"What a Difference a Day Makes” was recorded by singers including Dinah Washington and Dean Martin in the 20th century, but the sentiment also comes through loud and clear in a recent Texas Supreme Court ruling on energy-lease contracts.
Texas’ high court on April 28 reversed key findings of the 11th District Court of Appeals in the case of Apache Corp. v. Apollo Exploration LLC. This business-vs.-business litigation concerned the expiration date of purchase and sale agreements (PSAs) between Apache, a holding company engaged in energy exploration, and several sellers.
The complex contracts involved the control of economic interests in 109 oil and gas leases in the Texas Panhandle. The plaintiffs initially sued Apache in 2014 for allegedly failing to provide timely information on its drilling commitments that year. Under certain conditions, Apache was required to offer back interests in the leases to the sellers.
The Texas Supreme Court found that the expiration date of the PSAs was Jan. 1, as Apache argued, and not Dec. 31, the date mentioned in a lease memorandum and favored by Apollo and other sellers. The high court concluded that it must apply what’s known as the contract “default rule,” in which time periods are not measured from specified dates but the day before. Thus a year measured from Jan. 1 in a contract ends on Jan. 1 of the following year, not Dec. 31.
“We must … apply the default rule to the parties’ dispute,” the justices said. “Because the court of appeals did not do so – and because we also conclude that it incorrectly construed other contractual provisions at issue – we reverse its judgment on the issues presented for our review and remand the case to that court for further proceedings.”
Because the expiration date in question falls in the calendar year of 2015 rather than 2014, the damages the sellers calculated they should receive is reduced by about $180 million, according to Apache’s estimates.
“What difference does all this really make?” the Supreme Court opinion states. “Oil prices and land values plunged between 2014 and 2015, so the single-day dispute over the expiration turns out to matter a great deal.”
The opinion also concludes that the appeals court erred in ruling that the trial court should not have excluded the testimony of one of the sellers’ expert witnesses, Peter Huddleston.