IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 18-20125

GLASSELL NON-OPERATED INTERESTS, LIMITED; ACG3 MINERAL 

INTERESTS, LIMITED; YATES ENERGY CORPORATION, 

 Plaintiffs - Appellees

v.

ENERQUEST OIL & GAS, L.L.C., 

 Defendant - Appellant

Appeal from the United States District Court

for the Southern District of Texas

Before HIGGINBOTHAM, ELROD, and HO, Circuit Judges.

JAMES C. HO, Circuit Judge:

A group of oil companies agreed to cooperatively develop oil prospects in 

Texas. One of the parties, EnerQuest Oil & Gas L.L.C., acquired an interest 

in the specified area after the agreement took effect, but then refused to offer 

a share of those interests to the other parties. After the acquisition, other 

parties to the agreement—Glassell Non-Operated Interests, Ltd., Yates 

Energy Corporation, and ACG3 Mineral Interests, Ltd. (collectively, 

“Appellees”)—filed suit against EnerQuest. Appellees alleged that EnerQuest 

breached the contract by refusing to offer a pro-rata share of the newly 

United States Court of Appeals

Fifth Circuit

FILED

June 12, 2019

Lyle W. Cayce

Clerk

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No. 18-20125

2

acquired interests. Upon examination of the agreement, we conclude that 

EnerQuest did not breach.

Although the contract requires that the parties share interests acquired 

within the area of mutual interest (“AMI”), the contract excludes interests 

already owned by parties from the AMI. What is excluded from the AMI at the 

outset may never be included without a new agreement. Accordingly, we 

reverse the judgment of the district court and render judgment for EnerQuest.

I.

EnerQuest, Glassell, Yates, and several others entered into a Letter 

Agreement to develop the Dubose Field, an area in Texas. Shortly after the 

Parties signed the Letter Agreement, additional parties sought to join the 

endeavor. The original parties allowed the new parties to ratify the agreement 

(the “Amendment”) and then the new parties officially ratified that Letter 

Agreement (the “Ratification”). The Letter Agreement, Amendment, and 

Ratification compose the Development Agreement.

The Letter Agreement contains an AMI provision. The parties generally 

describe the AMI in § 2.1, which states that the AMI shall cover all lands 

within the Dubose Field that are acquired after August 1, 2010—the “Effective 

Date.” Section 2.1 then defines those interests within the AMI that are 

acquired after the Effective Date as “Acquired Interest.”1

 

1 In full, § 2.1 provides the following:

The AMI shall cover all lands within the 40 square miles covered by the Seitel 

Agreement plus the one-half (1/2) mile halo provided for under the 

COP/Seitel/Yates Agreement [i.e., the Dubose Field]. The AMI shall cover and 

apply to (i) royalty interest, mineral interest, overriding royalty interest, 

production payment interest, net profits interest, or any other type of interest 

in oil, gas, or other minerals, (ii) any oil and gas lease, or (iii) any farmout 

agreement, drilling option agreement, acreage contribution agreement, or 

acreage support agreement, if such interest, lease, or agreement covers or 

includes lands located wholly or partly within the AMI and which were or are 

acquired after August l, 2010 (the “Effective Date”), except for any such 

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But the Letter Agreement excludes some interests from the AMI. 

Section 2.3 of the Letter Agreement excludes “[a]ll interests, leases or 

agreements owned by a Party prior to the Effective Date.” Sections 1.4 of the 

Amendment and 1.5 of the Ratification include substantially the same 

provision, so the exclusions apply to both the original parties and new parties.

The parties agreed to share interests that they acquired within the AMI. 

The Letter Agreement’s sharing obligation—found in §§ 2.6 and 2.7—directs 

that, “[w]ithin thirty (30) business days after a Party acquires an Acquired

Interest within the AMI after the execution of this Agreement, such Party shall 

promptly notify the other Parties in writing of the details of the acquisition of 

such Acquired Interest.” And after an acquiring party has informed the other 

parties of the gained interests, a party “may elect in writing to acquire its prorata share of such Acquired Interest.”

A few years after entering the Development Agreement, EnerQuest 

sought to acquire the Dubose Field interests of DKE and Pati-Dubose (the 

“DKE/Pati-Dubose interests”). Both DKE and Pati-Dubose were new parties 

to the Development Agreement. EnerQuest’s president emailed Yates’ 

president about the potential acquisition, stating that EnerQuest would be 

offering the interest to the other parties pursuant to the Development 

Agreement. But after the transaction closed, EnerQuest determined that the 

DKE/Pati-Dubose interests were not subject to the AMI. Therefore, according 

to EnerQuest, the sharing obligation did not apply.

Appellees sued EnerQuest for breach of contract. EnerQuest contested

Appellees’ construction of the Development Agreement and asserted an 

 

interest, lease, or agreement acquired by Glassell from the Estates of Alfred C. 

Glassell, Jr. or Clare A. Glassell, which are excluded from the AMI. Any such 

interest, lease or agreement acquired by a Party shall be referred to herein as 

an “Acquired Interest.”

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affirmative defense that the Development Agreement was unenforceable under 

the Texas Statute of Frauds. See TEX. BUS. & COM. CODE § 26.01(a), (b)(4), (5). 

The district court granted Appellees’ motion for summary judgment on liability 

for breach of contract and denied EnerQuest’s motion for summary judgment 

on the affirmative defense of a violation of the Texas Statute of Frauds. 

EnerQuest appeals.

II.

A grant of summary judgment is reviewed de novo. Wallace v. Texas 

Tech Univ., 80 F.3d 1042, 1046 (5th Cir. 1996) (citing Neff v. Am. Dairy Queen 

Corp., 58 F.3d 1063, 1065 (5th Cir. 1995)). “The court shall grant summary 

judgment if the movant shows that there is no genuine dispute as to any 

material fact and the movant is entitled to judgment as a matter of law.” FED.

R. CIV. P. 56(a).

“We look to state law for rules governing contract interpretation.”

F.D.I.C. v. Firemen’s Ins. Co. of Newark, N.J., 109 F.3d 1084, 1087 (5th Cir. 

1997) (citing Clardy Mfg. Co. v. Marine Midland Bus. Loans, Inc., 88 F.3d 347, 

352 (5th Cir.1996)). Texas contract law governs this dispute.

A contract’s construction is a question of law. See MCI Telecomms. Corp.

v. Texas Utils. Elec. Co., 995 S.W.2d 647, 650–51 (Tex. 1999) (citing cases). The 

court must find the parties’ intent as expressed in the agreement. Sun Oil Co.

(Delaware) v. Madeley, 626 S.W.2d 726, 727–28 (Tex. 1981) (citing McMahon 

v. Christmann, 303 S.W.2d 341 (Tex. 1957)). Courts give terms “their plain, 

ordinary and generally accepted meaning unless the instrument itself shows

them to have been used in a technical or different sense.” W. Reserve Life Ins. 

Co. v. Meadows, 261 S.W.2d 559, 564 (Tex. 1953) (citing Hall v. Mut. Benefit 

Health & Accident Ass’n, 220 S.W.2d 934 (Tex. Civ. App.—Amarillo 1949, writ 

ref’d)).

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A.

The question is: whether the DKE/Pati-Dubose interests should be 

considered Acquired Interests according to the Development Agreement. If 

they are Acquired Interests, then they are subject to the sharing obligation.

Under EnerQuest’s reading of the Letter Agreement, if any party to the 

Development Agreement owns an interest in the Dubose Field before August 

1, 2010, then those interests can never be part of the AMI. And because the 

interests can never be part of the AMI, they can never be Acquired Interests.

Appellees read the Letter Agreement differently. According to 

Appellees, even if a party owns an interest in the Dubose Field before the 

Effective Date, when another party purchases that previously-owned interest 

after the Effective Date, then those interests are Acquired Interests. Appellees 

construe § 2.3 to mean that if a party owns interests in the Dubose Field when 

that party joins the Development Agreement, then that party does not need to 

share his previously owned interests. So even though DKE and Pati-Dubose 

owned the interests before the Effective Date, all that matters is that 

EnerQuest did not. Therefore, according to Appellees’ reading of the Letter

Agreement, EnerQuest has to offer to share those new interests, because those 

interests were within the Dubose Field area and were acquired by EnerQuest 

after the Effective Date.

Sections 2.1 and 2.3 describe the lands both included and excluded from 

the AMI. According to § 2.1, the AMI covers various types of interests, leases, 

and agreements in the Dubose Field “which were or are acquired after” the 

Effective Date. And “[a]ny such interest, lease or agreement acquired by a 

Party” is defined as an “Acquired Interest.” Therefore, § 2.1 provides that, to 

be an Acquired Interest, the interest must be (1) within the AMI and (2) 

acquired after the Effective Date.

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But the Letter Agreement further clarifies what interests are excluded 

from the AMI. Section 2.3 states that “[a]ll interests, leases or agreements 

owned by a Party prior to the Effective Date . . . shall not be considered part of 

or subject to the AMI.” DKE and Pati-Dubose are parties to the Development 

Agreement, and they owned interests in the Dubose Field before August 1, 

2010. Therefore, the DKE/Pati-Dubose interests are not part of or subject to 

the AMI. And because the DKE/Pati-Dubose interests are not part of the AMI, 

they necessarily cannot be Acquired Interests under § 2.1.

Appellees ask us to look to the purpose of AMI provisions generally and 

orient our construction according to those purposes. AMI provisions are meant 

to foster cooperation among the parties to acquire and develop interests. See 

Westland Oil Dev. Corp. v. Gulf Oil Corp., 637 S.W.2d 903, 905 (Tex. 1982) (“In 

an area of mutual interest agreement, the parties attempt to describe a 

geographic area within which they agree to share certain additional leases 

acquired by any of them in the future.”). According to Appellees, EnerQuest 

acted contrary to those purposes. But we look to the plain text of the 

Development Agreement—not to “what one side or the other alleges they

intended to say but did not.” Gilbert Texas Constr., L.P. v. Underwriters at 

Lloyd’s London, 327 S.W.3d 118, 133 (Tex. 2010). If Appellees sought to 

prohibit the type of activity in which EnerQuest engaged, they could have 

easily done so through the contract.2

 

2 Appellees claim that our reading would render § 2.13 of the Letter Agreement 

superfluous. We disagree. That section provides that, “should Yates acquire all or any part 

of the interest of Jalapeno at any time, then Yates does not have to offer that interest to the 

other Parties to this Agreement. Likewise, should Jalapeno acquire all or any part of the 

interest of Yates at any time, then Jalapeno does not have to offer that interest to the other 

Parties to this Agreement.” Section 2.13 does not speak to the scope of the AMI, but rather 

to the sharing obligation between two specific parties (Yates and Jalapeno), to the exclusion 

of other parties.

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B.

In the alternative, EnerQuest contends that, even if Appellees’ 

construction of the contract is correct, the contract is unenforceable under the 

Texas Statute of Frauds. The Texas Statute of Frauds works as an affirmative 

defense. See Miller v. BAC Home Loans Servicing, L.P., 726 F.3d 717, 726 (5th 

Cir. 2013); Holloway v. Dekkers, 380 S.W.3d 315, 320 (Tex. App.—Dallas 2012, 

no pet.) (citing TEX. R. CIV. P. 94; TEX. BUS. & COM. CODE § 26.01(a)). Because 

we have concluded that EnerQuest did not breach the agreement, the 

affirmative defense is moot.

* * *

We reverse the district court’s judgment and render judgment for 

EnerQuest.

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