Samson Exploration, LLC v. T.S. Reed Props., Inc. 2015 Tex. App. LEXIS 9028 (Tex. App. – Beaumont, 2015)

Samson Exploration, LLC v. T.S. Reed Props., Inc. 2015 Tex. App. LEXIS 9028 (Tex.App. - Beaumont, 2015)

In a lengthy opinion, the court held that interest owners who accepted payments from a unit that had been amended to reduce the unit’s boundaries after knowledge of the amendment, ratified the amendment and could not recover damages. Damages were permitted for a second unit where Samson failed to amend the unit’s boundaries to include a well that produces from the same zone that was common to both units. Finally, the court held that damages could not be awarded for production that occurred before the unit was formed.

The case concerns two pooled units and three gas wells. Samson created the Black Stone Minerals A No. 1 Gas Unit in 2001. In 2002, Samson completed the second gas well within the boundaries of this unit and a depth consistent with the unit. After Black Stone refused to permit its lease to be pooled into the unit, Samson filed an amended unit declaration that changed the boundaries of the unit and renamed the unit the “Joyce DuJay No. 1 Gas Unit.” In late 2002, Samson completed a third well perforated at an interval above the pool associated with the unit and formed the “Joyce DuJay A No. 1 Gas Unit” and defined the pool as all depths below the a depth just above the completed interval in the third well. Thus, the unit included much of the land in the first unit.

The holders in the Joyce DuJay Unit suit was based on Samson’s failure to attribute production from the Black Stone well to this unit. The holders of the DuJay-A unit sued claiming Samson failed to comply with its obligations under the T.S. Reed lease when it created the DuJay-A Unit. The trial court awarded damages to all plaintiffs.

The court found that the unit holders in the DuJay Unit knew of the amended boundaries of the unit, did not object, and received royalties on the amended unit boundaries, thus they ratified the amended unit. The court held that the doctrine of ratification is “a doctrine of agency law, ratification is a common law doctrine that binds a person to another’s unauthorized act if the person who is arguably bound is aware of the other’s act, and, after becoming aware of the act, chooses to retain the benefits of the unauthorized act.”

As for the DuJay-A Unit holders, they claimed that Samson attributed production from a well that is common to the pool of both leases to only the DuJay Unit. The court held that evidence showed that Samson had failed to pay royalties from this well to the DuJay-A Unit holders even though the well was completed in an interval subject to the DuJay-A Unit. Also, the court held that Samson could not collect reimbursement from the DuJay Unit holders for overpayment under the voluntary payment rule – that payments made with full knowledge of the facts cannot be recovered.

The court also ruled that the royalties the DuJay-A unit holders could recover could not include production from a time before the unit was formed.