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A Texas appellate court issued a conditional writ of mandamus ordering a lower court to reverse its order compelling arbitration of series of claims between an oil drilling company and a group of working interest owners.
In re Great Western Drilling, Ltd., No. 11-06-00244-CV, 2006 WL 3461801 (Tex. App. Nov. 30, 2006) involved an arbitration claim filed by working interest owners against Great Western Drilling, Ltd. (Great Western). A “working interest owner” is a party who obtains the rights to explore, develop, and operate a mineral property, usually subject to a royalty. The working interest owner bears the costs of such operations, but is entitled to a share of the mineral production proceeds in return.
In this case, the working interest owners contended that Great Western used information derived from the parties’ venture to extract oil for their own benefit. Great Western asked the Court to overturn an order compelling arbitration of the working interest owners’ claims.
At issue was the scope of the arbitration agreement, which was contained in a “joint operating agreement” (JOA). The parties had agreed on an “area of mutual interest” (AMI), where any additional leases acquired by any party in the agreement would be shared. Westland Oil Dev. Corp. v. Gulf Oil Corp., 637 S.W.2d 903, 905 (Tex. 1982). However, the arbitration clause was broadly worded and applied to any dispute, controversy or claim arising out of or relating to the JOA.
Ultimately, the Court disagreed with the lower court’s finding that the disputed drilling operations, while occurring outside of the geographical AMI determined by the parties, were still sufficiently related to the JOA to permit arbitration of the working interest owners’ claims. Rather, the Court found that the parties had very specifically delineated the geographical and temporal boundaries within which the arbitration clause would apply.
Moreover, the working interest owners’ claims relied on legal theories, such as breach of fiduciary duty, which were not only discredited by Texas law, but also specifically disclaimed by the parties in the JOA. See, e.g., Crowder v. Tri-C Res., Inc., 821 S.W.2d 393, 399 (Tex. App. 1991). In summation, the working interest owners’ claims were non-arbitrable because the parties had specifically elected not to arbitrate claims of that type.
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