## Facts

- Henderson Clay Products (HCP) and The Long Trusts were working-interest owners in gas wells drilled in the early 1980s under joint operating agreements; ARCO later acquired HCP’s position and became operator.
- The operating agreements provided that if a non-operator did not separately market its gas, the operator had the right (revocable by the non-operator) to sell the gas for the non-operator’s account “at the best price obtainable in the area for such production.”
- HCP formed B & A Pipe Line Company, a wholly owned subsidiary, to transport and market gas production.
- HCP dedicated its gas to B & A under a contract priced at the applicable maximum lawful price under federal regulation; B & A then entered a ten-year gas-purchase contract with Lone Star Gas at the same gas price and also received an operations fee on volumes delivered.
- After market prices declined, B & A became involved in litigation with Lone Star and settled by agreeing to sell at a lower price; evidence indicated Lone Star still paid B & A more than B & A paid ARCO for the gas.
- The Long Trusts alleged ARCO breached the “best price obtainable” clause and failed to properly account for proceeds connected to B & A’s resale arrangement, including B & A’s operations fee and margin.
- A jury awarded The Long Trusts $1,000,000 plus interest and attorney’s fees; the jury awarded ARCO nothing on its claimed drilling-cost reimbursement.

## Issues

1. Whether the operator breached a contractual duty to market non-operator gas “at the best price obtainable in the area” by modifying an affiliated long-term gas contract when market prices fell.
2. Whether the non-operators were entitled, by contract or fiduciary/equitable theories, to an accounting for and recovery of the affiliate’s marketing margin and operations fee.
3. Whether the evidence required damages of $6,327,693 as a matter of law, and whether the $1,000,000 award, prejudgment interest, and attorney’s fees were supported.
4. Whether ARCO was entitled to recover drilling costs notwithstanding the jury’s refusal to award them.

## Decision

- The court affirmed in part and reversed in part, rendering/modifying the judgment in limited respects.
- The court rejected the claim that damages of $6,327,693 were conclusively established and declined to increase the award.
- The court held the “best price obtainable” clause did not require the operator to guarantee historically high prices or insulate the non-operators from market decline; modification of the Lone Star arrangement during a falling market did not, by itself, establish breach.
- The court rejected claims that B & A owed fiduciary-type duties requiring disgorgement of its operations fee or marketing profits to the non-operators.
- The court left in place a limited recovery consistent with an under-accounting theory reflected in the jury’s verdict (subject to any technical adjustments to interest/fees).
- The court declined to disturb the jury’s denial of ARCO’s drilling-cost claim.

## Legal Principles

- A contractual obligation to sell production at the “best price obtainable in the area” is measured by reasonable marketing efforts and commercial reasonableness under then-existing market conditions, not by the highest conceivable price or a guarantee against price declines.
- An operator’s use of an affiliated transporter/marketer does not alone create fiduciary duties to non-operators or require sharing the affiliate’s separate fees and profit margins absent contractual language creating such duties.
- A non-operator seeking a larger damages figure must show it is established as a matter of law; conflicting evidence on market prices, available alternatives, and causation permits the factfinder to select a lower amount.
- A party is not entitled to reversal on a claim (such as drilling-cost reimbursement) merely because evidence could support recovery; the record must compel the award or show reversible error affecting the jury’s finding.

## Conclusion

The court treated the “best price obtainable” language as a standard of reasonable marketing performance in light of market conditions, upheld a limited recovery for improper accounting, and refused to convert an affiliated marketing arrangement into a fiduciary relationship requiring the affiliate to disgorge its fees or profits to the non-operator working-interest owners.


Atlantic Richfield Co. v. The Long Trusts, 860 S.W.2d 439 (Tex. App.—Texarkana 1993)