No. 04-14-00905-CV

In the Fourth District Court of Appeals

San Antonio, Texas

Escondido Resources II, 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

ESCONDIDO’S ORAL ARGUMENT EXHIBITS

James P. Keenan

State Bar No. 11167850 

keenan@buckkeenan.com

J. Robin Lindley 

State Bar No. 12366100 

lindley@buckkeenan.com 

BUCK KEENAN, 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 

ALEXANDER DUBOSE 

JEFFERSON & TOWNSEND 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

ALEXANDER DUBOSE 

JEFFERSON &TOWNSEND LLP

515 Congress Avenue 

Suite 2350 

Austin, Texas 78701 

Telephone: (512) 482-9300 

Facsimile: (512) 482-9303 

ATTORNEYS FOR ESCONDIDO RESOURCES II, LLC

ACCEPTED

04-14-00905-CV

FOURTH COURT OF APPEALS

SAN ANTONIO, TEXAS

11/2/2015 3:16:56 PM

KEITH HOTTLE

CLERK

 FILED IN 4th COURT OF APPEALS SAN ANTONIO, TEXAS 11/2/2015 3:16:56 PM KEITH E. 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 production royalties.................5
The results of different conclusions about lease forfeiture

Does lease language require termination for 

failure to reconcile underpayments?

Result

1 – Unambiguously “no” – Only Escondido’s 

interpretation is reasonable

No termination (reverse and render)

2 - Ambiguous – Both interpretations are 

reasonable

No termination (reverse and render)

3 – Unambiguously “yes”, but not clear and 

unequivocal: (1) only Justapor’s interpretation 

is reasonable, but (2) language is not clear and 

unequivocal1

No termination (reverse and render)

4 – Unambiguously “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 royalties2

“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 CURRENT 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 party.”

 2 CR3:982 ¶III(b) (returns, indentation, emphasis added).
3

III(g) - accounting / adjustment payments3

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 1st of each year.”

 3 CR3:987-88 ¶III(g).
4

XIV – deadline for monthly production royalties / results of missing deadline4

“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 (1/4th) 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 hydrocarbons 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 purchase 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 

Channel/Beaumont, Texas, as recorded in 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 other deduction by Lessee save unreimbursed 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 Price" 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, which substituted publication shall be used

in 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 availability of the 

governmental data or other nonpartisan publication, or if no such publication is 

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 “Houston 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 CR3:1014-15 (emphasis added).
7

Respectfully submitted,

James P. Keenan

State Bar No. 11167850

keenan@buckkeenan.com

J. Robin Lindley

State Bar No. 12366100

lindley@buckkeenan.com

BUCK KEENAN, LLP

700 Louisiana, Suite 5100

Houston, Texas 77002

Telephone: (713) 225-4500

Facsimile: (713) 225-3719

/s/Robert Dubose

Robert Dubose

State Bar No. 00787396

rdubose@adjtlaw.com

ALEXANDER DUBOSE JEFFERSON 

 & TOWNSEND 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

ALEXANDER DUBOSE JEFFERSON

 &TOWNSEND LLP

515 Congress Avenue, Suite 2350

Austin, Texas 78701

Telephone: (512) 482-9300

Facsimile: (512) 482-9303

Kirsten Castañeda

ALEXANDER DUBOSE JEFFERSON

 &TOWNSEND LLP

4925 Greenville Avenue, Suite 510

Dallas, Texas 75206

Telephone: (214) 369-2358

Facsimile: (214) 369-2359

ATTORNEYS FOR APPELLANT
8

CERTIFICATE OF SERVICE

On November 2, 2015, I electronically filed the 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

TIMOTHY PATTON, P.C.

14546 Brook Hollow #279

San Antonio, Texas 78232

tpatton@tp-pc.com

Patton G. Lochridge

MCGINNIS LOCHRIDGE & KILGORE LLP

600 Congress Avenue, Suite 2100

Austin, Texas 78701

plochridge@mcginnis1aw.com

Jose M. Rubio, Jr.

JOE RUBIO LAW FIRM

1000 Washington Street, Suite 4

Laredo, Texas 78040

joerubio@joerubiolawfirm.com

/s/Robert Dubose

Robert Dubose