By Jana Grauberger

The Texas Supreme Court distinguished several Texas appellate court decisions and held the exculpatory clause in a joint operating agreement (“JOA”) applicable not just to operational activities undertaken by the operator, but to all activities of the operator under the JOA. Reeder v. Wood County Energy, LLC, No. 10-0887, slip op. (Tex. Aug. 31, 2012). JOA exculpatory clauses often relieve the operator of liability to nonoperators absent a showing of gross negligence or willful misconduct on the part of the operator. In recent years, appellate decisions in Castle Tex. Prod. Ltd. P’ship v. Long Trusts, 134 S.W.3d 267 (Tex. App. – Tyler 2003, pet. denied), IP Petroleum Co., Inc. v. Wevanco Energy, L.L.C., 116 S.W.3d 888 (Tex. App. – Houston [1st Dist.] 2003, no pet.), Cone v. Fagadau Energy Corp., 68 S.W.3d 147 (Tex. App. – Eastland 2001, pet. denied), and Abraxas Petroleum Corp. v. Hornburg, 20 S.W.3d 741 (Tex. App. – El Paso 2000, no pet.), held that the exculpatory clause extends only to claims related to operations, i.e., drilling and not to other breaches of the JOA. The Texas Supreme Court stated that those cases all involved interpreting the exculpatory clause language of either the 1977 or 1982 A.A.P.L. Model Form Operating Agreements, which both require the operator to conduct “all such operations” in a good a workmanlike manner and only allow for liability as to nonoperators for failure to do such upon a showing of gross negligence or willful misconduct. In contrast, the JOA in Reeder was based on the 1989 A.A.P.L. Model Form Operating Agreement, which references “its activities under the agreement” in place of “all such operations.” The court agreed with commentators that the 1989 Model Form language provides more expansive protection for the operator than do the 1977 and 1982 Model Forms and requires a showing of gross negligence or willful misconduct in order to hold the operator liable to nonoperators in relation to any of the operator’s activities under the JOA. The court found insufficient evidence of gross negligence or willful misconduct as to claims against the operator in Reeder.

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