Texas Business Court Decision – Friday, March 28, 2025
No. 24-BC01B-001 Targa Northern Delaware, LLC v. Franklin Mountain Energy 2, LLC, etc., et al. 1st Division – Judge Whitehill. 25-bc01b-0001.pdf
Jurisdiction. Targa is a midstream company that operates natural gas gathering and compression facilities, and defendants are two upstream oil and natural gas exploration and production companies; the parties entered into an agreement whereby defendants agreed to sell Targa natural gas from its wells in New Mexico and deliver it to Targa (the committed gas); the agreement provided that if Targa was unable to accept the full volume of gas defendants attempted to deliver, defendants could ask for either a temporary or permanent release of Targa’s interest in the affected gas volumes so that Targa’s interest would revert to defendants; Targa brought this suit alleging defendants breached the agreement by failing to deliver the committed gas; seven weeks later, defendants sued Targa in New Mexico, alleging Targa had failed to accept all all of the committed gas, and asking for a permanent release of the volumes of gas and a release of all of Targa’s real property interest in the gas.
Defendants have filed a plea to jurisdiction, arguing the Business Court lacks subject matter jurisdiction because it is a real property dispute involving mineral interests located exclusively in New Mexico and contending the parties’ “core dispute” is whether Targa retained any interests in the gas, including gas still in the ground and not yet produced; Targa argued the agreement separately conveyed defendants’ interest in gas in place in the ground, which is a real property interest, and gas produced from the acreage, which is a personal property interest; in Targa’s view, this case only affected the latter because it seeks damages for failure to deliver severed natural gas, and it is immaterial that defendants also conveyed an interest in the gas in place; defendants reply that Targa’s right to produced gas derives solely from its interest, if any, in the gas in place in New Mexico, and the suit requires resolution of a real property dispute – whether Targa ceased being the rightful owner of interests in real property when defendants had requested a permanent release as far back as 2022.
HELD: The seminal issue is who materially breached the contract first regarding the delivery of severed natural gas; if defendants did so by failing to deliver severed committed gas per the agreement, recovering damages is Targa’s remedy; if Targa breached first, then defendants’ remedy is for the court to order plaintiff to release its rights regarding subsurface gas, which is realty; “In short, this case will factually decide who first materially breached its duty regarding the delivery of severed natural gas. Any subsequent effect that decision may have on ownership of native natural gas in New Mexico is incidental and collateral to that outcome. Therefore, this court has jurisdiction to resolve the prior material breach dispute.”