thus, when an oil

and gas lease is executed by all of the owners of different mineral interests

in two or more tracts, the royalties payable under the lease will be pooled,

and all royalty interest owners in the land subject to the lease will share in

production, no matter where the well is drilled on the leasehold. London

v. Merriman , 756 S.W.2d 736, 739 (Tex. App.—Corpus Christi 1988, writ

denied).

An oil and gas

lessee has no power to pool, however, without the lessor’s express

authorization, usually contained in the lease’s pooling clause. Tittizer , 171 S.W.3d at 860 ; Se. Pipe Line Co. v. Tichacek , 997

S.W.2d 166, 170 (Tex. 1999); Luecke ,

38 S.W.3d at 634 (holding that lessee’s authority to pool is derived solely

from terms of lease, and lessee has no power to pool absent express

authority). “For pooling to be valid, it

must be done in accordance with the terms of the methods and purposes specified

in the lease.” Tittizer , 171 S.W.3d at 860 ; Tichacek ,

997 S.W.2d at 170 . Good-faith pooling

can be exercised multiple times. See Expando Prod. Co. v. Marshall, 407

S.W.2d 254 , 259 – 60 (Tex. Civ. App.—Fort Worth 1966, writ ref’d n.r.e.). However, “[t]he lessors’ land may be pooled

only to the extent stipulated in the lease.”

Tittizer , 171 S.W.3d at 860

(quoting Jones v. Killingsworth , 403

S.W.2d 325 , 327–28 (Tex. 1965)).

Joinder by all interest owners is not necessary for a

pooled unit to be valid. See Ladd Petroleum Corp. v. Eagle Oil &

Gas Co. , 695 S.W.2d 99, 106 (Tex. App.—Fort Worth 1985, writ ref’d n.r.e.);