Case Dealing With Waiver of Non-Operating Interest
In Purvis Oil Corp. v. Hillin, 890 S.W.2d 931, 937 (Tex.App.--El Paso 1994), the original operator, Tiburon, filed a bankruptcy petition and subsequently sold its interest in the wells to Claydesta National Bank (CDNB). Tiburon entered into a suboperating agreement with Hillin to operate the lease.
The agreement anticipated that Hillin would be elected operator in the future and the suboperating agreement would terminate.
Hillin, Tiburon, and CDNB entered into another agreement whereby Hillin would acquire Tiburon's and CDNB's interest in certain properties included in the Joint Operating Agreement (JOA).
The non-operating interest owners ratified the suboperating agreement and elected Hillin as operator even though Hillin had not yet acquired an interest in the contract area as required by the JOA.
The bankruptcy court approved Tiburon's resignation as operator and the assignment of its rights to Hillin. the non-operating interest owners formally selected Hillin, a suboperator, as operator even though it did not yet own an interest in the contract area as required by the JOA.
After Hillin had been serving as operator for one year, CDNB withdrew its offer to sell to Hillin those interests it had acquired from Tiburon.
Hillin later purchased another interest in the contract area and acted as operator for five years.
After Purvis purchased Tiburon's interests held by CDNB, it adopted the position that Hillin had never been properly elected as operator because it did not own an interest in the contract area at the time of its election. Consequently, Purvis polled the non-operating owners and was selected as operator by a majority.
When Hillin refused to resign, Purvis brought an action for declaratory judgment, injunctive relief, and interference with business relations.
This Court found, as a matter of law, that the non-operating interest owners waived the JOA's ownership requirement not only by voting for or assenting to the selection of Hillin as successor operator but also by accepting the benefits of Hillin's performance while knowing that Hillin, in reliance on its ratification as suboperator and successor operator, had expended time, effort, and expense to operate the properties. Purvis Oil, 890 S.W.2d at 937.