Background
In 1967, the parties’ predecessors entered into the Garner Lease, an oil, gas, and mineral lease that granted the lessee broad surface use rights while restricting the lessee from free use of water from the lessor’s wells. In January 2020, the Davenports purchased tracts of land burdened by the Garner Lease. When EOG Resources, the mineral lessee, planned to resume drilling in late 2021, EOG offered to purchase water from the Davenports’ wells. The parties executed a Water Purchase Agreement (WPA) on January 31, 2022, containing a provision requiring EOG to enter and exit through the Krueger Road gate when using designated roads to access the frac pond and designated water wells.
On March 24, 2023, EOG notified the Davenports of its plan to construct a new access gate (Rancho Derecho gate) and caliche road through their property due to the inaccessibility and disrepair of the existing Krueger Road entry. Despite the Davenports’ objections and proposed alternative routes, EOG proceeded with construction. The Davenports sued for breach of contract, fraud, and trespass. The trial court granted EOG’s summary judgment motions and directed verdict on the trespass claim. A jury found the Davenports breached the WPA and awarded EOG $14,954,784 in damages. The Davenports appealed on five grounds.
The Court’s Holding
The Fourth Court of Appeals affirmed the judgment. On the central issue of contract interpretation, the court held that Section 9 of the WPA restricting access to the Krueger Road gate applied only when EOG traversed designated roads to reach the frac pond or designated water wells—not for all EOG operations on the property. Examining the entire WPA holistically, the court noted that the agreement’s purpose clause, which limited EOG’s rights to “ingress and egress on designated roads for the purpose of producing, operating, and obtaining water,” mirrored the language in Section 9 and supported a limited scope of the restriction. The court rejected the Davenports’ wooden reading of the first sentence in isolation, finding that the contract’s references to “oil and gas operations” and “all operations” demonstrated the parties contemplated EOG activities beyond water acquisition.
On the fraud claims, the court held that the Davenports could not justifiably rely on any oral misrepresentation as a matter of law. The court emphasized that the Davenports were sophisticated parties—Dean Davenport had worked in the oil and gas industry since the 1980s—were represented by counsel during negotiations, and could not rely on oral statements contradicting unambiguous contract terms. Regarding breach of contract, the court found sufficient evidence supporting the jury’s verdict that EOG did not breach. Although Tin Cup, EOG’s freshwater contractor, traversed the Rancho Derecho gate on April 21, 2023, the evidence established that the gate’s road only extended to EOG’s Bulliet Production Facility (not the frac pond or designated wells), EOG was not pumping water at that time, and gate logs indicated the entries were for fuel, light tower deliveries, or trash—not water production activities.
The court also upheld the directed verdict on the trespass action under the accommodation doctrine. The Davenports failed to establish that EOG’s construction of power lines and roads completely or substantially impaired their existing use of the land or that no reasonable alternatives existed for conducting wildlife management operations. Finally, any error in denying the Davenports’ mid-trial motion to amend their pleadings to add an affirmative defense of prior material breach was harmless, as the defense relied on the same operative facts as the breach of contract claim, which the jury rejected.
Key Takeaways
- Contract provisions must be interpreted holistically within the context of the entire agreement, not by isolated reading of individual sentences or phrases.
- Sophisticated parties with legal counsel cannot justifiably rely on oral misrepresentations that contradict unambiguous written contract terms, barring fraud claims as a matter of law.
- In disputes between mineral leasees and surface owners, access rights limitations are construed narrowly and apply only to the specific purposes articulated in the operative agreement.
- Under the accommodation doctrine, a surface owner claiming trespass must prove the mineral lessee’s use completely or substantially impaired existing surface use and that reasonable alternatives were unavailable.
Why It Matters
This decision provides important guidance for practitioners handling disputes between oil and gas operators and surface owners in Texas. The court’s strict adherence to contract language and holistic interpretation principles limits opportunities for surface owners to challenge access rights through creative pleading or claims of oral modifications. The ruling reinforces that sophisticated parties cannot escape the plain terms of written agreements by alleging fraudulent inducement, particularly when represented by counsel. For mineral leasees, the decision protects established access routes where the operative agreement ties ingress and egress restrictions to specific operational purposes.
The accommodation doctrine analysis also clarifies that surface owners must demonstrate more than inconvenience or preference—they must show substantial impairment of existing use and lack of reasonable alternatives. This standard likely forecloses many surface owner claims challenging drilling-related infrastructure. The decision will influence how parties draft access provisions in water purchase agreements and similar ancillary agreements to oil and gas leases, emphasizing the importance of explicit language addressing all contemplated uses and access scenarios.