Opinion ID: 895065
Heading Depth: 1
Heading Rank: 3

Heading: Must Sheppard Pay a Share of Unit Expenses?

Text: Based on the conclusion that the Landers unit had terminated, the courts below denied Wagner & Brown's claim for leasehold, land/legal, and overhead expenses to the extent they related to the unit rather than solely to Sheppard's tract. [23] Because we have held the unit did not terminate, Wagner & Brown properly accounted to Sheppard for both production and expenses on a unit basis. [24] The record reflects that these expenses were for landman fees, lease bonuses, recording fees, and title opinion expenses, part or all of which related to tracts in the unit other than Sheppard's. Additionally, overhead expenses (including administration, supervision, office services, and warehousing) were calculated pursuant to a standard accounting agreement relating to the unit. At trial, Sheppard produced no evidence that any of these expenses were not reasonable and necessary; to the contrary, she stipulated that many of them were. On appeal, Sheppard suggests no basis for barring these expenses except that they did not all relate to her tract. But the evidence at trial established that two wells could not have been drilled on her tract without the pool, at least not without getting an exception from Railroad Commission that would have curtailed production. From the perspective of other interest holders in the unit, expenses to maintain Sheppard's tract were clearly necessary as all the wells were located there; the same kind of expenses to keep other tracts and leases in the unit were of similar value to Sheppard, not just as a matter of equal treatment but because future wells might be located off her tract. Although Wagner & Brown's evidence was not contradicted, the trial court was not required to believe all of it. Accordingly, we do not hold that Wagner & Brown conclusively established that all its charges were reasonable and necessary. But some of them certainly were, so there is no evidence to support the trial court's award of none of them. In these circumstances, we must reverse and remand for a reassessment of damages. [25]