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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,
Defendants. § 190 JUDICIAL DISTRICT
PLAINTIFF’S CLOSING ARGUMENT BRIEF
TO THE HONORABLE BEAU A. MILLER, DISTRICT COURT JUDGE:
Pursuant to this honorable Court’s request, Plaintiff, PEREGRINE OIL & GAS,
L.P., (“Peregrine”) files its closing argument after the conclusion of the bench trial in the
above referenced matter and states:
“Charge.” Merriam Webster.com Dictionary, Merriam Webster, https:/www.merriam webster.com/dictionary/charge#legalDictionary anchor
INTRODUCTION
Peregrine sent an invoice to HRB pursuant to the terms of the PA (Plaintiff’s
(Plaintiff’s Ex. 2), and C (Plaintiff’s Ex. 5) requiring HRB to return the
ayment of revenue discovered in the reconciliation of the Before Payout (“BPO”) and
After Payout (“APO”) revenue and expense obligations. HRB refused to pay and now
argues that since this invoice was not for a cost of material or services, HRB need not
comply with the OOA. HRB argues that since this invoice was on the “revenue” side of
the ledger, it could not be recognized by HRB because COPAS only addresses the “cost or
expense” side of the ledger.
The First Court of Appeals remanded this litigation to the 190 Judicial
District Court for a determination of the meaning of the word “charges” found in Article
8.7 of the Offshore Operating Agreement (“OOA”) for the Galveston Area Block 155 well,
platform and facilities, , and lease operating expense (“Block 155”)
the OOA provides that if a party objects to a charge issued by the Operator then the party
must first pay the charge and then raise its objection. Defendants, HRB OIL & GAS, Ltd.
and VHPM, LC, its general partner, (collectively “HRB”)objected to a charge issued by
Peregrine, the Operator, but HRB did not pay the disputed charge in breach of Article 8.7.
HRB is a signatory to the OOA. HRB must pay the charge and then dispute the charge.
RB refused to do so and is in breach of the OOA. In addition, HRB refuses to pay any of
the charges to Block 155 participants that continue to accrue.
contends that the invoice sent by Peregrine was not a “charge” under
continues its argument by relegating Peregrine to a “money had and
received” cause of action. The statute of limitations on a “money had and received” cause
of action is two years and Peregrine did not file this case within two years of the accrual of
the injury. asserted no defense to the continuing charges to Block 155.
Peregrine, on the other hand, contends that the November 30, 2015 Joint
Interest Billing (“JIB”) and December 15, 2015 invoices and demand letter clearly and
unequivocally constitute a “charge” under Article 8.7 of the OOA.Peregrine claims that
HRB has breached a contract, the Participation Agreement (“PA”) and the OOA. The
statute of limitations on this contract cause of action is four years. Peregrine also demands
payment of the unpaid JIBs, prejudgment interest and attorneys’ fees.
ARGUMENT
In this bench trial, the trial court judge is the trier of fact. The trier of fact
determines the meaning of the word “charges” as required by the First Court of Appeals’
mandate.
In the usual circumstances, the court construes the contract and there is no question of fact. The
determination of whether a contract is ambiguous is a question of law for the court. Endeavor Energy
Resources, L.P. v. Discovery Operating, Inc., 554 S.W.3d 586, 601 (Tex. 2018). But when an ambiguity
is noted, the State Bar of Texas Oil and Gas Pattern Jury Charges provide for a question to be submitted
to the trier of fact. PJC 305.19 and 305.9. The First Court of Appeals held that the term “charges” in
Article 8.7 of the OOA was ambiguous. Where an ambiguity is determined, the trial court and in this
case, the trier of fact, may consider industry custom and practice and course of performance in
determining the meaning of the ambiguous term. See attached Plaintiff’s May 31, 2021 Trial Brief on
Industry Custom Practice Evidence citing legal authority for the admission of parole evidence for this
purpose.
The meaning of the word “charges” in Article 8.1 and 8.7 of the OOA means
the delivery of a statement identifying an invoice amount that the recipient has a contractual
obligation to pay. The December 15, 2015 demand letter, invoice and reconciliation
calculations from Peregrine to the nonoperating working interest owners was a “charge”
for a financial obligation under both Article 8.1 and 8.7 of the OOA. See Plaintiff’s
9, 7 and 8. Tim Austin’s testimony was that Exhibits 7 and 8 were attached to his
December 15, 2015 letter as referenced in the first paragraph on the second page of the
INDUSTRY CUSTOM AND PRACTICE
In this case, Peregrine adduced testimony from Tim Austin, Terr Lanier
and Jeffry Weems that the December 15, 2015 invoice sent to HRB and the other non
operating interest owners was a “charge” under the OOA. In support of this assertion, Tim
ell Lanier and Jeffry Weems testified to industry custom and usage and the
course of performance by the other nonoperating interest owners. In contrast, HRB
offered no evidence of industry custom and practice to support its interpretation.HRB’s
expert, Jeff Wright, testified that there was no provision of the PA or OOA prohibiting this
Tim Austin, Peregrine’s Vice President of Business Development and
testified to between 100 and 200 reconciliation exercises concerning Before Payout
(“BPO”) and After Payout (“APO”) situations claims for return of
overpayments of revenue. In none of these circumstances did the participants dispute or
refuse to repay the overpayment. In none of these cases did the participants assert the
argument asserted by HRB in this case.
Lanier, Peregrine’s CFO from January 1, 2016 to September 30,
2018, testified to numerous reconciliation exercises concerning BPO and APO situations
involving claims for return of overpayments of revenue. In none of these circumstances
did the participants refuse to repay the overpayment. In none of these cases did the
participants assert the argument asserted by HRB in this case.
Jeffry Weems, Peregrine’s expert witness on industry custom and usage,
testified that the issues in this case hinged on language used in documents associated with
“land” departments, not accounting issues. The land documents at issue in this matter were
the PA and OOA. Mr. Weems testified that he had administered hundreds of farmout
agreements during his time as a landman for Shell Western E&P Inc. (“SWEPI”).
industry agreements farmouts, involved SWEPI conveying the working interest
to another industry partner while SWEPI retained an overriding royalty interest, a royalty
interest carved out of the working interest and treated as a royalty Once the well drilled
by the industry partner reached payout, SWEPI had the right to convert its overriding
royalty interest to a working interest. Mr. Weems also testified that it was common for the
determination of payout to be delayed, thus requiring a reconciliation of amounts owed
under old and new percentages of ownership, the BPO and APO reconciliation Claims for
return of revenue paid under an old regime were common. In each such instance, SWEPI
or its industry partner always paid the funds shown by the reconciliation process to be
Mr. Weems had never seen an industry participant advance the argument urged by
HRB in this matter.
ced no evidence of industry custom and usage to support its
interpretation of the reconciliation process involved in a BPO and APO calculation. HRB’s
expert, Jeff Wright, testified that COPAS, the accounting procedure, only addressed
expenditures. Mr. Wright did not testify to industry custom and usage in the reconciliation
process involved in a BPO and APO calculation.
COURSE OF PERFORMANCE
The other three non operating working interest owners in the PA and OOA
for Block 155 not refuse to repay the overpayment or contest the reconciliation
None of the other three nonoperating interest owners claimed that the
December 15, 2015 invoice, reconciliation calculations and demand letter were not
“charges” under the OOA. The course of performance of the parties to the PA and OOA
is strong evidence of the interpretation and meaning of the contracts. Each of the other
operating working interest owners, HRB was the fourth, treated the December 15,
2015 letter, invoices, summary of payout and attached calculations as a financial
obligation, a charge. None of the other nonoperating working interest owners refused
to pay or credit Peregrine with the amount of overpayment. Only HRB refused.
First, Peregrine II, an entity with different ownership than Peregrine,
acquired the interest initially owned by Provident, an Irish company. Peregrine II received
approximately $281,000 in overpayment of revenues during the reconciliation period.
Peregrine II paid the $281,000 to Peregrine. Plaintiff’s Ex. 18. HRB attempts to dismiss
this transaction as an affiliate transaction that should somehow be disregarded. HRB is
mistaken. Peregrine II followed the custom and practice in the offshore Gulf of Mexico
oil and gas industry and paid the charge.
Second, Tim Austin testified to the settlement of accounts with Fieldwood
Energy and Peregrine. Plaintiff’s Ex. 17. Peregrine and Fieldwood participated in at least
five offshore projects. The result of the settlement with Fieldwood was payment of
approximately $171,000 by Fieldwood to Peregrine. This payment amount included
repayment of the sum claimed by Peregrine in the December 15, 2015 letter. Fieldwood
the December 15, 2015 demand as a “charge” under the te rms of the OOA.
Third, Tim Austin testified to the settlement of accounts with Knight
Resources and Peregrine. Plaintiff’s Ex. 16. Peregrine agreed to exchange the
overpayment for Knight’s interest in Block 155. Knight conveyed its interest in Block 155
in exchange for extinguishment of the charge owing to Peregrine. This exchange is
tantamount to the payment of the “charge” in cash.
HRB presented no vidence of a different interpretation. In fact, HRB’s
acknowledged HRB’s obligation to pay the overpayment of revenue in an email to
Peregrine. See Plaintiff’s Ex. 11. Instead of challenging Peregrine’s invoice, HRB said it
would not pay but that Peregrine could recoup the overpayment out of revenue due to HRB.
HRB did not dispute its obligation.
SUMMARY OF COURSE OF PERFORMANCE AND INDUSTRY CUSTOM
AND PRACTICE
The overwhelming evidence in this trial is that the industry and the other
the PA and OOA consider Peregrine’s demand for repayment of overpaid revenue
during the reconciliation period a “charge.” HRB adduced no evidence of industry
custom and practice with regard to demands for overpayment of revenue in a BPO and
reconciliation period. The only evidence HRB adduced was from its sole witness,
Jeff Wright, that an invoice for overpaid revenue was not appropriate under the guidance
procedures of COPAS. But, as noted, in Wright’s testimony, COPAS only addresses costs
expenses and does not address revenue matters.Mr. Wright did concede that revenue
accounting was routinely involved in payout reconciliation. HRB acknowledged its
obligation in Plaintiff’s Ex. 11 and did not dispute the charge.
ARTICLE 8.1 AND THE OXFORD COMMAand ARTICLE 8.7
In addition to the Course of Performance and Industry Custom and Practice,
meaning of the OOA contract provisions supports Peregrine’s position that the
December 15, 2015 letter, invoice and reconciliation spreadsheets was a “charge” under
the OOA. As a “charge” under the OOA, HRB’s ability to question payout, question the
crediting of pipeline tariffs and Production Handling Agreement fees, Plaintiff’s Ex. 15,
for the “payout” calculation became subject to a condition precedent. HRB must
pay the “charge” and then dispute any issues.main provisions of the OOA are
Article 8.1 and Article 8.7. The OOA headings are not to be considered in construing these
Articles. See Article 28.1 of the OOA.
le 8.1 of the OOA, Plaintiff’s Ex. 2, provides:
8.1 Basis of Charge to the Parties Subject to the other provisions of this
Agreement, Operator shall pay all costs incurred under this Agreement, and each
Party shall reimburse Operator in proportion to its Participating Interest. All
charges, credits, and accounting for expenditures shall be made and done
pursuant to Exhibit "C".
The first sentence addresses “costs incurred under” the OOA. Peregrine’s
December 15, 2015 claim is not for “costs” incurred in performing its role as Operator
under the OOA. The “oxford comma” issue may arise in the second sentence of Article
The “oxford comma” issue arises when the author discusses a series of things, events,
or people and sets off the series with commas, especially a comma after the penultimate
word in the series and before the connector words of “and” or “or”precedingthe last item
in the series.
According to the Texas Supreme Court in the recent case of
488 S.W.3d 294, 29799 (Tex. 2016), the use of the Oxford comma although
not definitive antecedent canon, which provides "that a qualifying phrase
in a statute or the Constitution must be confined to the words and phrases immediately
ceding it to which it may, without impairing the meaning of the sentence, be applied."
So, are the words “charges” and “credits” standalone concepts or are they tied to
In other words, does Article 8.1 which requires any billing or invoicing
pursuant to COPAS, apply to “charges” other than charges for expenditures
The December 15, 2015 invoice is for charges other than charges for
expenditures. eregrine argues that the word “charges” and the word “credits” are stand
alone concepts. The second sentence directs the parties to send invoices or JIBs as required
by COPAS. The socalled “oxford comma” rule dictates that the word “charges” in this
sentence is not linked to “accounting for expenditures” but is a separate concept. The same
applies to the wor “credits.” Thus, the December 15, 2015 invoice was sent to HRB in
accordance with COPAS and the December 15, 2015 invoice is a charge; the imposition of
a financial obligation on HRB. COPAS requires the charge to be in writing and to be
supported by the underlying documentation. The December 15, 2015 demand letter and
its attachments satisfy these requirements.
Article 8.7 of the OOA, Plaintiff’s Ex. 2, provides, in part, that:
…IF A PARTY BELIEVES THAT OPERATOR’S CHARGES, OR A
PORTION THEREOF, ARE INCORRECT, THAT PARTY SHALL
NEVERTHELESS PAY THE CHARGES CLAIMED BY OPERATOR AND
MAY NOTIFY OPERATOR THAT THE CHARGES ARE IN
DISPUTE…(EMPHASIS ADDED)
Peregrine sent a “charge” to HRB for the repayment of contractually required payments
became overpayments after the reconciliation process of the BPO and APO decimal
interests was completed. The word “charges” in Article 8.7 is not modified by words like
“expenditures” or “costs” or “expenses.” The common, ordinary meaning of the word
“charges” in this context, is the imposition of a financial obligation o the receiving party.
The OOA requires HRB to pay the charges and then to dispute the charges. HRB refused
to do so and HRB’s refusal is a breach of contract. Tim Austin, Terr Lanier, Jeffry
Weems and Jeff Wright, HRB’s expert testified that HRB failed to pay as required by
TESTIMONY OF THE EXPERTS
Jeff Wright, HRB’s expert testified that “charges” and “credit” were not
defined in the OOA or in COPAS Thus, there was no restriction on what, in ordinary
parlance, these terms should mean. The ordinary meaning of “charges” in this context is
the imposition of a financial obligation.
Further, Jeff Wright testified that there were provisions in the PA, OOA,
COPAS that prohibited Peregrine from sending the December 15, 2015 demand letter,
invoice and reconciliation statements.
In a similar vein, Jeffry Weems testified that despite the lack of provisions
in the PA, OOA or COPAS requiring Peregrine to pay HRB the proceeds of Peregrine’s
sale of HRB’s share of production, Peregrine followed industry custom and practice and
did so nonetheless because that was the nature of the deal reached by the parties as
demonstrated in the PA and OOA. Peregrine did send checks to HRB for its share of the
proceeds of production because that obligation was implied by the contractually required
marketing function. There are no directives in the PA or OOA requiring the Operator to
pay the proceeds of production to the non perating working interest owners. As the
Operator under the OOA, Peregrine was contractually authorized to manage and administer
the Block 155 project and to ensure that each participant received its share and no more
than its share of the proceeds of production.
Under the PA, Plaintiff’s Ex. 1, ⁋ 8, Peregrine marketed all production from
155. HRB signed and agreed to the PA. HRB never elected to take its share of the
production in kind. HRB never sold its share of production independently. By agreeing to
Peregrine’s marketing function, HRB agreed to postperiod adjustments
Lanier, Jeffry Weems and Jeff Wright, HRB’s expert, testified
the practice of postperiod adjustments in the oil and gas context. Postperiod
ments occur because of production volume changes, production price changes and
changes in ownership of the production. Oil and gas is sold. The Operator distributes the
revenue received from the sales. The purchaser may then correct for volumes received or
price paid. These corrections are then passed back to the owners. As in this case, the
ownership percentages changed upon “payout” and a postperiod adjustment was
necessary. These post period adjustments may occur months and years later and appear as
deductions and additions on revenue check stubs. HRB never complained about any post
adjustments until the postperiod adjustment for the overpayment of revenues.
Jeffry Weems, Peregrine’s expert, testified to eleven opinions that were not
His first opinion was that the term “payout” had an oil and gas industry accepted
meaning, that being the time when the revenues, from any source, related to a
come to equal the ex penditures and costs related toproject.
His second opinion was that the term “charges” had an oil and gas industry
accepted meaning, that being the imposition of a financial obligation from one
party upon another.
His third opinion was that the PA controlled over the OOA and the exhibits to th
OOA, including COPAS. The PA prevails in the event of a conflict with the OOA.
See Plaintiff’s Ex. 1, ⁋12.
His fourth opinion was that the PA and OOA were “land documents” and that the
issue before the court to interpret the word “charges” was based in
documents and not in COPAS, an accounting document included for guidance in
accounting for expenses charged to the Joint Account.
His fifth opinion was that Peregrine was timely in its reconciliation and
notification of HRB, e.g.,demand for payme nt was made within two years of the
end of the calendar year in which the charge arose.
(f) His sixth opinion was that Peregrine did not make the BPO payments of revenue
to HRB by mistake. The PA and OOA required Peregrine to pay at HRB’s
BPO of revenue until payout was determined. A reconciliation of
revenues and expenses was contemplated by these agreements. Since these
payments at the BPO level were required, these payments were not erroneous.
Since the payments were not erroneous, this fact distinguishes the Peregrine/HRB
situation from the Mobil case cited by HRB.
His seventh opinion was that the course of performance among the parties to PA
was that the December 15, 2015 demand letter, invoices and reconciliation
summaries were “charges” that must be paid.
His eighth opinion was that postperiod adjustments are common and expected.
Postperiod adjustments occur for three reasons: volume changes, price changes
and ownership changes. The December 15, 2015 demand letter, invoices and
reconciliation summaries were a postperiod adjustment.
His ninth opinion was that the “pay first, dispute later” provision in Article 8.7 of
the OOA was standard in the offshore context because the Operator is not a bank
operating interests.
His tenth opinion was that revenues from the Production Handling Agreement
and Pipeline Transportation Agreement with the owner of Block 133
to the Block 155 owners these revenues should be included in the payout
determination since they were only received as a result of assets built and owned
by the Block 155 owners.
His eleventh opinion was that the case relied on by HRB was inapposite.
case involved erroneous payments to parties that had gone nonconsent
consent parties are not entitled to any revenue. In contrast,
Peregrine must pay HRB a consenting party to the well for the proceeds of
. In addition, did not have an Article 8.7 in the agreement at
Mobil and the precondition of payment first and dispute later was not
Jeff Wright, HRB’s expert, testified that COPAS only applied to costs and
expenditures. Jeff Wright admitted that the December 15, 2015 demand letter and invoice
concerned and addressed revenue. Jeff Wright was called to testify about COPAS.
COPAS only applies to costs and expenditures not to revenue. Jeff Wright had no
opinions concerning the revenue side of the ledger. Jeff Wright was of the opinion that
COPAS invoices and JIBs were only for expenditures and costs. But the December 15,
2015 demand letter and invoices concerned revenue items. Jeff Wright conceded that the
PA and OOA did not prohibit the demand letter and invoices. Jeff Wright’s testimony was
irrelevant to the issue before this court.
HRB’s ASSERTED DEFENCES
Contrary to the instruction of Article 8.7, HRB vaguely challenged the
“payout” calculation without first paying the December 15, 2015 invoice. HRB never
requested an audit. HRB never specifically challenged the payout calculation or the
spreadsheets included in Plaintiff’s Ex. 7. HRB’s counsel acknowledged the “charge” in
2016 email to Tim Austin. Plaintiff’s Ex. 11. HRB did not dispute the charge as
contrary or foreign to the OOA. HRB said that HRB would not pay but that Peregrine
could offset the charge with HRB’s share of production.
suggested e Production Handling Agreement and
Pipeline Transportation Agreement revenues should not be included in the “payout”
calculation. HRB produced no authority for either proposition. HRB failed to call any
witness to testify to these claims. Tim Austin an Lanier testified to a “but for” test
with regard to these revenues. But for the Block 155 well, platform and sales pipeline to
an interconnect with a pipeline to shore, the Block 133 owners would not have contracted
with Block 155 for processing and transportation. Jeffry Weems testified that these
revenues were the fruit of the Block 155 owners’ investment in Block 155.
’s argument is that under the OOA invoices or JIBs can only be
to COPAS. Since COPAS only applies to expenditures and costs, according to
Mr. Wright, the December 15, 2015 demand letter and attached invoices was a nullity
because this letter and these invoices pertained to a return of overpaid revenues. If this
letter and these invoices were a nullity, then this letter and these invoices could not be
“charges” to trigger the Article 8.7 requirement to “pay first and dispute later.” Jeffry
Weems termed this argument “absurd.” Mr. Wright could not point to any provision of the
OOA that prohibited Peregrine from issuing and sending the December 15, 2015 demand
letter and invoices. The Operator has broad powers under the OOA. As noted above, the
Operator is to account to all owners, including itself, for the owners’ share of the proceeds
of production, no more and no less. The BPO to APO reconciliation process results in an
adjustment to each owners share of the proceeds of production. These adjustments can
only be addressed by invoices to the working interest owners. These adjustments are made
pursuant to the OOA, a contract. HRB is in breach of the PA and OOA.
HRB also complained about the “Miscellaneous Invoice” notation on the
November 30, 2015 JIB. Plaintiff’s Ex. 8. HRB noted that invoices to other nonoperating
working interest owners contained a different notation. Peregrine’s Exhibit 9, the
December 15, 2015 demand letter and attached invoices was sent to all nonoperating
working interest owners. All four invoices were attached to each letter to each non
operating working interest owner for comparison to the amounts shown on the second page
of the December 15, 2015 letter. The invoiced amounts matched the overpaid amounts
listed on the second page of the December 15, 2015 letter. HRB could compare each
invoice, the notations and the amount invoiced for each party to the PA and OOA. HRB
never complained until trial of the difference in the notations on the invoices. Two of the
invoices noted “miscellaneous invoice” and two of the invoices noted “RV & Exp. Payout
Since all four invoices were attached to the December 15, 2015 letter to each of
operating working interest owners and each invoice matched the amount claimed
for overpayment, HRB has no excuse for any misunderstanding and the supporting
umentation attached to the December 15, 2015 letter “tied” the amounts from all
parties to the invoices
On May 28, 2021, HRB filed a trial brief. In the trial brief, HRB once again
Mobil case controlled the outcome of this litigation. As shown above, thi
litigation is significantly different from Mobil does not control the outcome.
Mobil, the defendants receiving the erroneous payment elected not
participate in a well operation. Under a JOA, this is known as “going nonconsent.”
the terms of the consenting party forfeits its right to its former share of
the revenue until a multiple of its share of expenses is recovered by the new well operation.
Mobil Producing Tex. & N.M., Inc. v. Cantor, 93 S.W.3d 916, Corpus
Christi 2002, no pet.). consenting party gets no payment from the newly reworked
Upon “payout” the nonconsenting party is restored to revenue sharing position
before the new well operation.
HRB was a consenting working interest ownerHRB had a
contractual right to payments under the OOA. Jeffry Weems testified to this point.
Payments to HRB were not made by mistake unlike the Mobil case where payments were
made to nonconsenting parties who were not entitled to payment from the commencement
of production from the “worked over” wellThe appellate court in Mobil that the
payments made by Mobil were erroneous and voluntary. at 919, 921. did not
involve a BPO/APO reconciliation. fact distinguish Mobil from HRB’s position.
In addition, the First Court of Appeals did not find dispositive of the
issues in this litigation. The issue to be decided is whether the December 15, 2015 demand
letter, invoices and reconciliation summaries constitute a “charge” under Article 8.7.
Finally, the Mobil case did not involve construction of a provision similar to Article 8.7
Article 8.7 converts this case from a “money had and received” claim to a breach of
claim. Mobil, ing opinion at 922 notes that “no duty was imposed
on appellants consenting working interest owners) to take any action to implement
those terms of the operating agreement. (the withholding of payment until payout)
mere receipt of money they were not entitled to does not constitute a breach.”
(parentheticals added for explanation). In this case, Article 8.7 imposes such a duty and
HRB failed to perform its duty
CONCLUSION
HRB’s argument breaks down because Peregrine’s “charge” for the
overpayment of the proceeds of production is a financial obligation to return revenue and
is not a financial obligation for goods or services. HRB’s argument relies on the concept
that only invoices for goods and services are recognized under the PA, OOA and COPAS.
The overwhelming evidence in this case (i) industry custom and practice
course of performance by knowledgeable participants, validates and recognizes
that an invoice, a “charge” for the repayment of overpaid revenues in a BPO/APO
reconciliation is a “charge” under Article 8.7 of the OOA.
Peregrine states that the December 15, 2015 demand letter, invoices and
reconciliation summaries clearly constitute a “charge” under Article 8.7. This letter and
invoices impose a financial obligation on HRB. The financial obligation is a charge. HRB
owes $210,883.31 to Peregrine plus prejudgment interest.
HRB produced evidence of industry custom and practice and no evidence
of the course of performance under the PA or OOA to support its interpretation of
Voluntary and erroneous payments suggest application of the Voluntary Payment Rule. In some circumstances, a
payment made voluntarily and by mistake cannot be recovered. Samson Exploration, LLC v. T. S. Reed Props.,
Inc., 521 S.W.3d 766, 779 781(Tex.2019); Anadarko E & P Onshore, LLC v. Smith, 2017 U.S. Dist. LEXIS 164175,
S.D. Tex., Houston Div. 2017).In this case, Peregrine did not make payments by mistake. Peregrine made
contractually required payments.
“charges” in a BPO/APO reconciliation context.HRB did not request an audit. HRB did
not provide a competing “payout” calculation.
Peregrine also claims the $107,236.02 in unpaid JIBs since January 1, 2016
remain unpaid by HRB. HRB is still a party to the PA and the OOA. These JIBs
continue to accrue for maintenance, securing the well and the eventual plugging and
abandonment of the Block 155 well.
Peregrine requests an award of prejudgment interest at the 5% simple pre
judgment interest rate provided by law. Peregrine requests an award of prejudgment
interest in the amount of $54,955.85.
Under the terms of the PA, OOA and Memorandum of the OOA filed in the
real property records, Peregrine is entitled to an award of attorneys’ fees and costs.
Peregrine requests this honorable court to award it ,283.78 in attorneys’ fees and costs
and to find that a reasonable attorneys’ fee for representation of Peregrine on appeal would
be $30,000 and that a reasonable attorneys’ fee for representation of Peregrine in any
appeal to the Texas Supreme Court would be $30,000.
Finally, Peregrine seeks an order from this honorable Court requiring HRB
to execute the Assignment of working interest and revenue interest due to Peregrine after
payout.
Respectfully submitted,
ONES ILL ORTER RAWFORD
RAWFORD
By:Michael D. Jones
Michael D. Jones
State Bar No. 10929350
Joseph D. Porter
State Bar No. 16150100
6363 Woodway, Suite 1100
Houston, Texas 77057
Telephone: (713)6524068
Facsimile: (713)6510716
mjones@jonesgill.com
jporter@jonesgill.com
ATTORNEYS FOR PLAINTIFF
PEREGRINE OIL & GAS, LP
RTIFICATE OF SERVICE
I hereby certify that on , a true and correct copy of the above and
foregoing LAINTIFF LOSING RGUMENT to counsel of record
at the following addres
Barry F. Cannaday
Dentons US LLP
2000 McKinney Ave. Suite 1900
Dallas, Texas 75201
0900(telephone)
0910 (facsimile)
barry.cannaday@dentons.com
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, Defendants. § 190 JUDICIAL DISTRICT PLAINTIFF’S CLOSING ARGUMENT BRIEF TO THE HONORABLE BEAU A. MILLER, DISTRICT COURT JUDGE: Pursuant to this honorable Court’s request, Plaintiff, PEREGRINE OIL & GAS, L.P., (“Peregrine”) files its closing argument after the conclusion of the bench trial in the above referenced matter and states: “Charge.” Merriam Webster.com Dictionary, Merriam Webster, https:/www.merriam webster.com/dictionary/charge#legalDictionary anchor INTRODUCTION Peregrine sent an invoice to HRB pursuant to the terms of the PA (Plaintiff’s (Plaintiff’s Ex. 2), and C (Plaintiff’s Ex. 5) requiring HRB to return the ayment of revenue discovered in the reconciliation of the Before Payout (“BPO”) and After Payout (“APO”) revenue and expense obligations. HRB refused to pay and now argues that since this invoice was not for a cost of material or services, HRB need not comply with the OOA. HRB argues that since this invoice was on the “revenue” side of the ledger, it could not be recognized by HRB because COPAS only addresses the “cost or expense” side of the ledger. The First Court of Appeals remanded this litigation to the 190 Judicial District Court for a determination of the meaning of the word “charges” found in Article 8.7 of the Offshore Operating Agreement (“OOA”) for the Galveston Area Block 155 well, platform and facilities, , and lease operating expense (“Block 155”) the OOA provides that if a party objects to a charge issued by the Operator then the party must first pay the charge and then raise its objection. Defendants, HRB OIL & GAS, Ltd. and VHPM, LC, its general partner, (collectively “HRB”)objected to a charge issued by Peregrine, the Operator, but HRB did not pay the disputed charge in breach of Article 8.7. HRB is a signatory to the OOA. HRB must pay the charge and then dispute the charge. RB refused to do so and is in breach of the OOA. In addition, HRB refuses to pay any of the charges to Block 155 participants that continue to accrue. contends that the invoice sent by Peregrine was not a “charge” under continues its argument by relegating Peregrine to a “money had and received” cause of action. The statute of limitations on a “money had and received” cause of action is two years and Peregrine did not file this case within two years of the accrual of the injury. asserted no defense to the continuing charges to Block 155. Peregrine, on the other hand, contends that the November 30, 2015 Joint Interest Billing (“JIB”) and December 15, 2015 invoices and demand letter clearly and unequivocally constitute a “charge” under Article 8.7 of the OOA.Peregrine claims that HRB has breached a contract, the Participation Agreement (“PA”) and the OOA. The statute of limitations on this contract cause of action is four years. Peregrine also demands payment of the unpaid JIBs, prejudgment interest and attorneys’ fees. ARGUMENT In this bench trial, the trial court judge is the trier of fact. The trier of fact determines the meaning of the word “charges” as required by the First Court of Appeals’ mandate. In the usual circumstances, the court construes the contract and there is no question of fact. The determination of whether a contract is ambiguous is a question of law for the court. Endeavor Energy Resources, L.P. v. Discovery Operating, Inc., 554 S.W.3d 586, 601 (Tex. 2018). But when an ambiguity is noted, the State Bar of Texas Oil and Gas Pattern Jury Charges provide for a question to be submitted to the trier of fact. PJC 305.19 and 305.9. The First Court of Appeals held that the term “charges” in Article 8.7 of the OOA was ambiguous. Where an ambiguity is determined, the trial court and in this case, the trier of fact, may consider industry custom and practice and course of performance in determining the meaning of the ambiguous term. See attached Plaintiff’s May 31, 2021 Trial Brief on Industry Custom Practice Evidence citing legal authority for the admission of parole evidence for this purpose. The meaning of the word “charges” in Article 8.1 and 8.7 of the OOA means the delivery of a statement identifying an invoice amount that the recipient has a contractual obligation to pay. The December 15, 2015 demand letter, invoice and reconciliation calculations from Peregrine to the nonoperating working interest owners was a “charge” for a financial obligation under both Article 8.1 and 8.7 of the OOA. See Plaintiff’s 9, 7 and 8. Tim Austin’s testimony was that Exhibits 7 and 8 were attached to his December 15, 2015 letter as referenced in the first paragraph on the second page of the INDUSTRY CUSTOM AND PRACTICE In this case, Peregrine adduced testimony from Tim Austin, Terr Lanier and Jeffry Weems that the December 15, 2015 invoice sent to HRB and the other non operating interest owners was a “charge” under the OOA. In support of this assertion, Tim ell Lanier and Jeffry Weems testified to industry custom and usage and the course of performance by the other nonoperating interest owners. In contrast, HRB offered no evidence of industry custom and practice to support its interpretation.HRB’s expert, Jeff Wright, testified that there was no provision of the PA or OOA prohibiting this Tim Austin, Peregrine’s Vice President of Business Development and testified to between 100 and 200 reconciliation exercises concerning Before Payout (“BPO”) and After Payout (“APO”) situations claims for return of overpayments of revenue. In none of these circumstances did the participants dispute or refuse to repay the overpayment. In none of these cases did the participants assert the argument asserted by HRB in this case. Lanier, Peregrine’s CFO from January 1, 2016 to September 30, 2018, testified to numerous reconciliation exercises concerning BPO and APO situations involving claims for return of overpayments of revenue. In none of these circumstances did the participants refuse to repay the overpayment. In none of these cases did the participants assert the argument asserted by HRB in this case. Jeffry Weems, Peregrine’s expert witness on industry custom and usage, testified that the issues in this case hinged on language used in documents associated with “land” departments, not accounting issues. The land documents at issue in this matter were the PA and OOA. Mr. Weems testified that he had administered hundreds of farmout agreements during his time as a landman for Shell Western E&P Inc. (“SWEPI”). industry agreements farmouts, involved SWEPI conveying the working interest to another industry partner while SWEPI retained an overriding royalty interest, a royalty interest carved out of the working interest and treated as a royalty Once the well drilled by the industry partner reached payout, SWEPI had the right to convert its overriding royalty interest to a working interest. Mr. Weems also testified that it was common for the determination of payout to be delayed, thus requiring a reconciliation of amounts owed under old and new percentages of ownership, the BPO and APO reconciliation Claims for return of revenue paid under an old regime were common. In each such instance, SWEPI or its industry partner always paid the funds shown by the reconciliation process to be Mr. Weems had never seen an industry participant advance the argument urged by HRB in this matter. ced no evidence of industry custom and usage to support its interpretation of the reconciliation process involved in a BPO and APO calculation. HRB’s expert, Jeff Wright, testified that COPAS, the accounting procedure, only addressed expenditures. Mr. Wright did not testify to industry custom and usage in the reconciliation process involved in a BPO and APO calculation. COURSE OF PERFORMANCE The other three non operating working interest owners in the PA and OOA for Block 155 not refuse to repay the overpayment or contest the reconciliation None of the other three nonoperating interest owners claimed that the December 15, 2015 invoice, reconciliation calculations and demand letter were not “charges” under the OOA. The course of performance of the parties to the PA and OOA is strong evidence of the interpretation and meaning of the contracts. Each of the other operating working interest owners, HRB was the fourth, treated the December 15, 2015 letter, invoices, summary of payout and attached calculations as a financial obligation, a charge. None of the other nonoperating working interest owners refused to pay or credit Peregrine with the amount of overpayment. Only HRB refused. First, Peregrine II, an entity with different ownership than Peregrine, acquired the interest initially owned by Provident, an Irish company. Peregrine II received approximately $281,000 in overpayment of revenues during the reconciliation period. Peregrine II paid the $281,000 to Peregrine. Plaintiff’s Ex. 18. HRB attempts to dismiss this transaction as an affiliate transaction that should somehow be disregarded. HRB is mistaken. Peregrine II followed the custom and practice in the offshore Gulf of Mexico oil and gas industry and paid the charge. Second, Tim Austin testified to the settlement of accounts with Fieldwood Energy and Peregrine. Plaintiff’s Ex. 17. Peregrine and Fieldwood participated in at least five offshore projects. The result of the settlement with Fieldwood was payment of approximately $171,000 by Fieldwood to Peregrine. This payment amount included repayment of the sum claimed by Peregrine in the December 15, 2015 letter. Fieldwood the December 15, 2015 demand as a “charge” under the te rms of the OOA. Third, Tim Austin testified to the settlement of accounts with Knight Resources and Peregrine. Plaintiff’s Ex. 16. Peregrine agreed to exchange the overpayment for Knight’s interest in Block 155. Knight conveyed its interest in Block 155 in exchange for extinguishment of the charge owing to Peregrine. This exchange is tantamount to the payment of the “charge” in cash. HRB presented no vidence of a different interpretation. In fact, HRB’s acknowledged HRB’s obligation to pay the overpayment of revenue in an email to Peregrine. See Plaintiff’s Ex. 11. Instead of challenging Peregrine’s invoice, HRB said it would not pay but that Peregrine could recoup the overpayment out of revenue due to HRB. HRB did not dispute its obligation. SUMMARY OF COURSE OF PERFORMANCE AND INDUSTRY CUSTOM AND PRACTICE The overwhelming evidence in this trial is that the industry and the other the PA and OOA consider Peregrine’s demand for repayment of overpaid revenue during the reconciliation period a “charge.” HRB adduced no evidence of industry custom and practice with regard to demands for overpayment of revenue in a BPO and reconciliation period. The only evidence HRB adduced was from its sole witness, Jeff Wright, that an invoice for overpaid revenue was not appropriate under the guidance procedures of COPAS. But, as noted, in Wright’s testimony, COPAS only addresses costs expenses and does not address revenue matters.Mr. Wright did concede that revenue accounting was routinely involved in payout reconciliation. HRB acknowledged its obligation in Plaintiff’s Ex. 11 and did not dispute the charge. ARTICLE 8.1 AND THE OXFORD COMMAand ARTICLE 8.7 In addition to the Course of Performance and Industry Custom and Practice, meaning of the OOA contract provisions supports Peregrine’s position that the December 15, 2015 letter, invoice and reconciliation spreadsheets was a “charge” under the OOA. As a “charge” under the OOA, HRB’s ability to question payout, question the crediting of pipeline tariffs and Production Handling Agreement fees, Plaintiff’s Ex. 15, for the “payout” calculation became subject to a condition precedent. HRB must pay the “charge” and then dispute any issues.main provisions of the OOA are Article 8.1 and Article 8.7. The OOA headings are not to be considered in construing these Articles. See Article 28.1 of the OOA. le 8.1 of the OOA, Plaintiff’s Ex. 2, provides: 8.1 Basis of Charge to the Parties Subject to the other provisions of this Agreement, Operator shall pay all costs incurred under this Agreement, and each Party shall reimburse Operator in proportion to its Participating Interest. All charges, credits, and accounting for expenditures shall be made and done pursuant to Exhibit "C". The first sentence addresses “costs incurred under” the OOA. Peregrine’s December 15, 2015 claim is not for “costs” incurred in performing its role as Operator under the OOA. The “oxford comma” issue may arise in the second sentence of Article The “oxford comma” issue arises when the author discusses a series of things, events, or people and sets off the series with commas, especially a comma after the penultimate word in the series and before the connector words of “and” or “or”precedingthe last item in the series. According to the Texas Supreme Court in the recent case of 488 S.W.3d 294, 29799 (Tex. 2016), the use of the Oxford comma although not definitive antecedent canon, which provides "that a qualifying phrase in a statute or the Constitution must be confined to the words and phrases immediately ceding it to which it may, without impairing the meaning of the sentence, be applied." So, are the words “charges” and “credits” standalone concepts or are they tied to In other words, does Article 8.1 which requires any billing or invoicing pursuant to COPAS, apply to “charges” other than charges for expenditures The December 15, 2015 invoice is for charges other than charges for expenditures. eregrine argues that the word “charges” and the word “credits” are stand alone concepts. The second sentence directs the parties to send invoices or JIBs as required by COPAS. The socalled “oxford comma” rule dictates that the word “charges” in this sentence is not linked to “accounting for expenditures” but is a separate concept. The same applies to the wor “credits.” Thus, the December 15, 2015 invoice was sent to HRB in accordance with COPAS and the December 15, 2015 invoice is a charge; the imposition of a financial obligation on HRB. COPAS requires the charge to be in writing and to be supported by the underlying documentation. The December 15, 2015 demand letter and its attachments satisfy these requirements. Article 8.7 of the OOA, Plaintiff’s Ex. 2, provides, in part, that: …IF A PARTY BELIEVES THAT OPERATOR’S CHARGES, OR A PORTION THEREOF, ARE INCORRECT, THAT PARTY SHALL NEVERTHELESS PAY THE CHARGES CLAIMED BY OPERATOR AND MAY NOTIFY OPERATOR THAT THE CHARGES ARE IN DISPUTE…(EMPHASIS ADDED) Peregrine sent a “charge” to HRB for the repayment of contractually required payments became overpayments after the reconciliation process of the BPO and APO decimal interests was completed. The word “charges” in Article 8.7 is not modified by words like “expenditures” or “costs” or “expenses.” The common, ordinary meaning of the word “charges” in this context, is the imposition of a financial obligation o the receiving party. The OOA requires HRB to pay the charges and then to dispute the charges. HRB refused to do so and HRB’s refusal is a breach of contract. Tim Austin, Terr Lanier, Jeffry Weems and Jeff Wright, HRB’s expert testified that HRB failed to pay as required by TESTIMONY OF THE EXPERTS Jeff Wright, HRB’s expert testified that “charges” and “credit” were not defined in the OOA or in COPAS Thus, there was no restriction on what, in ordinary parlance, these terms should mean. The ordinary meaning of “charges” in this context is the imposition of a financial obligation. Further, Jeff Wright testified that there were provisions in the PA, OOA, COPAS that prohibited Peregrine from sending the December 15, 2015 demand letter, invoice and reconciliation statements. In a similar vein, Jeffry Weems testified that despite the lack of provisions in the PA, OOA or COPAS requiring Peregrine to pay HRB the proceeds of Peregrine’s sale of HRB’s share of production, Peregrine followed industry custom and practice and did so nonetheless because that was the nature of the deal reached by the parties as demonstrated in the PA and OOA. Peregrine did send checks to HRB for its share of the proceeds of production because that obligation was implied by the contractually required marketing function. There are no directives in the PA or OOA requiring the Operator to pay the proceeds of production to the non perating working interest owners. As the Operator under the OOA, Peregrine was contractually authorized to manage and administer the Block 155 project and to ensure that each participant received its share and no more than its share of the proceeds of production. Under the PA, Plaintiff’s Ex. 1, ⁋ 8, Peregrine marketed all production from 155. HRB signed and agreed to the PA. HRB never elected to take its share of the production in kind. HRB never sold its share of production independently. By agreeing to Peregrine’s marketing function, HRB agreed to postperiod adjustments Lanier, Jeffry Weems and Jeff Wright, HRB’s expert, testified the practice of postperiod adjustments in the oil and gas context. Postperiod ments occur because of production volume changes, production price changes and changes in ownership of the production. Oil and gas is sold. The Operator distributes the revenue received from the sales. The purchaser may then correct for volumes received or price paid. These corrections are then passed back to the owners. As in this case, the ownership percentages changed upon “payout” and a postperiod adjustment was necessary. These post period adjustments may occur months and years later and appear as deductions and additions on revenue check stubs. HRB never complained about any post adjustments until the postperiod adjustment for the overpayment of revenues. Jeffry Weems, Peregrine’s expert, testified to eleven opinions that were not His first opinion was that the term “payout” had an oil and gas industry accepted meaning, that being the time when the revenues, from any source, related to a come to equal the ex penditures and costs related toproject. His second opinion was that the term “charges” had an oil and gas industry accepted meaning, that being the imposition of a financial obligation from one party upon another. His third opinion was that the PA controlled over the OOA and the exhibits to th OOA, including COPAS. The PA prevails in the event of a conflict with the OOA. See Plaintiff’s Ex. 1, ⁋12. His fourth opinion was that the PA and OOA were “land documents” and that the issue before the court to interpret the word “charges” was based in documents and not in COPAS, an accounting document included for guidance in accounting for expenses charged to the Joint Account. His fifth opinion was that Peregrine was timely in its reconciliation and notification of HRB, e.g.,demand for payme nt was made within two years of the end of the calendar year in which the charge arose. (f) His sixth opinion was that Peregrine did not make the BPO payments of revenue to HRB by mistake. The PA and OOA required Peregrine to pay at HRB’s BPO of revenue until payout was determined. A reconciliation of revenues and expenses was contemplated by these agreements. Since these payments at the BPO level were required, these payments were not erroneous. Since the payments were not erroneous, this fact distinguishes the Peregrine/HRB situation from the Mobil case cited by HRB. His seventh opinion was that the course of performance among the parties to PA was that the December 15, 2015 demand letter, invoices and reconciliation summaries were “charges” that must be paid. His eighth opinion was that postperiod adjustments are common and expected. Postperiod adjustments occur for three reasons: volume changes, price changes and ownership changes. The December 15, 2015 demand letter, invoices and reconciliation summaries were a postperiod adjustment. His ninth opinion was that the “pay first, dispute later” provision in Article 8.7 of the OOA was standard in the offshore context because the Operator is not a bank operating interests. His tenth opinion was that revenues from the Production Handling Agreement and Pipeline Transportation Agreement with the owner of Block 133 to the Block 155 owners these revenues should be included in the payout determination since they were only received as a result of assets built and owned by the Block 155 owners. His eleventh opinion was that the case relied on by HRB was inapposite. case involved erroneous payments to parties that had gone nonconsent consent parties are not entitled to any revenue. In contrast, Peregrine must pay HRB a consenting party to the well for the proceeds of . In addition, did not have an Article 8.7 in the agreement at Mobil and the precondition of payment first and dispute later was not Jeff Wright, HRB’s expert, testified that COPAS only applied to costs and expenditures. Jeff Wright admitted that the December 15, 2015 demand letter and invoice concerned and addressed revenue. Jeff Wright was called to testify about COPAS. COPAS only applies to costs and expenditures not to revenue. Jeff Wright had no opinions concerning the revenue side of the ledger. Jeff Wright was of the opinion that COPAS invoices and JIBs were only for expenditures and costs. But the December 15, 2015 demand letter and invoices concerned revenue items. Jeff Wright conceded that the PA and OOA did not prohibit the demand letter and invoices. Jeff Wright’s testimony was irrelevant to the issue before this court. HRB’s ASSERTED DEFENCES Contrary to the instruction of Article 8.7, HRB vaguely challenged the “payout” calculation without first paying the December 15, 2015 invoice. HRB never requested an audit. HRB never specifically challenged the payout calculation or the spreadsheets included in Plaintiff’s Ex. 7. HRB’s counsel acknowledged the “charge” in 2016 email to Tim Austin. Plaintiff’s Ex. 11. HRB did not dispute the charge as contrary or foreign to the OOA. HRB said that HRB would not pay but that Peregrine could offset the charge with HRB’s share of production. suggested e Production Handling Agreement and Pipeline Transportation Agreement revenues should not be included in the “payout” calculation. HRB produced no authority for either proposition. HRB failed to call any witness to testify to these claims. Tim Austin an Lanier testified to a “but for” test with regard to these revenues. But for the Block 155 well, platform and sales pipeline to an interconnect with a pipeline to shore, the Block 133 owners would not have contracted with Block 155 for processing and transportation. Jeffry Weems testified that these revenues were the fruit of the Block 155 owners’ investment in Block 155. ’s argument is that under the OOA invoices or JIBs can only be to COPAS. Since COPAS only applies to expenditures and costs, according to Mr. Wright, the December 15, 2015 demand letter and attached invoices was a nullity because this letter and these invoices pertained to a return of overpaid revenues. If this letter and these invoices were a nullity, then this letter and these invoices could not be “charges” to trigger the Article 8.7 requirement to “pay first and dispute later.” Jeffry Weems termed this argument “absurd.” Mr. Wright could not point to any provision of the OOA that prohibited Peregrine from issuing and sending the December 15, 2015 demand letter and invoices. The Operator has broad powers under the OOA. As noted above, the Operator is to account to all owners, including itself, for the owners’ share of the proceeds of production, no more and no less. The BPO to APO reconciliation process results in an adjustment to each owners share of the proceeds of production. These adjustments can only be addressed by invoices to the working interest owners. These adjustments are made pursuant to the OOA, a contract. HRB is in breach of the PA and OOA. HRB also complained about the “Miscellaneous Invoice” notation on the November 30, 2015 JIB. Plaintiff’s Ex. 8. HRB noted that invoices to other nonoperating working interest owners contained a different notation. Peregrine’s Exhibit 9, the December 15, 2015 demand letter and attached invoices was sent to all nonoperating working interest owners. All four invoices were attached to each letter to each non operating working interest owner for comparison to the amounts shown on the second page of the December 15, 2015 letter. The invoiced amounts matched the overpaid amounts listed on the second page of the December 15, 2015 letter. HRB could compare each invoice, the notations and the amount invoiced for each party to the PA and OOA. HRB never complained until trial of the difference in the notations on the invoices. Two of the invoices noted “miscellaneous invoice” and two of the invoices noted “RV & Exp. Payout Since all four invoices were attached to the December 15, 2015 letter to each of operating working interest owners and each invoice matched the amount claimed for overpayment, HRB has no excuse for any misunderstanding and the supporting umentation attached to the December 15, 2015 letter “tied” the amounts from all parties to the invoices On May 28, 2021, HRB filed a trial brief. In the trial brief, HRB once again Mobil case controlled the outcome of this litigation. As shown above, thi litigation is significantly different from Mobil does not control the outcome. Mobil, the defendants receiving the erroneous payment elected not participate in a well operation. Under a JOA, this is known as “going nonconsent.” the terms of the consenting party forfeits its right to its former share of the revenue until a multiple of its share of expenses is recovered by the new well operation. Mobil Producing Tex. & N.M., Inc. v. Cantor, 93 S.W.3d 916, Corpus Christi 2002, no pet.). consenting party gets no payment from the newly reworked Upon “payout” the nonconsenting party is restored to revenue sharing position before the new well operation. HRB was a consenting working interest ownerHRB had a contractual right to payments under the OOA. Jeffry Weems testified to this point. Payments to HRB were not made by mistake unlike the Mobil case where payments were made to nonconsenting parties who were not entitled to payment from the commencement of production from the “worked over” wellThe appellate court in Mobil that the payments made by Mobil were erroneous and voluntary. at 919, 921. did not involve a BPO/APO reconciliation. fact distinguish Mobil from HRB’s position. In addition, the First Court of Appeals did not find dispositive of the issues in this litigation. The issue to be decided is whether the December 15, 2015 demand letter, invoices and reconciliation summaries constitute a “charge” under Article 8.7. Finally, the Mobil case did not involve construction of a provision similar to Article 8.7 Article 8.7 converts this case from a “money had and received” claim to a breach of claim. Mobil, ing opinion at 922 notes that “no duty was imposed on appellants consenting working interest owners) to take any action to implement those terms of the operating agreement. (the withholding of payment until payout) mere receipt of money they were not entitled to does not constitute a breach.” (parentheticals added for explanation). In this case, Article 8.7 imposes such a duty and HRB failed to perform its duty CONCLUSION HRB’s argument breaks down because Peregrine’s “charge” for the overpayment of the proceeds of production is a financial obligation to return revenue and is not a financial obligation for goods or services. HRB’s argument relies on the concept that only invoices for goods and services are recognized under the PA, OOA and COPAS. The overwhelming evidence in this case (i) industry custom and practice course of performance by knowledgeable participants, validates and recognizes that an invoice, a “charge” for the repayment of overpaid revenues in a BPO/APO reconciliation is a “charge” under Article 8.7 of the OOA. Peregrine states that the December 15, 2015 demand letter, invoices and reconciliation summaries clearly constitute a “charge” under Article 8.7. This letter and invoices impose a financial obligation on HRB. The financial obligation is a charge. HRB owes $210,883.31 to Peregrine plus prejudgment interest. HRB produced evidence of industry custom and practice and no evidence of the course of performance under the PA or OOA to support its interpretation of Voluntary and erroneous payments suggest application of the Voluntary Payment Rule. In some circumstances, a payment made voluntarily and by mistake cannot be recovered. Samson Exploration, LLC v. T. S. Reed Props., Inc., 521 S.W.3d 766, 779 781(Tex.2019); Anadarko E & P Onshore, LLC v. Smith, 2017 U.S. Dist. LEXIS 164175, S.D. Tex., Houston Div. 2017).In this case, Peregrine did not make payments by mistake. Peregrine made contractually required payments. “charges” in a BPO/APO reconciliation context.HRB did not request an audit. HRB did not provide a competing “payout” calculation. Peregrine also claims the $107,236.02 in unpaid JIBs since January 1, 2016 remain unpaid by HRB. HRB is still a party to the PA and the OOA. These JIBs continue to accrue for maintenance, securing the well and the eventual plugging and abandonment of the Block 155 well. Peregrine requests an award of prejudgment interest at the 5% simple pre judgment interest rate provided by law. Peregrine requests an award of prejudgment interest in the amount of $54,955.85. Under the terms of the PA, OOA and Memorandum of the OOA filed in the real property records, Peregrine is entitled to an award of attorneys’ fees and costs. Peregrine requests this honorable court to award it ,283.78 in attorneys’ fees and costs and to find that a reasonable attorneys’ fee for representation of Peregrine on appeal would be $30,000 and that a reasonable attorneys’ fee for representation of Peregrine in any appeal to the Texas Supreme Court would be $30,000. Finally, Peregrine seeks an order from this honorable Court requiring HRB to execute the Assignment of working interest and revenue interest due to Peregrine after payout. Respectfully submitted, ONES ILL ORTER RAWFORD RAWFORD By:Michael D. Jones Michael D. Jones State Bar No. 10929350 Joseph D. Porter State Bar No. 16150100 6363 Woodway, Suite 1100 Houston, Texas 77057 Telephone: (713)6524068 Facsimile: (713)6510716 mjones@jonesgill.com jporter@jonesgill.com ATTORNEYS FOR PLAINTIFF PEREGRINE OIL & GAS, LP RTIFICATE OF SERVICE I hereby certify that on , a true and correct copy of the above and foregoing LAINTIFF LOSING RGUMENT to counsel of record at the following addres Barry F. Cannaday Dentons US LLP 2000 McKinney Ave. Suite 1900 Dallas, Texas 75201 0900(telephone) 0910 (facsimile) barry.cannaday@dentons.com Michael D. Jones Michael D. Jones