Face Challenges Confidently

047 Enduro Oil Company v. Parish & Ellison

Wednesday, September 2nd, 2015

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of some significance to you.
Enduro Oil Company v. Parish & Ellison, 834 S.W.2d 547 (Tex. App.–Houston [14th Dist.] 1992, writ den.), concerns the priority of the joint operating agreement (JOA) lien and security interest on a nonoperator’s interest for payment of drilling, completion, and operating expenses. The chronology of the relevant facts was as follows:

  1. Nonoperator signed the JOA.
  2. Nonoperator signed a note, deed of trust, security agreement, and an assignment of production (subject to the JOA) to secure nonoperator’s lawyers for legal fees incurred
  3. Nonoperator did not pay completion and operating expenses
  4. Operator took nonoperator’s share of production and applied it against nonoperator’s share of the expenses
  5. Nonoperator’s lawyers sued the operator and the purchaser for conversion.

The lawyers won in the trial court.
Held: Reversed and rendered. For the nonoperator to grant a security interest, it must first have rights in the collateral. The JOA provides:
Operator shall have the right, without prejudice to other rights or remedies, to collect from the purchaser the proceeds from the sale of such Non-Operator’s share of oil and or gas until the amount owed by such NonOperator, plus interest, has been paid.
The operator had the superior right and thus could not be guilty of conversion.
The significance of the case is that all of you non-lawyers will think this is pretty funny.