Oil & Gas Litigation Update

Transcription

1 Oil & Gas Litigation Update Litigation Observations and Tips from the Front Lines

2 Traditional Oil & Gas Litigation Abandonment / Lack of Production Down Hole Failure Breach of Contract Service Disputes Mineral Liens / Collection Disputes Disputes Over Operating Agreements Disputes Over Purchase Agreements Personal Injury 2

3 Now Just as Common to See Trespass to Try Title Breach of Fiduciary Duty Fraud and Conspiracy Tortious Interference Usurpation of Corporate Opportunity Misappropriation of Trade Secrets Constructive Trust Business Disparagement Alleged Partnerships and Other Verbal Agreements 3

4 Now Just as Common to See Continued: Bankruptcy Filings Adversary Proceedings Breach of Contract for Rule 11 Agreements Breach of Contract for Settlement Agreements Enforcement Actions by the Railroad Commission 4

5 Know Your Venue! Venue, Venue, Venue Eagle Ford is in the Plaintiff Lawyers Back Yard Traditionally Plaintiff Friendly Big Verdicts are Commonplace Tort Reform = Business Litigation Very Fast Dockets Punitive Damages / Cap Busters Small Towns / Small Counties Jury Selection Are You an Outsider? Is Your Law Firm an Outsider? 5

6 The Battle Ground 6

7 A Closer Look Population of County Atascosa 48,011 Dimmit 9,565 Frio 18,340 Karnes 17,221 La Salle 5,950 Live Oak 12,354 McMullen 887 Wilson 50, 003 Zavala 11,849 7

8 Practice Tips and Considerations for Clients Litigation Venue and Forum Selection Jury Waiver Choice of Law Arbitration (Pros and Cons) Trial Team on Speed Dial Local Counsel Selection Appellate Counsel Selection Anticipate Speedy Trial Jury Selection Logistical Considerations Business Handshake vs. Contract Landman vs. Case Runner Background Checks Corporate Structure Risk Management / Insurance Community Involvement Data Retention Anticipate More Lawsuits 8

9 The Longview Case / Zavala County Longview alleged that Defendants usurped an Eagle Ford business opportunity and least acquisition strategy. Private equity investor from New Jersey had multiple portfolio companies seeking an Eagle Ford investment in Portfolio companies had shared directors and/or managers, which lead to allegations of cross-pollination, data sharing and breach of fiduciary duty (i.e., failure to disclose conflicts). Portfolio companies had contacts with the same landman group. Portfolio companies allegedly presented the same leases or allegedly the same leasing opportunities. Longview asked jury for $1.6 billion and a constructive trust over the Defendants approximate 55,000 acre Eagle Ford investment. 9

10 Strategic Issues and Challenges Venue Constructive Trust + Lis Pendens + Lease Location Court determined venue was mandatory where lease/leases located Expedited Trial Date / Rocket Docket Lawsuit served on October 24, 2011 SGRM retained in late November 2011 to represent O&G Operator Scheduling Order Entered December 6, 2011 Plaintiff asked for March 2012 trial setting Two week trial started May 21, 2012 Expedited and Extensive Discovery Discovery started in February 2012 More than 1 million documents Over 30 depositions More than 15 experts 10

11 Logistical Issues and Challenges Where are you going to stay? Hotels are in short supply in South Texas. Consider local ranch / hunting lease, if available. Ideal: Obtain one with an airstrip. Where are you going to eat? Local dining is limited. Consider hiring a personal cook. Will you have cell phone, internet, fax, copy, etc? Outside of town, phone and internet service is very limited. Temporary office within walking distance from Court? Lease space or temporary office near the Court. Be online and trouble shoot before your pretrial conference. 11

12 Expert Issues and Challenges Finding and vetting experts is difficult given short discovery periods. Rely on industry contacts and non-traditional expert witnesses. Rely on your client s land department for leads. Valuation evidence is difficult to obtain because companies try to keep lease terms private. Need an expert that has been involved in the land-play. Need an expert that has been active trying to negotiate leases. You need someone who can distinguish deals that are being reported and that opposing counsel may try to rely upon as evidence for damages. Expert testimony was almost unlimited Limited only by time given to present case. No reports. All opinions expressed at deposition. 12

13 Our Expert: Gregory L. Jessup, Jessup, Harper & Dean, LLC What made Mr. Jessup a excellent expert: Industry Insider More than 30 years of experience History of South Texas activity and experience Able to ramp up quickly and prepare for trial Course of dealing experience and expertise Real world valuation experience and real time information Active in numerous oil and gas plays Barnett Bakken Eagle Ford Wolfcamp 13

14 Jury Composition Final verdict rendered by eleven jurors. Four women and eight males. Four with high school diplomas, five with twoyear degrees and three with four-year degrees. Occupations included: two teachers, a nurse (dissenting juror), two correctional officers, cook, a Medicaid specialist and others. Interesting Jurors 14

15 The Jury Returned the Following Verdict Market value of the assets in the Eagle Ford that Defendant acquired because of failure to comply with their fiduciary duty: $42,000,000 What did Defendant pay for assets it acquired in the Eagle Ford: $24,500,000 What is the amount of past production revenues Defendant derived from the assets in the Eagle Ford it acquired as a result of failure to comply with fiduciary duty: $120,000,000 What did Defendant pay to develop the assets it acquired in the Eagle Ford: $127,000,000 15

16 Plaintiff s Counsel Claims Major Victory Watts Guerra Craft LLP Leads Eagle Ford Shale Litigation with Large Verdict Dallas Longview Energy accuses NJ investor of stealing drilling opportunity $162,000,000 verdict in Zavala County over stolen oil field leases in the Eagle Ford EAGLE FORD SHALE PRODUCES GUSHER IN SO TEXAS COURT" Zavala County jury's $162 MILLION verdict for client. 16

17 What is the Actual Result? Plaintiff s Interpretation $162,000,000 Constructive trust over entire Eagle Ford investment Defendants Interpretation $10,500,000 No constructive trust Judge entered a $95 Million Dollar Verdict plus a constructive trust 17

18 Aftermath of the Judgment Defendants posted one $25 million cash bond Plaintiff immediately issued writs of execution Are all Defendants required to post bond? Trial court said yes Issue currently on appeal 18

19 Avoid Being a South Texas Yute 19

20 Shannon Gracey Secures Major Dismissal for Energy Client AUSTIN, Texas May 31, 2012, Shannon, Gracey, Ratliff & Miller, LLP has successfully secured a dismissal with prejudice in the 365th Judicial District Court of Zavala County, Texas, styled, Longview Energy Company v. The Huff Energy Fund, L.P. et. al. The legal team was led by Craig A. Duewall and C. Mark Stratton, partners in the firm s downtown Austin office. The client had been sued relating to an investment in the Eagle Ford Shale resource play in South Texas. According to Mr. Duewall, the client is pleased with the results. "This very important case could affect the way private equity financing is secured and portfolio companies are managed throughout the United States, explains Duewall. The Plaintiff, represented by Mikal Watts, alleged that it had incurred damages in excess of $1,000,000,000. Mr. Duewall and Mr. Stratton were able to successfully secure a dismissal with prejudice prior to trial. The Plaintiffs' claims against the remaining defendants, represented by their own counsel, will be decided by a Zavala County jury. The Eagle Ford Shale is a geologic formation spread across 12 million acres in South Texas and includes Zavalla, Dimmit, Frio, Gonzales, Karnes, Wilson, Atascosa, and Lavaca Counties. The Eagle Ford Shale is one of the largest oil and gas discoveries in the United States. 20

21 Craig A. Duewall, Partner (512) Professional Biography Craig A. Duewall has nearly a decade of experience representing both claimants and defendants in complex cases involving: oil & gas, securities fraud, officer & director liability, construction (residential and commercial), real estate, business and partnership disputes, and insurance coverage. Mr. Duewall is admitted to practice before the U.S. District Court for the Eastern and Western Districts of Texas and the U.S. Court of Appeals, Fifth Circuit. He is licensed in Texas, having graduated from South Texas College of Law. Mr. Duewall is a member of the State Bar of Texas, the Federal Bar Association s Litigation Section, member of the Travis County Bar Association s Construction Section as well as Director of the Litigation Section ( ). Admissions & Certifications State Bar of Texas (2000) United States Court of Appeals, Fifth Circuit (2006) U.S. District Court, Eastern & Western Districts of Texas (2006, 2001) Education & Background South Texas College of Law (J.D.) 1999 The University of Texas School of Law, Visiting Student, Fall 1999 Texas A&M University (B.S., Political Science) 1996 Judicial Clerk for Justice Alberto R. Gonzalez, The Supreme Court of Texas, Summer 1999 Judicial Clerk for Judge Ewing Werlein, Jr., United States District Court for the Southern District of Texas, Fall 1998 Judicial Clerk for Chief Justice Michael H. Schneider, Texas First District Court of Appeals, Spring 1998 Professional Affiliations & Memberships Travis County Bar Association (Chair, Litigation Section ) Texas State Bar (Litigation Section) Federal Bar Association (Litigation Section) Publications & Presentations "You've Been Served" - Texas Credit Union League, 2006 Compliance Conference "Lawyers Still Trying To Do Math: Proportionate Responsibility, Including the New HB4 (2005 Update)" Austin Young Lawyers Las Vegas CLE - Co-Presenter: Daniel O'Brien "Investigation of Job Applicants" - Lorman Education Service - Co-Presenter: Susan Burton, 2000 "Claims for Negligent or Inadequate Investigation of Job Applicants/Employees" - Lorman Education Service - Co- Presenter: Susan Burton,

22 C. Mark Stratton, Partner (512) Professional Biography C. Mark Stratton has extensive trial experience in cases involving oil & gas, securities, transportation, professional liability, construction, personal injury and products liability having tried more than 45 cases to verdict in both state and federal courts. Mr. Stratton has argued cases before the Supreme Court of Texas, the 5th Circuit Court of Appeals and the 1st, 4th, 9th and 14th Courts of Appeals in Texas. He is Board Certified in Civil Trial Law by the Texas Board of Legal Specialization. Mr. Stratton is admitted to practice before the U.S. District Court for the Northern, Eastern, Western and Southern Districts of Texas and the U.S. Court of Appeals for the 5th Circuit. He is licensed in Texas, having graduated from Oklahoma City University School of Law. Mr. Stratton is a member of the State Bar of Texas, Securities Industry Association (Compliance and Legal Division), Professional Liability Underwriting Society and the Trucking Industry Defense Association. Admissions & Certifications State Bar of Texas (1990) U.S. Court of Appeals, 5th Circuit U.S. District Courts, Northern, Southern, Eastern and Western Districts of Texas Board Certified - Civil Trial Law, Texas Board of Legal Specialization (2002, recertified 2007) Education Oklahoma City University School of Law (J.D. 1989) Merit Scholar, Phi Delta Phi Cameron University (B.B.A. Finance and Economics 1987) Professional Affiliations & Memberships State Bar of Texas Trucking Industry Defense Association Securities Industry Association, Compliance and Legal Division Professional Liability Underwriting Society Honors & Recognitions Martindale-Hubbell AV PreeminentTM (5.0) 22

23 Gregory L. Jessup, CPL, CEO - JHDpetro [email protected] (972) Professional Biography Gregory L. Jessup is CEO of Jessup, Harper, Dean, LLC, JHDpetro.com, a petroleum land service company created in 2008 to target niche demands that encompass the interconnected areas of Land, Exploration & Development, Legal, Financial Backer and Mineral Owner aspects of the Oil & Gas industry. In 2006 Greg was Vice President of Land for Rooster Petroleum, LLC until its relocation from Irving to Houston, Texas. During his tenure he facilitated the $18.5MM acquisition of working interests in 17 blocks from PetroQuest Energy, Inc. in the Gulf of Mexico shelf. From 1997 to 2005, he was Vice President of Land for Magnum Hunter Production, Inc. and Gruy Petroleum Management Co. and Vice President of Land Offshore with Magnum Hunter through its merger with Cimarex Energy Co. While at Magnum Hunter Greg assisted in the purchase of onshore properties valued in excess of $500,000,000 and a like amount in the Gulf of Mexico (offshore). Mr. Jessup began his full time oil and gas career as Land Manager for Kenneth C. English, P.E. in Dallas, Texas in He has now been in petroleum land management for over 30 years being actively involved in all phases of land operations, including negotiations, acquisitions, divestitures, marketing, maintenance, management, administration, expert witness and offshore exploration. Mr. Jessup has held several offices in the American Association of Professional Landmen (AAPL) including Chairman of the Dallas Certified Professional Landman (CPL) Certification Committee ( ); Chairman of the Fund Raising Committee for the AAPL Educational Foundation ( ); AAPL Director for Dallas ( ) and Secretary, AAPL Executive Committee ( ). He was Director ( ) and President of the Texas Energy Council (2003), He served as an officer on the OCS Advisory Board ( ) and two terms as a Director on the Dallas Association of Petroleum Landmen Board ( ). He has also been published several times in the national professional magazine, Landman. Certifications Certified Professional Landman, AAPL (CPL #3834) Real Estate Broker (Texas Lic. #203950) Education Texas Tech University (BBA, Mgt. 1975) Tulsa University and Texas A&M Commerce (Oil & Gas Contracts and Real Estate Law respectively). Professional Affiliations & Memberships American Association of Professional Landmen Texas Energy Council Texas Real Estate Commission Honors & Recognitions Dallas Association of Petroleum Landmen, Landman of the Year for