Oil and Gas
Public and Private Royalty Owner Lawsuits
Susman Godfrey has represented public and private royalty owners in disputes over the proper royalty they should receive. Our experience in this area is extensive.
- Susman Godfrey is currently co-lead counsel representing the New Mexico Commissioner of Public Lands in royalty litigation against ConocoPhillips and other major natural gas producers operating under New Mexico statutory leases. In these actions, the Commissioner alleges that natural gas producers have systematically underpaid their royalty obligations for decades by taking improper deductions for "post-production costs" that are not authorized by the leases and, in any case, are not based on actual costs. The Commissioner also claims that the producers have failed to report and pay royalties on condensate and have improperly used gas to fuel their processing facilities without paying the required royalties.
- In August 2006, settlement checks totaling more than $18.9 million were sent to more than 4,300 royalty and overriding royalty owners across the United States. Plaintiffs sued ConocoPhillips in 2000 for alleged underpayment of royalty due on natural gas liquids produced from the San Juan Basin of northwestern New Mexico and processed at the New Blanco Plant near Bloomfield, New Mexico. ConocoPhillips agreed to settle the claims for $29.5 million. The district court approved the settlement and awarded attorneys' fees of $7 million from the settlement fund. Susman Godfrey was co-lead counsel in the class action.
- In November 2005, the trial court approved Oxy USA, Inc.'s settlement to pay $12 million in a class action lawsuit in which Susman Godfrey was co-lead counsel. The lawsuit was filed on behalf of a class of royalty owners who leased mineral rights to Oxy for the production of carbon dioxide from the Bravo Dome Carbon Dioxide Unit in northeastern New Mexico. The $12 million settlement, of which $3.5 million was awarded for attorneys' fees, represents approximately 90 percent of the total amount of actual damages sought by the class. The settlement also requires Oxy to pay litigation expenses of up to $400,000 and settlement administration expenses of up to $200,000. Finally, Oxy agreed to change how it calculates plaintiffs' royalty on a going-forward basis. This change ties the value of carbon dioxide to the price of oil and is expected to result in a near doubling of the royalty amounts Oxy was paying the class members before the filing of this lawsuit in 2004.After years of attempting to negotiate an agreement for the proper payment of royalties to it for CO2 from the Bravo Dome Unit, the New Mexico Commissioner of Public Lands retained Susman Godfrey as co-lead counsel to represent it against Conoco. In short order, the State and Conoco resolved all disputes, with the State's royalty pegged to the price of oil.
- Susman Godfrey successfully represented thousands of mineral interest owners in a class action lawsuit against Meridian Oil Inc. challenging the prices paid for gas production. Similarly, we were plaintiffs' counsel in a class action against major oil companies challenging the use of posted oil prices that are too low to calculate royalty payments. Our clients in this case included the Texas General Land Office.
Other Contract Disputes
- Susman Godfrey has extensive experience representing oil and gas producers, processors, and pipeline companies in litigation. We have represented both plaintiffs and defendants in numerous disputes over the rights and duties of operators of oil and gas wells. Our experience includes issues of the obligation to develop leases and protect against drainage, claims of environmental and other damage to the surface or groundwater, disputes over joint accounting procedures under COPAS, drilling disputes, claims arising under gas processing and gas balancing agreements, rights to seismic and other geologic data, and litigation over farm out and AMI agreements. The lawsuits we have handled have given us substantial experience with issues arising from oil and gas development in many parts of the world.
- During 2011, Susman Godfrey represented a mid-stream company in an expedited arbitration against a joint-venture partner on one of its pipelines. The arbitration involved claims that the joint-venture partner breached its fiduciary duties by refusing to agree to increase throughput on the pipeline to return it to its nameplate capacity under the parties' operating agreement. After limited document and oral discovery, the case settled favorably for our client.
- Susman Godfrey represented Enterprise Products Operating LP in an arbitration involving Marathon Oil Company's claims that Enterprise's predecessor in interest had breached a long-term gas dedication provision in a gas processing contract. After Enterprise prevailed on most issues on summary judgment, the parties settled. In 2010, Susman Godfrey LLP successfully represented Apache Corp. in major litigation against Concho Resources Inc. regarding the exercise of preferential purchase rights on hundreds of million dollars of oil and gas assets in the Permian Basin of West Texas and New Mexico. The dispute arose in connection with the acquisition by an Apache subsidiary of BP America's and BP America Production Company's interest in certain Permian Basis oil and gas assets, and Concho's acquisition of private producer Marbob Energy's interest in those same Permian assets. The case settled on commercial terms favorable to Apache, with Apache securing operating rights and a 60% interest in the disputed assets, after we filed a motion for summary judgment to establish the legal validity of Apache's exercise of its preferential rights.
- In 2010, Susman Godfrey represented Enterprise Products Operating LLC and Mid-America Pipeline Company, LLC as plaintiffs in a lawsuit against Flint Hills Resources, L.P., a subsidiary of Koch Industries. The dispute arose in connection with a natural gas liquids storage and purchase agreement between Enterprise and Flint Hills. Enterprise and MAPL built a pipeline as part of the agreement. Flint Hills sent notice of early termination but refused to pay a contractual termination fee of up to $30 million to Enterprise. Susman Godfrey filed a lawsuit in Harris County, Texas on behalf of Enterprise and MAPL seeking the termination fee and attorneys' fees. The case settled on confidential terms less than a month before trial and after we filed a motion for summary judgment on all issues besides attorneys' fees.
- Susman Godfrey represents TransCanada Keystone Pipeline, LP in eminent domain proceedings related to the construction of a $12 billion crude oil pipeline system. Susman Godfrey handles cases in which landowners challenge Keystone's right to exercise eminent domain
- Susman Godfrey represented Jonah Gas Gathering Co. in a declaratory judgment action against Williams Field Services on Williams' claims that Jonah breached an interconnect agreement to deliver gas to a Williams' gas processing plant in Wyoming. Williams moved to dismiss that case against Jonah (a Texas resident) based on forum non conveniens. Jonah successfully defeated Williams' motion in the trial court, and subsequently defeated Williams' mandamus petitions in the Fourteenth Court of Appeals and the Texas Supreme Court.
- Susman Godfrey represented Enterprise Products Operating L.P. in a dispute with Sunoco Pipeline over who was entitled to purchase a shareholder's stock in Dixie Pipeline Company. After expedited discovery and bench trial that lasted a total of six weeks from start to finish, the court found for Enterprise.
- Apache Corp. v. Virginia Power Energy Marketing, Inc. and Dominion Resources, Inc. During the summer of 2005, Hurricanes Katrina and Rita devastated natural gas production and pipeline infrastructure in the Gulf Coast. Certain natural gas producers could not make gas deliveries and declared force majeure under their NAESB contracts. Apache hired Susman Godfrey to represent it when one of its buyers challenged the force majeure declaration. After extensive discovery, the trial court granted Apache's motion for summary judgment that a producer is not obligated to make deliveries to alternate locations or to acquire gas from other, unaffected sources. An appeal is pending. Susman Godfrey was lead counsel in a successful defense brought against our client NIPSCO (now NiSource), the electrical power company for Northern Indiana. The case settled favorably for our client after two weeks of trial in federal district court in Chicago. The successful result came on the heels of another positive result we secured for NIPSCO in defending the company against a $200 million claim.
- Susman Godfrey has successfully represented both producers and pipelines in lawsuits over take-or-pay gas contracts. In 1989, we obtained a judgment of more than $600 million for TransAmerican Natural Gas Corporation in its take-or-pay lawsuit against El Paso Natural Gas Company. The Texas Lawyer described this lawsuit as "the first case in which a pipeline company was found to have repudiated its take-or-pay contract." Four years later, we successfully defended Tennessee Gas Pipeline in a lawsuit by Coastal Oil & Gas Corporation seeking benefits under a gas contract valued at more than $740 million. A South Texas jury found for our client on all issues. We obtained summary judgment for our client, Southern Natural Gas Pipeline, in a $100 million take-or-pay contract lawsuit against Exxon Corporation, and we have successfully tried or settled on favorable terms numerous other disputes over long-term gas contracts in which we have represented either the producer, the pipeline, or the ultimate user of the gas. In 1996, we won a defense verdict for Intratex Gas Pipeline in a suit by producers alleging a fraudulently administered special marketing program.
- In January 1997, we successfully represented Enron Clean Fuels Company in a declaratory judgment action in federal court in the Southern District of Texas. The issue was whether Chevron could cancel a 5-year gasoline additives contract. In its counterclaim, Chevron sought $30 million in actual damages, plus punitive damages. The jury found for Enron on all issues.
- We have substantial experience with other kinds of long-term contracts as well. For example, we obtained a multi-million dollar settlement for the Decker Coal Company of Montana in its lawsuit against the City of Austin, Texas and the Lower Colorado River Authority over a long-term coal contract.
- In November 1996, a jury in Zapata County, Texas awarded our client, Tennessee Gas Pipeline Company, $143 million in a breach of contract and fraud case against KCS Resources. KCS had secretly injected propane to raise the BTU content of natural gas it sold Tennessee under a high-priced gas contract during 1994.
- In 1997, Susman Godfrey won a three-day trial for an Apache Corporation subsidiary in bankruptcy court in Louisiana . The bankruptcy action was brought by working interest owners who that the Apache subsidiary Corporation alleged they were through into bankruptcy by Apache Corporation subsidiaries in bad faith in connection with an international drilling project involving hundreds of millions of dollars in value. Ken McNeil was lead trial lawyer.
Establishing Rights to and Value of Minerals
- In 2006, Susman Godfrey was hired to oversee a Canadian trial team in a major trial. Apache Corporation's Canadian subsidiary sought the return of bids obtained through improper use of confidential drilling data worth more than $100 million. The subsidiary faced a counterclaim of $300 million. The eight- week trial resulted in a total victory for Apache's subsidiary. In 1998, a Dallas jury awarded our client, London-based Breezevale Limited, more than $38 million in a lawsuit against Exxon Corp. The jury found that Exxon breached an oral contract to give Breezevale a 2.5% working interest in oil blocks off the coast of Nigeria after Exxon acquired the blocks with Breezevale's assistance.
- In 1998, Susman Godfrey served as lead counsel in a $100 million lawsuit filed by a subsidiary of Apache Corporation against Petrochina and other Chinese entities. We obtained the first ever U.S. temporary restraining order against Petrochina. It prohibited three oil companies from the People's Republic of China from taking back almost 200 square kilometers on their own mainland. The lawsuit was settled favorably shortly after the TRO was obtained.
- In 1993, we obtained a favorable settlement for a small Colorado oil and gas exploration company seeking to enforce an agreement to participate in the development of oil and gas opportunities in Kazakhstan. That year we also recovered a $62.5 million jury verdict for two individuals who sued Schlumberger over rights in a diamond mining concession off the coast of South Africa. In 1994 we successfully defended True Oil Company against a $100 million claim alleging interference with an oil concession in Honduras. The jury found no liability.
- We represented two classes of former owners of Shell Oil Company stock in a lawsuit involving the value of Shell and its reserves at the time of a 1985 cash-out merger by Royal Dutch. The Delaware Supreme Court upheld two awards for these classes: one for $120 million and another for $38 million. We obtained a settlement for Aetna in a lawsuit over the value of oil and gas prospects sold by Marvin Davis and the Davis Oil Company. In 1992, we won a $5.4 million jury verdict from two individuals in a case evaluating the likely future revenues from oil and gas prospects. We presently represent a class of plaintiffs suing Plains Resources Inc. alleging overstatement of reserve values and cash flow projections from a gas discovery in Louisiana.
- We have represented Ultramar in a dispute with Huffco over an AMI in Indonesia.
Industry Consolidation — Realignment — Antitrust
- Susman Godfrey currently represents Enterprise Field Services in a declaratory judgment action over long-term gas gathering agreements in the San Juan Basin of northwestern New Mexico. Susman Godfrey is also defending Enterprise Field Services in multiple forums against ConocoPhillips' allegations of state antitrust and regulatory violations relating to those gas gathering agreements
- Susman Godfrey successfully represented American Central Gas Companies in an arbitration in connection with its antitrust claims. During a two-week binding arbitration -- less than two months after being ordered to arbitration -- we proved that defendants Union Pacific Resources and Duke Energy Field Services had attempted to monopolize and had monopolized the market for natural gas processing in Panola County, Texas. The arbitrator awarded American Central treble damages. Upon release of the arbitrator's decision, the defendants tried to seal the arbitration order. We opposed. The arbitrator and the federal district judge both refused to seal the arbitration order.
- We represented Southern Natural Gas Company in its Gas Supply Realignment proceedings at the Federal Energy Regulatory Commission in which Southern has achieved a settlement with most of it customers that has been approved by the FERC. Although some litigation remains, Southern has effectively resolved responsibility for several hundred million dollars' worth of exposure under high-priced long-term gas contracts.
- When Mesa Petroleum attempted a hostile acquisition of Unocal Corporation, Susman Godfrey represented Unocal in an antitrust lawsuit challenging the proposed takeover. Similarly, we represented InterNorth in an antitrust action when Coastal challenged its merger with HNG. We recovered approximately $50 million for purchasers of oil field tubulars in a class action antitrust lawsuit alleging price-fixing.
Power Plant Construction Disputes
We represented the City of Austin, Texas in a two-month jury trial in Houston against Houston Lighting & Power over the South Texas Nuclear Project. The parties settled during jury deliberations. HL&P paid our client $20 million and agreed to step aside as operator of the project. We also represented Tenneco Ventures in a dispute over an agreement to build and operate a cogeneration plant on a university campus.