Face Challenges Confidently

053 Johnston v. American Cometra, Inc.

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.
Johnston v. American Cometra, Inc., 837 S.W.2d 711 (Tex. App.–Austin 1992, writ den.), concerns the operator’s liability to nonoperators for failure to pursue take-or-pay claims against the gas purchaser. Blanks Energy Corporation became the initial operator under a 1977 MFOA and entered into a gas purchase contract selling all of the gas subject to the JOA. Blanks and successor operators owned no interest in the well, but the nonoperators signed division orders obligating themselves to sell their share of the gas in accordance with the terms of the gas purchase contract. Blanks Energy Corporation went bankrupt, Cometra took over as operator, and Cometra failed to pursue take-or-pay claims against the gas purchaser. The trial court granted Cometra’s motion for summary judgment.
Held: Reversed. Although the JOA alone does not create a joint venture or raise a fiduciary duty between the operator and the nonoperator, there is a duty to perform as a reasonably prudent operator. In addition, if Cometra acted as agent in selling the gas, Cometra may owe the nonoperators all those duties owed by an agent to its principal. The scope of this duty also raises a fact issue.
The case is significant because it raises the possibility that operators may be liable to nonoperators for failure to pursue take-or-pay claims. There are other issues in the case which may be of significance to gas purchasers attempting to avoid take-or-pay liability. For example, the court rejected the idea that there was no take-or-pay claim because the proportionate reduction clause in the gas contract effectively reduced the claim to zero (because Cometra owned no gas).