Nettye Engler Energy, Lp v. Bluestone Natural Resources II, Llc

Supreme Court of Texas

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No. 20-0639

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Nettye Engler Energy, LP,

Petitioner,

v.

BlueStone Natural Resources II, LLC,

Respondent

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On Petition for Review from the

Court of Appeals for the Second District of Texas

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Argued October 28, 2021

JUSTICE DEVINE delivered the opinion of the Court.

Justice Young did not participate in the decision.

This mineral dispute involves a frequently litigated issue:

whether and to what extent a royalty interest bears a proportionate

share of postproduction costs. Here, the deed conveying the mineral

estate reserved a nonparticipating royalty interest “in kind,” which

means that, unlike a monetary royalty, the grantor retained ownership

of a fractional share of all minerals in place. The deed required delivery

of the grantor’s fractional share “free of cost in the pipe line, if any,

otherwise free of cost at the mouth of the well or mine[.]” The parties

agree that a gas pipeline exists and that the royalty is free of production

costs and postproduction costs incurred before delivery into that

pipeline, but they disagree about its location under the deed’s terms.

The grantee’s successor maintains that delivery occurs in the

gathering pipelines comprising the gas gathering system on the wellsite

premises, which burdens the royalty interest with all postproduction

costs from that point until the gas is sold to the ultimate purchaser. The

grantor’s successor contends that delivery is downstream of the wellsite

at the transportation pipeline, if not farther, because (1) a gas gathering

pipeline is not a pipeline as that term is used in the deed and (2) use of

the term “otherwise” to introduce the alternative delivery point “at the

mouth of the well or mine” essentially negates a construction of “the pipe

line, if any” as including any pipeline at or near the wellhead. If the

deed requires delivery in the transportation pipeline, the mineral

interest is free of some but not all postproduction costs. The trial court

granted summary judgment that delivery occurs in the transportation

pipeline, but the court of appeals reversed and rendered judgment that

delivery occurs in the gathering pipeline.

We affirm the court of appeals’ judgment. A gas gathering

pipeline is a “pipeline” in common, industry, and regulatory parlance,

and the deed does not limit the delivery location to any specific pipeline

nor prohibit delivery to a pipeline at or near the well, if any. The court

of appeals reached the correct result but misconstrued our opinion in

Burlington Resources Oil & Gas Co. v. Texas Crude Energy, LLC 1 as

1 573 S.W.3d 198 (Tex. 2019).

2

establishing a rule that delivery “into the pipeline,” or similar phrasing,

is always equivalent to an “at the well” delivery or valuation point.

Rather, the opinion merely emphasized that all contracts, including

mineral conveyances, are construed as a whole to ascertain the parties’

intent from the language they used to express their agreement.

I. Background

In 1986, the predecessors of Nettye Engler Energy, LP (Engler)

conveyed a 646-acre tract of land by a special warranty deed that

reserved “an undivided one-eighth (1/8th) nonparticipating . . . royalty

interest in and to all of the oil, gas and other minerals on, in and under

the Subject Property.” A nonparticipating royalty is “an interest in the

gross production of oil, gas, and other minerals carved out of the mineral

fee estate as a free royalty, which does not carry with it the right to

participate in the execution of, the [b]onus payable for, or the delay

rentals to accrue under oil, gas, and mineral leases executed by the

owner of the mineral fee estate.” 2 Such an interest is free of the costs of

production, 3 and when delivered in kind as the deed requires here, 4

bears its proportional share of postproduction costs from the point of

KCM Fin. LLC v. Bradshaw, 457 S.W.3d 70, 75 (Tex. 2015) (citing Lee

2

Jones, Jr., Non-Participating Royalty, 26 TEX. L. REV. 569, 569 (1948) (footnote

omitted)).

3 Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118, 121-22 (Tex.

1996).

Chesapeake Expl., LLC v. Hyder, 483 S.W.3d 870, 874 (Tex. 2016)

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(observing that “gross production” refers to the total volume of minerals

extracted from the ground).

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delivery to the royalty-interest holder unless the conveyance specifies

otherwise. 5 The 1986 deed describes the royalty as

a free one-eighth (1/8) of gross production of any such oil,

gas or other mineral said amount to be delivered to

Grantor’s credit, free of cost in the pipe line, if any,

otherwise free of cost at the mouth of the well or mine . . . .

In 2004, the grantees leased the tract’s minerals, and the lessee

subsequently drilled thirty-four producing wells. When gas is produced

at the wellhead, it is collected in an onsite gathering system for

compression, processing, and delivery to third-party transportation

pipelines off the leased premises. From there, all the gas is sold to third

parties at various downstream market locations. Both the gathering

system and transportation pipelines are owned by third parties who

charge the operator for these services.

For several years, Quicksilver Resources, Inc. served as the

wellsite operator. Quicksilver sold Engler’s share of production along

with the producer’s share and valued it for royalty purposes at the point

of sale to the gas purchaser’s pipeline. This valuation rendered Engler’s

in-kind royalty not only unburdened by production costs but also free of

5 Heritage Res., 939 S.W.2d at 121-22 (providing the general rule that

royalties are subject to postproduction costs unless the contracting parties

agree otherwise); Byron C. Keeling & Karolyn King Gillespie, The First

Marketable Product Doctrine: Just What is the “Product”?, 37 ST. MARY’S L.J.

1, 2-3, 13-20 (2005) (describing how, under an in-kind royalty agreement, a

lessor is entitled to receive delivery of a proportional share of the lessee’s

production of oil or gas); Byron C. Keeling, In the New Era of Oil and Gas

Royalty Accounting: Drafting a Royalty Clause that Actually Says What the

Parties Intend It to Mean, 69 BAYLOR L. REV. 516, 520 n.17 (2017) (explaining

that, subject to a royalty’s terms, a lessee may market a lessor’s share of

production and pay the lessee the amount received for that share net of

postproduction costs).

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all postproduction costs. That is, Engler was paid a proportional share

of the gross proceeds from downstream sales of processed gas to

third-party purchasers.

In 2016, BlueStone Natural Resources II, LLC, assumed

operations and began deducting postproduction costs in accounting to

Engler for its proportional share of production. Under BlueStone’s

valuation, delivery of Engler’s fractional share occurs at the point where

unprocessed gas enters the gathering pipeline in the onsite gathering

system. As a result, Engler’s ownership interest bears a proportional

share of postproduction costs from that point forward, including

gathering, compression, and processing costs; transportation and

delivery costs; and severance taxes. Unlike Quicksilver, which

compensated Engler for its share of production based on its value at the

end of the line, BlueStone values it at the beginning.

Engler’s royalty payments dropped precipitously due to the

deduction of postproduction costs from sales proceeds, prompting Engler

to sue BlueStone for common-law conversion and money had and

received. The central dispute concerned the proper construction of the

1986 deed’s language. The parties generally agreed that (1) BlueStone

must compensate Engler for its proportional share of sales proceeds net

of expenses incurred after production is delivered to Engler’s credit; and

(2) BlueStone delivers Engler’s share “in the pipe line,” because one

exists, rather than “at the mouth of the well.” The point of dissension

concerned the exact location where delivery occurs, with Engler taking

the position that “in the pipe line” refers either to the distribution

pipeline at the point of sale or to the offsite transportation pipelines,

while BlueStone argued that the delivery obligation under the deed is

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satisfied by delivery in the gathering pipelines comprising the onsite

gathering system.

On cross-motions for summary judgment, Engler argued that

because the 1986 deed provides for a “free one-eighth of gross

production” to be delivered “free of cost,” the royalty is free of all

postproduction costs from the wellhead to the point of sale. Engler cited

our opinion in Chesapeake Exploration, L.L.C. v. Hyder 6 as supporting

the proposition that such language conclusively renders a royalty

interest free of any and all postproduction costs. Alternatively, Engler

claimed that a gathering system is not a pipeline or at least was not

understood to be a pipeline when the deed was executed. For that

reason, Engler argued that offsite transportation pipelines are the

closest delivery point that would be consistent with the deed’s language

and, at a minimum, the royalty is free of gathering, compression, and

processing costs incurred before that point. Engler urged that the deed’s

“in the pipe line” language necessarily refers to an offsite delivery point

because the deed prioritizes delivery “in the pipe line, if any” over

delivery “at the mouth of the well or mine” by using the word “otherwise”

to introduce the latter as a default option when no pipeline exists.

BlueStone challenged Engler’s proffered deed construction on the

basis that (1) Engler misconstrued Hyder, which clearly holds that

words like “free and clear” of all “costs and expenses” do not in and of

themselves, or even necessarily, render a royalty free of all or any

postproduction costs and (2) gathering pipelines are pipelines in both

ordinary and trade meaning. That being so, BlueStone insisted that it

6 483 S.W.3d 870, 872-73 (Tex. 2016).

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properly calculated Engler’s royalty interest based on sales proceeds net

of expenses incurred beyond the point Engler’s share of production

entered the onsite gathering system.

As summary-judgment evidence, Engler provided affidavit and

deposition testimony from an oil-and-gas attorney to the effect that

(1) the 1986 deed’s reference to “pipe line, if any” refers to the main

transportation pipelines and (2) based on the deed’s “free one-eighth

(1/8) of gross production” and “free of cost in the pipe line” language,

Engler’s royalty is free from all postproduction costs so long as the gas

is in the transportation pipeline, meaning it is valued at the point of sale

rather than at any other upstream point. The gist of the expert’s

testimony is that “pipe line” refers to the place where title passes from

the operator/producer to the gas purchaser, and back in 1986, it was not

uncommon for gas gathering systems to be owned by the

operator/producer and for gas to be purchased by the transporter.

Although Engler’s expert did not testify that any such arrangements

were in existence at the time the 1986 deed was executed—nor does the

record include such evidence—he concluded that delivery “in the pipe

line” refers not only to the transportation pipelines but also makes the

royalty free of cost until title transfers to a third-party purchaser.

BlueStone objected to the expert’s testimony on the basis that it

was conclusory and opined on pure questions of law, which is not a

proper use of expert testimony. BlueStone further observed that

Engler’s expert could not identify a fact that was in dispute in the case,

and although he testified that the 1986 deed was unambiguous, he

nonetheless opined on the deed’s interpretation.

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In addition to objecting to the admissibility of expert testimony

with regard to the deed’s interpretation, BlueStone conditionally offered

a counter-affidavit from its own expert to refute Engler’s expert’s

conclusions. BlueStone’s expert testified that (1) the royalty reserved

by Engler’s predecessor clearly bears postproduction costs; (2) “free of

cost” can mean free of production costs, so inclusion of the word “free” in

a deed is not, by itself, enough to free an interest of postproduction costs;

and (3) the phrase “mouth of the well” defines where the pipeline is

located, which provides the valuation point for the royalty before

postproduction costs have been incurred.

The trial court overruled BlueStone’s objections and granted

Engler’s motion for summary judgment. The court held that Engler’s

royalty interest is “not subject to post-production costs” but, at the same

time, deferred consideration of “the issue of the calculation of proper

post-production costs [until] a subsequent proceeding.” A few days later,

we issued our opinion in Burlington Resources, in which we held that

deed language requiring delivery “into the pipeline, tank or other

receptacle to which any well or wells on such lands may be connected”

was analogous to an “at the wellhead” valuation point. 7 When delivered

at the well, a royalty interest is generally free of production costs but

7 573 S.W.3d 198, 211 (Tex. 2019) (construing an assignment providing

that “[t]he overriding royalty interest share of production shall be delivered to

ASSIGNEE or to its credit into the pipeline, tank or other receptacle to which

any well or wells on such lands may be connected, free and clear of all royalties

and all other burdens and all costs and expenses except the taxes”).

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not postproduction costs that enhance the downstream value of the

product. 8

BlueStone filed a motion for reconsideration in light of Burlington

Resources, arguing it is directly on point and dispositive in equating an

“into the pipeline” royalty provision with an “at the well” delivery point

such that royalty payments based on proceeds of downstream sales are

net of all downstream postproduction costs. The trial court denied

BlueStone’s motion but altered its prior ruling, ostensibly determining

that Engler’s royalty interest is free of cost in the transportation

pipeline, not the gathering or distributing pipelines, and thus free of

some but not all postproduction costs. With the deed so construed, the

court rendered judgment that Engler’s royalty is unburdened by all

postproduction costs other than transportation costs, severance taxes,

and regulatory fees. The court awarded Engler $88,849.33 in actual

damages for the period of April 1, 2016, to March 31, 2019, and then

severed that portion of the suit from Engler’s claims for monetary

damages for ongoing and future deductions. Though neither party

scored a total victory, only BlueStone appealed the trial court’s

judgment.

The court of appeals reversed and rendered judgment for

BlueStone. 9 First, the court viewed Burlington Resources as

establishing a rule that the language “into the pipeline” is equivalent to

8 Id. at 203.

9 ___ S.W.3d ___, 2020 WL 3865269, at *4 (Tex. App.—Fort Worth July

9, 2020).

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and creates a valuation or delivery point “at the wellhead or nearby.” 10

Based on this understanding of our opinion, the court concluded that the

1986 deed’s language—“free of cost in the pipe line, if any, otherwise free

of cost at the mouth of the well or mine”—creates a delivery point

equivalent to delivery at the well. 11 Second, the court rejected Engler’s

argument that a gathering system is not a pipeline, stating it is

recognized and regulated as such under Texas law. 12 For these reasons,

the court concluded that “the 1986 Deed’s use of the phrase ‘in the pipe

line’ effectively sets the valuation point at the wellhead.” 13 The court

therefore rendered judgment that Engler’s royalty is subject to all

postproduction costs after delivery in the gathering pipeline, including

gathering, compression, and transportation costs, as well as severance

taxes and regulatory fees. 14

On petition for review to this Court, Engler assails the court of

appeals’ construction of Burlington Resources as adopting a rule

divorced from contractual context. Engler contends that the 1986 deed,

properly construed, sets the delivery point at the transportation

pipelines. Engler also contends that the court of appeals erred in not

considering the testimony of its expert. According to Engler, this

testimony conclusively establishes that “the term ‘pipe line’ refers to the

transporting pipeline company that purchases the gas that has been

10 Id.

11 Id.

12 Id. at *5.

13 Id.

14 Id. at *2-3, 7.

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gathered and delivered from the well to the interconnection point with

the transporter,” meaning that a mid-stream gas gathering system

would not be considered a “pipeline” for purposes of delivery by those in

the oil-and-gas industry, at least at the time the deed was executed.

In response, BlueStone defends the court of appeals’ construction

of Burlington Resources and the 1986 deed, advancing the same

arguments asserted in the proceedings below. BlueStone also argues

that the testimony of Engler’s expert is no evidence of anything, let alone

conclusive evidence of the deed’s meaning, because it is conclusory,

opines on questions of law, assumes facts contrary to those in the record,

and is insufficient as a matter of law to create a fact question about the

royalty clause’s meaning. 15

We hold that BlueStone discharged its royalty obligation by

delivering Engler’s fractional share of production in the gathering

pipelines on the premises and, therefore, BlueStone properly deducted

postproduction costs between that point and the point of sale in valuing

Engler’s royalty interest. While the court of appeals construed

Burlington Resources more narrowly than the opinion’s language

contemplates, it reached the correct result under the 1986 deed’s plain

language.

15 The Texas Land and Mineral Owners Association submitted an

amicus brief supporting Engler’s petition, and the Texas Oil and Gas

Association submitted an amicus brief supporting BlueStone’s argument.

Byron C. Keeling submitted an amicus brief clarifying, as a legal and

conceptual matter, the distinction between an in-kind royalty and a monetary

royalty without opining on the merits of the case before the Court.

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II. Discussion

A. Standards of Review

Deeds are interpreted and construed as contracts. 16 Summary

judgment and contract-construction disputes present questions of law

we review de novo. 17 Summary judgment is appropriate only when no

genuine issue of material fact exists and the movant is entitled to

judgment as a matter of law. 18 When both parties move for summary

judgment and the trial court denies one motion but grants the other, we

review both, determine all questions presented, and render the

judgment the trial court should have rendered. 19

When construing an oil-and-gas deed, standard rules of contract

construction apply. 20 Our objective is to “ascertain the true intentions

of the parties as expressed in the writing itself,” beginning with the

instrument’s express language. 21 In doing so, we consider the entire

writing and attempt to harmonize the provisions so all are given effect

and none are rendered meaningless. 22 We do this because we presume

16 Tittizer v. Union Gas Corp., 171 S.W.3d 857, 860 (Tex. 2005).

17 Id.; URI, Inc. v. Kleberg County, 543 S.W.3d 755, 763 (Tex. 2018).

18 TEX. R. CIV. P. 166a(c).

19Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d

844, 848 (Tex. 2009).

20Burlington Res. Oil & Gas Co. v. Tex. Crude Energy, LLC, 573 S.W.3d

198, 203 (Tex. 2019).

21Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341

S.W.3d 323, 333 (Tex. 2011).

22Seagull Energy E & P, Inc. v. Eland Energy, Inc., 207 S.W.3d 342, 345

(Tex. 2006).

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the parties intended every clause to have some effect. 23 We afford

contract language its plain, grammatical, and ordinary meaning unless

doing so “would clearly defeat the parties’ intentions” or the instrument

shows the parties used the terms in a different or technical sense. 24

Whether a contract is ambiguous or not is a question of law. 25 If

a contract has a certain and definite meaning, the contract is

unambiguous, and we will construe it as a matter of law 26 and enforce it

as written. 27 A contract subject to more than one reasonable

interpretation is ambiguous, giving rise to a fact issue regarding the

parties’ intent. 28 A contract may be ambiguous even if the parties agree

it is not. 29 Here, although the parties advance different constructions

and Engler relies, in part, on expert testimony to support its preferred

construction, we conclude that the 1986 deed is not ambiguous.

When construing an unambiguous instrument, we may consult

facts and circumstances surrounding its execution to aid our

interpretation. 30 But there are limits. We cannot employ surrounding

facts and circumstances to make contract language say something it

23 Heritage Res. Inc. v. NationsBank, 939 S.W.2d 118, 121 (Tex. 1996).

24 Barrow-Shaver Res. Co. v. Carrizo Oil & Gas, Inc., 590 S.W.3d 471,

479 (Tex. 2019); Heritage Res., 939 S.W.2d at 121.

25 URI, Inc. v. Kleberg County, 543 S.W.3d 755, 763 (Tex. 2018).

26 Barrow-Shaver, 590 S.W.3d at 479.

27 BlueStone Nat. Res. II, LLC v. Randle, 620 S.W.3d 380, 387 (Tex.

2021); Sun Oil Co. (Del.) v. Madeley, 626 S.W.2d 726, 728 (Tex. 1981).

28 Barrow-Shaver, 590 S.W.3d at 479.

29 URI, 543 S.W.3d at 763.

30 Id. at 757.

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unambiguously does not or to determine “that the parties probably

meant, or could have meant, something other than what their

agreement stated.” 31 Rather, the “facts and circumstances can only

provide context that elucidates the meaning of the words employed, and

nothing else,” and they can only give contract language a meaning to

which it is “reasonably susceptible.” 32 In other words, such evidence

may not be “used to add, alter, or change the contract’s agreed-to

terms.” 33

This rule also applies to expert testimony and other evidence of

industry custom and usage. 34 When we construe unambiguous

contracts, we consider only objectively determinable extrinsic facts and

circumstances surrounding the contract’s execution 35 that do not vary

or contradict the contract’s plain language. 36 Although the 1986 deed is

unambiguous, Engler asserts expert testimony is admissible to clarify

and explain what the original drafting parties could have meant by “in

the pipe line.” We disagree because the testimony Engler relies on to

construe that phrase would impermissibly add words of limitation to

31 Id.

32 Id. at 765.

33Barrow-Shaver, 590 S.W.3d at 485 (citing URI, 543 S.W.3d at 758;

Nat’l Union Fire Ins. v. CBI Indus., Inc., 907 S.W.2d 517, 521 (Tex. 1995)).

34Id. at 486-87 (holding evidence of industry custom to interpret an

unambiguous contract inadmissible when such evidence would alter or

contradict the contract’s terms).

35 URI, 543 S.W.3d at 768.

36 Barrow-Shaver, 590 S.W.3d at 484.

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modify the deed’s terms. 37 In addition, the expert’s testimony says

nothing about the industry meaning of “pipe line” in 1986 or about

surrounding circumstances extant when the deed was executed. Rather,

the expert’s affidavit merely discusses how “most” gas was “usually”

processed and sold under “traditional” gas gathering agreements at that

time. 38 Because the proffered evidence does not elucidate the meaning

of the 1986 deed’s words, we do not consider it.

B. Analysis

The 1986 deed requires delivery “free of cost in the pipe line, if

any, otherwise free of cost at the mouth of the well or mine.” Though

numerous types of pipelines are common in the oil-and-gas industry and

some were in existence at the time the deed was executed, the

instrument does not specify any particular pipeline or any particular

type of pipeline, as it could have. The deed also contemplates that there

may not be any pipeline for delivery and, in that case, delivery defaults

to an onsite locus—the mouth of the well or mine.

Here, there is no dispute that a gas pipeline exists and that

Engler’s royalty interest is to be delivered to its credit free of cost in that

pipeline. All agree that, in determining the value of Engler’s share of

production, BlueStone is not permitted to deduct postproduction costs

37See id. at 486 (“[W]hen a contract is unambiguous, we do not consider

outside evidence, including industry custom and usage, to alter or contradict

the terms.”).

38 See RESTATEMENT (SECOND) OF CONTRACTS § 220 cmt. d (AM. LAW

INST. 1981); id. § 222(1) (trade custom or usage may vary the ordinary meaning

of a word only when the usage has “such regularity of observance in a place,

vocation, or trade as to justify an expectation that it will be observed with

respect to a particular agreement”).

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incurred prior to the delivery point. But whether a gathering system is

a “pipe line” is hotly contested. In settling that matter, we apply

well-established contract-construction principles in concluding that the

onsite gathering system is, or at least includes, a pipeline into which

delivery may be made under the 1986 deed. This is so because (1) a

gathering pipeline is a pipeline in the ordinary, industry, and regulatory

meaning of the term; (2) case law confirms that it is not uncommon for

delivery of a royalty interest to be made into a “pipeline . . . to which the

well is connected,” rather than a downstream location; (3) the deed does

not exclude such a pipeline from the usual meaning of the term or specify

any particular type of pipeline; and (4) the inclusion of a default delivery

location at or near the wellhead does not negate a wellsite delivery point

but, instead, confirms it. Although the court of appeals’ reading of

Burlington Resources accords with our construction of the deed

language, that case does not establish a rule that compels this

conclusion.

1. A Gathering System Is a Pipeline

When an instrument does not indicate that language is being

used in a technical or special way, we construe the instrument’s words

as “usually understood by persons in the business to which they

relate.” 39 To effectuate the drafting parties’ intent, we consider the

meaning of the terms at the time the 1986 deed was drafted. 40 Because

the deed does not include a special definition of “pipe line,” we look to

39 Exxon Corp. v. Emerald Oil & Gas Co., 348 S.W.3d 194, 211 (Tex.

2011).

See id. (“In construing an unambiguous oil and gas lease, . . . we seek

40

to enforce the intention of the parties as it is expressed in the lease.”).

16

ordinary and industry definitions to aid in our interpretation and

analysis of this word.

We begin by consulting contemporaneous dictionaries and

treatises, 41 both of which support the conclusion that the gathering

system on the lease qualifies as a pipeline under the 1986 deed. The

common understanding of a “pipeline” is “a line of pipe with pumps,

valves, and control devices for conveying liquids, gases, or finely divided

solids.” 42 Williams & Meyers’s dictionary of oil-and-gas terms similarly

defines “pipeline” as: “A tube or system of tubes used for the

transportation of oil or gas. Types of oil pipelines include: . . . gathering

lines, extending from lease tanks to a central accumulation point[.]” 43

With respect to a gas gathering system, the definition of “pipeline”

further says: “In the case of gas, the Gathering system . . . delivers the

gas to the main pipeline which takes the gas directly to the distributor

at the place of consumption.” 44 The manual goes on to define the

“gathering system” as a network of pipelines and other equipment that

delivers gas to the main pipeline. 45 It also states:

41 See id. (recognizing a contract did not include unique definitions of

“drill” and “complete” and using the Williams & Meyers treatise, Oil and Gas

Law: Manual of Oil and Gas Terms, to define the words).

42 WEBSTER’S NINTH NEW COLLEGIATE DICTIONARY (9th ed. 1983).

43 8 HOWARD R. WILLIAMS & CHARLES J. MEYERS, OIL AND GAS LAW 766

(Patrick H. Martin & Bruce M. Kramer, eds., 2021) (emphasis added). Engler

acknowledges that the definitions provided in the 2020 edition of this treatise

are “virtually the same” as those provided in the version existing when the

deed was drafted. The definitions in the 2021 edition also remain the same, so

we cite to the 2021 edition of the treatise for convenience.

44 Id.

45 Id. at 436.

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A gathering system generally consists of “interconnected

subterranean natural gas pipelines and related

compression facilities that collect the raw gas from wells

and deliver it to a central point, such as a processing

plant.” 46

A sub-definition of a “gathering pipeline system” similarly

describes it as “a system of interconnected subterranean pipelines and

related compression facilities that collect the raw gas from wells and

deliver it to a central point[.]” 47 By ordinary or industry definition, the

gathering system or gathering lines are composed of pipelines to which

the minerals may be delivered.

Gathering systems are also treated as pipelines under various

statutes and regulations. For example, the Texas Administrative Code

includes regulations for systems used to gather natural gas, describing

such systems as “gathering pipelines” and “natural gas gathering

pipelines.” 48 Similarly, many statutes use the word “pipeline” to

describe oil-and-gas gathering systems. 49 Among others, the Health and

46Id. (emphasis added) (citing Duke Energy Nat. Gas Corp. v. Comm’r,

172 F.3d 1255, 1256 (10th Cir. 1999)).

47 Id. at 436-36.1 (emphasis added).

48 16 TEX. ADMIN. CODE § 8.110; see 7 Tex. Reg. 3982, 3989 (1983),

subsequently amended (former 16 TEX. ADMIN. CODE § 3.13) (“All gathering

pipelines designed to transport oil, gas, condensate, or other oil or geothermal

resource field fluids from a well or platform shall be equipped with

automatically controlled shut-off valves at critical points in the pipeline

system.”).

49 See TEX. NAT. RES. CODE § 111.084 (providing that a gathering

system includes pipelines by stating a gathering system may be operated “by

pipeline or by truck in connection with the purchase or purchase and sale of

crude petroleum”); TEX. TAX CODE § 171.1012(k-2) (stating the statute applies

to pipeline entities such as those “primarily engaged in gathering . . . crude oil,

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Safety Code defines a “pipeline facility” as “a pipeline used to transmit

or distribute natural gas or to gather or transmit oil, gas, or the products

of oil or gas.” 50 The Utilities Code likewise defines a low-pressure

gathering system as “a pipeline that operates at a working pressure of

less than 50 pounds per square inch.” 51 While these statutory uses are

certainly not conclusive, the regulatory treatment of gas gathering

pipelines is informative and consistent with the meaning the word

“pipeline” ordinarily carries.

Case law is concordant with this understanding, if not directly at

least inferentially. 52 Often, deed or lease language requiring delivery

“into the pipeline” is accompanied by language specifying the pipeline

as the one “to which the lessee connects his wells.” 53 Such limiting

including finished petroleum products, natural gas, condensate, and natural

gas liquids”).

50 TEX. HEALTH & SAFETY CODE § 756.121(3).

51 TEX. UTIL. CODE § 121.451(3).

52See Bayou Pipeline Corp. v. R.R. Comm’n, 568 S.W.2d 122, 124-26

(Tex. 1978) (referring to a gathering system as a “gas gathering pipeline” in

discussing whether the system qualifies as a “utility” under a statute); First

Nat’l Bank of Seminole v. Hooper, 104 S.W.3d 83, 84 (Tex. 2003) (describing

the Owego Gathering System as a pipeline).

53Burlington Res. Oil & Gas Co. v. Tex. Crude Energy, LLC, 573 S.W.3d

198, 207 (Tex. 2019) (collecting cases in analyzing the language of an

assignment requiring delivery “into the pipeline, tank or other receptacle to

which any well or wells on such lands may be connected”); see, e.g., Cameron v.

Stephenson, 379 F.2d 953, 954 (10th Cir. 1967) (“[E]xecutors and assigns

covenants to deliver free of cost to the credit of assignor at the pipeline to which

he shall connect his wells . . . .”); Kretni Dev. Co. v. Consol. Oil Corp., 74 F.2d

497, 497 (10th Cir. 1934) (“[F]ree of cost at the pipe lines, to which he may

connect his wells . . . .”); Molter v. Lewis, 134 P.2d 404, 404-05 (Kan. 1943) (“To

deliver to the credit of lessor, free of cost, in the pipe line to which he may

19

language is not present in the 1986 deed, but these cases demonstrate

that it is not uncommon for a “pipeline” to be connected to the well or for

delivery to occur at that point on the wellsite premises. The absence of

such limiting language in the 1986 deed makes it broader, not narrower,

than the provisions construed in other cases, confirming rather than

repudiating that a gathering system is, or at least includes, a pipeline

for delivery.

The North Dakota Supreme Court recently interpreted a similar

in-kind royalty provision in Blasi v. Bruin E&P Partners, LLC. 54 The

Blasi royalty clause provided that the lessee agreed to deliver to the

lessor’s credit, “free of cost, in the pipeline to which Lessee may connect

wells on said land, the equal [fractional] part of all oil produced and

saved from the leased premises.” 55 While this royalty provision included

“connected at the well” language, Blasi, the royalty holder, argued that

the delivery point was “the pipeline” and that “the term ‘pipeline’ [did]

connect his wells . . . .”); Voshell v. Indian Territory Illuminating Oil Co., 19

P.2d 456, 457 (Kan. 1933) (“To deliver to the credit of lessor, free of cost, in the

pipe line to which he may connect his wells . . . .”); Hamilton v. Empire Gas &

Fuel Co., 230 P. 91, 91 (Kan. 1924) (“To deliver to the credit of the first party,

his heirs or assigns, free of cost, in the pipe line to which it may connect its

wells . . . .”); Scott v. Steinberger, 213 P. 646, 647 (Kan. 1923) (analyzing a lease

stating the royalty should be paid “free of cost in the pipe lines to which he may

connect his wells”); Rains v. Ky. Oil Co., 255 S.W. 121, 122 (Ky. 1923) (“[S]econd

party agrees to deliver to the first party . . . in the pipe line with which it may

connect the well or wells . . . .”); Wall v. United Gas Pub. Serv. Co., 152 So. 561,

562 (La. 1934) (“[L]essees shall deliver to the credit of the lessors, free of cost,

in the pipe line to which he may connect his wells . . . .”).

54 959 N.W.2d 872, 877 (N.D. 2021).

55 Id. at 876.

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not refer simply to any pipe or tube connected to the well itself.” 56

Similar to the argument Engler makes here, Blasi maintained that

“pipeline,” as contemplated by the lease, meant “a pipe used to transport

oil to a refinery—the type that is ‘generally regulated by state or federal

authorities for moving oil hundreds or thousands of miles, not a pipe

between the wellhead and the tank battery to move oil a few feet.’” 57

In assessing Blasi’s argument, the court pointed out that “[t]he

royalty provision itself identifie[d] the pipeline that [was]

contemplated”—a pipeline connected to the well—so analyzing industry

definitions of pipeline was unnecessary. 58 Further, the court concluded

that the provision, by its language, did “not designate a specific type of

pipe as ‘the pipeline.’” 59 Blasi’s interpretation, the court said, would

introduce “considerable uncertainty,” and parties should not have to

examine physical characteristics of various pipes to determine if it is

“the pipeline.” 60 Additionally, barring evidence that the parties

envisioned different delivery points for different minerals, the court

found it irrational to construe the delivery point in such a way that it

changes depending on the means by which a mineral is transported. 61

For example, a royalty calculation for oil that is delivered by truck

directly to a consumer and that never enters a commercial pipeline of

56 Id. at 877.

57 Id.

58 Id.

59 Id.

60 Id.

61 Id.

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the sort that Blasi envisioned should not be different from a calculation

for a mineral transported via such a pipeline. 62 Finally, the court

pointed out that the provision did not require the existence of a pipeline;

rather, the word “may” in the clause provided a failsafe that prevented

a lessee from avoiding a royalty obligation by failing to connect a

pipeline to the well. 63 The delivery point, therefore, was the point that

remained constant regardless of the type of minerals produced and

regardless of whether a pipeline existed at the wells. 64

Despite the use of different language, the royalty provision at

issue here is analogous, and the effect of the deed’s language is the same.

An onsite gathering pipeline qualifies as a pipeline, and the 1986 deed’s

reference to a failsafe or default delivery point at or near the point of

production does not exclude such a pipeline from bearing its common

meaning. To the contrary, the alternative phrasing ensures parity in

the delivery obligation regardless of the type of mineral produced and

the availability of a pipeline for delivery of such minerals.

2. The Deed Language Does Not Prohibit Delivery At or Near the Well

As previously noted, the 1986 deed does not identify any

particular pipeline, specify a particular downstream delivery point, or

otherwise refer to a pipeline located off the wellsite premises. To

construe the deed as referring to a particular pipeline or a pipeline

located off the premises would require adding words of limitation to the

62 See id.

63 See id.

64 See id. at 877-78.

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deed, but we cannot rewrite or add to the instrument under the guise of

interpretation. 65

Engler nonetheless contends that the deed language implicitly, if

not expressly, negates a construction of “pipe line” as being any pipeline

in close proximity to the well. If that were the case, the deed would

necessarily limit the delivery point to some downstream pipeline

location—either at the transportation pipeline (as the trial court held)

or the distribution pipeline (a construction of the deed Engler has

abandoned). In advancing this construction of the deed, Engler focuses

on the word “otherwise,” asserting the deed contemplates a dichotomy

between two potential delivery points—offsite and onsite. In Engler’s

view, the word “otherwise” precludes delivery near the mouth of the well

if any pipeline exists, thus foreclosing the possibility that “pipe line”

could refer to the gas gathering system given its proximity to the mouth

of the well. Engler posits that the deed’s preferred and default delivery

locations cannot be the same or similar, so the phrase “the pipe line, if

any” must refer to the off-premises transportation pipeline.

To achieve its desired construction of the deed, Engler contorts

the definition of “otherwise,” which generally means: “in a different way

or manner”; “in different circumstances”; “in other respects”; “if not;” 66

“in another way, or in other ways.” 67 These definitions do not support

65 See Barrow-Shaver Res. Co. v. Carrizo Oil & Gas, Inc., 590 S.W.3d

471, 481, 487 (Tex. 2019).

66 WEBSTER’S NINTH NEW COLLEGIATE DICTIONARY (9th ed. 1983).

67 BLACK’S LAW DICTIONARY (5th ed. 1979).

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the dichotomy Engler asserts or foreclose the possibility that the two

delivery points may ultimately yield the same valuation.

Engler’s royalty is for a fractional share of “oil, gas or other

minerals” produced from the land and, in describing the royalty interest,

the deed does not distinguish among the types of minerals that may be

produced. That being the case, the word “otherwise”, when considered

in connection with the immediately preceding “if any” phrase, simply

creates a preferential delivery point if any pipeline exists for the specific

mineral being produced and a default delivery point at the mouth of the

well or mine if there is no such pipeline or when the produced mineral

is not capable of delivery into a pipeline. 68 Harmonizing the entirety of

the royalty clause in this way creates internal consistency and parity

among the specified delivery points—“the pipe line” and “the mouth of

the well or mine”—and among the various types of minerals that may

be produced. Engler’s favored construction does not.

68 To illustrate: some minerals, like gas, must be delivered into a

pipeline; minerals like oil may or may not be delivered into a pipeline; and

other minerals, like coal, would not be delivered into a pipeline. See Blasi, 959

N.W.2d at 877-78 (analyzing how oil may be transported by various means and

may never reach a commercial pipeline); 8 HOWARD R. WILLIAMS & CHARLES

J. MEYERS, OIL AND GAS LAW 436 (Patrick H. Martin & Bruce M. Kramer, eds.,

2021) (explaining that gas collected via a gathering line continually flows from

the well to the ultimate consumer, since gas cannot be stored). If “pipe line”

could potentially mean an off-premises transportation pipeline, this would

create a disparity in the delivery points for different minerals—oil transported

by truck from the well would be valued “at the mouth of the well,” whereas gas

transported via pipeline would be valued downstream at the transportation

pipeline. Under Engler’s construction of the deed, the variety of potential

delivery points could yield vastly different royalty calculations for no

discernable or textually supportable reason.

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Further, given the existence of transportation pipelines at the

time the deed was executed, the failure to mention such pipelines—by

description or even by type—is telling. This circumstance coupled with

the nonexistence of a gathering pipeline at that time as well as the

articulation of a wellsite delivery point as a default, supports the parties’

intent that delivery would occur into pipelines on the wellsite, if any,

rather than an intent to establish a downstream delivery point that

would result in a markedly different royalty calculation.

3. Contracts Are Construed According to Their Terms

Although mineral transactions are subject to certain

presumptions that state the “usual” rules, we have repeatedly affirmed

that parties are free to make their own bargains, and courts are

obligated to enforce agreements as the parties intended. 69 We discern

that intent from the language the parties used to express their accord,

viewed not in isolation, but in context. 70 The analysis in Burlington

Resources expresses, applies, and confirms this principle. 71 There, we

held that language assigning an overriding royalty interest equated

certain language specifying an “into the pipeline” delivery point with an

“at the mouth of the well” valuation. 72 But we did not fashion a rule to

that effect. To the contrary, we explained that “the decisive factor in

69 Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118, 121-22 (Tex.

1996) (emphasizing oil-and-gas royalty agreements are construed under

general rules that may be modified by the parties’ agreement).

70 Id. at 121.

71 See Burlington Res. Oil & Gas Co. v. Tex. Crude Energy, LLC,

573 S.W.3d 198, 202-11 (Tex. 2019).

72 Id. at 211.

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each [contract-construction] case is the language chosen by the parties

to express their agreement.” 73 Just as in Burlington Resources, our

analysis here turns not on an immutable construct but on the parties’

chosen language.

III. Conclusion

Under the 1986 deed, BlueStone satisfies its obligation to deliver

Engler’s share of production “free of cost in the pipe line” by accounting

for Engler’s fractional share on a net-proceeds basis that deducts from

gross sales proceeds the postproduction costs incurred after delivery in

the gas gathering system on the wellsite premises. We therefore affirm

the court of appeals’ judgment for BlueStone.

John P. Devine

Justice

OPINION DELIVERED: February 4, 2022

73 Id. at 200.

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