Face Challenges Confidently

172 Seagull Energy E & P, Inc. v. Eland Energy. Inc.

Tuesday, September 1st, 2015

Richard F. Brown

Seagull Energy E & P, Inc. v. Eland Energy, Inc., 207 S.W.3d 342 (Tex. 2006), determines whether the sale of a non-operating working interest that is subject to an operating agreement releases the seller from its obligations to the operator under the operating agreement. Seagull as operator sued Eland as non-operator and its assignee Nor-Tex, when Nor-Tex failed to pay certain joint interest billings. Eland refused to pay because it no longer owned an interest in the leases. The trial court awarded judgment to Seagull on summary judgment against Eland and Nor-Tex, jointly and severally, for more than $268,000, plus interest and attorney’s fees. Eland appealed.
The court reviewed several provisions in the operating agreements and found that none of them explicitly provided what would happen when there was an assignment of a working interest to a third party. As a general rule, a party who assigns its contractual rights and duties to a third party will remain liable unless they are expressly or impliedly released by the other party to the contract. Because the operating agreement did not expressly provide that Eland’s obligations would terminate upon assignment of the agreement, and because Seagull did not expressly release Eland from liability following the assignment of its working interest, the Texas Supreme Court held in favor of Seagull.