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Category: Business Law
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Experience:  20 years experience in business law - sole proprietor, partnership, and corporations
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If an oil and gas operating company and the working interest

Customer Question

If an oil and gas operating company and the working interest owners are being sued by the land owner, does the operating company have any obligation to indemnify/defend the working interest owners for it's actions?
Submitted: 2 years ago.
Category: Business Law
Expert:  Franklin replied 2 years ago.
Hello, my name is Franklin, an U.S. business attorney, and I'll be happy to assist you today.

If you don't mind, could you please provide some more details regarding the incident or cause of action in question?
Customer: replied 2 years ago.
GENERAL FACT ALLEGATIONS

On September 8, 1980, Grace H. Hill, Individually and as Independent Executrix of the Estate of Charles H. Wright, Deceased, owned all of the oil, gas and other minerals in and under Section 117, Block 41, H&TC RR Co. Survey in Hemphill County, Texas (the Property). On September 9, 1980, Grace H. Hill, Individually and as Independent Executrix of the Estate of Charles H. Wright, Deceased, executed and delivered that Oil, Gas and Mineral Lease, recorded at Vol. 171 and Page 55 of the Oil and Gas Records of Hemphill County, Texas (the Lease), as Lessor, to Moody Energy Company, as Lessee. The Lease covers an undivided 520/640 mineral interest owned b y Grace H Hill in the Property, leaving unleased, the remaining undivided 120/640 mineral interest, owned by Grace H. Hill in the Property.

On August 15, 2010, Grace H. Wright (f/k/a Grace H. Hill) died, and under the terms of her Last Will and Testament, admitted to probate in Cause No. 2218 in the County Court of Hemphill County, Texas, Plantiff now owns a life estate in the Property, as well as all of the personal property of Grace H. Wright.

Oil and gas have been produced from the Charles H. Wright Well, located 1420' FSL and 1320' FWL of the Property (the Well), since 1992; however, during the period of January 1, 2009 to June 1, 2010: (i) the Lease failed to produce oil and gas in paying quantities; (ii) no drilling or reworking operations were conducted on the Property; and (iii) no shut-in royalty, delay rentals or other contractual substitutes for production permitted by the Lease, were tendered to the Plaintiff. During that period, the operators of the Lease failed to act as reasonably prudent operators in continuing to produce the Well in that they failed to timely begin reworking operations on the Well to obtain profitable production of oil and gas from the Well, as well as failing to timely develop production of oil and gas from other wells to be drilled on the Property, Rather than attempting to operate the Lease for the purpose of providing oil and gas in paying quantities, or releasing the Lease, the Defendants chose to speculate with the Plaintiff's mineral interest by producing what they could from the Well without attempting to increase production, in hope that if prices were to increase, they could sell or farmout the Lease. As a result, the Lease terminated prior to June 1, 2010.

Notwithstanding being advised by Plaintiff, through counsel, that the Lease had previously terminated, LNP the operator of the Well and the Lease, commenced drilling operatins on the Property on or about June 1, 2011, and completed the Gracie 117-H Well (the 1H Well) on the Property. As a result of drilling the 1H Well on the Property after being advised that the Lease has previously terminated, LNP drilled the 1H Well as a bad faith trespasser and is not entitled to recover its cost of drilling, completing and operating the 1H Well. While the Plaintiffs have no information concerning the 1H Well, they believe it to be producing oil and gas. With the exception of the oil and gas produced from the Well, no oil or gas was produced from the Property, from January 1, 2000 until production of oil and gas from the 1H Well.

Since June 1, 2010, the Defendants have either owned working interests in the Lease, or overriding royalty interests derived from the Lease, and Have received revenue from the Well after the Lease terminated. So far as is known to the Plaintiff, the Defendants continue to claim ownership of the Lease, or overriding royalty interests derived from the Lease.

I have not entered the Palintiff's various counts; please let me know if you need that information.

Thanks,
Expert:  Franklin replied 2 years ago.
Bob, it seems like your question is more complicated than I originally anticipated. I'm going to open up your question, and see if there are any other experts that would like to chime-in.
Expert:  Dwayne B. replied 2 years ago.
For whose actions? The O & G operating company or the working interest owners? Also, are there any agreements or contracts that call for a defense or "hold harmless"?

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