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Legal
Updates Articles are not intended to be and should not be relied upon as legal advice or to establish any kind of an attorney-client relationship with the author. How Safe is Your Harbor?: Suspense of Production Payments in the Wake of 1776 Energy Partners, LLC v. Freeport-McMoran Oil & Gas LLC
Texas
decision reversed the trial court’s grant of summary judgement and remanded the case back to the trial court for further proceedings regarding fact issues. Between the years of November 2011 through March 2012, Appellant 1776 Energy Partners, LLC (“1776”) and Appellees Freeport- McMoran Oil & Gas, LLC and Encana Oil & Gas (USA), Inc. (“Freeport” and “Encana”) entered into five joint operating agreements for the development of their oil and gas leases. Freeport and Encana were designated as operators of the contract areas. 1776 participated as a non-operator and was entitled to its proportionate share of the net proceeds from the production of oil and gas. 2 1 1776 Energy Partners, LLC v. Freeport-McMoran Oil & Gas LLC , No. 04-20-00468-CV, 2021 Tex. App. LEXIS 10157 (Tex. App. Dec. 29, 2021) 2 Id. at 2.
In 1776 Energy Partners, LLC v. Freeport-McMoran Oil & Gas LLC , the Court of Appeals of San Antonio examined whether production payments under various joint operating agreements were properly held in suspense without interest under the “safe harbor” provisions of Texas Natural Resources Code Section 91.402(b) (a/k/a the “Texas Suspense Statute”). 1 Specifically, it examined whether creation of a constructive trust pursuant to a judgment amounted to “a dispute concerning title that would affect distribution of payments” pursuant to Section 91.402(b)(1)(A). For the reasons discussed below, the Court found that as a matter of law, creating a constructive trust pursuant to a judgment did not create a suspense-worthy title dispute affecting distribution of payments under the joint operating agreements. Consequently, the operators were not entitled to withhold payments on production without accruing interest. This
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