### No. 04

- 14

- 00905

- CV

In the Fourth District Court of Appeals

San Antonio , Texas

Escondido Resources I I
, LLC

, Appellant

,

v.

Justapor Ranch Company, L.C.

, Appellee

.

On Appeal from the 49th Judicial District Court Webb County, Texas,

Cause No. 2013-CV7-001396- D1



### E SCONDIDO 

### ’ S 

### O RAL 

### A RGUMENT 

### E XHIBITS

James P. Keenan

State Bar No. 11167850

keenan@buckkeenan.com J. Robin Lindley

State Bar No. 12366100 lindley@buckkeenan.com

B UCK K EENAN

, LLP 700 Louisiana, Suite 5100 Houston, Texas 77002 Telephone: (713) 225-4500 Facsimile: (713) 225-3719 Robert Dubose

State Bar No. 00787396 rdubose@adjtlaw.com

A LEXANDER D UBOSE
J EFFERSON & T OWNSEND LLP

1844 Harvard Street Houston, Texas 77008 Telephone: (713) 523-2358 Facsimile: (713) 523-4553

Additional counsel listed on

next page Wallace B. Jefferson

State Bar No. 00000019 wjefferson@adjtlaw.com

Rachel A. Ekery

State Bar No. 00787424 rekery@adjtlaw.com

A LEXANDER D UBOSE
J EFFERSON &T OWNSEND LLP 515 Congress Avenue

Suite 2350 Austin, Texas 78701 Telephone: (512) 482-9300 Facsimile: (512) 482-9303



### A TTORNEYS FOR 

### E SCONDIDO 

### R ESOURCES 

### II, LLC ACCEPTED
04-14-00905-CV
FOURTH COURT OF APPEALS SAN ANTONIO, TEXAS
11/2/2015 3:16:56 PM
KEITH HOTTLE
CLERK

### TABLE OF CONTENTS

Tab

The results of different conclusions about lease forfeiture

................................ ....... 1

III(b)

- original lease provision

– amount of monthly production royalties

............. 2

III(g)

- accounting / adjustment payments

................................ ................................ 3

XIV

– deadline for monthly production royalties / results of missing

deadline

................................ ................................ ................................ ........... 4

Lease Amendment

– amended amount of monthly prod uction royalties

................. 5

### The results of different conclusions about lease forfeiture

Does lease language require termination for failure to reconcile underpayments ? Result

1

– Unambiguous ly “no”

– Only Escondido’s interpretation is reasonable No termination (reverse and render)

2

- Ambiguous

– Both interpretations are

reasonable No termination (reverse and render)

3

– Unambiguous ly “yes” , but not clear and unequivocal : (1) only Justapor’s interpretation is reasonable, but (2) language is not clear and unequivocal 1 No termination (reverse a nd render)

4

– Unambiguous ly “yes” and clear and unequivocal : (1) only Justapor’s interpretation is reasonable, and (2) language is clear and unequivocal. Termination (affirm)

For authorities, see Brief of Appellant at 33

- 37.

1 Outdoor Sys., Inc. v. BBE, L.L.C ., 105 S.W.3d 66, 71 (Tex. App.

— Eastland 2003, pet. denied). For the application of a “clear and unequivocal” standard in another context, see Sparks v. Texas

S. Univ ., 824 S.W.2d 328, 330 (Tex. App.

— Houston [1st Dist.] 1992, no writ) (requiring “explicit” waiver of state immunity to suit).

### 2 III(b)

- original lease provision

– amount of monthly production royalties 2

“III.

The royalties to be paid by Lessee to Lessor are as follows, to

- wit: ...

(b) On all gas production from this lease, ... Lessee shall calculate and pay royalties

to Lessor on One

- Fourth (1/4th) of all gas produced from this lease and its constituents and products sold or used therefrom, which royalties shall be calculated and paid to Lessor based upon the highest of

(i ) the CURRENT MARKET VALUE of such gas production from this lease which is sold by, through or under Lessee or used by, through or under
Lessee,

(ii) the CURRENT HOUSTON SHIP CHANNEL PRICE for such gas production, as hereinafter defined, or

(iii) the CUR RENT PROCEEDS REALIZED BY LESSEE for such gas production, without deduction of any costs or expense except as hereinafter stipulated or,

(iv) the highest sales price of any gas were gas produced from the property could be present when sold to a third part y. ”

2 CR3:982 ¶III(b) (returns, indentation, emphasis added).

### 3 III(g)

- accounting / adjustment payments 3

Paragraph III(g) discusses topics including :

Accounting

“In accounting to Lessor for royalties payable hereunder, Lessee shall be required, on a monthly basis, if requested by Lessor, to account to Lessor for each well on leased premises based upon the volume of production....”

Overpayment

“If it is agreed by Lessor or the royalty owner in question that a royalty owner was overpaid, then the overpaid royalty owner has the option of repaying

such overpayment or allowing Lessee to recoup such overpayment out of future royalty payments on a schedule and in monthly amounts agreed to by such overpaid royalty owner and Lessee. Any overpaid royalty owner shall not be charged interest on overpaid sums.

... ”

Underpayment

“ In the event the prices and/or volumes used by Lessee in calculating and payment of production royalties paid to Lessor was less than those required to be paid, Lessee shall issue its check to make up the difference on or before

March 1 st o f each year .”

3 CR3:987

- 88 ¶III(g)

.

### 4 XIV

– deadline for monthly production royalties / results of missing deadline 4

“ Royalties payable to Lessor in the manner hereinabove provided for are due and payable to Lessor within a period of sixty (60) days following each month’s production of oil or gas produced and sold from the premises . Thereafter, such payments shall be delinquent and will bear interest at the rate of Ten (10%) percent per annum, compounded monthly, until paid. In the event that such royalties are not paid and become delinquent , and there is no title dispute or title defect, this lease shall terminate ipso facto on the date that such royalties were due and not paid . In the event such royalties are not paid and become delinquent, Lessor without other notice than this paragraph, shall be authorized to file suit in the District Court of Webb County, Texas, for recovery of such delinquent royalties.... ”

4 CR3:996

- 97 ¶XIV (emphasis added)

.

### 5 Lease Amendment

– amended amount of monthly production royalties

“2. Paragraph III is amended to provide:

(a) On all oil and other liquid hydrocarbons produced from this lease, Lessee shall be required to pay Lessor the higher of one

- fourth (1/4 th ) of the posted price for similar type of oil produced in Texas Railroad District 4 (as said region now exists) or for similar type of oil produced from this lease or the current market value of that produced and saved from said land, subject only to deductions imposed by purchaser, if any, for transportation of product to the purchasers facility. All oil or other liquid h ydrocarbons produced from this lease shall be treated and stored on this lease until purchased by Lessee.

(b) II The term “HOUSTON SHIP CHANNEL PRICE” shall be construed to mean the price or value which is equal to the highest reported on

- shore spot purcha se price being paid during the month of production by purchasers of gas produced in the Texas Gulf Area, to be determined on a monthly basis by reference to the index spot gas price (large packages only) for gas delivered to pipelines at Houston Ship

Chann e l/Beaumont, Texas, as recorded i n Inside F.E.R.C. vs. Gas Market Report published by McGraw

- Hill , minus five (.05) cents per MMBtu, (an agreed upon reasonable transportation charge for this lease production) adjusted for MMBtu content, and without any oth er deduction by Lessee save unrei mbursed severance taxes actually paid by the Lessee In behalf of Lessor to the taxing authority. In the

event the above designated gas price Index publication ceases to exist, (or ceases to report such "Houston Ship Channel P rice" hereinabove referred to), the lessor and Lessee shall agree on another publication generally acceptable as providing comparable accurate current data as to current on

- shore spot prices for gas delivered Into pipelines by purchasers In said area, wh ich substituted publication shall be used

i n lieu of the above

- described publication as part of the foregoing standard, upon which Lessor's royalty shall be calculated and paid. In the event no price Index publication can be agreed upon as reliable, then a reliable governmental or other

non

- partisan publication evaluating the same Information. shall be used, with current payments to be made on the most current Information available and then adjusted, as necessary, within thirty (30) days following the avail abi lity of the governmental data or other nonpartisan publicat ion, or if no such publication i s available for purposes, hereof, this standard, as an element for calculation of Lessor’s royalties shall cease to exist. Provided however, Lessee shall have the right to enter into gas sales’ contracts that will determine the price upon which gas royalty is calculated if such contracts provide no less than a price redetermination every six months and provide the following minimum terms :

Price :

### 6 The price to be paid by Buyer to Seller for each MMBtu of Gas purchased hereunder shall be: (i) ninety

- five percent (95%) of the “Houston Ship Channel Index Price” for monthly volumes averaging 8,000 Mcf per day or less; (ii) ninety

- six percent (96%) of the “Houston Ship Channel Index Price” for monthly volumes averaging

5001

- 10,000 Mcf per day; (iii) ninety

- seven percent (97%) of the “Houston Ship Channel Index Price” for monthly volumes averaging 10,001

- 15,000 Mcf per day; and (iv) ninety

- eight percent (98%) of the “Ho uston Ship Channel Index Price” for monthly volumes averaging over 15,000 Mcf per day....[additional minimum terms omitted].

Provided further, Lessor shall provide copies of such contracts, and any amendments thereto, to Lessee upon execution along with a written statement that such contract indicates that all compensation received by Lessee for sale of the gas, and Lessor has at all times the right to take his gas in kind as provided herein.” 5

5 CR3:101 4

- 1 5 (emphasis added)

.

### 7 Respectfully submitted,

James P. Keenan

State Bar No. 111 67850

keenan@buckkeenan.com J. Robin Lindley

State Bar No. 12366100 lindley@buckkeenan.com

B UCK 

### K EENAN



### , LLP 700 Louisiana, Suite 5100 Houston, Texas 77002 Telephone: (713) 225

- 4500 Facsimile: (713) 225

- 3719 /s/ Robert D ubose

Robert Dubose

State Bar No. 00787396 rdubose@adjtlaw.com

A LEXANDER 

### D UBOSE 

### J EFFERSON


### & T OWNSEND 

### LLP

1844 Harvard Street Houston, Texas 77008 Telephone: (713) 523

- 2358 Facsimile: (713) 523

- 4553

Wallace B. Jefferson

State Bar No. 00000019 wjefferson@adjtlaw.com Rachel Ekery

State Bar No. 00787424 rekery@adjtlaw.com

A LEXANDER 

### D UBOSE 

### J EFFERSON


### &T OWNSEND 

### LLP 515 Congress Avenue, Suite 2350 Austin, Texas 78701 Telephone: (512) 482

- 9300 Facsimile: (512) 482

- 9303

Kirsten Castañeda

A LEXANDER 

### D UBOSE 

### J EFFERSON


### &T OWNSEND 

### LLP

4925 Greenville Avenue, Suite 510 Dallas, Texas 75206 Telephone: (214) 369

- 2358 Facsimile: (214) 369

- 2359

A TTORNEYS FOR 

### A PPELLANT

### 8 C ERTIFICATE OF 

### S ERVICE



### On November 2

, 2015, I electronically filed th e Oral Argument Exhibits with

the Clerk of Court using the eFile.TXCourts.gov electronic filing system which will

send notification of such filing to the following :

Timothy Patton

T IMOTHY 

### P ATTON



### , P.C.

14546 Brook Hollow #279 San Antonio, Texas 78232 tpatton@tp

- pc.com

Patton G. Lochridge

M CGINNIS 

### L OCHRIDGE 

### & K ILGORE 

### LLP 600 Congress Avenue, Suite 2100 Austin, Texas 78701 plochridge@mcginnis1aw.com Jose M. Rubio, Jr.

J OE 

### R UBIO 

### L AW 

### F IRM 

### 1000 Washington Street, Suite 4 Laredo, Texas 78040 joerubio@joerubiolawfirm.com

/s/ Robert Dubose

Robert Dubose