In this recent case (ETC Tex. Pipeline, Ltd. v. XTO Energy Inc., 698 S.W.3d 915 (Tex. App.-Eastland 2024, no pet. h.), the Eastland Court of Appeals considered whether a gathering and processing agreement’s dedication provisions were void under the statute of frauds and whether broad contractual damage waivers barred recovery of both direct and indirect lost profits.
The Case
ETC Texas Pipeline and XTO Energy entered into a 2011 Gathering and Processing Agreement (GPA) that established the framework for their relationship, with Individual Transaction Confirmations (ITCs) meant to add practical details for specific transactions. Both the 2013 ITC and 2016 ITC included the same map depicting “Dedicated Acreage” where XTO would dedicate gas for gathering and processing by ETC. The GPA contained an exclusivity clause requiring XTO to dedicate “all of the Gas owned or controlled by Shipper... that is produced from the area depicted on the map.”
In 2019, ETC discovered XTO was sending gas from within the Dedicated Acreage to ETC’s competitors. XTO claimed ETC lacked capacity to handle all the gas, forcing XTO to flare some production. ETC sought damages, but XTO obtained summary judgment arguing the Dedicated Acreage map was void under the statute of frauds and the GPA’s damage limitations precluded recovery.
Court’s Ruling on Statute of Frauds
The court first tackled whether the statute of frauds applied. While oil and gas interests constitute real property requiring compliance with the statute of frauds, the court held this was fundamentally a service contract rather than a conveyance of real property. However, the court found the statute still applied because performance extended beyond one year.
The court then analyzed whether the Dedicated Acreage map satisfied the statute’s writing requirement. The court noted that a writing must “furnish within itself, or by reference to some other existing writing, the means or data by which the property to be conveyed may be identified with reasonable certainty.” The court found XTO failed to prove the entire map was void, reasoning that: (1) the map was intended to define general areas rather than specific boundaries, (2) the contract contemplated XTO would provide further “specific lease information and plats,” and (3) ITC amendments provided precise latitude/longitude coordinates for receipt points.
Analysis of the Court’s Statute of Frauds Application
In the author’s view, this analysis raises several potentially notable concerns and issues as to the proper application of the statute of frauds. For instance, the court’s reasoning suggests that a legal description’s sufficiency may depend on whether it creates ambiguity in the specific dispute at issue, whereas in the author’s experience, the customary analysis is whether the description itself provides a sufficiently clear description of boundaries in general. Additionally, while the court emphasized that the locations of receipt points were sufficiently clear, the receipt points would merely identify where severed gas (personal property) would be transferred, whereas this dispute appeared to have predominantly focused on the scope and validity of the dedication (gas in place, a real property interest).
Moreover, the court’s reliance on information to be gathered and provided in the future appears to conflict with the statute of frauds’ requirement that a description be made by reference to an “existing writing.” The court’s analysis emphasized determining whether the agreement was predominantly a service contract or a real property conveyance, but this seems to diverge from customary thinking regarding the statute of frauds, which instead focuses simply on whether the disputed provision itself purports to convey an interest in real property. In this case, the dispute pertained to the scope and validity of a dedication of gas in place (a real property interest), and it is questionable what relevance there would be regarding the predominant nature of other portions of the contract.
Court’s Ruling on Damage Waivers
The court also addressed XTO’s contract-based defenses. The GPA’s limitation of liability clause provided that “No Party shall be liable to any other Party for any loss of profit or anticipated profit... nor for any indirect loss, consequential loss, or exemplary damages.” The court held this language unambiguously waived both direct and indirect lost profit damages.
