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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 §
th
Defendants. JUDICIAL DISTRICT
DEFENDANTS’ OBJECTIONS TO PLAINTIFF’S ADDITIONAL REQUEST FOR
FINDINGS OF FACT AND CONCLUSIONS OF LAW
Now come Defendants HRB Oil & Gas, Ltd. and VHPM, LLC (together, “HRB”)
and file this their Objections to Peregrine Oil & Gas, LP’s (“Peregrine”) Additional
Request for Findings of Fact and Conclusions of Law filed in this case on July 8, 2021
Peregrine’s Request for Additional Findings”) and as grounds therefor would
respectfully show this Court as follows:
Peregrine’s Request for Additional Findings are improper and should be
denied because such additional findings are either (i) inconsistent with the Final
Judgment entered in this case on June 25, 2021 (the “Final Judgment”), (ii) unrelated to
controlling factual issues in this case, or (iii) duplicative of HRB’s Proposed Findings of
Fact and Conclusions of law filed in this case on July 2, 2021 (“HRB’s Proposed
Findings”).
A copy of this Court’s June 25, 2021 Final Judgment is attached to this Objection as Exhibit A.
A copy of HRB’s Proposed Findings are attached to this Objection as Exhibit B.
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2. Peregrine’s Request for Additional Findings are basically a “cut and paste”
from Peregrine’s Proposed Findings of Fact and Conclusions of Law filed by Peregrine
prior to this Court’s entry of its Final Judgment in this case on June 25, 2021. As a
result, Peregrine’s Request for Additional Findings contain numerous proposed findings
inconsistent with the Final Judgment. Proposed additional findings inconsistent with the
judgment are improper and must be denied. In re Marriage of Grossnickle, 115 S.W.3d
238, 254 (Tex. App - Texarkana 2003, no pet.).
3. Peregrine’s Request for Additional Findings include numerous proposed
findings that are not required and unnecessary because they do not relate to any
controlling fact issues. Such unnecessary, additional requests are improper and should
be denied. ASAI v. Vanco Insulation Abatement, Inc., 932 S.W.2d 118, 122 (Tex. App. -
El Paso 1996, no writ).
4. Peregrine’s Request for Additional Findings include numerous proposed
findings that are largely duplicative of HRB’s Proposed Findings. Such requests for
duplicate findings are not appropriate because they serve no purpose and should be
denied. IKB Indus. V. Pro-Line Corp., 938 S.W.2d 440, 443 (Tex. 1997).
PRAYER
WHEREFORE, PREMISES CONSIDERED, HRB prays that this Court (i) deny
Peregrine’s Request for Additional Findings in its entirety; (ii) enter HRB’s Proposed
Findings as the Findings of Fact and Conclusions of Law in this case, and (iii) grant HRB
such other and further relief to which it may show itself entitled.
Dated: July 9, 2021
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[Signature Page Follows]
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/s/ Barry F. Cannaday
Barry F. Cannaday
Dentons US LLP
2000 McKinney Ave.
Suite 1900
Dallas, Texas 75201
(214) 259-0900 (telephone)
(214) 259-0910 (facsimile)
barry.cannaday@dentons.com
ATTORNEY FOR DEFENDANTS
CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the above and foregoing document was
served by hand delivery, facsimile, electronic mail or Certified Mail/Return Receipt Requested in
accordance with the Texas Rules of Civil Procedure on July 9, 2021 to the following counsel of
record:
Michael D. Jones
mjoines@jonesgill.com
Joseph D. Porter
jporter@jonesgill.com
Jones Gill Porter Crawford & Crawford LLP
6363 Woodway, Suite 100
Houston, Texas 77057
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EXHIBIT A
PEREGRINE’S REQUEST FOR ADDITIONAL
FINDINGS
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EXHIBIT B
HRB’S PROPOSED FINDINGS
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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. JUDICIAL DISTRICT
[PROPOSED]
FINDINGS OF FACT AND CONCLUSIONS OF LAW
Pursuant to Rule 296 and 297, Texas Rules of Civil Procedure, these Findings of
Fact and Conclusions of Law are filed and adopted by the Court as and for the matters
considered in the June 1, June 2 and June 3 bench trial of the captioned matter.
FINDINGS OF FACT:
This Court has jurisdiction of the parties. Plaintiff, Peregrine Oil & Gas, LP
(“Peregrine”) is a limited partnership with its principal place of business in Harris
County, Texas. Defendants, HRB Oil & Gas, Ltd. (“HRB”) and its general partner
VHPM, LLC, (“VHPM”) have their principal place of business in Dallas County,
Texas. Defendants have appeared herein and have submitted to the jurisdiction of the
Court. Venue is appropriate as a substantial amount of the events leading to this
litigation occurred in Harris County, Texas and Defendants did not challenge the
venue in Harris County, Texas.
On October 1, 2006, Peregrine acquired a Texas offshore oil and gas lease from the
ted 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”) covering Galveston Area, South Addition, Block A 155.
3. Peregrine, HRB and other entities not named in this litigation entered into a
Participation Agreement (“PA”) dated effective January 1, 2008. 11
See Plaintiff’s
Exhibit 1. The PA incorporated attached exhibits. Exhibit A to the PA is 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 is
a well plat. Exhibit B-1 to the PA includes two instruments titled Authorization for
Expenditure (“AFE”) for certain proposed operations on the Lease. Exhibit C to the
PA is an Offshore Operating Agreement, which itself contains six exhibits, labeled
from Exhibits A through F, and which agreement and exhibits are hereafter
collectively referred to as the “OOA.” See Plaintiff’s Exhibit 2, the OOA, with
attached exhibits.
4. The OOA designates Peregrine as the Operator for Galveston Area, South Addition,
Block A-155 (hereinafter “Block 155”). See Plaintiff’s Exhibit 2, the OOA, at pg. 4.
The PA provides for the drilling of a new well on Block 155. See Plaintiff’s Exhibit 1,
pg. 3. Peregrine, as Operator, was responsible for arranging and directing the drilling
of the new well.
5. The PA provides that in exchange for paying its share of the costs of drilling,
completing, equipping and operating the new well, HRB and the other parties were
entitled to a larger percentage payment from the proceeds of production until these
larger shares of the costs were recovered by HRB and the other parties. This is known
as a Before Payout interest (“BPO”). At Payout, HRB’s revenue interest is reduced per
the PA to an After Payout interest (“APO”). The PA also provides that, without
prejudice to a party’s right to market its own production under the OOA, Peregrine
would market oil and gas production for all parties. See Plaintiff’s Exhibit 1, ⁋8 of
Exhibit 1, Exhibit 3 “Division of Interests.”
6. As Operator, Peregrine is responsible for conducting all operations on the Block and
arranging for all services, paying all invoices, and billing and collecting each non-
Operator’s proportionate share of such expenses. As a part of this responsibility,
pursuant to Article 8.1 of the OOA, Peregrine delivered monthly invoices for expenses
incurred in operations to each party in the form of Joint Interest Billings (“JIBs”).
1
In February 2008, the other parties included Challenger Minerals, Inc., Providence Resources (Trading) LLC and
UI Energy, USA, Inc. At the time of Payout, the other parties, through mergers and acquisitions and not named in
this litigation, were Knight Resources, LLC, and Fieldwood Energy Offshore LLC and Peregrine Oil & Gas II, LLC.
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7. Article 8 of the PA requires Peregrine to market the production from Block 155 unless
each party made separate arrangements to market its share of production. HRB did not
make any separate arrangements. As a result, Peregrine marketed HRB’s share of
production and disbursed the proceeds from the sale of such production to HRB.
8. Pursuant to the PA and the Assignment of Record Title Interest (Defendant’s Exhibit
3), at Payout the working interest and corresponding net revenue interest of each non-
Operator would be reduced, and the working interest and net revenue interest of
Peregrine would increase. As set out in Exhibit A to the Participation Agreement
(Plaintiff’s Exhibit 3), HRB was entitled to an 8.10811% working interest (expenses
or costs) and 6.43243% net revenue interest BPO. At payout, HRB’s interest would be
reduced to a 6.08108% working interest (expenses or costs) and 4.82432% net revenue
interest APO, and Peregrine’s working interest and net revenue interest would increase
by the same percentage amount “across the board.” See Plaintiff’s Ex. 1 and Ex. 3.
10. According to Peregrine’s accounting, “payout” under the PA occurred in June of 2013.
However, Peregrine testified that it was not able to determine the fact that payout had
occurred until April of 2014. Upon determining payout had occurred in April 2014,
Peregrine changed its accounting records, effective May 1, 2014, to reflect the APO
(after payout) working interests and net revenue interests of Peregrine and the
participants in the Lease.
11. Based upon Peregrine’s accounting records, during the period from June 2013 to April
2014, non-operating interest owners received and paid JIBs based on their incorrect
and higher BPO working interest, resulting in overpayment of expenses, and non-
operators were paid proceeds of production by Peregrine, based upon their incorrect
and higher BPO net revenue interest, resulting in overpayments of production
revenues.
12. On December 15, 2015 Peregrine sent HRB and the other participants a “Payout
Notification and Request for Assignment” (the “Payout Notification”).2 In Peregrine’s
Payout Notification, Peregrine set out a reconciliation of the participants’ overpayment
of expenses and receipts of overpaid production revenues during the period of time from
June 2013 to May 2014. Included within Peregrine’s December 15, 2015 Payout
Notification was a December 11, 2015 “Miscellaneous Invoice” to HRB for the
overpayment of production revenues to HRB in the amount of $210,883.31.
2
Plaintiff’s Exhibit 9.
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13. The issue of whether the December 11, 2015 “Miscellaneous Invoice” to HRB for the
overpayment of production revenues to HRB in the amount of $210,883.31 is a
“charge,” as that term is used in Article 8.7 of the OOA, was the central question in
the First Court of Appeals’ August 30, 2018 opinion.
14. This Court finds that the November 30, 2015 Miscellaneous Invoice submitted by
Peregrine to HRB for $210,883.31 for reimbursement for overpaid production
revenues (Plaintiff’s Exhibit 8) does not constitute a “charge,” as that term is used in
either Article 8.1 or Article 8.7 of the OOA.
15. At various times prior to the institution of this lawsuit by Peregrine, Peregrine
referred to the $210,883.31 it claims is due from HRB for overpayment of production
revenues as (i) a “Miscellaneous Invoice,” (ii) a “net back”, (iii) a “cash adj.” and (iv)
a “reimbursement.” Peregrine did not at any point, prior to the institution of this
lawsuit, refer to this $210,883.31 it was attempting to recover from HRB as a
“charge,” as that term is used in Article 8.7 of the OOA.
16. HRB retained and designated Jeffrey Wright as an expert witness on the meaning of
the term “charge” in the OOA as a matter of custom and usage in the oil and gas
industry. The Court accepted Mr. Wright as an expert on the proper classification and
accounting for charges under operating agreements in the oil and gas industry. Mr.
Wright’s curriculum vitae is included as Defendants’ Ex. 14.
17. Peregrine retained and designated Jeffry D. Weems as an expert witness on oil and gas
operating agreements. The Court accepted Mr. Weems as an expert on oil and gas
operating agreements.
18. Peregrine designated Terrell Lanier as a fact and expert witness. Mr. Lanier testified to
the unpaid JIBs by HRB up to March 31, 2021 (Plaintiff’s Exhibit 21) and the unpaid
revenues due and owing to HRB up to March 31, 2021 (Plaintiff’s Exhibit 22).
19. The Court finds that the meaning of the word “charges” as used in Article 8.7 of the
OOA is a fact issue to be resolved based upon course of dealings between the parties
and custom and usage in the oil and gas industry.
20. The Court finds that, based upon his 40 years of experience in oil and gas accounting
matters directly relevant to the issue in this case, Mr. Wright’s opinions relating the
meaning of the term “charge,” based upon custom and usage in the oil and gas
industry, is persuasive. Specifically, the Court finds that the November 30, 2015
Miscellaneous Invoice submitted by Peregrine to HRB for $210,883.31 for
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reimbursement for overpaid production revenues (Plaintiff’s Exhibit 8) does not
constitute a “charge,” as that term is used in either Article 8.1 or Article 8.7 of the
OOA.
21. The Court recognizes Mr. Weem’s expertise in drafting onshore operating
agreements. However, Mr. Weem’s testimony did not provide any useful guidance to
the Court with respect to meaning of the term “charge” in the OOA as a matter of
custom and usage in the industry.
22. Based upon Mr. Lanier’s testimony, Peregrine’s business records reflected that, as of
March 31, 2021, HRB had outstanding “Unpaid Invoices” totaling $318,119.93, which
were comprised of (i) the unpaid “Miscellaneous Invoice” in the amount of $210,883.31
for overpayment of production revenues plus (ii) additional unpaid invoices totaling
$107,236.62. (Plaintiff’s Exhibit 21.)
23. Mr. Lanier testified that if this Court finds that Peregrine’s Miscellaneous Invoice in the
amount of $210,883.31 is not collectible, the $210,883.31 will have to be subtracted
from the $318,119.93 of total of Unpaid Invoices.
24. Additionally, based upon Mr. Lanier’s testimony, Peregrine business records reflected
that as of March 31, 2021, Peregrine was holding revenues payable to HRB in the
amount of $50,069.43 (Plaintiff’s Exhibit 22.)
25. On July 8, 2016, more than two years after the last alleged overpayment of production
revenues by Peregrine to HRB in 2014, Peregrine filed suit against HRB asserting
claims of (i) breach of contract and (ii) in the alternative, money had and received,
concerning the payment obligations of the parties under the PA.
26. HRB answered on August 8, 2016 and on September 20, 2016 HRB filed its Motion
for Partial Summary Judgment.
27. On November 17, 2016, Peregrine filed a competing Motion for Partial Summary
Judgment.
28. This Court convened the summary judgment hearing on January 6, 2017 and rendered
partial summary judgment for HRB on February 8, 2017.
29. On March 8, 2017, the Court entered a new order and rendered a final judgment on
April 18, 2017.
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30. Peregrine appealed the summary judgment rulings of the Court to the 1st District Court
of Appeals of the State of Texas.
31. On August 30, 2018, the Court of Appeals reversed the final judgment and remanded
this case to this Court giving the following guidance:
If there is no contractual provision on point that would prevent HRB from
accepting, or requiring HRB to return, alleged revenue overpayments, Peregrine
would only be able to seek recovery through a claim in equity, not for breach of
contract. (pg. 21)
And the Accounting Procedure does not appear to account for charges in the form
of reimbursement of allegedly overpaid revenues. It appears that the parties did
not intend for the term “charges,” in regard to HRB’s obligation to pay before
contesting, to include anything that Peregrine might possibly include in an
invoice. (pg. 20)
We conclude that the summary judgment evidence in the record raises a genuine
issue of material fact as to whether the alleged overpayments are “charges” due
under the agreement. (pg.20)
32. HRB sought review by the Texas Supreme Court. On March 29, 2019, the Texas
Supreme Court denied the petition for review. The First Court of Appeals issued its
Mandate to this Court on May 17, 2019.
33. On May 1, 2020, Peregrine filed its Third Amended Original Petition in this case. On
May 19, 2021, Peregrine filed its Fourth Amended Original Petition in this case.
34. This case was called to trial as a bench trial on June 1, 2021 and the court granted
Peregrine’s Motion for Leave to file its 4th
Amended Original Petition to update the
dollar amounts claimed.
35. The parties appeared by counsel and presented testimony and documentary evidence
to the Court. The Court also received legal argument.
36. There was no evidence or testimony at the trial of this case that Defendant VHPM,
LLC has any contractual or legal obligation to pay any of the claims asserted by
Peregrine in this lawsuit.
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CONCLUSIONS OF LAW
37. This Court has jurisdiction over the parties. This Court is one of the acceptable venues
for this litigation.
38. The PA and OOA are the controlling agreements that govern Peregrine’s and HRB’s
business relationship in Block 155 Galveston. See Plaintiff’s Ex. 1 and 2.
39. The Court proceeded to trial on the claims by Peregrine Oil & Gas LP and against
HRB Oil and Gas Ltd and VHPM, LLC.
40. The Court concludes that the Court of Appeals for the First District of Texas’ August
30, 2018 Memorandum Opinion in Cause No. 01-17-00180-CV determined that the
term “charges” was ambiguous and raised a genuine issue of material fact. Pg. 20 of
Memorandum Opinion; J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex.
2003).
41. Since the Court of Appeals found that the term “charges” in the OOA was ambiguous,
the meaning becomes a fact issue for this Court and extraneous evidence, e.g. course
of dealings between the parties and custom and usage, may be admitted to help
determine the language's meaning. Barrow-Shaver Res. Co. v. Carrizo Oil & Gas,
Inc., 590 S.W.3d 471, 480 (Tex.2019); Italian Cowboy Partners, Ltd. v. Prudential
Ins. of Am., 341 S.W.3d 323, 333-34 (Tex. 2011).
42. The Court concludes that Peregrine’s Peregrine characterization, at all times prior to
filing this lawsuit, of the $210,883.31 it claims is due from HRB as (i) a
“Miscellaneous Invoice,” (ii) a “net back”, (iii) a “cash adj.” or (iv) a
“reimbursement,” and not a charge, is evidence of a course of dealing between the
parties to the OOA demonstrating that the parties did not intend that an invoice for
overpaid production revenues would constitute a “charge” as that term is used in
Article 8.7 of the OOA.
43. The Court concludes that HRB introduced evidence of custom and usage in the oil and
gas industry demonstrating that an invoice for overpaid production revenues is not
considered to be a “charge” in the oil and gas industry, as that term is used in Article 8.7
of the OOA.
44. The Court concludes that the term “charge” as used in Article 8.7 of the OOA does not
include claims for overpayment of production revenues.
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45. The Court finds that there is no contractual provision in either the OOA or the PA that
would prevent HRB from accepting, or requiring HRB to return, alleged revenue
overpayments. As a result, Peregrine is only able to seek recovery on its claim for
reimbursement of $210,883.31 in alleged overpayment of production revenues
through a claim in equity, not for breach of contract. Any claim in equity Peregrine
has for these alleged overpayment of revenues is barred by Texas’ two year statute of
limitations, whether those claims be labeled as breach of contract or included as part
of a claim for declaratory relief. Accordingly, this Court denies all relief to Peregrine
relating to alleged overpayment of production revenues.
46. This Court concludes, that since any claim Peregrine has for recovery of alleged
overpayment of production revenues is barred by limitations, the $210,883.31
constituting the first item in Plaintiff’s Exhibit 22 setting out Unpaid Invoices by HRB
must be deducted from Peregrine’s claim for Unpaid Invoices against HRB, leaving a
total of $107,236.02 in remaining Unpaid Invoices for which Peregrine is seeking
recovery. This conclusion is supported by the uncontroverted testimony of
Peregrine’s accounting expert Terrell Lanier.
47. Peregrine is not entitled to offset revenues due and payable to HRB against allegedly
overpaid production revenues, the recovery of which is barred by the statute of
limitations. Bright & Company v. Holbein Family Mineral Trust, 995 S.W.2d 742,
747 (Tex. App. - San Antonio 1999).
48. The Court concludes that HRB has failed to pay JIBs in the amount of $107,236.02
from operations on Block 155 after this lawsuit was filed up to and including March
31, 2021 and that payment of these JIBs is required under the OOA. The Court further
concludes that the $50,069.43 in proceeds due to HRB from the proceeds of production
and other income (Plaintiff’s Exhibit 21) should be credited against the $107,236.02 in
unpaid JIBs, leaving a balance of unpaid JIBs due and payable by HRB to Peregrine in
the amount of $57,166.59 up to and including March 31, 2021. The Court additionally
concludes that Peregrine is entitled to prejudgment interest in the amount of $5,950.00
on the amount of the unpaid JIBs.
49. The Court concludes and awards attorneys’ fees to Peregrine relating to its recovery of
unpaid JIBs in the amount of $12,000.00. The Court concludes that a reasonable
attorneys’ fee for representation of Peregrine on appeal to either the 1 st
or 14th Courts
of Appeal would be $30,000.00, and for the Texas Supreme Court, $15,000.00 for the
petition-for-review stage, $20,000.000 for the merit briefing stage and $10,000.00 for
the oral argument stage.
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50. The Court concludes that the Declaration of Barry F. Cannaday, filed on June 9, 2021
provides an adequate basis for the determination of the reasonable amount of attorneys’
fees properly allocated to Peregrine’s recovery of unpaid JIBs through trial and for the
award of any future fees based upon an appeal of the final judgment in this case.
51. The Court concludes that a judgment in favor of Peregrine Oil & Gas LP and against
HRB Oil and Gas Ltd. should be entered in the amount of $75.116.59 based upon the
evidence adduced and the testimony elicited. The judgment is comprised of (1) unpaid
JIBs owed by HRB after all credits and offsets in the amount of $57,166.59; (2) pre-
judgment interest at 5% simple interest in the amount of $5,950,00 from May 31, 2017 to
June 1, 2021 on the amount of $57,166.59 in Unpaid Invoices; and (3) reasonable and
necessary attorneys’ fees in the amount of $12,000.00.
52. The Court specifically denies any recovery against VHPM, LLC in this case.
53. The Court concludes that any CONCLUSIONS OF LAW that are or should be
classified as FINDINGS OF FACT shall be re-classified as FINDINGS OF FACT and
that those FINDINGS OF FACT that are or should be classified as CONCLUSIONS
OF LAW shall be re-classified as CONCLUSIONS OF LAW.
Dated: July ___, 2021.
________________________________
Beau A. Miller, District Court Judge
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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 § th Defendants. JUDICIAL DISTRICT DEFENDANTS’ OBJECTIONS TO PLAINTIFF’S ADDITIONAL REQUEST FOR FINDINGS OF FACT AND CONCLUSIONS OF LAW Now come Defendants HRB Oil & Gas, Ltd. and VHPM, LLC (together, “HRB”) and file this their Objections to Peregrine Oil & Gas, LP’s (“Peregrine”) Additional Request for Findings of Fact and Conclusions of Law filed in this case on July 8, 2021 Peregrine’s Request for Additional Findings”) and as grounds therefor would respectfully show this Court as follows: Peregrine’s Request for Additional Findings are improper and should be denied because such additional findings are either (i) inconsistent with the Final Judgment entered in this case on June 25, 2021 (the “Final Judgment”), (ii) unrelated to controlling factual issues in this case, or (iii) duplicative of HRB’s Proposed Findings of Fact and Conclusions of law filed in this case on July 2, 2021 (“HRB’s Proposed Findings”). A copy of this Court’s June 25, 2021 Final Judgment is attached to this Objection as Exhibit A. A copy of HRB’s Proposed Findings are attached to this Objection as Exhibit B. 118550567\V-1 2. Peregrine’s Request for Additional Findings are basically a “cut and paste” from Peregrine’s Proposed Findings of Fact and Conclusions of Law filed by Peregrine prior to this Court’s entry of its Final Judgment in this case on June 25, 2021. As a result, Peregrine’s Request for Additional Findings contain numerous proposed findings inconsistent with the Final Judgment. Proposed additional findings inconsistent with the judgment are improper and must be denied. In re Marriage of Grossnickle, 115 S.W.3d 238, 254 (Tex. App - Texarkana 2003, no pet.). 3. Peregrine’s Request for Additional Findings include numerous proposed findings that are not required and unnecessary because they do not relate to any controlling fact issues. Such unnecessary, additional requests are improper and should be denied. ASAI v. Vanco Insulation Abatement, Inc., 932 S.W.2d 118, 122 (Tex. App. - El Paso 1996, no writ). 4. Peregrine’s Request for Additional Findings include numerous proposed findings that are largely duplicative of HRB’s Proposed Findings. Such requests for duplicate findings are not appropriate because they serve no purpose and should be denied. IKB Indus. V. Pro-Line Corp., 938 S.W.2d 440, 443 (Tex. 1997). PRAYER WHEREFORE, PREMISES CONSIDERED, HRB prays that this Court (i) deny Peregrine’s Request for Additional Findings in its entirety; (ii) enter HRB’s Proposed Findings as the Findings of Fact and Conclusions of Law in this case, and (iii) grant HRB such other and further relief to which it may show itself entitled. Dated: July 9, 2021 2 118550567\V-1 [Signature Page Follows] 3 118550567\V-1 /s/ Barry F. Cannaday Barry F. Cannaday Dentons US LLP 2000 McKinney Ave. Suite 1900 Dallas, Texas 75201 (214) 259-0900 (telephone) (214) 259-0910 (facsimile) barry.cannaday@dentons.com ATTORNEY FOR DEFENDANTS CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the above and foregoing document was served by hand delivery, facsimile, electronic mail or Certified Mail/Return Receipt Requested in accordance with the Texas Rules of Civil Procedure on July 9, 2021 to the following counsel of record: Michael D. Jones mjoines@jonesgill.com Joseph D. Porter jporter@jonesgill.com Jones Gill Porter Crawford & Crawford LLP 6363 Woodway, Suite 100 Houston, Texas 77057 4 118550567\V-1 EXHIBIT A PEREGRINE’S REQUEST FOR ADDITIONAL FINDINGS 5 118550567\V-1 EXHIBIT B HRB’S PROPOSED FINDINGS 6 118550567\V-1 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. JUDICIAL DISTRICT [PROPOSED] FINDINGS OF FACT AND CONCLUSIONS OF LAW Pursuant to Rule 296 and 297, Texas Rules of Civil Procedure, these Findings of Fact and Conclusions of Law are filed and adopted by the Court as and for the matters considered in the June 1, June 2 and June 3 bench trial of the captioned matter. FINDINGS OF FACT: This Court has jurisdiction of the parties. Plaintiff, Peregrine Oil & Gas, LP (“Peregrine”) is a limited partnership with its principal place of business in Harris County, Texas. Defendants, HRB Oil & Gas, Ltd. (“HRB”) and its general partner VHPM, LLC, (“VHPM”) have their principal place of business in Dallas County, Texas. Defendants have appeared herein and have submitted to the jurisdiction of the Court. Venue is appropriate as a substantial amount of the events leading to this litigation occurred in Harris County, Texas and Defendants did not challenge the venue in Harris County, Texas. On October 1, 2006, Peregrine acquired a Texas offshore oil and gas lease from the ted 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”) covering Galveston Area, South Addition, Block A 155. 3. Peregrine, HRB and other entities not named in this litigation entered into a Participation Agreement (“PA”) dated effective January 1, 2008. 11 See Plaintiff’s Exhibit 1. The PA incorporated attached exhibits. Exhibit A to the PA is 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 is a well plat. Exhibit B-1 to the PA includes two instruments titled Authorization for Expenditure (“AFE”) for certain proposed operations on the Lease. Exhibit C to the PA is an Offshore Operating Agreement, which itself contains six exhibits, labeled from Exhibits A through F, and which agreement and exhibits are hereafter collectively referred to as the “OOA.” See Plaintiff’s Exhibit 2, the OOA, with attached exhibits. 4. The OOA designates Peregrine as the Operator for Galveston Area, South Addition, Block A-155 (hereinafter “Block 155”). See Plaintiff’s Exhibit 2, the OOA, at pg. 4. The PA provides for the drilling of a new well on Block 155. See Plaintiff’s Exhibit 1, pg. 3. Peregrine, as Operator, was responsible for arranging and directing the drilling of the new well. 5. The PA provides that in exchange for paying its share of the costs of drilling, completing, equipping and operating the new well, HRB and the other parties were entitled to a larger percentage payment from the proceeds of production until these larger shares of the costs were recovered by HRB and the other parties. This is known as a Before Payout interest (“BPO”). At Payout, HRB’s revenue interest is reduced per the PA to an After Payout interest (“APO”). The PA also provides that, without prejudice to a party’s right to market its own production under the OOA, Peregrine would market oil and gas production for all parties. See Plaintiff’s Exhibit 1, ⁋8 of Exhibit 1, Exhibit 3 “Division of Interests.” 6. As Operator, Peregrine is responsible for conducting all operations on the Block and arranging for all services, paying all invoices, and billing and collecting each non- Operator’s proportionate share of such expenses. As a part of this responsibility, pursuant to Article 8.1 of the OOA, Peregrine delivered monthly invoices for expenses incurred in operations to each party in the form of Joint Interest Billings (“JIBs”). 1 In February 2008, the other parties included Challenger Minerals, Inc., Providence Resources (Trading) LLC and UI Energy, USA, Inc. At the time of Payout, the other parties, through mergers and acquisitions and not named in this litigation, were Knight Resources, LLC, and Fieldwood Energy Offshore LLC and Peregrine Oil & Gas II, LLC. 2 118504163\V-2 7. Article 8 of the PA requires Peregrine to market the production from Block 155 unless each party made separate arrangements to market its share of production. HRB did not make any separate arrangements. As a result, Peregrine marketed HRB’s share of production and disbursed the proceeds from the sale of such production to HRB. 8. Pursuant to the PA and the Assignment of Record Title Interest (Defendant’s Exhibit 3), at Payout the working interest and corresponding net revenue interest of each non- Operator would be reduced, and the working interest and net revenue interest of Peregrine would increase. As set out in Exhibit A to the Participation Agreement (Plaintiff’s Exhibit 3), HRB was entitled to an 8.10811% working interest (expenses or costs) and 6.43243% net revenue interest BPO. At payout, HRB’s interest would be reduced to a 6.08108% working interest (expenses or costs) and 4.82432% net revenue interest APO, and Peregrine’s working interest and net revenue interest would increase by the same percentage amount “across the board.” See Plaintiff’s Ex. 1 and Ex. 3. 10. According to Peregrine’s accounting, “payout” under the PA occurred in June of 2013. However, Peregrine testified that it was not able to determine the fact that payout had occurred until April of 2014. Upon determining payout had occurred in April 2014, Peregrine changed its accounting records, effective May 1, 2014, to reflect the APO (after payout) working interests and net revenue interests of Peregrine and the participants in the Lease. 11. Based upon Peregrine’s accounting records, during the period from June 2013 to April 2014, non-operating interest owners received and paid JIBs based on their incorrect and higher BPO working interest, resulting in overpayment of expenses, and non- operators were paid proceeds of production by Peregrine, based upon their incorrect and higher BPO net revenue interest, resulting in overpayments of production revenues. 12. On December 15, 2015 Peregrine sent HRB and the other participants a “Payout Notification and Request for Assignment” (the “Payout Notification”).2 In Peregrine’s Payout Notification, Peregrine set out a reconciliation of the participants’ overpayment of expenses and receipts of overpaid production revenues during the period of time from June 2013 to May 2014. Included within Peregrine’s December 15, 2015 Payout Notification was a December 11, 2015 “Miscellaneous Invoice” to HRB for the overpayment of production revenues to HRB in the amount of $210,883.31. 2 Plaintiff’s Exhibit 9. 3 118504163\V-2 13. The issue of whether the December 11, 2015 “Miscellaneous Invoice” to HRB for the overpayment of production revenues to HRB in the amount of $210,883.31 is a “charge,” as that term is used in Article 8.7 of the OOA, was the central question in the First Court of Appeals’ August 30, 2018 opinion. 14. This Court finds that the November 30, 2015 Miscellaneous Invoice submitted by Peregrine to HRB for $210,883.31 for reimbursement for overpaid production revenues (Plaintiff’s Exhibit 8) does not constitute a “charge,” as that term is used in either Article 8.1 or Article 8.7 of the OOA. 15. At various times prior to the institution of this lawsuit by Peregrine, Peregrine referred to the $210,883.31 it claims is due from HRB for overpayment of production revenues as (i) a “Miscellaneous Invoice,” (ii) a “net back”, (iii) a “cash adj.” and (iv) a “reimbursement.” Peregrine did not at any point, prior to the institution of this lawsuit, refer to this $210,883.31 it was attempting to recover from HRB as a “charge,” as that term is used in Article 8.7 of the OOA. 16. HRB retained and designated Jeffrey Wright as an expert witness on the meaning of the term “charge” in the OOA as a matter of custom and usage in the oil and gas industry. The Court accepted Mr. Wright as an expert on the proper classification and accounting for charges under operating agreements in the oil and gas industry. Mr. Wright’s curriculum vitae is included as Defendants’ Ex. 14. 17. Peregrine retained and designated Jeffry D. Weems as an expert witness on oil and gas operating agreements. The Court accepted Mr. Weems as an expert on oil and gas operating agreements. 18. Peregrine designated Terrell Lanier as a fact and expert witness. Mr. Lanier testified to the unpaid JIBs by HRB up to March 31, 2021 (Plaintiff’s Exhibit 21) and the unpaid revenues due and owing to HRB up to March 31, 2021 (Plaintiff’s Exhibit 22). 19. The Court finds that the meaning of the word “charges” as used in Article 8.7 of the OOA is a fact issue to be resolved based upon course of dealings between the parties and custom and usage in the oil and gas industry. 20. The Court finds that, based upon his 40 years of experience in oil and gas accounting matters directly relevant to the issue in this case, Mr. Wright’s opinions relating the meaning of the term “charge,” based upon custom and usage in the oil and gas industry, is persuasive. Specifically, the Court finds that the November 30, 2015 Miscellaneous Invoice submitted by Peregrine to HRB for $210,883.31 for 4 118504163\V-2 reimbursement for overpaid production revenues (Plaintiff’s Exhibit 8) does not constitute a “charge,” as that term is used in either Article 8.1 or Article 8.7 of the OOA. 21. The Court recognizes Mr. Weem’s expertise in drafting onshore operating agreements. However, Mr. Weem’s testimony did not provide any useful guidance to the Court with respect to meaning of the term “charge” in the OOA as a matter of custom and usage in the industry. 22. Based upon Mr. Lanier’s testimony, Peregrine’s business records reflected that, as of March 31, 2021, HRB had outstanding “Unpaid Invoices” totaling $318,119.93, which were comprised of (i) the unpaid “Miscellaneous Invoice” in the amount of $210,883.31 for overpayment of production revenues plus (ii) additional unpaid invoices totaling $107,236.62. (Plaintiff’s Exhibit 21.) 23. Mr. Lanier testified that if this Court finds that Peregrine’s Miscellaneous Invoice in the amount of $210,883.31 is not collectible, the $210,883.31 will have to be subtracted from the $318,119.93 of total of Unpaid Invoices. 24. Additionally, based upon Mr. Lanier’s testimony, Peregrine business records reflected that as of March 31, 2021, Peregrine was holding revenues payable to HRB in the amount of $50,069.43 (Plaintiff’s Exhibit 22.) 25. On July 8, 2016, more than two years after the last alleged overpayment of production revenues by Peregrine to HRB in 2014, Peregrine filed suit against HRB asserting claims of (i) breach of contract and (ii) in the alternative, money had and received, concerning the payment obligations of the parties under the PA. 26. HRB answered on August 8, 2016 and on September 20, 2016 HRB filed its Motion for Partial Summary Judgment. 27. On November 17, 2016, Peregrine filed a competing Motion for Partial Summary Judgment. 28. This Court convened the summary judgment hearing on January 6, 2017 and rendered partial summary judgment for HRB on February 8, 2017. 29. On March 8, 2017, the Court entered a new order and rendered a final judgment on April 18, 2017. 5 118504163\V-2 30. Peregrine appealed the summary judgment rulings of the Court to the 1st District Court of Appeals of the State of Texas. 31. On August 30, 2018, the Court of Appeals reversed the final judgment and remanded this case to this Court giving the following guidance: If there is no contractual provision on point that would prevent HRB from accepting, or requiring HRB to return, alleged revenue overpayments, Peregrine would only be able to seek recovery through a claim in equity, not for breach of contract. (pg. 21) And the Accounting Procedure does not appear to account for charges in the form of reimbursement of allegedly overpaid revenues. It appears that the parties did not intend for the term “charges,” in regard to HRB’s obligation to pay before contesting, to include anything that Peregrine might possibly include in an invoice. (pg. 20) We conclude that the summary judgment evidence in the record raises a genuine issue of material fact as to whether the alleged overpayments are “charges” due under the agreement. (pg.20) 32. HRB sought review by the Texas Supreme Court. On March 29, 2019, the Texas Supreme Court denied the petition for review. The First Court of Appeals issued its Mandate to this Court on May 17, 2019. 33. On May 1, 2020, Peregrine filed its Third Amended Original Petition in this case. On May 19, 2021, Peregrine filed its Fourth Amended Original Petition in this case. 34. This case was called to trial as a bench trial on June 1, 2021 and the court granted Peregrine’s Motion for Leave to file its 4th Amended Original Petition to update the dollar amounts claimed. 35. The parties appeared by counsel and presented testimony and documentary evidence to the Court. The Court also received legal argument. 36. There was no evidence or testimony at the trial of this case that Defendant VHPM, LLC has any contractual or legal obligation to pay any of the claims asserted by Peregrine in this lawsuit. 6 118504163\V-2 CONCLUSIONS OF LAW 37. This Court has jurisdiction over the parties. This Court is one of the acceptable venues for this litigation. 38. The PA and OOA are the controlling agreements that govern Peregrine’s and HRB’s business relationship in Block 155 Galveston. See Plaintiff’s Ex. 1 and 2. 39. The Court proceeded to trial on the claims by Peregrine Oil & Gas LP and against HRB Oil and Gas Ltd and VHPM, LLC. 40. The Court concludes that the Court of Appeals for the First District of Texas’ August 30, 2018 Memorandum Opinion in Cause No. 01-17-00180-CV determined that the term “charges” was ambiguous and raised a genuine issue of material fact. Pg. 20 of Memorandum Opinion; J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003). 41. Since the Court of Appeals found that the term “charges” in the OOA was ambiguous, the meaning becomes a fact issue for this Court and extraneous evidence, e.g. course of dealings between the parties and custom and usage, may be admitted to help determine the language's meaning. Barrow-Shaver Res. Co. v. Carrizo Oil & Gas, Inc., 590 S.W.3d 471, 480 (Tex.2019); Italian Cowboy Partners, Ltd. v. Prudential Ins. of Am., 341 S.W.3d 323, 333-34 (Tex. 2011). 42. The Court concludes that Peregrine’s Peregrine characterization, at all times prior to filing this lawsuit, of the $210,883.31 it claims is due from HRB as (i) a “Miscellaneous Invoice,” (ii) a “net back”, (iii) a “cash adj.” or (iv) a “reimbursement,” and not a charge, is evidence of a course of dealing between the parties to the OOA demonstrating that the parties did not intend that an invoice for overpaid production revenues would constitute a “charge” as that term is used in Article 8.7 of the OOA. 43. The Court concludes that HRB introduced evidence of custom and usage in the oil and gas industry demonstrating that an invoice for overpaid production revenues is not considered to be a “charge” in the oil and gas industry, as that term is used in Article 8.7 of the OOA. 44. The Court concludes that the term “charge” as used in Article 8.7 of the OOA does not include claims for overpayment of production revenues. 7 118504163\V-2 45. The Court finds that there is no contractual provision in either the OOA or the PA that would prevent HRB from accepting, or requiring HRB to return, alleged revenue overpayments. As a result, Peregrine is only able to seek recovery on its claim for reimbursement of $210,883.31 in alleged overpayment of production revenues through a claim in equity, not for breach of contract. Any claim in equity Peregrine has for these alleged overpayment of revenues is barred by Texas’ two year statute of limitations, whether those claims be labeled as breach of contract or included as part of a claim for declaratory relief. Accordingly, this Court denies all relief to Peregrine relating to alleged overpayment of production revenues. 46. This Court concludes, that since any claim Peregrine has for recovery of alleged overpayment of production revenues is barred by limitations, the $210,883.31 constituting the first item in Plaintiff’s Exhibit 22 setting out Unpaid Invoices by HRB must be deducted from Peregrine’s claim for Unpaid Invoices against HRB, leaving a total of $107,236.02 in remaining Unpaid Invoices for which Peregrine is seeking recovery. This conclusion is supported by the uncontroverted testimony of Peregrine’s accounting expert Terrell Lanier. 47. Peregrine is not entitled to offset revenues due and payable to HRB against allegedly overpaid production revenues, the recovery of which is barred by the statute of limitations. Bright & Company v. Holbein Family Mineral Trust, 995 S.W.2d 742, 747 (Tex. App. - San Antonio 1999). 48. The Court concludes that HRB has failed to pay JIBs in the amount of $107,236.02 from operations on Block 155 after this lawsuit was filed up to and including March 31, 2021 and that payment of these JIBs is required under the OOA. The Court further concludes that the $50,069.43 in proceeds due to HRB from the proceeds of production and other income (Plaintiff’s Exhibit 21) should be credited against the $107,236.02 in unpaid JIBs, leaving a balance of unpaid JIBs due and payable by HRB to Peregrine in the amount of $57,166.59 up to and including March 31, 2021. The Court additionally concludes that Peregrine is entitled to prejudgment interest in the amount of $5,950.00 on the amount of the unpaid JIBs. 49. The Court concludes and awards attorneys’ fees to Peregrine relating to its recovery of unpaid JIBs in the amount of $12,000.00. The Court concludes that a reasonable attorneys’ fee for representation of Peregrine on appeal to either the 1 st or 14th Courts of Appeal would be $30,000.00, and for the Texas Supreme Court, $15,000.00 for the petition-for-review stage, $20,000.000 for the merit briefing stage and $10,000.00 for the oral argument stage. 8 118504163\V-2 50. The Court concludes that the Declaration of Barry F. Cannaday, filed on June 9, 2021 provides an adequate basis for the determination of the reasonable amount of attorneys’ fees properly allocated to Peregrine’s recovery of unpaid JIBs through trial and for the award of any future fees based upon an appeal of the final judgment in this case. 51. The Court concludes that a judgment in favor of Peregrine Oil & Gas LP and against HRB Oil and Gas Ltd. should be entered in the amount of $75.116.59 based upon the evidence adduced and the testimony elicited. The judgment is comprised of (1) unpaid JIBs owed by HRB after all credits and offsets in the amount of $57,166.59; (2) pre- judgment interest at 5% simple interest in the amount of $5,950,00 from May 31, 2017 to June 1, 2021 on the amount of $57,166.59 in Unpaid Invoices; and (3) reasonable and necessary attorneys’ fees in the amount of $12,000.00. 52. The Court specifically denies any recovery against VHPM, LLC in this case. 53. The Court concludes that any CONCLUSIONS OF LAW that are or should be classified as FINDINGS OF FACT shall be re-classified as FINDINGS OF FACT and that those FINDINGS OF FACT that are or should be classified as CONCLUSIONS OF LAW shall be re-classified as CONCLUSIONS OF LAW. Dated: July ___, 2021. ________________________________ Beau A. Miller, District Court Judge 9 118504163\V-2