### TEXA S C OU R T OF A PPEAL S, THIR D DIST R ICT , AT AU STIN

NO. 03-0 7 -00 384 -CV

Shor e ham Oil & G as Co m pany , I nc . , A Sout h Da kot a, USAF or e ign Busi ne ss C or por at ion , App e lla nt

v. The State of Texas , Appellee

F ROM THE DISTRICT CO URT OF TRAVIS COUNTY , 53RD JUDICIAL DISTRICT NO. D-1- GV-05- 0008 40 , HO NORAB LE ORLI NDA NARAN JO , JUDGE PRESIDI NG

O P I N I O N
Th e Sta te of Te xas br ou g ht a n a c tio n a g a ins t Sh or e ham O il & Ga s Co mpa ny , I nc . to
rec over sta t e fu n d s ex p ended by the Railroad Commission of Tex as in plug g ing a g as we ll. The district court gra

nted t he S tate’s moti on for pa rtial summary

judgme nt, finding Shore ham was the operator of the we ll as a matter of law during the rele vant time pe riod. Ba sed on the par tial summary judgme nt, the district court did not permit Shoreham to present a ny evidenc e at tria l that it was not in possession and control of the well during the rele vant time pe riod and that, there fore , it wa s not liable for a

ny plugg ing e x penses i n cu rr ed by the Commiss ion. At the conclusion of the tr ial, the district court re ndere d judgme nt on a jury verdic t in favor of

the State. Shoreham appea ls the district

c ourt ’s ru lin g on

the pa rt ia l summa

ry jud g me nt. We a ff

ir m.2

Fac tua l an d P

ro c e dural B ac kg

ro und I n Apr il 1 99 6, Sho re ham O il & G as Co mpan y be c a me the le sse e of

the g a s w e ll identified as “S tate Tra ct 288 (148811) L ease , Well No. 1, Redfish Reef, SW. (Vicksburg ) F ield, Chambers County , Texas” (the “Well”). The Well wa s located in Ga lveston Ba y on a state- owned trac t leased f

or production by

the Texas Gene ral L and Of fice . On Octobe r 8, 2004, the GL O notified Sho re ham by

le tte r t ha t it s le a se wa s f

or fe ite d b a se d o n Sh or e ham’ s fa ilu re to ma ke ro y a lty

pa y me nts
on the pr od uc tio n o f o il a

nd g a s un de r the le a se . I n the le tte r, the GL O o rd e re d Sh or e ham to c e a se oper a ti o n s a n d v a c a te th e p r e mi s e s . Sh o r e h a m d is p u te d th e c a lc u lati o n s o f th e a mo u n t owed and soug ht to have the f

orfe iture of the le ase r escinde d. The GL O agree d to rescind the f orfe iture, p r o v id e d th a t Sh o r e h a m s o ld a ma jo r it y in te r e s t in th e le a s e to L a y to n E n e r g y , I n c . —

w ith whic h Shoreham ha d rec ently

been in ne g otiations for the sale of an inter est in the Well—and provided that L a y ton be c a me the op e rator of the Wel l. Sho re ham, in tur n, e xec ute d a Pur c hase an d S ale Ag ree ment that would have sold sixt y perc ent of the le ase to L ay ton. Howeve r, on De cembe r 9, 2004, prior to the c losing of the sale a n d t ra n s fer of op e r a to r s tatu s to L a y

to n , it w a s d is c o v e r e d th a t th e We ll w a s le a k in g g a s a n d c o n d e n s a te . The Railroad Commissi on was not satisfied with Shoreham’s subsequent eff orts to stop the leak a

nd, on De c e mbe r 2 1, 20 04 , to ok

c on tr ol o f t

he Wel l and

ult imate ly

plu g g e d it . O n Apr il 5, 20 05 , th e Sta te ins tit ute d li tig a tio n a g a ins t Sh or e ham to re c ov e r the state fu nd s sp e nt b y

the Com mis sio n to c on tr ol,

c le a n u p, a nd plu g the Wel l. The S t at e filed a motion for partial summary judgme nt, in which the State soug ht judgme nt as a matter of l aw that Shoreham was the “operator” responsible for plugg ing e x penses a

nd3

that the Commiss ion was justified in taking over and plugg ing the Well. The district cour t gr anted the State’s motion on Shoreham’s status as ope rato r of the Well, but denied the re mainder of the State’s motion. At trial, t h e jury found that as of

Dec ember

21, 2004, the Commiss ion was authorized to take ove r and plug the Well, oil and g as wa stes from the Well wer e ca using or wer e lik e ly to c a us e po llu tio n o f the su rf

a c e or su bs ur fa c e wate r, a nd Sho re ham ha d a sse ts wi th wh ic h to control or c lean up the oil a nd g as wastes. The jury awa rded $386,000 in da

mag es to the State for the expenses incurr ed. On May 30, 2007, the district court e ntere d final judg ment on the jury awa rd, plu s p re - a

nd po st- jud g me nt i nte re st, c ourt

c os ts, a nd

a tto rn e y s’ fe e s. Shoreham ra ises a si ng le i ssue on appe al—that the district cour t erre d in gr anting the State’s motion for par

tial summary

judgme nt that Shoreham was the operator of the Well for purposes of the statute allowing the State to rec over its costs, and t h i s er ror prevente d Shoreh a m f

r o m p r e s e n ti n g e v id e n c e , a r g u in g to th e ju r y , a n d s u b mi tt in g a

ju r y is s u e on Shoreham’s r esponsibility for the plug g ing expenses on the basis that it wa s not the “oper ator.” See Tex. Nat. Res. Code Ann. § 89.043(f) (West Supp. 2007).
Discussion We reviewthe trial cour t’s partial s ummary

judgme nt de novo. Pr ov ide nt Life & Ac c ide nt In s. Co. v . Kn ott , 128 S.W .3d 211, 215 (Tex. 2003). Unde r Rule 166a( c) of the Te x as Rules of Civil P roce dure, a summary

judgm en t s h o u l d be g rante d only when the movant establishes that there is no g enuine issue as to a ny materia l f

act and that i t i s en t i t l ed to judgment as a matter of law. See Te x. R. C iv. P. 1 66 a (c ); Lear Siegler, Inc . v. Pe rez , 81 9 S. W.2 d 4 70 , 4 71 (T e x. 19 91 ); Majeski v . Est a t e o f Majeski , 163 S.W .3d 102, 1064

(T e x. Ap p. —A us tin

20 05 , n o p e t.)

. I n r e vie wi ng a g ra nt o f s umm a ry

jud g me nt, we a c c e pt a s tr ue a ll

e vid e nc e fa

vo ri ng the no n- mov a nt, ma kin g e ve ry re a so na ble inf e re nc e a nd

re so lvi ng a ll d ou

bts in the non-movant’s f

avor. See Nixon v . Mr. Prop. Mgmt. Co. , 690 S.W .2d 546, 548-49 (Te x . 1985). Texas law place s the responsibility for plug g in g a gas well on the oper ator. See Tex. Nat. Res. Code Ann. §§ 89.011, .043, .083 (West Supp. 2007). Shoreham does not dispute that i tb e c a m e t h e o p e r a t o r

o f t h e W e l l i n 1 9 9 6

. R a t h e r , S h o r e h a m t a k e s t h e p o s i t i o n t h a tw h e n t h e G LO fo rf e ite d th e le a se , Sh or e ham no lon g e r h a d th e re qu isi te op e ra tio na l c on tr ol o ve r t

he Wel l and , th

us , cea sed being the actua l operator. As a c onsequenc e, it would avoid leg al re sponsibili ty for plug g ing

e xpe ns e s. Ce ntr a l to ou r re so lut ion of thi s a pp e a l is the e ff

e c t of Sho re ham’ s r e qu ir e d f

ili ng s w ith the Com mis sio n w ithre sp e c t to its status a s th e op e ra tor of the Wel l. Shoreham filed a

For m P-4 ( Producer ’s Transpor tation A uthority and Certific ate of Compli ance ) with the Commissi on in April 1996 to designate itself as the Well’s oper ator. The State’s motion for par

tial summary

judgme nt orig inall y re lied on this 1996 P -4 to establish that Sho re ham w a s th e op e rator . I n it s r e sp on se to the Stat e ’s mot ion fo r p a rt ia l summa

ry jud g me nt, Shoreham took the p o sition t hat bec ause the For m P-4 was filed in 1996, Shoreham’s operator status de pe nd e d o n th e law i n e ff e c t pr ior to S ept emb er 1, 19 97 . Sh or e ham argue d th a t pr ior to September 1, 1997, to de termine that Shoreham was the “oper ator” of the Well, the law re quired the State to establish that Shoreham wa s in “phy sical oper ation and contr ol” of the Well. Ther efor e,
a c c or din g to S ho re ham, the c ourt c ou ld not ho ld Sho re ham r e sp on sib le fo r p lug g inge xpe ns e s a s a matter of la

w. The State r esponded w ith a suppl emental f iling to which it attac hed a se cond F or m P- 4, wh ic h h a d b e e n f

il ed by Sho re ham in

Oc tob e r 2 00 0. Th e 20 00 P- 4 s e t ou t a c ha ng e inShoreham bases its interpr etation of pre- 1997 law on the then- exis ting statutory lang uag e, 1 see Act of Ma

y 30, 1993, 73d L eg ., R.S., ch. 882, § 1, 1993 Tex. Ge n . L aw s 3505, 3505 (def ining “ operator” a s the “pe rson who is respons i ble for the phy sical oper ation and contr ol of a we ll at the time the well is about to be aba ndoned or c ease s opera tion”) (amen d ed 1997) (cur rent ve rsion at Tex. Nat. Res. Code Ann. § 8 9

. 0 0 2 (a )(2) (West Supp. 2007)); pre- 199 7 ca s e l aw, see Railroad Comm’n v . American P etrofina Co. of T ex. , 576 S.W .2d 65 8, 65 9 (T e x. Civ

. Ap p. —B e a umo nt 19 78 , no wr it) (d e fe nd a nt wa s n ot a we ll’ s o pe ra

tor wh e re it “has ne ver use d this well, has no intention of doing so, a nd in fa ct d i d n o t even know it was on the . . . l ea se at the time of a cquisition”); and the Commission’s curre nt reg ulations, see 16 Tex. Admin. C ode § 3.14(c )(2) (2008) (T ex . R.R. C omm’n, Plugg ing) (making the oper ator’s plugg ing r esponsibility

a re bu tta blepresu m p t i o n for a well “f or which the most rece nt Com mis sio n- a

pp ro ve d o pe rator

de sig na tio n f

or m w a s f ile d p ri or to S e pte mbe r 1 , 1 99 7” ). Th e Sta te bases Shore ham’s oper ator status under pre- 1997 law on Shoreham’s summar y judgme nt proof failin g t o ra i s e a fact issue to rebut Shoreham’s plugg ing r esponsibility as oper ator. We nee d not consider the parties’ arguments as to pr e-1997 law beca use we deter

mine that the 2000 P-4 g overns Sho re ham’ s o pe rator

status
. 5 condensate g ather er a

nd a cha ng e in g as purcha ser and g ather er. The 2000 P-4 also listed Shoreham as the ope rator. A ccor di n g t o the State, bec ause the For m P-4 was filed in 2000, Shoreham’s operator status was subjec t to the l aw in eff ect after September 1, 1997, and thus, Shoreham a s the operator was r esponsible for plug g ing e x penses a s a matter of law w ithout any additional proof a s to whether

it wa s i n “phy sical oper ation and contr ol” of the Well. I n enter ing pa rtial summary judgme nt on Shoreham’s status as the opera tor of re cord of the Well, the district court did not specify whether its ruling wa s based on the 1996 P-4 or the 2000 P-4. Sho re ham argue s o n appe a l th a t th e Sta te mus t r e ly on the 19 96 P- 4 a

nd that, a s a result, there is a fac t issue on Shoreham’s responsibility for the phy sical oper ation and contr ol of the Well, which was not submitted to the jury due to the district cour

t’s ruling o n S h o re h am’s status

a s t h e o p e r a t o r . T h e S t a t e a r g u e s i n r e s p o n s e t h a t i tc a n r e l y o n t h e 2 0 0 0 P

- 4 a n d , a l t e r n a t i v e l y, that e ve n if

it mus t r e ly

on the 19 96 P -4, unde r p re -1 99 7 la w Sh or e ham is the op e ra tor a s a matter of la

w. 16 We b e g i n b y d e t e r

m i n i n g w h e t h e r t h e S t a t e c a n r e l y o n t h e 2 0 0 0 P -4 to establish Shoreham’s liability as the ope rator of

the Well. I n making this inquiry , we look first a t th e la n g u a g e o f th e a

p p li c a b le s tatu te. S

ee State v. Shumak

e , 199 S.W .3d 279, 284 (Tex. 2006) (“When c onstru i n g a statute, we beg in with its lang uag e.”) . The Te x as Na tural Resourc es Code identifies the oper ator of a well as the “ person who a ssumes responsibility for the phy sical oper ation and contr ol of a we ll as shown by a for m the person files wit h the commission and the commission

a pp ro ve s. ” Te x. Nat. Re s. Cod e An n. § 89 .0 02 (a )( 2) (We st Sup p. 20 07 ). S ho reha m i nitia lly assumed re sponsibili ty

for the phy sical operation and contr ol of the Well pursuant to the 1996 P-4. Al tho ug h Sh or e ham c on c e de s it fi le d a no the r F or

m P- 4 w iththe Com mis sio n in 20 00 , it c la ims it did so for purpose s other than de signating Shore ham as the ope rator—i.e ., fo r the purpose of

c ha ng ingthe de sig na te d c on de ns a te g a the re r a nd g a s p ur c ha se r. Sho re ham c on te nd s that, a s a re su lt, its op e rator

status a ri se s so le ly

fr om t he 19 96 P- 4. Ho we ve r, the statut e its e lf do e s n ot r e fe r o nly

to the fo rm on wh ic h th e op e rator

is ini tia lly desig nated. Nor doe s the statute re quire the f orm to be filed for the pu rp os e of establishing the operator. The statute mere ly require s that the form “ show” the per son to be the oper ator. See id. Th e 20 00 P -4 is a n o pe rator -d e sig na tio n f

or m th a t, i n f

a c t, shows Shoreham to be the operator. This satisfies the plain lang uag e of se ction 89.002(a) (2).

Our a dhere nce to se ction 89.002’s plain lang uag e and r ejec tion of Shoreham’s inter

preta tion of the statute is suppor te d b y th e a d ministrative c onstruction of the statute. Te x. Go v’ t Co de An n. § 3 11 .0 23 (We st 2 00 5) ; Helena Che m. Co. v. W ilkins , 47 S.W .3d 486, 493 (Tex. 2001) (whe n statute not ambig uous on its face , courts may nonetheless c onsider other fac tors to d e te rm ine le g isl a tiv e int e nt)

. “ Con str uc tio n of a statut e by the a dmi nis tr a tiv e a g e nc y c ha rg e d w ith7

its enforc ement is entitled to serious consideration, so long as the construction is r easona ble and doe s
n o t c o n tr a d ic t th e p la in la n g u a g e o f th e s tatu te .” T ar ra nt Appr ais al D ist . v . M oo re , 845 S.W .2d 820, 823 (Tex. 1993). The Commission’s reg ulations for plug g ing r esponsibility state:
Th e e nti ty

de sig na te d a s th e op e ra tor of a we ll s p e c if ic a ll y id e n ti fi e d o n the most rece nt Comm ission-approved operator designation form filed o n o r a fter Septembe r 1, 1997 , is re sp on sib le fo r p ro pe rl y plu g g ing the we ll in a c c or da nc e wi th this sect i o n and all other

applicable Commi ssion rules and re g ulations conce rning plu g g ingof

we lls

. 16 Tex. Admin. C ode § 3.14(c )(1) (2008) ( Tex. R.R . Comm’n, Pl ug g ing) (empha sis added). Ac c or din g to t

he Com mis sio n’ s r e g ulatio ns , th e de te rm ination o f w hic h r ule s a pp ly to determ i ne oper ator status depe nds on whether “the most rec ent Commiss ion-approve d operator desig nation form” that identifies the oper ator wa s filed before or after September 1, 1997. See id. § 3.14(c) (1), ( 2). This r ule is entirely

consistent with the lang uag e of the statute. Nothing in the statute requir es the for m to be the initial

desig nation of the operator or filed for the pu rp os e of desig nating the oper ator. Under the r eg ulations, any filing of an oper ator-de signation form that identifies t he oper ator qua lifies as a f iling esta blishing we ll-plugg ing r esponsibility

. See id. Th is is not inconsist ent with the statute.

The F orm P-4 is a Commis sion-approve d operator-desig nation form. A F orm P-4 is f ile d f or a n in div idu a l g a s w e ll. B y its te rm s, the F or

m P- 4 must be fi led fo r a ne w g a s w e ll;

a r ec l as s i fi ca t i o n (o i l t o gas , o r gas t o o i l ); a co n s o l i d at i o n , u n i t i z at i o n , o r s u b d i v i s i o n ; o r a ch an ge in opera tor, g ather er, pur chase r, purc haser sy stem code, f

ield name, or lea se name . The filing of a For m P-4 for a g as we ll is an indi cation of an oper ator’s a cce ptance of re sponsibili ty for the phy sical8

operat i o n and control of the well. See R ailroad Comm’n v. Ame rican Petrofina Co. of T ex. , 576 S.W .2d 658, 659 (Tex. Civ. App.—B eaumont 1978, no writ) (under pre -1997 law, de fenda nt was not a w ell’s operator where it neve r used the w ell and had no intention of doing so). I n fac t, the 2 0 0 0 P -4 s i gn ed b y

S h o re h am ’s p re s i d en ti n c l u d ed a c er t i fi ca t i o n s t at i n g, “I ack n o wl ed ge responsibilit y fo r t h e re g ulatory compliance of the subjec t lease, I NCL UDI NG PL UGGI

NG OF WEL L S if require d under Statew ide Rule 14.”

There fore , by

requiringthat the form e stablishing an e ntity as a g as we ll’s opera tor be a “ Com mis sio n- a

pp ro ve d o pe rator

de sig na tio n f

or m,” the Com mis sio n’ s r e g ulatio ns re a so na bly

ensure that an operator’s post-1997 activity results in the applica tion of post-1997 law only wher e the operator is , in fac t, indicating that it bear s responsibility for the phy sical operation and contr ol of t he well. This approa ch reflec ts the s tated legislative purpose for the 1997 amendment to sec tion 89 .0 02 (a )( 2) —o nc e a n op e rator a c c e pts plu g g ing re sp on sib ili ty , it re ta ins su c h re sp on sib ili ty un til

“ the op e rator

tr a ns fe rs the we ll to a n e nti ty re c og nize d by the Ra ilr oa d Co mmi ssi on a s an e nti ty

wi th

s u ff icient financ ial secur ity .” See S en. Co mm . o n Na tu ral Re so urce s, Bil l A nal y si s, Tex . S .B. 638, 75th L eg ., R.S. (1997).

Shoreham argues that even if a For m P-4 f iled for a purpose other

than desig nating the well’s ope rator c an re sult in t he imposition of post-1997 statutory re s p o n s i bility

for plug g ing costs, the State did not introduce suff icient evidenc e that Shoreha m’s 2000 P-4 was a f

orm “appr oved by

the commission.” See Tex. Nat. Res. Code Ann. § 89.002(a )(2) (assumption of responsibility for the phy sical operation and control of a well i s shown by “a f orm the per son filesShoreha m ’s p re sident admitted by aff idavit that Shoreham filed the 2000 P-4 w ith the 2 Commi ssion. 9 with the commi ssion and the commissi on approve s”). Howeve r, the 2000 P-4 on its face indicates 2 that the Commi ssion a

pproved Shoreham’s filing. The For m P-4 has an ar ea spe cifica lly desig nated for Commission approval. This are a on t h e 2 0 00 P-4 in question is i nitialed as “A pproved” and dated “ 10-4-00.” This is evidence that the Commiss io n ap p ro v ed the form, a nd it was

un c on tr ov e rt e d b y

Sho re ham. We , th e re fo re , f ind the su mma

ry jud g me nt e vid e nc e su ff ic ie nt a s to the Commiss ion’s approva l of the 2000 P-4.

Next, S horeha

m arg ues that the State’s e vidence an d response s to discovery

r e f e r e n c i n g t h e 1 9 9 6 P

- 4 a c t a s a n a d m i s s i o n a g a i n s t i n t e r e s t a n d a w a i v e r o f t h e S t a t e ’ s a b i l i t y to
re ly on the 20 00 P- 4 to e sta

bli shSho re ham’ s p lug g inglia bil ity . H ow e ve r, ne ith e r o f t he state me nts made by the State that Shoreham relies on for this a rg ument is inconsistent with t he State’s r eliance on the 2000 P-4 to establish Shoreham’s liabili ty
. I n an affidavit attached to t he State’s motion for partial summary

judgme nt, a district direc tor of the Commission st ated that Shoreham “ beca me the operator of re cord on A

pril 30, 1996.” This is a stateme nt of historical fa ct and is not inconsistent wi th t he Sta te ’s re lia

nc e on the 20 00 P- 4 to est a bli sh po st- 19 97 op e rator status . Sh or e ham in iti a lly beca me t h e o p erator by

filing the 1996 P-4, but formally acknow ledg ed its continued status as the oper ator of the Well on the later 2 000 P-4. I n the State’s re sponses to interrog atories, the State ref ere nced the 1996 P-4 as documentation supporting its position “as to who was the operator of [the] W ell.” This is not inconsistent with t h e S t at e’s r eliance on the 2000 P-4 for the purpose of

establishing post-1997 ope rator sta tus. T h e 1996 P-4 identified Shoreham as theBa sed on our analy sis, in addition to finding that the S tate’s motion for pa rtial summary 3 judgme nt was prope rly

g rante d, we f

ind that Shoreham’s motion for c larificat i o n o f the par tial summary judgme nt (which reque sted the district court to re- visit t he issue) w as prope rly denied, a nd that the district co u rt ’s refusal to allow Shoreham to introduce evide nce, a rg ue to the jury , and prese nt a jury

issue on Shoreham’s phy sical oper ation and contr ol of the Well was prope r. 10 operator. The 2000 P-4 did the same thing, but wa s also rele vant—due to the amendment of sec tion 89.002(a )( 2 )— i n answe ring the additional question of whe ther Shoreha m was liable for

plugg ing expenses as oper ator re g ardle ss of whethe r it was in actual “phy sical operation and contr ol” of the Well. The S tate’s introduction of t he 2000 P-4 to establish Shoreham’s r esponsibility for plug g ing costs did not, therefor e, render the State’s response to the interrog atory incorre ct or incomplete and, thus, did not preclude the State’ s relianc e on the 2000 P-4 for such purpose

. We c onclude that the 2000 P-4 establishes Shoreham’s operator status for purpose s of dete rmining w hether

Shoreham is liable for the plugg ing e x penses incur red by the State. Under the na tur a l r e so ur c e s c od e , Sh or e ham a s o pe ra tor wa s r e sp on sib le fo r t

he plu g g ingof

the Wel l.
Th e du ty of a pe rs on to plu g a n unp lug g e d we ll tha t has c e a se d o pe ratio n e nd s o nly if the person’s interest in the well is sold or convey ed while the w ell is in compliance with rules of the c ommissi on rela tin g t o s afety or the pre vention or control of po llu tio n a

nd the pr ov isi on s o f S e c tio ns 89 .0 02 (a )( 2) (A )- (D ) h a ve be e n me t.
Id. § 89.011(e) . The Commission’s reg ulations are to the same eff ect: “T he entity

desig nated a s the operator of a w ell specific ally identified o n t h e mos t rec ent Commiss ion-approve d operator desig nation form filed on or afte r September

1, 1997, is responsible for p ro p erly plugg ing the

we ll .

. . .” 16 Te x. Ad

min . Co de § 3 .1 4( c )( 1) . A s th e party res po ns ibl e fo r p lug g ingthe Wel l, Shoreham wa s liable for the rea sonable c osts of plugg ing the W el l i n cu rred by the State. See

3 Tex. Nat. Res. Code Ann. §§ 89.043, .083; 16 Tex. Admin. C ode § 3.14(b) (5).11

Conclu sion The district cour t did not err in ruling that Shoreham Oil & G as Company , I nc. wa s the oper ator re sponsible for the r easona ble plug g in g ex p enses incurred by the State as a

matter of law. We a ff

ir m th e jud g me nt o f t

he dis tr ic t c ourt
.

__________________________________________ G. Alan Waldrop, Just ice Be fore Chief J ustice L aw, Justi ces Pembe rton and Waldrop Affir med Filed: Jul y

25, 2008