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CAUSE NO. 2016-45652
PEREGRINE OIL & GAS, LP § IN THE DISTRICT COURT OF
Plaintiff,
§ HARRIS COUNTY, TEXAS
HRB OIL & GAS, Ltd. and
VHPM, LLC
Defendants. § 190 JUDICIAL DISTRICT
PLAINTIFF’S SECONDAMENDED ORIGINAL PETITION
TO THE HONORABLE COURT:
Plaintiff Peregrine Oil & Gas, files this its SECOND AMENDED ORIGINAL
PETITION complaining of Defendants HRB Oil & Gas, Ltd. and VHPM, LLC and for cause of
action would show the Court as follows:
PARTIES
Plaintiff Peregrine Oil & Gas, LP (“Peregrine”) is a Delaware limited partnership
which is qualified to do business in Texas, and which maintains a principal place of business in
Houston, Harris County, Texas.
Defendant HRB Oil & Gas, Ltd. has been served with citation and has made an
appearance in this lawsuit and service may be made upon its counsel of record.
Defendant, VHPM, LLC, has made an appearance in this lawsuit and service may
be made upon its counsel of record.
I. JURISDICTION, VENUE AND DISCOVERY PLAN
This Court has jurisdiction over this matter as Defendant are a Texas limited
partnership and a Texas limited liability company. Venue is proper in Harris County, Texas,
because Harris County is the county in which all or a substantial part of the events or omissions
giving rise to the claim occurred. Discovery in this case shall proceed under Level 2 of Rule 190.2
of the Texas Rules of Civil Procedure.
III. FACTS
On or about February 6, 2008, Peregrine, Defendant and other entities entered into
agreement entitled “Participation Agreement, Block A 155, Galveston Area, South Addition,
OCS G 30654”, (hereinafter the “PA”). The PA and exhibits thereto set out the terms and
conditions under which Defendant d others would participate in the drilling of wells in Block
155, Galveston Area, South Addition, OCS G 30654
n order to earn an interestfrom Peregrine , as Operator,in that certain Oil and Gas
Lease of Submerged Lands under the Outer Continental Shelf Lands Act, dated October 1, 2006,
between the United States Department of the Interior, Minerals Management Service, as Lessor,
and Peregrine Oil and Gas, LP, as Lessee, bearing serial number OCS G 30654 (the “Lease”)
Defendant had to agree to the PA and to pay their share of expenses
Attached to and made a part of the PA were multiple exhibits. Exhibit A to the PA
was a Division of Interest Schedule setting out each party’s before payout (“BPO”) and after
payout (“APO”) working interest and net revenue interest in the Lease. Exhibit B to the PA was
a well plat. Exhibit B 1 to the PA included two instruments titled Authorization for Expenditure
(“AFE”) for certain proposed operations on the Lease. Exhibit C to the PA was an Offshore
Operating Agreement, which itself contained six exhibits, labeled from Exhibits A through F, and
which agreement and exhibits is hereafter collectively referred to as the “OOA”. Exhibit D to the
PA was an Option to Purchase Platform. Exhibit E to the PA was a copy of a turnkey drilling bid.
Exhibit F to the PA was a form of Assignment of Record Title Interest. The parties designated
Peregrine as Operator of the Lease under the OOA.
Among other provisions in the PA, the parties agreed that Peregrine would execute
and deliver to Defendant an assignment of record title interest in the Lease, conveying the working
interest and net revenue interest as set out in Exhibit A to the PA. The PA also provided that the
assignment would include a reservation by Peregrine of a twenty five percent (25%) of 6/6ths
back in working interest after payout of the costs associated with the drilling and completion of
the Initial Test Well, platform and facilities, pipeline, lease operating expense and other costs.
According to Exhibit A to the PA, Defendant ereentitled to an 8.10811% working interest and
6.43243% net revenue interest before payout, which would be reduced to a 6.08108% working
interest and 4.82432% net revenue interest after payout. In accordance with the PA, Peregrine
executed and filed assignments to Defendant and other non operating working interest owners
with the before payout and after payout working interests identified in the instrument.The PA
also provided that, without prejudice to a party’s right to market its own p duction under the
OOA, Peregrinewould market production for all parties.
Exhibit “C” to the OOA (“the COPAS exhibit required Peregrine, as Operator, to
maintain a Joint Account detailing all charges paid and credits received in the conduct of
operatio necessary or proper for the development, operation, protection and maintenance (“Joint
Operations”) on the real and personal property subject to the OOA (the “Joint Property”)Pursuant
to this responsibility, Peregrine prepared and delivered monthly to each party, including
Defendant Joint Interest Billing Invoices (“JIBs”) and Accounts Receivable Summary
Statements reflecting the status of the Joint Account. The Joint Interest Billing Invoices contained
among other entries, line item entries of all expenses incurred during the month, or adjustments to
expenses previously invoiced, for work, services, and other activities related to the Lease, and the
proportionate amount of such expenses for which the non operator was responsible, based upon
the n operator’s working interest as set out in the PA and the OOA The Accounts Receivable
Summary Statements then summarized and netted, if necessary, the charges and credits in the JIBs
into a total monthly billing amount, included any unpaid prior billings, and presented a total
amount for that month.
Paragraph 22.2 of the OOA required each Party to take in kind, and separately
dispose of, its share of production from the Lease. Paragraph 22.3 gave the Operator the right, but
not obligation, to purchase or sell any oil or condensate which a Party did not take in kind or
dispose of under Paragraph 22.2, and the proceeds thereof were to be paid to the Party by the
Operator. Paragraph 22.4 provided that Operator would not be obligated to dispose of any Party’s
gas production. Paragraph 8 of the PA, though, modified Paragraphs 22.2, 22.3 and 22.4 of the
OOA, by providing that without prejudice to any Party’s right to market production under the
OOA, Peregrine would market all Parties’ production. Pursuant to these provisions of the PA and
the OOA, Peregrine, as Operator, marketed production from the Lease on behalf of itself and some
of the parties, including Defendants, and received the proceeds thereof. Each month, Peregrine
prepared and delivered to each Party for whom Peregrine was marketing production, Revenue
Summary Statements detailing all production sales for such Party, and delivered a company check
to such Party for such Party’s share of production, as determined according to such Party’s net
evenue interest as set outin the PA and the OOA.
On October 10, 2010, Peregrine, Defendants and the other parties to the PA
because of their ownership of the rights and facilities in Galveston Area, South Addition, Block
155, OCS G 30654, entered into a Production Handling Agreement (the “PHA”) with the
owners of Lease OCS G 33407 covering Galveston Area, South Addition, Block A , allowing
the Block A 133 owners to transport production from Block A through the 155 platform
facility owned by Peregrine, Defendants, and other parties to the PA. In return, the A 133 owners
paid the A 155 owners Transportation Fees and roduction Handling F based on the quantity
of production transported from A 133 through the A 155 facility.
As Operator under the OOA governing Block A 155, Peregrine invoiced the A
owners monthly for all transportation fees and production handling fees incurred under the PHA
and collected payment of the invoiced amounts from the A 133 owners for the Joint Account as
Transportation Fees received were credited to each party n the monthly JIB as a separate line item
labelled “Gas Trans Income” and Production Handling Fees were credited in a separate line item
as “PHA fees for GA 133”. The credits to each non operator for both items were calculated using
that non operators’ working interest ownership in the platform as set out in the PA and the OOA.
e JIB then netted all credits from both fees against all amounts due for expenses, and issued
either a credit if a credit was due, or an invoice if payment was due
Payout as provided in the PA occurred June 1, 2013and therefore as of June 1,
2013, all working interests and net revenue interests of all OOA parties immediately changed from
their Before Payout interests to their After Payout interests, but Peregrine did not determine that
payout had occurred until some months laterBy the end of April 2014 Peregrine ad adjusted all
current revenue interests and current expense interests to the correct After Payout working interest
and net revenue interest percentages. For the months between June 2013 and March 2014,
however the JIBs delivered to l non operators contained charge for lease expenses and credits
for Transportation Fees and Production Handling Fees based on their higher before payout working
nterests instead of their lower after payout working interest uring that same period the
Revenue Summary Statements delivered to se non operators for whom Peregrine was
marketing production, including Defendant credited those parties with shares of production using
their higher before payout revenue interests rather than their lower after payout revenue interests.
In other words, from June 2013 through March 2014 Peregrine had received less production and
less transportation and production handling fees than it was contractually entitled to under the PA
d the OOA, and some non operators, including Defendants, had received more production
revenue and transportation and production handling fees than they were contractually entitled to
under the PA and the OOA. Likewise, Peregrine had paid less monthly expenses than itwas
responsible for, and each non operator had paid more than it was responsible for under the PA and
the OOC. As Operator, Peregrineundertook to r econcilethese incorrect payments and credits as
to all parties, by recalculating all amounts paid or credited in Revenue Summary Statements
pursuant to Article 22.3 and Article 22.4 of the OOA and Paragraph 8 of the PA (or received and
retained directly by those parties taking production in kind) and all amounts credited and/or
invoiced in all JIBs pursuant to Article 8.7 and the COPAS exhibit netting all resulting
adjustments against each other to arrive at a net credit toor net amount , as to each party.
he reconciliation determined that the dollar amount of incorrect revenue and
credits delivered to Defendants exceeded the dollar amount of incorrect costs paid by Defendants.
As a result, after offsetting excess costs against excess revenue and credits, Defendants owed
Peregrine $210,883.31.Peregrine issued Accounts Receivable Invoice Number 6973 to
Defendants on December 11, 2015, containing a Billing Description of “Miscellaneous Invoice”
and an invoice amount of $210,883.3, being the amount necessary to align Defendant’s receipt
of revenue and payment of costs with the correct net revenue and working interests as set for After
Payout interests to which Defendants and Peregrine were entitled underthe OOA and the PA
That Miscellaneous Invoice was also included as a line item on Defendant’s
Accounts Receivable Summary Statement for November of 201, along with monthly charges for
the GA A155 Well #1 and the GA A155 Platform/Pipeline. Those additional monthly charges,
plus the $210,883.31, amounted to a total of $218,394.16 in new billings to HRB for the month of
November,
Article 1.4 of the COPAS exhibit provides that all adjustments to the Joint Account
which are favorable to Operator must be made within 24 months after the end of the calendar year
in which such bills and statements were rendered.Payout occurred in June of 2013 and all
adjustments pursuant to the reconciliation had been performed and invoiced to the non operators,
including Defendants, before December 31, 2015, within the twenty four month window.
On December 15, 2015, Peregrine delivered a detailed Payout Notification and
Request for Assignment to the participants in the PA, including Defendant . This notice included
as to Defendants, the adjustment amount set out in the December 11, 2015 Miscellaneous Invoice
and also included a statement summarizing each party’s revenue and expense adjustments pursuant
to the reconciliation
Article 8.7 of the OOA deals with charges made by Operator to non operators under
the OOA. It provides that should a party believe that Operator’s charges, or a portion thereof, are
incorrect, then such party “shall nevertheless pay the charges claimed by Operator and may
notify Operator that the charges are in dispute
Article I.3.B. of the COPAS exhibit provides that “Each Non Operator shall pay its
proportion of all bills within twenty (20) days after receipt.”
Article 8.7 of the OOA also provides that “…if a Party does not pay, when due, its
share of the charges under this Agreement, Operator may give that Party notice that unless payment
is made within thirty (30) days after receipt of Operator’s notice, the Party shall be in default.”
On February 9, 2016, more than sixty days after invoicing each party for its
reconciliation adjustment, Peregrine sent a “Notice of Pending Default” to all parties, including
HRB, advising that should the noticed parties not deliver payment of the invoiced amounts within
thirty days, such parties would be in default of (not by way of limitation) Articles 8.6 and 8.7 of
the OOA.
The reconciliation, and the subsequent Payout Notification and Request for
Assignment sent to all non operators, indicated that all non operators were indebted to eregrine
and every non operator except HRB satisfied its obligation to Peregrine, either by payment of all
amounts invoiced by Peregrine, or by sale of interest in satisfaction of the invoiced amount
Despite Peregrine’s requests, and despite Peregrine ontinuing to request payment from
Defendants each month thereafter by listing such amount on the Accounts Receivable Summary
Statement Defendant failed to pay the requested amount to Peregrine as required under the OOA
Article 1.4 of the COPAS exhibits provides that “all bills and statements rendered
to Non Operators by Operator during any calendar year shall conclusively be presumed to be true
and correct after twenty four (24) months following the end of such calendar year, unless within
the said twen four (24) month period a Non Operator takes written exception thereto and makes
claim on Operator for adjustment.” Since the adjustments made by Peregrine were made on
November 15, 2015, written exception and claim for adjustments must have been made before
December 30, 2017. No Non Operator, including Defendants, made any written exception or
claim for adjustment to Peregrine
Article 8.6 of the OOA provides the Operator with various remedies if a party does
not pay charges when due, including a right of offset.Under this OOA authority Peregrine began
to retain the proceeds of sales of Defendants’ production from the Lease, and Defendant’s share
of Block A 133 production handling fees, and applied those amounts to Defendants’ obligations
to Peregrine. Production from the Lease steadily declined and all production has now ceased.
Block A 133 has also ceased delivering production through the Lease facilities, ending the receipt
of production handling fees and transportation fees under the Production Handling Agreement. By
the time all production had ceased from both blocks Peregrine had recovered $50,069.43 from
such sales and Peregrine has applied this amount to the $210,883.94 reconciliation invoice. After
application of this offset, Defendants were indebted to Peregrine for the remainder of the
reconciliation invoice, being
he well on the Lease has not been plugged and abandoned and since the filing of
this lawsuit monthly expenses have continue to be incurred and invoiced to each party through
the monthly JIB’s. Defendants have failed to pay the amounts invoiced and by September of 2019
an additional $28,927.63 in monthly charges have been invoiced to Defendants and Defendants
have failed to pay such invoiced amounts. Additional amounts have been incurred and invoiced
each month and will be incurred and invoiced for such costs until all plugging and abandonment
and decommissioning operations are completed.
IV. CAUSES OF ACTION
FIRST CAUSE OF ACTION BREACH OF CONTRACT
As and for Plaintiff’s First Cause of Action, Peregrinestates as follows:
Peregrine restates and re alleges Paragraphs
Under the terms of the PA agreed to by the Defendants, upon the occurrence of
payout Defendant were to pay expenses and receive revenues based upon their lower after payout
working interest and net revenue interest Because of the delay in determining payout, itwas
necessary to account for Defendants overpayments of expenses and over crediting of revenues
during the delay period, reconcile those accounts to arrive at one final amount Defendant either
owed to Peregrine or was entitled to receive from Peregrine, and make adjustments to the Joint
ccount to reflect that final amount
Under the authority of the and the COPAS exhibit attached thereto and agreed
to by Defendants Peregrine, as Operator, was entitled to perform such reconciliation for the
accounts of all parties, including HRB, and to invoice the adjustment amount due to Peregrine as
Operator, to each Non Operator when the reconciliation was completedPeregrine made such an
invoice on December 11, 2015 and subsequently made demand for payment of the invoiced
amount pursuant to the provisions of the OOADefendants have refused to pay Peregrine
Defendants have breached their obligation to Peregrine under the OOA and the PA by its and their
unjustified refusal to pay the $160,813.88, after application of offset, demanded by Peregrine
pursuant to the reconciliation.
Since the filing of this lawsuit, Peregrine has invoiced Defendants, through JIBs,
for an additional $28,927.63 through September 2019, and for additional monthly amounts
thereafter, for Defendants’ proportionate share of monthly lease expenses. Defendants have
breached their obligation to Peregrine der the OOA by its and their unjustified refusal to pay the
demanded by Peregrine for monthly lease expenses incurred through September of
2019 and for all amounts incurred and invoiced thereafter.
Under the terms of the PA, Defendants were to observe and comply with all
covenants, terms, and provisions of the OOA. Defendants have refused to pay Peregrine as
provided in the OOA. Defendants failure to comply with the OOA is a breach of their obligation
to Peregrineunder the PA.
As a direct result of Defendants breach of contract, Peregrine has suffered actual
damages in the total amount of $, as of September of 2019Thus, Peregrine now seeks
recovery of that sum in this case, plus all monthly amounts invoiced for the months of October,
2019 through the present. Furthermore, Peregrine seeks recovery of pre judgment and post
judgment interest as provided in the contract
SECOND CAUSE OF ACTION DECLARATORY JUDGMENT
Peregrine restates and re leges Paragraphs 4 as and for Paragraph 4 through
20 of this its Declaratory Judgment Act, IV RAC ODE, cause of action
for a declaratory judgment
Section 37.004 states in part that “A person interested under a … written contract
… may have determined any question of construction or validity arising under the … contract…
and obtain a declaration of rights, status or other legal relations thereunder.
In this litigation the parties disagree on whether a particular invoice by Peregrine
to Defendants is a “charge” under the applicable agreements.
Peregrine has demanded that Defendants pay the balance due under an invoice
delivered by Peregrine, as Operator under the OOA, in the amount of $160,813.88, after
application of all offsets. This invoice resulted rom a reconciliation of the parties accounts after
a determination of payout, which determined that Defendant had been overbilled and had
accordingly overpaid JIB’s to Peregrine for well and Lease expenses, but had also been
overcredited and accordingly overpaid revenues generated by operations on the Lease by
PeregrinePeregrine contends that the invoice delivered pursuant to the reconciliation was
generated out of Operator’s obligations under Articles 22.3 and 22.4 of the OOA and Article 8 of
the PA, and delivered to Defendants for payment as provided in Article 8.7 of the and that
under Article 8.7 Defendants were obligated to pay the invoiced amount while retaining the right
to subsequently dispute the charges after paymentPeregrine furthe r contends that under Article
4.1 of the COPAS exhibit to the OOA, such right by Defendants had to be exercised by written
exception and claim for adjustment within 24 months after the end of the calendar year, in this
case by December 31, 2017. Peregrine, therefore, contends this invoice was a “charge” under the
Defendants contend that no invoice may be delivered by Peregrine to Defendants
unless such invoice deals with the specific activities set out in the COPAS exhibit, that the COPAS
exhibit does not provide for invoices for reimbursement of revenues, that Article 8.7 only applies
to invoices issued pursuant to that COPAS authority and not to any other provisions of the OOA,
and that Article 8.7 therefore does not apply and no payment by Defendants is necessary.
Defendants, therefore, contend this invoice was not a “charge” under the OOA.
his lawsuit was appealed he Court of Appeals for the First District. The
appellate court, reversing Summary Judgment in favor of Defendants, held that “…it is not clear
whether the parties intended the word “charges” to be interpreted as broadly as argued by
Peregrine, as narrowly as argued by HRB, or somewhere in between.
Peregrine eks to have this Court declare that “charges” as set out in Article 8.7 of
the OOA includes Peregrine’s invoice to Defendants reflecting the result of the reconciliation of
overpaid costs and expenses.
V. ATTORNEY’S FEES
Plaintiff restates and re alleges Paragraphs as if such paragraphs were incorporated
erein.
Article 8.7 of the OOA allows the Operator to secure payment of charges and the
performance of the parties’ obligations in the actual amount, together with interest thereon at the
rate set forth in the COPAS Exhibit or the maximum rate allowed by law, whichever is less, plus
attorney’s fees, court costs and other collection costs.
Article I.3.B of the COPAS exhibit provides that unpaid balances shall bear interest
monthly at the lesser of the prime rate in effect at J.P. Morgan Chase on the first dayof the month
in which delinquency occurs plus 3%, or the maximum contract rate permitted in Texas, plus
attorney’s fees, court costs and other costs in connection with the collection of unpaid amounts.
Plaintiff has been forced to employ the undersigned attorneys in order to vindicate
contractual rights. Plaintiff has previously provided notice to Defendant of its claims and has
demanded payment of the above sum. Therefore, Plaintiff claims its attorney’s fees and costs
pursuant to the provisions of the contracts and §38.001, et. seq. of the IV RAC
ODE
All conditions precedent have either been performed or have occurred.
WHEREFORE, PREMISES CONSIDERED, Plaintiff requests that Defendant HRB Oil
& Gas, Ltd and VHPM, LLC be cited to appear and answer, and that upon final trial hereof,
Plaintiff have:
Judgment against Defendant awarding Plaintiff its actual damages
in an amount in excess of the minimum jurisdictional limits of this Court; and
A declaratory judgment that the amount posted to Defendants’
account by Plaintiff upon the after payout reconciliation was a charge pursuant to
the provisions of the OOA; and
Judgment awarding Plaintiff recovery of Plaintiff’s reasonable
attorney’s fees; and
Judgment awarding pre judgment interest at the highest rate
permitted by lawand the terms of the contracts ; and
Judgment awarding post judgment interest at the highest rate
permitted by law and the terms of the contract from the date of judgment until paid;
and
Taxable court costs; and
Such other and further relief to which Plaintiff may be justly
entitled.
Respectfully submitted,
JONES GILL PORTER CRAWFORD
AND CRAWFORD LLP
ichael ones
Michael D. Jones
State Bar No. 10929350
Joseph D. Porter
State Bar No.
6363 Woodway, Suite 1100
Houston, Texas 77057
Telephone: (713)652 4068
Facsimile: (713)651 0716
Email: mjones@jonesgill.com
jporter@jonesgill.com
ATTORNEYS FOR PLAINTIFF.
PEREGRINE OIL & GAS,
CERTIFICATE OF SERVICE
I hereby certify that on this 30 day of April, 2020, a true and correct copy of the
and foregoing PLAINTIFF’S SECOND AMENDED ORIGINAL PETITION was
sent to counsel of record at the following address by first class U. S. Mail, certified mail,
return receipt requested, facsimile transmission, messenger/hand delivery, or express
deliveryecf
Barry F. Cannaday Neil Bowman
Dentons US LLP Lyondell Bassell Tower
2000 McKinney Ave. Suite 1900 Dentons US LLP
Dallas, Texas 75201 1221 McKinney, Suite 1900
0900(telephone) Houston, Texas 77010
0910 (facsimile) 4631(telephone)
barry.cannaday@dentons.com 0834(facsmille)
neil.bowman@dentons.com
/s/Michael D. Jones
Michael D. Jones
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CAUSE NO. 2016-45652 PEREGRINE OIL & GAS, LP § IN THE DISTRICT COURT OF Plaintiff, § HARRIS COUNTY, TEXAS HRB OIL & GAS, Ltd. and VHPM, LLC Defendants. § 190 JUDICIAL DISTRICT PLAINTIFF’S SECONDAMENDED ORIGINAL PETITION TO THE HONORABLE COURT: Plaintiff Peregrine Oil & Gas, files this its SECOND AMENDED ORIGINAL PETITION complaining of Defendants HRB Oil & Gas, Ltd. and VHPM, LLC and for cause of action would show the Court as follows: PARTIES Plaintiff Peregrine Oil & Gas, LP (“Peregrine”) is a Delaware limited partnership which is qualified to do business in Texas, and which maintains a principal place of business in Houston, Harris County, Texas. Defendant HRB Oil & Gas, Ltd. has been served with citation and has made an appearance in this lawsuit and service may be made upon its counsel of record. Defendant, VHPM, LLC, has made an appearance in this lawsuit and service may be made upon its counsel of record. I. JURISDICTION, VENUE AND DISCOVERY PLAN This Court has jurisdiction over this matter as Defendant are a Texas limited partnership and a Texas limited liability company. Venue is proper in Harris County, Texas, because Harris County is the county in which all or a substantial part of the events or omissions giving rise to the claim occurred. Discovery in this case shall proceed under Level 2 of Rule 190.2 of the Texas Rules of Civil Procedure. III. FACTS On or about February 6, 2008, Peregrine, Defendant and other entities entered into agreement entitled “Participation Agreement, Block A 155, Galveston Area, South Addition, OCS G 30654”, (hereinafter the “PA”). The PA and exhibits thereto set out the terms and conditions under which Defendant d others would participate in the drilling of wells in Block 155, Galveston Area, South Addition, OCS G 30654 n order to earn an interestfrom Peregrine , as Operator,in that certain Oil and Gas Lease of Submerged Lands under the Outer Continental Shelf Lands Act, dated October 1, 2006, between the United States Department of the Interior, Minerals Management Service, as Lessor, and Peregrine Oil and Gas, LP, as Lessee, bearing serial number OCS G 30654 (the “Lease”) Defendant had to agree to the PA and to pay their share of expenses Attached to and made a part of the PA were multiple exhibits. Exhibit A to the PA was a Division of Interest Schedule setting out each party’s before payout (“BPO”) and after payout (“APO”) working interest and net revenue interest in the Lease. Exhibit B to the PA was a well plat. Exhibit B 1 to the PA included two instruments titled Authorization for Expenditure (“AFE”) for certain proposed operations on the Lease. Exhibit C to the PA was an Offshore Operating Agreement, which itself contained six exhibits, labeled from Exhibits A through F, and which agreement and exhibits is hereafter collectively referred to as the “OOA”. Exhibit D to the PA was an Option to Purchase Platform. Exhibit E to the PA was a copy of a turnkey drilling bid. Exhibit F to the PA was a form of Assignment of Record Title Interest. The parties designated Peregrine as Operator of the Lease under the OOA. Among other provisions in the PA, the parties agreed that Peregrine would execute and deliver to Defendant an assignment of record title interest in the Lease, conveying the working interest and net revenue interest as set out in Exhibit A to the PA. The PA also provided that the assignment would include a reservation by Peregrine of a twenty five percent (25%) of 6/6ths back in working interest after payout of the costs associated with the drilling and completion of the Initial Test Well, platform and facilities, pipeline, lease operating expense and other costs. According to Exhibit A to the PA, Defendant ereentitled to an 8.10811% working interest and 6.43243% net revenue interest before payout, which would be reduced to a 6.08108% working interest and 4.82432% net revenue interest after payout. In accordance with the PA, Peregrine executed and filed assignments to Defendant and other non operating working interest owners with the before payout and after payout working interests identified in the instrument.The PA also provided that, without prejudice to a party’s right to market its own p duction under the OOA, Peregrinewould market production for all parties. Exhibit “C” to the OOA (“the COPAS exhibit required Peregrine, as Operator, to maintain a Joint Account detailing all charges paid and credits received in the conduct of operatio necessary or proper for the development, operation, protection and maintenance (“Joint Operations”) on the real and personal property subject to the OOA (the “Joint Property”)Pursuant to this responsibility, Peregrine prepared and delivered monthly to each party, including Defendant Joint Interest Billing Invoices (“JIBs”) and Accounts Receivable Summary Statements reflecting the status of the Joint Account. The Joint Interest Billing Invoices contained among other entries, line item entries of all expenses incurred during the month, or adjustments to expenses previously invoiced, for work, services, and other activities related to the Lease, and the proportionate amount of such expenses for which the non operator was responsible, based upon the n operator’s working interest as set out in the PA and the OOA The Accounts Receivable Summary Statements then summarized and netted, if necessary, the charges and credits in the JIBs into a total monthly billing amount, included any unpaid prior billings, and presented a total amount for that month. Paragraph 22.2 of the OOA required each Party to take in kind, and separately dispose of, its share of production from the Lease. Paragraph 22.3 gave the Operator the right, but not obligation, to purchase or sell any oil or condensate which a Party did not take in kind or dispose of under Paragraph 22.2, and the proceeds thereof were to be paid to the Party by the Operator. Paragraph 22.4 provided that Operator would not be obligated to dispose of any Party’s gas production. Paragraph 8 of the PA, though, modified Paragraphs 22.2, 22.3 and 22.4 of the OOA, by providing that without prejudice to any Party’s right to market production under the OOA, Peregrine would market all Parties’ production. Pursuant to these provisions of the PA and the OOA, Peregrine, as Operator, marketed production from the Lease on behalf of itself and some of the parties, including Defendants, and received the proceeds thereof. Each month, Peregrine prepared and delivered to each Party for whom Peregrine was marketing production, Revenue Summary Statements detailing all production sales for such Party, and delivered a company check to such Party for such Party’s share of production, as determined according to such Party’s net evenue interest as set outin the PA and the OOA. On October 10, 2010, Peregrine, Defendants and the other parties to the PA because of their ownership of the rights and facilities in Galveston Area, South Addition, Block 155, OCS G 30654, entered into a Production Handling Agreement (the “PHA”) with the owners of Lease OCS G 33407 covering Galveston Area, South Addition, Block A , allowing the Block A 133 owners to transport production from Block A through the 155 platform facility owned by Peregrine, Defendants, and other parties to the PA. In return, the A 133 owners paid the A 155 owners Transportation Fees and roduction Handling F based on the quantity of production transported from A 133 through the A 155 facility. As Operator under the OOA governing Block A 155, Peregrine invoiced the A owners monthly for all transportation fees and production handling fees incurred under the PHA and collected payment of the invoiced amounts from the A 133 owners for the Joint Account as Transportation Fees received were credited to each party n the monthly JIB as a separate line item labelled “Gas Trans Income” and Production Handling Fees were credited in a separate line item as “PHA fees for GA 133”. The credits to each non operator for both items were calculated using that non operators’ working interest ownership in the platform as set out in the PA and the OOA. e JIB then netted all credits from both fees against all amounts due for expenses, and issued either a credit if a credit was due, or an invoice if payment was due Payout as provided in the PA occurred June 1, 2013and therefore as of June 1, 2013, all working interests and net revenue interests of all OOA parties immediately changed from their Before Payout interests to their After Payout interests, but Peregrine did not determine that payout had occurred until some months laterBy the end of April 2014 Peregrine ad adjusted all current revenue interests and current expense interests to the correct After Payout working interest and net revenue interest percentages. For the months between June 2013 and March 2014, however the JIBs delivered to l non operators contained charge for lease expenses and credits for Transportation Fees and Production Handling Fees based on their higher before payout working nterests instead of their lower after payout working interest uring that same period the Revenue Summary Statements delivered to se non operators for whom Peregrine was marketing production, including Defendant credited those parties with shares of production using their higher before payout revenue interests rather than their lower after payout revenue interests. In other words, from June 2013 through March 2014 Peregrine had received less production and less transportation and production handling fees than it was contractually entitled to under the PA d the OOA, and some non operators, including Defendants, had received more production revenue and transportation and production handling fees than they were contractually entitled to under the PA and the OOA. Likewise, Peregrine had paid less monthly expenses than itwas responsible for, and each non operator had paid more than it was responsible for under the PA and the OOC. As Operator, Peregrineundertook to r econcilethese incorrect payments and credits as to all parties, by recalculating all amounts paid or credited in Revenue Summary Statements pursuant to Article 22.3 and Article 22.4 of the OOA and Paragraph 8 of the PA (or received and retained directly by those parties taking production in kind) and all amounts credited and/or invoiced in all JIBs pursuant to Article 8.7 and the COPAS exhibit netting all resulting adjustments against each other to arrive at a net credit toor net amount , as to each party. he reconciliation determined that the dollar amount of incorrect revenue and credits delivered to Defendants exceeded the dollar amount of incorrect costs paid by Defendants. As a result, after offsetting excess costs against excess revenue and credits, Defendants owed Peregrine $210,883.31.Peregrine issued Accounts Receivable Invoice Number 6973 to Defendants on December 11, 2015, containing a Billing Description of “Miscellaneous Invoice” and an invoice amount of $210,883.3, being the amount necessary to align Defendant’s receipt of revenue and payment of costs with the correct net revenue and working interests as set for After Payout interests to which Defendants and Peregrine were entitled underthe OOA and the PA That Miscellaneous Invoice was also included as a line item on Defendant’s Accounts Receivable Summary Statement for November of 201, along with monthly charges for the GA A155 Well #1 and the GA A155 Platform/Pipeline. Those additional monthly charges, plus the $210,883.31, amounted to a total of $218,394.16 in new billings to HRB for the month of November, Article 1.4 of the COPAS exhibit provides that all adjustments to the Joint Account which are favorable to Operator must be made within 24 months after the end of the calendar year in which such bills and statements were rendered.Payout occurred in June of 2013 and all adjustments pursuant to the reconciliation had been performed and invoiced to the non operators, including Defendants, before December 31, 2015, within the twenty four month window. On December 15, 2015, Peregrine delivered a detailed Payout Notification and Request for Assignment to the participants in the PA, including Defendant . This notice included as to Defendants, the adjustment amount set out in the December 11, 2015 Miscellaneous Invoice and also included a statement summarizing each party’s revenue and expense adjustments pursuant to the reconciliation Article 8.7 of the OOA deals with charges made by Operator to non operators under the OOA. It provides that should a party believe that Operator’s charges, or a portion thereof, are incorrect, then such party “shall nevertheless pay the charges claimed by Operator and may notify Operator that the charges are in dispute Article I.3.B. of the COPAS exhibit provides that “Each Non Operator shall pay its proportion of all bills within twenty (20) days after receipt.” Article 8.7 of the OOA also provides that “…if a Party does not pay, when due, its share of the charges under this Agreement, Operator may give that Party notice that unless payment is made within thirty (30) days after receipt of Operator’s notice, the Party shall be in default.” On February 9, 2016, more than sixty days after invoicing each party for its reconciliation adjustment, Peregrine sent a “Notice of Pending Default” to all parties, including HRB, advising that should the noticed parties not deliver payment of the invoiced amounts within thirty days, such parties would be in default of (not by way of limitation) Articles 8.6 and 8.7 of the OOA. The reconciliation, and the subsequent Payout Notification and Request for Assignment sent to all non operators, indicated that all non operators were indebted to eregrine and every non operator except HRB satisfied its obligation to Peregrine, either by payment of all amounts invoiced by Peregrine, or by sale of interest in satisfaction of the invoiced amount Despite Peregrine’s requests, and despite Peregrine ontinuing to request payment from Defendants each month thereafter by listing such amount on the Accounts Receivable Summary Statement Defendant failed to pay the requested amount to Peregrine as required under the OOA Article 1.4 of the COPAS exhibits provides that “all bills and statements rendered to Non Operators by Operator during any calendar year shall conclusively be presumed to be true and correct after twenty four (24) months following the end of such calendar year, unless within the said twen four (24) month period a Non Operator takes written exception thereto and makes claim on Operator for adjustment.” Since the adjustments made by Peregrine were made on November 15, 2015, written exception and claim for adjustments must have been made before December 30, 2017. No Non Operator, including Defendants, made any written exception or claim for adjustment to Peregrine Article 8.6 of the OOA provides the Operator with various remedies if a party does not pay charges when due, including a right of offset.Under this OOA authority Peregrine began to retain the proceeds of sales of Defendants’ production from the Lease, and Defendant’s share of Block A 133 production handling fees, and applied those amounts to Defendants’ obligations to Peregrine. Production from the Lease steadily declined and all production has now ceased. Block A 133 has also ceased delivering production through the Lease facilities, ending the receipt of production handling fees and transportation fees under the Production Handling Agreement. By the time all production had ceased from both blocks Peregrine had recovered $50,069.43 from such sales and Peregrine has applied this amount to the $210,883.94 reconciliation invoice. After application of this offset, Defendants were indebted to Peregrine for the remainder of the reconciliation invoice, being he well on the Lease has not been plugged and abandoned and since the filing of this lawsuit monthly expenses have continue to be incurred and invoiced to each party through the monthly JIB’s. Defendants have failed to pay the amounts invoiced and by September of 2019 an additional $28,927.63 in monthly charges have been invoiced to Defendants and Defendants have failed to pay such invoiced amounts. Additional amounts have been incurred and invoiced each month and will be incurred and invoiced for such costs until all plugging and abandonment and decommissioning operations are completed. IV. CAUSES OF ACTION FIRST CAUSE OF ACTION BREACH OF CONTRACT As and for Plaintiff’s First Cause of Action, Peregrinestates as follows: Peregrine restates and re alleges Paragraphs Under the terms of the PA agreed to by the Defendants, upon the occurrence of payout Defendant were to pay expenses and receive revenues based upon their lower after payout working interest and net revenue interest Because of the delay in determining payout, itwas necessary to account for Defendants overpayments of expenses and over crediting of revenues during the delay period, reconcile those accounts to arrive at one final amount Defendant either owed to Peregrine or was entitled to receive from Peregrine, and make adjustments to the Joint ccount to reflect that final amount Under the authority of the and the COPAS exhibit attached thereto and agreed to by Defendants Peregrine, as Operator, was entitled to perform such reconciliation for the accounts of all parties, including HRB, and to invoice the adjustment amount due to Peregrine as Operator, to each Non Operator when the reconciliation was completedPeregrine made such an invoice on December 11, 2015 and subsequently made demand for payment of the invoiced amount pursuant to the provisions of the OOADefendants have refused to pay Peregrine Defendants have breached their obligation to Peregrine under the OOA and the PA by its and their unjustified refusal to pay the $160,813.88, after application of offset, demanded by Peregrine pursuant to the reconciliation. Since the filing of this lawsuit, Peregrine has invoiced Defendants, through JIBs, for an additional $28,927.63 through September 2019, and for additional monthly amounts thereafter, for Defendants’ proportionate share of monthly lease expenses. Defendants have breached their obligation to Peregrine der the OOA by its and their unjustified refusal to pay the demanded by Peregrine for monthly lease expenses incurred through September of 2019 and for all amounts incurred and invoiced thereafter. Under the terms of the PA, Defendants were to observe and comply with all covenants, terms, and provisions of the OOA. Defendants have refused to pay Peregrine as provided in the OOA. Defendants failure to comply with the OOA is a breach of their obligation to Peregrineunder the PA. As a direct result of Defendants breach of contract, Peregrine has suffered actual damages in the total amount of $, as of September of 2019Thus, Peregrine now seeks recovery of that sum in this case, plus all monthly amounts invoiced for the months of October, 2019 through the present. Furthermore, Peregrine seeks recovery of pre judgment and post judgment interest as provided in the contract SECOND CAUSE OF ACTION DECLARATORY JUDGMENT Peregrine restates and re leges Paragraphs 4 as and for Paragraph 4 through 20 of this its Declaratory Judgment Act, IV RAC ODE, cause of action for a declaratory judgment Section 37.004 states in part that “A person interested under a … written contract … may have determined any question of construction or validity arising under the … contract… and obtain a declaration of rights, status or other legal relations thereunder. In this litigation the parties disagree on whether a particular invoice by Peregrine to Defendants is a “charge” under the applicable agreements. Peregrine has demanded that Defendants pay the balance due under an invoice delivered by Peregrine, as Operator under the OOA, in the amount of $160,813.88, after application of all offsets. This invoice resulted rom a reconciliation of the parties accounts after a determination of payout, which determined that Defendant had been overbilled and had accordingly overpaid JIB’s to Peregrine for well and Lease expenses, but had also been overcredited and accordingly overpaid revenues generated by operations on the Lease by PeregrinePeregrine contends that the invoice delivered pursuant to the reconciliation was generated out of Operator’s obligations under Articles 22.3 and 22.4 of the OOA and Article 8 of the PA, and delivered to Defendants for payment as provided in Article 8.7 of the and that under Article 8.7 Defendants were obligated to pay the invoiced amount while retaining the right to subsequently dispute the charges after paymentPeregrine furthe r contends that under Article 4.1 of the COPAS exhibit to the OOA, such right by Defendants had to be exercised by written exception and claim for adjustment within 24 months after the end of the calendar year, in this case by December 31, 2017. Peregrine, therefore, contends this invoice was a “charge” under the Defendants contend that no invoice may be delivered by Peregrine to Defendants unless such invoice deals with the specific activities set out in the COPAS exhibit, that the COPAS exhibit does not provide for invoices for reimbursement of revenues, that Article 8.7 only applies to invoices issued pursuant to that COPAS authority and not to any other provisions of the OOA, and that Article 8.7 therefore does not apply and no payment by Defendants is necessary. Defendants, therefore, contend this invoice was not a “charge” under the OOA. his lawsuit was appealed he Court of Appeals for the First District. The appellate court, reversing Summary Judgment in favor of Defendants, held that “…it is not clear whether the parties intended the word “charges” to be interpreted as broadly as argued by Peregrine, as narrowly as argued by HRB, or somewhere in between. Peregrine eks to have this Court declare that “charges” as set out in Article 8.7 of the OOA includes Peregrine’s invoice to Defendants reflecting the result of the reconciliation of overpaid costs and expenses. V. ATTORNEY’S FEES Plaintiff restates and re alleges Paragraphs as if such paragraphs were incorporated erein. Article 8.7 of the OOA allows the Operator to secure payment of charges and the performance of the parties’ obligations in the actual amount, together with interest thereon at the rate set forth in the COPAS Exhibit or the maximum rate allowed by law, whichever is less, plus attorney’s fees, court costs and other collection costs. Article I.3.B of the COPAS exhibit provides that unpaid balances shall bear interest monthly at the lesser of the prime rate in effect at J.P. Morgan Chase on the first dayof the month in which delinquency occurs plus 3%, or the maximum contract rate permitted in Texas, plus attorney’s fees, court costs and other costs in connection with the collection of unpaid amounts. Plaintiff has been forced to employ the undersigned attorneys in order to vindicate contractual rights. Plaintiff has previously provided notice to Defendant of its claims and has demanded payment of the above sum. Therefore, Plaintiff claims its attorney’s fees and costs pursuant to the provisions of the contracts and §38.001, et. seq. of the IV RAC ODE All conditions precedent have either been performed or have occurred. WHEREFORE, PREMISES CONSIDERED, Plaintiff requests that Defendant HRB Oil & Gas, Ltd and VHPM, LLC be cited to appear and answer, and that upon final trial hereof, Plaintiff have: Judgment against Defendant awarding Plaintiff its actual damages in an amount in excess of the minimum jurisdictional limits of this Court; and A declaratory judgment that the amount posted to Defendants’ account by Plaintiff upon the after payout reconciliation was a charge pursuant to the provisions of the OOA; and Judgment awarding Plaintiff recovery of Plaintiff’s reasonable attorney’s fees; and Judgment awarding pre judgment interest at the highest rate permitted by lawand the terms of the contracts ; and Judgment awarding post judgment interest at the highest rate permitted by law and the terms of the contract from the date of judgment until paid; and Taxable court costs; and Such other and further relief to which Plaintiff may be justly entitled. Respectfully submitted, JONES GILL PORTER CRAWFORD AND CRAWFORD LLP ichael ones Michael D. Jones State Bar No. 10929350 Joseph D. Porter State Bar No. 6363 Woodway, Suite 1100 Houston, Texas 77057 Telephone: (713)652 4068 Facsimile: (713)651 0716 Email: mjones@jonesgill.com jporter@jonesgill.com ATTORNEYS FOR PLAINTIFF. PEREGRINE OIL & GAS, CERTIFICATE OF SERVICE I hereby certify that on this 30 day of April, 2020, a true and correct copy of the and foregoing PLAINTIFF’S SECOND AMENDED ORIGINAL PETITION was sent to counsel of record at the following address by first class U. S. Mail, certified mail, return receipt requested, facsimile transmission, messenger/hand delivery, or express deliveryecf Barry F. Cannaday Neil Bowman Dentons US LLP Lyondell Bassell Tower 2000 McKinney Ave. Suite 1900 Dentons US LLP Dallas, Texas 75201 1221 McKinney, Suite 1900 0900(telephone) Houston, Texas 77010 0910 (facsimile) 4631(telephone) barry.cannaday@dentons.com 0834(facsmille) neil.bowman@dentons.com /s/Michael D. Jones Michael D. Jones