A dispute between the sellers of a gas gathering company in far West Texas and Dallas-based Energy Transfer settled Wednesday, a week before trial was set to begin.
Energy Transfer, represented by Lynn Pinker Hurst & Schwegmann, filed a lawsuit in April 2022 against Culberson Midstream Equity and Moontower Resources Gathering alleging a breach of their 2018 contract because the gas gatherers didn’t deliver committed gas. Energy Transfer also accused Culberson and Moontower of transferring committed gas to a competitor.
Culberson and Moontower, represented by Reese Marketos, filed a counterclaim also alleging a breach of contract. The gatherers said an option agreement between the parties required Energy Transfer to purchase Culberson for more than $93 million by May 24, 2022.
The trial was set to begin Tuesday in Dallas. Lawyers for both sides declined to comment.
Energy Transfer moved last year to transfer the case to the state’s new business courts, but Judge Bill Whitehill ruled that his court did not have authority to preside over the case because the law that created the business courts only gave them authority to hear cases filed after Sept. 1, 2024. The case was returned to Dallas County District Judge Bridgett Whitmore.
Before the deal was finalized in October 2018, oil and gas producers flocked to Culberson County, optimistic that the unproven land would become the next hotspot for gas production, Culberson and Moontower wrote in court filings.
Culberson was a new operation, hoping to replicate the success seen by others in nearby areas. With financial backing from investor Oaktree Capital Management, Charger Shale Oil Company — now known as Moontower Resources — acquired leases and began drilling, while Culberson secured the deal to gather and process the gas.
Both Energy Transfer and Culberson/Moontower were aware during negotiations that drilling on the land was risky, and they included an option agreement to address that risk, according to the petition filed by Culberson and Moontower. The option allowed Culberson to sell to Energy Transfer at a price below market value if the land proved unproductive, according to their counterclaim.
Culberson and Moontower contended that Energy Transfer was fully aware that recent drilling efforts on the land had failed. Prior to finalizing the agreements, Culberson provided Energy Transfer with a geological report that showed Charger had drilled six unproductive wells by April 2018.
But Energy Transfer asserted that the sellers never intended to fulfill their obligations due to a lack of funding. Energy Transfer pointed to a memo from October 8, 2018, obtained during the lawsuit, which revealed that Oaktree had imposed a moratorium on drilling in spring 2018 until issues related to the acreage assigned to Culberson Midstream were resolved, essentially shutting down the program.
The law firms announced the settlement during a pre-trial hearing Wednesday, one day after the same firms finished a trial against one another in Pennsylvania. In that case, Reese Marketos client Cardinal Midstream II LLC is asking Beaver County Court of Common Pleas Judge James J. Ross to award it $33 million in damages it alleges Energy Transfer and its affiliate ETC Northeast Pipeline LLC owe it after a massive pipeline explosion near Pittsburgh. The judge has yet to rule.
Energy Transfer is represented by Mike Lynn, Andrés Correa and Kyle Gardner of Lynn Pinker.
Culberson and Moontower are represented by Joel Reese and Tyler Bexley of Reese Marketos.
The Dallas County case is number DC-22-03837.