190 W.L. Lindemann Operating Co., Inc. v. Strange

Richard F. Brown

 
The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
 
In W. L. Lindemann Operating Co. v. Strange, 256 S.W.3d 766 (Tex. App.—Fort Worth 2008, no pet.), the court considers the evidence required to find that an operator wrongfully commingled oil production from several leases. Strange owned a working interest and a royalty interest in oil wells located on the D. D. Strange Lease, which was operated by Lindemann. Lindemann, or persons or parties affiliated with Lindemann, also operated other nearby wells on other leases. Production sharply declined over a short period of time, but a field inspection by Strange revealed that the wells were capable of producing much more. There were also suspicious connections to wells on other leases. Strange took over operations from Lindemann, and production sharply increased.
 
Among other allegations, Strange contended that Lindemann wrongfully commingled her oil with the oil produced by Lindemann from other leases. “One who wrongfully permits the property of another to become so intermingled and confused with his own property as to render it impossible to identify the goods of each is under the burden of disclosing such facts as will insure a fair division, and if he fails or refuses to do so, the combined property or its value will be awarded to the injured party.” Therefore, Lindemann was faced with the risk of losing all production from the neighboring leases, if Lindemann was found to have commingled that production with production from the D. D. Strange Lease.
 
Strange asserted that Lindemann intentionally mis-set or altered the setting of the float in the oil and water separator from the D. D. Strange Well No. 2 so that oil and water produced from the D. D. Strange Lease crossed lease lines and commingled with oil produced from surrounding leases. Lindemann argued that the evidence was insufficient to support the jury’s finding that Lindemann willfully commingled oil that was produced from the D. D. Strange Lease with oil from surrounding leases. Lindemann contended that the evidence showed, at most, only an accidental malfunction of the separator float, the means by which Strange claimed the oil from the D. D. Strange Lease was commingled with oil from the surrounding leases.
 
The court focused on the evidence pertaining to the setting of the separator. The court struggled with the fact that there was no evidence presented at trial as to how long the separator had been mis-set, or whether the mis-setting was intentional, as Strange contended, or accidental, as Lindemann asserted. The court found that the jury would have had to believe that Lindemann occasionally hooked up the separator properly to pump some oil into the D. D. Strange tank battery, and then intentionally mis-set the separator after pumping so that Lindemann could pump additional fluid through the separator and over to an adjoining lease. The court held that because Strange failed to present evidence at trial that Lindemann actually altered the separator settings on a continual basis, the conclusion that Lindemann did so required too much inference and speculation on the jury’s part.
 
This case highlights the risks of commingling and how easily commingling can occur in the field. If an operator is found to have wrongfully commingled production, the liability risk for the operator can quickly escalate, because the operator may lose the entire commingled production stream. On the other hand, this case also demonstrates how difficult it is to establish that an operator willfully commingled production.