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Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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PUBLISH FILED ·~ United States court o_f Appe&_, 

UNITED STATES COURT OF APPEALS 

Tenth Circwt 

TENTH CIRCUIT 

SLAWSON EXPLORATION COMPANY, 

INC. and DONALD C. SLAWSON, 

Plaintiffs-Appellants, 

v. 

VINTAGE PETROLEUM, INC., 

Defendant-Appellee. 

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MAR 12 1996 

PATR!C~ FlSi-IEh 

C ..... .. r•· 

No. 94-3431 

ON APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF KANSAS 

(D.C. No. 93-CV-1212) 

Robert L. Howard (Timothy B. Mustaine with him on the briefs) ofFoulston & Siefkin, Wichita, 

Kansas, for Plaintiffs-Appellants. 

David E. Rogers (Spencer L. Depew with him on the brief) of Depew and Gillen, L.L.C., Wichita, 

Kansas, for Defendant-Appellee. 

Before BRORBY, BARRETT, and MURPHY, Circuit Judges.· 

BRORBY, Circuit Judge. 

Plaintiffs Slawson Exploration Co., Inc., and Donald C. Slawson (referred to collectively as 

11Slawson11 ) appeal the district court's order granting summary judgment in favor of defendant 

Vintage Petroleum, Inc. (hereafter ,.Vintage 11 ) on Slawson's claim it, not Vintage, is entitled to 

participate in an oil and gas lease acquired by Oryx Energy Co., formerly Sun Exploration Co. 

Appellate Case: 94-3431 Document: 01019277622 Date Filed: 03/12/1996 Page: 1 
(hereafter "Sun/Oryx") in 1991. We exercise jurisdiction pursuant to 28 U.S.C. § 1291 and afftrm. 

I 

In September 1986, Slawson and Sun/Oryx executed a preprinted Model Form Operating 

Agreement published by the American Association ofPetroleum Landmen, providing, inter alia, that 

Slawson would drill a well (hereafter "the Tiller #1-9 well") into the Red River formation in 

Richland County, Montana. On the same day, Slawson and Sun/Oryx entered into a participation 

agreement covering an area of mutual interest that included the Tiller # 1-9 well site. The 

participation agreement provided Slawson and Sun/Oryx would jointly explore and develop the area 

of mutual interest, and 

During the term of this [area of mutual interest], if any party hereto ("Acquiring 

Party") acquires any oil and gas leases or any interest therein, any unleased mineral 

interest or any farmouts or other contracts with respect thereto which affect lands and 

minerals lying within the [area of mutual interest] ("Mineral Interest"), the Acquiring 

Party shall promptly advise the other party hereto ("Offeree") of such acquisition. 

In such event, Offeree shall have the right to acquire its proportionate interest in such 

Mineral Interest in accordance with the other provisions of this [area of mutual 

interest]. 

The area of mutual interest was to remain in effect for twelve months, "or as long as the Operating 

Agreement covering the [area of mutual interest] lands remains in effect, unless sooner terminated 

by the parties." 

Although the operating agreement required Slawson to drill the Tiller # 1-9 well into the Red 

River formation, Slawson later determined the well would be a commercial producer from the 

shallower Duperow formation. After Slawson completed the Tiller #1-9 well in the Duperow 

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Appellate Case: 94-3431 Document: 01019277622 Date Filed: 03/12/1996 Page: 2 
formation, it attempted to acquire a 320-acre spacing unit. Slawson's attempt met with opposition, 

and the Montana Board of Oil and Gas Conservation ultimately ordered a 160-acre spacing unit in 

October 1987. 

Two years later, in September 1988, Vintage purchased several properties from Slawson, 

including the Tiller # 1-9 well and its then 160-acre spacing unit, for $55 million. In the Assignment, 

Bill of Sale and Conveyance, executed in November 1988, Slawson assigned Vintage 

1. All right, title and interest in and to those certain oil, gas and mineral 

leases, described in Exhibit "A" attached hereto and made a part hereof, in and to the 

entire estates created by the leases, licenses and permits described in Exhibit "A" and 

"A-1" (herein called the "Leases") ... insofar as the Leases cover and relate to the 

hydrocarbons under the land described in Exhibit "A" and "A-1" (herein called the 

"Land"), together with identical undivided interests in and to all the property and 

rights incident thereto, including but not limited to all rights in, to and under all 

agreements, leases, permits, easements, right-of-way, licenses, joint operating 

agreements, pooling and spacing orders, communitization agreements, and other 

instruments in any way related thereto. 

The Tiller # 1-9 well is listed in Exhibit A to the Assignment, Bill of Sale and Conveyance. Exhibit 

A states as follows: "Tiller unit # 1-9: This assignment is expressly limited to the spacing unit for 

the Tiller #1-9 well, being the E/2 NE/4 Section 9, and all of Section 10, T25N, R55E, Roosevelt, 

MT." 1 Sun/Oryx operated the Tiller #1-9 well after the acquisition. 

By January 1991, production from the Duperow formation had become uneconomical, so 

1 The parties have stipulated that the legal description of the Tiller #1-9 spacing unit in Exhibit A 

is incorrect. The 160-acre spacing unit was actually comprised of the E/2 NE/4 Section 9, and the W/2 NW/4 

ofSection 10, T25N, R55E, Roosevelt, MT. 

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Appellate Case: 94-3431 Document: 01019277622 Date Filed: 03/12/1996 Page: 3 
Stm!Oryx recompleted the Tiller #1-9 well in the deeper Red River formation using its existing 

wellbore. Under applicable regulations, the appropriate spacing unit for a well in the Red River 

formation was 320 acres. Sun/Oryx therefore expanded the Tiller #1-9 spacing unit from 160 acres 

to 320 acres by acquiring new leases covering an additional 160 acres adjacent to the existing 

spacing unit (hereafter "the additiona1160 acres"). In June 1991, Sun/Oryx informed Slawson it had 

acquired the additional 160 acres, but that it believed Vintage, as Slawson's assignee, was entitled 

to participate in the additional acreage pursuant to the 1986 participation agreement. Shortly 

thereafter, Slawson brought this action in district court, seeking a declaratory judgment that it, not 

Vintage, is entitled to participate in the additional 160 acres under the 1986 participation agreement. 

The parties filed cross-motions for summary judgment, and the district court entered judgment in 

favor of Vintage. This appeal followed. 

II 

The parties have stipulated that the participation agreement between Slawson and Sun/Oryx 

remains in effect by virtue of continuing operations within the area of mutual interest, that 

Sun!Oryx's acquisition of the additional 160 acres was the type envisioned by the original 

participation agreement, that the additional 160 acres were within the area of mutual interest, and 

that the participation agreement obligated Sun/Oryx to offer an interest in the additional 160 acres 

either to Vintage or to Slawson. Vintage contends, however, that Slawson assigned its interest in 

the participation agreement when it executed the Assignment, Bill of Sale and Conveyance, and that 

Vintage, as Slawson's assignee, has succeeded to any participation rights Slawson might have had 

in the additional 160 acres. In response, Slawson contends Exhibit A to the Assignment, Bill of Sale 

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Appellate Case: 94-3431 Document: 01019277622 Date Filed: 03/12/1996 Page: 4 
and Conveyance makes it clear it did not intend to assign its right to participate in the additional 160 

acres to Vintage. The case therefore turns on how we interpret the Assignment, Bill of Sale and 

Conveyance, and Exhibit A. 

It is well established under Kansas law, which the parties agree governs this case, that in 

construing a contract "the intent of the parties is the primary question." Akandas, Inc. v. Klippel, 827 

P.2d 37,44 (Kan. 1992) (citation omitted). "Unless a written instrument is ambiguous or vague in 

its terms, that intention must be determined from the instrument as a whole or, as is often stated, 

from its 'four comers', which simply means that all of the language used anywhere in the instrument 

should be taken into consideration and construed in harmony with other provisions of the contract." 

Texaco, Inc. v. Holsinger, 336 F.2d 230,233 (lOth Cir. 1964) (applying Kansas law), cert. denied, 

379 U.S. 970 (1965). A contract is ambiguous only if "the application of the rules of interpretation 

to the face of the instrument leaves it genuinely uncertain as to which of two or more meanings is 

proper." Id Ifthe contact is ambiguous, "the intention of the parties is not ascertained by resort to 

literal interpretation, but by considering all language employed, the circumstances existing when the 

agreement was made, the object sought to be attained, and other circumstances, if any, which tend 

to clarify the real intention of the parties." Klippel, 827 P.2d at 51 (citation omitted); Boos v. 

National Fed'n of State High Sch. Ass'ns, 889 P.2d 797, 804 (Kan. Ct. App. 1995) (extrinsic 

evidence admissible to aid interpretation of genuinely ambiguous contract provision). 

Standing alone, paragraph 1 of the Assignment, Bill of Sale and Conveyance is far from 

ambiguous. It states that Slawson intended to assign Vintage the "Leases" and "Land" listed in 

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Appellate Case: 94-3431 Document: 01019277622 Date Filed: 03/12/1996 Page: 5 
Exhibit A, which includes the Tiller # 1-9 well and its then 160-acre spacing unit, "together with 

identical undivided interests in and to all the property and rights incident thereto, including but not 

limited to all rights in, to and under all agreements, leases ... and other instruments in any way 

related thereto." Inasmuch as the participation agreement granted Slawson the right to participate 

in any property Sun/Oryx might acquire after September 1986 to supplement the Tiller # 1-9 spacing 

area, Slawson's rights under the participation agreement were "related" to the Tiller# 1-9 well. Thus, 

under paragraph 1 of the Assignment, Bill of Sale and Conveyance, Slawson appears to have 

assigned its entire interest in the Tiller #1-9 well to Vintage, including its participation rights. 

Slawson reminds us, however, that we cannot interpret paragraph 1 of the Assignment, Bill 

of Sale and Conveyance in isolation, but that we must review the document as a whole, including 

the attached exhibits, to determine the intent of the parties. Holsinger, 336 F.2d at 233. Slawson 

draws our attention to Exhibit A, which states as follows: "Tiller unit # 1-9: This assignment is 

expressly limited to the spacing unit for the Tiller #1-9 well, being the E/2 NE/4 Section 9, and all 

of Section 10, T25N, R55E, Roosevelt, MT." According to Slawson, this language shows it 

intended to assign only the 160 spacing unit, and not the participation rights related to it. Although 

we agree Exhibit A renders paragraph 1 of the Assignment, Bill of Sale and Conveyance ambiguous, 

we see no merit in Slawson's contention. 

If the language of a written contract is ambiguous, we may look beyond the four comers of 

that document to determine the intent of the parties. Klippel, 827 P.2d at 51; Boos, 889 P.2d at 804. 

"Whether an ambiguity exists in a written instrument is a question oflaw to be decided by the court." 

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Appellate Case: 94-3431 Document: 01019277622 Date Filed: 03/12/1996 Page: 6 
Kennedy & Mitchell, Inc. v. Anadarko Production Co., 754 P.2d 803, 806 (Kan. 1988). However, 

" [ o ]nee it is determined that a contract is ambiguous and that its construction depends on extrinsic 

circumstances, interpretation of the contract becomes a question of fact." City of Farmington v. 

Amoco Gas Co., 777 F.2d 554, 560 (lOth Cir. 1985). During oral argument, the parties agreed that 

even if we were to conclude the Assignment, Bill of Sale and Conveyance and the attached exhibits, · 

taken as a whole, are ambiguous, it would not be necessary to remand the case to the district court 

to determine the intent of the parties at the time of execution, because the record contains all of the 

relevant extrinsic evidence and the extrinsic evidence is undisputed. See Weiner v. Wilshire Oil Co. 

of Texas, 389 P.2d 803, 810 (Kan. 1964) (Schroeder, J., concurring) ("Where, as here, extrinsic 

evidence is conclusive and undisputed and renders the meaning of an instrument clear, construction 

of such instrument becomes a question of law for the court."). 

We need not look very far to determine what the parties intended when they agreed to the 

quoted portion of Exhibit A. Slawson explained the language as follows in its complaint: 

[The Tiller #1-9 assignment] was limited to the production spacing unit on the 

existing well [i.e., the original 160 acres] because Slawson retained the right to drill 

and develop contiguous acreage through the retention of the Georges #1-4 [proven 

undeveloped property (hereafter "PUD")]. To preserve Slawson's right to drill the 

Georges #1-4, Slawson limited its conveyance on the Tiller #1-9 to only the 160 acre 

producing unit and the formal assignment of interests to defendant Vintage, pursuant 

to the Slawson!Vintage agreement was expressly limited to the spacing unit for the 

Tiller # 1-9 as it then existed. 

The complaint further alleges in conclusory fashion that "[t]he spacing unit limitation on the interests 

Slawson transferred to Vintage also applied to the assignment of plaintiffs' contract rights under the 

September 9, 1986 [participation] agreement with Sun." In the pretrial order, Slawson and Vintage 

entered into the following stipulations: 

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Appellate Case: 94-3431 Document: 01019277622 Date Filed: 03/12/1996 Page: 7 
9. One prospect that Slawson wanted to and did exclude was the Georges # 1-

4. The Georges #1-4 was located immediately northwest of the Tiller #1-9 but 

outside of the Tiller # 1-9 spacing unit. 

10. In order to preserve Slawson's right to drill the Georges #1-4 prospect, 

Slawson limited the assignment of the Tiller #1-9 .... The legal description in th[e] 

assignment of the Tiller # 1-9 well did not correctly describe the spacing unit of the 

Tiller # 1-9 well [at the time the parties executed the Assignment, Bill of Sale and 

Conveyance]. 

11. Following the closing of the Slawson!Vintage transaction, Slawson 

drilled the Georges #4-1 [sic] well within the Georges # 1-4 prospect. Vintage agreed 

that Slawson could drill this well and never claimed that they owned any interest 

therein. The Georges #4-1 [sic] well was a dry hole. 

Finally, in its brief, Slawson repeats its "frank admission ... that its motive for confining its 

assignment to leasehold interests within the Tiller spacing unit was its desire to retain properties 

outside the spacing unit that would be useful in developing the Georges # 1-4 prospect." 

In light of the above, we conclude as a matter of law that the sole purpose of the quoted 

portion of Exhibit A was to clarify the location and dimension of the Tiller #1-9 spacing unit, in 

order to prevent disputes over the boundary between the Tiller #1-9 spacing unit and the adjacent 

Georges #1-4 prospect Slawson intended to retain. We see no merit in Slawson's contention it 

intended to retain the participation rights related to the Tiller # 1-9 well, or that it intended to retain 

any part of its interest in the Tiller #1-9 well when it executed the Assignment, Bill of Sale and 

Conveyance. Accordingly, Vintage, not Slawson, is entitled to participate in the additional 160 

acres. 

AFFIRMED. 

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Appellate Case: 94-3431 Document: 01019277622 Date Filed: 03/12/1996 Page: 8