Background
Because hydraulic fracturing (“fracking”) requires significant amounts of water to “frack” shale and extract hydrocarbons and other minerals, producers frequently contract with water suppliers. In Equinor Energy LP v. Lindale Pipeline, LLC, 2026 Tex. LEXIS 213, at *2 (Tex. 2026), the Texas Supreme Court analyzed a dispute between the parties related to the breadth of an exclusivity clause and reversed a $26 million judgment in favor of the water supplier. The Court reaffirmed that contracts will be construed as written.
In 2009, Lindale, a supplier of water for fracking operations, expanded its operations into North Dakota. In doing so, Lindale entered into a contract with Equinor’s predecessor whereby the predecessor agreed to finance the construction of a water pipeline and take ownership of the pipeline once it was completed. In return, Lindale would supply water at below-market rates.
Section 4 of the contract contained an exclusivity clause: “Lindale shall be the sole and exclusive water provider and pumper on the Pipeline; however, in the unlikely event that Lindale is unable to provide water through the Pipeline for [Equinor], [Equinor] may then use other water sources or pumpers on the Pipeline.” “Pipeline” was defined as the “freshwater pipeline, lateral lines, related facilities, well-site appurtenances, rights-of-way, easements, and permits owned by [Equinor] as of the date of this Agreement, including without limitations, those described and shown on [the map] attached hereto.”
Equinor acquired its predecessor a few years into the contract and assumed the agreement. Several years later, Equinor began to purchase water from other providers that pumped water to each well through surface hoses rather than through Lindale’s Pipeline. Lindale filed suit against Equinor in the 157th District Court of Harris County, arguing that Section 4’s exclusivity clause gave Lindale the exclusive right to supply water for Equinor’s fracking operations. The trial court found the exclusivity clause ambiguous and submitted the case to a Houston jury, which returned a $26 million verdict in Lindale’s favor. The First Court of Appeals affirmed.
The Texas Supreme Court’s decision
On appeal, Lindale argued that the exclusivity clause gave it the right to be the exclusive provider of water to Equinor’s wells. In Lindale’s view, the exclusivity clause’s provision that “Lindale shall be the sole and exclusive water provider and pumper on the Pipeline” was broad enough to bar any other company from providing water to Equinor in connection with any well attached to the Pipeline, regardless of how this water was provided.
In an opinion written by Justice James P. Sullivan, the Texas Supreme Court rejected Lindale’s arguments and the lower courts’ decisions, reemphasizing key contract principles. The Court began by analyzing whether the exclusivity clause was ambiguous and, in turn, whether the issue should have been submitted to a jury. If a contract is ambiguous, its meaning is a question of fact for the jury, and extraneous evidence may be admitted to determine the language’s meaning. If a contract is unambiguous, however, its meaning is a question of law reviewed de novo. While this inquiry looks at the parties’ intent, it is an objective, not subjective, manifestation of intent. Ultimately, the Court found the exclusivity clause unambiguous and therefore concluded that it was erroneously submitted to the jury.
Then tasked with interpreting the unambiguous clause, the Court reviewed the plain language of the contract and held that the exclusivity clause only provided Lindale an exclusive right to pump water through the Pipeline. In determining this, the Court looked to the key phrase of the contract – “on the Pipeline.” First, the Court turned to dictionary definitions, with Justice Sullivan noting that “the big boys agree that ‘on’ has many meanings,” but ultimately held the dictionary definitions supported both parties’ interpretations. The Court then turned to the structure of the sentence itself. In the exclusivity clause, the phrase “on the Pipeline” modifies the nouns “provider” and “pumper.” In order to adopt Lindale’s interpretation that the wells were “on the Pipeline” because they are connected to it, the Court reasoned that it would have to read additional words into the contract: “exclusive water provider and pumper [for oil wells] on the Pipeline,” but declined “this latest invitation to blue-pencil words into the contract.” As Justice Sullivan pointedly observed, “If Lindale wanted the exclusive right to provide water to the wells, then it was perfectly free to refuse the contract as drafted and to propose alternative language.”
The Court then looked to the second half of the exclusivity clause, which provided an alternative method for Equinor to obtain water if Lindale was unable to provide water “through the Pipeline.” In these instances, Equinor could obtain water from other pumpers “on the Pipeline.” Relying on this language, the Court held that the function of a pumper on the Pipeline was to get water through the Pipeline, not pump water into places next to the Pipeline.
Lastly, the Court considered the definition of “Pipeline.” This definition, as recited above, made reference to specific components of the Pipeline – such as lateral lines, related facilities, and well-site appurtenances – but not to oil wells. These components were described as those “described and shown on” a map attached to the contract. This map included these specific components but also depicted oil wells, the inclusion of which Lindale argued expanded the definition of “Pipeline” to include such wells. The Court rejected Lindale’s argument, holding that an exhibit is only part of the contract to the extent it is incorporated by reference. Here, the map merely described the enumerated components of the Pipeline and did not purport to expand the definition. Accordingly, the wells lay outside the bounds of the exclusivity clause.
The Court further rejected several attempts by Lindale to look beyond the terms of the contract. First, the Court rejected Lindale’s argument that a statement of purpose in the contract should guide the Court’s interpretation of the exclusivity clause so as to encompass Lindale’s position. The Court held that it would “care about the purpose of the contract only if the exclusivity clause were ambiguous.” Second, Lindale pointed to the Court’s prior holding in Frost National Bank v. L&F Distributors, Ltd., in which the Court held that courts will avoid, when possible and proper, an unreasonable, inequitable, and oppressive construction. Following this principle, Lindale argued that the contract must be read as granting exclusivity, as it would not have agreed to the contract otherwise. The Court rejected this argument, noting that while Frost National Bank remains good law, it would not save Lindale here, as the Court “[had] no business rescuing parties from contracts that turned out to be bad deals in the name of utilitarianism or equity.” Justice Sullivan declined to consider any extrinsic evidence regarding the use of the wells, regardless of which party offered it.
Ultimately, the Court held that the exclusivity clause only provided Lindale with the exclusive right to supply Equinor through the Pipeline, not the exclusive right to supply water by any means to Equinor’s wells. Accordingly, Equinor had not breached the parties’ contract by obtaining water through alternative means.
Client Alert 2026-62