As he walked through the front door of 2J’s, the modest little cafe down the road from his family ranch outside Refugio, Thomas Michael O’Connor had a feeling that something was wrong. It was a bright winter day in January 1995, and T. Michael, as he is known to all, had come in for a lunch meeting with Glenn Lynch, the operator of a legendary oil and gas lease on the O’Connor Ranch named for T. Michael’s great-aunt, Mary Ellen O’Connor. The ranch is one of the state’s largest, covering parts of Goliad, Victoria, and Refugio counties, and T. Michael ran its operations. At forty, he was a multimillionaire, heir to a family fortune in cattle, oil, and land that stretched over five generations, but he often ate lunch at 2J’s. The dusky interior was a relief from the bleached South Texas light, and he liked that he knew just about everybody coming in and going out.
Lynch was sitting at a long table with T. Michael’s cousins Laurie Miesch and Morgan O’Connor, who, along with ten other O’Connor cousins, were royalty owners on the lease. The meeting had been called by Lynch, and as T. Michael eased up to the table, his fears were confirmed by the look of worry on his operator’s face. Lynch was tall and strong-jawed, with a shock of white hair. Like most of the men at 2J’s that day, including T. Michael, he wore cowboy boots that weren’t just for show, favored the outdoors more than the indoors, and knew to say “yes, ma’am” and “no, sir” when the occasion required. Today he just looked grim. T. Michael glanced at Morgan. Her blue eyes—the same brilliant O’Connor blue as many of his relatives’—were stony, and the color had faded from her cheeks. Laurie was mad as hell. “Those SOBs screwed up our wells,” she hissed.
He didn’t have to ask who those SOBs were. Two years back, when the family had leased the wells to Lynch and his partners, he’d hoped it would mark the end of a long struggle with one of the most powerful companies in the world, ExxonMobil. For decades Exxon had operated the Mary Ellen O’Connor lease, but starting in the late eighties, it had informed the family that it intended to plug and abandon their wells. Those were rough years in the oil patch. Reserves were dwindling, old wells were playing out, and crude oil prices had dropped from about $30 a barrel to about $17. The wells needed expensive repairs, Exxon explained, and there was just no way to run the lease efficiently. The company faced the prospect that the lease might soon be operating at a loss, which was something it could not abide. Discussions about plugging the wells had followed, leading to arguments and many, many lawyers. Finally, in 1991, Exxon plugged and abandoned the field.
Not long after, however, the price of oil began to creep back up, and the Legislature promised tax breaks to operators who reopened old wells. Every landowner in the oil patch, and every independent oilman, rushed to get into the play. They knew that major companies like Exxon always left oil in the ground when they abandoned a field. At some point it cost a giant enterprise more to extract the last pools of oil than to ignore them, but an independent operator with a smaller overhead could make a nice profit with those leftovers. So when Glenn Lynch appeared in 1993 and told the O’Connors that he wanted to reenter the Mary Ellen O’Connor field, it looked like a win-win deal for everyone.
Except it hadn’t turned out that way. As droplets of water ran down the sweating glasses of iced tea, Lynch told T. Michael his story. He didn’t like delivering bad news, but here it was: He was having far more trouble than he could have ever imagined getting back into Exxon’s old wells. Sure, you expected some difficulties, but he’d had problems on almost every one of them. The experts he’d hired had never seen anything like it: The wells were full of junk—pipes, wrenches, tubing, even an upside-down drill bit—and the way they had been plugged made it difficult, expensive, and perhaps impossible for anyone else to get back in. Lynch was way over budget and losing a lot of money fast.
Worse, he believed the wells had been intentionally damaged and that the perpetrator had lied to the Texas Railroad Commission about their condition on the official forms that Lynch had relied on as a template for reentry. Lynch had thought about it long and hard, he told the O’Connors, and he’d come to a decision about who had sabotaged these wells: It had to be his predecessor on the lease.
“Are you sure?” T. Michael asked Lynch. He was thinking, There is no way Exxon did this. They’re just not that kind of people. But Lynch was upset, the corners of his mouth tight. It was crystal clear to him that someone wanted to make sure that those wells were never reentered. His company, Emerald Oil and Gas, intended to sue, and, he said slowly, he hoped the O’Connors would join in.
By this time T. Michael’s appetite was long gone. He pulled his cell phone from his pocket, flipped it open, and called one of his cowboys. “I’ll be delayed,” he said. He knew as well as Lynch that all kinds of crazy things could go wrong when you reentered a well. He also knew he couldn’t in good conscience force his operator to keep going and possibly lose his shirt. But suing Exxon? That could be a very dangerous game. Exxon rarely lost lawsuits. It could outlast and outspend just about anyone, even a family with resources like the O’Connors. He told Lynch he’d need to think it over.
It didn’t take him long. T. Michael had been told from the day he was born that he was just a steward—his family’s word—of the vast acreage he now controlled; it was his to hold and preserve for his children, and their children, and all the other O’Connors to come. He knew and loved every inch of this land, from the ruins of the small port near Copano Bay to the treeless coastal prairies to the tangled brush near Mission Creek. And now someone had despoiled it and the future he had been entrusted to preserve.
The lawsuit, which went by the awkward title Laurie, Jack, Michael and Molly Miesch et al. and Emerald Oil & Gas LC v. Exxon Corporation and Exxon Texas Inc. as successor to Humble Oil and Refining Company, was filed in 1996, a year after the meeting at 2J’s. It has raged, in one form or another, ever since, costing tens of millions of dollars, involving at least a dozen attorneys, and engaging, so far, one trial court (three years of discovery, three weeks of testimony), the Corpus Christi Court of Appeals (five years before an opinion), and the Supreme Court of Texas (which sat on the case for two years before ruling earlier this year). There have been accusations that the O’Connor family is locked in the past and simply cannot accept the reality that, after forty years, the field that paid them more than $43 million in royalties is played out. There have been accusations that Exxon, in refusing to admit to obvious wrongdoing, has used its enormous wealth to fight long past all reason.
The case continues to cause what William Joseph, a lawyer for the plaintiffs, has accurately labeled “a shit storm,” pulling into its vortex Texas land commissioner Jerry Patterson, state comptroller Susan Combs, and the Texas Railroad Commission. Indirectly, it affects all of us, since drillers who “waste” oil by leaving it underground, as the O’Connors claim Exxon did, also leave taxable revenue behind, which has an impact on state coffers. Patterson, who has been particularly antagonistic toward Exxon in this case, has further argued that if operators can get away with lying to the Railroad Commission about the condition of plugged wells, as the O’Connors also claim Exxon did, drillers won’t be able to trust the documents and then won’t invest in reentering old wells. Again, this means a drop in tax revenues, hurting, among other things, the Permanent School Fund and the Permanent University Fund.
Not surprisingly, Exxon denies any wrongdoing and vows to fight on to clear its name. “If ExxonMobil thinks that some person or entity for whom it has responsibility has done something wrong, it will make a reasonable settlement,” explained Shannon Ratliff, Exxon’s appellate attorney. “If, after investigation, the determination is made that ExxonMobil has not done anything wrong, it will vigorously defend its position.”
But making a determination is no easy matter in a dispute between two adversaries that are powerful enough to continue fighting forever. Even the Supreme Court’s March ruling did nothing to stop the two sides from skirmishing through the spring, summer, and fall, just as they have every year since 1996. That this costs everyone a fortune is little deterrent, since the lawsuit has never been just about money. It is also about values. Over the past two decades the case has become a metaphor for the evolution of modern Texas. The O’Connors and Exxon appear to be opposite sides of the Texas coin, with the former representing the rugged individualists who built this state and the latter representing the new Texas, a place driven by corporate wealth, political and legal power, and job creation. In a sense, we’re witnessing the sequel to Giant, the film that, for many people, captured the conflict between oilmen and cattlemen. In the Hollywood version, the rancher prevailed and the oilman was disgraced, but in today’s Texas, the corporation usually has its way. Who ultimately wins this fight will tell us who we are, not who we want to be.
The story of the O’Connor family is full of the myths Texans hold dear. The first Thomas O’Connor came to South Texas from County Wexford, Ireland, a place of staggering beauty and abject hopelessness. He was the younger son of a tenant farmer, born in 1819 and “turned loos [sic] on the world on the day I became fifteen years of age.” He had no prospects: He wouldn’t inherit anything and, left to grow up under the thumb of the British, would become one of many “beggars in their homeland,” as The History and Heritage of Goliad County puts it. He couldn’t vote, hold office, carry a gun, teach school, or own animals valued over five guineas. And then came the potato famine.
But Thomas O’Connor was lucky in one profound way: His uncle James Power was an empresario, one of the entrepreneurs empowered by the newly independent Republic of Mexico to settle the country’s unpopulated northern reaches. Even with the threat of cholera, the perils of a sea voyage, and the danger of deadly Indian attacks in Texas, it couldn’t have been hard to entice Thomas to leave Ireland. He had the fearlessness of someone with nothing to lose, along with a shrewd intelligence and a fierce determination. It wasn’t adventure but deprivation that shaped him. He arrived in the New World penniless and alone; what he wanted was land and a family. His grant from the Mexican government was 4,428 acres, and he put almost every penny he made after that—from making saddletrees, from serving in the Texas army—into buying more land, sometimes even selling his cattle to do so. “Buy land and never sell,” he says in a family history. “Land can’t die and it can’t run away.”
The flat, scrubby expanse that is South Texas is indisputably harder to love than the gorgeous emerald hills of Ireland. But for Thomas it had its own magic. It was full of sea birds, wild hogs, and deer and domed with an endless sky. And it was his: Thomas’s acreage in the next few decades grew to hundreds of thousands. He was one of the first Texans to fence his land, along with his neighbors Richard King and Mifflin Kenedy. By 1887, the year of his death, he had amassed nearly half a million acres and an estate worth about $4.5 million (which would amount to at least $100 million today). In an obituary, the San Antonio Express called him both the wealthiest man in Texas and the largest land and cattle owner in the state.
His heirs were, for the most part, not the Texas eccentrics of stereotype. They were deeply devout Irish Catholics—in modern times the family had their own pews in Victoria’s St. Mary’s Church—and they weren’t showy, though the mansion T. Michael grew up in had a spiral staircase worthy of Gone With the Wind. They also adopted from their new homeland the patrón system: The O’Connor scions took care of their employees from cradle to grave, sending children to college and medical school and providing longtime workers with homesteads of their own. Over the generations, they became exactly the kind of powerful landed gentry Thomas O’Connor might have resented in Ireland; they owned not only land and cattle but banks and politicians. In other words, it didn’t pay to pick a fight with the O’Connors, and most people in South Texas knew better.
There are two family versions of how the Mary Ellen O’Connor oil lease came to be, and the only thing they have in common is the involvement of Mary Ellen O’Connor, Thomas O’Connor’s granddaughter. Born in 1891, she stood just four feet nine inches tall. She was dark haired, with dancing dark eyes and a self-confidence that was ahead of her time. Aunt Helen, as her great-nieces and great-nephews called her, never married, though she came close, in a San Francisco church, when she was betrothed to the son of the then governor of California. At the last moment she declared, “I don’t,” and walked out. Aunt Helen was her own woman before this was said about many women. She carried rolls of twenties that had been cleaned and pressed (“She didn’t like dirty money,” explained her great-niece Laurie Miesch) and was given to dropping in on relatives on the far-flung family ranches in her helicopter.
In 1934 the legendary wildcatter Hugh Roy Cullen and his outfit, Quintana Petroleum Company, in partnership with Humble Oil, the iconic Texas company, had struck one of the richest fields ever on her brother Tom’s adjacent ranch. By the fifties, the Tom O’Connor field was filled with pump jacks. It would eventually produce more than 700 million barrels and make Cullen and O’Connor even richer than they had been before, certainly among the richest men in Texas, if not America.
But Aunt Helen had an intuitive distrust of oilmen, whose promises to protect the surface of the land were famously suspect. One branch of the family claims that she didn’t want to drill on her land, but at the same time, she knew that if she didn’t, Cullen and Humble could drain the common reservoir beneath her land from the Tom O’Connor lease. Even after she put up a few of her own wells as protection, she suspected Cullen was still draining her oil. So she presented Cullen with a choice: Enter into a lease on her land and pay far more than the standard one-eighth royalty, or she would haul Cullen to the Refugio County courthouse, where a drainage case would be decided by her judges and her juries in her county. She wanted the unheard-of royalty of 50 percent, half the value of everything that came out of the ground.
T. Michael’s side of the family tells a story about a more benign though ultimately just as effective negotiation: Aunt Helen agreed to a lease if the desperate-to-drill Cullen would agree to (a) pave the roads on her property so her chauffeur could drive her around more easily and (b) pay the astounding 50 percent royalty. Since Aunt Helen knew and trusted the man who had negotiated the lease for Humble, she wanted Humble, not Quintana, to be the lead operator on the field that now carried her name. Humble and Quintana would split the remaining 50 percent between themselves after paying all operating costs. “She was very proud of that lease,” Morgan O’Connor told me.
The lease contained a few other provisions that probably caused some grief in Humble’s offices at the time. Counter to common practice, the royalty owner, not the well operator, would own all the information pertaining to the wells—well logs, pipeline maps, seismic reports. Humble and Quintana were also required to drill a specific number of wells to specific depths on the five-thousand-acre lease within thirty days of the signing. Just about the only point in Humble’s favor was that the lease allowed it to abandon the field if and when the wells became unprofitable. Humble started drilling and completed 120 wells in all, until Aunt Helen’s once barren coastal plain was dotted with pump jacks.
At the time Humble was one of the state’s success stories. Chartered by a group of friends in 1911 during the era of the early Texas booms, it had become the state’s biggest and most powerful oil company. It earned great loyalty from its employees, who were paid well, educated well, and treated well and who returned the favor by becoming the best at what they did, which was finding more and more oil. Humble was also well liked by the public. The founders—Ross Sterling, Robert Blaffer, William Farish, and Walter Fondren—gave generously to the arts and to charities, particularly in the Houston area. During World War II their company became the largest domestic producer of crude oil, and in the fifties it sponsored broadcasts of Southwest Conference football games.
Early on, in 1919, the founders had sold 50 percent of the company’s stock to Standard Oil of New Jersey. But they’d never had much contact with their northeastern counterparts (who preferred to operate behind the Humble shield in Texas to avoid anti-trust problems). Then, starting in 1960, Standard began to consolidate its subsidiaries, culminating in the creation of Exxon in 1972. Soon Humble’s folksy ways began to disappear, and the outlines of a modern global giant began to emerge. The emphasis shifted. Along with finding oil, the company began to focus on refining and marketing and building a sustainable corporation. Humble’s simple red logo was replaced by the roaring Exxon tiger.
The Mary Ellen O’Connor lease, meanwhile, with its unusual 50 percent royalty clause, had remained unchanged and continued to be a tremendous source of revenue for the ranch. By then Aunt Helen had died and left her fortune in trust to her great-nieces and great-nephews. The trust matured in 1986 and was divided among thirteen cousins, who also jointly own the mineral rights. A year later, with oil prices having collapsed, Exxon decided enough was enough. A cohort of grim-faced company executives called a meeting with T. Michael and the other royalty owners and told them that the wells were playing out. Reworking them would be very expensive, if not prohibitive. They asked for a reduction in the royalty, this time with a threat attached: The lease gave them the right to abandon the fields in ninety days if they could no longer produce oil “in paying quantities,” and Exxon believed they had just about reached that point. If the O’Connors would not agree to reduce the royalty, Exxon intended to plug the wells and abandon the lease. For a large family that had grown accustomed to a certain level of comfort—and a nice safety net for the beloved ranching operations—the end of the oil wells was a disturbing prospect.
By this time Exxon had become an international monolith with a corporate culture known for both arrogance and aggrievement. The company could not help but feel that the public rarely acknowledged all the good it did or the expenditures it required. Sure, Exxon made huge profits, but it also spent hugely in its constant search for oil, oil that kept the American way of life running. (Between 1983 and 2008, Exxon spent $381 billion looking for oil, an amount that exceeded the company’s earnings during that same period.) The general public just didn’t get it.
If T. Michael didn’t know precisely what Exxon was thinking, he did know that the company hadn’t been holding up its end of their agreement. Recently the O’Connors had been dealing with numerous problems stemming from Exxon’s drilling activities, especially saltwater leaks from a deteriorating pipeline, which are detrimental to cattle. The family’s complaints went unheeded. Laurie Miesch said she felt the hostility every day. She’d complain about the leaks and the trash, and the Exxon crews would smile and agree, but “you knew right away they were not going to listen to a word you said.” At one point, T. Michael commissioned a major environmental impact study of the surface damage on the lease. He sent a copy to Exxon’s CEO at the time, Lawrence Rawl, and received a perfunctory reply. Following this, the company was more cooperative about environmental concerns, but T. Michael remembered when everyone in the ranching and oil businesses was familiar with everyone else and common courtesy was the rule. Now he often couldn’t get his phone calls requesting basic repairs returned.
The decline of the wells and the ninety-day clause gave Exxon the upper hand, and for the first time the family agreed to consider a reduction in the royalty. But they wanted something in return. Would the company maintain the lease better? Spend more money to improve the wells? What if the family reduced the royalty now but raised it when prices came back up or when reworked wells began producing more efficiently? Exxon declined to negotiate these points. What if the family looked for another operator to take over the wells? Could Exxon give them some time to find one? Possibly.
Two years passed, with more discussions but no results. “I wanted to work this out agreeably,” T. Michael said, “but they were not agreeable.” Finally Exxon began plugging some of the wells on the Mary Ellen O’Connor lease. A few companies inquired about picking up the properties, but nothing came of it. (The O’Connors would later blame Exxon, alleging that the company had provided information about the production that was, at best, incomplete.) Then, in the summer of 1990, a company called Refugio came calling. Exxon, no doubt weary of the O’Connors, said it needed the family’s approval to turn the lease over to Refugio within six weeks, and all thirteen royalty owners would have to sign off. Laurie Miesch asked for more time to investigate the reputation of the company. She didn’t get it. Exxon declared that time was up and continued plugging the wells.
The O’Connors fought back: In a September 1990 letter, they informed Exxon that if the company stopped pumping oil and abandoned the field, it would be in violation of state law, which prohibits the waste of natural resources; they threatened to sue for $15 million. Exxon backed off, but there was no hope of reconciliation. If Exxon felt bedeviled by some old Texas blue bloods, the family felt bullied by a giant corporation that didn’t care about the O’Connors’ passion for their land and just wanted to get off the property as quickly as possible.
In truth, Exxon had bigger fish to fry. In addition to contending with the drop in oil prices, it was looking at a merger deal with Mobil, and it was in crisis-management mode over the Exxon Valdez oil spill. The company was in the early stages of phasing out production throughout South Texas. Maintaining a lease with diminishing reserves and demanding royalty owners was not high on the list of corporate priorities.
Feeling as if they had no other recourse, the family decided to take over the wells themselves. T. Michael sent a team of geophysicists from a company called Walker & McBroom to Exxon to look at the history of those wells—logs, seismic data, anything that would help them operate the lease. Under the unusual terms of Aunt Helen’s lease, the O’Connors owned everything there was to know about those wells. But Exxon considered that information proprietary and not subject to the terms of the lease. An increasingly heated correspondence ensued, in which Exxon first insisted that it could not find the records, and then that the records had been found but were stored in a salt dome, of all places, and could not be retrieved.
Eventually T. Michael and the family were offered access to a data room filled to the ceiling with documents, so many that it could take months to sort through them all. Before they could get started, though, Exxon asked the family to sign a confidentiality agreement. Again, T. Michael reminded Exxon that the lease entitled the family to all information about the wells. Again, Exxon relented. By this time T. Michael was certain that every time the family got close to a deal, Exxon was going to throw a roadblock in their way.
After looking at the information, the Walker & McBroom representatives were concerned that they hadn’t seen everything. Still, the family was willing to take over operations in order to save what they could. Then Exxon asked for just one more thing: a release from liability against all claims, known or unknown, past and future. The O’Connors refused. They had struggled with Exxon in the past over the environmental condition of the lease and felt that the company had been careless in its treatment of the surface of the land. Always a stickler on questions of stewardship, T. Michael recalled telling the oil company, “No, we’re not releasing you because we don’t know what you did.” In December 1990 Exxon told the family it intended to plug the remaining wells. By the summer of 1991 Exxon had pulled out. The Mary Ellen O’Connor field was abandoned.
Two years later Glenn Lynch appeared. Times had changed: The price of oil had gone up again, to the point where a nice profit could be made by an efficient operator reworking old wells. In 1993 the Legislature had passed a law that suspended payment of state severance taxes for the next ten years if an operator reopened a well that had been abandoned for three or more years. Lynch had money to invest. A friend had suggested that he join forces with a small outfit called Pace West Production Company, which had already reentered two of the O’Connor wells. He did, and they formed Emerald. To the O’Connors, Lynch and his partners were a godsend. “The first really truly serious group of people,” T. Michael would later say. He was honest with Lynch about Exxon’s opinion that the field was declining, but he also reduced the royalty to 30 percent and provided other incentives. They agreed to start small, with six wells, because Exxon had been so bleak about the prospects on the lease. The two men were cut from similar cloth. “Maybe as ridiculous as it sounds, I’m also a very trusting person,” Lynch would later testify. “I mean, I believe that you can have all this paper you want, but if your word’s no good, it’s no good.”
Lynch and his partners had to move fast. In order to take advantage of the severance tax abatement, they had to start producing minerals within two years. They also had to reenter one well every ninety days, according to the deal with the O’Connors. Lynch looked at all the information Exxon had provided the family; he visited the lease and saw the two wells Pace West had already reentered, plus wells producing on adjacent leases; and he studied documents Exxon had filed with the Railroad Commission concerning the condition of the wells it had abandoned. One form, called a W3-A, requires an operator to state how he intends to plug a well, and the other, a W3, requires an operator to state how the wells were actually plugged. These forms are used to ascertain whether operators protected the water table when they abandoned the wells, but over time, more and more operators, such as Lynch, had come to rely on them to assess the condition of the wellbores in plugged and abandoned wells—after all, operators had to swear to the commission that the information they filed was true. Lynch read over the forms and saw that Exxon had sworn that no junk—nothing that could impede reentry—had been left in the holes when its crew had plugged the wells. The company had also sworn that the perforated walls in the steel casing that lined the well had been plugged with cement to stop the oil from flowing back up the hole. To Lynch, everything looked fine.
To understand how wells are plugged it helps to know how they’re drilled. Think of the strata of sedimentary rock in an oil field like a stack of pancakes; minerals occur in deposits between them like pools of melted butter. The initial well is often drilled to the lowest recoverable deposit, and that is where the well casing is first perforated for the oil or gas to flow to the surface. When the lowest pool becomes unprofitable, the lowest perforation is plugged. Then the production company orders its drillers to withdraw up the wellbore to the next-highest deposit. According to Lynch, abandoned wells in the O’Connor field were typically found to have four plugs: one at the bottom of the well (about 5,000 feet deep), a second at about 1,300 feet, a third at about 1,100 feet (the usual level for water wells in this region), and the last plug, called the surface plug, at about 100 feet.
Reentering a plugged well can be difficult, depending on its age, but the cement plugs, which are about 100 feet thick, can usually be drilled straight through. After penetrating the first plug, at the top of the well, the operator continues down until he reaches the subsequent plugs, beyond which he should have a clean shot at the strata that contain the oil.
The first two wells on the Mary Ellen O’Connor lease had been easily reopened. Tests showed one gas well was capable of producing 800 MCF a day, worth about $24,000 a month (gas is usually measured in units of a thousand cubic feet, “MCF” for short). Not an enormous amount of money, but Emerald had leases on sixty wells. It was a good start. But then Lynch began to run into trouble. On some wells, he broke through the first plug easily, but when he tried to penetrate deeper, he found all kinds of obstructions in the hole. Some holes were so full of junk—wrenches, tubing, trash—that the drill bit couldn’t pass through at all. In one case, the drilling crew thought they’d found a discarded drill bit in the hole, turned upside down. Another well had an old perforating gun stuck inside, the equivalent of a live grenade.
Lynch contacted Exxon and asked for information on the wells. The company refused. He brought in reentry experts, but their luck was no better. The head of a company that had reentered more than seven thousand wells told Lynch he’d never seen anything that bad. Projects that should have taken 8 to 10 days took 45, which meant that Emerald could run out of time to take advantage of the severance tax moratorium. Lynch had budgeted about $60,000 per well, but now his costs were soaring—close to $200,000 each.
Late in 1994, Lynch was nearly at his wits’ end when he got a lucky break. Quintana, which had been a partner with Exxon in the Mary Ellen O’Connor lease all those years, had an operating interest on an adjacent field and wanted Lynch to share expenses for some seismic studies of the area. (Since Quintana was not the operator on the lease, it was never named in the lawsuits.) Lynch agreed but asked for something in return. Did Quintana have any information on the wells he was having so much trouble with? In fact, it did. Within a few days four folders containing copies of Exxon’s well files arrived, plus several maps of the lease. As Lynch began poring over the documents, he discovered something that nearly made him double over: The Railroad Commission files and the Exxon files from Quintana were nothing alike. The former made no mention of any wellbore damage, but according to the latter, the wellbores were, for the most part, disasters: full of junk, impassable. In the old days, when domestic drilling was at its peak, there were many reasons why junk might end up in a well—tools fell down holes and couldn’t be retrieved, operators were not yet interested in reentry and so were not as concerned about how they left a well. Even so, the W3 forms were supposed to be accurate reports of a well’s condition. Not only was Lynch discovering that the W3’s were inaccurate, but for the first time, he was beginning to suspect that some wells on the Mary Ellen O’Connor lease had been sabotaged.
Around this time, Lynch learned that one of his employees, a young oil field worker named Lonnie Vickery, had worked for Exxon when the wells were plugged. Vickery wasn’t eager to talk, but when Lynch pressed for details, Vickery said he believed he might have his notes from those days. He had kept tally books on wells he worked on in case he ever had to go back in. Vickery went home, searched his attic, and, sure enough, came back with a handful of battered notebooks. Once again, well files and the W3 forms Exxon had filed with the Railroad Commission told entirely different stories.
For Lynch, the lease’s history now began to take shape. Exxon’s nickname for the Mary Ellen O’Connor lease, Vickery told him, was Paradise, but it was meant to be ironic. The worksite was in poor condition, and the local supervisors didn’t seem to care. There seemed to be a long-standing conflict between Exxon management and the O’Connors. Vickery also told Lynch that he had been ordered by an Exxon foreman to kill a flowing oil well by pumping noxious waste from the bottom of storage tanks down the hole. That well had flowed all day with powerful pressure, and Vickery kept calling his supervisor to make sure he really wanted to kill a well that, to his mind, still had plenty of oil in it. As Vickery later testified, the foreman told him, “I tell you what, go ahead and start that blank plugging procedure, because the blank O’Connors is getting half of everything that well is sitting there making.”
Vickery was also ordered to cut the casing and leave it in the hole. This was highly unusual, since it makes a well much more difficult to reenter. If you imagine a macaroni necklace, you will begin to see why. When left in the well, a cut casing begins to shift with the ground. Like the pieces of macaroni, the pieces of casing never line up perfectly. In other words, there is no longer a straight shot to the oil down below. When Vickery asked why they were doing this—knowing it was better to plug perforations with cement or to pull the casing and resell it—the foreman said it was “a deterrent.” “What do you mean?” Vickery asked. As Vickery would later testify: “He told me that Exxon felt like they drilled these wells, they bought the casing that ran in these wells, these were their wells, and they would plug them any way they wanted to, and they didn’t want anybody going back into them.” (In court, the supervisor would deny ever talking with Vickery about why the wells were being plugged.)
A month or so later, Lynch called the O’Connors for the meeting at 2J’s.
On July 15, 1996, Emerald Oil and Gas filed suit against Exxon under the state’s Natural Resources Code, which provides, “[A] party who owns an interest in property or production that may be damaged by another party violating the provisions of this chapter . . . or another law of this state prohibiting waste or a valid rule or order of the [Railroad] commission may sue for and recover damages and have any other relief to which he may be entitled . . .” By September the royalty owners had joined in. T. Michael and his sisters were the last to go along. He wanted to see the evidence for himself; at one point Lonnie Vickery had shone a light down a wellbore to show him what looked like an
upside-down drill bit. “We all agreed that the facts were there and we had to make it right,” T. Michael said. “Here was an unjust situation. We had to make it just.”
The trial started three years later, in October 1999, at the two-story, sand-colored courthouse in Refugio. It lasted three weeks. There was a great deal of coma-inducing testimony about the economic analysis of oil wells and the benefits and drawbacks of perforating versus cutting the casing when plugging. If the plaintiffs’ attorneys were concerned that the locals might have been prejudiced against the O’Connors for whatever reason—they did still own much of the town, for instance—they needn’t have worried. As the first witness, T. Michael made it clear that he was one of them; he sounded like them (like many residents of South Texas, T. Michael speaks English with a Tex-Mex lilt) and, except for the mustache, looked like them. The Exxon witnesses, in contrast, failed to keep their condescension in check, and some of the gambits to win over the locals fell flat. One of Exxon’s experts managed to mispronounce “Refugio.”
Except for three members of the O’Connor family, Glenn Lynch, and their experts, just about every witness for the plaintiffs was a current or former Exxon employee or contractor. Their testimony was devastating. Along with Vickery’s story of sabotage, the employee who did the economic analysis that led Exxon to plug the field revealed that the company had failed to exploit two specific zones, as specified by the lease. (This supported a breach of contract claim that was subsequently added to the lawsuit.) The same witness also revealed—and an Exxon attorney confirmed—that even at the time of trial, Exxon had not provided the O’Connors with all the documents they had requested, documents that the plaintiffs owned, according to the lease. A former Exxon contractor confessed to plugging a flowing gas well because, “When you worked for Exxon, you did as you were told.”
It seemed to the plaintiffs as if Exxon had fudged the numbers to make the field look more played out than it really was so that it could start plugging and get the hell out of there. An Exxon clerk admitted that though she had sworn to the truth of the W3 forms, she actually had no idea whether they were true or not. Though the evidence was skimpy, the plaintiffs’ lawyers suggested that Exxon had had enough of the Mary Ellen O’Connor royalty owners and simply planned to drain whatever oil and gas remained in the field from the wells they shared with Quintana on the Tom O’Connor lease next door.
Exxon countered that it had sabotaged no wells, nor had it lied to the Railroad Commission. It claimed to have plugged the wells properly, with its main concern being the protection of the groundwater, not the preservation of the wells. Exxon further argued that Lynch and the O’Connors had waited too long to file suit. The company’s lawyers pointed out that the statute of limitations, which would have begun to run when the O’Connors claimed to have acquired “actual knowledge” that their wells had been damaged, had expired by the time the suit was filed, in July 1996.
Thus, the case began to hinge on the question of when the O’Connors learned about the possible malfeasance. Exxon’s attorneys presented the letter of September 1990, in which the O’Connors had threatened to sue Exxon for waste. The plaintiffs argued that that letter had not involved Emerald and so was unrelated. Exxon also introduced a drilling status report Lynch had sent in June 1994, saying that in one of the wells he had found “junk in hole.” The plaintiffs countered that at that time, neither Emerald nor the O’Connors understood that the wells had been damaged.
The jury deliberated for just a day and a half before returning its verdict: The plaintiffs were within the statute of limitations; Exxon had acted with malice; its actions were “carried out . . . with flagrant disregard for the rights of Plaintiff-Intervenors and with actual awareness on the part of Exxon that [its actions would], in reasonable probability, result in . . . property damage.” Exxon was also found to have violated Texas law by committing waste and fraud: It had not fully developed the wells according to the terms of the lease, and then it had covered up that fact. The jury held Exxon liable for $18.6 million in actual, exemplary, and compensatory damages.
T. Michael knew this was just the beginning. In a move that surprised no one, Exxon appealed. The case moved to the Thirteenth Court of Appeals, in Corpus Christi, which in 2005 affirmed the trial court’s verdict and issued a blistering opinion, writing that Exxon’s “duty to avoid waste was grounded in prohibitions against waste so fundamental that they were enshrined in the Texas Constitution.” It also reinstated Emerald’s case against Exxon, which had been dismissed by the trial court on a technicality. The ruling was a total victory for Lynch and the royalty owners. But Exxon appealed again, and the case went to the Texas Supreme Court.
In the past two decades, the state’s highest court has developed a reputation for being “outcome driven,” meaning that the justices bring a certain point of view to their deliberations, know in most cases how they are going to rule, and write their opinions to reach the predetermined result. In the days when conservative Democrats dominated Texas politics, the court routinely favored individuals—landowners and royalty owners—against oil companies. Then, in the eighties, plaintiff’s lawyers and their allies briefly took over the court and made such a mess of it that business interests mounted a fierce and highly successful counterattack. Today the court overwhelmingly favors corporate defendants, and the elected justices are not ashamed to bestow favorable rulings on their largest campaign contributors. The effect on oil and gas law has been profound. Royalty owners have not won a case against an oil company in at least ten years.
Oral arguments in the Exxon case took place in early 2007, with former justice Deborah Hankinson and appellate attorney Eileen O’Neill representing the O’Connors and Emerald and Shannon Ratliff taking the lead for Exxon. Ratliff’s bona fides were impeccable: A Democrat and close friend of former governor Mark White and the brother of former Republican lieutenant governor Bill Ratliff, he was not only one of the state’s most prominent lawyers but also one of the state’s most prominent power brokers. His previous victories for Exxon before the state Supreme Court had earned him the nickname “the Dark Knight of Oil and Gas Law.”
This particular case seemed to be a very difficult one for the justices to grasp, especially when it came to Emerald’s and the O’Connors’ claims. In the past, the Texas Supreme Court had been extremely familiar with oil and gas law, but not anymore. Justice Nathan Hecht asked whether Exxon’s damage to the wells—cutting the casing, pouring contaminants in a flowing well, depositing junk in the hole—meant that the oil was lost forever or just harder to get at. (Answer: lost forever.) Hecht also asked why the operator couldn’t just “move over ten feet and drill another well.” (Answer: because the spacing of wells is regulated by the Railroad Commission—and besides, drilling a new one costs a fortune.)
Justice Dale Wainwright needed a definition of “junk,” which is a term of art in oil and gas law. “If there weren’t paper cups in the hole, what was in the hole?” he asked. Chief Justice Wallace B. Jefferson asked whether there were regulations that govern how a well is plugged. (Answer: uh, yes.) Various justices seemed dumbfounded to learn that in Texas law there are two kinds of waste: physical waste (something happens to the reservoir that makes it impossible to produce the minerals) and economic waste (the minerals are not efficiently developed or the reservoir is left in a condition that makes it unreasonably expensive to produce the minerals). Though in this case both kinds of waste were at issue (and often difficult to distinguish between), the justices still seemed out of their depth.
Justice David Medina seemed unclear on the long, brutal history of oil field tactics, asking O’Neill, “What interest would Exxon or any other party have to deliberately sabotage the well hole?” Even though the Supreme Court is not supposed to reweigh the facts of a case—only what the law is and whether it was correctly applied—the justices repeatedly got bogged down in or conflated particular dates and events.
Ratliff’s leading argument was that the plaintiffs had waited too long to file suit. Two different statutes of limitation came into play. Exxon had introduced at trial the September 1990 letter written by the O’Connors threatening to sue the corporation if it carried through with its plan to plug and abandon six producing wells. From Ratliff’s perspective, this was effectively an accusation of wasting reserves, which carries a statute of limitations of four years. Another document introduced at trial was the June 1994 drilling report sent from Lynch to the O’Connors. It noted that Lynch had found junk in one well and some cut casings in a few wells. Ratliff contended that this was the basis for a claim of fraud, which carries a two-year statute of limitations.
Of course, Exxon had already tried to make this claim twice before, during the jury trial and before the Corpus Christi Court of Appeals. In both cases the courts had agreed that the clock had started to tick at the 2J’s meeting in January 1995, when Lynch revealed the damage to the O’Connors. Since the lawsuit was ultimately filed in July 1996, the plaintiffs were well within the statutory period. But the Supreme Court appeared skeptical.
At one point, Hankinson came close to pleading with the justices for, well, justice. “Exxon has come in here and said, ‘We can do this with impunity, we can sabotage an entire field with a constitutionally protected limited resource having been . . . destroyed as a result of it. We can file false reports that people rely upon and there is absolutely no remedy under state law.’”
The court had other concerns, however, and Ratliff knew how to appeal to them. He argued that a finding for the O’Connors would create “an unlimited class of plaintiffs” who could sue corporations for things like “misstatements” on W3 forms. It was a shrewd argument that played to the justices’ loathing for new causes of action in general and plaintiffs in particular. There is nothing this court hates more than big lawsuits against big companies, legitimate or not.
So even though the Supreme Court concluded in its opinion that “Exxon does not dispute that it plugged the wells using nonstandard plugging procedures,” which might “delay completion of the well and increase reentry expenses,” and even though the court further recognized that “Exxon knew the royalty owners had a continuing interest in further developing the O’Connor lease,” in March of this year, it found unanimously for Exxon—citing the statutes of limitations issue.
According to the court, the O’Connors’ September 1990 letter and Lynch’s June 1994 drilling report “unequivocally and conclusively establish that the royalty owners and Emerald knew or suspected there was damage to their interests in the O’Connor Lease in 1990 and 1994.” As small consolation, it agreed with the court of appeals that Emerald deserved a new trial on its fraud claims. “As soon as we got in there, it was clear they were going to rule for Exxon,” Morgan O’Connor said. “It was just a question of how they were going to do it.”
Emerald and the O’Connors were left with few options. Their attorneys filed motions for a rehearing, which, in a departure from the norm, used strong language as a last-ditch effort to shame the court into reconsidering its conclusion. (The motion said the opinion was “riddled with legal and factual errors and inconsistencies” and did not “embody the careful scholarship typical of the Court’s writings.”) In particular, the motions stressed that in order to follow the Supreme Court’s logic, one would have to believe that the royalty owners’ September 1990 letter was proof that they had “actual knowledge” that Exxon had damaged their wells. But Exxon didn’t even begin plugging the wells in question until weeks later. The court’s conclusion that the 1994 letter proves knowledge of damage is equally weak: This document is actually a short drilling report that does not indicate any concern about the condition of the wells. In its opinion, the court quoted this report as saying, “Exxon dumped junk in the wells.” In fact, the report simply states that the plaintiffs had “encountered junk in hole” on one particular well. In a field of 120 wells, such a discovery would be neither unusual nor a telltale sign of sabotage.
The court was also accused of ignoring its own precedent, particularly when it failed to acknowledge that under Texas law there is both physical and economic waste, “momentously yet silently upending a fundamental pillar of Texas oil-and-gas law,” as the motion for rehearing put it. In view of the statute of limitations issue, the court also ignored the terms of the lease. “Imagine the Lessors’ disbelief when the Court deprived them of the ‘stringent’ terms they had the remarkable judgment to negotiate,” noted the motion. But even if the court agreed to rehear the case, something it rarely did, it was unlikely to change its mind.
The case might have ended there if Jerry Patterson, the state land commissioner, hadn’t joined the fray. He had learned about the case when attorneys Hankinson and O’Neill had paid him a call and explained the broader implications of a ruling for Exxon. Such an outcome would have a profound impact on operators who wanted to reenter older wells, they told him. If oil companies could get away with filing false forms with the Railroad Commission, then potential operators wouldn’t be able to rely on public documents to determine the condition of old wells. In such a situation, why would anyone risk the investment? And if they wouldn’t risk the investment, the Texas treasury would lose revenue for the endowment funds, including those for public schools and the state’s two flagship universities.
Patterson decided that if the Supreme Court wouldn’t stand up to Exxon, the state should seek to fine the company through the Railroad Commission. There was a lot of cockeyed optimism in that idea: The Railroad Commission is a notoriously understaffed, overwhelmed, and inefficient state agency whose elected commissioners are traditionally sympathetic to the industry they are supposed to regulate. They are skittish about getting involved in controversies, particularly ones involving energy companies, their main source of campaign funds.
Nevertheless, in July Patterson asked the commission to hold “show cause” hearings so that Exxon could demonstrate why it “should not be penalized for irrefutable, intentional and flagrant violations of the Commission’s rules” in connection with its plugging of the O’Connors’ wells. “The Texas Supreme Court has, so far, given Exxon a ‘get out of jail free’ card,” he wrote. “The Railroad Commission should not be so generous.” By his calculations, according to commission rules, Exxon could be fined $10,000 a day for failing to properly plug a well and $1,000 a day for filing forms improperly. Adding up the number of wells and the number of forms, he determined that Exxon could theoretically owe the State of Texas about $1 billion, or 2.2 percent of its net income last year. “This is a big hickey,” Patterson told me, sounding very happy with himself.
A few weeks later Timothy George, who had been part of the legal team that had represented Exxon in the original trial in Refugio, responded to Patterson’s letter with a seven-page, single-spaced missive of his own that was basically a rehash of the arguments brought up at trial and in the appeal. He claimed that Patterson’s letter was “rife with false statements, exaggerations, misrepresentations about court actions in the referenced lawsuits and baseless allegations contradicted by the evidence.” He also suggested, as Exxon’s lawyers had at trial, that the wells had been plugged with cut casing left in the hole to better preserve the freshwater sands. Given the company’s previous environmental record in general, and on the O’Connors’ land specifically, this explanation was at best debatable.
Patterson shot back a response, stating, “The selected anthology of Exxon’s trial evidence provided with Mr. George’s letter is a far cry from the jury’s findings.” He further warned that if Exxon wasn’t held accountable, “the oil and gas industry in Texas will be on notice that the Railroad Commission’s rules and forms are . . . meaningless.” The commission did convene to consider holding a hearing, but nothing has yet come of it.
On a YouTube video of the session, Ratliff calls Patterson “a front man or shill” for the parties in the lawsuit and urges the commission to ignore the “grandstand play by an interloper who has no interest.” Ratliff disputes every one of Patterson’s allegations and argues that he is mischaracterizing the findings of the courts. In particular, he points out that the trial court did not specify in its finding that Exxon had filed fraudulent W3 forms with the commission. This is true, but the appeals court in its opinion stated that “Exxon made material misrepresentations on its W-3 reports regarding many of the wells at issue in this proceeding.”
And that is where we are today, more than eighteen years after Exxon abandoned Aunt Helen’s lease: The plaintiffs are waiting to hear if the Supreme Court will rehear the case, and Patterson is pushing to have the Railroad Commission hold hearings. Meanwhile, there’s still the fraud claim, which Lynch would have to take back to the initial trial court and start all over. If he has the stomach.
We may never know exactly what happened out on the Mary Ellen O’Connor field. It is entirely possible that a few disgruntled workers sabotaged the wells without any knowledge or assistance from their superiors at Exxon, and it’s also possible that the way the W3 forms were filled out had more to do with bureaucratic arrogance than nefarious intent. It’s also possible that, as the plaintiffs’ attorneys allege, Exxon knew that it could just move its operations to an adjacent field and drill into whatever oil remained from a common reservoir.
But if we cannot know the details, what we can know is that the public institutions that are supposed to protect Texans from the abuses of large corporations aren’t doing a very good job of it. Despite the supposed oversight of the state’s highest court and the responsible regulatory agency, the Railroad Commission, giant companies are now allowed to operate in parts of Texas the same way they have operated in some Third World countries: exploiting the resources and moving on, without looking back.
But T. Michael O’Connor is sanguine. With all his money, he could travel anywhere in the world but prefers to stay close to home, on the ranch his family has occupied for 175 years, riding his horses with the sun on his face and the roseate spoonbills and Mexican eagles flying overhead. At dusk the deer and the coyotes trot through the brush, as they have done on this land for millennia. T. Michael was elected sheriff of Victoria County in 2004, and these days he spends much of his time organizing South Texas’ sheriffs to fight the drug cartels, when he isn’t busy fighting the drought. Compared with those challenges, Exxon looks almost puny, which is one reason his family is going to keep pursuing their motion for a rehearing and joining Emerald’s fraud claim. Time and history, T. Michael hopes, will be on his side. “At least we can tell our children we weren’t quitters,” he said. “I’ll continue to champion what’s right. Exxon comes and goes, but the O’Connors are here to stay.”