The Last Trial of T. Boone Pickens with Chrysta Castañeda

Jason Hartman interviews Chrysta Castañeda, the go-to lawyer for high stakes litigation in the energy industry and author of The Last Trial of T. Boone Pickens. Chrysta discusses what happened with Pickens and how did the investment deal go bad. She also shares her knowledge of the current oil market problems. They also talk about the brief history of the name “Railroad Commission” and if we are going to shift to a larger work-from-home community.

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Jason Hartman 0:29
It’s my pleasure to welcome crystal caston ADA. She is the go to lawyer for high stakes contentious litigation in the energy industry and beyond. She’s a Dallas trial lawyer and head of the caston Ada firm, a boutique litigation firm that handles complex commercial oil and gas to spirits. There’s obviously a lot going on in the energy industry right now. With prices collapsing. Her firm won a very large bird verdict for her client T. Boone Pickens, it was $145 million verdict. She is also running for Texas railroad Commissioner, and has a lot to share with us about some insights into the energy industry. And maybe a little bit about her book for last trial of T. Boone Pickens. Krista, welcome, how are you?

Chrysta Castañeda 1:20
I’m fine. Thank you.

Jason Hartman 1:21
It’s good to have you on. So first off, just give us a quick overview of what happened with T. Boone Pickens and this investment deal gone bad. You know, many of our listeners are investors and, and we always say try to avoid pooled money investments. And oil and gas is particularly risky. But t Boone Pickens is an oil and gas man. So yeah, I guess he would, you would know his way around this stuff. What happened?

Chrysta Castañeda 1:47
So yeah, Pickens invested in an area of mutual interest play, also known as an ami agreement for 15% in 2007, in the Permian, and back then the Permian had proved out, it looked like it was, you know, had petered out and wasn’t really a place people were looking for oil. And when this,

Jason Hartman 2:09
by the way, is the Permian Basin, which is an oil reserve. Okay, go ahead.

Chrysta Castañeda 2:13
Yeah. And it’s where all the oil is being produced in West Texas. Now. I mean, it’s, if it were a country, it’d be the eighth largest oil producing country in the world. So anyway, back in 2007, Pickens agreed to participate for 15% in this investment deal. And the idea of it is it’s kind of like a series of option contracts, the parties agree that they’re going to go buy leases in certain County, certain sections. And every time they pick one up, the people agree, okay, I’m in for my 15%, which means I get 15% of the ownership and the profits, or I’m passing on this one. So pick and signed up and agreed to participate in every one of those deals. And then you build, you drill the wells and prove that there’s oil there, and you try to do it under the radar. Because what you want to do is pick up as much land and as much territory and then, you know, prove it out and then sell it for many, many times what your investment in

Jason Hartman 3:11
other words, you want to do that quietly so other wildcatters don’t get wind of it, and then start competing with you to buy up the land and the leases of oil wells. Right?

Chrysta Castañeda 3:21
Exactly. Before you get into that bidding war. You want to prove up your land and your concept and hope you start the bidding war. That’s how you know you put pennies in and you get millions out. That’s the kind of the concept of these deals. And what ended up happening was that one of the investors needed to bring in more of a piece of the pie to spread its risk among sub investors, which is how this gets done. And so they claimed that Pickens said he wanted out of the deal, and they tried to buy his interest, didn’t end up buying his interest, but ended up taking his 15% going forward anyway. And so that’s what the lawsuit was about. And we did end up winning $145 million.

Jason Hartman 4:09
How much dude, the T. Boone Pickens invest in that deal. You never said that you said it was a 15% share, but can you disclose what he actually put into the deal?

Chrysta Castañeda 4:17
Sure, by the time we went to trial, he had a little over a million dollars in the deal. And of course, the million was supposed to turn into what we claimed at one point a billion dollars. And in fact that the whole pie ended up being worth several billion dollars. So we were claiming tickets 15% plus a little bit more because we were litigating the issue.

Jason Hartman 4:42
Yeah, okay. Okay, good. So basically, the the verdict, the judgment you got for the 140 $6 million was for lost profits. That was the opportunity costs are $145 million. Right?

Chrysta Castañeda 4:55
Yeah, exactly. And it was pared back by a series of court rules. About which part of the properties we could end up claiming, and there were limitations issues, you know, you have to bring claims you have to bring claims within a certain period of time in Texas. That’s four years. And so all those rules got applied. And we were allowed to ask the jury for exactly what we got it. Sure.

Jason Hartman 5:19
Okay, good stuff. Well, that’s a fascinating story. And the book is just about to be released, I guess. So looks very, very fascinating. And again, that’s the last trial of T. Boone Pickens, if we can shift gears though for a moment. The everybody’s talking about the Wu Han virus Coronavirus, whatever we want to call it COVID-19. And after, you know, we saw that we’re as we saw the financial markets plummet. So did the oil market. And I mean, it is just shocking to see what has happened to oil prices. You know, you know a lot about the economics of the energy industry, what’s going on? And what can we expect in the future?

Chrysta Castañeda 6:04
Well, those are great questions. So number one thing is we’re all staying in our houses, we’re not driving to work, we’re not driving to the restaurants and bars, we aren’t taking trips, we aren’t flying anywhere, that has cratered demand for oil and gas. So what ended up happening is in particularly here in Texas, but also in Saudi Arabia and Russia, they’ve taken this particular period of time as the opportunity to start a supply war. So they are over supplying the market, which was already over supplied. And oil has dropped down into the teens and low 20s from where it was three months ago, which was in the 60s per barrel. That’s West Texas Intermediate. And so the oil companies are hemorrhaging cash right now. And and in fact, they’re being told by pipeline companies here in Texas, don’t even plan on producing because we can’t take anymore. Our storage facilities are becoming glutted with the excess supply. Yeah, it is incredible.

Jason Hartman 7:10
Incredible. They’re actually using actually, oil tankers are now being used as storage units that even you know, it’s not about shipping the oil. It’s about literally just storing it, because there’s such an open

Chrysta Castañeda 7:25
door. And if you have such vessels or empty tanks, you’re making money, like crazy, but the oil companies themselves are there’s, there’s no, there’s no place for their product to go. And so we are in in a really challenging time for the industry right now. And so, you know, the Railroad Commission is Texas, which has nothing to do with railroads. It has everything to do with oil and gas. It is our oil and gas regulator is for the first time in 40 years considering whether to enact production controls because it was the first OPEC

Jason Hartman 8:02
Huh, so what what are we going to do about this? So production control can only be as as far as Texas, though, I mean, you can’t control Saudi Arabia and Russia and Venezuela and stuff while Venezuela was a disaster anyway, but you know, that’s a different discussion. Right?

Chrysta Castañeda 8:20
So interestingly, you mentioned that I’m running for the Texas Railroad Commission, the repub the Republican incumbent lost his election, which, interestingly, apparently has freed him up to advocate for what republicans almost never advocate for, which is production controls. And he’s actually going to Saudi Arabia and talking with Russia, about some kind of coordinated response to try to limit production internationally. And then there are also interstate agreements whereby, you know, we could limit production, North Dakota could limit production, there is a coordinated market mechanism. I don’t know that Saudi Arabia and Russia are friends. And I’m skeptical that the strategy is going to work on that level. But I think for for Texas producers, at least, you know, the the Commission has got to hold the hearings, so that now oil companies themselves are asking be held to figure out what to do about this.

Jason Hartman 9:21
Okay, so you you end the Republican incumbent, your opponent, or both for production controls, right?

Chrysta Castañeda 9:28
Well, what I’m calling for is to actually dust off the machinery that hasn’t been used for 40 years, figure out whether it still works in the age of horizontal drilling and how it would look and then gather the information for for goodness sake. The one thing we need right now is government that gathers information and acts promptly and decisively to mitigate all of these risks, you know, whether it’s a health perspective or whether it’s markets crashing, we need functioning government, and this What’s proving it out?

Jason Hartman 10:01
So consumers listening to this might say, well, what’s the problem here? I like cheap gas for $1 99. I mean, that’s the cheapest. I’ve seen it in forever. They’re thinking this is a good thing. But the bigger problem is, is that when you put all these oil producers out of business, and you’ll want to elaborate on this, I’m no expert, but you put them out of business, then when you need their product, again, they’re not there to supply it. And you have this supply demand shock issue that we’re experiencing with other products right now, because China was offline for, you know, a good three plus months. So it’s a national security issue, to see that we have an oil industry in the country, right?

Chrysta Castañeda 10:46
I mean, yes, you’re exactly right. And the problem with no regulation is that they’re the shocks come through unmitigated, right, there’s this what they call a bullwhip effect. So you know, it’s great right now where we’re all paying less than $2 a gallon for gasoline, even though we’re all staying home. But what is going to end up happening is that bullwhip is going to come back up to where, you know, we’re paying for $5 a gallon for gasoline, because there isn’t, you know, functioning market for oil and gas production, because so many people have been driven out of business, you want an orderly transition from phase to phase, and we’re definitely not going to get that with no Betty, taken a look at these issues. Thank God, the Railroad Commission is waking up. But for so long, it’s been asleep at the wheel. And I just hope it’s not too late.

Jason Hartman 11:40
Well, so what what is it called the Railroad Commission? So it was a railroad thing have to do with it?

Chrysta Castañeda 11:45
Yeah, it’s over 100 years old, it was originally set up, because of all things, grain shippers in Texas, could not get the railroads to transport their grain for fair prices, and, you know, allow shipping Interstate and out of the state. And so it was set up to regulate the railroad industry. And then later on, you know, the federal government has almost exclusive control over our railway system now. And so the Railroad Commission no longer has any role to play with railroads. But it picked up oil and gas regulation about 100 years ago as well. And they’ve just never changed the name.

Jason Hartman 12:28
Yeah, okay. Okay. That’s fine. I mean, there’s that’s not the first agency that’s like that. But what do we do to keep it in business? You know, keep the oil industry in business obviously shales out, because that’s just too expensive to produce. You know, unless oil is wet, like $50 a barrel or something like that. Right?

Chrysta Castañeda 12:45
Yeah. So a lot of the producers are hedged at $50. There’s a little bit of a cushion here. What’s going to happen is on I had mentioned that a couple of companies had filed a petition to have a hearing on this issue. And those companies are going to be heard on April the 14th. And I hope what ends up happening is the Railroad Commission gathers the information necessary and make some hard decisions about how to help guide the industry. And, frankly, a lot of Texas jobs and a huge portion of our state revenues into a little calmer environment. But the answer is not here yet. Yeah.

Jason Hartman 13:26
So what do you expect? I mean, what’s coming down the road here? You know, we’re in such uncharted territory with the pandemic. And I don’t know that, why really ever see, even when this blows over, at least for quite a while, the same level of travel, you know, a lot more people are going to work at home now. I think I think these are, these are things that are going to stick with us to an extent, right.

Chrysta Castañeda 13:51
Yeah. I mean, I think there’s no question that we have been changed and will be changed by this event. And I mean, we are still social creatures, we still will seek our favorite restaurants and watering holes and you know, vacations on the beach. But, you know, what, we’ll it shift the way we work fundamentally to where we do more work from home. Possibly. I mean, I think there’s a lot of employers who are figuring out Yes, people can be working from home and maybe we don’t need huge real estate portfolios to house all those people at the office. I you know, your guess is as good as mine on that stuff. But I think pretty clearly, life will change as a result of this. Yeah, it doesn’t wait for the better.

Jason Hartman 14:38
Yeah, right, in some ways for the better, agreed, agreed, but for sure, probably a lessening in demand for oil and other energy products as well, right.

Chrysta Castañeda 14:50
At least for the short term. I would agree with that. You know, there’s one really interesting aspect of oil and gas that doesn’t get talked about a lot and that is plastic. You know, all you need to do is look at your clothing, or your pen or your computer screen or your cell phone and realize that our lives are suffused with oil and gas in the products that we use every day, even if we don’t drive gasoline powered vehicles. So how that transition gets made? I guess it remains to be seen. But, you know, I think we’re going to have the need for plastics and therefore the need for petroleum products with us for a while.

Jason Hartman 15:29
Yeah, yeah, definitely. No question about that. Okay, good. Well, what else do you want to share with people either about the case or the oil industry? Just Just anything I haven’t asked you?

Chrysta Castañeda 15:41
Well, you know, we started talking about the book. And I think the book is a really interesting picture of what it’s like to be in the Texas oil patch. This case was tried in Pecos, Texas for five weeks. T. Boone Pickens, the former corporate raider, remember, this is the guy who terrorized Wall Street in the 1980s, with his takeover attempts, at 88 years old, sat through that trial every day trying to get justice for him being cut out of a deal. And so it’s very interesting in In my opinion, juxtaposition of his early life and his later life. And if you’re interested in trial drama at all, I’m hoping people think it’s a really interesting read.

Jason Hartman 16:29
So I think we’ll see a movie out of it.

Chrysta Castañeda 16:31
I would love to see a movie. If Reese Witherspoon is listening, and I hope she is I think she’d be great at playing me. So we can we can cross our fingers.

Jason Hartman 16:43
Yeah, there you go. But what what was the big deal? I mean, here you’ve got t Boone Pickens, a billionaire in I guess this is a little Podunk court or not. Am

Chrysta Castañeda 16:54
I wrong about that? I mean, I’ve never heard of the county, you mentioned it, right. Yeah, you’re not wrong. So this is Pecos, Texas, I think it’s normal population is about 8000 people. And you know, it’s swelled with all the oil workers, right. But it is the heart of the Permian Basin, it is where I mean is that the very center of where all this development was going on. But, you know, it’s got the infrastructure of the 1950s and 60s. And so, you know, the judge who presided over our trial, he has three counties, one of which is loving County, the only has 102 people in the entire county. This was Reed County, so he would ride circuit from front, as we call it, from county to county. And it was his first trial. And there was just a lot of a lot of really interesting, interesting things that happened, you know, when you’re trying to case in 100 year old courthouse with technology that, you know, is not really up to par. And you know, all these lawyers, I mean, we had probably 10 1520 lawyers

Jason Hartman 18:05
in this, this was I guess, the state court, not a federal courthouse.

Chrysta Castañeda 18:09
Right, correct. Yeah. Most of our most of our contract disputes in the United States get tried and stay clear, right.

Jason Hartman 18:16
If there were cross state lines, it did end up in federal court, probably. But yeah, very interesting, very interesting stuff. Well, thank you for sharing this with us. And please give out your website. Obviously, the book is available in all the usual places, but maybe you have a direct website you want to share with people.

Chrysta Castañeda 18:32
Sure. So the book is actually website is last trial of T. Boone Pickens calm, and it is out and the Amazon is delaying shipping because of the need to put out essential products right now. And they’re not shipping books that you can order directly from the publisher, and that’s Texas a&m University Press. And then campaign website is Christa, CH r y sta for Texas calm if people are interested in that the Railroad Commission.

Jason Hartman 19:02
All right, Kristen. Well, thanks for joining us and good luck on the election. And be well

Chrysta Castañeda 19:07
Thank you and thanks for chatting. I enjoyed it.

Jason Hartman 19:14
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