The opinion
ACCEPTED
06-15-00044-CV
SIXTH COURT OF APPEALS
TEXARKANA, TEXAS
10/20/2015 7:43:29 PM
DEBBIE AUTREY
CLERK
No. 06-15-00044-CV
IN THE SIXTH DISTRICT COURT OF APPEALSFILED IN
6th COURT OF APPEALS
TEXARKANA, TEXAS
10/21/2015 8:59:00 AM
Burlington Resources Oil & Gas Company LP,
DEBBIE AUTREY
Clerk
Appellant,
v.
PetroMax Operating Co., Inc., Woodbine Acquisition, LLC,
Petro Texas, LLC, Ch4 Energy II, LLC, and
TexCal Energy South Texas L.P.,
Appellees.
On Appeal from the 12th Judicial District Court
Madison County, Texas, Cause No. 12-13130-012-10
BRIEF FOR APPELLANT
Fred Hagans Kirsten M. Castañeda
Kendall C. Montgomery Roger D. Townsend
HAGANS BURDINE MONTGOMERY ALEXANDER DUBOSE JEFFERSON
& RUSTAY, P.C. & TOWNSEND LLP
3200 Travis, Fourth Floor 1844 Harvard Street
Houston, Texas 77006 Houston, Texas 77008
Vincent L. Marable III John R. Mercy
PAUL WEBB, P.C. Mercy Carter Tidwell, L.L.P.
221 N. Houston Street 1724 Galleria Oaks Drive
Wharton, Texas 77488 Texarkana, Texas 75503
ATTORNEYS FOR APPELLANT
Oral Argument Requested
IDENTITY OF PARTIES AND COUNSEL
Appellant: Kirsten M. Castañeda
State Bar No. 00792401
Burlington Resources Oil & kcastaneda@adjtlaw.com
Gas Company LP ALEXANDER DUBOSE JEFFERSON
& TOWNSEND LLP
4925 Greenville Avenue, Suite 510
Dallas, Texas 75206
Roger D. Townsend
State Bar No. 20167600
rtownsend@adjtlaw.com
ALEXANDER DUBOSE JEFFERSON
& TOWNSEND LLP
1844 Harvard Street
Houston, Texas 77008
John R. Mercy
State Bar No. 13947200
jmercy@texarkanalawyers.com
MERCY CARTER TIDWELL, L.L.P.
1724 Galleria Oaks Drive
Texarkana, Texas 75503
Appellate counsel
Fred Hagans
State Bar No. 08685500
fhagans@hagans-law.com
Kendall C. Montgomery
State Bar No. 14293900
kmontgomery@hagans-law.com
HAGANS BURDINE MONTGOMERY
& RUSTAY, P.C.
3200 Travis, Fourth Floor
Houston, Texas 77006
ii
Vincent L. Marable III
State Bar No. 12961600
trippmarable@sbcglobal.net
PAUL WEBB, P.C.
221 N. Houston Street
Wharton, Texas 77488
Trial and appellate counsel
Bennie D. Rush
State Bar No. 17400425
1300 11th Street, Suite 300
Huntsville, Texas 77340-3857
Trial counsel
Appellee Brad D’Amico
PetroMax Operating Co., Inc. State Bar No. 00783923
bd@canteyhanger.com
CANTEY HANGER LLP
1999 Bryan Street, Suite 3300
Dallas, Texas 75201
David J. Beck
State Bar No. 00000070
dbeck@beckredden.com
Thomas E. Ganucheau
State Bar No. 00784104
tganucheau@beckredden.com
BECK REDDEN LLP
1221 McKinney Street, Suite 4500
Houston, Texas 77010-2010
Trial and appellate counsel
David Hammit
State Bar No. 08857660
DAVID HAMMIT, LLC
109 South Madison Street
Madisonville, Texas 77864
Trial counsel
iii
Appellees David J. Beck
Petro Texas, LLC, State Bar No. 00000070
Ch4 Energy II, LLC dbeck@beckredden.com
Thomas E. Ganucheau
State Bar No. 00784104
tganucheau@beckredden.com
BECK REDDEN LLP
1221 McKinney Street, Suite 4500
Houston, Texas 77010-2010
Trial and appellate counsel
John R. Bankhead
State Bar No. 01676600
Attorney at Law
110 W. Cottonwood
Madisonville, Texas 77864
Trial counsel
Appellee Greg W. Curry
Woodbine Acquisition, LLC State Bar No. 05270300
greg.curry@tklaw.com
Gregory D. Binns
State Bar No. 24027148
greg.binns@tklaw.com
Richard B. Phillips, Jr.
State Bar No. 24032833
rich.phillips@tklaw.com
THOMPSON & KNIGHT LLP
1722 Routh Street, Suite 1500
Dallas, Texas 75201
Trial and appellate counsel
Kevin R. Knight
State Bar No. 11601400
LAW OFFICE OF ROGER KNIGHT, JR.
P.O. Box 925
Madisonville, Texas 77864
Trial counsel
iv
Appellee Jesse R. Pierce
TexCal Energy South Texas State Bar No. 15995400
L.P. jpierce@pierceoneill.com
Brian K. Tully
State Bar No. 24039217
btully@pierceoneill.com
PIERCE & O’NEILL, LLP
4203 Montrose Blvd.
Houston, Texas 77006
Trial and appellate counsel
v
TABLE OF CONTENTS
Page
Identity of Parties and Counsel ................................................................................ ii
Table of Contents .....................................................................................................vi
Index of Authorities .................................................................................................ix
Statement of the Case...............................................................................................xi
Issues Presented ..................................................................................................... xii
1. Burlington and the PetroMax Defendants disagree about
the proper interpretation of an oil and gas assignment,
which (in turn) determines whether certain leases are
jointly owned and continue in effect an area of mutual
interest (“AMI”) under an earlier letter agreement.
a. Did the trial court err in rejecting Burlington’s
interpretation as a matter of law, rather than holding
the assignment to be ambiguous?
b. Alternatively, did the trial court err in concluding
that the PetroMax Defendants’ interpretation is
reasonable, rather than enforcing Burlington’s
interpretation as a matter of law?
2. Burlington also moved for summary judgment on its right
to acquire 25% of oil and gas leases or mineral rights
acquired by the PetroMax Defendants in the AMI, without
any reduction or limitation based on the scope of
Burlington’s joint ownership of leases/rights within the
AMI. Did the trial court err in denying Burlington
summary judgment on this issue?
3. Did the trial court err in granting the PetroMax
Defendants’ summary judgment motion and denying
Burlington’s summary judgment motion?
Introduction ...............................................................................................................1
Summary of the Dispute ...........................................................................................2
Statement of Facts .....................................................................................................4
vi
TABLE OF CONTENTS (CONT’D)
Page
I. The 1975 Letter Agreement created an Area of Mutual Interest
intended to endure as long as any lease in the AMI was jointly
owned. ..................................................................................................4
II. Upon succeeding Buttes as a party to the 1975 Letter
Agreement, the PetroMax Defendants performed those
obligations until 2012. ..........................................................................6
III. The PetroMax Defendants performed under the 1975 Letter
Agreement with knowledge of a subsequent 1994 assignment. .......10
A. Southland listed four wells for sale at an auction, as
reflected in the resulting assignment. ......................................10
B. The PetroMax Defendants obtained two title opinions,
both of which interpreted the 1994 Assignment as
conveying only Southland’s interest in the four wells.............12
IV. Regardless of its own experts’ title opinions, in 2012, the
PetroMax Defendants abruptly disavowed their obligations. ............15
V. The trial court concluded the 1994 Assignment unambiguously
conveyed not just the listed wells, but all of Southland’s
ownership interest in the four leases. .................................................16
Summary of Argument ...........................................................................................17
Argument.................................................................................................................19
I. The interpretation of the 1994 Assignment as conveying only
Southland’s interest in four wells—and not all of its interest in
four entire leases—is reasonable. .......................................................19
A. As reflected in the 1994 Assignment, Southland
auctioned its interest in four wells and expressly reserved
other interests. ..........................................................................20
B. Burlington’s interpretation comports with the 1994
Assignment’s language and harmonizes its provisions. ..........23
C. Burlington’s interpretation also is consistent with the
circumstances surrounding the 1994 Assignment. ..................26
vii
TABLE OF CONTENTS (CONT’D)
Page
II. If the PetroMax Defendants’ interpretation also were
reasonable, the resulting ambiguity would preclude summary
judgment, requiring remand. ..............................................................28
III. However, Burlington offered the only reasonable interpretation
of the applicable agreements, requiring rendition in
Burlington’s favor. .............................................................................30
A. The 1994 Assignment conveys only Southland’s interest
in the four enumerated wells. ...................................................30
B. In addition, the 1975 Letter Agreement does not provide
for reduction of Burlington’s rights proportionate to the
scope of its joint ownership. ....................................................34
Conclusion and Prayer ............................................................................................36
Certificate of Compliance .......................................................................................38
Certificate of Service ..............................................................................................39
Appendix
1975 Letter Agreement (CR:589-625) .......................................... Tab 1
1994 Assignment and Bill of Sale (CR:1029-34) ......................... Tab 2
Order Granting Defendants’ Motion for Summary Judgment on
Title Issues (CR:1617).............................................................. Tab 3
Order Denying Burlington’s Motion for Partial Summary
Judgment Seeking Various Declarations (CR:1618-19) .......... Tab 4
Order on Joint Motion to Sever and Abate (CR:1640-45) ............ Tab 5
viii
INDEX OF AUTHORITIES
Page(s)
Cases
Coker v. Coker,
650 S.W.2d 391 (Tex. 1983) ............................................................19, 28, 30, 32
Columbia Gas Transmission v. New Ulm Gas, Ltd.,
940 S.W.2d 587 (Tex. 1996) ..............................................................................30
DeSantis v. Wackenhut Corp.,
793 S.W.2d 670 (Tex. 1990) ..............................................................................36
Entergy Gulf States, Inc. v. Summers,
282 S.W.3d 433 (Tex. 2009) ..............................................................................29
Freeman v. Stephens Production Co.,
171 S.W.3d 651 (Tex. App.—Corpus Christi 2005, pet. denied) ......................25
Houchins v. Devon Energy Prod. Co., L.P.,
No. 01-08-00273-CV, 2009 WL 3321406 (Tex. App.—Houston
[1st Dist.] Oct. 15, 2009, pet. denied) (mem. op.) ..............................................30
Hous. Expl. Co. v. Wellington Underwriting Ags., Ltd.,
352 S.W.3d 462 (Tex. 2011) ........................................................................20, 26
J.M. Davidson, Inc. v. Webster,
128 S.W.3d 223 (Tex. 2003) ..............................................................................19
Luckel v. White,
819 S.W.2d 459 (Tex. 1991) ..............................................................................32
Neece v. A.A.A. Realty Co.,
322 S.W.2d 597 (Tex. 1959) ..............................................................................35
Philipello v. Taylor,
No. 10-11-00014-CV, 2012 WL 1435171 (Tex. App.—Waco Apr.
25, 2012, pet. denied) (mem. op.) .................................................................20, 27
R&P Enters. v. LaGuarta, Gavrel & Kirk, Inc.,
596 S.W.2d 517 (Tex. 1980) ..............................................................................32
ix
INDEX OF AUTHORITIES (CONT’D)
Page(s)
Sun Oil Co. v. Madeley,
626 S.W.2d 726 (Tex. 1981) ..................................................................20, 27, 29
Treatises
Patrick H. Martin & Bruce M. Kramer, 2 WILLIAMS & MEYERS OIL &
GAS LAW § 432 (4th ed. 2010) .............................................................................6
x
STATEMENT OF THE CASE
Nature of the Case: This is an oil and gas dispute. The parties disagree about
whether Burlington jointly owns an interest in some leases
in an area of mutual interest (“AMI”), as required to
continue that AMI in effect. CR:445, 593, 1384. This
question, in turn, is controlled by whether a 1994
Assignment: (1) conveyed an interest in four denominated
wells while reserving other interests in four leases; or (2)
conveyed all interests in four entire leases. CR:484-85;
1SCR:21-22.
Course of Appellant (Plaintiff Burlington) filed suit against
Proceedings: Appellees (collectively, the “PetroMax Defendants”),
asserting claims such as breach of contract and declaratory
judgment regarding its ownership rights and the AMI’s
continuing effect. CR:443-48. The PetroMax Defendants
denied these claims, Appellee PetroMax asserted a
counterclaim for suit to quiet title, and Appellee Woodbine
asserted counterclaims for suit to try title, trespass-to-try
title, and declaratory judgment. CR:365, 1378-87.
Burlington and the PetroMax Defendants filed competing
summary-judgment motions on Burlington’s ownership
rights relating to the AMI. CR:484-85; 1SCR:21-22.
Trial Court The trial court denied Burlington’s summary-judgment
Disposition: motion. CR:1618-19 (Apdx. Tab 4). The trial court granted
the PetroMax Defendants’ summary judgment on title
issues, ruling that:
(1) Burlington owns no interest in the AMI; and
(2) the AMI provision has terminated.
CR:1617 (Apdx. Tab 3).
On the parties’ joint motion, the trial court severed the
remaining claims in order to render its summary judgment
rulings final and abated the severed action pending this
appeal. CR:1640-45 (Apdx. Tab 5).
xi
ISSUES PRESENTED
1. Burlington and the PetroMax Defendants disagree about the proper
interpretation of an oil and gas assignment, which (in turn) determines whether
certain leases are jointly owned and continue in effect an area of mutual interest
(“AMI”) under an earlier letter agreement.
a. Did the trial court err in rejecting Burlington’s interpretation as
a matter of law, rather than holding the assignment to be ambiguous?
b. Alternatively, did the trial court err in concluding that the
PetroMax Defendants’ interpretation is reasonable, rather than enforcing
Burlington’s interpretation as a matter of law?
2. Burlington also moved for summary judgment on its right to acquire
25% of oil and gas leases or mineral rights acquired by the PetroMax Defendants in
the AMI, without any reduction or limitation based on the scope of Burlington’s
joint ownership of leases/rights within the AMI. Did the trial court err in denying
Burlington summary judgment on this issue?
3. Did the trial court err in granting the PetroMax Defendants’ summary
judgment motion and denying Burlington’s summary judgment motion?
xii
INTRODUCTION
When parties disagree about the proper interpretation of a contract, a trial
court cannot reject a reasonable interpretation through summary judgment. If only
one interpretation is reasonable, the trial court may grant summary judgment
consistent with that interpretation. If more than one reasonable interpretation exists,
no summary judgment may be granted. There is not a third option by which a trial
court may choose between two reasonable contract interpretations—discarding one
and embracing another—as a matter of law.
Burlington and the PetroMax Defendants disagree on the proper interpretation
of an oil and gas assignment. Burlington’s interpretation is reasonable. It comports
with the circumstances surrounding the assignment, honors the assignment’s
language, and harmonizes all the assignment's provisions. Indeed, two noted oil and
gas lawyers hired by the PetroMax Defendants to offer title opinions---years before
this lawsuit was filed---reached the same interpretation.
Yet, when each side moved for summary judgment on its interpretation of the
Assignment, the trial court not only denied Burlington’s motion, but also granted the
PetroMax Defendants summary judgment consistent with their interpretation.
The claims on appeal should be remanded (if the competing interpretation is
reasonable) or judgment rendered in Burlington’s favor (if the competing
interpretation is not reasonable). Either way, the summary judgment cannot stand.
1
SUMMARY OF THE DISPUTE
The proper interpretation of the oil and gas assignment at issue will determine
whether Burlington currently has rights in an area of mutual interest (the “AMI”).
The AMI was created by agreement in 1975 (the “1975 Letter Agreement”), and it
continues in effect as long as the 1975 Letter Agreement’s parties jointly own any
leases within the AMI. It is undisputed that a lease called the Wilson Lease is located
in the AMI. Whether the AMI continues in effect turns on whether Burlington’s
ownership interest in the Wilson Lease was conveyed by a later assignment (the
“1994 Assignment”).
Burlington contends that it currently owns part of the Wilson Lease, which
means the AMI continues in effect. If the AMI continues in effect, the 1975 Letter
Agreement requires the PetroMax Defendants to offer Burlington a 25% working
interest in all leases and mineral rights they have acquired in the AMI.
The PetroMax Defendants contend that the ownership interests claimed by
Burlington were conveyed away by the 1994 Assignment, which would mean the
AMI terminated years ago. If the AMI no longer exists, Burlington has no right under
the 1975 Letter Agreement to acquire a 25% working interest in the leases/rights the
PetroMax Defendants have obtained in the AMI.
None of the parties in this case was an original party to the 1975 Letter
Agreement or the 1994 Assignment. Therefore, before delving into the relevant
2
facts, it is helpful to understand how everyone came to be involved in this dispute:
• The 1975 Letter Agreement creating the AMI, and its attached Joint
Operating Agreement, was between Aztec Oil & Gas Company and
Buttes Resources Company. CR:589-625 (Apdx. Tab 1).
• Aztec’s rights and obligations under the 1975 Letter Agreement passed
through company mergers to Southland Royalty and ultimately to
Burlington. CR:485 n.1, 626-30, 631-34, 635-36, 637.
The 1994 Assignment, which was signed during the period that
Southland had succeeded to Aztec’s rights, is between Southland
and Samson Resources Company (which is not a party to this
lawsuit). CR:1029-34 (Apdx. Tab 2).
• Through a variety of agreements signed at various points in time, the
PetroMax Defendants acquired part of Buttes’ interests in the AMI,
subject to Buttes’ rights and obligations under the 1975 Letter
Agreement and 1975 JOA. CR:489-90, 638-46, 647-58, 659-60, 661-
62, 663-785.
Most of the communications between the parties relevant to this
dispute occurred between Burlington and three of the PetroMax
Defendants: PetroMax Operating Co., Inc., Woodbine
Acquisition LLC, and TexCal Energy South Texas L.P.
3
STATEMENT OF FACTS
To understand the 1994 Assignment, one must first understand the interests to
which it applied. Hence, we present our Statement of Facts chronologically.
I. The 1975 Letter Agreement created an Area of Mutual Interest intended
to endure as long as any lease in the AMI was jointly owned.
Forty years ago, Aztec and Buttes agreed to explore and develop oil and gas
leases together. See CR:589. Back in 1975, Buttes owned an undivided one-half
working interest in nine oil and gas leases. CR:589, 596. Through the 1975 Letter
Agreement, Buttes conveyed to Aztec an undivided 25% interest in the leases.
CR:589, 591-92. For future leases they might acquire, the parties established an Area
of Mutual Interest (“AMI”). CR:593.
If either party acquires a lease or mineral rights within the AMI, the 1975
Letter Agreement requires the acquiring party to offer the other party the same
proportionate interest as in the original nine leases. Id. Accordingly, if Aztec (now
Burlington) acquires leases in the AMI, Buttes (whose interests are now partially
held by the PetroMax Defendants) must be offered a 75% interest; likewise, if the
PetroMax Defendants acquire leases in the AMI, then Burlington must be offered a
25% interest. Id. To accept, the offeree must elect participation within 15 days and
reimburse the other for its share of the acquisition costs. Id.
A Joint Operating Agreement (the “1975 JOA”) governs operation and
participation in wells drilled on jointly-held leases within the AMI. To drill a well
4
on the jointly-held leases without all parties’ consent, the 1975 JOA requires the
party wishing to drill to notify the other parties in advance and give them a chance
to participate. CR:602-03 (§§11, 12).
The 1975 Letter Agreement provides that the AMI continues in effect as long
as jointly owned leases exist in the AMI. CR:593. After the first three years, the AMI
shrank to a boundary two miles outside the jointly-owned leases in the area at that
time. CR:593-94. As it turned out, at the end of three years, all nine original leases
remained jointly owned. CR:487; see also CR:74-75. So, the AMI continued in
effect with a boundary of two miles outside those leases. CR:594.
It is undisputed that five of the original leases no longer exist and that a sixth
lease is no longer jointly owned by Aztec’s successor-in-interest, Burlington.1 Three
of the original leases remain in the AMI: (1) the Wilson Lease; (2) the Gibbs Lease;
and (3) the Buchanan Lease. RR:7, 33. Burlington claims an ownership interest in
each of these leases, but for purposes of summary judgment, focused its attention on
the Wilson Lease. CR:436, 490-99; RR:7.
1
Four of the original leases terminated in 1979 at the end of their primary terms.
CR:74. With regard to a fifth lease, all but one well was assigned to a third party in
1981, and the remaining well was assigned to another third party in 1997. CR:74,
77. A sixth lease expired upon cessation of production in 1999. CR:74.
5
II. Upon succeeding Buttes as a party to the 1975 Letter Agreement, the
PetroMax Defendants performed those obligations until 2012.
The PetroMax Defendants succeeded to Buttes’ rights and obligations under
the 1975 Letter Agreement, and they initially acknowledged and performed those
obligations. In doing so, they repeatedly recognized Burlington’s continuing
ownership rights in the Wilson Lease.
For example, when defendant TexCal conveyed to defendant PetroMax
certain rights in the Wilson Lease in a 2009 farmout agreement, 2 they both
acknowledged Burlington’s rights to notice and participation in wells governed by
the 1975 JOA. CR:647, 651, 658-59. Indeed, TexCal limited PetroMax’s right to
earn under the farmout agreement to wells in which “Third Parties” did not
participate. CR:656. “Third Parties” included Burlington (denoted by the name of
its parent, ConocoPhillips). CR:656. And, in proposing the initial test well and
subsequent wells contemplated by the farmout agreement, PetroMax would be
required to give notices under the 1975 JOA. Id. 3
2
A “farmout agreement” is a contract to assign oil and gas lease rights in certain
acreage upon the completion of drilling obligations and the performance of any other
covenants and conditions set forth in the agreement. Patrick H. Martin & Bruce M.
Kramer, 2 WILLIAMS & MEYERS OIL & GAS LAW § 432 (4th ed. 2010).
3
See also CR:659 (amending Farmout Agreement to remove from excepted lands—
i.e., to add to the acreage subject to Farmout Agreement—the 160-acre drilling unit
for the Wilson #5 Well), 661-62 (amending the DeFacto Termination provision and
again including provisions regarding continuing rights to notice and participation
under 1975 JOA).
6
Similarly, in 2011, defendants Woodbine, PetroMax, Petro Texas, and CH4
Energy expressly acknowledged in a Purchase and Sale Agreement that “Burlington
Oil & Gas Company owns an undivided 25% interest in and to 1537.83 acres out of
that certain Oil and Gas Lease dated August 29, 1974, between James D. Wilson, as
Lessor, and Curran R. Campbell, Inc., as Lessee . . . ,” i.e., the Wilson Lease.
CR:663, 781. The defendants further acknowledged that “[t]his is an outstanding
interest that has been non-consented in both the Wilson #1H and Wilson #2H wells.”
Id. They also “anticipated that Burlington (now Conoco-Phillips) will continue to go
non-consent on future wells.” Id.
In addition to these acknowledgments and agreements among themselves, the
PetroMax Defendants asserted the AMI’s continuing force and effect—and
Burlington’s continued joint ownership of the Wilson Lease—in communications
with Burlington. For instance, in 2009, TexCal and PetroMax sent Burlington
Authorities for Expenditure (“AFEs”) regarding participation in drilling the Wilson
#1H and #2H wells (i.e., the same wells referenced two years later in the
Woodbine/PetroMax Purchase Agreement discussed above). CR:786-87, 793-94.
The cover letters identify TexCal “as the current Operator of the Contract Area
covered by” the 1975 JOA. CR:786, 793. In proposing that PetroMax drill these two
wells on the Wilson Lease, both letters also notify Burlington that, “[i]n accordance
with the provisions of Article 12 of the JOA, you have 30 days after receipt of this
7
notice in which to indicate your election to participate in the proposed drilling of the
above referenced well and to pay the cost thereof.” CR:787, 794. The enclosures
(i.e., ballots and accompanying AFEs) reflect that, upon an election to participate,
Burlington would have a 25% working interest in the proposed wells. CR:789, 792,
796.
PetroMax also sent Burlington an AFE proposing to drill another well4 on the
Wilson Lease. CR:804-09. In the cover letter, PetroMax stated that, under the terms
of the 1975 JOA, Burlington had 30 days after receipt to return its election to
participate. CR:804. And, after Woodbine acquired interests from PetroMax,
Woodbine sent AFEs to Burlington for drilling five additional wells5 on the Wilson
and Gibbs Leases. CR:810-12, 814-17, 820-21, 825-26, 832-33, 837-38, 849-50.
As anticipated, Burlington went “non-consent” on several of the proposed
wells.6 CR:496-97. For each of these wells, Burlington wrote to Woodbine in 2012
and requested that Woodbine provide payout statements, regulatory information, and
plats. CR:497. Woodbine provided payout statements dated May 30, 2012, reflecting
4
This AFE concerned the Dunman/Wilson No. 1-H Well. CR:804.
5
These AFEs concerned the Wilson #3H, Wilson #6H, Wilson #5H, Gibbs #1H
(later drilled as the Gibbs #2H Well), and Dunman Wilson A #2H wells. CR:810-
12, 814-17, 820-21, 825-26, 832-33, 837-38, 849-50.
6
These non-consent wells were the Dunman/Wilson No. 1-H, Wilson #1H, Wilson
#2H, Wilson #3H, and Wilson #6H wells. CR:496-97.
8
Burlington’s working interest in the non-consent wells on the Wilson Lease as
follows (CR:497-98):
Non-Consent Well Burlington
Interest
Wilson #1H Well .25
Wilson #2H Well (a/k/a Wilson Unit “A” # 2H) .24531250
Wilson #3H Well .24531250
Wilson #6H Well .25
Dunman/Wilson No. 1-H Well .10535714
Burlington did elect to participate in other wells on the Wilson and Gibbs
Leases, including the Wilson #5H Well.7 CR:820, 1136-37. Woodbine accepted
Burlington’s election to participate in the Wilson #5H Well. CR:498, 1137.
Woodbine also availed itself of the benefits of the 1975 Letter Agreement, accepting
Burlington’s payments of its share of the required costs. CR:498; see also CR:1137.
In accordance with its obligations under the 1975 Letter Agreement, Woodbine paid
Burlington proceeds from the Wilson #5H Well totaling $1,335,253.59. CR:498,
1137.
7
The wells in which Burlington elected to participate were the Wilson #5H, Gibbs
#1H, and Dunman Wilson A #2H wells. CR:820, 1136-37.
9
III. The PetroMax Defendants performed under the 1975 Letter Agreement
with knowledge of a subsequent 1994 assignment.
During the years that the PetroMax Defendants performed their obligations
under the 1975 Letter Agreement and recognized Burlington’s ownership rights in
the Wilson Lease, they did so with knowledge of a 1994 Assignment of certain
interests by a previous Aztec successor-in-interest, Southland Royalty.
A. Southland listed four wells for sale at an auction, as reflected in the
resulting assignment.
In 1994, Southland listed for sale in an auction its interests in four wells in the
AMI: (1) the Wilson James D. Unit 2; (2) the Wilson James D. #3 (misspelled as the
“Wilson James D.O.” well); (3) the Buchanan 1; and (4) the Gibbs Bros. 1. CR:1497.
We will refer to the first two wells, both offered for auction from the Wilson Lease,
as Wilson #2 and Wilson #3. These two wells were located on one of the two separate
tracts of land that comprise the Wilson lease. Id.
As shown by the map on the following page, the Wilson Lease consists of two
non-contiguous tracts.
10
• Tract 1 is the larger tract and contains the Wilson #1, Wilson #4, and
Wilson #5 wells.
• Tract 2 is the separate, smaller tract and contains the Wilson #2 and
Wilson #3 wells.
At the auction, Samson Resources Company purchased the interests sold by
Southland. CR:1029. Southland and Samson signed the 1994 Assignment. CR:1031.
The assignment provides for an Exhibit A that will both: (1) particularly describe
the Interests—including “oil and gas leases, leasehold interests, rights, and interests
attributable or allocable to the oil and gas leases or leasehold interests by virtue of
11
pooling, unitization, communitization, and operating agreements” being conveyed;
and (2) specifically note and reflect the “certain lands, leases, properties, interests,
leasehold rights, depths or formations” that Southland “reserves and retains unto
itself from the Interests . . . .” CR:1029. Thus, the Assignment provided that Exhibit
“A” would set forth both the interests being conveyed away and the interests being
reserved by Southland.
Indeed, Exhibit “A” contains two separate lists:
(1) a list of four leases owned by Southland, with an exception for
lands attributable to wells Southland previously had farmed out;
and
(2) a list of “Associated Wells.”
CR:1033. Unfortunately, Exhibit “A” does not specify which list sets forth the
conveyed interests and which list sets forth the reserved interests. Id. However,
consistent with the listing of only four wells in the auction catalog, the very first
words in the 1994 Assignment are: “Well Name: BUCHANAN 1, GIBBS BROS 1,
WILSON JAMES 2 AND WILSON JAMES 3”. Id.
B. The PetroMax Defendants obtained two title opinions, both of
which interpreted the 1994 Assignment as conveying only
Southland’s interest in the four wells.
The two lists in Exhibit A to the 1994 Assignment led to confusion for both
the PetroMax Defendants and Burlington. Consequently, before sending the 2009
12
AFEs to Burlington in connection with drilling on the Wilson Lease, TexCal and
PetroMax obtained two title opinions about whether Burlington still owned any
working interest in that lease.
In 2007, TexCal retained J. Jan Jircik, a Texas lawyer who is Board Certified
in Oil, Gas and Mineral Law by the Texas Board of Legal Specialization, to perform
a title opinion. CR:860. Jircik did not interpret the 1994 Assignment as conveying
all of Southland’s interest in the Wilson Lease, but instead interpreted the 1994
Assignment as if it included only Southland’s interest in the Wilson #2 and Wilson
#3 wells and the associated production units, i.e., Southland’s interest in Tract 2.
CR:896. Jircik opined that the interest Southland had reserved in the Wilson Lease
“was eventually acquired by Burlington Resources Oil & Gas Company, L.P.” Id.
Accordingly, as to the two Wilson wells listed for auction, expressly identified at the
top of the 1994 Assignment, and included as “Associated Wells” on its Exhibit “A,”
Jircik concluded that Burlington did not own any gross working interest. CR:863-
64. But as to wells located on Tract 1 of the Wilson Lease,8 Jircik opined that
Burlington owned a gross working interest of .2500000. CR:862, 865-66.
In 2009, PetroMax retained Ronald Moore, another Texas lawyer Board
Certified in Oil, Gas and Mineral Law by the Texas Board of Legal Specialization,
8
At the time, these wells were the Wilson #1, Wilson #4, and Wilson #5 Wells.
CR:862, 865-66.
13
to provide a title opinion on acreage in the Wilson lease. CR:1035. Moore likewise
concluded that Burlington owned a working interest in several portions of the Wilson
lease. CR:1035-37.
Jircik’s opinion was provided to PetroMax and Woodbine. CR:501. There is
no evidence, however, that either of the title opinions was provided to Burlington.
Upon receiving the 2009 AFEs from PetroMax proposing wells to be drilled on the
Wilson Lease, Burlington initially informed PetroMax that it “has completed a
diligent review of files internal and external and determined Burlington has no
working interest. The files show that all interest has been conveyed out to other
parties.” 3SCR:2075; RR:51-52.
In response to Burlington’s contention, Moore supplemented his opinion.
CR:1079. He set forth “Jircik’s and our interpretation” that Burlington did own a
“25% WI in Wilson Lease less 160 acre Production Units for Wilson No. 2 and 3
wells”. CR:1080 (emphasis added). He also opined that, in the 1994 Assignment,
“Southland Royalty Company assigned what appears to be only its interest in the
Wilson Well Nos. 2 and 3 Production Units to Samson Resources Company, leaving
the balance of its interest still owned by Southland (2210/34).” CR:1079.
Burlington later reached the same conclusion. As described above in Section
II, Burlington elected to participate in certain wells and paid its share of the costs.
14
Burlington also asserted its right to payout statements and other information
regarding non-consent wells in which it did not elect to participate.
In sum, for 18 years, Burlington and the PetroMax Defendants operated
consistently with the interpretation of the 1994 Assignment as conveying only the
interests offered at auction: the four wells and associated production units.
IV. Regardless of its own experts’ title opinions, in 2012, the PetroMax
Defendants abruptly disavowed their obligations.
In 2012, the PetroMax Defendants abruptly changed position. Woodbine
asserted that, contrary to the Jircik opinion, Burlington had “divested the last of its
interest in the Wilson Lease as of September 9, 1994” and “does not own an interest
in . . . the Wilson Lease . . . .” CR:1130. Woodbine attempted to return to Burlington
$190,692.84, purported to be the costs Burlington had paid in association with the
Wilson #5H well minus the well proceeds Woodbine had already paid Burlington.
CR:1130-31. Woodbine also stopped work on another proposed well in which
Burlington had elected to participate. 9 See CR:1131. Only after repudiating
Burlington’s right to participate did Woodbine drill that well. Id.
Burlington’s demands for the PetroMax Defendants to comply with the
ongoing requirements of the 1975 Letter Agreement have been met consistently with
refusal. CR:1130-31, 1138-40. Woodbine has obtained permits for at least 11 wells
9
This was the Dunman Wilson A #2H well. CR:1130-31.
15
associated with the Wilson lease, without providing Burlington notice or an
opportunity to participate. CR:1138-39. Woodbine and PetroMax also have acquired
leases within the AMI without offering the requisite 25% working interest to
Burlington. CR:1139.
V. The trial court concluded the 1994 Assignment unambiguously conveyed
not just the listed wells, but all of Southland’s ownership interest in the
four leases.
Burlington filed the underlying lawsuit in order to enforce its rights under the
1975 Letter Agreement and 1975 JOA. CR:433-49. Besides requesting declaratory
relief, Burlington brought separate claims for, inter alia, breach of contract, specific
performance, conversion, and breach of duty to pay proceeds. CR:443-48. In
addition to the PetroMax Defendants’ denials of these claims (CR:322, 364-65,
1390-91, 1397-98), PetroMax asserted a counterclaim for suit to quiet title, and
Woodbine asserted counterclaims for suit to try title, trespass-to-try title, and
declaratory judgment. CR:365, 1378-87. Burlington and the PetroMax Defendants
filed competing summary-judgment motions on the questions regarding
Burlington’s ownership rights relating to the AMI. CR:484-85; 1SCR:21-22.
Each side moved for summary judgment regarding Burlington’s ownership
interest in any leases within the AMI to continue the AMI in effect. CR:484-85;
1SCR:21-22. The trial court denied Burlington’s summary-judgment motion, but
16
granted the PetroMax Defendants’ competing motion on title issues. CR:1617-19.
The trial court ruled that:
1. Burlington does not own any interest in the AMI described in the 1975
Letter Agreement made the basis of this suit; and
2. The AMI provision in the 1975 Letter Agreement has terminated.
CR:1617.
On joint motion by all parties, the trial court severed the remaining claims into
a separate lawsuit in order to render its partial summary judgment final. CR:1632,
1635, 1640-43. The trial court then abated the severed case pending this appeal.
CR:1643. Thus, the severed issues remain pending and are not presented for review
in this appeal.
SUMMARY OF ARGUMENT
Burlington’s interpretation of the 1994 Assignment is reasonable.
Burlington’s interpretation comports with the very first words of the assignment,
setting forth only interests in four wells to be conveyed. Burlington’s interpretation
also honors the assignment’s reservation provision. Unless Exhibit A is interpreted
so that the list of wells sets forth the interests being conveyed and the list of leases
sets forth the interests being reserved, the reservation provision would be rendered
meaningless.
17
Moreover, Burlington’s interpretation is consistent with the circumstances
surrounding the assignment. Only Southland’s interests in four wells were offered
for sale at auction. And the interpretation’s reasonableness is confirmed by two title
opinions from board certified lawyers who were hired long before suit was filed, not
by Burlington, but by the PetroMax Defendants.
Because Burlington’s interpretation is reasonable, the trial court’s summary
judgment rejecting that interpretation cannot stand. What happens next—remand or
rendition—depends on whether the PetroMax Defendants’ competing interpretation
also is reasonable.
If the competing interpretation were reasonable, the 1994 Assignment would
be ambiguous. On that basis, the matter should be remanded for trial. But if, as
shown below, the PetroMax Defendants’ interpretation is unreasonable, then as a
matter of law, Burlington is entitled to rendition of judgment that the AMI continues
in effect.
Burlington also moved for summary judgment that its right to obtain a 25%
working interest in leases and mineral rights is not proportionately reduced based on
any decrease in the scope of Burlington’s joint ownership interests generally in the
AMI. The 1975 Letter Agreement provides for proportionate reduction of the 25%
requirement under other circumstances, but not based on diminution of the number
18
or size of leases/rights held jointly by Burlington in the AMI. Accordingly,
Burlington also is entitled to summary judgment on this point.
ARGUMENT
I. The interpretation of the 1994 Assignment as conveying only Southland’s
interest in four wells—and not all of its interest in four entire leases—is
reasonable.
The 1994 Assignment expressly provides that its Exhibit A lists both the
interests being conveyed and the interests being reserved. CR:1029. The problem is
that, in setting forth the two lists, Exhibit A does not expressly identify which list
sets forth the interests being conveyed and which sets forth the interests being
reserved. See CR:1033. But the language and circumstances surrounding the creation
of the 1994 Assignment demonstrate that it is reasonable to interpret the 1994
Assignment to convey only Southland’s interest in the enumerated wells.
Whether a contract is ambiguous is a question of law. E.g., Coker v. Coker,
650 S.W.2d 391, 394 (Tex. 1983). A contract is ambiguous whenever it is reasonably
susceptible to more than one meaning. Id. at 393. When a contract is ambiguous, its
interpretation presents a question of fact precluding summary judgment. Id. at 394.
In determining whether a contract is ambiguous, courts examine and consider
the entire writing, striving to harmonize and give effect to all provisions so that none
is rendered meaningless. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex.
2003); Coker, 650 S.W.2d at 393. Courts also consider the facts and circumstances
19
surrounding the contract’s execution. E.g., Hous. Expl. Co. v. Wellington
Underwriting Ags., Ltd., 352 S.W.3d 462, 469 (Tex. 2011); Sun Oil Co. v. Madeley,
626 S.W.2d 726, 731-32 (Tex. 1981); Philipello v. Taylor, No. 10-11-00014-CV,
2012 WL 1435171, at *7 (Tex. App.—Waco Apr. 25, 2012, pet. denied) (mem. op.).
In this case, the 1994 Assignment’s text and surrounding circumstances establish
that Burlington’s interpretation is reasonable.
A. As reflected in the 1994 Assignment, Southland auctioned its
interest in four wells and expressly reserved other interests.
The 1994 Assignment exists because Southland decided to auction off its
interest in four wells. CR:1497. Consistent with Southland’s auction listing, the first
words in the 1994 Assignment are: “Well Name: BUCHANAN 1, GIBBS BROS 1,
WILSON JAMES 2 AND WILSON JAMES 3”. Compare CR:1029 (emphasis in
original) with CR:1497 (auction listing). The 1994 Assignment expressly provides
that Southland is conveying some interests, but reserving others. CR:1029. The
assignment discusses both conveyance and reservation in general terms, expressly
leaving the particulars and specifics to be set forth in Exhibit A. Id.
In describing the conveyance and reservation generally, the 1994 Assignment
speaks in broad, generic terms. For instance, the assignment describes the interests
being conveyed (defined collectively as the “Interests”) to include:
The oil and gas leases, leasehold interests, rights and interests
attributable or allocable to the oil and gas leases or leasehold interests
by virtue of pooling, unitization, communitization, and operating
20
agreements, licenses, permits, and other agreements, all more
particularly described on Exhibit “A” hereto, limited as to the lands and
depths indicated on Exhibit “A” (collectively the “Leases”), together
with identical undivided interests in and to all the property and rights
incident thereto . . . .
CR:1029. And, the assignment describes the interests being reserved equally broadly
(id.):
[Southland] reserves and retains unto itself from the Interests those
certain lands, leases, properties, interests, leasehold rights, depths or
formations as specifically noted and reflected on Exhibit “A” . . . .
As provided in the 1994 Assignment, Exhibit A sets forth two lists in the
following format: (1) a list of all the interests Southland owned in four leases; and
(2) a list of the same four wells on the assignment’s first page:
21
The top list is untitled. CR:1033. It names the Odom, Gibbs, Wilson, and
Buchanan Leases:
The right side of the top list sets forth the legal description of each lease. Id. Under
the legal descriptions appears an exception for acreage Southland had farmed out
and retained only an overriding royalty interest:
22
Thus, the top list specifically notes and reflects all of Southland’s ownership interest
in the entirety of the four, denominated leases.10
On the other hand, the bottom list names only the wells that appear at the top
of the 1994 Assignment and in the auction catalogue:
B. Burlington’s interpretation comports with the 1994 Assignment’s
language and harmonizes its provisions.
Interpreting Exhibit A so that the top list describes the interests Southland is
reserving from the 1994 Assignment and the bottom list describes the interests
Southland is conveying is consistent with: (1) the list of four wells at the top of the
assignment; (2) the language providing that Exhibit A describes both interests being
conveyed and interests being reserved to Southland; and (3) the entire reservation
provision, which expressly provides that Southland reserves and retains to itself the
10
After the 1994 Assignment was signed, the Odom Lease expired upon cessation
of production in 1999. CR:74.
23
certain lands, leases, properties, interests, leasehold rights, depths or formations as
specifically noted and reflected on Exhibit A. Compare CR:1029 (setting forth
language in 1994 Assignment) with CR:1033 (Exhibit A). If both lists in Exhibit A
described the interests conveyed, then contrary to the reservation provision, no part
of Exhibit A would note or reflect any interest being reserved.
The exception, in the top list of leases, of acreage Southland had previously
farmed out from the four leases does not constitute a “reservation.” The exception
describes an interest Southland did not own. By definition, Southland could not
“reserve and retain unto itself” an interest it did not own. Rather than constituting
the reservation, the exception describes what is not included in the reservation: the
portions of the leases that Southland had farmed out under a previous agreement.
See CR:74-75, 82-85, 501-05, 1380-81. Without this exception, the top list would
not have accurately described all of the interest Southland owned in the four leases.
By accurately describing the interest Southland did own in the four leases, the top
list identifies with reasonable certainty the interest Southland reserved and retained
unto itself from its conveyance of the four wells.
The PetroMax Defendants suggest instead that use of the term “leases” in the
description of the interests being conveyed must mean that the 1994 Assignment
conveys the leases set forth in Exhibit A. Yet, the term “leases” appears in both the
provision describing the interests being conveyed and the provision describing the
24
interests being reserved. CR:1029. Because it is used to describe generally both types
of interests, the term does not aid in determining whether the list of leases on Exhibit
A describes the interests being conveyed or the interests being reserved. Moreover,
in describing both conveyed and reserved interests, the assignment speaks not only
of “leases,” but also of “interests” less than an entire lease. Id. So, just as it is possible
that an entire lease could fall into either category, it is possible for interests less than
an entire lease (i.e., four wells and their associated production units) to fall into either
the category of interests being conveyed or the category of interests being reserved.
The general use of the term “leases” must be read in conjunction with the list
of specific wells set forth at the top of the same page. For example, in Freeman v.
Stephens Production Co., 171 S.W.3d 651, 653 (Tex. App.—Corpus Christi 2005,
pet. denied), a deed purported to convey “that certain lot, tract or piece or parcel of
land . . . .” Despite this general description of the interests conveyed as a single lot,
the deed later specifically described the interests conveyed as “All of Lot 1, Block
15; Lot 2, Block 15; The West 17.51 acres of Lot 3, Block 15; All of Lot 10, Block
15,” etc. Id. Reading the entire deed as a whole, it was reasonable to interpret the
singular phrase “lot, tract or piece or parcel of land” to mean multiple lots. Id. at 654.
In this case, it is equally reasonable to interpret the interests collectively defined as
the “Leases” to mean only the wells and related production units specifically
identified at the top of the first page. Compare id. at 653-54 with CR:1029.
25
Unless Southland’s interest in the four wells was the only interest being
conveyed, there was no reason to list those four wells at the top of the first page or
in Exhibit A. If the 1994 Assignment conveyed all of Southland’s interest in the four
leases, there was no reason to highlight four of the wells on those leases. Southland’s
interest in the four wells already would be part of the conveyance of all its interest
in the leases. Nor can the list of “Associated Wells” be explained as an inventory of
all the wells on the four leases. For example, the “Associated Wells” list does not
identify the Wilson #1 well. See CR:1033.
The plain language of the 1994 Assignment establishes the reasonableness of
Burlington’s interpretation. Southland assigned only its interest in the enumerated
wells (i.e., the wellbores and related production units), while reserving the remainder
of its interest in the Wilson, Gibbs, Buchanan, and Odom leases.
C. Burlington’s interpretation also is consistent with the
circumstances surrounding the 1994 Assignment.
Even without considering the surrounding circumstances, Burlington’s
interpretation comports with the language in, and harmonizes the provisions of, the
1994 Assignment. See Argument §I(A), supra. Nonetheless, it is appropriate also to
consider the circumstances surrounding the assignment. Circumstances that existed
prior to and contemporaneous with the execution of the 1994 Assignment are
properly examined in determining whether the assignment is ambiguous. See Hous.
26
Expl., 352 S.W.3d at 469; Madeley, 626 S.W.2d at 731-32; Philipello, 2012 WL
1435171, at *7.
Southland offered for auction only its interest in four wells. CR:1497.
Southland did not list for auction only the wellbore, nor did it offer the entire
leasehold. Instead, Southland’s auction listings encompassed:
(1) its interest in the Wilson #3, Buchanan 1, and Gibbs Bros 1 wells; and
(2) an “after payout only” interest (“APO”) only with regard to the Wilson
James D. Unit 2 Well.
Compare id. (reproduced above, listing interests offered by Southland) with
CR:1459 (listing another seller’s wellbore interest with the notation “WELLBORE
27
ONLY”) and CR:1475 (listing another seller’s entire leasehold interest with the
notation “LEASEHOLD”).
The limited scope of interests submitted by Southland to the auction house is
echoed by: (1) the discrete list of four wells at the top of the 1994 Assignment; and
(2) the discrete list of four wells on Exhibit A. It is entirely reasonable to read the
1994 Assignment, including Exhibit A, as conveying only those particular interests
Southland actually offered for auction and reserving to Southland all other interests
it owned.
Because Burlington’s interpretation of the 1994 Assignment is reasonable, the
trial court erred in granting summary judgment in the PetroMax Defendants’ favor.
See Coker, 650 S.W.2d at 393-94. The only question remaining is whether reversal
of the summary judgment should be accompanied by: (1) remand for further
proceedings in the trial court consistent with this Court’s opinion and judgment; or
(2) rendition of summary judgment in Burlington’s favor. This remaining question
turns on whether the PetroMax Defendants’ competing interpretation of the 1994
Assignment also is reasonable.
II. If the PetroMax Defendants’ interpretation also were reasonable, the
resulting ambiguity would preclude summary judgment, requiring
remand.
Despite the logic and consistency with Texas law demonstrated by
Burlington’s interpretation, the PetroMax Defendants contend that the 1994
28
Assignment should be interpreted to convey all of Southland’s interest in the Wilson,
Gibbs, Buchanan, and Odom leases, except for the lands attributable to the H.K.
Odom Wells, James D. Wilson #4 Well and the Buchanan #2 Well. Even if this
interpretation were reasonable (see Argument §III(A), infra), it would not support
summary judgment against Burlington’s own reasonable interpretation. Faced with
two, competing reasonable interpretations, a court cannot conclude that, given all
the language, the 1994 Assignment “plainly and clearly discloses the intention of the
parties.” See Madeley, 626 S.W.2d at 731-32.
The inherent reasonableness of Burlington’s interpretation is confirmed not
only by the 1994 Assignment and its surrounding circumstances, but also by the fact
that not one, but two, accomplished oil and gas lawyers hired by the opposing parties
reached the same interpretation before any litigation arose. The PetroMax
Defendants’ repeated invocation of “plain language” to support their now-contrary
position does not diminish the reasonableness of the earlier title opinions they
themselves obtained. “[R]easonable people ‘will sometimes disagree about what
reasonable people can disagree about,’ but even so, it is difficult to maintain that
language is plain in the face of a substantial, legitimate dispute over its meaning.”
Entergy Gulf States, Inc. v. Summers, 282 S.W.3d 433, 446 (Tex. 2009) (Hecht, J.,
concurring).
29
To the extent that the Court finds PetroMax Defendants’ competing
interpretation of the 1994 Assignment reasonable, the resulting ambiguity would
preclude summary judgment. See Coker, 650 S.W.2d at 394. That ambiguity would
require reversal of the trial court’s summary judgment rulings and remand for further
proceedings consistent with this Court’s opinion and judgment. Id.
III. However, Burlington offered the only reasonable interpretation of the
applicable agreements, requiring rendition in Burlington’s favor.
A. The 1994 Assignment conveys only Southland’s interest in the four
enumerated wells.
In truth, however, the PetroMax Defendants’ interpretation is unreasonable.
Competing interpretations of a contract do not create an ambiguity unless both are
reasonable. Columbia Gas Transmission v. New Ulm Gas, Ltd., 940 S.W.2d 587,
589 (Tex. 1996). Because the PetroMax Defendants’ interpretation is unreasonable,
this Court should render judgment in Burlington’s favor, ruling as a matter of law
that the AMI continues in effect.
To interpret the 1994 Assignment as conveying all of Southland’s interest in
entire leases fails to harmonize all provisions of the contract and renders some of the
contractual language meaningless. For example, reading both lists as collectively
describing the conveyed interests would render meaningless the 1994 Assignment’s
reservation provision. See Houchins v. Devon Energy Prod. Co., L.P., No. 01-08-
00273-CV, 2009 WL 3321406, at *4-5 (Tex. App.—Houston [1st Dist.] Oct. 15,
30
2009, pet. denied) (mem. op.) (stating principle that an interpretation that fails to
harmonize the provisions is not reasonable). This provision expressly “reserves and
retains” to Southland the “certain lands, leases, properties, interests, leasehold rights,
depths or formations as specifically noted and reflected on Exhibit ‘A’ . . . .”
CR:1029. What lands, leases, properties, interest, leasehold rights, depths or
formations are specifically noted and reflected on Exhibit A? Exhibit A gives us two
options: (1) the set of four leases; and (2) the set of four wells. CR:1033. No one
contends that the set of four wells was reserved and retained. Such a contention
would be unreasonable given that these were the same wells submitted for auction
and listed at the top of the Assignment’s first page. CR:1029, 1497.
That leaves only the set of leases at the top of Exhibit A to describe the
reserved interests. Yet, the PetroMax Defendants contend that the reservation is
limited to the narrow “exception” from the listed leases. As discussed above in
Section I(B), the exception describes acreage Southland had already farmed out. See
CR:74-75, 82-85, 501-05, 1380-81; see also 2SCR:14. Southland could not reserve
to itself an interest it did not hold at the time of the Assignment, i.e., “the lands
attributable to the H.K. Odom Wells, James D. Wilson #4 Well and the Buchanan
#2 Well.” CR:1033 (emphasis added). On the other hand, it was logical for
Southland to (1) convey its interest in the four listed wells, and (2) reserve the
31
remainder of its interest in the four listed leases, which it owned with the exception
of the lands attributable to the farmed-out wells.
Reading both lists on Exhibit A as describing the interests being conveyed
also would render impermissibly meaningless the list of four wells in the Assignment
and on Exhibit A. See Luckel v. White, 819 S.W.2d 459, 462 (Tex. 1991); Coker,
650 S.W.2d at 393; R&P Enters. v. LaGuarta, Gavrel & Kirk, Inc., 596 S.W.2d 517,
518-19 (Tex. 1980). If the Assignment conveyed all of Southland’s interest in the
four listed leases, including interests in any wells drilled on them, there was no
reason to list four of the wells included in that transfer.
It is illogical to read the title of the list of wells—i.e., “Associated Wells”—
to mean “the wells associated with the four above leases.” For instance, the Wilson
#1 well, which also was located on the Wilson Lease, is not included in the list of
“Associated Wells.” CR:1033. Thus, the list does not set forth the wells “associated”
with the four leases, but instead identifies the wells “associated” with the sale at
auction, i.e., the only interests being assigned.
That the 1994 Assignment and Exhibit A afford different treatment to
different wells on the Wilson Lease is entirely consistent with the surrounding
circumstances. Recall that the Wilson Lease consists of two, non-contiguous tracts.
The Wilson #2 and #3 wells—whose wellbores and associated production units
formed the entirety of Tract 2—were included in the list of four wells being
32
conveyed. Because Southland had farmed out its interest in the Wilson #4 well,
Exhibit A excepted the lands attributable to that well from the Wilson Lease interest
that Southland reserved to itself. But, the Wilson #1 well was not conveyed (through
the list of four wells) or carved out from the reservation (through an exception to the
list of four leases).
Southland did not offer its interest in that well at auction, so it was not
included in the auction catalogue, the list of wells at the top of the 1994 Assignment,
or the list of “Associated Wells” in Exhibit A. Unlike the Wilson #4 well, Southland
still owned its working interest in the Wilson #1, though the interest was subjected
to an after-payout penalty when Southland went non-consent. Therefore, unlike the
Wilson #4 well, the Wilson #1 was not included in the exception from the list of
leases. As a result, Southland reserved and retained unto itself its interest in the
Wilson #1 well, which it holds to this day. 11
The PetroMax Defendants’ interpretation ignores these distinctions. It would
render meaningless the list of wells in the 1994 Assignment, the assignment’s
reservation provision, and the list of “Associated Wells” on Exhibit A.
11
In addition, although the Wilson #5 well has quit producing, Burlington still owns
an interest in the leasehold acreage pursuant to Humble Resources Company’s re-
assignment of all interest in the Wilson #5 and associated acreage after termination
of its farmout agreement. CR:922-1028, 1037.
33
Consequently, the PetroMax Defendants’ interpretation does not comply with
contract construction principles and is unreasonable.
Burlington’s interpretation is the only reasonable interpretation. It compels
the conclusion that, as a matter of law, Burlington still jointly owns an interest in (at
the very least) the Wilson #1 well, which continues the AMI in effect. Consequently,
in the alternative to the remand requested above, Burlington is entitled to rendition
of judgment that, pursuant to the 1975 Letter Agreement and 1994 Assignment, its
ownership interest continues the AMI in effect.
B. In addition, the 1975 Letter Agreement does not provide for
reduction of Burlington’s rights proportionate to the scope of its
joint ownership.
Finally, in its summary-judgment motion, Burlington sought a ruling that the
1975 Letter Agreement does not provide for a reduction of the undivided 25%
interest to be offered to Burlington in leases and mineral rights within the AMI if
Burlington’s joint ownership in the nine original leases diminishes over time.
CR:523-26. The 1975 Letter Agreement provides that the AMI continues in effect
“as long as leases are jointly owned within such area . . . .” CR:593. Upon acquiring
any oil and gas leases or mineral rights within the AMI, Buttes agreed to offer to
Aztec an undivided 25% interest in those leases/rights. Id. No provision was made
for a reduction in that percentage if Aztec’s (or later, Burlington’s) ownership share
of leases/rights within the AMI diminished over time. Id.
34
Had the parties wanted to provide for that reduction, they knew how to do so.
The 1975 Letter Agreement does provide for a proportionate reduction in the interest
required to be offered to Aztec if Buttes acquires less than the full 100% interest in
an oil and gas lease or mineral rights in the AMI. CR:593. But the parties chose not
to make a similar provision for any reduction in proportion to Aztec’s joint
ownership of leases within the AMI. Texas courts are not allowed to rewrite the
agreement to add such a provision. See, e.g., Neece v. A.A.A. Realty Co., 322 S.W.2d
597, 600 n.3 (Tex. 1959).
As shown above, Burlington is entitled to reversal of the trial court’s holding
that the AMI provision terminated. Because Burlington offered the only reasonable
interpretation regarding its undiminished right to a 25% interest in leases/rights
acquired within the AMI, this Court should reverse the trial court’s denial of
summary judgment on that issue, as well. Further, the Court should render judgment
that Burlington’s rights under the 1975 Letter Agreement and AMI to the offer of a
25% interest in leases or mineral interests acquired in the AMI by Buttes’ successors-
in-interest are not subject to reduction or limitation based on Burlington’s ownership
share of leases and rights within the AMI.
35
CONCLUSION AND PRAYER
In determining whether ambiguities exist in oil and gas assignments, it is
critical to analyze and apply consistently the principles that govern all contracts. The
most basic policy of contract law is to protect the parties’ justified expectations.
DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 677 (Tex. 1990). The ability to form
justifiable expectations about contractual rights and obligations depends, in turn,
upon the certainty with which parties may predict how the law will interpret and
enforce their agreement. Id. This essential legal framework is weakened by summary
judgments that stray from fundamental principles governing contract construction,
particularly in an area of widespread importance such as oil and gas assignments.
Appellant Burlington Resources Oil & Gas, L.P. asks this Court to reverse the
trial court’s summary-judgment rulings and (1) either remand the issues to the trial
court for further proceedings consistent with this Court’s opinion and judgment, or
render judgment that the AMI continues in effect; and (2) render judgment that
Burlington’s rights to acquire a 25% interest in leases or mineral interests acquired
by Buttes’ successors-in-interest in the AMI are not subject to reduction or limitation
based on the scope of Burlington’s joint ownership of leases and rights within the
AMI. Burlington also asks for all other relief to which it is entitled at law or in equity.
36
Respectfully submitted,
/s/ Kirsten M. Castañeda
John R. Mercy Kirsten M. Castañeda
State Bar No. 13947200 State Bar No. 00792401
jmercy@texarkanalawyers.com kcastaneda@adjtlaw.com
MERCY CARTER TIDWELL, ALEXANDER DUBOSE
L.L.P. JEFFERSON & TOWNSEND LLP
1724 Galleria Oaks Drive 4925 Greenville Avenue, Suite 510
Texarkana, Texas 75503 Dallas, Texas 75206
Tel: (903) 794-9419 Tel: (214) 369-2358
Fax: (903) 794-1268 Fax: (214) 369-2359
Vincent L. Marable III Roger D. Townsend
State Bar No. 12961600 State Bar No. 20167600
trippmarable@sbcglobal.net rtownsend@adjtlaw.com
PAUL WEBB, P.C. ALEXANDER DUBOSE
221 N. Houston Street JEFFERSON & TOWNSEND LLP
Wharton, Texas 77488 1844 Harvard Street
Tel: (979) 532-5331 Houston, Texas 77008
Fax: (979) 532-2902 Tel: (713) 523-2358
Fax: (713) 523-4553
Fred Hagans
State Bar No. 08685500
fhagans@hagans-law.com
Kendall C. Montgomery
State Bar No. 14293900
kmontgomery@hagans-law.com
HAGANS BURDINE
MONTGOMERY & RUSTAY, P.C.
3200 Travis, Fourth Floor
Houston, Texas 77006
Tel: (713) 222-2700
Fax: (713) 547-4950
Attorneys for Appellant
Burlington Resources Oil & Gas Company LP
37
CERTIFICATE OF COMPLIANCE
I certify pursuant to TEX. R. APP. P. 9.4(i)(3) that this Brief complies with the
length limitations of Rule 9.4(i) and the typeface requirements of Rule 9.4(e).
1. Exclusive of the contents identified by Rule 9.4(i)(1) and inclusive of all
textboxes, footnotes, and endnotes, this Brief contains 7,543 words as counted
by the Word Count function of Microsoft Word 2010.
2. This Brief has been prepared in proportionally spaced typeface using:
Software Name and Version: Microsoft Word 2010
Typeface Name: Times New Roman
Font Size: 14 point
/s/ Kirsten M. Castañeda
Kirsten M. Castañeda
38
CERTIFICATE OF SERVICE
I hereby certify that on the 20th day of October, 2015, a true and correct copy
of the foregoing Brief, including Appendix and hyperlinked materials, is served on
Appellee by e-mail and e-service via efile.txcourts.gov to counsel of record as
described below:
Mr. Brad D’Amico Mr. David J. Beck
bd@canteyhanger.com dbeck@beckredden.com
CANTEY HANGER LLP Mr. Thomas E. Ganucheau
1999 Bryan Street, Suite 3300 tganucheau@beckredden.com
Dallas, Texas 75201 BECK REDDEN LLP
Counsel for Appellee PetroMax 1221 McKinney Street, Suite 4500
Operating Co., Inc. Houston, Texas 77010-2010
Counsel for Appellees PetroMax
Mr. Greg W. Curry Operating Co., Inc., Petro Texas
Greg.Curry@tklaw.com LLC, and CH4 Energy II, LLC
Mr. Gregory D. Binns
Gregory.Binns@tklaw.com Mr. Jesse R. Pierce
Mr. Richard B. Phillips, Jr. JPierce@pierceoneill.com
Rich.Phillips@tklaw.com Mr. Brian K. Tully
THOMPSON & KNIGHT LLP BTully@pierceoneill.com
1722 Routh Street, Suite 1500 PIERCE & O’NEILL, LLP
Dallas, Texas 75201 4203 Montrose Blvd.
Counsel for Appellee Woodbine Houston, Texas 77006
Acquisition, LLC n/k/a MD America Counsel for Appellee TexCal
Energy LLC Energy South Texas, LP
/s/ Kirsten M. Castañeda
Kirsten M. Castañeda
39
No. 06-15-00044-CV
IN THE SIXTH DISTRICT COURT OF APPEALS
Burlington Resources Oil & Gas Company LP, Appellant,
v.
PetroMax Operating Co., Inc., Woodbine Acquisition, LLC,
Petro Texas, LLC, Ch4 Energy II, LLC, and
Texcal Energy South Texas L.P., Appellees.
On Appeal from the 12th Judicial District Court
Madison County, Texas, Cause No. 12-13130-012-10
APPENDIX TO BRIEF FOR APPELLANT
Tab
1975 Letter Agreement (CR:589-625) ..................................................................... 1
1994 Assignment and Bill of Sale (CR:1029-34) .................................................... 2
Order Granting Defendants’ Motion for Summary Judgment on Title
Issues (CR:1617) ...................................................................................................... 3
Order Denying Burlington’s Motion for Partial Summary Judgment
Seeking Various Declarations (CR:1618-19) .......................................................... 4
Order on Joint Motion to Sever and Abate (CR:1640-45) ...................................... 5
40
Tab 1
Tab 1
'
,_ .. :
BUTTES RESOUHCES COMPANY
SOUTHWEST DlVlSJbN
TELEX: 1100 MILAM MAIL] NG ADDR£55
'71!12:.?.:97 P. 0. BOX 20&7
SUITE 733
HOUSTON, TEX,t.S 7700 I
HOUSTON, TEXAS 77002
(713) 2Z~.i414
January 7, 1975
Mr. 'lhomas E. Scott
Aztec Oil & Gas Company
2000 First National Bank Building
Dallas, Texas 75202
Re: Drilling and Joint Operating
Agreement - Aztec Oil &
Gas Gompwy
00-660 - So. Zulch Prospect
Madison, Brazos and Grirhes
Cos., Texas
Dear Mr. Scott:
Buttes Resources Company (hereinafter referred to as "BRC") owns
an undivided one-half (1/2) working interest in and to the oil and
gas lea.ses. described. and 'r.eferred. to in. Exl;jib;Lt "A" attached hereto
and made a part hereof, which leases and the lands covered thereby
are referred to herein as "said leases". You have expressed' a desire
to participate with BRC in the drilling of a test well in search of oil
or gas subject to the terms and conditions hereinafter contained, and
this letter, when accepted by you in the space hereinbelow provided,
shall set forth the terms of our agreement concerning the drilling of
such test well and the operation and development of said leases.
-
I.
Prior to comnencing drilling operations of the test well, BRC shall
·cause title to the tract of land upon which such test well is to be drill-
ed to be examined by an attorney of its choice.
II.
BRC agrees to furnish you the following information:
A. A plat on which said leases and the proposed location of
the test well are noted.
589
. ·1.·
Mr. Scott -2- January 7, 1975
B. The estimated cost of drilling the test well to 9,200 feet,
including the cost of all open hole logging Which will be
condUcted. Such estimated costs are set forth on the
author:ization for expenditure (ARE;); attached hereto ,<il?'Exl'ii~it
"B" and by this reference rrade a: part hereof. · :· '·
C. Copies of said leases ar.~d all other pertinent legal documents.
Aztec shall have a period of ten d<iYS after receipt of said
title material within which to accept or reject the said
leases. If Aztec rejects title to said leases, it shall point
out to BRC the deficiencies upon which such rejection is based
and BRC, at its option, shall have a period of sixty days after
receipt of such advice :from Aztec within which to cure such
defects in title to Aztec's satisfaction. In the event such
defects are not so cured within said sixty-day period, Aztec
ID<>Y withdraw from this agreement and all obligations hereunder
be.tween Aztec and BRC shall be terminated.
D. A copy of the title._opinion covering the lease or tract upon
which the test well is to be drilled setting forth the fee
ownership of the minerals and the ownership of the oil and gas
lease covering such mineral interests, based upon abstracts o;f
title or a search of the county records and q.pproving title
into BRC for drilling and production. No well shall be comnenced
under this agreement Jfuwever, until Aztec has approved title
to the drillsite lease or tract.
III.
Subject to all other terms and provisions hereof, BRC agrees to
comnence or cause to be corrmenced, at the earliest possible date,
operations for the drilling of a test well in search of on or gas at
a mutually agreeable location on said l12ases. such test well shall be
drilled with due diligence and in a good and workmanlike manner to a
depth of 9,200 feet beneath the surface of the earth, whichever is the
lesser depth, herein called the "objective depth,'', unless some "impene-
trable", as that term is defined below·, j_s encountered prior to reaching
the objective depth. The term "irl]penetrablE'l" as used in this agreeroont
shall mean formations or conditions which would render fwther drilling
operations by a prudent operator' impracticable or which cannot be pene-
trated by the use of customary drilling procedure or techniques.
If an impenetrable is encountered prior to reaching the objective
depth, the provis,tons of Section 3~ Ci (?f .the Join~:CJPe!'at:lrig Ai!i~etrent:
attached )lereof· as .EXhil'lit. "C" shalll;lt?Come effectiVe. · ·
Upon reaching the objective depth for the test well, BRC shall
cause such logs and tests to be made which are mutually agreed upon.
-- - --· - - --.-.·- --- - - - - -
~. --. -·- ---- ---------,----
590
Mr>. Scott -3- January 7, 1975.
N.
Your representative shall be allowed free access to the derrick
fioor and to any and all information, {l;eological or otherwise, pertain-
ing to the drilling of the test well. Prior to running any logging
device, coring or taking any fonnation tests, or other similar type test,
BRG shall first give you notice in sufficient time to allow your
representative to be present to witness such test. BRC agrees to
furnish you two (2) copies of each field print and two (2) Cbpies of
each final print of electric logs and shall telephone daily reports to
your representative. Any notice required hereunder to be given to BRC
shall be furnished to;
Buttes Resources Company
Attention: Mr. V. K. Kr'aus
llOO Milam Building, Suite 733
P. 0. Box 2067
Houston, Texas 77001
Office Phone: (713) 223-1414
Heme Phone: (713) 682-7327
Any notice required hereunder to be given by BRC to you shall be furnished
to:
Aztec Oil & Gas Company
2000 First. National Bar1k Bldg.
Dallas, Texas 75202
DRILLING REPORTS & GEOIDGICAL NOTICES:
Attention: Mr. Kenneth A. Wood
Office Phone: (214) 741-1272
Home Phone: (214) 254-8090
or
Mr. R. K. Taylor
Office (214) 741-1272
v.
In consideration of BRC's agreement to drill the test well described
above you agree to bear and pay the costs, risk:;; and expenses incurt'ed in
drilling and testing prior to the running of production casing. for a
completion attempt and plugging and abandoning if no completion
is attempted on such test well as set out below. Except as ptherwise in
this agreement provided, such payment shall be due and payable on or
b~fore thirty days after you receive invoices for the same.
A. 33-1/3% of all of BRC's costs, risks and expenses incurred in
drilling and testing for the test well and jn plugging the well
if no completion attempt is made.
591
ll!r:'. Scott -4- January 7, 1975
B. .$46,331. 50 as your share of the acquisition costs paid by BRC
for said leases, including broke:r-age and recording costs incur-
red in conne.ct.ion With the acquisition of the same as of the
date hereof.
C. Subject to the tenns of the Joint Operating Agreenent Exh:i.bit
"C" hereto, 25% of all costs incurred after the date hereof,
including, without lim1tation, :r-entals, curative wor'k, out-
side legal costs and costs of governmental regulatory
applications and hearings in connection with said leases.
All of the costs, risks and exPenses incurred in drilling, testing,
completing, etc. shall be supported by invoice or s.tateo-ents of charges,
copies of which BRC agrees to make available upon request . Such costs,
risks and expenses shall be invoiced to you when BRC receives invoices
fo!' the same.
VI.
Subject to the provisions of Paragraph VII, Upon receipt of payment
of your share of the costs and expenses set out inParagraph V-B, which
you have agreed to pay herein, BRC agrees to assign to you, with warranty
of title, by, through and under BRC but not otherwise, an undivided 25%
interest in said leases. Such assignment Shall be subject to the terms
of this agreement, the Joint Operating Agreement attached hereto as
Exhibit "C", (by this reference made a part hereof), and your proportion-
ate part of the lessors' royalty provided for in said leases and the
over-riding royalty provided for in Exhibit "E" hereto. It is understood
and agreed that all operations conducted after the test well nas been
drilled to the objective depth or plugged and abandoned as a dry hOle
i f no cornpletior1 is attelllpted shall be conducted under the terms of the
Operating Jlgl"eement attached hereto as Exhibit; '.'C'', with your interest
therein being an undivided one-fourth (1/4).
VII.
If any rental shall become due after the date hereof and prior to
the Joint Operating Agreement attached hereto as Exhibit "C" becom'ing
effective under any of said leases, then BRC shall pay the same and you
agree to reimburse BRC for 25% of such rental paynent Within thirty days
after rece:ipt of BRC' s invoice; provided, BRC shall not be liable for
erroneous payment or inadvertent failure to pay ·a:f!Y such rental.
592
Mr. Scott -5- January 7, 1975
VIII.
It is. not the purpose or intention of this agr'eeirent to create,
nor shall the same b.e construed as creating .any pdning pqrl;nership,
conmercial partnership or other pqrtnership relation nor (>hall the
operations of the parties hereunder be construed to be considered as a
joint venture. 'Ihe liability of the pqrties hereto shall be several and
not joint or collective.
Each of the parties hereto elects, under the authority of Section
761 (a) of the Internal Revenue Code of 1954, to be excluded from
the application of all of the provisions of Subchapter K of Chapter 1
of SubtitJ.e A of t!:le InternaJ. Revenue Code of 1954. I f the· :Income tax
laws of the states in which the property covered hereby is 1ocated contain,
or may hereafter contaJn, provisions s:i.rnilar to those contained :in the
SUbchapter of the Interna], Revenue Code of 1954 above referred to under
which a Similar election is permitted, each. of the pqrties agt>ees that
such election shlUl be exercised. If applicable, BRC is hereby author- .
ized to execute and file on behalf of both parties hereto such elections
with t!:le appropriate governmental agencies.
IX.
Exhibit "I)P denotes an Area of J)lutu;ll Int¢rest , outlined in red.
Tf you acquire any oil and gas leases or mineral rights within the Area
of Mutual Interest after the <)ate hereof; then you agree to offer to BRC
an undivided three-fourths (3/4) interest in saJd leases or mineral
interest so acqlllred;. and i f BRC accepts said interest, then BRC will
immediately re:lnlburse you far its proportionate part of the acquisition
costs. If.BRC acquires any oil and gas leases or mineral rights within
the Area of Mutual Interest after the date hereof:, then BRC agt>i;'es to ·
offer to you an undivided one-fourth (1/4) interest in said leases or
mineral interest so ~quired; and if .AZTEC accepts said interest, then
AZTEC will immediately reimburse BRC for it.s proportionate j>!'rt of th.e
acquisition costs.* Such ot'fer or offers .arE: to. be made in wr'iting and
offeree shall have fifteen (15) days in Which to. accept or reject
such offer. If either so acquires·an oil or gas lease or mineral interest
and the other party does not desire to pqrticipate in such acquisition,
then the acquirihg party shall own said oil and gas lease or mineral ·
interest free and clear of all terms and conditions of this agr>eement.
If both parties participate in such acquisition, th.<'n the oil .aJ14 gas
.lease or mineral. interest Shall be subject to the terms and condition$
of the Joint operating Agreement attached hereto as Exhibit "C". If
the interest in oil and gas li;'ases or mine.ral rigl1ts acquired represents
less than the full 100% interest w such interest, then the rigbts of the
. parties hereunder to acquire such interest shall be proportionately re- .
duced. 'l'he Area of IYlutual :mterest as outlined in Exhibit "D" shall
last as long as leases are joint}y owned within 13uch area, ·hOWever,
*In the event an interest in oil. and/or mineral rights is acquired by llRC
pursuant to that certain Letter Agreement d!lted October 16, 1974, bat~een
Buttes Resources Company and Curran R. Campbell, then BRC agrees to of~er
to AZTEC one-half (1/Z) of the interest so acquired by llRC and i f AZTEC
accapts said intel:est, then AZTEC shall i11Unedfately rein1burse BRC for its.
proportionate part o:J;- J3RC 1 s aCtual acquisi,~ion cOsts.
593
''""
Mi:'. Scott -6- January 7, 1975
three years 1'rcm the date of this agreement;._if &<~,td area is still :In
effect, it shall be contracted to an area/~~·~lhe two miles outside
the then remaining jo:lntly owned leases.
x.
The terms, covenants and conditions hereof sball extend to and be
binding upon the parties hereto, the:i:r successors and assigns. 'Ihis
instrument shall not be assigned bY you either in whole or :In part
unless you have first obtained written consent frelrn BRC. In the event
that you are acquiring this .undivided working interest for the account
of more than one (1) person or entity, then you represent that you
have sole investment discretion to purchase such interest for such
accounts.
XI.
It is mutually understood that there is no obligation Ufion BRC
to carmence a well under the terms of this agreerent. and .there shall
be rio penalty for failure to conmence such well; however, BRC shall
make its best effort to commence the drilling of the ·well at the
earliest possible date. However, :In the event BRC does not corrmence
the test well here:ln provided for within one. year from the date of this
Ei:greement:
l. Then this Agreement, at Aztec's option (which shall be exercised
within 30 days after the end of one year from the date hereof),
shall terminate and be of no further force and effect. In the
event Aztec elects to so tenninate this agl'eement, then BRC
shall refund to Aztec the amount of money which Aztec has
paid to BRc as of the date of such termination plus $2,500,00,
being the finders fee which Aztec has paid to Mi:'. Bill Richardson,
and Aztec, upon receipt of such pa~nt, shall reassign to BRC
its interest in this agreement and :In the said leases.
XII.
TI'lis agreement and the Operating Agl'eement attached hereto are
both subject to the terms and conditions of the Letter Agreement dated
Septemer 4, 1974, between Curran R. Campbell, Inc. and W. A. Nowotny
and the Assignment of Oil, Gas and Mineral Leases dated October 18,
19711, from Curran R. Campbell, Inc. to Buttes Resources Company, both
attahced hereto as Exhibits "E" and "F", respectively··
'Ihe foregoing sets forth the entire agreement between the par1;ies,
and there are no verbal or oral agl'eernents between the parties not set
out herein in ~II'iting. If either party desires to anEnd this agreeli'Ent,
then such amen~nt shall be accomplished by an instrument in writing
executed by both parties hereto,
594
Mr. Scott -7- January 7, 1975
If the terms and conditions herein set forth meet with your approval,
please indicate your approval and acceptance by signing this agreement
in the space provided below and returning one (1) fUlly executed original
of this agreement to Buttes Resources Company, P.o. Box 2067, Houston,
Texas, 77001 - Attention: Mr. John D. FuJ.ton.
If this agreement is not signed and returned within fifteen (15)
days form your receipt hereof, then this agreement, at BRC's option,
shall terminate and be of no force and effect.
This agreement has been executed in duplicate, each of which shall
constitute an origianl.
Very truly your$,
BUTl'E3 RESOURCES COMPANY
BY:ROG~'f.~oo/'' ~
VICE PRESIDENI'
JDF/RCC/mjw
Attachments
AGREED TO AND ACCEPI'ED THIS 6ti._ DAY OF
.J ,. N.t,ll\.~.8 -,..:::;.19,--:')c:c'S";;.
AZTEC OIL & GAS CaviPANY
595
Exhibit "A" to Letter Agreement dated 12-1-74
. batwee!] Buttes Resources Company and Aztec Oil & Gas Company
RECORDED
LESSOR LESSEE VOLUME - PAGE
A.Y. Benge et ux Curran R. Campbell, Inc. 203 - 4,59 - Madison County
J. Philip Gibbs, Jr., Curran R. Campbell, Inc. 203 - 414 ~ Madison County
Attorney
Faye Andrews Curran R. Campbell, Inc. 203 - 411 - Madison County
T.L. Hurry et ux Curran R. Campbell, Inc. 203 - 409 - !1adison County
James D. Wilson, Ind. Curran R. Campbell, Inc. 21 - 667 - Brazos County
& Ind. Ex.
Henry K. Odom et ux Curran R. Campbell, Inc. 21- 661 - Brazos County
George W. Boswell et al C:urran R. Campbell, Inc. 203 - 858 - Madison County
B.J. Cooley et ux curran R. Cam'pbell, Inc. 203 - 856 - Madison County
Raymond B. Buchanan Curran R. Campbell, Inc. 21- 679 - Brazos County
et ux
596
A.A.P.L. FORM 610
MODEL FORM OPERATING AGREEMENT-1956
Non-Federal Lands
OPERATING AGREEMENT
DATED
J ........... .,J I
fiecemtrnr 1·
FOR UNIT AREA IN TOWNSHIP .. - - - - - - , RANGE---···
Counties
Madis=.,-]lu=s..&..GJ;imes_ ~ STATE OF...__1:.~xa£.. - - - ' - - -
South Zulch Area
A.MERlCAN .-.SsOCJ,.TION OF P.ETROLEUM LANDMEN
APPROVED FORM. A.A.I>.L. NO. 6\0
MAY Bl ORDERED DIRECTLY FROM THE PUBLiSHER
ROSS- M"'RTIN COMPANY, BOX 800, TULSA 7~1()\
Exhibit "C" r:o Agreement between Buttes Resources Company and Aztec Oil & Gas Company,
_dated~
JPr-'..j~ ~,._, \, \'i.l.r
597
~· '
;_.:
A-4.P.L. FORM 61 o
TAaLE OF CONTENTS
Tltlo ......
1. Definitions
l. Xitlo i'nllliiRatiAI-1, Loss of Leases and Oil and Gas Interests ·····-····
•
4. Inte.tes-U; of Par-ties 2
Operator of Unit
5.
'
6. Employees 3
7. 'f'esl Well
'
8. Costs and Ex.penses 3
9. O~rator's- Lien 4
10. Term of A~l'eemE:nt ... 4
11. Limitation. on Expenditures ..... •
12. Operations by Less Than All Pa!'ties ..... -~-·. 5
13. Right to Talt-e Production in Kind 6
14. Access to Unit Area 7
15. Drilling Contracts 7
16. Abandonment o£ Wells 7
17. Delay Rentals and Shut-in Well Payments -------- 8
Pa£e:wtial Rilhllo Puoel•a:lC ............... . B
19. Selection of New Ope:rato1· B
20. Maintenance of Unit Ownership 9
21. Resignation- o! Operatol" ········-- 9
22. Liability of Ptu·ties .... 9
23. Renewal or Extension of Leases ·-· 9
24. Surren-der of l.A:ases .. --·····-·· ········• 10
25. Acreag-e or Cash Contributions .. ······ ........................ 10
26. P1·ovlsion Concerning Taxation ---·--···---···-··· 10
.... 11
27. Insut·an-ce -···········
11
28. Claims and Lawsuil:s
Force Majeure 11
29.
3-G. Notices ··-··············· 11
31. Other Condi-tions ........... ----···--- 12
598
A.AY.L. FORM 61c •.
·
OPERATING AGREEMENT
TliiS AGREEMENT, entered into this~-- day of December , 19E-., between
Buttes Resources C~pany
hereafter designated as "Operator'', and the signatory parties other than Operator.
WITNESSETH, THAT,
WHEREAS, the parties to this agreement are owners of oil and gas leases covering and, if so lndicated,
-unleased mineral interests in the tracts of land described in Exhibit "A", and all partie$ have reached an
agreement to explore and develOp these ieases and interests for oil and ga,s to ttle extent and a!l hereinafter
provided;
NOW, THEREFORE, it is agreed as follows:
l. DEFINITIONS
As used in this agreement 1 the foJlowing words and terms shall haye th~ meaningS here tlSet·ibed to
thetn.
( l) The words "party" and- "pa-rties" shall alt'fays mean a party, or parties, t-o this agre,ement.
(2) The parties to this agreement shall always be referred to as 1'it" or "they'', whether the parties be cor-
porate bodies, partnerships, associations, or persons real.
(3) '!'he term 1'-oil and gas" shall include oil, gas, casinghead gas1 gas condensate, Jand all other liqJ..1,id or gase~
ous hydrocarbons, unless an intent to limit the .inclusiveness of this term is specifically stated.
(4) The term "oil and gas intciesls" shall mean unleased fee and mineral interests in tracts of land lying
within the Unit A-,:ea which are owned by parties to this agreement.
(5) The term "lTnit Area" shall ref~r to and Include allot the lands, oil and gas leasehold inler-esb and oil
and gas interests intended t-o be developed and operated for oil and gas pu·rposell undeL· this agreement.
·such lan!ls1 oil and gas leaSehold interests and oil an~ gas interests are described in ;Exhibit ''A".
( 6) The term "drilling unit" shall mean the area fixed for the drilling bf on_e. well by OTI;k7: or rule o! any
state or federal Qody having authority. If a drilling WJit is not fixed _by any such rule or order, a drilling
unit shall be the dn1ling unit as established by the pattern of drilling iil the Unit Area or as fi_xed by ex,.
press agreement oi the parties.
(7) All exhibits attached to this agreem<:>nt are made a part of the contract as fully as though copied in ful'l
m· the contract.
(B) The w<lrds "equipment" and "materla:Is" as used hel"e ate synonymous and shall mean and include all
oil field supplies and personal property acquired for use in the Unit Area.
2. TITLE EXAMINATION} LOSS OF LEASES AND ·OIL AND GAS INTERESTS
Prior to the commencQment of auy well, operator shall cause title
to be examined on the drilling unit and a title opinion prepared by
a competent· attorney of .his choice. Operator shall submit copies of
the title opinion to all parties who are to participa~e in the drilling
of such Mell aOd such well shall not be commenced until all such parties
have approved title to the drilling unit.
_,_
"Joint Loss"
599
''
·A ..11;.P.L FORM 61C
HlieeliePs al'!d fli er:eess reyalt), sit J'l&)mef!ts, aRti stiu1r &peeial \wrliea 6, A ee
of each supplemental opinion, and of all final opinions, shall be sent promptly to each party.
the examining ati01·ney c:on(:E!~ng the validity of the title to each oil and gas in~rest and e~
amount of interest covered thereby shall be binding and conclusive on the parties, but
leases as to primary term, royalty provisions,_ dr'iUing obligations,_ and special b ens.- shall be a tnatt.er for
apptoval and acceptance by an authorired- represent_ative of each party.
All title examinations shaU be made, and title reports sub · , within a period oL___,days after the
submiSSion ot abstracts a,nd title papers. Each party sha , n good faith, try to satisfy the requirements of. the
examining attorneys concerning its leas~ and inte , and each &:hall have a period >L__ _ _ _ days from
receipt of tiUe report for this purpose. If t ttle to any lease, or oil and gas interest, is finally rejected by
the examining attorney, all parties- s then be asked to state in writing whether they will waive the title
defects and ac~t the leases o · ter'ests, or ':"hether they will ~tand on the attorney's opinion. If one or more
parties refuse to waive t' detects. this agreement shall, in t~at case, be_ terminated and abandoned, and all
abstracts and title pers shall be returned to their senders. If all title.s are approv~ .by t~ enmining at~
torneys., or accepted by all partieS, and if' all leases are accepted as to primary terms, royalty provisions,
drilli. obligations and s-pecial burdens, all subsequent :provisions ot this agreement shall become operative
B. Failure of Title:
A«or aP ti\les aFe ap~'£9" e~ SF a:ae'O'p•o;! 1 Any defects ot title that may develOp shall be the joint re-
sponsibility of aU parties and, if a title loJi$ occurs, it shall be the lo~ of all parties, with eaeh bearing its pro-
portionate part of the loss and 0! any liabilities incurre~ in the loss. If such a loss occurs, there· shall be no
change in, or adjustment of, the interests of the patties in the remaining portion of the Unit Area.
C. Loss o[ Leases For Other Than Title Failure:
If any lease or interest subject to this agreeme11t be lost through failure to develop or because express
or implied covenants have not been performed, or if any lease be permitted to expire at the end of its primuy
tenn and not be renewed or extended, the loss shall not be C<lnsidered a fa,Uu.re ~;>f title and all such losses shall
be joint losses. and shall be borne by all parties in proportion to their interests and there shaU be no readjust-
ment of interests in the remaining portl.on of the Unit Area.
3. lRJLEt...SBB BIL .um GA:S IH'f'EBES'J!S
the purpose of this agreement as if it were a leased interest under the !ann of a· s ease attached as
Exhibit "B" and for the primary term therein stated. As to ests,. the owner shall receive roya1ty on
to,~.sJ'-'"hal1lrgwasu!l.e;a;s;e attached hcr.eto as Erl\ibtt ''B". Such party shall,
however, be of this agreement relating to lessees, to the extent that it ow~s
4. INTERESTS OF PARTIES
Exhibit "A" lists all of (he parties, and their :respective petcentagtf! or fx:actional interests undel thiii
agreement. Unless cllanged by, other provisions, all costs and liabilities lnc~d in operations under this con-
tract shall be borne and paid, and all equipment a,nd material acquired in operations on the Unit Area shall be
owned, by the parties as their interests are given in Exhibit "A". All productlon of oil and gas from the
Unit Area, subject to the payment of lessor's royalties, shall a:J.so be owned by ihe parties in the samt- manner.
-·-
"Joint Los&"
600
A.A,P.J.:. FORM 610
' " .
U the_ futeres:t of any party in any ·.oil and gas lease covered Qy this agreement is subject to an overriding
royalty, production _payment, Or other charge over and above the usual one .. eigthh ( Ml) royalty, Such party shall
assume an(i alone bear all such excess obligations and shall account for them t_o th~ oWners: tbeteof out of. its
share of the working interest production of the Unit. Area.
5. OPERATOR OF UNIT
Buttes Resources Company _______________ shall
---::C.:..:C:..:C:::::.::.::::_c::.::r::::e:..._ be tl\e Operator of
the Unit .Area, and Shall ~ontlucr and direct and haVe full control ot all operations on the Unit Area as per-
mitted and required by; and within the limits_ of, this agreement. It shall conduct all such operations in a good .
and workmanlike manner, but it shaH have no liability as Oper.ator to the other parti~s for losses sustained,
or liabUities _Incurred, except such as may result froril gross negligence Or from breach of the provi~ions of
tbis agxeetnent.
6. EMPLOtEl:.S
The number of employees and their sel~ction, and the hou-rs of labor and the compensation for ~ervices
performed, shall ~ determined b:f Operator. All emplOyees shall be the- employees et Operator.
On or before the'"·---- day of _ _ _ _ _ _ _ _ _ _ 19 _ _! Operator .shall corornence t 1-
ing of a well for oil and gas in the following location:
and shall thereafter continue the drilling of the well with due diligen
unless granite or other practically impenetrab substance .is encountet·ed at a lesser depth or unless all parties
agree to complete the well at a lesser -d
Operator shall make reason e tests ol all formations encountered during drilling which give indica-
tion of containing oil and g n quantities sufficient to test, unless thi4 agreement shall be limited in its ap-
plication to ~ specific maWm or formations, in which event Op-eratur shall be required to test only the
formation or to co.tions to which- this agreenJent may apply.
perator's judgment the- wen wlll not pr.oduee oil or gas in paying quantities, and it wishes to
abandon the tetit as a dry hole, it shall firSt secure the consent ot all parties to the plugging, and the
•
8, COSTS AND EXPENSES
EXcept as herein otherwise specifically provided, Operator shall promptly pay and discharge aU costs
and expenses_ incurred in the developmetlt and operation of the Unit Area pursuant to this agreement and shall
charge each of the parties hereto with their respective proportionate shares upon the -coSt and expense basis
provided in the Acco\lnting Pr~cedure attached hereto and marked Exhibit ''C". If any provision o( E~
hibit "C'• should be inconsistent with any provision contained in the body of this agreement, the provisiOns in.
the body of this agreement shall prevail.
Operator, .at its election, shall have the right from t,ime to time to demand and reCeive from the other
parties payment in ad'Vance of their respective shar.es of the estimated amount of the costs to be incurred in
a:perations hereunder during the next SUC(Ieeding month, which right may be exercised only by submission to
each such party of an itemized statement of sud). e$Umated costs, togetb~T with an invoiCe for its S}lare there-
of. Each such statement and invoice for the paym~nt in advand! of .estimated costs shall be submitted on or
before the 20th day of the next preceding mont-h. Each: party shall pay to Operator ifs proportionate share of.
such estimate within fifteen (15) days after such esthna~ and invoice is received.. If any par_ty fails t~r its
0
share of said es-timate within said time, the amount due shall beaT interest at the rate of.:N. percent( per
annum until paid. Proper adjustment shall be made rno»thly between advances and actual cost, to the end
that each party shall bear and pa'y its. proportiOnate shate· of actl.ltl1 cost$ incurred, and no more.
_,_
Revjsed 1967
601
9. OPERA':\'OR'S LIEN
Operator is given a first and pref-erred lien on the interest ot each party covered by this contract, and
In each party's interest ln oi1 and gas produced and the proceeds thereof, and upon each party's interest in ma-
terial and equipment, to secure the payment Of a:ll sums due from each such party to Operator,
In the event any party fails to pay any amount owing by it to Ope•ator as its share of such costs and
ex'pense or such advance estimate within the time J.irnited for payment thereof, Operator, w~thout prejudice to
. other elj:isting remedies, is authorized, at iU election, to collect from the: purchaser or Pu•chasers Of oU or gas,
the proceeds accruing to the working interest or interests in the Unit Area of the delinquent party up to the
amount owing by such party, and each purchaser of oil or gas is authori~ed to rely upoh Operator's statement·
as to the amount O'W'ing by such party.
In the event of the neglect or failure of any non-operating party to promptly pay its proportionate part
of the cost and expense o! development and operation when due-, lhe other non-operating parties and Operator;
within thirty (30) days after the rend.ition of s_!:atements therefor by Operatot", shall proportionately contribute
to the payment of such delinquent indebteCiness"'and the non~operatin&: parties so contributing shall be entitled
to the same lien rights as are granted to Operator in· this section. 'Upon the payment· by such delinquent or
. defaulting party to Operator of any amount or amounts on such delinqu.entindebt~dneSs, Or upon .any recovery
on behalf of the non-operating parties \lnder the lien conferred aboVe, the amount or amounts- so paid or rep
covered shall be· distributed and. paid by Operator to the other non-op.erating parties .and Oper~tor propor-
tionately in accordance with the contributions theretofore made by them.
10. TERM OF AGREEMENT
This agreement shall remain in full force and effect for as long as any of the oil and gas leases subjected
to this agl'eement remain or are continued in force as to any part of the Unit Area, whether by production, ex-
tension, renewal or otherwise. ,.... ;,.o&,_..,...,..,,....,._.,.........,....,,._y,,_.;.,..,¥<'1l-<MHe&;,.,..,..,..,...,...,,..>jo,....
a dry hole and no other well is producing oil or gas in paying quantities from the Up.it A•.-...""'__,_ ..
of ninety {90} days after abandonment of the first test well, this inate
"''""'~" agree-ment, in which event this agreement shall con-
'"..,='" have been drilled and completed. If production r-esults there-
"'""~annnue in force thereafter as if said first test well had been J?roductive in paying
"result therefrom this agreement shalt tenninate
It is agreed,, however, that the term-
ination of this agreement shall riot.:relieve any party hereto from any liability which has accrued or attached
prior to the. date of such tennination.
ll. LlMITATIO:N" ON EXPENDITURES
Without the consent of all parties; (a) No well shall be drilled on the Unit Ar~a e1·ee}lt It"') "eU eK
pnsslJ ptodded Evt h• this >eetuw4; .ani except any well drilled pursuant to the provi'sions of Section 12
ot this agreement, it being understood that the consent to the drilling of a well shall include Consent to all
n~s.o;aty expenditu•es in the drilling, testing, completing, and equipping of the well, including necessary
tankage; (b) No well shall be reworked, plueged back or deepened except a well reworked., plugged back or
deepehed pursuant to the provisions of Section 12 of this agreement, it being understood that !he consent to.
the reworking, plugging back OI' <;leepening of a well shall include consent to all nee~ expenditures in
conducting such operations and completing and equipping of said well to produce, including neceSsary tank-
age; (c) Operator shall not undertake any single pro]ect reasonably estimated to require an ·expenditure in
excess o_t Ten Thousand and no/1,00-----------------------.---- Dollars ($ 10,000.00
except in connection with a w,ell the driBing, reworking, deepening, -or plugging back of which has been pr_e-
viously authorized by or pursuant to this agreement; provided, howeve;r, that in case of explosion, fire, flood,
or other sudden emergency, whether of the same or different nature, Operator may lake 6Uch s_leps and incur
such expenses as in its opinion are required to deal with the emergenc_y and to safeguard life and property,
but Qpetator shall, as promptly as possible, report the emergency to the other parties. Operator shall, upoh
request, furnish copies of its- "Authority for Expenditures" for any single project costing in ex~
cess o1 $ 5sOOO.OO
-4..-
602
A..f\,P.L, FORM 61
-
12. OPER~TIONS BY L£55 THAN ALL l"ARTIES
If all the parties cannot mUtually agree upon the drilling of any well on the Unit Area ether ll.&a t1
tesf, e-Jl prr ·hhll In it~ .iulis~ ~, or upon the rew.or-king, deepening or plUgging baCk of a dry hole dtilled
at the joint expense of all pat1ies or a well jointly owned by all the parties and not then producing in paying
quantiUes on the Unit Area. any party or parties wishing to d1iill, rework, deepen or p1uC back such a well
n'lay give the other parties written notice of the proposed operation, specifyin& the work to be performed,
the location, proposed depth, objective formation and the estimateQ cost of the operation, The parties receiv~
ing such a notice shall ha-ve thirty (30) days (except as to reworking, plugging back or drilling deeper', where.
a drilling rig is on location, the period shall be liinited to (orty-eight (48) "hours enehtsi e af Sat 1:1 !Ia) er s~e
.Qa.rl- after reei!ipt of the ·notice within which to notify thi! parties wishing to do the work whethet they eled
to patticipate in the- cost of ~he proposed operation. Failure of a p;;tty receiving such a notice to so reply to
it within the period above fixed shall eonstitu.te an election by that party not. to participate in the cost of the
proposed operation.
If any party receiving such a no.tice elects not to· participate in the proposed oPet:ation (such party or
parties. beintt hereafter referred to as '"Non-Consenting Party''), th~n in order to be entitled to the benefits
of this section, the party or parties giving the notice and such other parties as shall elect to participate in t e
. . . ninety 90)
operation (all sueh parbes· bemg hereafter referred to a·s the "ConSenting Pa"rlies"} shall, withirt ll>o·w-'t~
days after the expiration of the notice period of thirty {3(,) days (or as promptly as possible after the expir-
ation of ·the -t8-hour period where the drilling rlg is on location., as the case tnay be} actually commence work
on the proposed operation ami complete it with due diligence.
The entire cost and risk of conducling such operations shall be borne by the Consenting Parties in the
proportions that their respective interests as shOwn in Exhibit "A" bear lo thf:! total interests of all Consenti.ng
Parties. Consenting' Parties sball ke!!p the leasehpld estates involved in such operations free and clear o! all
liens and en<:umbrances or every kind created by or arising from the operations of the· Consenting Patties. I!
such an operation results in a dry hole, the Consenting Parties shall plug and abandon the well at tbelr sole
cost, risk and expense. It any well drilled, reworked, dee~ned or plugged back under the provisions of this
section results in a producer -of bil andlor gas in paying quantities, the Consenting Parties shall complete and
e~uip the well to produce at their sole cost and risk, and lhe well shall then be· turned over to Operator and
shall be operated by "it at the expeme and for the account of the Consenting Parties. Upon commencll'!ment ot
operations for the drillil'lg, reworking, deepening or plugging back of any such well by Consenting Parties
in :<~ccordance with the provisions of this section, each Non-Consenting Piarty shall be· deemed to have relin-
qulshed to- Consentin&: Parties, and lhe Consenting Parties shall own and. be entitled to teceive, in proportion
to their respective interests, ·all of such Non-Consentin~ Party's inter~st in the well, its leasehold operating
rights, and share of production therefrom until th~ proceeds or market value thereof (after deducting pro-
duction taxes, royalty, overriding royally and other interests payable out of or meas"Ured by th;e product!Qn
from such well acc:ruing w.ith respect to such interest until it reverts) shall equal the total of the following.:
{A)~ of each such Non-Consenting Party's Share of the cost of any newly acquiJ"ed surf'ace equipment
.beyond the wellhead connections (including, but J).Ot limited to, stock tanks, separaiors, treaten,
pumping cquipm~nt and pipl.ng), p]U!; ~of each such "Non-<;:oMent!ng Parly's share of the cost of
operation of the well commencing with first production and continuing until each such Non-Consenting
Party's relinquished interest shall revert to it under other provisions of this section, it being agreed that
each Non-Consenting Party's share of such cost$ and equlement wjll be that interest which would have
been chargeable to e:~eh Non-Consenting Party had it participated in the well !rom the beginning oi
the operation; and
(B) ~of that portion of the costs and expenses· of drilling, reworking, deepening or plugging ba~,
testing and completing, after deducting any cash contrib~.tt~ons re<!eived under Section 25, and~
of that portlori of the cos't of newly acquired equipment in the well (to and including the wellhead
connections), which would have been chargeable to such }'fon-Gonsent~ng Pa:rty if .st had participated
therein.
-5-
603
A.'A;l'.L. FORM 610
In the case ot any reworklng-, plugging back· or deeper drilling. operation, the Consentin& Parties shall
be permitted to ~se, free of cost, all casing; tubing ancl other equipment in the wen, but the ownership of all
such equipment shall remain unchanged; and upon abandonment of a well after such reworking, plugging
~ack or deeper drilling, the Co~nting Parties shall account tor nil such equipment to the owners thereof,
with each partY receiVing its proportionate part in kind or in value.
Within sixty (60) days after the completion of any operation under this ~;ecU.on, the p;arty conducting
the operations for the Con$e_nting Parties shall furnish each Non-Consenting Party with an inventory of
the equipment in and connected to the well, and an. itembed statement of the CO!it of drilling, deepening,
plugging back, testing, completing, and equipping the well for production; or, at its option, the operating
party, in lieu of an itemi1.ed statement of such costs· Of operation, may ,;ubmit a 9eta1led statement of Inonthl:y
billings. Each month thereafter, during the time the Consenting Parties. are being rei_mbursed as provided
above, the Consenting i?.arties shali furnish the Non·Con.s~nting Parties with an itemi:red statement of all
costs: ar\d liabilities incurred in t,he operation.flf the well, together with a statement of the quantity bf oil
and gas produced from it and the amount of proceeds realized from the saie Of the we-ll's working interest
production during the preceding month. Any amount realized trom the sale or other disposition o! eqUip-
ment newly acquired in connection with any such operation which would have been owned by a Non-Con-
senting Party had it participated therein shall be Credited against the total unreturned costs of the work done
and of the equipment purchased, in determining when the. inter~t of such Non-Consenting Party sh~l reve;rt
to it as Bboye provided; if there is a credit balance it shall be paid to such Non-Consenting Party.
It and when the Consenting Parties recover from a Non~Consenting Party's relinquished interest the
amounts provided for above, the relinquished interests of such Non-Consenting Party shall automatically
revert to it and from and after such reversion such NOn~Consenting Party shall own. the same interest in Sl.l.Ch
well, the operating rights and working interest ·therein, the material and equipmertt i.n·or ·pertaining thereto,
and the production therefrom as such Non-Consenting· Party would have owned had it participated in the
drilling, reworking, deepening or plUgging back of said well. Thereafter, such Non-Consenting Party shall be
charged wlth and shalt pay its proportionate part of the t:urther costs ·of the operation of said well in accord~
ance with the terms of this agreement and the accounting procedure schedule, Exhibit "C", attached hereto.
Notwithstanding the pr-ovisions of this Section 12, it is agreed that without the mutual consent of all
partie·s, no wells shall be Completed in or produced from a sourc.e of supply f:rom which a well located else-
where on the Unit Area is producing, unless such well conforJru!: to the then-existing well spacing pattern
for such .source of supply.
The provisions o1 this section sh_all have no application whatsoever to the drilling oi the initial test
well on the Unit Mea, but shall apply to the reworking, deepening, or plugging back of the initial test well
after it bas been- drilled to the depth specified Jn Section '7, if it is, ot: therea[ter shall prove to be, a dry
hole ot non-commerci;ll well, and to all other wells. drilled, reworked, deepened, or plug-ged ·back; or pro-
PQS!!d t,o be drille4, reworked, deepened, -or plt,~gged baCk, upOn the Unit Area subsequent to the drilling of
the in'itial test well
13. RIGHT TO TAK'E PRODUCTION IN IOND
Eaeh party shall take in kind or separately dispose of its proportionate share of all oil and gas Pre-
duced from the Unit A.rea, exClusive of production which may be used in development and producing oper-
ation$ and in preparing and treating oil for marketing purposes and production unavoidably lost. Each party
shall pay or deliver, Or cause to be paid ot delivered, all royalties, oVerriding royalties, or other payments
due on its share of such production, and shall hold the other parties free trpm, any liability therefqr. Any
extra expenditur~ incUrred in the taking in kind or separate disposition by any pat-.ty of its ptopm-tiona.te
share of the production shall be borne· by such- party.
Each party shall ~ecute all division orders and contracts of sale pertaining to its interest in produc-
tion from the Unit .Area, and shall be entitled to rece\ve paym~t diJ:'(!ct from the pur:~haser or Purchasers
thereof for its shB.l'e of ali production,
_,_
604
•• r • .
·/)..A.P.L. FORM 6
In the event- ahy party shall fail to make· the arrangements n_ece£sary to· take in k\nd or separate1y
dispose of its proportionate share or the oil and gas produc~d from the Unit. Area, Operator shall have the
right, subject to r~ocation at Vfl-11 by the party owning it, but oot tOe. obligaUoo, to purchase such oil and
gas or sell it to others for the· time being, at not les~ than the market. price prevailing in the area, which
shall in na event be less than the price which OperatQr receives tor iis portion of tile oil aild gas ptodu.ced
from the Unit Area. Any such purchase or sale by Operator· shall be subject always to the ri,ght of the
owrun- or the production to e:<:ercise at li:ny time its right to take in kind 1_ or separately dispose of, its share of
_all oil and gas not previously delivered to a purchaser. Notwithstanding t.he foregoing, Operator shall not
make a sale into ·interstate commerce of any other party's. share of gas production without firSt iiving such
other party ·sixty (60) p;.ys notice of :ilUCh intended sale.
H. ACCESS TO UNIT AREA
Each party shaH have access to the Unif Area at all reasonable ti~es, at its sole risk, to fnspnct or
observe operations, and shall have access at reasonable times to lnformation pertaining to the development
or operation thereof, including ·operator's books. and records relating thereto. Operator shall, upon request,
furnish each of the other parties with copies of all drilling reports, well logs, tank tables, daily gauge and
run tickets and reports of stock on hand at the first ot each month,: and shall make available samples of any
cores or cuttings taken from any well dr!Ued on the Unit Areav
15. DRILLING CONTRACTS
All wells drilled on the Unlt Area shall be drflled on a Competitive contract basis at the usual rates
prevailine: in the area. Operator, if it so deSires, may employ its own tools- and equipment in the drilling
of wells, but its charges there~or shall not exceed the prevailing rates in 'the field, and the rate of such
charges- shall be agreed upori by the parties in writiog before drilling operations are commenced, and such
work shall be performed by Operator under the same te.rms- and conditions as shall be customary and usual
irt the field in contracts of independent contractors who are doing work of a s.imilar nat1.1re..
16. ABANDONMENT OF Wl!LLs
No well, other than any well which has been drilled or reworKed p\ll"5,Uant to Section 12. hereof for
which the Consenting Parties have not been fully reimbursed as therein provided, which has been com-
pleted as a producer shall be plugged an.d abandoned without the consent of aU part,ies; provided. however,
if all parties do not agree to the abandonment of an)' well, those wiShing to continue its ot~era:tion shaU tender
to each of the other parti-e!! its proportionate share of the· value of the well's salvable material and equip-
ment, determined in accordance with the provisionl!i of Exhibit "C", less fhe estimated' cost of salvaging and
the estimated cost of plugging' and abandon41g. Eilch abandoning Party shall then assign to. the non-
abandoning patties, without warranty, exvress or implied, as l.o t'itlc or as to quantity, quality, or fitness for use
of the equipment and material, all of its inter-est in the well and its equlpmen:t, to~ether with its interest i~
the lea!iehold estate as to, but only as to, the interval or intervals of the formation or formations lben open
to production. The assignments so limited shall eticompa.ss the "d.rilling' unit~• upon whicli the well iS located.
The payments by, and the assignments to, the assignees -shall be in a ratio based upon- the relationship of
their respective percer:rtages ot participation in the Unit Area to the aggregate or the pet~ntages of partici-
pation in the. Unit Area of all a~s_lg'n·ees. There- shalt be no readjustment- of· interest in the remaining portion
of the Unit Areav
After the as~ignn1.ent, lh~, assignors shall have no further responsibility, liability, ox- interest in the
operation of or production from the well in the interval or interVal~ then oPen. Upon request of the assi'gnees.,
Operator' shall continue to operate the assigned ~ell for the account of the non-ab8l;ldoning parties at the
rateS and charges -c:ontemplli.ted by this agreement, plus any additiQn-al cost and ·charges: which may arise- as
the result of the separate- ownership of the assigned well.
605
1- """'ry··-·:w RENTALS ANI' Sl!UT- IN GAt;_,- • ""' ..,\'NEN'J:S
·.·ope1:citor shaJ. .... pay all delay rentals and shut-1. .. well payments ·Hhich
fl'\~ybe required unde).· the terms of all leases covered by this agreeroent
a:nd submit evi.dence of each payment to the other parties. Each party
.shall notify the other, in writing, at icast thirty (30) days prior to the
date any rental payment is due, as to t\+wther. or not it elects to partic-
ipate in the ·payment thereof. Iri the event either party elects not to
participate in a rental payme11t, and the other po.rty elects to part.icipate
there-in. then the p.arty desiring not to- participate s·hall promptly cxecut~
and deliver to the party desil"'ing to participate in such rental payment
an as~ignment of st1ch non-part_;_cii)ating patty's right, title and interest
in and t-o such le_ase, or leases-. and such lease, or leases-; shall no long.er
be subject to this agreement. The amount of such payments·, when made for
the account of both parties, shall be c.haq;.ed by Operator to the joint
account of the parties. Operator shall not be liable to the other party
in damages for the loss of any l_ease or interest therein if, through mis-
t:ake or oversight, any rental or shut-in ~-te-ll payment is not paid, or. is
erroneously paid .. There shall be no readjustment of interests of the
parties in the remaining portion of the Unit Area in the event of a failure
to pay, or erroneous payment of~, rental or shut.:.. in well payments. If any
party secures a new lease covering the terminat-ed interest, such acquisi-
tion shall be subject ·to the proviS-i011S of paragraph 22 of this agreement.
Operator shall promptly notify each other party hereto of the da·te. on
\o-'1hich any gas well located on the Unit Ar:ea is shut in and the reason
therefor and the date on which said well is restored ·to production.
Should any party desire to sell all cir aqy part of its interests under this contr.act, or i
terest& in the Unit Area, it shall promptly give written notice to the other parties, w"
cerning its pt"Oposed sale, which shall include the name and address of the pectlve purchaser (who must
be ready, willing and able to purchase), the purchase pt·ite 1 and all
shall then have an optional prior right, for a period of te days a:fter receipt of the notice, to purchase
on the same terms and conditions the interest whi e other party proposes to sell; and, if this optional Tight
is exercised, the purchasing parties shall e the -putchased interest in the propoxtions that the interest of
each bears to the total interest o purchasing parties. However, there shall be no preferent-ial right to pur-
ctlase in those cases: whe ny party wishes to mortgage its interests, or ~o dio;pose of its int-erests by merger,
reorgani,tation, olidation, or sale of all of its assets, or a sale or transfer of Its interests to a subsidiary or
pany, or subsidiary of a parent company, or to any company in which any one patty owns a ma-
19. SELECTION OF NEW OPERATOR
Should a sale be made by Operator of its tight.'! and interest~ the other patties shall have the right
within sixty (60) days after the date of such sale, b:y majority vote in interef;t, to select a new Operata!. If
a new Operator is -not so selected, the transferee of the present Operator shall assume the duties 'of a)'Ld act as
Operator. In_ ejther case, the retiring Operator shall contin\.le to SQJ.·ve as Operato'r, and discharge its duties
in that capacity under this agreement, unt-il its successor Operator is selected an_d begins to functioh, but the
present Operator shall t~ot. be obligated to continue the perfox:manc-e of its duties for more than .12.0 days after
the sale of its rights and interests has been cotrtpleted,
_,_
"Joint Lo~"
606
A.A.I'.L. FORM 61 o
20. MAINTENANCE OF UNIT OWNEltSHIP
For the put:po&e of maintaining uniformity of owner!lhip in the oil and gas leasehold interests covered by
this contract, and no~Withstanding any other provisions t-o the contrary, no party shall sell, encumber, transfer
or make other disposition of its interest in the leases embraced within the Unit Area and in well$, equjpment
and production unless such dispOsition covers either:
( 1) the entire 'interest of the party in all leases and equiptrrent and prodUction; or
(2) an equal undivided interest in all leases and equip;ment a,n<J pre:duction in the: Unit Area.
E.very such sale, encumbrance, transfer or other disposition made by any party shall be made expressl:r
subject to this agreement, apd shall be made without prejudice to the ri&"hts of the other parties.
If at any time the interest of any party is divided among and owned by four- or more co-owners, Opera-
tor may, at its diScretion, iequlre such co-owners 1.o appoint a single trustee or agent with f-ull authority !o re-
ceive notices, approve expenditures,-·re'ceive billlva:s for a,nd approve and pay such party's share of the joint
expenses, and to deal generally with, and with power to bind, the co-owners of such PiJ;'rty's intet-ests within
the scOpe of the operations embraCed irr t.his contract; however, all such co-o'Vners shall ent~r into and execute
all contracts or agreements for the disposition o! their respective shares o[ the oil ani! gas produced from the
Unit Area and lQey shall have the right to receive, separatelf, payment of the sale proceeds thereof.
Zl. RESIGNATION OF OPERATOR
Operator may resign from .its duties :a.nd obligations as Operator at any time upon written notice of not
less than ninety (9ft) days given to aU other parties. In this case, all parties to this contract shall select by
majority vote in h1terest, not in numbers, a new Operator. wh~ shall aSS\l:me the ·responsibiliti~ and duties, and
have the rights, prescribed ·for Operator by this agreement. The retiring Operator shall deliver to its succeDO-r
all records and in~Qnnation necessary to the discbl!.rge by ~e new Oper11tor of its duties and oblige.tions.
~2. LIABILITY OF -PARTIES
The liability o! the parties shall be several, not joint or collective. Each party sba\1 be responsible
only tor its obllgafions, and shall be It-able only for its proportionate share of the costs of developing and
operating the Unit Area. Accordingly,. Ule lien gx'atlted by each p:uty to Operator in Section 9 is given to se-
cUre only the debts of each severally. It ·is not the intention of the parties to c1·eate, nor shall this agnement
be construed as creating, a mining or othet partnership or association, or to render them liable as pntners.
23. RENEWAL OR EXTENSION OF LEASES
If any party secures a renewal of any oil and _gas lease subject to this .contract, each and all of the other
parties shall be notified promptly, and shall have the right to partici'?ate in the ownership of the renewal lease
by paying to the party who acquired it their several proper propoi.1ionate shares of the ·acquisition cost. Which
shall be in proportion to the interests held at that ~e by the parties in the Unit Area.
If some, but less than all, of the parties elect to participate: in the purchase of a renewal lease, it Shall
be owned by ijle parties who elecJ to participate therein, i.n a ra«o based upon the _relati.onship of ti).eir respec-
tive percentage of particiP.ation in the unit area to the aggr~gate of the percentages· of participation in the unit
area: of aU parties put.icip;iting in the purchase of sut:~ renewal lease. Any ren.ewa.Jl~se- in which less than
all the partie:;. elect to participate shall not be :subject to this agt·eement.
Each party who participates in the purchase of a renewal lease shlill be given an .assignment of i'l:s pro-
portionate interest therein by the acquiring party.
The p1·ovisions uf this section shall apply to renewal leases whether theY are "fOr the entire interest
covered by the expiring lea$~! or cover only a portion ·of- its area or an intereSt therein, Aily renewal lease
taken before _the expirtttion of its predecessor lease, or iaken or conu·acled for within six (6) months after
the expiration of the existing le~se shall be subject tp thi.s provision; but- any lease taken or contracted fm·
more than six (6) months after the expiration of an existing lease shall not be deemed a rentwal lease and
shall not be subject to the provi~ions of this section.
The provisions in this section s"hnll apply also- and. in like manner to extensions of oil and gas ieases.
_,_
607
24. SURRENDER OF LEASES
The leases t?v~ed by this- agreement, in so far as they embrace acreage in the Unit Area, shall not be
surrend~r~ in whole o.r in part. Unless all pcu:ties consent.
However, should any party desire to surrender its interest in any lease or in any portion theteof, and
other parties not agree or consent, the party desiring to suiret)der sh•U assign, Without express or implied
. wartanty of tine, all of its interest in such lease, or portion thereof, and any well, ma~a:I and equipment
which. may be located thereon ~nd any rignts in production thereafter secured, to the parties not desiring to
surrender it. Upon such assignment, the assigning_ party shall be relieved from an obligations th.en:after ac-,
cruing, but- not theretotore accrued, with respect to tM acreage assigned and the operation of any well there-
on, and tl'!E' assigning party shall have no further interest in the lease assigned and its equipment and p:roduction.
The parties assignee shall pay to the party ~signor the reasonable salvage value of the lal..ter's intereSt in any
wells artd equipm~t on ~the assigned acreage, determined in aocordan.ce with the provisions of Exhibit "C'',
less the estimated cost of salvaging and the estimated cost of plugging and abal)doning, n: the assignment is in
favot of more than one party, \he assigned interest shaD be shared by the parties assi~ee in the proportions
that. the interest of each bears to the interelit of all paTties as5i&nee.
Any assignment or surrender made under this provision shall not' reduce or change the assignors' or sur-
rendering parties' inte:rest, as itv was Immediately before. .the assignment, in the balance of the Unit Area; and
the acreage assigned or surrendered, and subsequent Operations thereon, shall not thereafter be subject to the
tenns and provisions ·of this agreement
2:5. ACREAGE OR CASH CONTRIBUTIONS
If any party receives while this agreement is in force a cOntribution. of cash toward the drilling of a
well ·or anY other operation on the Unit Ar:eaj such contributh;m shall be paid to the party who conducted_ the
drilling or other operation and shall be applied -by it against the c.ost of such Q.rllling Qr other operation. If
the contribution be in the form of acreage, the paj:ty to whom the contribution is made &hall promptly execute
an assignment of the acreage, without warranty of titi~, to all parties to this agreement in proportion to their
interests in the Unit Area at that time, and such act"e'-ge shall become a part of the Unit Area and be governed
by all the provisions of this contract Each party shall promptly notify all Qther parties of all acreage or
money contributions it may obtain in support of any well or any other operation on the Unit Area.
26. PROi'ISION CONCERNING TAXATION
Eaeh of the parties hereto elects,_ Wlder the authority pf Section 761(a) of the Internal Revenue Code o.f
1954, to be exclucl.ed frOm the application of ali of the provisions !>f SubchapWr K of Chapter 1 of Subtitle A of
the Internal Revenue Code of 1954. If the income tax laws of tbe state. or states J.n which the property covered
hereby is located contain, <lr mal' hereafter contain, provisions similar to those contained in the: ~ubchapter of
the Interfial Revenue Code ot 1~54 above referred to under whieh a similar election 1s permitted, each of the
parties agrees that such election shall be exercised. Each party authorizes and directs the Operator to execute
such an election or elections oO~_ its behalf and to file the election with the proper governmental ofti~ or
agency. If requested QY th'e Operator so to do, each party ·agrees to execute and join in .such an eleclion.
Operator shall ;render for ad valorem taxation. an properlf subject to \his agreement Which by laW
should be rendered for s·uck taxesi and it shall pay all such tax-es- assessed thereon before they becotne delin~
quent. OperatOr shall l;llll all other parties for their proportio;nate shafe of all tax payment$ io the manner
provided in Exhibit uc".
If any tax as!essment is co~i9-ered unreasonable by Operator, it may at its ~scretion protest such valua-
tion wit.hin the thrle-and manner prescribed by law, .am~ prosecute the protest to a final determination, unless
all parties agree to abandon the protest ~;~rior to flna1 determination, When any such protested valuation shall
have been finally determined, Operator shall pay the -asse!sment for the joint acCount, together with interest .and
penalty accrued, and the total cost shall then be assessed against the parties, and be paid by them, as provided
in Exhibit "C". The above two paragraphs are subject, however~ to paragraph 3L-B.
-10-
608
'J\.li,.P.l,,. FORM 611
27. INSURANCE!
• Al all times whHe operations are conducted hereunder, Operator shall comply with the Workmen's
Compensation Law of the Slate -where the operations are being conducted. Operator shall also carry or pro-
vide insurance for the benefit of the joint account of the parties as may be outlined in :tx"hibit "0" attached
to and made a part- hereof. Operator shall requiTe all contradors engaged i'n work on or for the Unit Area
to comply with the Workrnen'!i CotnpensatiQn Law of the Slate Where the operations ue bel.ng conducted and
· to maintain such other insurance as Operator may require.
In the event Automobile Public LiaPifity Insur~nce is specified in sa.ld Exhibit "D", or subsequently re-
ceives the approval of the parties, no dire(t charge shall be made by Operator for premium~ p~J~.id for such in-·
surance for operator 1s tully owned automotive .equipment.
2$, CLAIMS AND LAWSUITS
If any party to this contract is sued on an alleged c;i.us~ of action arising out of operations on the Unit
Arr:a, or on an allered cause of action involving title to any lease or oil and gas interest subjected to this con-
tract, it shall give prompt written notice of the. suit to the Operator and all other parties.
The defense of lawsuits shalt be under the general direction of a commltt~e of lawyers representing the
parties, with Operator's attorney as Chairman. Suits .may be settled during litigation only with the joint con-
sent of all parties. No charge shall be made for services performed by the staff attorneys for any of the
parties, but otherwise all expenses incurred in the defense of suits, together with the amount paid to discharge
any final judgment, shall be co~sidered costs of 6peration and shall be charged to and pa.ld by all parties in
proportion to their then interests in thf;!. Unit Area. Attorney!, other than staff attorneys for the parties, shaH
be employed in lawsuits involvfug Unit Area operations -only with the consent of all parlies; if outside: counsel
i
This text is long and has been trimmed here. Open the source document for the complete record.