Court Rules Location of Oil & Gas Drilling Sites Can Be A Protected Trade Secret

The Texas Fourth District Court of Appeals sitting in San Antonio recently affirmed a jury’s finding that the locations of oil and gas well drilling sites were protected trade secrets. In Lamont v. Vaquillas Energy Lopeno, Ltd., Case No. 04-12-00219 (Tex. Ct. App. [4th Dist.] San Antonio, Sept. 18. 2013), the Court of Appeals the final judgment of the Texas District Court overseeing the three week trial.

In 1996, Jerry Hamblin and Thomas Lamont formed Ricochet Energy, Inc., an oil and gas development company. Ricochet was retained by Vaquillas Energy Lopeno Ltd., LLP and JOB Energy Partners II, Ltd. to locate oil and gas prospects. The retention agreement (also called a “Prospect Generation Agreement” or PGA) required Vaquillas to pay Prospect’s overhead, and then granted it first right of refusal to develop any located. If Vaquillas and JOB developed the site, they would split the operating interest/working interest among themselves, and the remaining would be retained by Ricochet. The agreements also included confidentiality clauses and non-disclosure terms on Vaquillas and JOB with regards to sites that they had not exercised their rights on.

Ricochet’s seismologist discovered the Lopeno gas field sometime in 2004–with estimated reserves worth around $50 million. Richochet’s partners, Lamont and Hamblin, decided to separate, and executed a series of separation agreement whereby Lamont would depart with certain assets and Ricochet would remain with Hamblin. Through a series of dealings–including Lamont’s revelation of several sites not yet optioned by Vaquillas but within its purview under the agreements with Ricochet–both Ricochet and Lamont’s new company, Monticristo Energy II, the gas fields in Lopeno were drilled and drained. Vaquillas and JOB sued Ricochet, Lamont, Monticristo II, and others for trade secret violation and tortuous interference with contractual relations.

The case went to trial and the jury found in favor of Vaquillas, and awarded $4.9 million in lost profits.

The Court of Appeals affirmed the verdict and judgment. It found that the maps showing the sites for Lopeno were a trade secret because they had value given the investment in developing and securing them, and they were kept secret under confidentiality agreements and rights of first refusal. The Court also held that where a trade secret is appropriated by improper means–i.e., in violation of an agreement or a duty imposed on the defendant–then there has been a violation of that trade secret right. There is a “commercial standard of morality to honor one’s agreements and duties, and to act reasonably which were violated, the court held. The Court rejected the defendants’ argument that because the Lopeno could have been discovered “again,” i.e., without resort to improper means, then this is a case of no true harm.