Face Challenges Confidently

194 Shoreham Oil & Gas Co. v. State

Tuesday, September 8th, 2015

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
Shoreham Oil & Gas Co., Inc. v. State, 260 S.W.3d 249 (Tex. App.—Austin, Jul. 25, 2008, no pet.), holds that the filing of a Texas Railroad Commission form showing the identity of the operator conclusively establishes an operator‟s control over the well and its responsibility to pay for plugging expenses, even if the form was filed for some purpose other than identifying the operator. Texas law places the responsibility for plugging a gas well on the operator. The Texas Natural Resources Code identifies the operator of a well as the “person who assumes responsibility for the physical operation and control of a well as shown by a form the person files with the commission and the commission approves.” Shoreham filed a Form P-4 with the Commission in 1996 to designate itself as the well‟s operator, and it filed a second Form P-4 in 2000 which set out a change in condensate gatherer and a change in gas purchaser and gatherer. The Commission‟s regulations for plugging responsibilities provide:

The entity designated as the operator of a well specifically identified on the most recent Commission-approved operator designation form filed on or after September 1, 1997, is responsible for [plugging] . . .

Shoreham contended that prior to September 1, 1997, the law required the State to establish that Shoreham was in “physical operation and control” of the well to establish that Shoreham was the “operator.” Based on summary judgment, the State recovered from Shoreham $386,000 in damages, plus interest, costs, and attorneys‟ fees, for plugging one of Shoreham‟s wells in 2004. Shoreham‟s defense was based solely on its claim that establishing physical operation and control was a fact question which could not be established on summary judgment.
The court held that the Commission could rely upon the filing in 2000. The Commission requires that an operator of a gas well in Texas file a designation of operator form. A P-4 Form is an operator-designation form that is used to accomplish the Commission‟s requirement. The court noted that the filing of a P-4 Form is sufficient to “show” who the operator is, thus satisfying the plain language of the statute.
Although the 2000 P-4 Form was not specifically filed to set forth the operator, it is an operator-designation form that “shows” Shoreham as operator, and it was the most recent operator designation form filed. The statute does not require the form be the initial designation of the operator or filed for the purpose of designating the operator, and, therefore, the Commission‟s regulation is not inconsistent with the statute. Accordingly, the filing of the 2000 P-4 Form identified the operator of the well and established well-plugging responsibilities for the operator.  “In fact, the 2000 P-4 signed by Shoreham‟s president included a certification stating, “I acknowledge responsibility for the regulatory compliance of the subject lease, INCLUDING PLUGGING OF WELLS if required under Statewide Rule 14.”
The significance of this case is the holding that a “change-of-operator” P-4 filing is not the only document upon which the Commission may rely in establishing liability for plugging. At least since September 1, 1997, any Commission form “showing” the operator may be sufficient to establish liability. Operators and former operators of wells must stay current with their filings with the Commission, and a prudent seller/operator will always insist upon the buyer‟s execution and filing of a P-4 and the obtaining of Commission approval of the P-4 showing buyer as the new operator.