Affirmed and Opinion filed October 16, 2018.

In The 

Fourteenth Court of Appeals 

NO. 14-17-00170-CV

OBO, INC., Appellant 

V.

APACHE CORPORATION AND PERMIAN BASIN JOINT VENTURE, 

LLC, Appellees 

On Appeal from the 55th District Court 

Harris County, Texas

Trial Court Cause No. 2015-39006 

O P I N I O N 

This appeal of a summary judgment involves claims and counterclaims 

concerning the interpretation and application of the governing agreements for an 

oil and gas unit in West Texas. Appellees Apache Corporation and Permian Basin 

Joint Venture, LLC (PBJV) sued appellant OBO, Inc. for failure to pay unit 

operating expenses as required under the agreements. OBO counterclaimed against 

Apache, seeking a declaration that Apache could not act as unit operator because it 
2 

was not a working interest owner and asserting among other things that Apache 

was grossly negligent. In its judgment, the trial court ordered OBO to pay PBJV 

$195,330.45 in past due expenses and further ordered that OBO take nothing on its 

counterclaims against Apache. 

In its first issue, OBO contends that the trial court erred in granting summary 

judgment against its request for a declaration that Apache could not act as unit 

operator because it was not a working interest owner. In its second issue, OBO 

asserts that the trial court erred in awarding judgment to PBJV because PBJV was 

not the unit operator, made no affirmative claims, and provided no evidence that it 

had incurred any expenses. And in its third issue, OBO contends that the trial court 

erred in granting summary judgment against certain of OBO’s counterclaims. 

Finding no merit in OBO’s arguments, we affirm. 

I. Background 

OBO owns an 11 percent working interest in the Shafter Lake San Andres 

Unit in West Texas. PBJV owns 81.4 percent of the working interest in that unit. 

Under the unit’s governing documents, the Unit Agreement and the Unit Operating 

Agreement, the “Unit Operator” must be a working interest owner. It is undisputed 

that by 2007, PBJV was designated as Unit Operator. In January 2007, PBJV 

entered a Contract Services Agreement with Apache, pursuant to which PBJV 

delegated to Apache certain operator duties.1

 Under the agreement, Apache’s 

services were to be “subject to the reasonable direction of [PBJV].” PBJV also 

gave Apache a power of attorney, authorizing it to act on PBJV’s behalf.2

 

1

 At least some evidence in the record indicates that Apache owns a 95% interest in 

PBJV, although OBO asserts that this relationship is not entirely clear. It is undisputed, however, 

that PBJV and Apache are separate entities. 

2

 Pursuant to the Contract Services Agreement, Apache was to provide PBJV with 

“certain operations, marketing, land administration, accounting, reservoir engineering and other 
3 

For several years, part of the services Apache provided included sending 

Joint Interest Billings (JIBs) to the working interest owners in the unit, including 

OBO, for their share of operating expenses. OBO declined or failed to pay a 

number of these JIBS and Apache filed the present lawsuit in July 2015. In its 

original petition, Apache represented itself to be “the operator”; however, in the 

second amended petition, PBJV was added as a plaintiff and it was specifically 

stated that PBJV contracted with Apache to operate the unit. PBJV and Apache 

further asserted in the second amended petition that OBO breached the unit’s 

governing agreements by failing to pay the past due JIBs. 

In OBO’s second amended answer and counter-petition, it generally denied 

the allegations; asserted that Apache lacked standing because it was not a working 

interest owner and thus could not act as Unit Operator; and raised several 

counterclaims against Apache, including for declaratory judgment and “gross 

negligence and willful misconduct.”3

 OBO did not assert any claims against PBJV. 

OBO’s declaratory judgment action sought a declaration that Apache could not act 

as Unit Operator because it was not a working interest owner as required by the 

unit’s governing documents. Specifically, among its requests for relief, OBO 

sought a declaration that Apache was “an unlawful and unauthorized Unit 

Operator.” 

 

services in connection with the Oil & Gas Interests.” The agreement further listed the services to 

be provided in each category, including “billing . . . all working interest owners.” The purpose of 

the power of attorney was to grant Apache “the authority to execute, amend or extend contracts 

associated with ownership and operation of the Oil & Gas Interests.” The power of attorney 

specifically authorized Apache “to execute and deliver in the name of PBJV any and all 

agreements, instruments, communications, and any other documentation that Apache deems 

necessary or advisable in the fulfilment of its obligations under the Contract Services 

Agreement.” 

3

 OBO also counterclaimed for trespass, conversion, and breach of contract. The trial 

court granted summary judgment against those claims, which OBO does not challenge in this 

appeal.
4 

OBO’s claims that it labels as “gross negligence and willful misconduct” 

were, in essence, contingent on its being unsuccessful in its request for a 

declaration that Apache cannot be the operator. OBO’s counterclaim states: “If the 

Court determines that Apache was a proper operator of the Unit, Apache was 

grossly negligent and committed willful misconduct in its failure to operate the 

Unit as a reasonably prudent operator would.” The claims turn in part on the 

applicability of an exculpatory clause in the Unit Operating Agreement to permit 

the assessment of damages.

4

PBJV and Apache filed a joint traditional and no-evidence motion for 

summary judgment. Along with this motion, appellees presented evidence of 

OBO’s nonpayment of the JIBs. Appellees additionally argued in the motion that, 

contrary to OBO’s assertions, Apache was not serving as Unit Operator in its own 

right but was conducting operations on behalf of PBJV, pursuant to the Contract 

Services Agreement and power of attorney, and PBJV was the actual Unit 

Operator. Appellees further contended that OBO could produce no evidence that 

Apache had acted with gross negligence or willful misconduct. 

In response, OBO argued among other things that the unit governing 

documents did not permit Apache to act as Unit Operator, the exculpatory clause 

was inapplicable, and Apache’s operation of the unit was grossly negligent. OBO 

attached to its response a purported expert declaration criticizing Apache’s 

continued operation of nonproductive wells. OBO also filed its own motion for 

partial summary judgment, requesting the court declare that Apache could not act 

 

4

 The exculpatory clause provided that: “Unit Operator shall conduct unit operations in a 

good and workmanlike manner as would a prudent operator under the same or similar 

circumstances. . . . Unit Operator shall not be liable to Working Interest Owners for damages, 

unless such damages result from its gross negligence or willful misconduct.” (Emphasis added).

OBO asserted that Apache breached the contractual duty of conducting operations in a good and 

workmanlike manner through gross negligence and willful misconduct.
5 

as the Unit Operator. 

In its final judgment, the trial court granted what it referred to as PBJV’s 

motion for summary judgment and awarded PBJV $195,330.45. The trial court 

further denied OBO’s motion for partial summary judgment and ordered that it 

take nothing on its counterclaims against Apache.5

II. Standards of Review 

Summary judgments. We review a trial court’s grant of summary judgment 

under a de novo standard. Nall v. Plunkett, 404 S.W.3d 552, 555 (Tex. 2013) (per 

curiam). In a traditional motion for summary judgment, the movant must state 

specific grounds supporting judgment, and a defendant who conclusively negates 

at least one essential element of a cause of action is entitled to judgment. Tex. R. 

Civ. P. 166a(c); Nall, 404 S.W.3d at 555. If the movant’s motion and summaryjudgment evidence conclusively establish a right to judgment as a matter of law, 

the burden then shifts to the nonmovant to raise a genuine issue of material fact 

sufficient to defeat summary judgment. M.D. Anderson Hosp. & Tumor Inst. v. 

Willrich, 28 S.W.3d 22, 23 (Tex. 2000). 

In a no-evidence motion, the movant contends that the nonmovant can 

produce no evidence supporting one or more essential elements of a claim for 

which the nonmovant would bear the burden of proof at trial. Tex. R. Civ. P. 

166a(i); Boerjan v. Rodriguez, 436 S.W.3d 307, 310 (Tex. 2014). The trial court 

must grant a no-evidence motion unless the nonmovant raises a genuine issue of 

material fact on each challenged element. Tex. R. Civ. P. 166a(i); Hamilton v. 

Wilson, 249 S.W.3d 425, 426 (Tex. 2008) (per curiam). 

 

5

 Although the trial court did not expressly mention Apache in the final judgment, OBO’s 

counterclaims were only against Apache and not PBJV. The final judgment contained express 

finality language, and Apache does not raise any cross-issues in this appeal concerning its 

requests for affirmative relief.
6 

When reviewing a summary judgment, we take as true all evidence 

favorable to the nonmovant, and we indulge every reasonable inference and 

resolve any doubts in the nonmovant’s favor. Valence Operating Co. v. Dorsett, 

164 S.W.3d 656, 661 (Tex. 2005). 

Agreement construction. OBO’s issues to some extent revolve around the 

proper construction of the unit’s governing documents: the Unit Agreement and the 

Unit Operating Agreement. The construction of an unambiguous agreement 

presents a question of law that we review de novo. Tawes v. Barnes, 340 S.W.3d 

419, 425 (Tex. 2011).6

 Our primary concern in interpreting an agreement is to 

ascertain and give effect to the intentions of the parties as expressed in the 

instrument. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003). We 

therefore give terms their plain and ordinary meaning unless the contract indicates 

that the parties intended a different meaning. Dynegy Midstream Servs., Ltd. P’ship 

v. Apache Corp., 294 S.W.3d 164, 168 (Tex. 2009). We examine and consider the 

entire writing in an effort to harmonize and give effect to all provisions of the 

contract, so that none will be rendered meaningless. J.M. Davidson, 128 S.W.3d at 

229. 

III. Discussion 

 In its appeal, OBO does not contest its failure to pay the JIBs. Instead, as set 

forth above, in three issues, OBO contends that the trial court erred in granting 

summary judgment (1) against its request for a declaration that Apache could not 

act as Unit Operator because it was not a working interest owner; (2) to PBJV 

because PBJV was not the unit operator, made no affirmative claims, and provided 

no evidence that it had incurred any expenses; and (3) against certain of OBO’s 

 

6

 Neither side here argues that the agreements were ambiguous in any respect, and we 

have discerned no relevant ambiguity. 
7 

counterclaims. 

A. Unit Operator Must Be Working Interest Owner 

In its first issue, OBO asserts that the governing documents unambiguously 

mandate that only a working interest owner can be the Unit Operator, and because 

Apache was not a working interest owner, it could not act as Unit Operator. On 

that basis, OBO argues that the trial court erred in granting summary judgment 

against its request for a declaration that Apache could not act as the Unit Operator. 

Appellees, however, do not dispute that only a working interest owner can 

be designated as Unit Operator.7

 Appellees insist instead that Apache was not 

acting as the Unit Operator but was merely providing operator services pursuant to 

a contract with the designated Unit Operator, PBJV. Therefore, according to 

appellees, the trial court did not err in denying OBO’s requested declaration 

because the point was essentially uncontested and would have had no effect on any 

matter in the lawsuit. Moreover, appellees say, the JIBs submitted by Apache to 

OBO and the other working interest owners were prepared and submitted on behalf 

of PBJV. 

As a general rule, all contractual duties are delegable. See Crim Truck & 

Tractor Co. v. Navistar Int’l Transp. Corp., 823 S.W.2d 591, 596 (Tex. 1992); 

Restatement (Second) of Contracts § 318 (1981). There are exceptions to this rule, 

such as for when contractual rights involve certain matters of personal confidence, 

see Crim Truck, 823 S.W.2d at 596, or for when delegation is contrary to public 

policy or the terms of the contract, see Restatement (Second) of Contracts § 318. 

Here, OBO suggests only that the contract itself prohibited delegation of PBJV’s 

 

7 As both OBO and appellees point out, section 1.10 of the Unit Agreement defines “Unit 

Operator” as “the Working Interest Owner designated by Working Interest Owners under the 

Unit Operating Agreement to develop and operate the [unit], acting as operator and not as a 

Working Interest Owner.”
8 

duties as operator. 

As stated, the unit governing documents required the Unit Operator to be a 

working interest owner. In its Contract Services Agreement with Apache and 

attendant power of attorney, PBJV did not name or designate Apache as Unit 

Operator; it merely contracted with Apache to provide operator services for the 

unit, i.e., PBJV delegated those contractual duties to Apache. As mentioned above, 

Under the Contract Services Agreement, Apache’s services were to be “subject to 

the reasonable direction of [PBJV].” 

OBO points to two specific sections of the governing documents it argues 

would be rendered meaningless if the documents are interpreted as allowing 

delegation of the operator’s duties. See J.M. Davidson, 128 S.W.3d at 229 

(explaining that proper construction of an agreement requires that all provisions be 

harmonized so that none are rendered meaningless). The first provision OBO cites 

is part of section 1.10 of the Unit Agreement, which defines “Unit Operator” as 

“the Working Interest Owner designated by Working Interest Owners under the 

Unit Operating Agreement to develop and operate the [unit], acting as operator 

and not as a Working Interest Owner.” (Emphasis added). Although OBO is not 

specific in its argument, it appears to suggest that the emphasized language means 

that only the Unit Operator, i.e., PBJV, could perform any operator functions, i.e., 

“act as operator.” There is, however, a more reasonable interpretation of this 

language. 

Reading all provisions of the agreement in harmony, we conclude the phrase 

“acting as operator” in section 1.10 is used to differentiate actions by the entity 

designated as Unit Operator while wearing the hat of Unit Operator from its 

actions while wearing the hat of Working Interest Owner. It is not reasonable to 

interpret this sparse language as creating a prohibition against the delegation of 
9 

operator duties, particularly when another, reasonable explanation exists. See 

Westwind Expl., Inc. v. Homestate Sav. Ass’n, 696 S.W.2d 378, 382 (Tex. 1985) 

(explaining that a reasonable interpretation of an agreement is preferred to one 

which is unreasonable); Hycarbex, Inc. v. Anglo-Suisse, Inc., 927 S.W.2d 103, 108 

(Tex. App.—Houston [14th Dist.] 1996, no writ) (same). 

OBO additionally asserts that if the governing documents are interpreted as 

permitting Apache to become Unit Operator, the voting and operator removal 

language in section 6.2 of the Unit Operating Agreement would be rendered 

meaningless. Section 6.2 states in relevant part that “Working Interest Owners may 

remove Unit Operator at any time by the affirmative vote of at least eighty percent 

(80%) of the voting interest remaining after excluding the voting interest of Unit 

Operator.” OBO states that PBJV could “effectively nullify the provision by voting 

its 81.4% interest in favor of Apache.” But this argument lies on the faulty premise 

that Apache actually became the Unit Operator by way of its Contract Services 

Agreement with PBJV and attendant power of attorney. As explained above, it is 

undisputed that Apache could not and did not become the Unit Operator because it 

was not a working interest owner. Section 6.1 is unaffected by the delegation of 

operator duties to Apache and is not rendered meaningless. 

OBO does not cite any other specific section of the governing documents as 

being rendered meaningless by interpreting the governing documents as not 

prohibiting the delegation of operator duties to Apache. Moreover, no provisions in 

the governing documents explicitly or implicitly prohibit the delegation of operator 

duties. Indeed, under section 7.10 of the Unit Operating Agreement, the Unit 

Operator was permitted, but not required, to “employ its own tools and equipment” 

in performing operations. This provision suggests that the Unit Operator could 

delegate the performance of its duties by contracting with a third party, in keeping 
10

with the general rule of law. See Crim Truck, 823 S.W.2d at 596; Restatement 

(Second) of Contracts § 318. 

Because Apache was not acting as the Unit Operator but was merely 

performing operator services pursuant to its contract with PBJV and the unit 

governing documents do not prohibit such delegation, the trial court did not err in 

granting summary judgment against OBO’s request for a declaration that Apache 

could not act as the Unit Operator. Accordingly, we overrule OBO’s first issue.8

B. PBJV was Unit Operator 

In its second issue, OBO asserts that the trial court erred in granting 

judgment favoring PBJV because PBJV was not the Unit Operator, asserted no 

affirmative claims, and presented no evidence that it incurred any damages by 

OBO’s failure to pay the past due JIBs issued by Apache.9

 As mentioned above, in 

its final judgment, the trial court expressly awarded damages to PBJV and not 

Apache. 

We begin by noting that Apache has not complained in this appeal regarding 

 

8

 In its reply brief, OBO asserts that prior to PBJV becoming unit operator, Apache had 

been both a working interest owner and unit operator. OBO further states that when Apache 

divested itself of its working interest, and thus was no longer eligible to be unit operator, certain 

unit operator successor provisions and voting procedures should have been invoked but were 

ignored. OBO, however, offers no record citations to support these factual assertions beyond 

general cites to the governing documents, offers no cite where it made this argument in the trial 

court, and offers no explanation as to how these allegations are relevant to the present appeal. 

See Tex. R. App. P. 38.1(i) (requiring clear and concise argument for the contentions made in a 

brief with appropriate citations to authorities and the record). Moreover, we typically do not 

address contentions made for the first time in a reply brief. See id. 38.3; Pochron v. Oleksy, No. 

14-12-00650-CV, 2014 WL 494894, at *5 (Tex. App.—Houston [14th Dist.] Feb. 6, 2014, no 

pet.) (mem. op.); Swaab v. Swaab, 282 S.W.3d 519, 527, n.10 (Tex. App.—Houston [14th Dist.] 

2008, no pet.). 

9

 The entirety of OBO’s substantive argument on this issue comprises just five sentences 

of its brief.
11

its omission from the final judgment.10 Instead, appellees argue that either the trial 

court intended to award damages to both PBJV and Apache when it referenced 

only PBJV in the final judgment or, in the alternative, it does not matter that 

Apache was omitted because Apache was acting only on behalf of PBJV in 

prosecuting the lawsuit.11 We agree with the latter contention. As discussed in 

detail above, PBJV was the designated Unit Operator for the Shafter Lake San 

Andres Unit, and Apache was involved with the unit only as a contractor providing 

certain operator services for PBJV pursuant to the Contract Services Agreement 

and attendant power of attorney. This arrangement is further reflected in appellees’ 

motion for summary judgment, which indicated that Apache was participating only 

on behalf of PBJV. Moreover, the final judgment also recognizes that the basic 

breach of contract claim belonged to PBJV as Unit Operator and not Apache, 

which was a nonparticipant to the unit’s governing documents and involved in the 

case only as a service-provider to PBJV. 

OBO is incorrect in arguing that PBJV did not assert any affirmative claims 

in this case because, in the second amended petition, both PBJV and Apache 

alleged a breach of contract cause of action and requested actual damages based on 

the alleged breach. This petition also explained the contractual relationship 

between PBJV and Apache and the basis for the breach of contract claim. PBJV 

therefore clearly raised affirmative claims. 

OBO also is incorrect in arguing that PBJV presented no evidence that it 

incurred any damages by OBO’s failure to pay the past due JIBs issued by Apache. 

As explained, Apache submitted the JIBs to OBO and the other working interest 

 

10 See supra n.5.

11 Appellee’s first argument rests on the fact that their motion for summary judgment 

referred to PBJV and Apache collectively as “PBJV.” Appellees suggest the trial court carried 

this nomenclature forward into the final judgment. 
12

owners on behalf of PBJV. Under the Contract Services Agreement, Apache 

specifically agreed to bill the working interest owners as part of its services to 

PBJV. The power of attorney specifically authorized Apache “to execute and 

deliver in the name of PBJV any and all . . . instruments, communications, and any 

other documentation that Apache deems necessary or advisable in the fulfilment of 

its obligations under the Contract Services Agreement.” Moreover, under section 

11.1 of the Unit Operating Agreement, PBJV, as Unit Operator, was obligated to 

“initially . . . pay all Unit Expense” (including operating costs) and then obtain 

reimbursement from the working interest owners in proportion to their interest 

owned. OBO’s failure to pay and the amount of the damages were proven by an 

affidavit from an Apache employee who supervised JIB collections as well as by a 

spreadsheet that the employee authenticated, amounts of which OBO has not 

contested. PBJV’s summary judgment evidence therefore established that PBJV 

incurred damages when OBO failed to pay the JIBs that Apache submitted to the 

working interest owners on PBJV’s behalf. Accordingly, we overrule OBO’s 

second issue. 

C. “Gross Negligence” and the Exculpatory Clause apply only to parties 

to the agreement 

In its third issue, OBO asserts that the trial court erred in granting summary 

judgment against its gross negligence counterclaim against Apache because (1) 

Apache cannot rely on the exculpatory clause in the Unit Operating Agreement 

because it was not the Unit Operator, and (2) even if the exculpatory clause 

applies, OBO raised a material issue of fact regarding whether Apache’s conduct 

was grossly negligent. OBO’s arguments on appeal misunderstand or misrepresent 

the nature of both the exculpatory clause and OBO’s own gross negligence claim. 

The exculpatory clause appears in Article 7 of the Unit Operating 
13

Agreement, which sets forth the “Authorities and Duties of Unit Operator.” In 

relevant part, the clause in section 7.2 provides that: “Unit Operator shall conduct 

unit operations in a good and workmanlike manner as would a prudent operator 

under the same or similar circumstances. . . . Unit Operator shall not be liable to 

Working Interest Owners for damages, unless such damages result from its gross 

negligence or willful misconduct.” 

In its brief, OBO urges that “Apache is not entitled to the limitation of 

liability in the exculpatory clause, because it is not a proper party to the 

Agreements or the legal operator of the Unit.” As explained above, appellees agree 

that Apache was not the Unit Operator and the evidence supports this conclusion. 

Therein lies the rub. OBO’s breach of contract and gross negligence counterclaims 

were based on Apache’s alleged breaches of the Unit Operating Agreement. 

OBO’s counterclaim stated: “Apache owed a duty to OBO under the Unit 

Operating Agreement to act as a reasonably prudent operator would.”12 OBO does 

not explain how it can recover from Apache for alleged breaches of an agreement, 

or breaches of a duty imposed by an agreement, to which Apache was not a party. 

See Mission Grove, L.P. v. Hall, 503 S.W.3d 546, 552 (Tex. App.—Houston [14th 

Dist.] 2016, no pet.) (“It is ‘axiomatic . . . that a contract between other parties 

cannot create an obligation or duty on a non-contracting party . . . .” (quoting City 

of Beaumont v. Excavators & Constructors, Inc., 870 S.W.2d 123, 129 (Tex. 

App.—Beaumont 1993, writ denied))); Sanders v. Total Heat & Air, Inc., 248 

S.W.3d 907, 912 (Tex. App.—Dallas 2008, no pet.) (“Privity is an essential 

element for recovery in any action based on contract . . . .”).

OBO has not alleged, either in its petition or in its brief, any duty or duties 

 

12 As discussed above, these counterclaims were also made expressly contingent on 

Apache being determined by the court to be a proper Unit Operator. 
14

Apache may have violated outside of those it alleges were created under the Unit 

Operating Agreement. OBO specifically has not alleged that Apache committed 

ordinary negligence. OBO has only asserted that if Apache was the Unit Operator, 

it breached duties it owed as Unit Operator. See Reeder v. Wood Cty. Energy, LLC, 

395 S.W.3d 789, 790, 792–97 (Tex. 2012) (addressing “gross negligence” claims 

pursuant to exculpatory clause in oil and gas joint operating agreement as breach of 

contract claims). Because Apache was not the Unit Operator, the trial court 

properly granted summary judgment against OBO’s contingent claims for breach 

of contract and gross negligence. Accordingly, we overrule OBO’s third issue. 

Finding no merit in any of OBO’s arguments, we affirm the trial court’s 

judgment. 

 

 /s/ Martha Hill Jamison 

 Justice 

Panel consists of Justices Boyce, Jamison, and Brown.