Face Challenges Confidently

062 Atlantic Richfield Co. v. Long Trusts

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.
Atlantic Richfield Co. v. Long Trusts, 860 S.W.2d 439 (Tex. App.–Texarkana 1993, writ denied), considers the duty of the operator under a joint operating agreement to market the nonoperator’s gas. ARCO and Long drilled gas wells under a typical JOA that reserved to each party the right to take its gas in kind, and it gave the operator ARCO the right (unless revoked) but not the obligation to purchase the gas or sell it to others “at the best price obtainable in the area for such production.” ARCO sold and dedicated its gas to its wholly-owned subsidiary pipeline (B&A) “for the maximum lawful price,” and B&A resold the gas on the same basis (plus an operations fee) to Lone Star Gas. The price of gas fell, and B&A sued and settled with Lone Star on a take-or-pay claim. The result was a new agreement between B&A and Lone Star under which Lone Star took higher volumes at a lower price, but above spot. Long’s gas was sold with ARCO’s gas over a period of about 10 years under the ARCO/B&A contract. For the last five years the B&A/Lone Star contract was better than the ARCO/B&A contract. Long sued ARCO on the theory that “the best price obtainable” for its undedicated agas as sold by ARCO was “the maximum lawful price.” Long also sued ARCO on the theory that Long was entitled to the profit B&A was making on the sale of Long’s gas to Lone Star.
Held: Long recovered nothing on its $6.3 million pricing claim, because Long got the same benefits ARCO received, and Long could have contracted to sell its own gas at anytime. Long could not enjoy the benefits of ARCO’s contract and at the same time avoid its obligations. On the other hand, the Court concluded that nothing in the JOA contemplated that ARCO could become both the seller and the purchaser of the Long gas or that ARCO could make a profit directly or indirectly from selling the Long gas. The terms of the JOA created a special agency with respect to the selling of the Long gas which imposed duties on ARCO to account, to avoid conflicts of interest, and to avoid acting as an adverse party in its capacity as seller of Long’s gas. Long recovered $1.0 million from ARCO attributable to ARCO’s (B&A’s) profit on the sale of Long’s gas to Lone Star.