Supreme Court Victory in $50 Million Oil & Gas Contract Case

  • June 15, 2015

On June 12, 2015, the Texas Supreme Court handed down its opinion in Plains Exploration & Production Co. v. Torch Energy Advisors Inc.  By a vote of 8-1, the Court held that the “excluded assets” provision of the purchase and sale agreement unambiguously conveyed the disputed assets to Beck Redden’s client, Plains Exploration & Production Co.

From the late 1960s to the early 1980s, the U.S. Government granted mineral leases for drilling in federal waters off the coast of California in return for over a billion dollars in bonuses.  But the Government, through a complex regulatory scheme, eventually breached the leases by making drilling and production effectively impossible.  This sparked litigation by numerous lessees, including Plains, against the Government, which led to a $1.1 billion judgment against the Government.  Plains’ share of the judgment was over $83 million.  Meanwhile, many of the leases had changed hands.  A dispute arose between Plains and Torch over who had the right to sue the Government for breach and to recover damages.  Plains maintained that it had the right to recover against the Government because the Government’s breach occurred when the leases belonged to Plains.  But Plains’ predecessor-in-interest – Torch Energy Advisors – disagreed and claimed the right to share in about half of the winnings from such litigation because of the wording of the purchase and sale agreement.  The trial court ruled in Plains’ favor, but the court of appeals disagreed.  The Supreme Court construed the agreement, and, by a vote of 8-1, agreed with Plains:  the contract did not reserve any such right for Torch.  Justice Eva Guzman wrote:  “We hold that the relevant excluded-assets provisions in the 1996 purchase and sale agreement are unambiguous and, as a matter of law, Torch did not retain ownership of the claimed asset.” 

Beck Redden appellate lawyers David M. Gunn, William R. Peterson, and Erin H. Huber worked on the appeal.  Mr. Gunn presented the oral argument in the court of appeals.  Mr. Gunn split the oral argument in the Supreme Court with the Hon. Scott A. Brister from Andrews & Kurth LLP.  Mr. Gunn gave the opening argument, and Mr. Brister gave the rebuttal.  They worked in conjunction with attorneys Billy Shepherd, Wayne Clawater, and Stephen R. Bailey of Shepherd, Scott, Clawater & Houston, L.L.P.  Please see the attached opinion.