Max J. Fletcher v. Ricks Exploration, and S.J. & R. Corporation

Citations: 905 F.2d 890; 112 Oil & Gas Rep. 318; 1990 U.S. App. LEXIS 11966; 1990 WL 88519Docket: 89-6006

Court: Court of Appeals for the Fifth Circuit; July 17, 1990; Federal Appellate Court

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Max J. Fletcher, the plaintiff-appellant, leased a one-fourth interest in minerals on a 100-acre tract in Rains County, Texas, in December 1983. Although his lease expired, it was renewed in March 1985. Ricks Exploration Company, which completed the Jenkins 272-A gas well in October 1983, did not reacquire Fletcher's lease despite expressing initial interest in purchasing it. In January 1985, Ricks Exploration and several other companies entered into an operating agreement for the well, which Fletcher was unaware of until after initiating legal action. In February 1985, a unit designation was filed for the well, pooling various interests, including Fletcher's. The designation allowed execution in multiple counterparts. In June 1985, Fletcher's lawyer communicated his intent to participate in the unit and offered to pay his share of costs, but discussions with Ricks Exploration were inconclusive. Fletcher ultimately executed and recorded his ratification of the unit designation in August 1985.

Between 1984 and 1986, a gas well produced nearly 3 million MCF of gas, but the Texas Railroad Commission classified a 29.675-acre tract as nonproductive. Ricks Exploration and S.J. R. Corp. collected production allocations for this tract, while Fletcher received nothing and was not accounted for by these companies. In May 1986, Fletcher sued Ricks Exploration and S.J. R. Corp. for participation rights in the Jenkins 272-A gas well. They denied his claims and sought dismissal for failure to join indispensable parties. Subsequently, other companies settled with Fletcher, paying him $120,846, which rendered the dismissal motion moot. The case proceeded on stipulated facts, leading the district court to rule that the unit designation did not constitute an offer to Fletcher and that Texas law does not permit ratification of a pooling provision by an owner of an unproductive working interest, resulting in a judgment against Fletcher. He appealed.

The case presents novel issues under Texas law. The district court's finding that there was no offer aligns with contract law principles, and no error was found in this conclusion. Fletcher's argument that the unit designation was an offer for participation was rejected; the court held that the unit designation was not sufficiently definite to constitute a contractual offer. Fletcher's reliance on the Uniform Commercial Code was deemed misplaced since the relevant contract was a drilling contract, not a sales contract. The court also determined that the mere filing of the unit designation did not extend an offer to all leaseholders in the designated area, as Fletcher was not part of the operating agreement, unlike the other companies involved.

Fletcher's acceptance of an offer is invalid since there was no offer made to him; he cannot establish himself as a party to a contract under those circumstances. The district court correctly determined that without an offer, there can be no contract or breach. Although Fletcher did not seek an equitable remedy in the district court and therefore cannot pursue one on appeal, the court briefly addresses the equities discussed by Ricks Exploration and S.J. R. Corp. Fletcher cites Texas law, asserting that a non-leasing cotenant may ratify an oil and gas lease made by other cotenants. However, this principle does not apply to Fletcher, as he is not a cotenant, and his situation differs significantly from theirs. The district court ruled that Texas law does not permit ratification of a pooling provision by an owner of an unproductive working interest, refusing to create an unrecognized remedy. The court believes it is unlikely the Texas Supreme Court would rule differently. Additionally, Fletcher has other remedies available, such as drilling his own well or proceeding under the Mineral Interest Pooling Act. Ultimately, Fletcher's claim lacks merit, as he seeks something that was once perceived as valuable but is now deemed worthless. The district court's judgment is affirmed, noting that the settlement by other working interest owners does not impact the merits of Fletcher's claim. The parties agreed on the amount of Fletcher's damages if he were to prevail.