NUMBER 13-25-00179-CV
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI – EDINBURG
BURLINGTON RESOURCES OIL
& GAS COMPANY LP, Appellant,
v.
TEXAS CRUDE ENERGY,
LLC, ET AL. Appellees.
ON APPEAL FROM THE 156TH DISTRICT COURT
OF LIVE OAK COUNTY, TEXAS
MEMORANDUM OPINION
Before Chief Justice Tijerina and Justices Peña and West
Memorandum Opinion by Chief Justice Tijerina
Appellant/cross-appellee Burlington Resources Oil & Gas Company, LP
(Burlington) appeals the trial court’s rendition of discovery sanctions against it. By two
issues, Burlington argues the trial court abused its discretion in imposing sanctions under
Texas Rule of Civil Procedure 215 because: (1) all discovery was stayed by agreement and court order, no party served discovery requests, and no motion to compel had been
filed or granted; and (2) appellees/cross-appellants Texas Crude Energy, LLC, (Crude)
and Amber Harvest (Amber) failed to demonstrate a causal connection between any
alleged discovery abuse and the sanction award.
By two issues, appellees/cross-appellants argue the trial court erred in granting
Burlington’s motion for summary judgment because Burlington failed to adhere to Texas
Rule of Civil Procedure 166a(i) by not stating the elements of appellees’ claim for which
Burlington alleged there was no evidence. Appellees further argue Burlington was not
entitled to deduct deficiency fees it chose to incur from overriding royalty interest (ORRI)
payments to Amber when three transportation agreements and a supply agreement failed
to prove that said deficiency fees were costs incurred by Burlington to transport or sell oil
in which appellees owned an ORRI. We reverse and render in part and affirm in part.
I. BACKGROUND
Texas Crude owns ORRIs in oil and gas leases operated by Burlington, and Amber
is an affiliate of Texas Crude pursuant to a Prospect Development Agreement (PDA) and
Joint Operating Agreement (JOA). These agreements do not contain limiting language on
post-product costs (PCCs). Crude assigned its ORRI to Amber. For nine years, Burlington
calculated royalty payouts by subtracting the royalty owner’s proportionate share of PPCs
incurred between the wellhead and the point of sale.
A. Original Suit
In appellees live petition filed on January 15, 2015, they alleged that in calculating
and making ORRI payments to Amber, Burlington was improperly deducting PPCs from
proceeds it was receiving from the downstream sale of Amber’s production and was thus
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underpaying appellees. Burlington contended that the PDA and JOA required the royalty
holder to bear its share of PPCs.
The parties filed competing motions for summary judgment on appellees’ PPCs
claim. The trial court interpreted the PDA and JOA in appellees’ favor, concluding that the
PDA and JOA did not permit Burlington to deduct PPCs when calculating royalty
payments. 1 In a permissive appeal, this Court affirmed. Burlington Res. Oil & Gas Co. LP
v. Tex. Crude Energy, LLC, 516 S.W.3d 638, 647 (Tex. App.—Corpus Christi–Edinburg
2017), rev’d, 573 S.W.3d 198 (Tex. 2019). However, the Supreme Court of Texas held
that the ORRI assignments “permit Burlington to charge Texas Crude its proportionate
share of post-production expenses when calculating royalty payments” and reversed and
remanded the cause to the trial court to determine the amount of PPCs that could be
deducted. Burlington Res. Oil & Gas Co. LP v. Tex. Crude Energy, LLC, 573 S.W.3d 198,
212 (Tex. 2019).
B. Remand
On remand, the parties executed an agreement on July 12, 2021, to stay litigation
for appellees to audit the royalty payments Burlington made for the ORRIs from first
production through December 2020 as well as royalty payments made for the ORRIs
every two years thereafter. On April 25, 2022, appellees’ auditors informed appellees that
Burlington had not furnished information necessary for the completion of the audit. On
July 18, 2022, Burlington informed the auditors that the information it provided was
sufficient to complete an audit.
On March 14, 2023, appellees filed a “Motion for Production of Information Needed
1 The trial court did not address other claims and causes of action and only addressed the PPC
issue.
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for Completion of Audit,” requesting that the trial court compel Burlington to furnish
specific information necessary for appellees to complete an audit. On March 30, 2023,
Burlington responded, stating appellees had sufficient information to identify what PPCs
Burlington deducted from their royalty payments. Burlington further stated the requested
documents do not exist and would be extraordinarily costly for Burlington to create.
Appellees responded, complaining that Burlington had not provided “sufficient information
and documentation regarding the volumes of crude oil/condensate” “natural gas
liquids . . . at applicable [PPC] points during the audit period—including the points of
sale—that enable [appellees] to verify the allocation of PPCs that Burlington deducted”
from the ORRI payments.
On June 20, 2024, appellees filed a motion to recover fees and expenses under
Texas Rule of Civil Procedure 215, alleging Burlington’s reluctance to supply it with
necessary information resulted in appellees incurring substantial and unnecessary fees
and expenses under Rule 215.1(d). Appellees further requested sanctions pursuant to
Rule 215.3 “as a result of Burlington’s abuse of discovery.”
On August 19, 2024, Burlington responded, stating: appellees did not submit a
proper request under Rule 215 because all discovery was stayed; the parties have not
engaged in discovery since 2021; appellees’ motion references a motion to compel which
the trial court had not ordered Burlington to produce; Burlington had supplied appellees
with information for audit purposes; and there was no causal connection between the
hundreds of hours their attorneys and consultants billed Burlington. Thereafter, Burlington
continued to object to appellees’ request for fees and expenses and sanctions.
On August 21, 2024, Burlington filed a motion to lift the stay, and on August 26,
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2024, the trial court held a hearing on appellees’ motion for recovery of fees, expenses,
and sanctions and lifted the stay.
C. Current Suit
On November 13, 2024, appellees amended their petition, stating that Burlington
underpaid Amber when making ORRI payments because it improperly deducted
“deficiency fees incurred by Burlington” in “the range of $75,000” pursuant to four specific
transportation agreements: Pipeline and Terminal Servies Agreement between
ConocoPhillipps (CP) 2 and NuStar Logistics; Master Throughput Agreement between
CP and JAG Tanking of Texas; Crude Oil Ingleside Terminal Throughput Agreement
between CP and Flint Hills Resources Corpus Christi; and a Crude Oil Supply Agreement
between CP and BP Products.
Following a hearing, on November 20, 2024, the trial court granted appellees’
motion for the recovery of fees and expenses, finding that Burlington abused the
discovery process. The trial court further awarded appellees attorney’s fees in the amount
of $239,003 and expenses in the amount of $48,312.
On January 10, 2025, Burlington filed a motion for summary judgment on the legal
question of whether it properly deducted PPCs pursuant to the Burlington court’s
directive. It argued that it incurred deficiency fees in “transporting oil produced from the
wells in which Amber Harvest has an ORRI to the downstream location at which
Burlington sold the oil,” and these fees are precisely the type of PPCs the Burlington court
ruled that Burlington could deduct. It attached several exhibits in support of its motion and
requested that appellees’ claims against it be dismissed. Appellees responded stating
2 Burlington is a subsidiary of ConocoPhillips.
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that Burlington is not authorized to deduct deficiency fees for transportation not actually
used to transport raw gas or oil. In other words, the deficiency fees that Burlington
incurred were not related to the actual product that was produced, transported, or sold.
The trial court granted Burlington’s motion for summary judgment and dismissed
appellees’ claims against it. This appeal followed.
II. RULE 215
Burlington argues that the trial court abused its discretion when it awarded
appellees attorney’s fees and expenses under Rule 215.1(d) and 215.3 because “there
was no discovery abuse” as the parties agreed to halt discovery.
A. Applicable Law & Standard of Review
Texas Rule of Civil Procedure 215.1, entitled, “Motion for Sanctions or Order
Compelling Discovery” states that a party may apply for sanctions or an order compelling
discovery. TEX. R. CIV. P. 215.1. When an order under this section is granted, the trial
court shall require an offending party to pay the moving party’s “reasonable expenses
incurred in obtaining the order, including attorney fees.” Id. R. 215.1(d). Rule 215.3,
entitled, “Abuse of Discovery Process in Seeking, Making, or Resisting Discovery” states
that if a court finds that “any interrogatory or request for inspection or production . . . or
that a response or answer is unreasonably frivolous or made for the purpose of delay,”
then the court may impose an appropriate sanction. Id. R. 215.3.
“A trial court’s ruling on a motion for sanctions is reviewed under an abuse of
discretion standard.” Cire v. Cummings, 134 S.W.3d 835, 838 (Tex. 2004). A trial court
abuses its discretion when it acts “without reference to any guiding rules or principles.”
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Id. at 839. A trial court’s ruling will be reversed only if it is arbitrary or unreasonable. Id.
B. Discussion
In this case, appellees sought attorney’s fees and expenses pursuant to Rules
215.3 and 215.1(d). However, both Rules apply to the discovery process, which the trial
court stayed here. While Rule 215.3 applies to a party abusing the discovery process,
Rule 215.1 addresses when a party fails to fulfill discovery obligations. Compare TEX. R.
CIV. P. 215.3 with id. Rule 215.1(d). It is undisputed that the parties did not engage in
discovery when appellees filed their motion for fees and expenses. Rather, the parties
agreed to “suspend all discovery and other proceedings in the lawsuit” and requested that
the trial court “[s]tay all discovery and other proceedings” until: (1) the parties notified the
trial court that the claims have been resolved, or (2) the parties requested that the trial
court lift the stay. The trial court complied with this request. Although the trial court
suspended discovery, the trial court’s order awarding fees and expenses found that
“Discovery Abuse was not justified” and that “the award of Attorney Fees and Expenses
related to said Discovery Abuse are warranted and supported by the evidence.”
(Emphasis added). However, Rule 215—applicable to the discovery process—cannot be
applied in this case where the parties requested, and the trial court granted, a stay of the
discovery process. See TransAmerican Nat. Gas Corp. v. Powell, 811 S.W.2d 913, 917
(Tex. 1991) (“[A] just sanction must be directed against the abuse . . . .”). Accordingly, we
conclude the trial court’s award of expenses and attorney’s fees was arbitrary and
unreasonable, finding that Burlington abused the discovery process after the trial court
stayed discovery. We reverse the trial court’s order granting appellees’ sanctions motion
and awarding attorney’s fees and expenses, and we render judgment that appellees take
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nothing.
III. SUMMARY JUDGMENT
By their sole issue, appellees argue that the trial court erred by granting summary
judgment in favor of Burlington because Burlington is not “legally entitled to deduct from
[ORRIs]. . . deficiency fees Burlington chose to incur under the [transportation and supply]
agreement[s]. . . when these agreements and the other evidence . . . do not prove that
such deficiency fees were costs incurred by Burlington to transport or sell oil in which
[appellees] own an [ORRI].”
A. Standard of Review
“A party seeking summary judgment may combine in a single motion a request for
summary judgment under the no-evidence standard with a request for summary judgment
as a matter of law.” Tex. A&M Concrete, LLC v. Brae Burn Constr. Co., , 651 S.W.3d 607,
617 (Tex. App.—Houston [1st Dist.] 2022, no pet.). In such a case, “we may review a
summary judgment under the matter-of-law standard first if it would be dispositive.” Id. To
prevail on a traditional summary judgment, a movant has the burden of establishing that
there is no genuine issue of material fact and it is entitled to judgment as a matter of law.
TEX. R. CIV. P. 166a(h)(2). We view the evidence “in the light most favorable to the party
against whom the summary judgment was rendered, crediting evidence favorable to that
party if reasonable jurors could, and disregarding contrary evidence unless reasonable
jurors could not.” Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844,
848 (Tex. 2009) (citing City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005)).
B. Applicable Law from the Burlington Court
“[O]il and gas royalty interests are free of production expenses but usually subject
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to [PPCs], including taxes . . . and transportation costs.” Burlington, 573 S.W.3d at 203
(citation modified). The term PPCs “applies to processing, compression, transportation,
and other costs expended to prepare raw oil or gas for sale at a downstream location.”
Id. After PPCs have been expended, the product’s value is enhanced, making it more
valuable than straight out of the well. Id. Thus, royalties on products at their downstream
point of sale are more valuable than royalties on the same products at the well. Id. The
Burlington court held that the relevant granting clauses in the PDA and JOA gave
Burlington the right to subtract PPCs from the amount realized in downstream sales prices
to calculate the product’s value as it flows into the pipeline, tanks, or other receptacles. 3
Id. at 211.
C. Discussion
In its motion for summary judgment, Burlington asserted that it complied with the
parties’ PDA and JOA and deducted only those PPCs as permitted by the JOA and PDA,
including deficiency fees. According to Burlington, it incurred those fees in “transporting
oil produced from the wells in which [appellees have] an [ORRI] to the downstream
location at which Burlington sold the oil.” Burlington argued these fees are “precisely” the
3 Granting Clause: Said overriding royalty interests shall be delivered to ASSIGNEE
into the pipelines, tanks or other receptacles with which the wells
may be connected, free and clear of all development, operating,
production and other costs.
Valuation Clause: The overriding royalty interest share of production shall be
delivered to ASSIGNEE or to its credit into the pipeline, tank or
other receptacle to which any well or wells on such lands may be
connected, free and clear of all royalties and all other burdens and
all costs and expenses except the taxes thereon or attributable
thereto, or ASSIGNOR, at ASSIGNEE’s election, shall pay to
ASSIGNEE, for ASSIGNEE’s overriding royalty oil, gas or other
minerals, the applicable percentage of the value of the oil, gas or
other minerals, as applicable, produced and saved under the
leases.
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type of PPCs the Burlington court ruled that it could deduct. Appellees argue that said
deficiency fees incurred by Burlington cannot be deducted or otherwise reduce the
amount of ORRIs payable to Amber. Burlington attached the transportation and supply
agreements and affidavits; appellees did not attach evidence.
1. John Saltsman Affidavit
In his affidavit, John Saltsman declared that he is employed by CP and is currently
a supervisor of the group that handles “fee royalty and severance tax audits and litigation
support.” He stated that CP entered into transportation and terminal service agreements
with Flint Hills, JAG, and NuStar to “secure transportation of the oil produced from the
Sugarloaf Wells to a downstream point of sale.” CP then sold the oil it produced from the
Sugarloaf Wells to BP Products pursuant to the supply agreement. Saltsman explained
that when CP uses the transportation services described in the transportation
agreements, it incurs a transportation expense. This expense may be described as a
“deficiency” fee depending on the volume of production transported. The amount that CP
agreed to pay each service provider is set forth in each transportation agreement and
calculated using the minimum volume commitments described therein. At minimum, CP
pays a “transportation cost in order to transport oil” from the Sugarloaf Wells under each
transportation agreement.
Additionally, Saltsman stated that the supply agreement provides pricing
structures, which includes an adjustment or deficiency fee that reduces the proceeds BP
Products pays CP for oil sold to BP Products. Under the supply agreement, when CP
sells oil produced from the Sugarloaf Wells, the proceeds that CP receives from BP
Products are part of a “weighted average price calculation for oil produced from the
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Sugarloaf Wells.” Thus, “in time periods where the deficiency fee reduced proceeds that
[CP] received from BP [Products] for oil produced from the Sugarloaf Wells, those
reduced proceeds were part of the downstream weighted average sales price for oil
produced from the Sugarloaf Wells.” Saltsman described the calculation price as follows:
the downstream weighted average sales price for oil produced from the Sugarloaf Wells
minus the weighted average transportation costs incurred for oil produced from the
Sugarloaf wells prior to downstream sales locations at which the Sugarloaf Well oil is sold.
2. Angela Paslay Affidavit
Angela Paslay stated that she is certified public accountant with over thirty years
of experience in oil and gas revenue accounting. According to Paslay and her review of
the transportation agreements, NuStar, JAG, and Flint Hills agreed to provide CP with
terminal throughput services for crude oil and condensate produced from CP from the
Sugarloaf Wells. In exchange, CP agreed “to pay a per-barrel throughput fee associated
with a minimum daily throughput volume” at each of their respective facilities pursuant to
specific terms of each respective agreement. If CP delivers less than the minimum daily
throughput volume, CP must still pay the full terminal service throughput costs based on
the minimum volume. The transportation agreements account for this as the “deficiency
fee.” Paslay stated: “Whether [CP] delivers the full minimum volume or delivers less than
the full minimum volume, the full terminal service throughput costs, including the portion
that may be charged as deficiency fees, were incurred for the purpose of transporting the
actual produced and delivered volumes to [CP’s] points of sale.” In other words, pursuant
to the transportation agreements, the deficiency fees—like the full minimum volume
fees—are considered regular necessary transportation expenses because it incurred
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these transportation costs to transport oil from the Sugarloaf Wells.
Paslay explained that terminal throughput services are a form of transportation
service that moves hydrocarbons from an upstream point to a downstream point.
Relevant to the transportation agreements here, terminal throughput services occur
downstream at the Sugarloaf Wells and upstream of the point at which CP sells the
product. In the oil and gas industry, this service is considered a PPC. Paslay stated that
CP correctly accounts for the full terminal service, including deficiency fees, as PPCs in
its accounting system, and this “is the proper and widely-accepted accounting treatment”
for these PPCs.
3. Analysis
There is virtually no judicial authority discussing, much less meaningfully
analyzing deficiency fees, and the parties point to no judicial decision interpreting
“deficiency fees.” See Comm’r of Gen. Land Off. of State v. SandRidge Energy, Inc., 454
S.W.3d 603, 621 (Tex. App.—El Paso 2014, pet. denied) (stating the same for “firm
transportation charges”). Thus, we heed similar commentaries as did the Burlington court
when that court analyzed the interpretation of the phrase “into the pipeline” between the
parties’ PDA and JOA. 4 Under the Manual of Oil and Gas Terms, “transportation costs”
are defined as “the costs of transporting oil or gas to a market.” 8 HOWARD R. WILLIAMS &
4 “In interpreting unambiguous mineral-interest deeds and contracts, we sometimes refer to treatises and other scholarly sources that provide views on the meaning of technical terms or terms commonly used by the industry.” Burlington Res. Oil & Gas Co. LP v. Tex. Crude Energy, LLC, 573 S.W.3d 198, 207 n.8 (Tex. 2019).
The Burlington court noted that “several authors familiar with industry practices” agreed with Burlington that “into the pipeline” contemplated valuation at the well and therefore authorized deduction of PPCs. Burlington, 573 S.W.3d at 207 (citing 3 HOWARD R. WILLIAMS & CHARLES J. MYERS, OIL AND GAS LAW § 646.2 (Patrick H. Martin & Bruce M. Kramer, eds., 2018)); see also 3 EUGENE KUNTZ, TREATISE ON THE LAW OF OIL AND GAS § 40.5(a) (1989); A. W. Walker, Jr., Nature of the Property Interests Created by an Oil and Gas Lease in Texas, 10 Tex. L. Rev. 291, 313 (1932).
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CHARLES J. MEYERS, OIL AND GAS LAW, Transportation Costs 60 (Patrick H. Martin & Bruce
M. Kramer eds., 2026). While “[a]n occasional lease may provide . . . that the lessor shall
receive his royalty free and clear of expenses at the well or other delivery point,” royalty
owners “must normally share in the expenses of transporting the product to market.” Id.
The treatise provides that expenses shared by operator and nonoperator include
“[t]ransportation charges or other expenses incurred in conveying the minerals produced
from the well-head to the place where a buyer of the minerals takes possession thereof.”
3 HOWARD R. WILLIAMS & CHARLES J. MEYERS, OIL AND GAS LAW, § 645.2 (Patrick H. martin
& Bruce M. Kramer, eds., 2026). “Nonoperating interests usually bear a proportionate
share of transportation costs, in the absence of an express agreement to the contrary.”
Id.
Here, the uncontroverted evidence provides that under the transportation
agreement, CP was required to pay the minimum transportation cost, and without CP’s
commitment to pay these deficiency fees, CP would be unable to utilize the throughput
services under the transportation agreements to secure firm, reliable service for
anticipated production from the Sugarloaf Wells in which appellees own an ORRI.
Appellees did not submit evidence to refute this but argued that the deficiency fees were
not transportation costs and were thus not deductible because they were not incurred by
Burlington to transport oil from the Sugarloaf Wells to the downstream sales location. We
disagree. As stated by Paslay and Saltsman and as provided by the transportation and
supply agreements, the deficiency fee is an actual cost “of transporting oil or gas to a
market” paid by Burlington to transport oil from the Sugarloaf Wells. See 8 HOWARD R.
WILLIAMS & CHARLES J. MEYERS, OIL AND GAS LAW, Transportation Costs 60 (Patrick H.
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Martin & Bruce M. Kramer eds., 2026). The entirety of the fee that Burlington paid—
regardless of whether the fee is labeled deficiency or throughput—is a transportation
expense because without payment of the fee, Burlington would be unable to transport the
oil produced from the Sugarloaf Wells. Similarly, the supply agreement provided that
Burlington incurred another penalty whenever it sold product from the Sugarloaf Wells to
BP Products: if Burlington did not sell the minimum agreed-upon amount, BP Products
reduced Burlington’s sale proceeds. In turn, Burlington included this deficiency fee in its
downstream weighted average sales price.
Thus, we conclude that the deficiency fees deducted by Burlington pursuant to the
transportation and supply agreements constitute transportation costs, which are
deductible as PPCs, because Burlington incurred—and paid—these fees to the
transportation provider to transport and deliver product from the Sugarloaf Wells to the
downstream sales point and incurred this fee from BP Products. See Comm’r of Gen.
Land Off. of State, 454 S.W.3d at 622 (“The issue is not whether firm transportation
charges 5 qualify generally as transportation costs. They clearly do.”). Accordingly, the trial
court did not err in rendering summary judgment in favor of Burlington on the issue of
PPCs. We overrule appellees’ issue.
IV. CONCLUSION
We reverse the trial court’s order granting appellees’ motion for recovery of fees
and expenses and awarding fees and expenses, and we render judgment denying that
motion. We affirm the trial court’s granting of Burlington’s motion for summary judgment
5 A firm transportation charge is an upfront reservation fee a gas producer pays to a pipeline owner
in order to secure future space in the pipeline for the delivery of its gas to distant markets. Comm’r of Gen. Land Off. of State v. SandRidge Energy, Inc., 454 S.W.3d 603, 621 (Tex. App.—El Paso 2014, pet. denied).
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dismissing appellees’ claims against it.
JAIME TIJERINA
Chief Justice
Delivered and filed on the
6th day of August, 2026.
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