By Marie Carlisle:

Boldrick v. BTA Oil Producers, No. 11-06-00029-CV, 2007 WL 865811 (Tex. App.—Eastland March 22, 2007).

The Eleventh Court of Appeals of Texas recently affirmed a District Court ruling granting summary judgment to BTA Oil Producers (BTA) on the basis that that the joint operating agreement (JOA), which governed the assignment of an overriding royalty interest to Plaintiff/Appellant, specifically provided guidelines for payments owed on an overriding royalty interest created by a non-consenting party. As BTA’s actions were consistent with the JOA, the court upheld the decision that no funds are due to Boldrick until the non-consent penalty provisions of the JOA are fully recouped and BTA itself receives payment for production from the well at issue.

James Boldrick is an assignee of an overriding royalty interest in property subleased to BTA. BTA, the assignor and creator of Boldrick’s interest, elected non-consent status regarding the well at issue, proposed and drilled by Chevron. Initially, Chevron made payments to Boldrick on production from this well, but later asked for return of those payments and has since made no further payments to either Boldrick or BTA for this well. Chevron’s decision to withhold payment was based on a provision of the JOA which stated first, that all subsequently created interests are subject to the terms and provisions of the JOA, and second, that when a working interest owner elects non-consent status, an overriding royalty interest created by the non-consenting working interest owner becomes chargeable with a pro rata portion of costs and expenses under the JOA, as if it were a working interest. Boldrick sued BTA and Chevron/Texaco, seeking monetary damages based upon breach of contract, unjust enrichment and conversion, alleging that his share of the overriding royalty interest was being used to benefit the Defendants. BTA sought a declaratory judgment that it has no obligation to account for the overriding royalty interest. The District Court granted summary judgment in favor of BTA and Boldrick appealed.

In his appeal, Boldrick alleged the following: as between himself and BTA, his overriding royalty interest was not subject to the non-consent penalty provision of the JOA, his overriding royalty interest was not a subsequently created interest under the JOA, a division order which stated BTA was not obligated to disburse funds it had not received did not apply to the well at issue, and that even if BTA relinquished the overriding royalty interest during payout under the JOA penalty, BTA is not excused from payment to Boldrick under the overriding royalty grant. The Court of Appeals agreed with the District Court that Boldrick’s overriding royalty was a subsequently created interest under the terms of the JOA and therefore it is subject to all terms and provisions of the JOA. The Court looked at the language in the JOA provision establishing the non-consent penalties and found that it applied to Boldrick’s subsequently created interest and, additionally, it controlled over other provisions in the JOA, because it included the phrase “notwithstanding anything herein to the contrary.” Therefore, Boldrick’s reliance on those provisions to support his claim was misplaced. Based on both the division order and the JOA terms, the Count found that BTA was not obligated to make any present payments to Boldrick for his overriding royalty interest currently being used to pay the costs and expenses of the well. Given that the JOA mandates the use of the proceeds that would have come to Boldrick under his overriding royalty absent the non-consent penalty provision, and all uses have been consistent with the JOA, the Court affirmed that there has been no breach of contract between Boldrick and BTA and no unjust enrichment or conversion on the part of BTA or Chevron/Texaco.