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$100 Million in Damages Awarded in Eagle Ford Shale Dispute

The Law Office of C. William Smalling, P.C. Oct. 23, 2017

As anyone in the energy production sector can attest, contracts are the bedrock of doing business in the oil and gas industry. Recently, a legal dispute between two oil companies in the Eagle Ford Shale culminated in a $100 million award in damages. A South Texas jury found that Canada’s Talisman Energy USA Inc. violated a joint operating agreement with Houston’s Matrix Petroleum by underpaying the company for Eagle Ford oil and gas production.

The Backdrop

The dispute involved a joint operating agreement from 1954 governing drilling and production on 12,600 acres of the Cooke Ranch. Talisman acquired its interest in the property in 2010, along with its joint venture partner Statoil, with Talisman operating western Eagle Ford acreage that included the Cooke Ranch.

Matrix was a non-operating partner on the property, but was treated as a passive investor rather than a partner. According to the lawsuit, Talisman breached every agreement relative to the property, and “assumed a presumptive position of unilateral control.”

Additionally, there were longstanding problems between the parties regarding accounting issues and the way in which Matrix was paid for oil and gas production. In particular, for a nine-month period, the amount of oil and gas Talisman produced from the Cooke Ranch field was not accurately measured. Because the meters were not properly sized, more oil and gas flowed than was actually measured.

In sum, Talisman misrepresented the amount of oil and gas produced from the wells to Matrix. Talisman then sold all of the production to a third party, and did not pay Matrix its share of the production. After a thorough >deliberation the jury decided in favor of Matrix, and awarded the company $100 million in damages.

“They gave us pretty much every penny we asked for,” said Houston attorney John Kim, who represented Matrix Petroleum.

As an aside, Talisman was acquired by Spanish oil company Respol in 2015. A spokesman for Respol said the company intended to appeal the verdict.

The Takeaway

Given the increased production in the Eagle Ford Shale that is due in part to hydraulic fracturing, disputes are not uncommon. However, this case highlights how it is crucial for energy companies to be mindful of their obligations under joint operating agreements. In the end, successfully resolving these disputes requires the advice and counsel of attorneys who are well versed in oil and gas energy contracts.