Shoreham Oil & Gas Company, Inc., a South Dakota, USA Foreign Business Corporation v. State

Citation: Not availableDocket: 03-07-00384-CV

Court: Court of Appeals of Texas; July 25, 2008; Texas; State Appellate Court

Original Court Document: View Document

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The State of Texas initiated legal action against Shoreham Oil and Gas Company, Inc. to recover funds spent by the Railroad Commission of Texas for plugging a gas well operated by Shoreham. The district court granted the State’s motion for partial summary judgment, establishing Shoreham as the operator of the well, which precluded Shoreham from presenting evidence at trial contesting its liability for plugging expenses. 

Shoreham had leased the well in 1996 but faced lease forfeiture in October 2004 due to unpaid royalties. Although the General Land Office (GLO) agreed to rescind the forfeiture contingent upon a sale of the lease to Layton Energy, the well was found to be leaking gas before the transfer was finalized. The Railroad Commission intervened and plugged the well in December 2004. 

Subsequently, the State filed suit in April 2005 to recover costs incurred for the well's plugging. The jury determined that the Commission had the authority to plug the well due to environmental concerns and awarded the State $386,000 in damages. The district court issued a final judgment, which included pre- and post-judgment interest, court costs, and attorneys' fees. Shoreham appealed, arguing that the district court erred by ruling it was the operator, which limited its ability to contest liability for the plugging expenses.

The trial court's partial summary judgment is reviewed de novo, meaning the appellate court re-evaluates the case without deference to the lower court's decision. Under Texas Rule of Civil Procedure 166a(c), a summary judgment is appropriate only if the movant proves there are no genuine material facts in dispute and is entitled to judgment as a matter of law. In this case, Texas law assigns the responsibility for plugging a gas well to its operator, as stated in the Texas Natural Resources Code. Shoreham acknowledges it became the operator of the Well in 1996 but contends that after the General Land Office (GLO) forfeited the lease, it lost operational control and thus liability for plugging expenses.

Shoreham filed a Form P-4 in April 1996, designating itself as the operator, and argues that its status should be assessed under the legal framework in place before September 1, 1997, which required proof of "physical operation and control" to establish operator status. The State, however, counters with a second Form P-4 filed by Shoreham in October 2000, which reflects changes without requiring proof of physical operation under the law effective post-September 1, 1997. The district court’s partial summary judgment did not clarify whether it relied on the 1996 or 2000 P-4. Shoreham argues the State must rely on the 1996 P-4, suggesting a factual dispute regarding its operational responsibility was not presented to the jury. The State maintains it can rely on the 2000 P-4, and even if bound to the 1996 version, Shoreham qualifies as the operator under the previous legal definition of "operator," which required responsibility for physical operation at the time of well abandonment.

Shoreham’s operator status is analyzed under both pre-1997 law and the current Texas Natural Resources Code, particularly section 89.002(a)(2). The Texas Railroad Commission's regulations establish that the operator of a well is the person shown to assume responsibility for its operation, as indicated by a filed and approved operator designation form. Shoreham initially assumed operator responsibility via a 1996 P-4 form but later filed a 2000 P-4, which it argues was for purposes unrelated to operator designation. However, the statute does not limit operator status to the initial designation and requires only that a form "shows" the operator. The 2000 P-4 clearly identifies Shoreham as the operator, satisfying the statutory requirement. The court affirms adherence to the plain language of section 89.002 over Shoreham's interpretation, supported by the administrative agency's reasonable construction of the statute. The Commission's regulations specify that the operator responsible for well plugging is the entity on the most recent Commission-approved form filed after September 1, 1997. Thus, the determination of operator status hinges on the timing of the most recent form filed.

The rule aligns with statutory language, indicating no requirement for the operator designation form to be the initial filing for operator designation. Under regulations, any operator-designation form that identifies an operator suffices to establish well-plugging responsibility. The Form P-4, a Commission-approved operator-designation form, is mandatory for various circumstances related to gas wells, including new wells, reclassifications, and changes in operators or other details. Filing a Form P-4 signifies the operator's acceptance of responsibility for the well's operation and control. The 2000 P-4 submitted by Shoreham included a certification acknowledging responsibility for regulatory compliance, including well plugging. The regulations ensure that an operator's actions post-1997 affirm their responsibility under the law. Shoreham contends there was insufficient evidence that its 2000 P-4 was Commission-approved; however, the form explicitly shows Commission approval dated 10-4-00. The evidence supports the Commission's approval of the 2000 P-4. Shoreham's argument that the State's references to a previous 1996 P-4 constitute an admission against interest is unfounded, as these statements do not contradict the reliance on the 2000 P-4 for establishing plugging liability. The State's affidavit notes Shoreham's historical operator status from April 30, 1996, which aligns with the later acknowledgment of its operator status in the 2000 filing.

The State's responses to interrogatories utilized the 1996 P-4 and the 2000 P-4 to establish Shoreham's status as the operator of the Well. The 1996 P-4 identified Shoreham as the operator, while the 2000 P-4 supported the argument regarding Shoreham’s liability for plugging costs under the amended section 89.002(a)(2), regardless of its actual physical operation of the Well. The introduction of the 2000 P-4 did not render the State's response incorrect or incomplete. It confirmed Shoreham's operator status and responsibility for plugging expenses mandated by the natural resources code, which asserts that an operator remains liable unless certain conditions are met. The Commission's regulations reinforce that the designated operator is responsible for properly plugging the well. Consequently, the court affirmed that Shoreham was liable for the plugging costs incurred by the State and upheld the district court's decisions regarding summary judgment and the exclusion of evidence related to Shoreham's physical operation of the Well. The judgment of the district court was affirmed.