ORAL ARGUMENT REQUESTED

No. 04-15-00066-CV

In the Court of Appeals

for the Fourth District of Texas

San Antonio, Texas

CONOCOPHILLIPS COMPANY,

Appellant,

V. 

VAQUILLAS UNPROVEN MINERALS, LTD.,

Appellee.

From Cause No. 2014 CVQ000 438 D4 

406th Judicial District Court, Webb County, Texas

Honorable Oscar J. Hale, Jr., Presiding Judge

BRIEF OF APPELLANT, CONOCOPHILLIPS COMPANY

Michael V. Powell

 State Bar No. 16204400

 Email: mpowell@lockelord.com

Cynthia K. Timms

 State Bar No. 11161450

 Email: ctimms@lockelord.com

Elizabeth L. Tiblets

 State Bar No. 24066194

 Email: etiblets@lockelord.com

Locke Lord LLP

2200 Ross Avenue, Suite 2200

Dallas, Texas 75201-6776

Tel: 214-740-8520

Fax: 214-740-8800

Adolfo Campero

 State Bar No. 00793454 

 Email: acampero@camperolaw.com

Campero & Associates, P.C.

315 Calle Del Norte, Suite 207

Laredo, Texas 78041

Tel: 956-796-0330

Fax: 956-796-0399

ATTORNEYS FOR APPELLANT

CONOCOPHILLIPS COMPANY

ACCEPTED

04-15-00066-CV

FOURTH COURT OF APPEALS

SAN ANTONIO, TEXAS

4/9/2015 3:46:42 PM

KEITH HOTTLE

CLERK

 FILED IN 4th COURT OF APPEALS SAN ANTONIO, TEXAS 4/9/2015 3:46:42 PM KEITH E. HOTTLE Clerk
IDENTITY OF PARTIES AND COUNSEL

Party Counsel

ConocoPhillips Company,

Appellant

Michael V. Powell

 State Bar No. 169204400

 mpowell@lockelord.com

Cynthia K. Timms

 State Bar No. 11161450

 ctimms@lockelord.com

Elizabeth L. Tiblets

 State Bar No. 24066194

 etiblets@lockelord.com

LOCKE LORD LLP

2200 Ross Avenue, Suite 2200

Dallas, Texas 75201-6776

Telephone: (214) 740-8000

Telecopier: (214) 740-8800

Adolfo Campero

 State Bar No. 00793454

 acampero@camperolaw.com

Campero & Associates, P.C.

315 Calle Del Norte, Suite 207

Laredo, Texas 78041

Telephone: (956) 796-0330

Telecopier: (965) 796-0399

ii
Party Counsel

Vaquillas Unproven Minerals, Ltd., 

Appellees

Raul Leal

 State Bar No. 24032657

 rleal@rl-lawfirm.com

RAUL LEAL INCORPORATED

5810 San Bernardo, Suite 390

Laredo, Texas 78041

Telephone: (956) 727-0039

Telecopier: (956) 727-0369

Armando X. Lopez

 State Bar No. 12562400

 mandox@rio.bravo.net

LAW OFFICES OF ARMANDO X. 

LOPEZ

1510 Calle Del Norte, Suite 16

Laredo, Texas 78041

Telephone: (956) 726-0722

Telecopier: (956) 726-6049

Gregg Owens

 State Bar No. 15383500

 gregg.owens@haysowens.com

Robert G. Hargrove

 State Bar No. 09303300

 rob.hargrove@haysowens.com

Alicia R. Ringuet

 State Bar No. 24074958

 alicia.ringuet@haysowens.com

HAYS & OWENS L.L.P.

807 Brazos Street, Suite 500

Austin, Texas 78701

Telephone: (512) 472-3993

Telecopier: (512) 472-3883

iii
Party Counsel

P. Michael Jung

 State Bar No. 11054600

 michael.jung@strasburger.com

STRASBURGER & PRICE, LLP

901 Main Street, Suite 4400

Dallas, Texas 75202-2794

Telephone: (214) 651-4724

Telecopier: (214) 659-4022

iv
TABLE OF CONTENTS

IDENTITY OF PARTIES AND COUNSEL ........................................................... ii

TABLE OF CONTENTS...........................................................................................v

INDEX OF AUTHORITIES.....................................................................................vi

STATEMENT OF THE CASE..................................................................................1

STATEMENT REGARDING ORAL ARGUMENT ...............................................2

ISSUE PRESENTED.................................................................................................3

STATEMENT OF FACTS ........................................................................................4

SUMMARY OF THE ARGUMENT ......................................................................11

ARGUMENT...........................................................................................................14

1. The Field Rules did not “establish” different units of acreage per well. ......14

A. The parties’ competing interpretations................................................14

B. Analysis of the retained acreage clause in light of the Field 

Rules....................................................................................................16

2. If there were any doubt about the proper interpretation of Sentence 

(2), the Court should apply the strong presumption in Texas law 

against making that sentence a “limitation on the grant.”.............................27

PRAYER FOR RELIEF ..........................................................................................31

CERTIFICATE OF COMPLIANCE.......................................................................33

CERTIFICATE OF SERVICE ................................................................................34

APPENDIX TO APPELLANT’S BRIEF................................................................35

v
INDEX OF AUTHORITIES

Page(s)

CASES

Anadarko Petroleum Corp. v. Thompson,

94 S.W. 3d 550 (Tex. 2002)....................................................................13, 27, 29

Birnbaum v. SWEPI LP,

48 S.W.3d 254 (Tex. App.—San Antonio 2001, pet. denied)............................16

Chesapeake Exploration, L.L.C. v. Energen Resources Corp.,

445 S.W.3d 878 (Tex. App.—El Paso 2014, no pet.) ..................................13, 30

Clifton v. Koontz,

325 S.W.2d 684 (Tex. 1959) ..............................................................................23

ConocoPhillips Co. v. Ramirez,

No. 04-05-00488-CV, 2006 WL 1748584 (Tex. App.—San Antonio, 

2006) (not designated for publication) .........................................................21, 22

EOG Resources, Inc. v. Killam Oil Co., Ltd.,

239 S.W.3d 293 (Tex. App.—San Antonio 2007, pet. denied)....................21, 27

Fox v. Thoreson,

398 S.W.2d 88 (Tex. 1966).................................................................................29

Halbouty v. Railroad Commission,

357 S.W.2d 364 (Tex. 1962) ..............................................................................23

Heritage Resources, Inc. v. NationsBank,

939 S.W.2d 118 (Tex. 1996) ..............................................................................16

Humphrey v. Seale,

716 S.W.2d 620 (Tex. App.—Corpus Christi 1986, no writ) ............................28

Jones v. Killingsworth,

403 S.W.2d 325 (Tex. 1965) ..............................................................................18

Knight v. Chicago Corp.,

183 S.W.2d 666 (Tex. Civ. App.—San Antonio 1944), aff’d, 188 S.W.2d 

564 (Tex. 1945)...................................................................................................30

vi
Knight v. Chicago Corp.,

188 S.W.2d 564 (Tex. 1945) ........................................................................29, 30

Matthews v. Sun Oil Co.,

425 S.W.2d 330 (Tex. 1968) ..............................................................................28

Natural Gas Pipeline Co. v. Pool,

124 S.W.3d 188 (Tex. 2003) ..............................................................................27

Prize Energy Resources, L.P. v. Cliff Hoskins, Inc.,

345 S.W.3d 537 (Tex. App.—San Antonio 2011, no pet.) ................................28

Railroad Commission v. Woods Exploration and Producing Co.,

405 S.W.2d 313 (Tex. 1966) ..............................................................................23

Rogers v. Ricane Enterprises, Inc.,

773 S.W.2d 76 (Tex. 1989).................................................................................29

Rowley v. Braley,

286 S.W. 241 (Tex. Civ. App—Amarillo 1926, writ dism’d)............................17

Shown v. Getty Oil Co.,

645 S.W.2d 555 (Tex. App.—San Antonio 1982, writ ref’d.)...........................28

Springer Ranch, Ltd. v. Jones,

421 S.W.3d 273 (Tex. App.—San Antonio 2013, no pet.) ..............14, 16, 18, 27

State v. Bilbo,

392 S.W.2d 121 (Tex. 1965) ..............................................................................16

Tomlin v. Petroleum Corp. of Texas,

694 S.W.2d 441 (Tex. App.—Eastland 1985, no writ)......................................30

STATUTES AND RULES

TEX. CIV. PRAC. & REM. CODE § 37.009..................................................................32

TEX. CIV. PRAC. & REM. CODE § 51.014(d)...............................................................1

TEX. R. APP. P. 43.2(c).............................................................................................14

16 T.A.C. §3.38(b)(1) ..............................................................................................10

vii
OTHER AUTHORITIES

BLACK’S LEGAL DICTIONARY at 626 (9th ed. 2009)..........................................17, 18

J. Hayes, Texas Railroad Commission: Some Basics Every Practitioner 

Should Know, 28 State Bar of Texas, Oil, Gas and Mineral Law Section 

Report 3, 20 (June 2004).....................................................................................23

WEBSTER’S THIRD NEW INTERNATIONAL UNABRIDGED DICTIONARY (1993)..........18

viii
STATEMENT OF THE CASE

This interlocutory appeal requests the Court to interpret, de novo, nearidentical “retained acreage clauses” in two oil and gas leases. Plaintiff-Appellee 

Vaquillas Unproven Minerals, Ltd. (“Vaquillas”), the Lessor, claims the retained 

acreage clauses caused Defendant-Appellee ConocoPhillips Company 

(“ConocoPhillips”), a Lessee, to forfeit substantially more acreage than 

ConocoPhillips voluntarily released when ConocoPhillips’ program of continuous 

drilling ended. ConocoPhillips disagrees, saying it retained the proper blocks of 

acreage under the leases.

Vaquillas sued ConocoPhillips in the 406th District Court, Webb County. 

(CR:190). ConocoPhillips filed a traditional motion for summary judgment based 

on its interpretation of the leases. (CR:27). Vaquillas filed a traditional crossmotion for partial summary judgment based on its interpretation of the retained 

acreage clause. (CR:200). The trial court, The Honorable Oscar J. Hale, Jr., 

denied ConocoPhillips’ motion for summary judgment and granted Vaquillas’ 

cross-motion. (CR:433, Appendix (“App.”) B).

The trial court granted ConocoPhillips’ unopposed motion for interlocutory 

appeal under TEX. CIV. PRAC. & REM. CODE § 51.014(d). (Id.) By Order dated 

February 13, 2015, this Court granted ConocoPhillips’ Petition for Permission to 

Appeal. (App. A).

1
STATEMENT REGARDING ORAL ARGUMENT

Appellant ConocoPhillips requests oral argument. 

The question presented by this interlocutory appeal comes before the Court 

on cross-motions for summary judgment and presents a question of law. 

Nevertheless, the appeal requires the Court to construe retained acreage clauses in 

oil and gas leases in light of field rules adopted by the Railroad Commission of 

Texas, as well as that Commission’s Statewide Rule 38. 

ConocoPhillips believes oral argument could be helpful to the Court as the 

Court considers various provisions of the oil and gas leases and the Commission’s 

rules. There is also a great deal at stake in this appeal. The trial court has decreed 

that ConocoPhillips has forfeited approximately 15,000 acres from decades-old 

Webb County oil and gas leases on which ConocoPhillips has drilled over 200 

natural gas wells.

2
ISSUE PRESENTED

Did the trial court err by denying ConocoPhillips’ Motion for Summary 

Judgment and by granting Vaquillas’ Cross-Motion for Partial Summary 

Judgment? (App. B).

More specifically, the retained acreage clauses authorize ConocoPhillips to 

retain 640 acres around each existing gas well at the end of the continuous drilling 

program, unless Railroad Commission field rules provide for spacing or proration 

“establishing different units of acreage per well.” If that exception is triggered, 

those “established different acreages” are held in lieu of 640 acres. Did the trial 

court err by holding that spacing requirements in the field rules, which require a 

minimum of 40 acres in order to obtain a drilling permit for a new well, caused

ConocoPhillips’ leases to terminate except for 40 acres around each existing gas 

well?

3
STATEMENT OF FACTS

The Oil and Gas Leases. ConocoPhillips is Lessee, and Vaquillas the 

Lessor, under two oil and gas leases covering Webb County land. Sworn copies of 

the leases are in the record at CR:47-88 and 283-323, and copies are attached as 

Appendices C and D to this Brief (the “Leases”) (CR:192).

By the Lease at Appendix C, granted in 1974 and amended in 1987, 

Vaquillas (and its predecessors) conveyed to ConocoPhillips’ predecessor the 

mineral estate underlying 26,622.79 acres for “five years . . . and as long thereafter 

as oil, gas or other mineral is produced from said land or land with which said land 

is pooled hereunder.” (CR:192, 209). By the Lease at Appendix D, dated 1987, 

Vaquillas granted the mineral estate under an additional 6,740 acres, except the 

term of that Lease was for “three years . . . and as long thereafter as oil, gas or 

other mineral is produced from said land or land with which said land is pooled.” 

(Id.)

All of the wells at issue in this case are natural gas wells. For gas wells, 

both Leases authorize ConocoPhillips to pool units up to 640 acres in size. 

Paragraph 4 of the Leases, which grants pooling authority, states:

. . .units pooled for gas hereunder shall not substantially exceed 

in area 640 acres each plus a tolerance of ten percent (10%) thereof, 

provided that should governmental authority having jurisdiction 

prescribe or permit the creation of units larger than those specified, for 

the drilling or operation of a well at a regular location or for obtaining 

maximum allowable from any well to be drilled, drilling or already 

4
drilled, units thereafter may conform substantially in size with those 

prescribed or permitted by governmental regulation.

Paragraph 4 gives the Lessee “the right and power to pool or combine the 

acreage covered by this lease or any portion thereof as to oil and gas, or either of 

them, with any other land covered by this lease and/or with any other land, lease, 

or leases in the immediate vicinity thereof . . . .” Paragraph 16 restricts that power 

somewhat by restricting pooling only to other lands owned in whole or part by 

Vaquillas, but that restriction is not pertinent here.

Vaquillas’ claim in this action is based on one isolated provision in 

Paragraph 18, the retained acreage clause, of the Leases. In order to facilitate the 

discussion in this Brief, ConocoPhillips will separate and number the four phrases 

or sentences of that clause that are pertinent here, and then refer to those 

“Sentences” by number:1

Sentence (1): “On November 1, 1990, Lessee covenants and agrees 

to execute and deliver to Lessor a written release of any and all 

portions of this lease which have not been drilled to a density of at 

least 40 acres for each producing oil well and 640 acres for each 

producing or shut-in gas well,”

1 The provisions quoted are from the 26,622.79-acre Lease at Appendix C. The 

only difference between the language of Paragraph 18 in the two Leases is that 

Paragraph 18 of the 6,740-acre Lease (App. D) starts with: “At the end of the 

primary term, Lessee covenants and agrees . . . .”

5

 
Sentence (2): “except that in case any rule adopted by the Railroad 

Commission of Texas or other regulating authority for any field on 

this lease provides for a spacing or proration establishing different 

units of acreage per well, then such established different units shall be 

held under this lease by such production, in lieu of the 40 and 640-

acre units above mentioned;”

Sentence (3): “provided, however, that * * * if, after the completion 

or abandonment of any such well Lessee commences the drilling of an 

additional well within Ninety (90) days from the completion or 

abandonment of the preceding well, or continuously conducts drilling 

operations in good faith and with reasonable diligence on said lease 

without any cessation for longer than Ninety (90) days, said lease 

shall remain in full force and effect during such drilling operations 

and until the end of Ninety (90) days after the completion or 

abandonment of the final well, at which time Lessee shall execute and 

deliver to Lessor said written release, releasing all portions of the 

lease not then so developed.”

Sentence (4): “Each retained unit shall contain at least one (1) well 

producing or capable of producing oil or gas in paying quantities, and 

the acreage within a unit shall be contiguous.”

6
(Emphasis added).

Sentence (3), quoted above, established the continuous drilling program that 

extended the date after which ConocoPhillips had to release acreage. There is no 

dispute that by continuous drilling, ConocoPhillips maintained the 26,622.70-acre 

Lease in full force and effect for many years after November 1, 1990, and the 

6,740-acre Lease in full force and effect many years after the end of its primary 

term. ConocoPhillips’ continuous drilling program ended at or about the date 

alleged in Vaquillas’ Petition, June 21, 2012. (CR:193; 242). Vaquillas counted 

that by that date, ConocoPhillips had drilled 208 wells on the two Leases. 

(CR:203, 224).

In early 2014, ConocoPhillips filed Partial Releases in the Webb County 

deed records that released all acreage covered by the Leases except for 640 acres

around each producing or shut-in gas well, as permitted by Sentence (1) of the 

retained acreage clause. (CR:194; 90-179). Vaquillas contends those Partial 

Releases were insufficient and asserts that at the end of the continuous drilling 

program, ConocoPhillips’ Leases terminated as to all acreage except 40 acres 

around each producing or shut-in gas well. (CR:195-96; 227). Vaquillas moved 

for summary judgment that 25,042 of the total 33,363 acres Vaquillas granted to 

ConocoPhillips by the Leases “reverted” to Vaquillas when the continuous drilling 

7
program ended, and consequently, ConocoPhillips must release 15,351 more acres 

than those released by the Partial Releases it already filed. (CR:203, 204-05).

The Field Rules. Vaquillas bases its contention on the exception in 

Sentence (2) of Paragraph 18, quoted above, and the Railroad Commission’s Field 

Rules for the Vaquillas Ranch (Lobo Cons.) Field, Webb County, Texas (the 

“Field Rules”). The Commission initially adopted Field Rules for the Lobo 

Consolidated Field in 1998 (App. E, CR:183, 245). It amended those rules in 

2010 (App. F, CR:181, 254). There is no dispute that these Field Rules apply to 

the field that includes the Leases.

The Field Rules do not “establish” any mandatory units of acreage per well. 

Neither the Commission’s adoption of Field Rules in 1998, nor its amendment of 

those rules in 2010, required ConocoPhillips to make any changes to its gas wells 

on the Leases.

Rule 3 in the original 1998 Field Rules is the proration rule for the field. 

(App. E). Unlike other forms of proration rules, Rule 3 of these Field Rules does 

not specify a maximum amount of acreage that may be allocated to a well as a 

factor in the proration formula.2

 Vaquillas correctly explains proration rules as 

2 There is an example in the record of another field rule that does limit the size of 

proration units to 160 acres. (CR:188-89). Rule 2 of the Temporary Field 

Rules for the Big Reef (Edwards) Field, Webb County, adopted June 2002, 

states: “No proration unit shall consist of more than ONE HUNDRED SIXTY 

(160) ACRES [plus a 10 percent tolerance].” Id.

8

 
follows: “[a] prescribed proration unit does not address the number of acres 

necessary to drill a well. It simply specifies the maximum amount of acres that an 

operator may assign to a well as a proration unit for that well. * * * Prescribed 

proration units are by their nature maximum-sized units, because they prescribe the 

maximum acreage that an operator may assign to a well as a proration unit for 

production allowable purposes.” (CR:208-09, emphasis added). ConocoPhillips’ 

point is that the Field Rules for this field contain no “prescribed proration units,” 

and they do not specify, in any other way, a maximum amount of acres 

ConocoPhillips may pool for any well.

In the trial court, Vaquillas did not base its argument on the proration rule, 

Rule 3 of the Field Rules. Rather, it based its argument on Rule 2, the spacing 

rule. (CR:211-13; 222 n.59).

Rule 2 provides no different spacing from the Statewide Rules applicable 

before field rules were adopted for this field, i.e., the spacing in the rule requires a 

minimum of 40 acres for obtaining a permit to drill a new well. (App. E). Rule 2 

accomplishes that result by providing that wells may not be drilled closer than 467 

feet to any lease line, or 1,200 feet from another well in the same reservoir. (App. 

F). These are the same spacing distances that are found in the Statewide Spacing 

Rule applicable in the absence of field rules. See 16 T.A.C. § 3.37(a)(1).

9
When, as here, a field rule contains only spacing rules, a Table in the 

Commission’s Statewide Rule 38(b)(2) supplies the minimum acreage necessary 

for obtaining a Commission permit to drill a new well.3 For the 467 and 1,200 feet 

spacing in these Field Rules, the Table specifies a minimum drilling unit of 40 

acres. (Statewide Rule 38 and its Table are attached as Appendix G). The Table 

shows the number of acres that are included in the “standard unit” associated with 

various spacing rules, i.e., the smallest amount of acreage required for obtaining a 

drilling permit for a well, irrespective whether the well is ultimately completed as 

an oil or gas well. But the only prohibition established by Rule 38 is that “[n]o 

well shall be drilled on substandard acreage.” 16 T.A.C. §3.38(b)(1). 

“Substandard acreage” means “[l]ess acreage than the smallest amount established 

for standard or optional drilling units.” Id. at §3.38(a)(4). Thus, as pertinent here, 

3 The Table is as follows:

10

 
the only prohibition regarding acreage that may be derived from these Field Rules 

is that the Commission will not issue a permit for drilling a new well on less than 

40 acres.

Statewide Rule 38 is titled “Well Densities,” 16 T.A.C. §3.38 (App. G), and 

the 40-acre requirement for a drilling unit is a density, not a spacing, requirement. 

Statewide Rule 38 defines a “drilling unit” as “the acreage assigned to a well for 

drilling purposes.” 16 T.A.C. § 3.38(a)(2) (App. G, emphasis added). As 

Vaquillas correctly explains: “[t]he density requirement [prescribes] the minimum 

number of acres the operator must have to drill a well. * * * Such units are by the 

nature minimum-sized units, because they prescribe the minimum acreage required 

to obtain a Railroad Commission permit to drill a well.” (CR:208). 

The Field Rules establish no density requirement, or other unit size 

requirement, that extends beyond the issuance of a drilling permit.

SUMMARY OF THE ARGUMENT

The Leases granted ConocoPhillips a fee simple determinable estate in the 

minerals in and under 33,363 acres of Webb County land. By the time 

ConocoPhillips’ continuous drilling program ended in 2012, ConocoPhillips had 

drilled more than 200 gas wells on that land. Under Sentence (1) in the retained 

acreage clause, ConocoPhillips was entitled to retain, under lease, 640 acres for 

11
each gas well. ConocoPhillips was obligated to release the remainder of the 

acreage back to Vaquillas, which it did.

Contrary to Vaquillas’ argument, the exception in Sentence (2) of the 

retained acreage clause does not apply. The Railroad Commission’s Field Rules, 

adopted in 1998, did not provide “a spacing or proration establishing different units 

of acreage per well.” The Field Rules did nothing but carry forward from the 

Statewide Spacing Rule the same requirement that an operator must assemble a 

minimum of 40 acres before the Commission will issue a permit to drill a new 

well. The Field Rules effected no change to ConocoPhillips’ gas wells in the field. 

Consequently, when ConocoPhillips’ continuous drilling program ended, no units 

different from 640 acres had been “established” in the field by Field Rules.

If Vaquillas were correct in contending that Sentence (2) of the retained 

acreage clause limits ConocoPhillips to retaining only the minimum acreage 

required to obtain a permit to drill a new well, that minimum acreage will likely be 

less than 640 acres. Accordingly, Vaquillas’ interpretation erroneously makes the 

exception in Sentence (2) swallow the 640-acre general rule in Sentence (1). 

In addition, Vaquillas’ proposed interpretation would render illusory the 

pooling clause’s authority to pool up to 640 acres for gas wells, and render 

superfluous Sentence (4)’s statement that ConocoPhillips must have at least one 

12
well per block of retained acreage. ConocoPhillips could not drill more than one 

well on Vaquillas’ proposed retained 40-acre blocks. 

Vaquillas’ interpretation would also obliterate the parties’ clear 

differentiation between the acreage assigned to oil wells (40 acres) and gas wells 

(640 acres) that is stated twice in the Leases. Under Vaquillas’ interpretation, both 

oil and gas wells would retain only 40 acres.

But most significantly, Vaquillas’ erroneously interpretation of Sentence (2) 

violates the established rule of Texas law that “we will not hold the lease’s 

language to impose a special limitation on the grant unless the language is so clear, 

precise, and unequivocal that we can reasonably give it no other meaning.” E.g., 

Anadarko Petroleum Corp. v. Thompson, 94 S.W. 3d 550, 554 (Tex. 2002). This 

rule applies when interpreting retained acreage clauses. E.g., Chesapeake 

Exploration, L.L.C. v. Energen Resources Corp., 445 S.W.3d 878, 883 (Tex. 

App.—El Paso 2014, no pet.). 

Specifically, Vaquillas claims Sentence (2) results in more than 15,000 

additional acres “reverting” to Vaquillas under the retained acreage clause. But 

Sentence (2) does not mandate that result “so clearly, precisely, and 

unequivocally” so that the Court could “reasonably give it no other meaning.” 

13
ARGUMENT

Standard of Review. This Court reviews the trial court’s summary 

judgment ruling de novo. E.g., Springer Ranch, Ltd. v. Jones, 421 S.W.3d 273, 

279 (Tex. App.—San Antonio 2013, no pet.). When, as here, both parties moved 

for summary judgment and the trial court granted one motion and denied the other, 

this Court considers the summary judgment evidence presented by both sides, 

determines all questions presented, and if the Court determines the trial court erred, 

renders the judgment the trial court should have rendered. Id. See TEX. R. APP. P.

43.2(c).

1. The Field Rules did not “establish” different units of acreage per 

well. 

A. The parties’ competing interpretations

In Sentence (1) of the retained acreage clause, the parties agreed that 

ConocoPhillips was entitled to retain 640 acres “for each producing or shut-in gas 

well” when its continuous drilling program ended. Consequently, when 

ConocoPhillips filed its Partial Releases of the Leases, it correctly retained 640 

acres per gas well as agreed in Sentence (1).

Vaquillas, on the other hand, contends the exception in Sentence (2) 

controls. Vaquillas claims that under the exception, the Field Rules “provide for a 

spacing or proration establishing different units of acreage per well,” and thus, 

14
“such established different units shall be held” in lieu of the 640-acre units 

specified in Sentence (1). 

In the trial court Vaquillas offered no substantial analysis of the Field Rules, 

except to say those rules identify one kind of unit—a minimum 40-acre drilling unit 

to obtain a Commission permit to drill a new well. (CR:215). From that 

observation, Vaquillas leapt, erroneously, to the conclusion that the minimum 40-

acre requirement for a drilling permit in those rules triggered the exception in 

Sentence (2). Vaquillas moved for (and was granted) partial summary judgment 

that ConocoPhillips “retains only 40 acres for each producing and shut-in-gas well 

drilled by [ConocoPhillips] on the oil and gas leases that are the subject of this 

lawsuit.” (CR:202).

Consequently, the lease interpretation question for this Court is whether 

ConocoPhillips correctly retained 640 acres per well under Sentence (1) of the 

retained acreage clause, or whether (as Vaquillas contends) the Field Rules 

triggered the exception in Sentence (2) of that clause? As will be discussed in 

greater detail below, Vaquillas maintains that Sentence (2) operates as a limitation 

on the grant ConocoPhillips received by virtue of the Leases. Consequently, 

Vaquillas argues that all acreage granted by the Leases to ConocoPhillips 

“reverted” to Vaquillas at the end of the continuous drilling program, except for 40 

acres around each existing well. Vaquillas’ Petition expressly states: “At the 

15
Release Date, the Reverted Minerals automatically reverted to Vaquillas.” 

(CR:195, see also CR:196). 

B. Analysis of the retained acreage clause in light of the Field 

Rules

The general rules for construing oil and gas leases are well known. The 

Court examines the entire lease “and consider[s] each part with every other part so 

that the effect and meaning of one part on any other part may be determined.” 

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

Birnbaum v. SWEPI LP, 48 S.W.3d 254, 257 (Tex. App.—San Antonio 2001, pet. 

denied). The Court gives terms in the lease “their plain, ordinary, and generally 

accepted meaning unless the instrument shows that the parties used them in a 

technical or different sense.” Heritage, 939 S.W.2d at 121; Birnbaum, 48 S.W.3d

at 257. When construing oil and gas leases, the Court should “avoid when possible 

a construction which is unreasonable, inequitable, and oppressive. Springer 

Ranch, 421 S.W.3d at 287.

Neither party contends the retained acreage clause is ambiguous, so the 

Court may interpret the clause as a matter of law. E.g, Springer Ranch, 421 

S.W.3d at 279. Furthermore, the Court may interpret the Commission’s Field 

Rules as a matter of law. See, e.g., State v. Bilbo, 392 S.W.2d 121, 122 (Tex. 

1965) (interpretation of certificate issued by the Commission presents a question of 

law).

16
“Establishing” and “established” different units. The contested language 

in the retained acreage clause is Sentence (2)’s statement that “in case any rule 

adopted by the [Commission] . . . provides for a spacing or proration establishing 

different units of acreage per well, then such established different units shall be 

held under this lease by such production, in lieu of the . . . 640-acre units above 

mentioned.” 

In that language, the parties twice used forms of the word, “establish.” The 

first time “establish” is used, the form is “establishing,” which modifies the phrase 

“rule adopted by the Commission [that] provides for a spacing or proration.” That 

usage suggests the “establishing” of different units of acreage per well occurs 

when the Commission adopts a field rule.

The second time the parties used a version of “establish,” they employed the 

past tense, i.e., they referred to “established different units,” suggesting that 

different units had already been “established” in the past. In the context of the 

entire phrase, the meaning is that different units were “established” when the Field 

Rules were adopted, as a result of the Field Rules.

The ordinary meaning of “establish” is “to settle, make, or fix firmly.” 

BLACK’S LEGAL DICTIONARY at 626 (9th ed. 2009). Similarly, an old Texas case 

says “established” means “[m]ake steadfast, firm, or stable, to settle on a firm or 

permanent basis.” Rowley v. Braley, 286 S.W. 241, 245 (Tex. Civ. App—Amarillo 

17
1926, writ dism’d). WEBSTER’S THIRD NEW INTERNATIONAL UNABRIDGED 

DICTIONARY (1993) says “establish” means either “to make firm or stable,” or to 

“settle or fix after consideration by enactment or agreement.” Id. at 778.4

These Field Rules did not “establish” different units. Using those 

common definitions of “establish,” it is incorrect to argue that the Field Rules 

“made firm or stable,” “settled on a permanent basis,” or “settled or fixed after 

consideration by enactment or agreement” a requirement that units for gas wells 

must be different from the 640 acres granted by the pooling authority of the Leases 

and specified for retention under Sentence (1) of the retained acreage clause. Upon 

the Commission’s adopting of the Field Rules, those rules neither required nor 

made any change to ConocoPhillips’ gas wells in the field, i.e., the Field Rules 

imposed no requirement that different units be “established” for wells in 

production or shut-in awaiting production.

The Field Rules contain only one requirement that pertains to quantity of 

acreage. They do that by means of the spacing rules—at least 467 feet from lease 

4 The Supreme Court’s opinion in Jones v. Killingsworth, 403 S.W.2d 325 (Tex. 

1965), illustrates the importance of focusing on the specific words parties 

employ in oil and gas leases. In Jones, the Court held that the word

“prescribed” did not mean “permitted.” Consequently, before Sentence (2) 

comes into play, the Commission must “establish” units of a different size than 

640 acres. The parties did not say the exception in Sentence (2) comes into 

play if the Commission adopts a Field Rule that merely permits drilling on units 

of fewer than 640 acres, and that is all the Field Rules do. They permit 

operators to drill on a minimum of 40 acres, but they do not “establish” 40-acre 

units.

18

 
lines and 1,200 feet from other wells—found in Rule 2. By applying those 

minimum spacing rules to the Table in Statewide Rule 38, 16 T.A.C. § 3.38(b)(2) 

(App. G, fn. 3, infra), one sees that the minimum density, or drilling unit size, is 40 

acres. As Vaquillas correctly explains: “[t]he density requirement [prescribes] the 

minimum number of acres the operator must have to drill a well.” (CR:208). 

Thus, the sole acreage requirement imposed by the Field Rules is a minimum

acreage requirement for the obtaining of a permit to drill a new well. The Field 

Rules do not say there is anything wrong with a 640-acre unit for any producing or 

shut-in gas well. Simply put, nothing in the Field Rules “established” different 

units from the 640-acre retained acreage units to which the parties agreed in 

Sentence (1) of the retained acreage clause.

Two additional rules of oil and gas lease construction. There are two 

additional reasons why Vaquillas’ proposed interpretation of the retained acreage 

clause is wrong:

First, under Vaquillas’ interpretation that minimum drilling units 

control, the exception in Sentence (2) would swallow the general rule in Sentence 

(1). Whether a particular field is governed by a special field rule or by Statewide 

Rules 37 and 38, the Commission requires an operator to assemble a minimum 

number of acres before the Commission will issue a drilling permit for a new well. 

And it is unlikely that the minimum number of acres the Commission would 

19
require for a drilling permit would be more than 640. One may see that by 

reviewing the Table in Statewide Rule 38 on which Vaquillas relies, reproduced at 

fn. 3, infra. The largest “standard drilling unit” in the entire Table is 40 acres. See

16 T.A.C. § 3.38(b)(2)(A) (App. G). All other drilling units listed in the Table are 

smaller, ranging from 2 to 20 acres. Id. 

Consequently, if what Vaquillas claims were correct—i.e., that one would 

look to the minimum acreage required for a drilling unit by a Field Rule—then the 

general rule of 640-acres in Sentence (1) likely would never apply. Under 

Vaquillas’ argument, if a field rule exists, one first would look to see what 

minimum drilling units were triggered by the spacing rules in that rule, by 

consulting either the rule itself or Statewide Rule 38’s Table. Then as Vaquillas 

wants this Court to interpret the retained acreage clause, that minimum drilling 

unit—usually 40 acres, likely never more than 640 acres—will always prevail. 

Sentence (1)—the 640-acre general rule—would become meaningless. The 

exception will have swallowed the rule.

It would have been simple for the parties to write the interpretation for 

which Vaquillas contends into the retained acreage clause. To capture Vaquillas’ 

proposed interpretation, the parties needed to write only that when the retained 

acreage clause operates, the lessee may retain around each well only the minimum 

amount of acreage required by the Commission to obtain a drilling permit. That is 

20
the construction for which Vaquillas contends and the construction the trial court 

adopted. But as this Court has said, courts may not rewrite leases in the guise of 

interpreting them. E.g., EOG Resources, Inc. v. Killam Oil Co., Ltd., 239 S.W.3d 

293, 300 (Tex. App.—San Antonio 2007, pet. denied). Yet that is what Vaquillas 

wants this Court to do.

This Court considered a retained acreage clause very similar to the one in 

these Leases in ConocoPhillips Co. v. Ramirez, No. 04-05-00488-CV, 2006 WL 

1748584 (Tex. App.—San Antonio, 2006) (not designated for publication). For 

one of the wells at issue in Ramirez, the Serafin No. 1, there were no applicable 

field rules. Instead, the Commission’s Statewide Rules applied. Ramirez sought to 

limit ConocoPhillips’ retained acreage for the Serafin No. 1 to 40 acres by relying 

on the minimum 40-acre drilling units resulting from application of Statewide Rule 

37’s spacing requirements to the Table in then-existing Statewide Rule 38. See

2006 WL 1748584 at *1. The spacing required by Statewide Rule 37 was 467 and 

1,200 feet, the same spacing carried into the Field Rules at issue in this appeal. See

16 T.A.C. §3.37(a)(1). The Table in Statewide Rule 38 expressly applies both to 

Statewide Rules and field rules, so Statewide Rule 37’s spacing triggered 40-acre 

drilling units, just like the Field Rules at issue here. See Ramirez, 2006 WL 

1748584 at *3.

21
Although the trial court ruled for Ramirez, this Court reversed, rejecting 

Ramirez’s attempt to limit ConocoPhillips to 40 acres of retained acreage around 

the Serafin No. 1 well by application of Statewide Rule 38 through the spacing 

requirements stated in Statewide Rule 37. The exception in the retained acreage 

clause in Ramirez required, as does the retained acreage clause here, for the 

Commission to adopt a rule “for a field.” In Ramirez, this Court gave meaning to 

the phrase, “for a field,” and held the Commission’s Statewide Rules were not 

adopted “for a field.” Consequently, Ramirez’s attempt to apply the exception in 

that retained acreage clause failed at the threshold. 2006 WL 1748584 at *2. 

But one of the reasons this Court gave for its holding in Ramirez is 

applicable here. This Court observed that if Ramirez’s arguments had been 

correct, “the structure of [the retained acreage clause] is turned on its head: the 

first clause [here Sentence (1)] would never apply, while the ‘except’ clause [here 

Sentence (2)] would state both the general rule . . . and the exception.” If 

Vaquillas were correct, the exact same would be true in this appeal. The general 

rule in Sentence (1) would never apply. The exception in Sentence (2) always will. 

As this Court wrote in Ramirez, that construction “would be not only nonsensical 

but contrary to general rules of construction.” Ramirez, 2006 WL 1748584 at *3.

This certainly does not mean, as Vaquillas argued below, that the word 

“spacing” in Sentence (2), where that sentence refers to “spacing or proration,” has 

22
no meaning. Over the years, the Commission has adopted field rules that establish 

maximum densities for wells in specific fields. There are mentions of such field 

rules in decided cases. See, e.g., Railroad Commission v. Woods Exploration and 

Producing Co., 405 S.W.2d 313, 326 (Tex. 1966) (Smith, J., dissenting) (stating 

that field rules at issue “established a 320-acre spacing unit rule.”); Halbouty v. 

Railroad Commission, 357 S.W.2d 364, 368 (Tex. 1962) (quoting field rule 

stating: “the above spacing rule and the other rules to follow are for the purpose of 

permitting only one well to each one hundred and sixty (160) acre proration unit”); 

Clifton v. Koontz, 325 S.W.2d 684, 695 (Tex. 1959) (stating that field rules at issue 

“provide for 320-acre units with 10 percent tolerance so that a maximum of 352 

acres may be assigned.”).5

 But the Commission did not include such a provision in 

the Field Rules at issue in this appeal.

If the Field Rules for the Lobo Consolidated Field had established a 

maximum unit size for gas wells different from 640 acres (which they did not), 

ConocoPhillips would have been required to conform to the rules as soon as they 

became effective. Different units would have been “established,” and Sentence (2) 

would then apply when the continuous drilling program ended. In other words, if 

5 “Rule 38 establishes the minimum number of acres that must be assigned to 

each well in order to obtain a drilling permit. In the absence of special field 

rules, the minimum requirement is 40 acres per well.” J. Hayes, Texas Railroad 

Commission: Some Basics Every Practitioner Should Know, 28 State Bar of 

Texas, Oil, Gas and Mineral Law Section Report 3, 20 (June 2004) (emphasis 

added). 

23

 
the Field Rules had “established” different units, those different units would have 

taken effect when the Field Rules were adopted. But the Field Rules effected no 

changes to acreages for producing wells.

Second, under Vaquillas’ interpretation, the power granted in 

Paragraph 4 of the Leases to pool up to 640 acres for gas wells would be 

destroyed. As explained above, Paragraph 4 of both Leases granted 

ConocoPhillips the power to pool for gas wells up to 640 acres. Paragraph 4 also 

provides that if the Commission “prescribes or permits” the creation of larger units, 

ConocoPhillips’ power to pool would include those larger units. (App. C & D). 

Also as explained above, the general rule in Sentence (1) of the retained acreage 

clause allows ConocoPhillips to retain 640 acres for each gas well.

That both Paragraphs associate gas wells with 640-acre blocks of acreage is 

not coincidence. Vaquillas’ proposed interpretation of Sentence (2) would create 

three surprisingly negative results for the lessee.

(A) Even though the Lessor granted the right to pool up to 640 acres for 

gas wells, each 640-acre unit, although properly pooled and operated in good faith, 

would abruptly shrink to 40 acres when the retained acreage clause operates.6

 This 

6 Vaquillas argued in the trial court that ConocoPhillips would had to drill 16 gas 

wells per 640-acres in order to “fully develop the acreage” and thereby earn the 

right to retain that 640 acres under the retained acreage clause. (CR:379). That 

argument conflicts with the authority Vaquillas granted ConocoPhillips in 

Paragraph 4 to pool 640 acres for gas wells, and it also directly conflicts with 

24

 
would be true—and oddly so—even though Rule 2 of the Field Rules, on which 

Vaquillas relies, has been in effect since February 24, 1998, yet this “shrinking” 

did not occur when (or since) those Field Rules were adopted.

(B) The retained acreage clause does not operate to terminate the Leases; 

it requires only a release of certain acreage from the Leases. Consequently, after 

the retained acreage clause operates, the pooling clause in Paragraph 4 should 

remain in full force in effect. 

But, under Vaquillas’ erroneous interpretation, the pooling clause becomes a 

dead letter. Under Vaquillas’ interpretation, ConocoPhillips would retain under 

lease only 40 acre blocks around individual wells. It will be impossible for 

ConocoPhillips to exercise the power granted in Paragraph 4 to pool up to 640 

acres, or even to drill a new gas well on an existing 640 acre unit. Consequently, 

Vaquillas’ proposed interpretation of Paragraph 18, the retained acreage clause, 

cannot be harmonized with Paragraph 4 of the same Leases.

Furthermore, under Vaquillas’ erroneous interpretation of Sentence (2), two 

words in Sentence (4) of the retained acreage clause are rendered superfluous. 

the general rule in Sentence (1) of the retained acreage clause. Under 

Vaquillas’ contentions, the pooling authority for gas wells under Paragraph 4 

and Sentence (1) of the retained acreage clause would become illusory. 

The Leases do not state, as Vaquillas erroneously claims, that ConocoPhillips 

was obligated to “drill . . . additional wells to develop the leasehold acreage to 

the density provided by Railroad Commission rules.” (CR:203).

25

 
Sentence (4) states there must be “at least” one well per block of retained acreage. 

If Vaquillas’ 40-acre argument were correct, there could never be more than one 

well per 40-acre block of retained acreage because the Commission would not 

issue a permit for a second well, either for oil or gas. 

On the other hand, all paragraphs of the Leases harmonize under 

ConocoPhillips’ interpretation of the retained acreage clause. ConocoPhillips 

retains 640-acre blocks of acreage around wells, the same as Paragraph 4, the 

pooling authority, allows it to do. Consequently, ConocoPhillips may continue to 

pool and maintain 640-acre gas units. Furthermore, ConocoPhillips may obtain 

permits to drill new wells on those 640-acre blocks, so as long as the Field Rule’s 

from-lease-line and between-well spacing requirements are met. 

(C) The Leases plainly contemplate that the operator will assign different 

acreages to oil and gas wells. Paragraph 4 restricts pooling for oil wells to 40 

acres, but allows pooling for gas wells up to 640 acres. Sentence (1) of the 

retained acreage clause allows ConocoPhillips to retain only 40 acres around 

producing oil wells, but 640 acres around gas wells. Vaquillas’ proposed 

interpretation of Sentence (2) would completely destroy the differentiation the 

parties clearly intended between acreages assigned to producing oil and gas wells. 

Vaquillas’ argument causes that result by relying, at bottom, on Statewide Rule 38, 

which does not distinguish, for drilling permit purposes, between oil and gas wells. 

26
As this Court frequently has observed, courts should strive to harmonize and 

give effect to all provisions of the Leases “so that none will be rendered 

meaningless.” E.g., Springer Ranch, 421 S.W.3d at 279; EOG Resources, 239 

S.W.3d at 300. ConocoPhillips’ is the only interpretation that gives meaning to all 

provisions of the Leases. Vaquillas’ incorrect interpretation does not. Indeed, it is 

simply impossible to find within Sentence (2) the wholesale revisions to the Leases 

Vaquillas’ erroneous interpretation would make.

2. If there were any doubt about the proper interpretation of 

Sentence (2), the Court should apply the strong presumption in 

Texas law against making that sentence a “limitation on the 

grant.”

For the reasons above, the Commission’s Field Rules covering these Leases 

do not trigger the exception in Sentence (2) of the retained acreage clause in the 

Leases. But even if there were any doubt, this Court should apply the strong Texas 

law presumption against construing a lease provision to effect a limitation on the 

grant. Under that presumption, the Court should not interpret Sentence (2) to work 

the forfeiture for which Vaquillas contends.

By way of background, these Texas oil and gas leases were conveyances by 

which Vaquillas and its predecessors granted to ConocoPhillips’ predecessor the 

fee simple determinable in the mineral estate under the land described in the

Leases. Natural Gas Pipeline Co. v. Pool, 124 S.W.3d 188, 192 (Tex. 2003); 

accord Anadarko Petroleum Corp. v. Thompson, 94 S.W.3d 550, 554 (Tex. 2002); 

27
Prize Energy Resources, L.P. v. Cliff Hoskins, Inc., 345 S.W.3d 537, 551-52 (Tex. 

App.—San Antonio 2011, no pet.). As described above, the Leases at issue 

conveyed mineral estates to ConocoPhillips for five and three year primary terms 

and “as long thereafter as oil, gas, or other mineral is produced from said land or 

land with which said land is pooled hereunder.”7

Furthermore, “an oil, gas and mineral lease is indivisible by its nature. 

Production from any part of the lease keeps the lease in effect during the primary 

term as for so long as oil, gas and other minerals are being produced as to all lands 

described in the instrument.” Shown v. Getty Oil Co., 645 S.W.2d 555, 560 (Tex. 

App.—San Antonio 1982, writ ref’d.); accord, Matthews v. Sun Oil Co., 425 

S.W.2d 330, 333 (Tex. 1968); Humphrey v. Seale, 716 S.W.2d 620, 622 (Tex. 

App.—Corpus Christi 1986, no writ). ConocoPhillips had completed more than 

two hundred gas wells on the Leases by the time its continuous drilling program 

ended. (CR:203).

Accordingly, ConocoPhillips’ production from the two Leases entitles 

ConocoPhillips to maintain the Leases in full force and effect until an event of 

7 Vaquillas attempted to minimize the legal effect of the Leases in the trial court, 

suggesting the Leases merely “transferred the rights to explore, drill, produce, 

and market the minerals to an oil and gas company with the skill and financial 

ability to do so.” (CR:206). No doubt the Leases did that, but as discussed 

above, they did more. They conveyed the mineral estate in fee simple 

determinable to ConocoPhillips. The significance is that, as discussed in this 

section of this Brief, the presumption against construing lease clauses to effect 

limitations on the grant is fully applicable to the retained acreage clause.

28

 
defeasance, or limitation on the grant, occurs. The first limitation on the grant, 

found in the habendum clause in Paragraph 2 of the Leases, is cessation of 

production in paying quantities, which has not occurred. The second limitation on 

the grant is in Sentence (1) of the retained acreage clause, which obligates 

ConocoPhillips to release all but 640 acres around producing or shut-in gas wells. 

ConocoPhillips has complied. Under Vaquillas’ erroneous argument, Sentence (2) 

of the retained acreage clause would operate as a third, very substantial “limitation 

on the grant.” Consequently, in “limitation-on-the-grant” terminology, the 

question posed by this appeal is whether because of Sentence (2), ConocoPhillips 

forfeited and must now release over 15,000 additional acres because that 

additional, alleged limitation on the grant caused ConocoPhillips to forfeit all but 

40 acres around producing and shut-in gas wells?

Texas law creates a strong presumption against giving Sentence (2) the 

limitation-on-the-grant effect for which Vaquillas contends. As the Supreme Court 

has held time and again, “we will not hold the lease’s language to impose a special 

limitation on the grant unless the language is so clear, precise, and unequivocal that 

we can reasonably give it no other meaning.” Anadarko Petroleum Corp., 94 S.W. 

3d at 554; accord, Rogers v. Ricane Enterprises, Inc., 773 S.W.2d 76, 79 (Tex. 

1989); Fox v. Thoreson, 398 S.W.2d 88, 92 (Tex. 1966); Knight v. Chicago 

Corp., 188 S.W.2d 564, 566 (Tex. 1945). 

29
When the Knight case was before this Court, Justice Norvell, then a member 

of this Court, held that even if there are two reasonable constructions of a lease, the 

Court will choose the one that does not result in “a forfeiture (or termination of the 

estate upon limitation).” Knight v. Chicago Corp., 183 S.W.2d 666, 671 (Tex. Civ. 

App.—San Antonio 1944), aff’d, 188 S.W.2d 564 (Tex. 1945).

Texas courts apply the presumption against a limitation on the grant when 

interpreting retained acreage clauses. See Chesapeake Exploration, L.L.C. v. 

Energen Resources Corp., 445 S.W.3d 878, 883 (Tex. App.—El Paso 2014, no 

pet.) (citing Anadarko Petroleum Corp., 94 S.W.3d at 554, and stating “adopting 

the construction [of a retained acreage clause] urged by Chesapeake imposes an 

unnecessary limitation on the kind and character of the estate the parties chose to 

convey, i.e., an expansive one maintained by production from any part of pooled 

lands unless limited by language so clear, precise, and un-equivocal that no other 

conclusion could be reached.”); Tomlin v. Petroleum Corp. of Texas, 694 S.W.2d 

441, 442 (Tex. App.—Eastland 1985, no writ) (citing Fox, 398 S.W.2d at 92, and 

applying the presumption against a limitation on the grant to hold that retained 

acreage clause expressly referring only to oil wells did not mandate release of 

acreage around gas wells).

ConocoPhillips requests the Court to apply the presumption in this appeal. 

ConocoPhillips does not agree that Vaquillas’ construction of Sentence (2) is 

30
reasonable, equitable or unoppressive. Indeed, as described above in this Brief, 

when one gives the words “establishing” and “established” their plain and ordinary 

meaning, the exception in Sentence (2) is not triggered, and the general rule of 

Sentence (1) prevails. But whatever else one may say about Vaquillas’ 

interpretation of Sentence (2), one certainly cannot say that sentence, when viewed 

in light of the Field Rules, is so clear and precise that no conclusion other than 

Vaquillas’ proposed reading can be reached. Consequently, Vaquillas’ 

interpretation of Sentence (2)—which would create a very significant additional 

limitation on ConocoPhillips’ grant—should be rejected.

PRAYER FOR RELIEF

ConocoPhillips prays this Court will reverse the trial court’s Amended order 

on Cross-Motions for Summary Judgment (CR:433, App. B), grant 

ConocoPhillips’ Motion for Summary Judgment, and deny Vaquillas’ CrossMotion for Partial Summary Judgment. The Court should reverse the declaration 

on page 1 of the trial court’s Order and declare that ConocoPhillips did not breach 

the Leases by retaining 640 acres per producing and shut-in gas wells when 

ConocoPhillips’ continuous drilling program ended, and is not required to release 

additional acreage, as Vaquillas contends. 

ConocoPhillips also prays for recovery of its costs on appeal, remand to the 

trial court for determination whether ConocoPhillips is entitled to costs, including 

31
reasonable attorneys’ fees, under Texas Civil Practice & Remedies Code § 37.009, 

and for all other relief to which it is entitled.

Respectfully submitted,

/s/ Michael V. Powell

Michael V. Powell

 State Bar No. 16204400

 Email: mpowell@lockelord.com

Cynthia K. Timms

 State Bar No. 11161450

 Email: ctimms@lockelord.com

Elizabeth L. Tiblets

 State Bar No. 24066194

 Email: etiblets@lockelord.com

Locke Lord LLP

2200 Ross Avenue, Suite 2200

Dallas, Texas 75201-6776

Tel: 214-740-8520

Fax: 214-740-8800

Adolfo Campero

 State Bar No. 00793454

 Email: acampero@camperolaw.com

Campero & Associates, P.C.

315 Calle Del Norte, Suite 207

Laredo, Texas 78041

Tel: 956-796-0330

Fax: 956-796-0399

ATTORNEYS FOR APPELLANT

CONOCOPHILLIPS COMPANY

32
CERTIFICATE OF COMPLIANCE

Pursuant to Texas Rule of Appellate Procedure 9.4(i)(3), as amended 

effective December 1, 2012, the undersigned certifies that this Petition complies 

with the length limitations of Rule 28.3(g) (which the undersigned understands 

now to be stated in Rule 9.4(i)) and the typeface requirements of Rule 9.4(e).

1. Exclusive of the contents excluded by Rule 9.4(i)(1), this Brief 

contains 7,189 words as counted by the Word Count function (including textboxes, 

footnotes, and endnotes) of Microsoft Office Word 2010.

2. This Brief has been prepared in proportionally spaced typeface using:

Software Name and Version: Microsoft Office Word 2010

Typeface Name: Times New Roman

Font Size: 14 point

/s/ Michael V. Powell

Michael V. Powell

33
CERTIFICATE OF SERVICE

I hereby certify that on the 9th day of April 2015, a true and correct copy of 

Brief of Appellant, ConocoPhillips Company, was served by eFile Texas and/or 

pdf on Appellees through its counsel of record listed below:

Gregg Owens

 Email: gregg.owens@haysowens.com

Robert G. Hargrove

 Email: rob.hargrove@haysowens.com

Hays & Owens L.L.P.

807 Brazos Street, Suite 500

Austin, Texas 78701

Tel: 512.472.3993

Fax: 512.472.3883

Raul Leal

 Email: rleal@rl-lawfirm.com

Raul Leal Incorporated

5810 San Bernardo, Suite 390

Laredo, Texas 78041

Tel: 956-727-0039

Fax: 956-727-0369

A. Michael Jung

 Email: michael.jung@strasburger.com

Strasburger & Price, LLP

901 Main Street, Suite 4400

Dallas, Texas 75202-3794

Tel: 214-651-4724

Fax: 214-651-4330 (main)

Fax: 214-659-4022 (direct)

Counsel for Vaquillas Unproven 

Minerals, Ltd.

Armando X. Lopez

 Email: mandox@rio.bravo.net

Law Offices of Armando X. Lopez

1510 Calle Del Norte, Suite 16

Laredo, Texas 78041

Tel: 956-726-0722

Fax: 956-726-6049

/s/ Michael V. Powell

Michael V. Powell

34
No. 04-15-00066-CV

In the Court of Appeals

for the Fourth District of Texas

San Antonio, Texas

CONOCOPHILLIPS COMPANY,

Appellant,

V. 

VAQUILLAS UNPROVEN MINERALS, LTD.,

Appellee.

From Cause No. 2014 CVQ000 438 D4

406th Judicial District Court, Webb County, Texas

Honorable Oscar J. Hale, Jr., Presiding Judge

APPENDIX TO APPELLANT’S BRIEF

Tab 

Court of Appeals Order Granting Petition for Permission to 

 Appeal.......................................................................................................... A 

Trial Court Amended Order on Cross-Motions for Summary Judgment........ B 

Oil, Gas and Mineral Lease (26,622.79 acres)......................................... C

Oil, Gas and Mineral Lease (6,740 acres)....................................................... D 

Railroad Commission Order Adopting Field Rules for the 

 Vaquillas Ranch (Lobo Cons.) Field Dated February 24, 1998.................. E

Railroad Commission Final Order Amending Field Rules for the 

 Vaquillas Ranch (Lobo Cons.) Field Dated November 2, 2010.................... F 

Railroad Commission Statewide Rule 38......................................................... G 

35 
ConocoPhillips

CompanyAppellant/s

Fourth Court of Appeals

San Antonio, Texas

February 13, 2015

No. 04-15-00066-CV

CONOCOPHILLIPS COMPANY,

Appellant

v.

VAQUILLAS UNPROVEN MINERALS, LTD.,

Appellee

From the 406th Judicial District Court, Webb County, Texas

Trial Court No. 2014CVQ000438-D4

Honorable Oscar J Hale, Jr., Judge Presiding

O R D E R

Sitting: Sandee Bryan Marion, Chief Justice

Karen Angelini, Justice 

Marialyn Barnard, Justice

The appellant’s unopposed petition for permission to appeal from an interlocutory order

is GRANTED. TEX. R. APP. P. 28.3. “A separate notice of appeal need not be filed” as “a notice

of appeal is deemed to have been filed on [the date of this order].” Id. at 28.3(k). This appeal is

governed by the rules for accelerated appeals. Id.

The clerk’s record is due no later than February 23, 2015. Id. at 35.1(b). The clerk of

this court is directed to file a copy of this order with the trial court clerk. Id. at 28.3(k).

_________________________________

Sandee Bryan Marion, Chief Justice

IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the said

court on this 13th day of February, 2015.

___________________________________

Keith E. Hottle

Clerk of Court

FILE COPY
433

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CAUSE NO. 2014CVQ000438 D4 

V AQUILLAS UNPROVEN MINERALS, 

LTD, 

§ IN THE DISTRICT COURT 

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AMENDED ORDER ON CROSS-MOTIONS FOR SUMMARY JU 

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On October 30,2014, Defendant's Motion for Summary Judgment and lai tiffs CrossMotion for Partial Summary Judgment were heard. The Court, having reviewed the motion, 

briefs, responses, competent summary judgment evidence, and argument of counsel, rules on 

these motions as follows. 

IT IS ORDERED, ADJUDGED, AND DECREED that Defendant's Motion for 

Summary Judgment is DENIED. 

IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that Plaintiffs CrossMotion for Partial Summary Judgment is GRANTED. The Court DECLARES that Defendant 

has breached the 26,622.79-acre Lease and the 6,740-acre Lease by failing to release all acreage 

in excess of 40 acres for each producing and shut-in natural gas well capable of producing in 

paying quantities. 

This Order of the Court decides the central question in this case, which is the number of 

acres under two oil and gas leases that Defendant ConocoPhillips Company retains under the 

"retained acreage" clauses of the leases at the conclusion of ConocoPhillips' continuous drilling 

operations. The Court finds that the question decided by this order is a controlling question of 

AMENDED ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT PAGEl 

.. 

~ 
434

I '1 

., 

.' 

.; 

:] 

., 

law as to which there is a substantial ground for difference of opinion. The Court also fmds that 

immediate appeal of the order will materially advance the ultimate termination of this litigation. 

This Court's Order, and the underlying controlling question of law, involve the parties' 

competing legal interpretations of the language of the "retained acreage" clauses and certain 

Field Rules adopted by the Railroad Commission of Texas. Although the Court has ruled in 

favor of the Plaintiff lessor, Vaquillas Unproven Minerals, Ltd., the Court concludes there are 

substantial grounds for difference of opinion regarding whether the leases allow ConocoPhillips 

to retain 40 acres per well, as Plaintiff contends, or 640 acres, as ConocoPhillips contends. 

An immediate appeal from this Court's Order will materially advance the final 

conclusion of litigation. Plaintiff seeks judgment ordering ConocoPhillips to execute releases of 

over 15,000 acres described in the leases, as well as possible direct and consequential damages 

flowing from ConocoPhillips' alleged breach of the "retained acreage" clauses of the leases. If 

ConocoPhillips is forced to release the acreage but later wins an appeal determining that 

ConocoPhillips' original interpretation is correct, significant problems could develop. On the 

other hand, the lessor, Vaquillas Unproven Minerals, Ltd. is interested in having the release of 

acreage as soon as possible. Furthermore, the Court and the parties anticipate that a 

determination of Plaintiffs damages, if any, will be costly and time-consuming. 

ConocoPhillips desires to take an interlocutory appeal. The Court rules that such appeal 

shall be defined by the lease interpretation question addressed in the parties' cross-motions for 

summary judgment. More specifically, the question is whether the leases' retained acreage 

clause allows ConocoPhillips Company to retain only 40 acres per each producing or shut-in gas 

well it has drilled on the two leases, or whether ConocoPhillips is allowed to retain 640 acres 

(Plus I 0% tolerance) for each wells. 

AMENDED ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT PAGE 2 
435

,j 

-:1 

IT IS HEREBY ORDERED that, pursuant to Texas Civil Practice & Remedies Code § 

51.014(d) (West. Supp. 2014) an interlocutory appeal is ALLOWED from this Order. 

IT IS FURTHER ORDERED that trial of this action is stayed pending the interlocutory 

appeal. The Court's Pre-Trial Guideline Order and Scheduling Order are hereby VACATED. 

The parties may proceed with discovery and pretrial proceedings by agreement or with leave of 

Court. 

SIGNED this 4- day Of9"'=".jI.tAA-..,=="T\------' 2015. 

( )~,,~ Ho1:"Oscar 1. Hale, Jr. 

Judge Presiding 

AMENDED ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT PAGE 3 
436

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APPROVED AS TO FORM: 

' 

~~p'<..q 

Michael V Powell 

State Bar No. 16204400 

Email: mpowell@lockelord.com 

Elizabeth L. Tiblets 

State Bar No. 24066194 

Email: etiblets@lockelord.com 

LOCKE LORD LLP 

2200 Ross Avenue, Suite 2200 

Dallas, Texas 75201-6776 

Tel: 214-740-8520 

Fax: 214-740-8800 

Adolfo Campero 

State Bar No. 00793454 

Email: acampero@camperolaw.com 

CAMPERO & ASSOCIATES, P.c. 

315 Calle Del Norte, Suite 207 

Laredo, Texas 78041 

Tel: 956-796-0330 

Fax: 956-796-0399 

ATTORNEYS FOR DEFENDANT 

CONOCOPHILLIPS COMPANY 

AMENDED ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT PAGE 4 
437

I 

-, 

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I 

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.1 

- ---- -- ---- -- -- ---

APPROVED AS TO FORM: 

/s/ P. Michael lung 

P. Michael lung 

State Bar No. 11054600 

Email: michael.jung@strasburger.com 

STRASBURGER & PRICE, LLP 

901 Main Street, Suite 4400 

Dallas, Texas 75202-3794 

Tel: 214-651-4724 

Fax: 214-651-4330 (main) 

Fax: 214-659-4022 (direct) 

Gregg Owens 

State Bar No. 15383500 

Email: gregg.owens@haysowens.com 

Robert G. Hargrove -

State Bar No. 09303300 

Email: rob.hargrove@haysowens.com 

HAYS & OWENS L.L.P. 

807 Brazos Street, Suite 500 

Austin, Texas 78701 

Tel: 512-472-3993 

Fax: 512-472-3883 

Annando X. Lopez 

State Bar No. 12562400 

Email: mandox@rio.bravo.net 

LA W OFFICES OF ARMANDO X. LOPEZ 

1510 Calle Del Norte, Suite 16 

Laredo, Texas 78041 

Tel: 956-726-0722 

Fax: 956-726-6049 

Raul Leal 

State Bar No. 24032657 

Email: rleal@rl-lawfirm.com 

RAUL LEAL INCORPORATED 

5810 San Bernardo, Suite 390 

Laredo, Texas 78041 

Tel: 956-727-0039 

Fax: 956-727-0369 

ATTORNEYS FOR V AQUILLAS 

UNPROVEN MINERALS, LTD. 

AMENDED ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT PAGES 
47

~- P'i>du~tn U {'"'' .'\" '. '~wWi uo ACAI PoOUnr- Pr:ovilion _, I 

~!, " OIL, GAS AND Mliu(RAL LEASE AMENDING OIL', 

LEASE DATED JUNE 15, 1974 (AS AMENDED) BETWEEN 

?O,~lnllnll ~ SI'lionlr, Co •• 1l0UI\0~. T'~II 

GAS AND''ntNERAL. 

LESSOR-AND LESSEE HEREIN 

26,622.79-acres of land, more or less, situated'in Webb County. Texas more 

fully described in Exhibit "A" attacli"ed"'he'reto and made a part of this Lease 

for all relevant purposes. including limitations upon warranty as specifically 

set out therei~. 

"""'""" For lb. \!\1rJIQ" of cdc\1IUln, tho nnt.LI 1l17RI'l\t •• lI,''''n.t~r PfilYI~t<I. fo •• uld Iud I. U,llDlt..! 10 cOIIIP" ... , .. ?~.,_6~.~ .. :,?.9-. .. 

.. _ .. ___ . _____ ;-_ .... Crl ••. ,,:b,llo.r It IdlU-l': ~Prl'" mort or:,I~... . .five 

t. Svbh.:t to Ilo. otlar pro.,hIGn' bu_11I "ntalll.!!, IloII' I ..... h .. 11 ~. for .. uma of ofttt 7U .. from. Iblo duo (nilid "p,I,"1r7 tHl>lh) 

and ~.rl?' ll1'''1!~r ,II oil. I"U or oUl_V ~ln.~I.h.ll~oaod. frolll .,.11 II, nd or lan.d w1!ll'lllJJclI .. Id lind II ~tocl 1I ... un41'. 

''il''h~er'oi~M! ~ !l..rtgt.J.P~?L.~2-~1 t.f'olf~,f~2:.~·Ii~not!ib,p'f4~~.~ •• lMl .J..t&. .-U-lr~d!la~~1. \~t..°nrrY-;~.~tl~. _.11. or '" tllt ,roo:Ilt ot r...10~ I .. ", Ult plpotU"",lo .. lIle" t.b. _Ira lal,. lot unnHLN I Lt._ 1111,. fro.r.a tll'lt 10 LIlli' pardi ... In,. fO,..II., 011 III Ito PO ...... /Oll. flo,.lnl·th,·nnr"t Price thltlto,"'Il .. hllhi ·-tor tho n,rd _h_ro' roducocl on' lb, dat,·ot·pUrch .. u (tI) I 1.11. • f' I 
48

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STAn OF _____________ } 

COUNTY OF._ •• R ___________ _ 

l'B:LU 8tNGL& J.CKHOWLEDOM&HT 

",non,lI, .'''nrtd ... ___ _ 

------_ .. _------------------------_._-- kno .. /\ 1.0 m. to 1H til, tHlnGn'N .holt II ..... L_. ___ • ____ ublerl~ 1.0 u.. IOUlOh" h.rtNm.nl. and acllncnrhd,td 1.0 =_ "hat _.b .. _. U.c:II~ 

\h. 11llJI. 'or \hI P"'!'POtu an4 aontl4u.Uoli \b..,1111 uPln .. d. . 

OIVin lind., 1117 hnl! and ... \ ot oute •• \hll tht-____ odl' 01 ______ • __ .____ . ___ • A. D. 11_-_. 

NO~r7 PllbU. In ,114 'o, ________ CoIIlIt1, _____ _ 

STATt 0,. __ ._._. ________ ' ___ } 

COUNTY OF ___ • _______ _ 

TEXAS lOINT ACKNOWLEOCMENT 

B.!or. lilt, \b'un41"lllItd, • Notarr Pllt.nc In and (Dr ,,14 CoIIntJ I"d SI.\4, on IlII! dar Ptrton_II, 

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49

". 

ADDENDUM TO AMENDED OIL AND GAS LEASE 

From Vagui11as Ranch Co., Ltd. et a1 

To Conoco Inc., Oated November 1, 1987 

12. Should Lessee be prevented from complying with covenants of this 

lease by reason of conditions or acts set forth in Paragraph '11' hereof, 

then Lessee agrees annually to pay to Lessor an amount equal to the delay 

rentals herein provided for during such period of prevention, whether same 

be during or subsequent to the primary term, and such payment shall be made 

at the end of each year of prevention either to Lessor or to the depository 

above named for credit to the account of Lessor. 

13. This lease does not cover or include any right or privilege of 

hunting or fishing on any part of the above described land, cwd Lessee 

agrees with lessor that neither he nor his assigns or agents or employees 

of his aSSigns, will bring firearms or dogs upon the leased premises, and 

should this provision against hunting and fishing be violated by any 

agents I servants, employees or contractors of Lessee's assigns, any such 

person so Violating same shall have no further right to enter upon the 

leased premises, and such person shall be regarded as and shall be a 

trespasser on the premises of Lessor and be subject to the penalties 

imposed upon trespassers under the laws of the State of Texas. 

14. It Is expressly agreed and understood that after production of 

oil and gas in commercial quantities is obtained from the leased premises, 

the mi nimum annua 1 income to Lessor from payment of renta 1 s , shut-i n 

royalty and royalty on production shall be sum of not less than Two ($2.00) 

Dollars per acre on the total acreage retained and then covered by this 

lease, but this provision shall not impair the right and privilege of 

Lessee, his successors and aSSigns, to release and surrender any part of 

the above described leased premises as herein provided. Lessee, his 

successors and aSSigns, shall determine within 90 days from the expiration 

of any lease year during which royalties have been paid on actual 

production the amount of any deficiency, and shall within said gO-day 

period pay such deficiency to Lessor or deposit same to Lessor's credit at 

-1-

i CIlP 0012146i -------

GWB2/dm 130(1) 

, -,- , .. , , 
50

the depository hereinabove designated. Default in the payment of such 

deficiency shall "at operate to tenllinate this lease or any part hereof, 

but Lessee, his successors and assigns, agrees to personally pay such 

deficiency to Lessor at Laredo in Webb County, Texas, together with any 

reasonable cost, including attorney's fees, incurred by Lessor in 

collecting such deficiency if not paid within the gO-day period hereinabove 

provided for. 

15. Nothwithstanding any other provision herein contained, this oil, 

gas and mineral lease is limited to oil, gas and sulphur and minerals 

produced with oil and gas, and does not include minerals other than oil, 

gas and sulphur and minerals produced with oil and gas, as Lessor herein 

excludes from the leasehold estate herein granted, and reserves unto 

himself, his heirs and assigns, all minerals other than oil, gas and 

sulphur and minerals that may be produced with oil and gas, but it is 

expressly agreed that 'gas' as used herein includes gas, condensate, 

distillate or any other gaseous substance or any other mineral produced 

with oil and gas, including sulphur. 

16. The right to pool under Paragraph '4' of this Oil, gas and 

mineral lease shall be limited to lease or leases on land belonging ·to 

Lessor herein, or in which lessor owns an interest in the oil, gas and 

other minerals. 

17. For the purposes of the annual renta 1 payments due under 

paragraph 5, Lessor and Lessee agree that said payments have been timely 

paid and received, and that this Lease is perpetuated, without the 

necessity of further delay rental payments, until the expiration of the 

primary term. 

18. On November 1, 1990, Lessee covenants and agrees to execute and 

deliver to Lessor a written release of any and all portions of this lease 

which have not been drilled to a density of at least 40 acres for each 

producing oil well and 640 acres for each producing or shut-in gas well, 

except that in case any rule adopted by the Railroad Commission of Texas or 

other regulating authority for any field on this lease provides for a 

-2-

!CiiP" ooi21471 -----~----- GWB2/dm 130(1) 
51

spacing or proration establishing different units of acreage per well, then 

such established different units shall be held under this lease by such 

production, in lieu of the 40 and 640-acre units above mentioned; provided, 

however, that if at such date lessee is engaged in drilling or reworking 

operations the date for the execution and delivery of such release shall be 

postponed and the entire lease shall remain in force so long "as operations 

on said well or wells are prosecuted with reasonable diligence, and if, 

after the completion or abandonment of any such well lessee commences the 

drilling of an additional well within Ninety (90) days from the completion 

or abandonment of the preceding well, or continuously conducts drilling 

operations in good faith and with reasonable diligence on said lease 

"Without any cessation for longer than Ninety (90) days, said lease shall 

remain in full force and effect during such drilling operations and until 

the end of Ninety (90) days after the completion or abandonment of the 

final well, at which time lessee shall execute and deliver to lessor said 

written release, releasing all portions of the lease not then so developed. 

Each retained unit shall contain at least one (1) well producing or capable 

of producing oil or gas in paying quantities, and the acreage within a unit 

shall be contiguous. 

If, after the date the partial release called for under this Paragraph 18 

takes affect, all production from a retained unit around a well or wells 

cease to produce oil or gas in commercial or in paying quantities, Lessee 

shall have one hundred eighty (180) days thereafter within which to 

commence operations to establish or re-establish production therein in 

commercial or paying quantities, whether such production be from the same 

wellbore or other wellbore. If such operations result in commercial 

producti on, then thi s 1 ease, as it app 1 i es to such un it sha 11 continue 

until such commercial or paying production again ceases. However, if such 

operations do not result in commercial production, then Lessee shall have 

ninety (90) days after completion of such operations within which to 

commence drilling or reworking operations within such unit, and this lease, 

as it applies to said unit, shall remain in force so long as operations on 

said well or for drilling or reworking of any additional well therein are 

prosecuted with no cessation of more than ninety (90) consecutive days, and 

if they result in the production of oil or gas therein, so long thereafter 

lCOPOo121"~ -3- --------:--

GWB2/dm 130(1) 
52

as oil or gas is produced from said unit. As to any unit upon which 

commercial production may periodically terminate, the above right to timely 

resume operations and continue this lease as to such unit shall be 

reoccurring right. 

The stipulation above as to the size of retained tracts around wells shall 

never be construed as a satisfaction of Lessee's right, duty and obligation 

to reasonably develop the leasehold held by Conoco or its successors or 

assigns. After November 1, 1990, Lessee agrees to drill such additional 

wells on the leased premises or such portions thereof as may be in force 

and effect from time to time, as may be necessary to reasonable develop the 

same for the production of oil and/or gas as a reasonable prudent operator. 

19. A portion of paragraph 3 has been deleted and the following is in lieu 

thereof. 

(b) ,on gas, including caSinghead gas or other gaseous substances, 

produced from said land, the Lessors royalty shall be calculated and 

paid as follows: 

a) Sales To Non-Affiliated Third Parties: 

In the event Lessee enters into a gas sales contract with a 

non-affiliated third party, Lessor's royalty shall be one-sixth 

(1/6) of the gross proceeds received by Lessee from the sale of 

such gas. 

b) Sales To Related Or Affiliated Entities For Resale: 

In the event Lessee enters into a gas sales contract to sell gas 

to a related or affiliated entity, then Lessor's royalty shall be 

computed on the greater of the following: 

1. One-sixth (1/6) of the gross proceeds received by lessee or 

any affiliate or related entity from the sale of such gas to 

the first non-affiliated entity, or 

2. One-sixth (1/6) of the highest price reasonably obtainable 

for gas by Lessee and other producers or operators in the 

-4-

GWB2/dm 130(1) 
53

east one-fourth of Webb County, Texas, who are producing gas 

of like kind, quality and quantity. 

In this regard, it is understood that the "highest price 

reasonably obtainable" may be equal to, but is not 

necessarily, the highest price then being obtained by other 

producers or operators in the east one-fourth Of Webb 

County, Texas, who are producing gas of 11ke kind, quality 

and quantity. 

c) Taking, Selling Or Delivery Of Gas To Lessee Or Its Related Or 

Atfil iated Entities For Use (Not For Resale): 

In the event Lessee takes gas for its own use, or sells or 

transfers gas to a related or affiliated entity for use, then 

Lessor's royalty shall be computed on tbe greater of the 

following: 

1. One-sixth (1/6) of the highest price reasonably obtainable 

for gas by Lessee and other producers 01" operators in the 

east one-fourth of Webb County, Texas, who are producing gas 

of like kind, quality and quantity. 

In this regard; it is understood that the "highest price 

reasonably obtainable" may be equal to but is not 

necessarily the highest price then being obtained by other 

producers or operators in the east one-fourth of Webb 

County, Texas, who are producing gas of like kind, quality 

and quantity, or 

2. One-sixth (1/6) of the quarterly weighted average of the 

pri ces being pa i d by "purchasers" (as here; nafter defi ned) 

in the east one-fourth of Webb County, Texas, who are 

purchas i ng gas of 1 i ke ki nd and qua 1 i ty. For the purposes 

of calculating the average price under this Paragraph c2, 

prices paid shall be those as reported in the Energy 

Planning Book publ ication or as reported to the State of 

-5-

GWB2/dm 130(1) 
54

Texas for severence tax purposes. uPurchasers" shall mean 

the. three largest purchasers based on volume of gas 

purchased for such calendar quarter, in the east one-fourth 

of Webb County, Texas. For an example of the calculation of 

the quarterly weighted average of such price, see Exhibit 

UB" 

Lessor and Lessee shall meet within eleven (11)· months after the end 

of each calander year. At least thirty (30) days prior to such meeting, 

Lessee should furnish to Lessor a statement or other documentation of the 

basis upon which royalties accrued to lessor under the terms of the Lease 

for the previous calender year. Any additional royalties calculated by 

Lessee to be due, if any, shall be paid at such meeting. Within one (1) 

year from delivery of the above referred to statement or other 

documentation, lessor shall notify Lessee of any discrepancies. Failure to 

notify lessee timely of any discrepancies shall constitute final acceptance 

of royalty payments as covered by such s~atements or other documentation. 

The first period for which Lessee shall prepare such statements or other 

documentation shall begin on April 1, 1988 and end on December 31, 1988. 

Nothing in this paragraph shall preclude Lessor from claiming any royalty 

which Lessor is entitled to as a result of mistake in computation, 

oversight in computation, or error in computation of royalty or which may 

result from the subsequent disclosure of a discrepancy. 

LESSOR'S royalty shall be without deduction for any costs. such as, 

but not limited to, costs of producing, gathering, storing, separating, 

treating, dehydrating, compreSSing, processing, transporting and otherwise 

making the oil, gas and associated substances ready for sale or use, except 

for a) severance and related taxes, and b) reasonable transportation 

expenses which may be necessary to be paid to non-affiliated third parties 

or entities to get Lessor's gas to a market or point of sale off the leased 

premises and which sale or sales will result in a net price equal to or 

higher than if said gas had been sold at the wellhead. 

LESSOR'S royalty on all production from depths below the stratigraphic 

equivalent of the top of the Cretaceous System as seen at 12,810 feet 

--------- lcop 0012151 I 

-6-

GWB2/dm 130(1) 
55

in the electric log of the Vaquillas #7 Well located 260' FNL and 

1,700' FWL of Survey 987, A2061, Webb County, Texas, under the lands 

now held by Lessee under this Lease shall be one-fifth (1/5) instead 

of one-sixth (1/6). 

LESSEE may submit a copy of a proposed gas sales contract to Lessor 

which is acceptable to Lessee and request that Lessor approve same for 

royalty computation purposes. Lessor shall have thirty (30) days after 

receipt of a gas contract to approve same. If lessor approves same or does 

not timely decline to do so, then lessor's royalty on gas sold under such 

gas sales contract shall be based on the gross proceeds received under said 

contract. 

GAS contracts with a term in excess of three (3) years shall contain a 

provision for price redetermination no later than the end of the 3rd year 

and subsequent price redeterminations thereafter at intervals no greater 

than two (2) years apart. 

20. Lessee agrees to fill all slush pits and level the same when they 

have ceased to be used and to restore the land to as near its original 

state as is practicable and to pay for damages to the surface of the land 

and the improvements, water wells, growing crops and livestock thereon, and 

to any other personal property of Lessor, Vaquillas Ranch Company, Ltd., 

occasioned by, arising out of, or resulting from operations by Lessee, his 

agents, employees or independent contractors on the land hereby leased to 

Lessee. Lessee also agrees, when requested in writing by Lessor, to 

divulge to Lessor true and correct information as requested by Lessor as to 

all drilling, producing and marketing operations conducted under this lease 

and to furnish to lessor copies of all electric well logs taken hereunder; 

provfded, however, Lessee shall not be obligated to release such 

information until it has been released to the industry. 

21. lessee hereby agrees to ensure that the two exit gates on F.M. 

2895 (Forest Gate and Reynolds Gate) are guarded in an efficient and 

prudent manner during drill ing, reworking or plugging operations and at 

other times as mutually agreed to by Lessee and Lessor. As to the exit 

-7-

GWB2/dm 130(1) 
56

gate on the north side of U.S. Highway 59, Lessee agrees to use its best 

efforts to work out an arrangement with other exploration companies using 

such gate to ensure that it is guarded in an efficient and prudent manner 

during drilling, reworking or plugging operations and other times as 

mutually agreed to by Conoco and Lessor. Further, Lessee agrees to use its 

best efforts to work out an arrangement with TransAmerican Natural Gas 

Corporation or its successors or assigns to ensure that the exit gate 

located 9 miles north of Aguilares, Texas, on F.M. 2895 is guarded in an 

efficient and prudent manner during drilling, reworking or plugging 

operations and at other times as mutually agreed to by Lessee and lessor. 

In regard to gates used by Lessee and other exploration companies, Lessee 

agrees to pay its share of the cost of guarding such gates when such gate 

guards are required under this agreement. Lessee shall not be obligated to 

furnish a gate guard on any gate which has been abandoned or is not being 

used by Lessee. 

22. Lessee agrees that before abandoning any well drilled on said 

lease for oil or gas purposes, it will notify the owner or the surface 

estate in person or by telephone of its intention to do so, and it will 

allow said owner of the surface estate a reasonable time, not exceeding 

twenty-four (24) hours thereafter, within which to elect to take over the 

hole for the purpose of attempting to make and complete a water well. 

lessee agrees to consult with such surface owner as to the location of a 

potential water zone, without any liability or warranty for such 

consultation. Upon the owner of the surface estate election, within the 

specified time, to attempt to complete the well as a water well and 

complying with all rules and regulations of the Railroad Commission of 

Texas and applicable statutes, Lessee will, at its expense, set all plugs 

to just below the deSignated water sand as may be required by the Railroad 

Corrmi ss ; on and thereafter deli ver the we 11 to sa i d owner of the surface 

estate, leaving in such well all surface casing and such intermediate 

casing as may have been run and set to at least the depth of the designated 

water sand and thereafter the owner of the surface state shall own the well 

and shall be responsible for all subsequent matters in connection with the 

well and for compliance with the applicable statutes and regulations of all 

regulatory agencies having jurisdiction. Lessee shall have no liability to 

-8-

GWB2/dm 130( 1) --~-~--- IcOP 0012153 I -------- , .. , . 

--
57

Lessor in connection with any of the operations which may be conducted by 

the owner of the surface estate who shall thereafter bear all 

responsibility and liability with respect thereto. It is expressly 

understood that Lessee shall not be required to furnish any additional 

casing or other equipment for any well plugged back at the request of the 

owner of the surface estate under this paragraph. Should the owner of the 

surface estate elect not to attempt to make a producing water well out of 

any such hole, Lessee shall plug the well in accordance with all applicable 

rules, regulations and statutes. 

23. It is expressly agreed and understood that for the purposes of 

this lease the following definitions shall apply: 

lICorranencesll - A well shall be deemed commenced on the 

date which the drilling bit enters the 

earth for the drilling of a well. 

IIAbandoned li - A well shall be deemed abandoned on the 

"Completed" 

day when it is finally plugged as a dry 

hole. 

- A well shall be deemed completed thirty (30) days after the day the Lessee sets 

production casing. 

24. Lessor and lessee agree to 1 imit the commencement of actual 

drilling during deer hunting season to 1) those wells drilled in areas 

which would not disturb deer hunting, and 2) offset wells. If Lessee must 

commence a well during deer hunting season to perpetuate said lease, then 

Lessor will either a) not object to the drilling of such well during deer 

hunting season or b) agree to extend the commencement date for such well to 

a mutually agreeable date after deer hunting season ends. For the purposes 

of this paragraph "deer hunting season II shall be that period defined by 

State law. 

25. Nothwlthstanding anything contained herein to the contrary, the 

Lessor at any time and from time to time, upon not less than ninety (90) 

days notice to the holder of this lease, may elect to require the payment 

of any royalties accruing to such royalty owner under this lease to be made 

in kind; provided that any expenses incident to the exercise of such 

election shall be borne by Lessor and such election shall be for periods of 

not less than twelve (12) months. Lessor shall only be allowed to take in 

-9-

GW82/dm 130(1) 
58

kind when lessee is producing for his own account. In the event of such an 

election by Lessor, Lessee shall cooperate fully with Lessor in allowing 

Lessor to take their royalty in kind, including permitting Lessor to use 

Lessee's wellhead equipment and, to the extent that Lessee has assignable 

rights, the use of lessee's purchaser's transportation facilities in good 

faith and not to exceed prevailing charges for similar services in the 

industry at the time if Lessee or its affiliates are transporting the gas, 

but if Lessee has a third party contract for the transport of said gas, 

Lessor will be bound by said contract. Should Lessee desire to enter into 

a gas purchase contract having a term of more than one (1) year, then (a) 

Lessee shall include in such contract a provision that allows Lessor to 

elect to take its gas in kind and be released from such contract one 

hundred twenty (120) days after notice, or (b) Lessor may approve of such 

contract in writing, in which event, lessor may elect to tak.e its gas in 

kind either at the end of such gas contact or one (1) year after notice to 

Lessee, whichever happens sooner. Any equipment installed by Lessor 

necessary to take in kind must be approved by lessee and maintained 

according to lessee's specifications. 

If Lessee is unable to obtain a more favorable gas contract because of 

lessor's reservation of this election to take in kind, then lessee may 

elect to give notice of its intention to sign a gas contract acceptable to 

Lessee and request that lessor join in signing same, and if lessor elects 

to Sign same, then Lessor's royalty share of revenue shall be bound by such 

contract and Lessor may not elect to take its royalty in kind during the 

term of such gas purchase contract. 

26. This Amendment is applicable to only that leasehold interest 

presently owned and held by Conoco Inc. Nothing contained herein shall in 

any way inure to the benefit of or be applicable to third parties who hold 

or claim any interest in said 26,622.79 acre lease or who claim an 

undivided interest therin either jointly or separately with Conoeo. 

Nothing herein shan in any way prejudice any claim, demand or cause of 

action which Vaquillas may have or assert against third parties holding any 

leasehold interests in Vaquillas lands. Nothing herein shall be construed 

as a release or modification of any right, claim or cause of action which 

-10- i'cop.~ls51 

GWB2/dm 130(1) ---~-------
59

Vaquillas may have aga.inst third parties who claim any interest in said 

26,622.79 acre lease or any other Vaqui11as lease. 

27. Lessor does further RATIFY, CONFIRM and ADOPT all of the terms, 

provisions and conditions of said June 15, 1974 Lease, as amended and as it 

applies to those rights held by Conoco Inc. thereunder, and that such 

lease, as amended and as it applies to Conoee Inc. is in full force and 

effect as of this date. Further, nothing contained herein shall in any way 

inure to the benefit of or be' applicable to any interest held by third 

parties in and to the June 15, 1974 Oil and Gas lease. 

DATED this <51'~ day of January, 1988. 

VAQUILLAS RANCH COMPANY, LTD. VAQUILLAS UNPROVEN MINERAL TRUST 

8y: 

By: 

VAQUILLAS PROVEN MINERAL TRUST CONOCO INC. 

. Wal er, Jr., rustee 

By: 6: ,~og*~ I &~ 'tl~ ) E. er uiros, ru tee 

!jd By: ~.f~~~-Jl/~ 

-11-

GWB2/dm 130(1) 
60

. !!llir 

16~9 

1651 

1652 

1661 

1663 

1633 

163~ 

1665 

5.1/21666 

N.l/2 1666 

468 

467 

1635 

865 

1683 

1691 

1696 

1695 

279 (pt. only) 

1004 

1692 

1693 

2112 

276 

EXH I 8 I T "A" 

A8STRACT 

I'll 0 

1112 

2876 

1122 

1123 

1323 

2252 

1124 

2253 

3142 

2255 

799 

1797 

1438 

1115 

1267 

2418 

1268 

1353 

2421 

2419 

1269 

2420 & 1925 

i552 

2550 

1133 

2593 

2061 

1141 

1336 

CERTIFICATE 

llS8 

1159 

1159 

1164 

1165 

4/808 

4/808 

1166 

1166 

1166 

236 

236 

17 

12/2541 

1175 

5446 

5448 

5448 

3702 

21105 

5~~6 

5447 

631 

3700 

134~, .. 

13W~ 

2/103 

GRANTEE 

eeso • RGNG 

eeso & RGNG 

\/. H. Taylor 

CCSO & RGNG 

ecso & RGNG 

GC & SF 

GC & SF 

CCSO & RGNG 

eeso & RGNG 

ceso & RGNG 

AS & H 

AS • H 

TC Ry. 

H • GN 

CCSO & RGNG 

Ge • SF 

GC • SF 

Ge • SF 

GC & SF 

J. Poi tevent 

GC • SF . 

GC. SF B.~F. James 

Ge & SF 

CCSO ,& 'RGNG 

ceso & RGNG 

J •. Pol tevent 

J .. Poltevent 

eeso & RGNG , 'GC ',,& "SF' 

ACRES 

640;0 

640.0 

640.0 

640.0 

640.0 

640.0 

659.96 

640.0 

328.75 

328.79 

659. '" 

640.0 

228 

'227 

988 

987' 

213' 

275' 

·27H' :~'.1/~ '31. BI9Ck 2 

, 25. Block 2 

'232" 

1337 

1043 

1042 

2148 

.211,93' 

13~9. 

3700 ' 

3701 

453 

~52 

1346 

1347 

460 . 

1074 

cqQ& RGNG .. eeso:,,& ,~GNG 

'eeso & RGNG 

CCSO & ReNe 

ceso & ReNe 

ecso & ReNe 

eeso & RGNG 

Ge & SF 

eeso & ReNG 

CT & H 

640.0 

640.0 

640.0 

640.0 

640.0 

640.0 

458.2 

634.58 

613.04 

640.0 

627.12 

640.23 

636.93 

640.0 

637.10 

640.0 

640.0 

640.0 

640;0 

320.0 

640.0 

462.70 

4~5.9 

320.0 

600.0 

640.0 

652.25 

440.0 

320.0 

320.0 

160.0 

292.65 

329.31 

325.75 

325.75 

640.0 

'233" N.H2 51. Block 2 

,259 (pt. only) 

1955 

2057 

2060 (pt. only) 

LI/2 2059 

E.l/2 1953" 

1627 (Pt. only) 

1629 (pt. only) 

\/.1/2 1662 

E.l/21648 

\/.1/21648 

26. Block 21'1 

2335 

E.l/2 1956* 

1117 

1045 

1137 

1328 

985 

3329-30 

984 

1329 

1324 

1275 

2230 

24" 

3301 

3025 

2560 

4526 

302 

303 

303 

4527 

4683 

4682 

1164 

1157 

1157 

452 

School 

4526 

eT& H 

Ge& SF 

Ge & SF 

GC & SF 

eeso & RGNe 

eeso & RGNe 

ceso & ReNe 

R. D •. Barnsley 

W. Brown 

Ge & SF 

27.3 

327.34 

Lessor's·warranty hereunder as to all of Surveys 987,273,275,27],26, the E.l/Z of 1953, 

E.I/2 of 1956 and ~Ol.9 acres out of Survey 233 (all except 54 acreS out of SW corner of said 

Sur. 23;) Is expressly limited to 1/2 of the executIve rights In the 011. and gas rights In 

and under said lands, and as to all of Survey 232 :I~ :e~pressly limited to 4/5 of the execut ive 

rIghts In the oll.and gas rights. . ., 

The following parts of surveys are expressly exc1uded'~eref~om, -vIz.·:. 

(I) 

(2) 

The SE 1/4 of S~ 1/4, 511 1/4 of HE 1/4 (80 acs.L'andN ',1/2 of S~ I/~ and S\/ 1/4 of s~ 1/4 

(120 acs.) of CT&H Survey 2060. ..' .".', ..... ' .. 

The w. 3/4 or GC~SF Survey 1627 described tn O&G Lse. to Daniel A. Pedrotti dated 

September 24, 1973, as a~ended. 

Any part of a survey listed herein not included \.,.Ithin any specific fraction.,1 reference 

preceding the su'rver refercnc;e. 

(4) The HE 160 acre' of GC&SF Survey 279. 

(5) ·Block 11 as per the E.D.Claggett Subdivision of rccord 2 Plat Records 29, Wcbh County, 

contiJinlng ~O acre~ I tl~in9 the N\I I/lf of SE Ill; of CCSO & RGNG Survl'~' 259. 

(6) All of the \"I. 320 ;l.:r~'i> of Survey 1629 d(.'scribl!d and included In O&G lsc. tu l),lIllel A. 

Pedrotti dated $"j'\.';:lh\.'r 2~, 1973, a,s amcndt"d, 

T~OPOOI2i57:. --~---~-.---
61

EXlIlIlT • 

C.lculatlon of toy.hy to b. SNld on ,II d .. ~I't'.nd to L ..... or ,utill.tll for UII ,.M 

nn for 1' ... 1.') In ,,"cardlne. vlth p.,.,rlp)! 19. 

"lnclp.h ,.y L.llor roy.Uy b.nd on thl ,r .. ttr of th' v.l;ht.d .v.,.;. price 

ptld by th. th,u lar, .. t volUdtrtc pUrchllra for the ".l.nd,r qulner 

In the .. at q\lIrttl' of v.bb Covnty 01' the 1III10"ttll 'Yin'll' of th. pr!c; .. 

us.d by tilt L ... or for roy., lY P')'MAt pIoIrpD .... 

Oat. Sourc.s [n ... vy 'luvdn; loot publication or IS reported to til. nu. of tun hlr 

IIv.rene. tax pvrpaa.,. 

sup 1. [lIlc;ul". th. v.I'IIht.d IIV'1'II0' prln tor the IIMth for ,lIc;h of tllll 'hI''' ttr..,." 

volu-. P\lrc;hllll. for til quirt., 11"_ the tax r.carda. 

Pureh .... fro .. 's!I!P'ny A 

L.ne , 

Unit 14 

TOtAL Unftltd T .... 

Tren._I .. ton 

100,000 

ao,ooo 

leO,ezt 

360,ez, 

2.00 

1.51 

I." 

ZOO,a63 

120,eOO 

29t,733 

613,396/160,e21 • SI.70/MMltu. 

IIp .. t pl'oc.du,. for reNlnln~ two lIantlll for thll purch ... r .nd for remaining tlla 

purch ....... 

Step 2. Calcul't. the vahllt.d IVerl\l' prle. of the thr •• Ilrv.n va\ulII.trlc pur!;""'" lor 

the qulrllt u.lno JIIOntilly VII" .. troll IUp 1. 

"onth·J'oy,ry '9!§ Month· ,ebruuy 19815 Honth , H.reh IfIU! 

Emb.WL VOlUM Prlca Extension VO\\nI' Pr!c. Exten.lon Val~. Prlc. Ext.nslan 

Me' l/HCf • MCf S/HC' • Me' S/KC' • 

United Tax .. 360,821 1.10 613,396 397,130 1.515 627,465 3Z0,l06 1.58 506,083 

TUMIII .. lon 

UTUO! 

South Gulf 

'oo,m 1.5$ 

ill..222 LH 

620,346 

~ 

350,723 1.60 

= WI. 

561,157 

lll.m 

500,1261.55 775,195 

~.'~,5~'"--o'~~~'~'"' 

Tot.l. 1,136,044 1,833,74Z 1,047,009 1,613,255 1,121,432 1,756,658 

SUI! of Volu .. " lUll ot ExUn,'o!\, Vefghud Ayerai' P~!c, 

Toul. 3,304,485 5,263,855 1.59 

sup 3. tlleulu. w.IGht.d ,v,nv' prtu und by L ..... to calcul'tI roy.lty p'YIII,nta on 

'" d,llvered to L ..... or .HtI"t .. and not for 1' ... 1 •• 

Month.January 'filII Month.February 191111 Mgnth·Mush 1988 

Voh ... Pl'lc. Extln.fan vatu-. Prfc. Ext.n.lon \/01101IIII Prlc. Exun,lon 

MCf '/IICf • Kef SIMCf • 'Of $-/Her • 

155,000 1.60 248,000 140,000 1.62 Z26,aOO 155,000 l.se 244,900 

III! 9' YoIV .. " SUP' 9' ClIun.'on. ""phtrd Aysrur Pelu 

719,100 1.60 

IUp 4. COIIPIr. w.l,ht.d 'Y'l"Ig. price c,IGullt.d In Sup 2 to lh. 1I.!vhud ..... r.'. , ..... 

prlc. c,lcul.ud In n.p 3. 

SI.60IHCf I, lraUer th.n St.59/KCf '0 no .ddltlon.t !"Oy.lty P.YIII,/1t •• r, requlrad 

10r th h qull'ur. 

VOIUIIII .nc! prlc" v"d In thlt t ... pl. Itl Utld for IIlunl'ulan .nd ... y nat b. 

nfl'''I .... ' of .ctu.1 condltlona. 
62

THE STATE OF TEXAS § 

§ 

COUNTY OF WEBB § 

<.{iL 

This instrument was acknowledged before me on the q day of 

January, 1988, by J. O. WALKER, JR., General Partner of Vaquillas Ranch 

Co., Ltd., A Texas Limited Partnership, on behalf of said partnership. 

THE STATE OF TEXAS § 

COUNTY OF WEBB 

§ 

§ 

~ Notary .. Public &LA," in an *~V{'~ or 

The State of Texas. <)C) 

My COl11llission Expires 7-3- 0 , 

Lt:l\lRA BA LL€vJ 

Printed/stamped name of Notary. 

oy--L This instrument was acknowledged before me on the I day of 

January, 198B, by E. WALKER QUIROS, General Partner of Vaquillas Ranch Co., 

Ltd., A Texas Limited Partnership, on behalf of said partnership. 

THE STATE OF TEXAS § 

§ 

COUNTY OF WEBB § 

This instrument was acknowledged before me on the 9 ~ day of 

January, 1988, by GENE S. WALKER, General Partner of Vaqulilas Ranch Co., 

Ltd., A Texas Limited Partnership, on behalf of said partnership. 

THE STATE OF TEXAS § 

§ 

~ ub~in and for 

The State of Texas. J- 09' 

My Comission Expires 7- 3- " 

~fI<)RA 804 usvJ 

Printed/stamped name of Notary. 

COUNTY OF WEBB § 

This instrument was acknowledged before me on the 9~ day of 

January, 1988, by EVAN B. QUIROS, General Partner of Vaquillas Ranch Co .. Ltd., A Texas Limited Partnership, on behalf of said partnership. 

GWB2/dm 130( I) 

d.cblJ ~,J(1,,'}j Notary Public in and for 

The State of Texas. 

My COI11Ilisslon Expires '1-3-&,,9 

/v,q v I~/I t5A LUi vJ 

Printed/stamped name of Notary. 

-12-
63

THE STATE OF TEXAS § 

§ 

COUNTY OF WEBB § 

This instrument was 

January, 1988, by J. O. 

Mineral Trust. 

THE STATE OF TEXAS § 

COUNTY OF WEBB 

§ 

§ 

acknowledged before me on the CJ ~ day of 

WALKER, JR .. Trustee for The Vaquillas Unproven 

c~ . itA-.~fi. flu.if 

Notary ~ublic in a~for The State of Texas. 00 

My Commission Expires: 7- 3- 6 I 

LA) t>RA b>A UEN 

Printed/stamped name of Notary. 

~ This instrument was acknowledged before me on the 7' day of 

January, 1988, by E. WALKER QUIROS, Trustee for the Vaquillas Unproven 

Mineral Trust. 

THE STATE OF TEXAS § 

§ 

COUNTY OF WEBB § 

~"~4~~ Notary Pu lie 1n and for 

The State of Texas. 

My Commission Expires: 7-:3- 8'9 

0A tJfG,4 HI! LLEvJ 

Printed/stamped name of Notary. 

Thi 5 instrument was acknowledged before me on the n~ -, day of 

January, 1988, by GENE S. WALKER, Trustee of the Vaquillas Unproven Mineral 

Trust. 

~"94~," oOr"t ~Pub ie in and for 

The State of Texas 

My Commission Expires: '1- 3- 111 

THE STATE OF TEXAS § 

COUNTY OF WEBB 

§ 

§ 

/""1IUi2A 1:54 LLSvJ 

Printed/stamped name of Notary. 

This instrument was acknowledged before me on the 

January, 1988, by EVAN B. QUIROS, Trustee of Vaquillas Unproven 

Trust. ~ " 

- ~ !! ), a" 4J! 0,,,9-' 

day of 

Minera 1 

~y Public in and for 

The State of Texas 

My Commission Expires: '7-3-117 

Lc,[)f(,a 15", LLe:vJ 

Printed/stamped name of Notary. 

-13-

GWB2/dm 130(1) 
64

THE STATE OF TEXAS § 

§ 

COUNTY OF WEBB § 

This instrument was 

January, 1988, by J. O. 

Trust. 

THE STATE OF TEXAS § 

§ 

COUNTY OF WEBB § 

January, 1988, by E. 

THE STATE OF TEXAS § 

§ 

COUNTY OF WEBB § 

WALKER, 

acknowledged JR., before 

Trustee 

me 

of 

on 

Vaquillas 

the '1 

Proven 

~ 

NOtarY ic in and for 

day of 

Mineral 

The State of Texas " 

My Commission Expires: 7-3- i?{ 

IvAM.A /2,,</ LIE vJ 

Prlnted/stamped name of Notary. 

yh the 9 day of 

Proven Mineral Trust. 

(.~~~~~~~~~~~-- otary u ic 1n and for 

The State of Texas 

My Commission Ex~es: 7-.:3- ~'l 

L4tJ!<A & Li..GvJ 

Printed/stamped name of Notary. 

This instrument was acknowledged January, 1988, by GENE S.WALKER, Trust 

'ti0 the 9 day of 

Proven Mineral Trust. 

THE STATE OF TEXAS § 

COUNTY OF WEBB 

§ 

§ 

otary ub lC 1n an for 

The State of Texas 

My Commission Expires: 7-.3 - 'g'1 

ivA iJ/2A BA LL;;;.,J 

Printed/stamped name of Notary. 

L 

This instrument was acknowledged before me 

January, 1988, by EVAN B. QUIROS, Trustee of 

on the 9 day of 

Vaquill as Proven Mineral 

Trust. 

GWB2/dm 130(1) 

Notary Public in and for 

The State of Texas 

My COnInission Expires: 7-3-:;;J 

.LAuRA 8-4 LLevV 

Printed/stamped name of Notary. 

-14-
65

...... 

THE STATE OF TEXAS § 

§ 

COUNTY OF WEBB § 

This instrument was acknowledged before me on the 'l-J-b day of 

January, 1988, by Iefi c. • .s"--;;l er , Attorney·in-Fact for CONO(? INC., ali aware corporation, on behalf of said 

corporation. 

The State of Texas 

My Commission Expires: '7-I&" qg' 

LJ e.11"" /J'la. Y' Ke. rtPrintedlstamped name of Notary. 

·15· 

GWB2/dm 130(1) 

·r...".... . 
67

••••• '._ A • • 'i • It.odIlUU U (1"1) 

., J": 

.. i.J:I UD ACI" 1'00111\11: PrO>'b!t.on 

OIL, GAS AND MINERAL LEASE THIS AGltEEKENT mat. lbb,-1.~ .. ______ .4&T ot. Novemb~L ____ R __ R. __ 'R. __ .. __ ._ ... lI..!!?_. ,*_11 

Vaguillas Rancl!SomruillY.t.-Ltd.; Vaqui11~Jm.p.roven_MinJrral Tn,tst i . ..Y!9..l!.!.+1.~!"9.Y.~!L 

~~ral-1.~ust .. LI!f:..t,!!!~nd thr.g.H8!L.!~f!...&rulenLPJ!r..t.~ .... -h..JLr.....IDt1.lter. Jr ~._. ___ ._. _ 

_ ~. Wal~r.-JlU-..!~,~~~~!!$~L~M_~"!!!J_I.. . ...Q.\!ill_I!· , . ___ ._.'._. ____ .. ' 

;::.~:~ 0111 ~ IrIOra) ... boN add ..... lu_ ., p..!.~o:-i~;J:D86:-~p Texa! 7804i=~===_====_~ and __ G..?.!!~~.£:..z.y_~_~ox 219L..Jlo'!~!Q..lh_~~!lP_..l.1.£?_~ ____ ,. __ ._. ___ .• t.-. WlTNESS!:TH1 

-I. ~ III ccmaW...,LlOII ot . .....!en Dollar"§._!lE.Q._.9,~J~~~!,-o_4....rul!Ly'~.!..\@blt;L~..QJ!§.!~.E~!!2.!L._R'-_ .. .»oIl&r, 

II...! 0.00 ) In bDd paM!,. ot Lbe lO,llUII bu.ln Pf'OyIW. Illd of u.. Apft_t. of LMaw blf'lln toat.lM4, bereb, paa,ta. kuM L114 lott.o uclual....,. viii,;·L.'_ fur tb. rnupoM 01 IlIn,UaIUlla. t:XpJ.orllll'. Pr'OtPlCltill •• kDU ... u>d mIlIllI&' lor ... d. Pf'Odud.n .. 011. "" I.N! all otb ... mIr.lra", COII41Kt.1D.S p;plor.~n. noIo.le and I'toph,.1c&1 .",....,.. b,. ~a»b, COra UIl. 1'n.'Pi&;r &114, 1n& .. n.tlU

• - ... ~:~~. au, ... tv ant! ~Ir flllld ...... 01 air lIIto ... bnrt .... nratl, II}'I .... pipe Una. bullcUl" ..-dail "nita,. ~ ItILlD .... te __ 11M III _'- IlnIoo 

hIr'M tbtr.ull IIII!. 0 .. , O .... r end. Urwl ludi _1IId or claim.:! b, Lutor adlac&llt alii! _ INOW 't~ to prod.\I~ "VI, tat. cer. or, kNot. 

t.ralI.IlJOl1. &114 _" laid llrodtlcb, ud. boaf;lll&' It. IIIIplonn. ~ toU_IN!' duenbtcl Iud hL __ H~ _______ • __ • ___ Co"II~. T ...... "" .. I" 

6~740 acres of land~ more or less~ situated in Webb County, Texas, more fully 

described in Exhibit "AI] attached hereto and made a part of this Lease for all 

relevant purposes, including limitations upon warranty as specifically set out 

therein, 
68

.' 

irATI; or . 

--} OOUIITY .,. __ _ 

~ ~~L-__ . ________________________ . __ _ 

=-_~ 't:r ':... bt ~~ ~-iii;;;ii~...nbMrlbed to the lorqolq hl~t. UI4 KlIIIO'WIedp;!. to =- tbd _he.. .. aecut«l 

GI .. " ulld" l1li' bud al'l4 lilt&! or ofnoe., u. .. u... ___ -U7 ot __ . ______ ~ __________ • A. D. 11. ____ .•• 

--_. __ ._--_ .... 

NotaQ Publlll h~ fAd for . ----~~. -----

._--} T&1UJ'OlNr A.CKHOWLJmOMEHT 

OOVNnO)': 

N0f.u7 !'ubi" I. _4 tOl' ____ .... <T. _____ ._. __ 

l 

~ ~ t " ~ ·f 0 ~~ 

l f ~ ~ .l • j::: .j I ( I 0, ~ ~ ~ i: I , I lE • I ~ • 

f I l , • 

P- i 

k 

[ 

i i f. t 

F f , • ~ l ! 

r 

; t' 

{ ~ t ~ I 

J r ' '. . f i l [ r r i I i • ,. • L'" •.. :: .. 
69

• 

• ADDENDUM TO OIL AND GAS LEASE • 

From Vaquillas Ranch Co., Ltd. et al 

To Conoco Inc., Dated November 1, 1987 

12. Should Lessee be prevented from complyin9 with covenants of this 

lease by reason of conditions or acts set forth in Paragraph '11' hereof, 

then Lessee agrees annually to pay to Lessor an amount equal to the delay 

rentals herein provided for during such period of prevention, whether same 

be during or subsequent to the primary term, and such payment shall be made 

at the end of each year of prevention either to Lessor or to the depository 

above named for credit to the account of Lessor. 

13. This lease does not cover or Include any right or privilege of 

hunting or fishing on any part of the above described 1 and, and Lessee 

agrees with Lessor that neither he nor his aSSigns or agents or employees 

of his assigns, will bring firearms or dogs upon the leased premises, and 

should this provision against hunting and fishing be violated by any 

agents, servants J employees or contractors of Lessee IS ass igns, any such 

person so Violating same shall have no further right to enter upon the 

1 eased prem1 ses, and such person sha 11 be rega rded as and sha 11 be a 

trespasser on the premises of Lessor and be subject to the penalties 

imposed upon trespassers under the laws of the State of Texas. 

14. It is expressly agreed and understood that after production of ., 

oil and gas in corrmercial Quantities is obtained from the leased premises, ~C'I 

the minimum annual income to Lessor from payment of rentals, shut-in 0 1 ) 

royalty and royalty on production shall be sum of not less than Two_($2.00) 

Do1lars per acre on the total acreage retained and then covered by this 

lease, but this proviSion shall not impair the right and privilege of 

Lessee, his successors and aSSigns, to release and surrender any part of 

the above described leased premises as herein provided. Lessee, his 

successors and aSSigns, shall detennine within 90 days from the expiration 

of any lease year during which royalties have been paid on actual 

production the amount of any deficiency, and shall within said 90-day 

period pay such deficiency to lessor or deposit same to Lessor's credit at 

GW82/dm 124(7) 

""'I JUt 1 4 ~ 
70

" . .. ,. • 

the depository hereinabove designated. Default in the payment of such 

deficiency shall not operate to terminate this lease or any part hereof. 

but Lessee. his successors and assigns. agrees to personally pay such 

deficiency to Lessor at Laredo in Webb County. Texas. together with any 

reasonable cost, including attorney's fees, incurred by Lessor in 

collecting such deficiency if not paid within the gO-day period hereinabove 

provided for. 

15. Nothwlthstanding any other provision herein contained. this oil. 

gas and mineral lease is limited to oil. gas and sulphur and minerals 

produced with oil and gas. and does not include minerals other than oil. 

gas and sulphur and minerals produced with oil and gas. as Lessor herein 

excludes from the leasehold estate herein granted, and reserves unto 

himself. his heirs and assigns. all minerals other than Oil. gas and 

su1 phur and mi nera 1 s that may be produced with oil and gas. but it is 

expressly agreed that Igas' as used herein includes gas, condensate, 

distillate or any other gaseous substance or any other mineral produced 

with oil and gas, including sulphur. 

16. The right to pool under Paragraph '4' of this oil. gas and 

mineral lease shall be limited to lease or leases on land belonging to 

lessor herein, or in which lessor owns an interest in the Oil, gas and 

other minera 1 s . 

17. For the purposes of the annual rental payments due under 

paragraph 5, lessor and lessee agree that said payments have been timely 

paid and received. and that this Lease is perpetuated. without the 

necessity of further delay rental payments. until' the expiration of the 

primary term. 

18. At the end of the primary tenn hereof, lessee covenants and 

agrees to execute and deliver to lessor a written release of any and all 

portions of this lease which have not been drilled to a density of at least 

40 acres for each producing 011 well and 640 acres for each producing or 

shut-in gas well. except that in case any rule adopted by the Railroad 

Commission of Texas or other regulating authority for any field on this 

GWB2/dm 124(7) 

L ()? 
71

• • 

lease provides for a spacing or proration establ1shing different units of 

acreage per well, then such established different units shall be held under 

~e~se by -su~h production, in 1 ieu of the 40 and 640-acre units above 

mentioned; provided, however, that if at such date lessee is engaged in 

drilling or reworking operations the date for the execution and delivery of 

such release shall be postp~n;d a~d the entire Tease shall remain in force 

so long as operations on said well or wells are prosecuted with reasonable 

diligence, and if, after the completion or abandonment of any such well 

Lessee commences the drilling of an additional well within Ninety (90) days 

from the completion or abandonment of the preceding welT, or continuously 

conducts drilling operations in good faith and with reasonable diligence on 

said lease without any ces?atjon for longer than Ninety (90) days, said 

lease shall remain in full force and effect during such drilling operations 

and until the end of Ninety (90) days after the completion or abandonment 

of the final well, at which time Lessee shall execute and deliver to Lessor 

said written release, releasing all portions of the lease not then so 

developed. Each retained unit shall contain at least one (1) well 

producing or capable of producing oil or gas in paying quantities, and the 

acreage within a unit shall be contiguous. 

If, after the date the partial release called for under this Paragraph 18 

takes affect, all production from a retained unit around a well or wells 

cease to produce 011 or gas in commercial or in paying quantities, Lessee 

shall have one hundred eighty (180) days thereafter within which to 

commence operations to establish or re-establish production therein in 

cormnercial or paying quantities, whether such production be from the same 

well bore or other wellbore. If such operations result in commercial 

product; on, then thi s 1 ease, as it app 1; es to such uni t sha 11 conti nue 

until such commercial or paying production again ceases. However, if such 

operations do not result in commercial production, then Lessee shall have 

ni nety (90) days after comp 1 et i on of such operati ons within whi ch to 

commence drilling '·or reworking operations within such unit, and this lease, 

as it applies to said unit, shall remain in force so long as operations on 

said well or for drilling or reworking of any additional well therein are 

prosecuted with no cessation of more than ninety {gO} consecutive days, and 

if they result in the production of oil or gas therein, so long thereafter 

GWB2/ dm 124 (7) 

~.) : 
72

", . ,. • • 

as oil or gas is produced from said unit. As to any unit upon which 

commercial production may periodically terminate, the above right to timely 

resume operations and continue this lease as to such unit shall be 

reoccurring right. 

The stipulation above as to the size of retained tracts around wells shall 

never be construed as a satisfaction of Lessee's right, duty and obligation 

to reasonably develop the leasehold held by Canoe a or its successors or 

ass 19ns. After November I, 1990, Lessee agrees to dri 11 such add i tiona 1 

wells on the leased premises or such portions thereof as may be in force 

and effect from time to time, as may be necessary to reasonable develop the 

same for the production of oil and/or gas as a reasonable prudent operator. 

19. A portion of paragraph 3 has been deleted and the following Is in lieu 

thereof. 

(b) on gas, including casinghead gas or other gaseous substances, 

produced from said land, the Lessors royalty shall be calculated and 

paid as follows: 

a) Sales To Non-Affiliated Third Parties: 

In the event Lessee enters into a gas sales contract with a 

non-affiliated third party, Lessor's royalty shall be one-fifth 

(l/5) of the gross proceeds received by Lessee from the sale of 

such gas. 

b) Sales To Related Or Affiliated Entities For Resale: 

In the event Lessee enters into a gas sales contract to sell gas 

to a related or affiliated entity, then Lessor's royalty shall be 

computed on the greater of the following: 

1. One-fifth (1/5) of the gross proceeds received by Lessee or 

any affiliate or related entity from the sale of such gas to 

the first non-affiliated entity, or 

2. One-fifth (1/5) of the highest price reasonably obtainable 

for gas by lessee and other producers or operators in the 

-4-

GWB2/dm 124(7) 
73

• • 

east one-fourth of Webb County, Texas, who are producing gas 

of like kind, quality and quantity. 

In this regard, it is understood that the IIhighest price 

reasonably obtainable" may be equal to, but is not 

necessarily, the highest price then being obtained by other 

producers or operators in the east one-fourth of Webb 

County. Texas. who are producing gas of like kind, quality 

and quantity. 

c) Taking, Selling Or Delivery Of Gas To lessee Or Its Related Or 

Affiliated Entities For Use (Not For Resale): 

In the event Lessee takes gas for its own use, or sells or 

transfers gas to a related or affiliated entity for use, then 

lessor's royalty shall be computed on the greater of the 

following: 

1. One-fifth (1/5) of the highest price reasonably obtainable 

for gas by lessee and other producers or operators in the 

east one-fourth of Webb County, Texas, who are producing gas 

of like kind. quality and quantity. 

In this regard, it is understood that the "highest price 

reasonably obtainable" may be equal to but is not 

necessarily the highest price then being obtained by other 

producers or operators in the east one-fourth of Webb 

County, Texas, who are producing gas of like kind, quality 

and quantity, or 

2. One-fifth (l/5) of the quarterly weighted average of the 

prices being paid by "purchasers" (as hereinafter defined) 

in the east one-fourth of Webb County, Texas, who are 

purchasing gas of like kind and quality. For the purposes 

of calculating the average price under this Paragraph e2. 

prices paid shall be those as reported in the Energy 

Planning Book publ ication or as reported to the State of 

-5-

GWB2/dm 124(7) 
74

• • 

Texas for severence tax purposes. "Purchasers II sha 11 mean 

the three largest purchasers based on volume of gas 

purchased for such calendar quarter, in the east one-fourth 

of Webb County. Texas. For an example of the calculation of 

the quarterly weighted average of such price, see Exhibit 

Lessor and Lessee shall meet within eleven (11) months after the end 

of each calander year. At least thirty (30) days prior to such meeting, 

lessee should furnish to Lessor a statement or other documentation of the 

basis upon which royalties accrued to Lessor under the terms of the Lease 

for the previous calender year. Any additional royalties calculated by 

Lessee to be due, if any, shall be paid at such meeting. Within one (1) 

year from del ivery of the above referred to statement or other 

documentation, Lessor shall notify Lessee of any discrepancies. Failure to 

notify Lessee timely of any discrepancies shall constitute final acceptance 

of royalty payments as covered by such statements or other documentation. 

The first period for which Lessee shall prepare such statements or other 

documentation shall begin on April I, 1988 and end on December 31, 1988. 

Nothing in this paragraph shall preclude Lessor from claiming any royalty 

which Lessor is entitled to as a result of mistake in computation, 

overSight 1n computation, or error in computation of royalty or which may 

result from the subsequent disclosure of a discrepancy. 

LESSOR'S royalty shall be without deduction for any costs, such as, 

but not limited to, costs of producing. gathering, storing, separating, 

treating, dehydrating, compreSSing, proceSSing, transporting and otherwise 

making the Oil, gas and associated substances ready for sale or use, except 

for a) severance and related taxes, and b) reasonable transportation 

expenses which may be necessary to be paid to non-affiliated third parties 

or entities to get Lessor's gas to a market or pOint of sale off the leased 

premi ses and wh1 ch sa 1 e or sa 1 es wi 11 result in a net pri ce equa 1 to or 

higher than if said gas had been sold at the wellhead. 

LESSEE may submit a copy of a proposed gas sales contract to Lessor 

which is acceptable to Lessee and request that Lessor approve same for 

-6-

GW82/dm 124(7) 

r" 

" I 
75

". -

• • 

roya lty computation purposes. Lessor sha 11 have thirty (3D) days after 

receipt of a gas contract to approve same. If Lessor approves same or does 

not timely decline to do so, then Lessor's royalty on gas sold under such 

gas sales contract shall be based on the gross proceeds received under said 

contract. 

GAS contracts with a term in eXcess of three (3) years shall contain a 

provision for price redetermination no later than the end of the 3rd year 

and subsequent price redeterminations thereafter at intervals no greater 

than two (2) years apart. 

20. Lessee agrees to fill all slu~h pits and level the same when they 

have ceased to be used and to restore the land to as near its original 

state as is practicable and to pay for damages to the surface of the land 

and the improvements, water wells, growing crops and livestock thereon, and 

to any other personal property of Lessor, Vaquillas Ranch Company, Ltd., 

occasioned by. arising out of, or resulting from operations by Lessee, his 

agents, employees or independent contractors on the land hereby leased to 

Lessee. Lessee also agrees. when requested in writing by Lessor. to 

divulge to Lessor true and correct information as requested by Lessor as to 

all drilling, producing and marketing operations conducted under this lease 

and to furnish to Lessor copies of all electric well logs taken her.eunder; 

provided. however, lessee shall not be obligated to release such 

information until it has been released to the industry. 

21. Lessee hereby agrees to ensure that the two exit gates on F .M. 

2895 (Forest Gate and Reynolds Gate) are guarded in an efficient and 

prudent manner during drilling, reworking or plugging operations and at 

other times as mutually agreed to by Lessee and Lessor. As to the exit 

gate on the north side of U.S. Highway 59, Lessee agrees to use its best 

efforts to work out an arrangement with other exploration companies using 

such gate to ensure that it is guarded in an efficient and prudent manner 

during drilling, reworking or plugging operations and other times as 

mutually agreed to by Lessee and lessor. Further, Lessee agrees to use its 

best efforts to work out an arrangement with TransAmerican Natural Gas 

Corporation or its successors or assigns to ensure that the exit gate 

-7-

GWB2/dm 124(7) 
76

.... • • 

located 9 miles north of Aguilares, Texas, on F.M. 2895 is guarded in an 

efficient and prudent manner during drilling, reworking or plugging 

operations and at other times as mutually agreed to by Conoco and Lessor. 

In regard to gates used by lessee and ather exploration companies, Lessee 

agrees to pay its share of the cost of guarding such gates when such gate 

guards are required under this agreement. lessee shall not be obligated to 

furnish a gate guard on any gate which has been abandoned or is not being 

used by Lessee. 

22. Lessee agrees that before abandoning any well drilled on said d; 'p':) 

lease for oil or gas purposes, it will notify the owner or the surface 

estate in person or by telephone of its intention to do so, and it will 

allow said owner of the surface estate a reasonable time, not exceeding 

twenty-four (24) hours thereafter, within which to elect to take over the 

hole for the purpose of attempting to make and complete a water well. 

lessee agrees to consult with such surface owner as to the location of a 

potentia 1 water zone. without any 1 iabil ity or warranty for such 

consultation. Upon the owner of the surface estate election, within the 

specified time, to attempt to complete the well as a water well and 

complying with all rules and regulations of the Railroad Commission of 

Texas and applicable statutes, Lessee will, at its expense, set all plugs 

to just below the designated water sand as may be required by the Railroad 

Commission and thereafter deliver the well to said owner of the surface 

estate, leaving in such well all surface casing and such intennediate 

casing as may have been run and set to at least the depth of the designated 

water sand and thereafter the owner of the surface state shall own the well 

and shall be responsible for all subsequent matters in connection with the 

well and for compliance with the applicable statutes and regulations of all 

regulatory agencies having jurisdiction. Lessee shall have no liability to 

Lessor in connection with any of the operations which may be conducted by 

the owner of the surface estate who shall thereafter bear all 

responsibility and liability with respect thereto. It is expressly 

understood that lessee shall not be required to furnish any additional 

casing or other equipment for any well plugged back at the request of the 

owner of the surface estate under this paragraph. Should the owner of the 

surface estate elect not to attempt to make a producing water well out of 

-8-

GWB2/dm 124(7) 
77

" .. 

• 

any such hole. Lessee shall plug the well in accordance with all applicable 

rules. regulations and statutes. 

23. It is expressly agreed and understood that for the purposes of 

this lease the following definitions shall apply: 

"Cormnences" - A well shall be deemed corranenced on the 

date which the drilling bit enters the 

earth for the drilling of a well. 

IIAbandoned ll - A well shall be deemed abandoned on the 

day when it is finally plugged as a dry hole. 

"Completed" - A well shall be deemed completed thirty (30) days after the day the Lessee sets 

production casing. 

24. Lessor and Lessee agree to limit the commencement of actua I Ao~ 

drilling during deer hunting season to 1) those wells drilled in areas 

which would not disturb deer hunting. and 2) offset wells. If Lessee must 

commenCe a well during deer hunting season to perpetuate said lease, then 

Lessor will either a) not object to the drilling of such well during deer 

hunting season or b) agree to extend the commencement date for such well to 

a mutually agreeable date after deer hunting season ends. For the purposes 

of this paragraph "deer hunting season" shall be that period defined by 

State law. 

25. Nothwithstanding anything contained herein to the contrary. the 

lessor at any time and from time to time, upon not less than ninety (90) 

days notice to the holder of this lease, may elect to require the payment 

of any royalties accruing to such royalty owner under this lease to be made 

in kindj provided that any expenses incident to the exercise of such 

election shall be borne by Lessor·and such election shall be for periods of 

not 1es5 than twelve (12) months. Lessor shall only be allowed to take in 

kind when Lessee is producing for his own account. In the event of such an 

election by Lessor, Lessee shall cooperate fully with Lessor in allowing 

Lessor to take their royalty in kind, including permitting lessor to use 

lessee's wellhead equipment and, to the extent that lessee has assignable 

rights, the use of Lessee's purchaser'S transportation facilities in good 

fa ith and not to exceed preva i1 i ng charges for s imil ar servi ces in the 

industry at the time if lessee or its affiliates are transporting the gas, 

-9-

GWB2/dm 124( 7) 
78

.... . '. ., • 

but if Lessee has a third party contract for the transport of said gas, 

Lessor will be bound by said contract. Should Lessee desire to enter into 

a gas purchase contract having a term of more than one (1) year, then (a) 

Lessee shall include in such contract a provision that allows Lessor to 

elect to ta~e its gas in kind and be released from such contract one 

hundred twenty (120) days after notice, or (b) Lessor may approve of such 

contract in writing, in which event, Lessor may elect to take its gas in 

kind either at the end of such gas contact or'one (1) year after notice to 

Lessee, whichever happens sooner. Any equipment installed by lessor 

necessary to take in kind must be approved by Lessee and maintained 

according to Lessee's specifications. 

If Lessee is unable to obtain a more favorable gas contract because of 

Lessor's reservation of this election to take in kind, then Lessee may 

elect to give notice of its intention to sign a gas contract acceptable to 

Lessee and request that Lessor join in signing same, and if Lessor elects 

to sign same, then lessor's royalty share of revenue shall be bound by such 

contract and Lessor may not elect to take its royalty in kind during the 

term of such gas purchase contract. 

DATED this 91Jr day of January, 1988. 

VAQUILLAS RANCH COMPANY, LTD. 

BY~.~ 

By: g~~ E. hra eriliros ~~w 

GWB2/dm 124(7) 

-10-

VAQUILLAS UNPROVEN MINERAL TRUST 

Bti?~ge ·~~r.,ru~tee 

By: g. 

E. Wa 

By: 

By: ""=:--. 
79

.. , ... 

• • 

VAQUILLAS PROVEN MINERAL TRUST CONOCO INC. 

BY~~4 rif1BY: "':'{!fd:::=f:f¥:f1ia";;ct~--~ 

By: c$:Wy!'~~f(: Tr~ 

-11-

GWB2/dm 124(7) 
80

' .. 

(;,I'i : "1:j ,_, {'e...' 

SURVEY ABSTRACT CERTIFICATE GRANTEE ACRES 

·1652 2876 1159 w. H. TAYLOR 640.0 

-1661 1122 1164 CCSD & RGNG 640.0 

-1663 1123 1165 CCSD & RGNG 640.0 

~-."t63"3 . 1323 4/808 GC & SF 640.0 , 

-'"1634 225..7_. __ ._.4/.8.08 ____ GC L~F._._· ...... __ 6_59.!-96..., 

=-n65 1124 1166 CCSD & RGNG 640.0 

-~d635_ ""~ 1797 17 TC RY; 640.0--. 

- 2060 (SE/4 3329-30 .- '303 . -"---CT--&'M' -- ----r6-0":-0.· 

only) 

-1953 (E 1/2) 1329 4527 GC & SF 320.0 

1627 (pt. 1324 4683 GC L SF 160.0 

only) 

-1629 (pt. 1275 4682 GC & SF 264.65 

only) 

1662 (W 1/2) 2230 1164 CCSD & RGNG 329.31 

1648 (E 1/2) 2441 1157 CCSD &- RGNG 325.75 

1648 (W 1/2) 3301 1157 CCSD & RGNG 325.75 

2335 3025 SCHOOL W. BROON 27.3 

• 1956 (E 1/2) 2560 4526 GC & SF 327.34 

The following parts of surveys are expressly eXCluded herefrom, 

viz. : 

(1) The SE 1/4 of SW 1/4, SW 1/4 of NE 1/4 (80 acs.) and N 1/2 

of SW 1/4 and SW 1/4 of SW 1/4 (120 acs.) of €T & M Survey 2060. 

(2) The W. 3/4 of GC & SF survey 1627 described in O&G Lease to 

Daniel A. Pedrotti dated September 24, 1973, as amended. 

(3) All of the W. 

included in O&G Lease 

1973, as amended. 

320 ~cres of Survey 1629 described and 

to Daniel A. Ped~otti dated September 24, 

~ .y 
81

• lXlllllt • 

,.{cul.tlon of roy,lty n b. p.td on gn d.~IY.,.d to I. ..... 

• 

or Affllh'n for UII (.nd 

I\O~ for ,,,.t,) In "'ardlne. vllh p.t.,r.ph 19. 

'ty L"lot roy.lty ~.nd on th. "nUt of the v.l,hud ''1ln" prl" 

p.lel by till tnr .. hr,.n Yol~trlC pur~ ... n hr th. nt.nd" qUtrUt 

In th. un II.U,tUt of lI,bb CO\ll\~Y or tbt 1i,Iebtld IVlnu 01 'hi prln' 

uud by ,h. LUlOr for roYllty P')'IIMt P'o/t'P0un 

C.1cul.tlon: Oet,,..lnl .ddltlon.l roytlty p')'II.nu, If ,ny. 

sup 1. 

lnlrlY 'hMlnt loot publication or II reporud to ,h. st." of Tun lor 

"'IlrI"" Ull purpo .... 

,.1culiU th. v.llbUd lY'u,. ptlet for th • .onth tor nch of th. tht .. ,,,,.n 

vol\,a, pureh .... for "" qultU,. fro. th. tlX ncord •• 

I. .... 1 

Unit '4 

'v.-ch" .. fC!!III '2"'p,ny , 

\lIU '2 

TOllL Vnlud Tun 

TUM.lnlon 

M2Mb· J."y.,y IOA§ 

100,000 

eo,ooo 

180,821 

360,1121 

Z.OO 

1.51 

1.62 

ZOO,86) 

1Z0,800 

611,396/360,1121 • $1.7o/MIt"~. 

llput prondun tor nllllning tvo _linIn, hI' thl. pur~h"lr t.mI tor rtlulnlng '.,,0 

purch, .. r •• 

"'P Z. C.lc:",ln. lb, .",Ight,d .VIr.gl prlu of thl thrll I.r,nt vohlll.tric purch .. ln hr 

thl qu.rtlr Ulln" IIOnthly '1.11,111 trOll sup 1. 

M0nSb·J·oy'CY 12" Montb • hbrupry 1!1I11 Month ~ Mereh 1900 

~ Volva' Prll::t !xnn.lon VOIUNI PrlCi !xtlnlhn VoIUIII, 'ric:, ElIuntlOn 

Kef S/Mcr • "Of • /ltef • "Of .s/Her • 

Unlud hx .. ~60,'Z1 1.70 611,~96 3PT,Uo 1,$1 617,465 nO,306 1.51S 506,083 

Tra""alulon 

UIIAoe 

South Cult 

620,346 

-

561,157 

l1Lill 

500,1261.n 175,195 

Ul..2.22 'WJ, IIL..£"tll.J11I'22 

1,136,044 '.83l,7n 1,047,009 1,67],lS5 1,121,432 1,756,858 

'v- 0' VoIUlo" Su .. of [!It$'l'IJlgn, v.lghulf "Ylr.S' hiS! 

10ul. '.59 

sup 3. C,I;III.te ".I,hud .V'I'IVI prln "'ltd b.,. L ..... to ulc:ulu. roytlt.,. p.YII.nu on 

VIt dlllVlrtd to L ..... or ,,,lIln .. Inc! not for ,"'1 •• 

t!0n,b·J,nytcy 1911!! IConth."bruary 19M Monfh'H!Ireh 19M 

Yolu.I 'rln htlnllon VolulI' PriCI Eltlnllon VotU-I Prlc-. Extrnllon 

"Of $IltC1 • HCf S/MCr • "Of .s/MC' 

155,000 1.60 241,000 140,000 1,62 126,800 ISS,oOO l.sa 2U,900 

h,. of V2'u.,,.. SUI! 2' huC! '2n. 

719,700 1.60 

u.p '. CPptr, .."I,hUd .... ".,' pd;, Clleul.tld In .sup Z to thl IIIhhud .... .,.g. ~"nl 

pd" ni;ui.t.d 'n ,up 3. 

IIOUt 

'1,60/)lC1 'I ,r.n.r 111 .... $l.S9/MCf .0 no .ddlttOMt roy.lty p.y.tI\U 'f' rtq\l.lftd 

tor this qUlrt,r, 

'101",-", IIId prlu. Ulld 'n tbl. 'XI.,l •• tI "' .. d for IIlunrnlon .nd •• .,. not b. 

tlH,nlvI of ICtu.1 c:~hlont, 
82

, . ~ 

, 

, . THE STATE OF TEXAS • § 

§ • 

COUNTY OF WEBB § 

This instrument was acknowledged before me on the 9~day of 

January, 1988, by J. O. WALKER, JR., General Partner of Vaquillas Ranch 

Co., Ltd., A Texas Limited Partnership, on behalf of said partnership, 

....... ~;~.­ ," " ,- ... :': .. ', .- ..•. ~ .. ... . $.-.1" ......... .. 

i~/ .... 

~!~ ota+Y ~lC ~600.'S- in and for 

The State of Texas. \ : 

'. ~ ....... 

My Coomission Expires 7- B - '89 

.0A!J/?,q 6A LLGvJ 

'"' .. ~.. ._ ...... . Printed/stamped name of Notary. 

THE STATE OF TEXAS § 

§ 

COUNTY OF WEBB § 

This instrument was acknowledged before me on the 9Y+- day of 

January. 1988, by E. WALKER QUIROS, General Partner of Vaqulllas Ranch Co., 

Ltd •• A Texas Limited Partnership. on behalf of said partnership. 

.. f .. 

. • :!o" "" 

i ... ~~/ § ~i 

~h~al2~J[y otarYublic in and for 

• 

The State of Texas. (;I 

My COlllllission Expires '7-:3 - 0 9 , 

\ .. '~~':-- ..... -. ~IJ.O)RA ~ LLEW 

Printed/stamped name of Notary. 

THE STATE OF TEXAS § 

§ 

COUNTY OF WEBB § 

This instrument was acknowledged before me on the 't '-II- day of 

January, 1988, by GENE S. WALKER. General Partner of Vaquillas Ranch Co., 

Ltd .. A Texas Limited Partnership, on behalf of said partnership. 

THE STATE OF TEXAS § 

§ 

COUNTY OF WEBB § 

~~~~,,;y NOtarYUbfc in an or 

The State of Texas. 

My COlllllission Expires 7- 3-89 

L4tJt<A 13-4 LLevJ 

Printed/stamped name of Notary. 

'I-k- This instrument was acknowledged before me on the Cf day of 

January, 1988, by EVAN B. QUIROS, General Partner of Vaquillas Ranch Co., 

Ltd., A Texas Limited Partnership, on behalf of said partnership. 

GWB2/dm 130(!) 

~ ublic in and for 

The State of Texas. 

My Commission Expires 7-3-89 

LA IJi<A &4 LLCJyj 

Printed/stamped name of Notary. 

-12-
83

• .. ' . 

\ 
84

'. .-

- • . THE STATE OF TEXAS • § • 

- '. 

§ 

COUNTY OF WEBB § 

This instrument was 

January, 1988, by J. O. 

Mineral Trust. 

THE STATE OF TEXAS § 

§ 

COUNTY OF WEBB § 

acknowledged before me on the 9+L day of 

WALKER, JR_, Trustee for The Vaquillas Unproven 

~,~ Offi'YPu1C in ~a~{2gd}- ancrror 

The State of Texas - CIa 

My CORmission Expires: 7- 3-a I 

LA~R.A t>,,,, LLe"J 

Printed/stamped name of Notary. 

This instrument was acknowledged 

January, 1988, by E. WALKER QUIROS, 

Mineral Trust. 

before me on the 

Trustee for the 

g~ day of 

Vaquillas Unproven 

THE STATE OF TEXAS § 

§ 

COUNTY OF WEBB § 

~~2ht~~ The State of Texas. 9 

My Conmission Expires: '7-:3- g 

LlluRA BAU,£vJ 

Printed/stamped name of Notary. 

9--r/:...J This instrument was acknowledged before me on the day of 

January, 1988, by GENE S. WALKER, Trustee of the Vaquillas Unproven Mineral 

Trust. 

THE STATE OF TEXAS § 

COUNTY OF WEBB 

§ 

§ 

Notary Pu ~in and for 

The State of Texas 

My Commission Expires: 7-3- 'i?'7 

LA ORA 3,0 LLE:vJ 

Printed/stamped name of Notary. 

'-f-L; 

This instrument was acknowledged before me on the 9 day of 

January, 1988, by EVAN B. QUIROS, Trustee of Vaquillas Unproven Mineral 

Trust. 

-.:/~ ~c~n~Y 

GWB2/dm 130(1) 

The State of Texas a 

My Commission Expires: 7-3-f? I 

JvMR/i J:3A LLevJ 

Printed/stamped name of Notary. 

-13-
85

• • -, ,. 

---
86

Co· ._ 

, , THE STATE OF TEXAS • § 

§ 

COUNTY OF WEBB § 

This instrument was 

January, 1988, by J. O. 

Trust. 

• 

. o~ acknowledged before me on the ,-,-::-.:-'--0'==-, day of 

WALKER, JR., Trustee of Vaquillas Proven Mineral 

.,- <: :; ~ j 

~ ~~ OCk.ft--- {~?/ .. -"<; atarYUiC'in an for 

The State of Texas 

My Coomission Expires: '7'-:3 - J?9 ~ LA ORA ~ UBvJ \ .. 

~" , ... /~ -..... . Printed/stamped name of Notary. 

", 

}' ~. '" . 

' .. 

-:. " " 

. 

THE STATE OF TEXAS § 

§ 

COUNTY OF WEBB § 

This instrument was acknowledged before me on the 9'f1-, day of 

January, 1988, by E. WALKER QUIROS, ~: vaqu~ Proven Mineral Trust. 

_' 

"," 

t, 

, The 

Notary 

State 

putiM 

of Texas 

in an~ 00 

My Commi ss i on Expi res: 7- 3 - tJ f 

THE STATE OF TEXAS § 

§ 

COUNTY OF WEBB § 

LfiIJ/(,q 13A L1..HvJ 

Printed/stamped name of Notary, 

This instrument was acknowledged before me on the 9-tV day of 

January, 1988, by GENE S.WALKER, Trustee of Vaquillas Proven Mineral Trust. 

~~~d~~l(y .~ The State of Texas 

My Commission Expires! 7-3-/?9 

THE STATE OF TEXAS § 

COUNTY OF WEBB 

§ 

§ 

i..JAOI2A BA U_~ vJ 

Printed/stamped name of Notary_ 

~' 

This instrument was acknowledged before me on the 

January, 1988, by EVAN B. QUIROS, Trustee of Vaquillas 

9 day of 

Proven Mineral 

Trust. 

~uh4 ~" O~.a-=' Notary Public in and for 

The State of Texas OQ 

My Conmission Expires: 7-3-0 I 

0Mi(A 80'1 LLBv.j 

Printed/stamped name of Notary. 

-14-

GWB2/dm 130( 1) 
87

• • , . ., 

.. 
88

. . • 

THE STATE OF TEXAS § 

§ 

COUNTY OF WEBB § 

Thi s instrument 

Attorney·in-Fact 

corporation. 

GWB2/dm 130(1) 

• 

'1 cit . day of 

The State of Texas 

My Commission Expires: 9-/8' -yf' 

L)e//«. fl1<>. Y'A-"er27 

Printed/Stamped name of Notary. 

·15-
245

-

RAILROAD COMMISSION OF TEXAS 

OFFICE OF GENERAL COUNSEL 

OIL AND GAS DOCKET 

NO. 04-0217435 

FINAL ORDER 

CONSOLIDATING VARIOUS FIELDS INTO A NEW FIELD CALLED 

THE VAQUILLAS RANCH (LOBO CONS.) FIELD AND 

ADOPTING FIELD RULES FOR THE 

VAQUILLAS RANCH (LOBO CONS.) FIELD 

WEBB COUNTY, TEXAS 

The Commission finds that after statutory notice in the above-numbered docket 

heard on October 8, 1997, the presiding examiner has made and filed a report and 

recommendation containing findings of fact and conclusions of law, for which service was 

not required; that the proposed application is in compliance with all statutory 

requirements; and that this proceeding was duly submitted to the Railroad Commission 

of Texas at conference held in its offices in Austin, Texas. 

The Commission, after review and due consideration of the examiner's report and 

recommendation, the findings of fact and conclusions of law contained therein, hereby 

adopts as its own the findings of fact and conclusions of law contained therein, and 

incorporates said findings of fact and conclusions of law as if fully set out and separately 

stated herein. 

Therefore, it is ordered by the Railroad Commission of Texas that the following 

fields located in Webb County, Texas, are hereby combined into a new field called the 

Vaquillas Ranch (Lobo Cons.) Field (No. q3~t 5 400 ): 

BALTAZAR (LOBO 6 10470) FIELD 

BARNSLEY (LOBO 10900) FIELD 

BARNSLEY (LOBO) FIELD 

BONEBRAKE (LOBO 6) FIELD 

BONEBRAKE (UPPER LOBO) FIELD 

CALICHE CREEK (LOBO) FIELD 

CARR (LOBO 10100) FIELD 

CARR (LOBO 8300) FIELD 

CARR (LOBO 8600) FIELD 

CARR (LOBO 8700) FIELD 

CARR (LOBO) FIELD 

CARR (WILCOX 8200) FIELD 

CARR (WILCOX 8300) FIELD 

CARR (WILCOX) FIELD 

CATTO (LOBO 9900) FIELD 

CATTO (LOBO 10200) FIELD 

05357400 

05791 800 

05791 400 

10419 500 

10419 800 

14735225 

15874 350 

15874 235 

15874 250 

15874275 

15874200 

15874 600 

15874 700 

15874 500 

16405400 

16405 500 

EXHIBIT 

A-4 
246

OIL AND GAS DOCKET NO. 04-0217435 

DESPARADO (LOBO 6) FIELD 

DIAMONDBACK (LOBO 3) FIELD 

GATO CREEK (9800) FIELD 

GATO CREEK (LOBO 1) FIELD 

GATO CREEK (LOBO 1-SEGA) FIELD 

GATO CREEK (LOBO 3) FIELD 

GATO CREEK (LOBO 6 SEGMENT A) FIELD 

GATO CREEK, SE (9800) FIELD 

GATO CREEK, SE (LOBO 1) FIELD 

GATO CREEK, SE (UP. LOBO STRAY) FIELD 

HIRSCH (LOBO 9746) FIELD 

JURASCHEK (LOBO) FIELD 

JURASCHEK (WILCOX 11600) FIELD 

LUNDELL (LOBO 9200) FIELD 

LUNDELL (LOBO) FIELD 

MCLEAN (LOBO) FIELD 

MUJERES CREEK (LOBO 1) FIELD 

MUJERES CREEK (LOBO 3) FIELD 

MUJERES CREEK (LOBO 6) FIELD 

MUJERES CREEK (LOBO) FIELD 

MUJERES CREEK, SOUTH (LOBO) FIELD 

NICHOLSON (LOBO 3) FIELD 

NORDAN (LOBO) FIELD 

POZO (LOBO) FIELD 

RANCHO VIEJO, S. (LOBO 6) FIELD 

RANCHO VIEJO (LOBO 3) FIELD 

RANCHO VIEJO (LOBO 6) FIELD 

VAQUILLAS RANCH (LOBO 8100) FIELD 

VAQUILLAS RANCH (UP. LOBO STRAY) FIELD 

VAQUILLAS RANCH (WALKER 8300) FIELD 

VAQUILLAS RANCH (WALKER 8600) FIELD 

VAQUILLAS RANCH (WALKER, N.) FIELD 

VAQUILLAS RANCH (WILCOX 11,100) FIELD 

VAQUILLAS RANCH (WILCOX 11,600) FIELD 

VAQUILLAS RANCH (WILCOX 11,900) FIELD 

VAQUILLAS RANCH (YARSA) FIELD 

VENADA (9800) FIELD 

VENADA (LOBO) FIELD 

VERGARA (LOBO 9300) FIELD 

VERGARA (LOBO) FIELD 

24394500 

24574400 

34238400 

34238 300 

34238 325 

34238 350 

34238 375 

34242 980 

34242 500 

34242 750 

41659075 

47740 500 

47740600 

55755 180 

55755 175 

59725500 

63668 300 

63668400 

63668500 

63668250 

63670500 

65469020 

65934500 

72838500 

74570 100 

74568680 

74568700 

93215450 

93215600 

93215680 

93215690 

93215670 

93215 700 

93258750 

93215 725 

93258 900 

93436 800 

93436300 

93537750 

93537 500 

PAGE 2 

It is further ordered that the following rules are adopted for the Vaquillas Ranch (Lobo 

Cons.) Field: 
247

OIL AND GAS DOCKET NO. 04-0217435 PAGE 3 

RULE 1: The entire Lobo Formation from the Lobo Unconformity to the top of the Wills 

Point (Midway Shale) and including the above listed fields in Webb County, Texas, shall be 

designated as a single reservoir for proration purposes and be designated as the Vaquillas 

Ranch (Lobo Cons.) Field. 

RULE 2: No gas well shall hereafter be drilled nearer than FOUR HUNDRED SIXTY 

SEVEN (467) feet to any property line, lease line or subdivision line and no well shall be drilled 

nearer than ONE THOUSAND TWO HUNDRED (1,200) feet to any applied for, permitted or 

completed well in the same reservoir on the same lease, pooled unit or unitized tract. The 

aforementioned distances in the above rule are minimum distances to allow an operator flexibility 

in locating a well, and the above spacing rule and the other rules to follow are for the purpose 

of permitting only one well to each drilling and proration unit. Provided however, that the 

Commission will grant exceptions to permit drilling within shorter distances and drilling more wells 

than herein prescribed whenever the Commission shall have determined that such exceptions 

are necessary either to prevent waste or to prevent the confiscation of property. When exception 

to these rules is desired, application therefore shall be filed and will be acted upon in accordance 

with the provisions of Commission Statewide Rule 37 and 38, which applicable provisions of said 

rule are incorporated herein by reference. Provided however, that persons who are presumed 

to be affected by a request for an exception to the between-well spacing requirement shall be 

limited to the operators and ownersllessees of tracts, lease or units within one mile or less of the 

proposed well. 

In applying this rule the general order of the Commission with relation to the subdivision 

of property shall be observed. 

RULE 3: The daily allowable production of gas from individual wells completed in the 

subject field shall be determined by allocating the allowable production, after deductions have 

been made for wells which are incapable of producing their gas allowables, among the individual 

wells in the following manner: 

TEN percent (10%) of the total field allowable shall be allocated equally among the 

individual wells producing from this field. 

NINETY percent (90%) of the total field allowable shall be allocated among the individual 

wells in the proportion that the deliverability of such well, as evidenced by the most recent 

G-10 test filed with the Railroad Commission bears to the summation of the deliverability 

of all proratable wells producing from this field. 

It is further ordered by the Railroad Commission of Texas that the allocation formula for 

the Vaquillas Ranch (Lobo Cons.) Field be suspended. The allocation formula may be reinstated 

administratively if the market demand for gas in the Vaquillas Ranch (Lobo Cons.) Field drops 

below 100% of deliverability. If the market demand for gas in the Vaquillas Ranch (Lobo Cons.) 

Field drops below 100% of deliverability while the allocation formula is suspended, the operator 

shall immediately notify the Commission and the allocation formula shall be immediately 

r 

! 

I 

1

J 
248

OIL AND GAS DOCKET NO. 04-0217435 PAGE 4 

reinstated. Failure to give such notice to the Commission may result in a fine (as provided for 

in Tex. Nat. Res. Code §86.222) for eac day the operators fail to give notice to the Commission. 

Effective this d/f ~ay of , 19q9 . 

a:zON 

COMMISSIO~ 
249

<AILROAD COMMISSION OF TEXAS 

T;' 'TT: OT' TEXAS .' '[\ ~ G r 

:CUNTY OF TRAVIS ' 

. I hereby certify that the i~t:0rmation on the, 'l ' 'I r) ,,~::'\r; l'2\'crse sIde hereof, and on the securely attached additIOnal .3 a";" ~. . . ,,~ "",;1; 

':1;(,S identified by certification # J 05 37(, ar~trUe ,

an4. ~'. ~ . :'::1'l'cc1 copies of dOGuments on file with Railroad Commissio~f'fe'/C~r, i ...... :,~ ", ~" ":d I f:lrthcr certify th~t I am the le~al, custodian 0ft,he r~~d6,r ; .. ,¥("., .. } '. ~ , 

i:S (':d <.'n1 of the Railroad CommlsslOn of Texas. Cl' ,\ \ ",: t, .. + 5 ~ I '"~"{:,,, I ' -' 

. ~ ~"~-r- 0 <:'~('~';"'~'::T~~-'" ' .••.. , ..... , ',,/. -".--'~ uu""'L, -, ',1 ,'j """~'$P':' 

, """ ,\~~: ;;', ,\~\'~i~,'; '\ "" . 'Wi,;':, '~ ~'\; 
254

RAILROAD COMMISSION OF TEXAS 

OFFICE OF GENERAL COUNSEL 

OIL AND GAS DOCKET 

NO. 04-0265630 

IN THE VAQUILLAS RANCH (LOBO 

CONS.) FIELD, WEBB COUNTY, TEXAS 

FINAL ORDER 

AMENDING FIELD RULES FOR THE 

VAQUILLAS RANCH (LOBO CONS.) FIELD 

WEBB COUNTY, TEXAS 

The Commission finds that after statutory notice in the above-numbered docket 

heard on September 23, 2010, the presiding examiner has made and filed a report and 

recommendation containing findings of fact and conclusions of law, for which service was 

not required; that the proposed application is in compliance with all statutory requirements; 

and that this proceeding was duly submitted to the Railroad Commission of Texas at 

conference held in its offices in Austin, Texas. 

The Commission, after review and due consideration of the examiner's report and 

recommendation, the findings of fact and conclusions of law contained therein, hereby 

adopts as its own the findings of fact and conclusions of law contained therein, and 

incorporates said findings of fact and conclusions of law as if fully set out and separately 

stated herein. 

Therefore, it is ordered by the Railroad Commission of Texas that Rule 2 of the field 

rules adopted in Final Order No. 04-0217435, effective February 24, 1998, for the Vaqui/las 

Ranch (Lobo Cons.) Field, Webb County, Texas, is amended as hereafter set out: 

RULE 2: No well shall hereafter be drilled nearer than FOUR HUNDRED SIXTY 

SEVEN (467) feet to any property line, lease line or subdivision line and no well shall be 

drilled nearer than ONE THOUSAND TWO HUNDRED (1,200) feet to any applied for, 

permitted or completed well in the same reservoir on the same lease, pooled unit or 

unitized tract. Provided, however, there is no minimum between-well spacing requirement 

between a well being permitted at least 660 feet from the nearest property line, lease line 

or subdivision line, and the other wells permitted, drilled or completed on the same lease, 

pooled unit or unitized tract. A well being permitted at a distance less than SIX HUNDRED 

SIXTY (660) feet from the nearest property line, lease line or subdivision line must be a 

minimum of ONE THOUSAND TWO HUNDRED (1,200) feet from any applied for, 

permitted or completed well in the same reservoir on the same lease, pooled unit or 

unitized tract, or an exception to Rule 37 must be obtained. 

The aforementioned distances in the above rule are minimum distances to allow an 

operator flexibility in locating a well, and the above spacing rule and the other rules to 

follow are for the purpose of permitting only one well to each drilling and proration unit. 

Provided however, that the Commission will grant exceptions to permit drilling within 

. '" ,~, EXHIBIT 

A-5 

1 
255

OIL AND GAS DOCKET NO. 04-0265630 Page 2 

shorter distances and drilling more wells than herein prescribed whenever the Commission 

shall have determined that such exceptions are necessary either to prevent waste or to 

prevent the confiscation of property. When exception to these rules is desired, application 

therefore shall be filed and will be acted upon in accordance with the provisions of 

Commission Statewide Rule 37 and 38, which applicable provisions of said rule are 

incorporated herein by reference. Provided however, that persons who are presumed to 

be affected by a request for an exception to the between-well spacing requirement shall 

be limited to the operators and ownersllessees of tracts, lease or units within one mile or 

less of the proposed well. 

In applying this rule the general order of the Commission with relation to the 

subdivision of property shall be observed. 

Done this 2nd day of November, 2010. 

RAILROAD COMMISSION OF TEXAS 

(Order approved and signatures 

affixed by OGe Unprotested Master 

Order dated November 2,2010) 
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Filed 

10/29/20149:51:53 AM 

Esther Degollado 

«Prev Rule Texas Administrative Code Next Ru~i§~ct Clerk 

ebb District 

2014 cvaooo 438 D4 

TITLE 16 ECONOMIC REGULATION 

PART 1 

CHAPTER 3 

RULE §3.38 

RAILROAD COMMISSION OF TEXAS 

OIL AND GAS DIVISION 

Well Densities 

(a) Definitions. The following words and terms. when used in this section. shall have the following 

meanings. unless the context clearly indicates otherwise. 

(I) Commission designee--Director of the Oil and Gas Division or any Commission employee designated in 

writing by the director or the Commission. 

(2) Drilling unit--The acreage assigned to a well for drilling purposes. 

(3) Proration unit--The acreage assigned to a well for the purpose of assigning allowables and allocating 

allowable production to the well. 

(4) Substandard acreage--Less acreage than the smallest amount established for standard or optional drilling 

units. 

(5) Surplus acreage--Substandard acreage within a lease, pooled unit, or unitized tract that remains 

unassigned after the assignment of acreage to each applied for, permitted, or completed well in a field, in an 

amount equaling or exceeding the amount established for standard or optional drilling units. Surplus acreage 

is distinguished from the term "tolerance acreage,"in that tolerance acreage is defined in context with 

proration regulation, while surplus acreage is defined by this rule only in context with well density 

regulation. 

(6) Tolerance acreage--Acreage within a lease, pooled unit, or unitized tract that may be assigned to a well 

for proration purposes pursuant to special field rules in addition to the amount established for a prescribed or 

optional proration unit. 

(b) Density requirements. 

(1) General prohibition. No well shall be drilled on substandard acreage except as hereinafter provided. 

(2) Standard units. 

(A) The standard drilling unit for all oil, gas, and geothermal resource fields wherein only spacing rules, 

either special, country regular, or statewide, are applicable is hereby prescribed to be the following. 

Attached Graphic 

(B) The spacing rules listed in subparagraph (A) of this paragraph are not exclusive. If any spacing rule 

not listed in subparagraph (A) of this subsection is brought to the attention of the commission, it will beE] 

gi ven an appropriate acreage assignment. EXHIBIT 

3 

(c) Development to final density. An application to drill a well for oil, gas, or geothermal resource on a 

drilling unit composed of surplus acreage, commonly referred to as the "tolerance well," may be granted as 

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20f6 

regular when the operator seeking such permit certifies to the commission in a prescribed form the necessary 

data to show that such permit is needed to develop a lease, pooled unit, or unitized tract to final density, and 

only in the following circumstances: 

(I) when the amount of surplus acreage equals or exceeds the maximum amount provided for tolerance 

acreage by special or county regular rules for the field, provided that this paragraph does not apply for a 

lease, pooled unit, or unitized tract that is completely developed with optional units and the special or county 

regular rules for the field do not have a tolerance provisions expressly made applicable to optional proration 

units; 

(2) if the special or county regular rules for the field do not have a tolerance provision expressly made 

applicable to optional proration units, when the amount of surplus acreage equals or exceeds one-half of the 

smallest amount established for an optional drilling unit; or 

(3) if the applicable rules for the field do not have a tolerance provision for the standard drilling or proration 

unit, when the amount of surplus acreage equals or exceeds one-half the amount prescribed for the standard 

unit. 

(d) Applications involving the voluntary subdivision rule. 

(I) Density exception not required. An exception to the minimum density provision is not required for the 

first well in a field on a lease, pooled unit, or unitized tract composed of substandard acreage, when the 

leases, or the drill site tract of a pooled unit or unitized tract: 

(A) took its present size and shape prior to the date of attachment of the voluntary subdivision rule 

(§3.37(g) of this title (relating to Statewide Spacing Rule)); or 

(B) took its present size and shape after the date of attachment of the voluntary subdivision rule (§3.37(g) 

of this title (relating to Statewide Spacing Rule)) and was not composed of substandard acreage in the field 

according to the density rules in effect at the time it took its present size and shape. 

(2) Density exception required. An exception to the density provision is required, and may be granted only 

to prevent waste, for a well on a lease, pooled unit, or unitized tract that is composed of substandard acreage 

and that: 

(A) took its present size and shape after the date of attachment of the voluntary subdivision rule (§3.37(g) 

of this title (relating to the Statewide Spacing Rule)); and 

(B) was composed of substandard acreage in the field according to the density rules in effect at the time it 

took its present size and shape. 

(3) Unit dissolution. 

(A) If two or more separate tracts are joined to form a unit for oil or gas development, the unit is accepted 

by the Commission, and the unit has produced hydrocarbons in the preceding twenty (20) years, the unit may 

not thereafter be dissolved into the separate tracts with the rules of the commission applicable to each 

separate tract if the dissolution results in any tract composed of substandard acreage for the field from which 

the unit produced, unless the Commission approves such dissolution. 

(B) The Commission shall grant approval only after application, notice, and an opportunity for hearing. 

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30f6 

The applicant seeking the unit dissolution shall provide a list of the names and addresses of all current 

lessees and unleased mineral interest owners of each tract within the joined or unitized tract at the time the 

application is filed. The Commission shall give notice of the application to all current lessees and unleased 

mineral interest owners of each tract within the joined or unitized tract. Additionally, if one or more wells on 

the unitized tract has produced from the field within the l2-month period prior to the application, the 

applicant shall include on the list all affected persons described in subsection (h)(I)(A) of this section, and 

the Commission shall give notice of the application to these affected persons. 

(C) A Commission designee may grant administrative approval if the Commission designee determines 

that granting the application will not result in the circumvention of the density restrictions of this section or 

other Commission rules, and if either: 

(i) written waivers are filed by all affected persons; or 

(ii) no protest is filed within the time set forth in the notice of application. 

(e) Application involving unitized areas with entity for density orders. An exception to the minimum density 

provision is not required for a well in a unitized area for which the commission has granted an entity for 

density order, if the sum of all applied for, permitted, or completed producing wells in the field within the 

unitized area, multiplied by the applicable density provision, does not exceed the total number of acres in the 

unitized area. The operator must indicate the docket number of the entity for density order on the application 

form. 

(f) Exceptions to density provisions authorized. The Commission, or Commission designee, in order to 

prevent waste or, except as provided in subsection (d)(2) of this section, to prevent the confiscation of 

property, may grant exceptions to the density provisions set forth in this section. Such an exception may be 

granted only after notice and an opportunity for hearing. 

(g) Filing requirements. 

(I) Application. An application for permit to drill shall include the fees required in §3.78 of this title 

(relating to Fees and Financial Security Requirements) and shall be certified by a person acquainted with the 

facts, stating that all information in the application is true and complete to the best of that person's 

knowledge. 

(2) Plat. When filing an application for an exception to the density requirements of this section, in addition 

to the plat requirements in §3.5 of this title (relating to Application to Drill, Deepen, Reenter, or Plug Back) 

(Statewide Rule 5), the applicant shall attach to each copy of the application a plat that: 

(A) depicts the lease, pooled unit, or unitized tract, showing thereon the acreage assigned to the drilling 

unit for the proposed well and the acreage assigned to all current applied for, permitted, or completed oil, 

gas, or oil and gas wells in the same field or reservoir which are located within the lease, pooled unit, or 

unitized tract; 

(B) on large leases, pooled units, or unitized tracts, if the established density is not exceeded as shown on 

the face of the application, outlines the acreage assigned to the well for which the permit is sought and the 

immediately adjacent wells on the lease, pooled unit, or unitized tract; 

(C) on leases, pooled units, or unitized tracts from which production is secured from more than one field, 

outlines the acreage assigned to the wells in each field that is the subject of the current application; 

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40f6 

(D) corresponds to the listing required under subsection (g)(1)(A) of this section. 

(E) is certified by a person acquainted with the facts pertinent to the application that the plat is accurately 

drawn to scale and correctly reflects all pertinent and required data. 

(3) Substandard acreage. An application for a permit to drill on a lease, pooled unit, or unitized tract 

composed of substandard acreage must include a certification in a prescribed form indicating the date the 

lease, or the drill site tract of a pooled unit or unitized tract, took its present size and shape. 

(4) Surplus acreage. An application for permit to drill on surplus acreage pursuant to subsection (c) of this 

section must include a certification in a prescribed form indicating the date the lease, pooled unit, or unitized 

tract took its present size and shape. 

(5) Certifications. Certifications required under paragraphs (3) and (4) of this subsection shall be filed on 

Form W-lA, Substandard Acreage Certification. 

(A) The operator shall file the Form W-IA with the drilling permit application and shall indicate the 

purpose of filing. The operator shall accurately complete all information required on the form in accordance 

with instructions on the form. 

(B) The operator shall list the field or fields for which the substandard acreage certification applies in the 

designated area on the form. If there are more than three fields for which the certification applies, the 

operator shall attach additional Forms W-IA and shall number the additional pages in sequence. 

(C) The operator shall file the original Form W-IA with the Commission's Austin office and a copy with 

the appropriate district office, unless the operator files electronically through the Commission's Electronic 

Compliance and Approval Process (ECAP) system. 

(D) The operator or the operator's agent shall certify the information provided on the Form W-IA is true, 

complete, and correct by signing and dating the form, and listing the requested identification and contact 

information. 

(E) Failure to timely file the required information on the appropriate form may result in the dismissal of 

the application. 

(h) Procedure for obtaining exceptions to the density provisions. 

(1) Filing requirements. If a permit to drill requires an exception to the applicable density provision, the 

operator must file, in addition to the items required by subsection (g) of this section: 

(A) a list of the names and addresses of all affected persons. For the purpose of giving notice of 

application, the Commission presumes that affected persons include the operators and unleased mineral 

interest owners of all adjacent offset tracts, and the operators and unleased mineral interest owners of all 

tracts nearer to the proposed well than the prescribed minimum lease-line spacing distance. The Commission 

designee may determine that such a person is not affected only upon written request and a showing by the 

applicant that: 

(i) competent, convincing geological or engineering data indicate that drainage of hydrocarbons from the 

particular tracts subject to the request will not occur due to production from the proposed well; and 

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50f6 

(ii) notice to the particular operators and unleased mineral interest owners would be unduly burdensome 

or expenSIve; 

(B) engineering and/or geological data, including a written explanation of each exhibit, showing that the 

drilling of a well on substandard acreage is necessary to prevent waste or to prevent the confiscation of 

property; 

(C) additional data requested by the Commission designee. 

(2) Notice of application. Upon receipt of a complete application, the Commission will give notice of the 

application by mail to all affected persons for whom signed waivers have not been submitted. 

(3) Approval without hearing. If the Commission designee determines, based on the data submitted, that a 

permit requiring an exception to the applicable density provision is justified according to subsection (f) of 

this section, then the Commission designee may issue the exception permit administratively if: 

(A) signed waivers from all affected persons were submitted with the application; or 

(B) notice of application was given in accordance with paragraph (2) of this subsection and no protest was 

filed within 21 days of the notice; or 

(C) no person appeared to protest the application at a hearing scheduled pursuant to paragraph (4)(A) of 

this subsection. 

(4) Hearing on the application. 

(A) If a written protest is filed within 21 days after the notice of application is given in accordance with 

paragraph (2) of this subsection, the application will be set for hearing. 

(B) If the application is not protested and the Commission designee determines that a permit requiring an 

exception to the applicable density provision is not justified according to subsection (f) of this section, the 

operator may request a hearing to consider the application. 

(i) Duration. A permit is issued as an exception to the applicable density provision shall expire two years 

from the effective date of the permit; unless drilling operations are commenced in good faith within the two 

year period. 

Source Note: The provisions of this §3.38 adopted to be effective November 1, 1989, 14 TexReg 5255; 

amended to be effective April 21, 1997,22 TexReg 3404; amended to be effective July 10,2000,25 TexReg 

6487; amended to be effective June 11,2001,26 TexReg 4088; amended to be effective February 13,2002, 

27 TexReg 906; amended to be effective September 1,2004,29 TexReg 8271 

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HOME I mAS REGISTER I TEXAS hDHllU\TlI.ATIVE [ODE I OPEN MEETINGS I HELP I 

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Figure: 16 TAC §3.38(b)(2)(A) http://info.sos.state.tx.us/fids/ 16_0003_0038- I.html 

Figure: 16 TAC §3.38(b)(2)(A) 

I II 

Acreage Requirement 

I Spacing Rule 

(1) 150 - 300 I 2 I 

(2) 200 - 400 4 

(3) 330 - 660 10 

I (4) 330 - 933 20 

(5) 467 - 933 20 

(6) 467 - 1200 40 

(7) 660 - 1320 40 

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HYPERLINKED MATERIAL
Page 1

403 S.W.2d 325

(Cite as: 403 S.W.2d 325)

© 2015 Thomson Reuters. No Claim to Orig. US Gov. Works.

Supreme Court of Texas.

Mildred Mitchell JONES et vir, Petitioners,

v.

S. H. KILLINGSWORTH et al., Respondents.

No. A—10243.

Dec. 8, 1965.

Rehearing Denied and Dissenting Opinion Filed April

20, 1966.

Action by oil, gas, and mineral lessors against 

lessee's assignee and of owners of neighboring leases 

to obtain judgment declaring lease terminated at expiration of primary term, to remove cloud on title, and 

to obtain title to and possession of leased premises. 

The District Court, Henderson County, Jack Y. 

Hardee, J., entered judgment for defendants, and the 

lessors appealed. The Tyler Court of Civil Appeals,

Twelfth Supreme Judicial District, 379 S.W.2d 362,

affirmed the judgment, and the lessors brought error. 

The Supreme Court, Smith, J., held that lease pooling 

clause limiting units pooled for oil to area not substantially exceeding 40 acres but permitting units to 

conform with size of those prescribed by governmental regulations if government prescribes or permits larger units did not authorize a 170.86 acre unit 

where rule governing field provided that no proration 

unit should consist of more than 80 acres but permitted 

operators to elect to assign an additional 80 acres, and 

that lease habendum clause permitting extension 

based on pooling could not be used to extend lease 

beyond primary term where lands had been pooled 

without authority.

Judgments reversed, and judgment terminating 

lease and awarding title and possession rendered.

Hamilton, Pope, and Griffin, JJ., dissented.

West Headnotes

[1] Mines and Minerals 260 79.1(5)

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases

 260k79 Rent or Royalties

 260k79.1 In General

 260k79.1(5) k. Community 

Leases, Unitization, or Pooling Arrangements. Most 

Cited Cases

 (Formerly 260k79(1))

Ascertainment of parties' true intention under oil,

gas, and mineral lease as to lessee's authority to pool 

leased land into oil unit containing 170.86 acres would 

require consideration of all pooling provisions contained in lease and rules and regulations governing

field in which leased land was located.

[2] Mines and Minerals 260 79.1(5)

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases

 260k79 Rent or Royalties

 260k79.1 In General

 260k79.1(5) k. Community 

Leases, Unitization, or Pooling Arrangements. Most 

Cited Cases

 (Formerly 260k79(1))
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Oil, gas, and mineral lease pooling clause limiting

units pooled for oil to area not substantially exceeding 

40 acres but permitting units to conform in size with 

those prescribed by government regulations if government prescribes or permits larger units did not 

authorize a 170.86 acre unit, where rule governing 

field provided that no proration unit should consist of 

more than 80 acres but permitted operators to elect to 

assign an additional 80 acres and receive allowable

credit of not more than 160 acres.

[3] Mines and Minerals 260 92.79

260 Mines and Minerals

 260III Operation of Mines, Quarries, and Wells

 260III(A) Statutory and Official Regulations

 260k92.78 Unitization

 260k92.79 k. In General; Procedure. 

Most Cited Cases

 (Formerly 260k92.78)

Oil and gas well field rules adopted by Railroad 

Commission require a proration unit of at least 80 

acres but permit larger units of not more than 160 

acres.

[4] Mines and Minerals 260 79.1(5)

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases

 260k79 Rent or Royalties

 260k79.1 In General

 260k79.1(5) k. Community 

Leases, Unitization, or Pooling Arrangements. Most 

Cited Cases

 (Formerly 260k79(1))

Absent express authority, oil, gas, and mineral 

lessee has no power to pool interests in estate retained 

by lessor with those of other lessors.

[5] Mines and Minerals 260 73.5

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases

 260k73.5 k. Term. Most Cited Cases

 (Formerly 260k731/2, 260k73)

Oil, gas, and mineral lease habendum clause describing term of lease as 10 years and so long thereafter as oil was produced from land with which leased 

land was pooled could not be used to extend term of

lease beyond 10-year primary term where lands had 

been pooled without authority.

[6] Mines and Minerals 260 92.79

260 Mines and Minerals

 260III Operation of Mines, Quarries, and Wells

 260III(A) Statutory and Official Regulations

 260k92.78 Unitization

 260k92.79 k. In General; Procedure. 

Most Cited Cases

Railroad Commission's orders cannot compel 

pooling agreements not agreed upon by parties to oil, 

gas, and mineral lease; the commission has no power

to determine property rights.

*326 John A. Pace, Edward Kliewer, Jr., Dallas, for 

petitioners.

Ralph Shank, Prentice Wilson, Dallas, Murph Wilson,

F. Wilbert Lasater, Ramey, Brelsford, Hull & Flock,

Frank L. McClendon, with above firm, Tyler, for 

respondents.
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SMITH, Justice.

ON MOTION FOR REHEARING

Our opinion delivered on June 23, 1965, is withdrawn and the following opinion is substituted therefor.

The question presented for our determination is 

whether or not the lands owned by the petitioner, 

Mildred Mitchell Jones, and described in an oil, gas 

and mineral lease executed by Mildred Mitchell Jones 

and her husband, Harry C. Jones, as lessors, to S. S. 

Long, as lessee (later assigned to S. H. Killingsworth), 

on August 16, 1951, were effectively pooled into what 

is known as the Hunt Oil Company et al.—West 

Poynor Unit. The trial court, without a jury, held that 

Killingsworth effectively pooled the acreage covered 

by the lease in accordance with authority granted in 

the lease, and for that reason the lease did not terminate on August 16, 1961, the date of the expiration of 

the primary term. A take-nothing judgment rendered

against the petitioners has been affirmed by the Court 

of Civil Appeals. 379 S.W.2d 362.

The judgments of both the trial court and the 

Court of Civil Appeals are reversed and judgment is

rendered for the petitioners.

Mildred Mitchell Jones and her husband filed this 

suit against S. H. Killingsworth and owners of leases 

in the immediate vicinity of the Mitchell-Long lease. 

These owners will be referred to as ‘Hunt Petroleum

Corporation.’ On July 12, 1961, at a time when the 

Mitchell-Long lease was in effect and was owned by 

and the title thereto was vested in S. H. Killingsworth, 

subject to certain overriding royalty interests, Killingsworth, joined by the above-mentioned owners of 

other leases, entered into a pooling agreement establishing a unit hereinafter referred to as the ‘West

Poynor Unit.’ The two tracts of land described in the 

Mitchell-Long lease were included within this unit 

designation. These tracts contained, in the aggregate, 

20.55 acres. It was stipulated that the created unit 

contained 170.86 acres. However, the parties deal with 

this unit as though it contains only 160 acres.

It was stipulated that the unit owners commenced 

drilling operations on the West Poynor Unit and 

completed a producing oil well on or about August 16, 

1961, which ‘unit well’ has continued to produce oil in 

paying quantities. It was agreed that ‘no well in search 

of oil, gas or other minerals has been drilled by S. H. 

Killingsworth and the other defendants on the lands

actually described by metes and bounds in the Long 

lease, and that no oil, gas or other minerals in paying 

quantities has been produced from any well actually

located on the lands actually described in the Long

lease.’

Although lessors contend that they are not bound 

by the terms of the Unit Declaration and the Amended 

Unit Declaration, it is agreed that Killingsworth and 

the other unit owners in the unit acted in good faith in 

forming the unit, in securing a permit to drill and in 

drilling the well on the unit.

The habendum clause of the Mitchell-Long lease 

provides that:

'Subject to the other provisions herein contained, 

this lease shall be for a term of ten (10) years from this 

date * * * And as long thereafter as oil * * * is produced from * * * land with which said land is pooled 

hereunder.'

The pertinent pooling provisions of the lease are 

to be found in the first two sentences of paragraph 4 of 

the Mitchell-Long lease. These sentences read as 

follows:

‘Lessee, at its option, is hereby given the right and 

power to pool or *327 combine the acreage covered by 

this lease, or any portion thereof as to oil and gas, or 

either of them, with other land, lease or leases in the 

immediate vicinity thereof to the extent, hereinafter 

stipulated, when in Lessee's judgment it is necessary 
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or advisable to do so in order properly to develop and 

operate said leased premises in compliance with the

spacing rules of the Railroad Commission of Texas, or 

other lawful authority, or when to do so would, in the 

judgment of Lessee, promote the conservation of oil

and gas from said premises. Units pooled for oil 

hereunder shall not substantially exceed 40 acres each 

in area, and units pooled for gas hereunder shall not 

substantially exceed in area 640 acres each plus a 

tolerance of 10% Thereof, provided that should governmental authority having jurisdiction prescribe or 

permit the creation of units larger than those specified, 

units thereafter created may conform substantially in 

size with those prescribed by governmental regulations.’

[1][2][3][4][5] The issue in this case is not 

whether the pooling clause granted authority to pool 

the Jones' land into an oil unit consisting of more than 

40 acres. The issue, properly defined, is whether the 

pooling clause granted authority pool the Jones' land 

into an oil unit containing 170.86 acres. The lessors 

take the position that authority to pool their land into 

an oil unit consisting of 170.86 acres was not granted 

by the lease, and that the attempt to pool did not effectively extend the term of the lease beyond the terminal date provided therein. We agree with the lessee 

that the pooling provision confers authority on the

lessee to pool the lessors' land, but, we do not agree 

that the Extent to which the power to pool may be 

exercised is entrusted solely to the lessee's judgment. 

The lessors' land may be pooled only to the extent 

stipulated in the lease. The second sentence of the

pooling provision provides that ‘units pooled for oil * 

* * shall not substantially exceed 40 acres each in area, 

and units pooled for gas * * * shall not substantially 

exceed in area 640 acres each plus a tolerance of 10% 

Thereof. * * *’ However, this provision must be construed in the light of the further provisions which is to 

the effect that in the event a governmental authority 

having jurisdiction should ‘prescribe or Permit the

creation of units larger than those specified units

thereafter created may conform substantially in size 

with those Prescribed by governmental regulations.’

(Emphasis added.) Absent this proviso, perhaps it 

could well be said that the lessee was given authority 

to pool the lessor's land for oil only in units not substantially exceeding 40 acres in area for either the 

purpose of complying with spacing rules or to promote 

the conservation of oil, the two situations mentioned 

in the first sentence wherein the power to pool is left 

exclusively to lessee's judgment. In order to ascertain 

the true intention of the parties to this lease, the Court 

should take into consideration all of the pooling provisions contained therin, as well as the rules and regulations governing the Fairway (James Lime) Field in 

which lessors' land is located. (The rules adopted by 

the Railroad Commission governing that field have 

the express purpose of ‘permitting only one well to

each eighty (80) acre proration unit.’ The field rules 

only encourage larger units by Permitting an operator 

‘to assign tolerance of not more than eighty (80) acres 

of additional unassigned lease acreage to a well on an 

eighty (80) acre unit and shall in such event receive 

allowable credit for not more than one hundred sixty 

(160) acres.’) It is argued that these Railroad Commission rules provide for proration units of not less 

than 80 acres more than 160 acres, and that by reading 

the rules into the lease contract, paragraph 4 of the 

lease would read: ‘the size of the units thereafter created may not be substantially less than 80 acres nor 

substantially more than 160 acres.’ We disagree with 

this construction of the lease *328 contract. The lessors did not consent to enlarge an oil proration unit to 

any size Permitted by governmental regulations. They 

gave their consent to enlarge a unit of substantially 40 

acres, but only to the extent of the size of units Prescribed by the regulatory authority. The fact that the 

Railroad Commission may Permit a much larger unit 

cannot be read into the lease contract when, as here, 

the authority to create larger oil units is expressly 

limited to units of the size Prescribed by the Railroad 

Commission. The Commission Prescribed a unit of 80 

acres. (The field rules clearly say that there Must be a 

proration unit of at least 80 acres, and there May be 

larger units of not more than 60 acres.) It is true that 
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the pooling provision contains the word ‘permit’ as

well as the word ‘prescribe.’ It is not unreasonable to 

assume that the parties to the lease contract intended, 

by the use of both words, to give each a distinctly

different meaning. The parties obviously knew when 

the lease contract was executed that a Permitted oil 

proration unit could conceivably be much larger in 

area than one Prescribed by governmental authority.

To say that a lessee can pool lessors' land with units of 

any size Permitted by the Railroad Commission would

defeat the intention of the parties to restrict the size of 

the units to the size Prescribed by governmental authority. Absent express authority, a lessee has no 

power to pool interests in the estate retained by the 

lessor with those of other lessors. See Brown v. Smith, 

141 Tex. 425, 174 S.W.2d 43 (1943); Gulf Oil Corporation v. Marathon Oil Co., 137 Tex. 59, 152 

S.W.2d 711 (1941); Knight v. Chicago Corporation, 

144 Tex. 98, 188 S.W.2d 564 (1945). Since the lands 

were pooled without authority, the habendum clause 

in the Mitchell-Long lease cannot be used to extend

the term of the lease beyond August 16, 1961, the 

terminal date of the primary term of the lease.

[6] Killingsworth and the Hunt Petroleum Corporation contend that the pooling clause in the 

Mitchell-Long lease created a relationship of principal 

and agent, or at least created a relationship similar to 

the of principal and agent, and that performance by the 

lessee is to be measured by the standard of good faith. 

It is true that the lessee acted in good faith. It is true 

that the lessee was given authority to pool. It is equally 

true that the permit granted by the Railroad Commission is unquestionably valid. Even so, the acts of the 

Railroad Commission cannot be said to operate effectively to extend the restrictive terms of the lease. 

The orders of the Railroad Commission cannot compel pooling agreements that the parties themselves do 

not agree upon. The Railroad Commission has no 

power to determine property rights. See Ryan Consolidated Petroleum Corp. v. Pickens, 155 Tex. 221,

285 S.W.2d 201 (1955); Magnolia Petroleum Co. v. 

Railroad Commission, 141 Tex. 96, 170 S.W.2d 189 

(1943); Nale v. Carroll, 155 Tex. 555, 289 S.W.2d 743 

(1956).

(The judgments of the trial court and the Court of 

Civil Appeals are both reversed and judgment is rendered declaring the Mitchell Long lease terminated as 

of August 16, 1961, and the title and possession of the 

lands described in said lease is awarded to Mildred

Mitchell Jones. Respondents' motion for rehearing is 

overruled. A second motion for rehearing may be filed 

within fifteen days.)

GRIFFIN, HAMILTON and POPE, JJ., dissenting.

HAMILTON, Justice (dissenting).

I withdraw the dissenting opinion heretofore filed 

in this cause on June 23, 1965, and file the following 

opinion, respectfully dissenting:

I disagree with the Court's construction of the 

pooling agreement in the oil and gas lease under consideration and with the application of the pooling 

agreement to the rules and regulations adopted by the 

Railroad Commission. Construing the pooling*329

agreement in its entirety simply means that the lessee 

was given authority to pool the lessor's land with other 

land in units, the size of which are controlled by the 

rules and regulations of the Railroad Commission.

The applicable rules and regulations for the development of the Fairway (James Lime) Field, in 

which the pooling unit in question is located, are set 

out in Railroad Commission Order No. 6—45, 322. 

Rules 1 and 2 of that order are as follows:

‘RULE 1: No well for oil or gas shall hereafter be 

drilled nearer than eighteen hundred fifty (1850) feet 

to any well completed in or drilling to the same reservoir on the same lease, unitized tract or farm, and no 

well shall be drilled nearer than six hundred sixty

(660) feet to any property line, lease line or subdivision line; provided, however, that the Commission 
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will, in order to prevent waste or to prevent the confiscation of property grant exceptions to permit drilling within shorter distances than herein prescribed

whenever the Commission shall have determined that 

such exceptions are necessary either to prevent waste 

or to prevent the confiscation of property. When exception to this rule is desired, application therefor 

shall be filed and will be acted upon in accordance

with the provisions of Commission Statewide Rules 

37 and 38, which applicable provisions of said rules 

are incorporated herein by reference.

‘The aforementioned distances in the above rule 

are minimum distances to allow an operator flexibility 

in locating a well, and the above spacing rule and the 

other rules to follow are for the purpose of permitting 

only one well to each eighty (80) are proration unit.

‘In applying this rule, the general order of the 

Commission with relation to the subdivision of property shall be observed.

‘RULE 2: The acreage assigned to the individual 

oil well for the purpose of allocating allowable oil 

production thereto shall be known as a proration unit. 

No proration unit shall consist of more than eighty

(80) acres except as hereinafter provided, and the two 

farthermost points in any proration unit shall not be in 

excess of forty two hundred (4200) feet removed from 

each other; provided, however, that in the case of long 

and narrow leases or in cases where because of the 

shape of the lease such is necessary to permit the 

utilization of tolerance acreage the Commission may

after proper showing grant exceptions to the limitations as to the shape of proration units as herein contained. All proration units, however, shall consist of 

continuous and contiguous acreage which can reasonably be considered to be productive of oil.

‘Provided, however, that operators may elect to 

assign tolerance of not more than eighty (80) acres of 

additional unassigned lease acreage to a well on an

eighty (80) acre unit and shall in such event receive 

allowable credit for not more than one hundred sixty 

(160) acres.

‘Operators shall file with the Commission certified plats of their properties in said field, which plats 

shall set out distinctly all of those things pertinent to 

the determination of the acreage credit claimed for

each well; provided that if the acreage assigned to any 

proration unit has been pooled, the operator shall 

furnish the Commission with such proof as it may 

require as evidence that interests in and under such 

proration unit have been so pooled.’

The petitioner does not contend, nor does the 

opinion say, that the proration unit in *330 question 

does not comply with the regulations of the Railroad 

Commission. The opinion simply assumes, without 

giving a reason why, that the regulations of the Railroad Commission under which the unit in question 

was created were not Prescribed by governmental 

regulations.

The court, in discussing the provisions of the 

regulations, does not fully cover all the size units 

provided in said regulations. Since the authority given 

by lessor to pool is governed largely by these regulations, it is thought that it well be helpful to more fully 

analyze them.

At the time the unit in question was formed, 

Railroad Commission Order No. 6—45, 322 was in 

effect and governed the Fairway (James Lime) Field.

One of the Commission's preliminary findings set out 

in the order, preceding the adoption of field rules, was 

an express finding to the effect that certain observations and calculations made with reference to the 

discovery well in the field had indicated that the well 

was producing oil in an area outside the radius of a 

160-acre circle around the well. From this and other 

findings the Commission proceeded to adopt proration 

rules which established a maximum proration unit of
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160 acres for which full acreage allowable credit 

would be given. Thus, it was implicit that the Commission had determined that the basic drainage pattern 

for the field was 160 acres or, in other words, that a 

160-acre unit would be reasonably drained by a single 

well.

The Commission order did something more. It 

expressly recognized that smaller units would also be 

given full acreage allowable credit, if they met certain 

requirements. One of the provisions of the rules established, in effect, that if an operator had as much as 

80 acres in a single lease, 80 acres would then be 

considered as the minimum proration unit, the inclusion of additional acreage, up to the total maximum of 

160 acres, being optional with the operator. But another provision, relating to distance spacing, also

established that, still without the necessity of any 

hearing or exception, any square tract of 40 acres or 

more would also serve as an acceptable proration unit, 

if that were all the acreage the operator possessed in 

the particular property, and if there had been no illegal 

subdivision. The 40-acre minimum standard was 

implicit in the rule that no well be drilled nearer than 

660 feet from any property line. Thus, the Commission Order in effect recognized that, without special 

hearing and exception, the maximum standard proration unit, i.e., the area which could reasonably be

drained by a single well, was 160 acres, while the 

minimum standard unit, i.e., the smallest to be allowed, was 40 acres. Pickens v. Railroad Commission, 387 S.W.2d 35, 38, 39 (Tex.Sup.Ct.1965).

The court's opinion says ‘The Commission prescribed a unit of 80 acres', inferring that all other size 

units provided for in said regulations were permitted 

by the Railroad Commission or permitted by the regulations, I am not sure which. To be sure, an 80-acre 

unit is prescribed by the regulations. But I do not agree 

that it is the only unit prescribed. As shown above, the 

regulations provide for units from 40 acres to 160 

acres in size.

The pooling unit in question comes squarely 

within the limits as to size with the provisions of the 

governmental regulations just as much so as does the 

80-acre unit referred to above.

This brings us to a discussion of the interpretation 

to be given the proviso of the pooling unit, which we 

here quote:

‘* * * provided that should governmental authority having jurisdiction prescribe or permit the creation 

of units larger than those specified, units thereafter 

created may conform substantially in size with those 

prescribed by governmental regulations.’

The first clause of the proviso governs the condition under which the lessee may create units larger

than those specified, *331 (40 acres), that is, when 

government authority has prescribed rules and regulations for the creation of larger units or when governmental authority has permitted the creation of 

larger units. Under the facts of this case the governmental authority has prescribed rules and regulations 

providing for the creation of larger units, but it has not 

permitted the creation of larger units. No permit was 

requested nor was one needed. As a general rule the

Railroad Commission permits the creation of units 

only as exceptions to established rules and regulations. 

The last clause of the proviso governs the size of units 

created under either prescribed regulations or governmental authority permission. As said above, it is 

not questioned but that this unit was created in compliance with the established regulations and not by

permission of the Railroad Commission as an exception to the regulation.

It has been argued before this court that since the

first clause in said proviso uses the term ‘permit’ and 

the second clause does not use the term, that ‘prescribed’ must necessarily have a special meaning of

‘required’ in order to leave room for permissive units 

to be formed, and since the last clause did not establish 
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a size for permissive units, no authority was given to 

form any permissive units. This reasoning seems to be 

the basis of the court's holding. Under this line of 

reasoning we wonder why the parties used the term 

‘permit’ at all in the first clause of the proviso. It is 

fundamental that in contracts all the terms used should 

be given meaning if possible. Should a governmental

authority lay down rules and regulations for the creation of larger units, it is reasonable to say the governmental authority has Prescribed. If the governmental authority allows the creation of a larger unit as 

an exception to the prescribed rules and regulations it 

can be said that governmental authority has Permitted 

the creation of larger units. In fact, the term ‘permit’ is 

the universal term applied to authority granted as an 

exception to regular rules and regulations governing 

the development of oil and gas fields. The fact that the 

word ‘permit’ is not used in the second clause of the 

proviso does not destroy the import of the word 

‘permit’ in the first clause.

This construction of the proviso allows us to give 

the usual and ordinary meaning to the word ‘prescribe’ 

as defined by Webster:

‘prescribe (L. praescribere, praescriptum, fr.prae 

before—scribere to write, see scribere.) * * *

‘2. To lay down authoritatively as a guide direction or rule of action; to impose as a peremptory order; 

to dictate; direct; ordain; as, to prescribe regular hours 

of study. 3. To keep within limits or bounds; to restrain; to confine * * *.

‘Syn.—Limit, control, order, guide.’

I think that the authority granted by the lessor for 

pooling necessarily had to be stated in broad and 

general terms because it could not be foreseen what

the circumstances in the future might be, what the 

regulations of the Railroad Commission might be nor

in what terms they might be stated. For that reason a 

liberal interpretation should be given to the pooling 

provision to accomplish the purpose for which it was 

intended, that is, to promote conservation beneficial 

both to the lessor and the lessee. It can be reasonably 

concluded that from said pooling provision the parties 

intended for the authority to pool to extend to any unit 

size substantially conforming to any unit standard 

officially established by the Railroad Commission in 

the exercise of its spacing proration function.

This court, in construing an oil and gas lease in 

the recent case of Grady L. Fox et al. v. Julia Thoreson, 9 Tex.Sup.Ct.J. 26 (1965), used the following 

language:

‘* * * Another sound rule of interpretation is that

language used by *332 the parties to an oil and gas 

lease will not be held to impose a special limitation on 

the grant unless it is clear and precise and so unequivocal in nature that it can reasonably be given no 

other meaning.’

The court's opinion in the instant case has given a

narrow and restricted meaning to the pooling provision in question when there is no language in said 

pooling provision which compels such construction to 

be placed thereon. So long as the lessor's pooling unit 

is confined to the size of the pooling units authorized 

by the rules and regulations of the Railroad Commission, it can reasonably be said that the unit complies in 

size with the prescribed regulations. This would be a 

reasonable construction of the pooling provision rather than a strained one.

In Texaco, Inc. v. Letterman, 343 S.W.2d 726, 

732 (Tex.Civ.App.1961), the court in construing a 

pooling provision in an oil and gas lease said:

‘That pooling or unitizing of oil and gas leases is a 

standard practice in the industry can not be questioned. It is equally recognized that unitization is often 

a more feasible method of operation from an engi-
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neering and scientific point of view. Unitization can 

be said to be advantageous to both lessors and lessees. 

We think these facts lead to the conclusion that in the 

absence of clear language to the contrary, pooling 

clauses should not be construed in a narrow or limited 

sense.’

And in Tiller v. Fields, 301 S.W.2d 185, 187 

(Tex.Civ.App.1957), the court said:

‘Anticipatory provisions in leases for the committment by the lessee of such leases to unitization, of 

necessity must be in general terms. Neither the lessor 

nor the lessee has any way of knowing at the time the 

lease is taken the facts with respect to which it will be 

necessary for the lessee to apply his power. It is not 

practicable for the lessee to await the ascertainment of 

such facts. He knows from experience that because of 

the possibility of many changes in ownership of the

lessor's interest as time goes on, it may be difficult to 

effect an agreement if the right to unitize is not included in the lease itself. Phillips Petroleum Co. v. 

Peterson, 10 Cir., 218 F.2d 926. The Texas courts, as 

well as other courts, have recognized these basic facts, 

and have consistently sustained the basic validity of 

lease pooling provisions and units formed under their 

authority.’

In Phillips v. Petroleum Co. v. Peterson, 218 F.2d 

926, 933, (10th Cir. 1954), the court reasoned as follows:

‘Thus, it will be seen that unitization is a conservation measure which benefits both lessor and 

lessee and tends to prevent waste of a natural resource. 

* * *

‘The practice of unitization by a power granted 

the lessee in advance, if faithfully carried out, will be 

fair and profitable both to the lessor and lessee, and is 

vital to the oil and gas industry in the interests of the 

conservation of both natural and material resources. It 

should be upheld, although the grant of power is in

general terms, because it is subject to implied terms 

that will prevent arbitrary and unfair dealing, will 

require compliance with the implied covenants in the 

lease for the benefit of the lessor and will impose a 

rigid standard of good faith on the part of the lessee.’

In construing this pooling provision of the oil and

gas lease we should recognize that this does not only 

affect the litigants involved here, but affects the oil 

industry as a whole for the simple reason that the form 

of the pooling unit used is in wide *333 use in Texas 

and has been for many years. [FN1]

FN1. The form of pooling provision is in 

lease forms in Walker, Cases on Oil and Gas, 

Vol. 2, Second form following page 895, 

publication 1948, lease form dated April, 

1946; Stayton Texas Forms, 1960, Sec. 4026, 

Vol. 7, p. 254; Huie, Walker and Woodward, 

Oil & Gas, American Casebook Series, 1960, 

first form in the Appendix, p. 807, offered by 

the authors as a form ‘selected for the purpose of acquainting the student with the 

general nature of the instruments discussed in 

the cases,’ and printed by permission of 

Pound Printing & Stationery Co., Houston; 

Williams, Oil & Gas Law, 1962, Vol. 4, p. 

635, Sec. 699.7.

The pooling clause which we have before us for 

construction has been in use in Texas for many years. 

Tolerance type proration units have been prescribed

for various oil and gas fields in Texas for many years. 

The result has been the creation of many pooled units 

in numerous fields which are now shadowed. The 

confusion, uncertainty, and possible title failure is not 

limited to the lessee who may have formed the unit. It 

extends to royalty owners in the unit, overriding royalty owners, and to some extent to the purchasers of 

production and the financial institutions which furnish 

capital for the development and enjoyment of the 

mineral resources. Furthermore, there is affected by 
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403 S.W.2d 325

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the court's opinion the new Texas Compulsory Pooling Act by the Legislature, Art. 6008c, 

Rev.Civ.Stat.Ann. (1965). See discussion by Ernest E. 

Smith, Tex.Law Rev. Vol. 43 pp. 1003—1021.

I think a reasonable's construction of the pooling 

clause does not require that we strike it down, and I 

would affirm the judgments of the trial court and 

Court of Civil Appeals.

GRIFFIN, J., joins in this dissent.POPE, Justice (dissenting).

The fault that I find with our holding in this case

is that we are trying to fit the meaning of terms used by 

private parties to a lease into a supposed technical 

terminology used by the Railroad Commission in 

making its rules and orders. This is the sequence of 

events. First the parties made the oil and gas lease and 

in it they provided:

'Units pooled for oil hereunder shall not substantially exceed 40 acres each in area, and units pooled 

for gas hereunder shall not substantially exceed in area 

640 acres plus a tolerance of 10% Thereof, provided

that should governmental authority having jurisdiction 

Prescribe or permit the creation of units larger than 

those specified, units thereafter created may conform 

substantially in size with those Prescribed by governmental regulations.'

Several years later the Commission order was 

passed which stated:

'* * * No proration unit shall consist of more than

eighty (80) acres except as hereinafter provided, * * * 

‘Provided, however, that operators may elect to assign 

tolerance of not more than eighty (80) acres of additional unassigned lease acreage to a well on an eighty 

(80) acre unit and shall in such event receive allowable 

credit for not more than one hundred sixty (160) 

acres.’

The thrust of our opinion is that the Commission 

‘prescribes' certain things, and it also ‘permits' certain 

things. The majority then tries to determine which the 

Commission did in this instance and holds that the 

Commission ‘prescribed’ eighty acres but did not 

‘prescribe’ 160 acres. The fact is that the Commission 

passed its rules without regard to whether it was 

‘prescribing’ or ‘permitting,’ as those terms are used 

by the private contracting parties. The term ‘permitted’ actually does two things: It permits but it also 

prohibits all that is beyond that which is permitted. 

Every permit carries an inherent prescription, proscription, and prohibition of things beyond the permit. 

What the Commission did in passing its Rule 2 was to 

authorize certain units. Those units could be formed 

*334 without any further recourse to the Commission. 

To the extent that Rule 2 was complied with, a unit

was authorized. To the extent that it was beyond what 

Rule 2 authorized, it was prohibited. To the extent that 

it was prohibited, it was ‘prescribed,’ if we want to 

squeeze the Commission order into the contractual 

mold. In my opinion the word ‘prescribed’ is more 

applicable to the 160-acre unit than the 80-acre unit 

because the only prohibition or direction is against 

creating a unit of more than 160 acres.

I respectfully dissent.

TEX 1966.

Jones v. Killingsworth

403 S.W.2d 325

END OF DOCUMENT
Page 1

694 S.W.2d 441

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© 2015 Thomson Reuters. No Claim to Orig. US Gov. Works.

Court of Appeals of Texas,

Eastland.

J.E. TOMLIN et ux., Appellants,

v.

PETROLEUM CORPORATION OF TEXAS, Appellee.

No. 11–85–039–CV.

June 13, 1985.

Lessors of oil and gas lease brought declaratory 

judgment action concerning their rights and status 

under the lease. The 90th District Court, Stephens 

County, R.E. Thornton, J., granted lessee oil company's motion for summary judgment, and lessors appealed. The Court of Appeals, McCloud, C.J., held 

that paragraph of lease which began by stating that

“each producing oil well drilled on said land * * *

shall hold forty (40) acres * * *” contained no reference to producing gas well and did not apply to 

acreage held by gas well, and thus, did not operate as 

amendment to habendum clause so as to prevent gas 

well from maintaining the lease in force beyond end of 

primary term of the lease.

Affirmed.

West Headnotes

[1] Contracts 95 152

95 Contracts

 95II Construction and Operation

 95II(A) General Rules of Construction

 95k151 Language of Instrument

 95k152 k. In General. Most Cited Cases

Language used by parties to a contract should be 

given its plain grammatical meaning unless it definitely appears that intention of the parties would 

thereby be defeated.

[2] Mines and Minerals 260 73

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases

 260k73 k. In General; General Rules of 

Construction. Most Cited Cases

 (Formerly 260k73(1))

Language used by parties to oil and gas lease will 

not be held to impose special limitation on the grant 

unless it is clear and precise and so unequivocal in 

nature that it can reasonably be given no other meaning.

[3] Mines and Minerals 260 73

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases

 260k73 k. In General; General Rules of 

Construction. Most Cited Cases

 (Formerly 260k73(1))

In oil and gas lease in which specific things are 

followed by some general term, such general term 

must refer to things of the same kind.

[4] Mines and Minerals 260 78.1(7)
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260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases

 260k78 Testing or Working

 260k78.1 Construction, Breach, and 

Penalties

 260k78.1(7) k. Place or Portion 

Developed; Pooled or Unitized Tracts. Most Cited 

Cases

Paragraph of oil and gas lease stating that “each 

producing oil well drilled on said land * * * shall hold 

forty (40) acres * * *” contained no reference to a

producing gas well and did not apply to acreage held 

by gas well, and thus, did not operate as amendment to 

habendum clause so as to prevent gas well from 

maintaining the lease in force beyond end of primary 

term of the lease.

*441 John R. Cook, Thompson & Cook, Breckenridge, for appellants.

Frank L. Jennings, Jennings, Dies, Turner & Knight,

Graham, for appellee.

McCLOUD, Chief Justice.

J.E. Tomlin and his wife, Betty Tomlin, lessors, 

sued Petroleum Corporation of Texas (PETCO), lessee, seeking a declaratory judgment under the Uniform Declaratory Judgment Act, 

TEX.REV.CIV.STAT.ANN. art. 2524–1 (Vernon 

1965) concerning their rights and status under an oil, 

gas, and mineral lease entered into by the parties. The 

Tomlins alleged that the lease terminated for failure to 

produce “oil.” Alternatively, they contended that the 

lease is ambiguous and the case should be reversed 

and remanded so that parol evidence may be introduced to show that the parties intended that upon 

expiration of the primary term, the lease would be 

perpetuated as to only forty (40) acres around any 

producing well, whether oil or gas.

Both parties filed motions for summary judgment. 

The trial court granted summary judgment to PETCO, 

stating that the subject lease remains in full force and 

effect. The Tomlins appeal. We affirm.

The December 3, 1974, oil, gas, and mineral lease 

consists of a printed form, together with a typed rider 

containing five (5) additional paragraphs relating to 

PETCO's operations under the lease. The granting 

clause grants PETCO the right to “(produce) oil, gas, 

and all other minerals” found in the covered 326.5 

acres of leased land. The habendum clause states that 

*442 “(S)ubject to the other provisions herein contained, this lease shall remain in force for a term of 

three (3) years ... (called ‘primary term’), and so long 

thereafter as oil, gas, or other mineral is produced 

from said land.” Paragraph 16, one of the five paragraphs contained in the typed rider, states the following:

At the end of the primary term hereof each producing oil well drilled on said land by Lessee shall 

hold 40 acres, to be designated by Lessee, and the 

balance of the acreage shall be released to Lessor;

and after the primary term hereof, any acreage so 

held by a producing well shall be considered as 

covered by a separate lease from any other acreage 

held by any other producing well, so that production 

from any such well shall not thereafter continue this 

lease in effect as to acreage which was held by another producing well at the expiration of the primary 

term hereof. (Emphasis added)

PETCO drilled a gas well on the premises, which 

was producing gas at the expiration of the primary 

term of the lease.

The Tomlins argue that paragraph 16 operates as 

an amendment to the habendum clause, the effect of 
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694 S.W.2d 441

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which is to prevent a gas well from maintaining the

lease in force beyond the end of the primary term. 

They contend that only a producing “oil well” will 

hold any acreage of the lease beyond the primary term, 

with “the balance of the acreage,” including that surrounding a gas well, to be “released to Lessor.” We

disagree.

[1][2] In determining proper construction of a 

contract, the court usually examines the entire document. Language used by the parties should be given its 

plain grammatical meaning unless it definitely appears 

that the intention of the parties would thereby be defeated. Language used by the parties to an oil and gas 

lease will not be held to impose a special limitation on 

the grant unless it is clear and precise and so unequivocal in nature that it can reasonably be given no 

other meaning. Fox v. Thoreson, 398 S.W.2d 88 

(Tex.1966).

[3][4] Paragraph 16 begins by stating that “each 

producing oil well drilled on said land ... shall hold 

forty (40) acres....” (Emphasis added) The provision 

contains no reference to a producing gas well. Where 

specific things are followed by some general term, 

such general term must refer to things of the same 

kind. Fleming Foundation v. Texaco, 337 S.W.2d 846 

(Tex.Civ.App.—Amarillo 1960, writ ref'd n.r.e.). 

Phrases such as “any acreage so held by a producing

well” and “any such well” refer only to any oil wells

which are producing at the expiration of the primary 

term of the subject lease. Paragraph 16 does not apply 

to acreage held by a gas well. The language urged by 

the Tomlins as imposing a special limitation on the

grant is not clear, precise, and “so unequivocal in

nature that it can reasonably be given no other meaning.” Fox v. Thoreson, supra at 92.

Therefore, the habendum clause alone governs 

the right of the parties when a gas well is producing at 

the end of the primary term. Accordingly, the gas well 

maintains the lease in full force and effect as to all 

326.5 acres.

The Tomlins' conditionally submitted second 

point of error, seeking a remand of this case, is overruled. We hold that the lease is not ambiguous. Only a 

question of law is involved; no genuine issue of fact 

exists. Therefore, the trial court's rendition of summary judgment in favor of PETCO was proper.

The judgment of the trial court is affirmed.

Tex.App. Eastland 1985.

Tomlin v. Petroleum Corp. of Texas

694 S.W.2d 441

END OF DOCUMENT
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© 2015 Thomson Reuters. No Claim to Orig. US Gov. Works.

Supreme Court of Texas.

ANADARKO PETROLEUM CORPORATION, 

Petitioner,

v.

Phillip THOMPSON, et al., Respondents.

No. 01–0261.

Argued March 6, 2002.

Decided July 3, 2002.

Opinion Denying Rehearing Jan. 30, 2003. 

Lessor sought declaration that gas lease had terminated, and sought damages. The District Court, 

Moore County, Ron Enns, J., granted partial summary 

judgment for lessor, and after a bench trial, awarded 

damages to lessor for lessee's post-termination conversion of gas. Lessee appealed. The Court of Appeals, Quinn, J., 60 S.W.3d 134, affirmed. After 

granting lessee's petition for review, the Supreme 

Court, Baker, J., held that: (1) gas mining lease did not 

terminate when actual production ceased longer than

60 days but well was still actually capable of producing gas, and (2) well is “capable of production” if it 

is capable of producing in paying quantities without 

additional equipment or repairs.

Reversed and remanded.

West Headnotes

[1] Landlord and Tenant 233 611

233 Landlord and Tenant

 233II Leases and Agreements in General

 233II(B) Construction and Operation

 233k611 k. Questions of law or fact. Most 

Cited Cases

 (Formerly 233k37)

Construing an unambiguous lease is a question of 

law for the court.

[2] Appeal and Error 30 893(1)

30 Appeal and Error

 30XVI Review

 30XVI(F) Trial De Novo

 30k892 Trial De Novo

 30k893 Cases Triable in Appellate 

Court

 30k893(1) k. In general. Most Cited 

Cases

Appellate court reviews lease-construction questions de novo.

[3] Landlord and Tenant 233 593

233 Landlord and Tenant

 233II Leases and Agreements in General

 233II(B) Construction and Operation

 233k593 k. Intention of parties. Most Cited 

Cases

 (Formerly 233k37)

In construing an unambiguous lease, court's primary duty is to ascertain the parties' intent as expressed within the lease's four corners.

[4] Landlord and Tenant 233 596

233 Landlord and Tenant

 233II Leases and Agreements in General

 233II(B) Construction and Operation

 233k596 k. Ordinary or technical language. 
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Most Cited Cases

 (Formerly 233k37)

Court gives a lease's language its plain, grammatical meaning unless doing so would clearly defeat 

the parties' intentions.

[5] Landlord and Tenant 233 598

233 Landlord and Tenant

 233II Leases and Agreements in General

 233II(B) Construction and Operation

 233k598 k. Construction as a whole. Most 

Cited Cases

 (Formerly 233k37)

Court examines the entire lease and attempts to 

harmonize all its parts, even if different parts appear 

contradictory or inconsistent, because court presumes 

that the parties to a lease intend every clause to have 

some effect.

[6] Landlord and Tenant 233 590

233 Landlord and Tenant

 233II Leases and Agreements in General

 233II(B) Construction and Operation

 233k590 k. In general. Most Cited Cases

 (Formerly 233k37)

Court will not hold a lease's language to impose a 

special limitation on the grant unless the language is 

so clear, precise, and unequivocal that court can reasonably give it no other meaning.

[7] Mines and Minerals 260 62.1

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)2 Construction and Operation of 

Mining Leases

 260k62.1 k. Premises demised and 

rights acquired. Most Cited Cases

Mines and Minerals 260 73.1(3)

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases

 260k73.1 Premises Demised and Rights 

Acquired

 260k73.1(3) k. Interest in real estate. 

Most Cited Cases

A mineral lease grants a fee simple determinable 

to the lessee.

[8] Mines and Minerals 260 63

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)2 Construction and Operation of 

Mining Leases

 260k63 k. Term. Most Cited Cases

Mines and Minerals 260 73.5

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases

 260k73.5 k. Term. Most Cited Cases

Lessee's mineral estate may continue indefinitely, 

as long as the lessee uses the land for its intended 

purpose.
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94 S.W.3d 550, 161 Oil & Gas Rep. 550, 45 Tex. Sup. Ct. J. 1039

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[9] Mines and Minerals 260 63

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)2 Construction and Operation of 

Mining Leases

 260k63 k. Term. Most Cited Cases

Mines and Minerals 260 73.5

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases

 260k73.5 k. Term. Most Cited Cases

Mineral estate will automatically terminate if the 

event upon which it is limited occurs.

[10] Mines and Minerals 260 63

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)2 Construction and Operation of 

Mining Leases

 260k63 k. Term. Most Cited Cases

Mines and Minerals 260 73.5

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases

 260k73.5 k. Term. Most Cited Cases

Lease's habendum clause defines the mineral estate's duration.

[11] Mines and Minerals 260 78.1(8)

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases

 260k78 Testing or Working

 260k78.1 Construction, Breach, and 

Penalties

 260k78.1(8) k. Extent of production, paying quantities, and marketing. Most Cited 

Cases

A typical Texas mineral lease that lasts “as long 

as oil or gas is produced” automatically terminates if 

actual production permanently ceases during the 

secondary term.

[12] Mines and Minerals 260 63

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)2 Construction and Operation of 

Mining Leases

 260k63 k. Term. Most Cited Cases

Mines and Minerals 260 73.5

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases

 260k73.5 k. Term. Most Cited Cases

Although the habendum clause generally controls 

the mineral estate's duration, other clauses may extend 

the habendum clause's term.
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[13] Landlord and Tenant 233 890

233 Landlord and Tenant

 233IV Particular Kinds of Tenancies and Attributes Thereof

 233IV(F) Termination

 233IV(F)1 In General

 233k890 k. In general. Most Cited Cases

 (Formerly 233k93)

When a lease terminates is always a question of 

resolving the intention of the parties from the entire 

instrument.

[14] Mines and Minerals 260 78.1(8)

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases

 260k78 Testing or Working

 260k78.1 Construction, Breach, and 

Penalties

 260k78.1(8) k. Extent of production, paying quantities, and marketing. Most Cited 

Cases

Gas mining lease, which contained habendum 

clause stating that lease would remain in force as long 

as “gas is or can be produced,” did not terminate when 

actual production ceased longer than 60 days but well 

was still actually capable of producing gas, despite 

cessation-of-production clause providing for 60-day

period to resume operations after cessation of production; cessation-of-production clause only applied 

if well holding lease became incapable of production.

[15] Mines and Minerals 260 78.1(8)

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases

 260k78 Testing or Working

 260k78.1 Construction, Breach, and 

Penalties

 260k78.1(8) k. Extent of production, paying quantities, and marketing. Most Cited 

Cases

Completion of a gas well capable of producing in 

paying quantities but shut-in due to lack of pipe line 

facilities or for other reasons is not considered “production” and therefore does not sustain a mineral 

interest that lasts as long as oil or gas “is produced.”

[16] Mines and Minerals 260 78.1(8)

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases

 260k78 Testing or Working

 260k78.1 Construction, Breach, and 

Penalties

 260k78.1(8) k. Extent of production, paying quantities, and marketing. Most Cited 

Cases

A well is “capable of production” if it is capable 

of producing in paying quantities without additional 

equipment or repairs.

[17] Mines and Minerals 260 78.1(8)

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 
Page 5

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Oil and Gas Leases

 260k78 Testing or Working

 260k78.1 Construction, Breach, and 

Penalties

 260k78.1(8) k. Extent of production, paying quantities, and marketing. Most Cited 

Cases

Gas well was still “capable of production in 

paying quantities” under mineral lease terms, even 

though there were periods during which there was no

production, where the well was connected to pipeline 

facilities, and there was no question that well was

capable of producing in paying quantities.

[18] Mines and Minerals 260 78.1(8)

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases

 260k78 Testing or Working

 260k78.1 Construction, Breach, and 

Penalties

 260k78.1(8) k. Extent of production, paying quantities, and marketing. Most Cited 

Cases

For a gas well to produce in paying quantities, or 

to be capable of producing in paying quantities, there 

must be facilities located near enough to the well that 

it would be economically feasible to establish a connection so that production could be marketed at a 

profit.

[19] Mines and Minerals 260 78.1(8)

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases

 260k78 Testing or Working

 260k78.1 Construction, Breach, and 

Penalties

 260k78.1(8) k. Extent of production, paying quantities, and marketing. Most Cited 

Cases

In the case of a marginal gas well, the standard by

which paying quantities, under a mineral lease, is 

determined is whether or not under all relevant circumstances a reasonably prudent operator would, for

the purpose of making a profit and not merely for 

speculation, continue to operate a well in the manner 

in which the well in question was operated.

[20] Mines and Minerals 260 78.1(8)

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases

 260k78 Testing or Working

 260k78.1 Construction, Breach, and 

Penalties

 260k78.1(8) k. Extent of production, paying quantities, and marketing. Most Cited 

Cases

In a mineral lease involving a gas well, the term 

“paying quantities” involves not only the amount of

production, but also the ability to market the gas at a 

profit.

[21] Mines and Minerals 260 78.2

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases
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 260k78 Testing or Working

 260k78.2 k. Forfeiture for breach in 

general. Most Cited Cases

Mines and Minerals 260 78.7(6)

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases

 260k78 Testing or Working

 260k78.7 Actions

 260k78.7(6) k. Judgment and 

relief; damages. Most Cited Cases

Remedy for breach of implied covenant to market 

production under oil and gas lease agreement is not

forfeiture or termination of lease; breach of implied 

covenant in oil and gas lease does not automatically 

terminate the estate, but instead subjects breaching 

party to liability for monetary damages, or, in extraordinary circumstances, remedy of conditional 

decree of cancellation.

[22] Mines and Minerals 260 78.1(8)

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases

 260k78 Testing or Working

 260k78.1 Construction, Breach, and 

Penalties

 260k78.1(8) k. Extent of production, paying quantities, and marketing. Most Cited 

Cases

In determining whether gas well under mineral 

lease is producing in paying quantities, test is whether 

there is a reasonable basis for the expectation of profitable returns from the well is the test; if the quantity 

be sufficient to warrant the use of the gas in the market, and the income therefrom is in excess of the actual 

marketing cost, and operating costs, the production

satisfies the term “paying quantities.”

[23] Mines and Minerals 260 78.1(8)

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases

 260k78 Testing or Working

 260k78.1 Construction, Breach, and 

Penalties

 260k78.1(8) k. Extent of production, paying quantities, and marketing. Most Cited 

Cases

Gas mining lease, containing clause stating that 

lease would remain in force as long as “gas is or can be 

produced,” did not mean lease would remain in effect 

only as long as gas “is produced”; “can be produced” 

did not mean actual production.

*552 Eric Anthony Hillerman,Harlow Sprouse, 

Charles Wade Miller, Sprouse *553 Smith & Rowley, 

Amarillo, J. Kyle McClain, Anadarko Petroleum 

Corp., David M. Gunn, Hogan Dubose & Townsend, 

L.L.P., Houston, for Petitioner.

Joe L. Lovell, Lovell Lovell & Newsom, Amarillo, 

Donald M. Hunt, Mullin Hoard Brown Langston Carr 

Hunt & Joy LLP, Lubbock, J.R. Lovell, Lovell & 

Lyle, Dumas, for Respondents.

Justice BAKER delivered the opinion of the Court.

In this case, we decide whether a gas mining lease 

terminated when actual production ceased longer than 

sixty days. The lease expressly states that it lasts for 

one year and “as long thereafter as gas is or can be 
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produced.” The lease also provides that, if production 

ceases for any reason, the lease “shall not terminate 

provided lessee resumes operations for drilling a well 

within sixty (60) days from such cessation.” The lessees began producing gas in 1936. However, in 1981 

and again in 1985, actual production ceased longer 

than sixty days. The court of appeals held that these 

cessations terminated the lease. 60 S.W.3d 134, 141.

We disagree. We conclude that a well that is capable 

of production sustains this particular lease even if 

actual production ceases longer than sixty days. Accordingly, we reverse the court of appeals' judgment 

and remand to the trial court for further proceedings 

consistent with this opinion.

I. BACKGROUND

In 1936, Thompson's and Anadarko's predecessors entered into a lease “for the purpose of mining 

and operating for and producing gas.” The lease allows either production or the lessees' beginning drilling operations to maintain the lease beyond its 

one-year primary term.

Two provisions in the lease are pertinent here. 

The lease's “habendum clause” states:

This lease shall remain in force for a term of one (1) 

year and as long thereafter as gas is or can be produced.

The lease also has a “cessation-of-production 

clause,” which provides:

If, after the expiration of the primary term of this 

lease, production on the leased premises shall cease 

from any cause, this lease shall not terminate provided lessee resumes operations for drilling a well

within sixty (60) days from such cessation, and this 

lease shall remain in force during the prosecution of 

such operations and if production results therefrom, 

then as long as production continues.

Anadarko's predecessors began producing gas in 

1936. However, it is undisputed that production totally 

ceased for sixty-one days in 1981 and ninety-one days 

in 1985 while the gas purchaser conducted pipeline 

repairs. In 1997, Thompson sued for a declaration that 

the lease terminated when production ceased in 1981

and for conversion damages.

On Thompson's motion, the trial court granted 

partial summary judgment that the lease terminated 

due to one or more cessations of production. After a 

bench trial, the court rejected Anadarko's affirmative 

defenses of limitations, laches, quasi-estoppel, unjust 

enrichment, adverse possession, revivor, judicial estoppel, and promissory estoppel. Accordingly, the trial 

court awarded damages and attorney's fees to 

Thompson.

Anadarko appealed. After considering the lease's 

implicit and explicit objectives, language in the lease's 

continuous operations clause, and other jurisdictions' 

case law, the court of appeals construed the lease's 

habendum clause to require actual production in 

paying quantities. 60 S.W.3d at 140–41. Accordingly, 

it affirmed the trial court's partial summary judgment 

that the lease terminated when *554 actual production 

ceased longer than sixty days. 60 S.W.3d at 141. The 

court of appeals also determined that the evidence 

supported the trial court's denying Anadarko's affirmative defenses. 60 S.W.3d at 145.

We granted Anadarko's petition to consider 

whether the court of appeals properly construed the

lease to conclude that it terminated.

II. APPLICABLE LAW

A. LEASE CONSTRUCTION

[1][2][3][4][5][6] Construing an unambiguous 

lease is a question of law for the Court. Luckel v. 

White, 819 S.W.2d 459, 461 (Tex.1991). Accordingly, 

we review lease-construction questions de novo. See 

El Paso Natural Gas Co. v. Minco Oil & Gas, Inc., 8 

S.W.3d 309, 312 (Tex.1999). In construing an unam-
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biguous lease, our primary duty is to ascertain the

parties' intent as expressed within the lease's four 

corners. Luckel, 819 S.W.2d at 461; see also 

Yzaguirre v. KCS Resources, Inc., 53 S.W.3d 368, 

372–73 (Tex.2001). We give the lease's language its 

plain, grammatical meaning unless doing so would 

clearly defeat the parties' intentions. Fox v. Thoreson,

398 S.W.2d 88, 92 (Tex.1966). We examine the entire 

lease and attempt to harmonize all its parts, even if 

different parts appear contradictory or inconsistent. 

Luckel, 819 S.W.2d at 462. That is because we presume that the parties to a lease intend every clause to 

have some effect. Heritage Res., Inc. v. NationsBank,

939 S.W.2d 118, 121 (Tex.1996). However, we will 

not hold the lease's language to impose a special limitation on the grant unless the language is so clear, 

precise, and unequivocal that we can reasonably give 

it no other meaning. Fox, 398 S.W.2d at 92.

B. OIL AND GAS LEASE PROVISIONS

[7][8][9] A Texas mineral lease grants a fee simple determinable to the lessee. See Texas Co. v. Davis,

113 Tex. 321, 254 S.W. 304, 309 (1923). Consequently, the lessee's mineral estate may continue indefinitely, as long as the lessee uses the land for its 

intended purpose. Davis, 254 S.W. at 306. However, a 

mineral estate will automatically terminate if the event 

upon which it is limited occurs. Gulf Oil Corp. v. Reid,

161 Tex. 51, 337 S.W.2d 267, 269 (1960).

[10][11] A lease's habendum clause defines the 

mineral estate's duration. Gulf Oil Corp. v. Southland 

Royalty Co., 496 S.W.2d 547, 552 (Tex.1973). For 

instance, a typical habendum clause states that the

lease lasts for a relatively short fixed term of years 

(primary term) and then “as long thereafter as oil, gas 

or other mineral is produced” (secondary term). See, 

e.g., Reid, 337 S.W.2d at 269 n. 1; see also 1 SMITH 

& WEAVER, TEXAS LAW OF OIL & GAS § 4.3 

(1996). In Texas, such a habendum clause requires 

actual production in paying quantities. Reid, 337 

S.W.2d at 269–70; Garcia v. King, 139 Tex. 578, 164 

S.W.2d 509, 512 (1942). Thus, a typical Texas lease 

that lasts “as long as oil or gas is produced” automatically terminates if actual production permanently 

ceases during the secondary term. See Amoco Prod. 

Co. v. Braslau, 561 S.W.2d 805, 808 (Tex.1978).

[12][13] Although the habendum clause generally 

controls the mineral estate's duration, other clauses 

may extend the habendum clause's term. Southland 

Royalty, 496 S.W.2d at 552. When a lease terminates 

“is always a question of resolving the intention of the 

parties from the entire instrument.” Southland Royalty, 496 S.W.2d at 552.

III. ANALYSIS

A. LEASE CONSTRUCTION

[14] Here, we decide whether the lease terminated 

when actual production ceased *555 longer than sixty 

days. Both parties' arguments about what triggers the 

lease's termination rely upon the lease's habendum and 

cessation-of-production clauses.

Anadarko contends that the habendum clause's 

plain language allows production or the capability of 

production to sustain the lease. Thus, Anadarko argues, the court of appeals incorrectly concluded that 

the habendum clause requires actual production. 

Anadarko urges us to give the clause's “can be produced” language its full effect. See Fox, 398 S.W.2d at 

92. According to Anadarko, the cessation-of-production clause does not contradict the 

habendum clause's plain meaning, because the cessation-of-production clause is a savings provision that 

only applies if the habendum clause's special limitation occurs and threatens to terminate the lease. In 

other words, the cessation-of-production clause only 

applies if the well holding the lease becomes incapable 

of production. Because the well holding the lease has 

always been capable of production, Anadarko asks us

to reverse the partial summary judgment that the lease 

terminated due to one or more cessations of production.
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In response, Thompson asserts that both the 

lease's terms and existing Texas law support the court 

of appeals' conclusion that actual production is required to sustain the lease after the primary term. See

60 S.W.3d at 140. According to Thompson, the cessation-of-production clause applies whenever actual

production ceases rather than when actual production 

and capability of production cease. Moreover, 

Thompson argues, allowing the capability of production to sustain the lease indefinitely would render the 

cessation-of-production clause meaningless.

Here, the habendum clause expressly states that 

the lease lasts as long as gas “is or can be produced.” 

For several reasons, the court of appeals rejected 

Anadarko's argument that capability of production 

sustained the lease and, instead, concluded that the 

habendum clause requires actual production. 60 

S.W.3d at 140. First, citing Garcia v. King, the court 

of appeals reasoned that the habendum clause must 

require actual production to further the lease's objective—to reap economic gain. 60 S.W.3d at 140. Second, the court of appeals construed the habendum 

clause in light of the lease's continuous operations 

clause, which sustains the lease so long as drilling 

operations continue “and if production results therefrom, then as long as production continues.” See 60 

S.W.3d at 140. The court of appeals determined that 

the continuous operations clause shows that the parties 

intended that “the continuation of actual production 

was and is necessary to prolong the life of the lessee's 

interest.” 60 S.W.3d at 140. And third, the court of 

appeals relied on decisions from other jurisdictions 

that have interpreted similar habendum clauses. 60 

S.W.3d at 140 (citing Greer v. Salmon, 82 N.M. 245, 

479 P.2d 294 (1970); Fisher v. Grace Petroleum 

Corp., 830 P.2d 1380 (Okla.Ct.App.1991)).

We disagree with the court of appeals' lease construction. Here, neither party contends that the lease is 

ambiguous. Consequently, in construing the lease, we 

first consider the parties' intentions as expressed in the 

lease's four corners. See Yzaguirre, 53 S.W.3d at 

372–73; Luckel, 819 S.W.2d at 461. The habendum 

clause's plain language shows that the parties intended 

that a well actually produce gas, or be capable of 

producing gas, to sustain the lease. See Fox, 398 

S.W.2d at 92. This construction does not conflict with 

our rule that Texas leases generally require actual

production. See Reid, 337 S.W.2d at 269–70; Garcia,

164 S.W.2d at 512. That is because the cases in which 

*556 we recognized the general rule involved leases 

with typical habendum clauses that sustained the lease 

as long as oil or gas “is produced.” See Reid, 337 

S.W.2d at 269 n. 1; Garcia, 164 S.W.2d at 512. Thus, 

these cases do not control how to construe a habendum 

clause that lasts as long as gas “is or can be produced.”

Additionally, the court of appeals reasoned that 

allowing the ability to produce gas to prolong the lease 

would “effectively erase” the cessation-of-production 

clause from the lease. 60 S.W.3d at 139. But the court 

of appeals' analysis incorrectly assumes that the cessation-of-production clause is triggered any time actual production stops. Read as a whole, the cessation-of-production clause combines a sixty-day time

limit with a resumption of operations provision. Thus, 

the clause indicates the parties' intent that the cessation-of-production clause apply only when the circumstances require the lessee “to resume operations

for drilling a well.” In other words, the cessation-of-production clause only applies if a well holding the lease ceases to be capable of producing gas.

Indeed, in analyzing a similar cessation-of-production 

clause, one commentator has observed:

The fact that the event which is designed to prevent 

termination is the commencement of drilling or 

reworking operations gives some indication of the 

purpose of the clause and the intention of the parties. It indicates that the parties are concerned with a 

situation where cessation of production is of the 

type that is remedied by drilling or reworking operations. Thus, the parties must have intended that

the clause would become operative if a dry well is 

drilled or if a producing well ceases to be capable of 
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producing in paying quantities. A literal application 

of the clause to every temporary cessation of production could lead to absurd and unintended results.

2 KUNTZ, A TREATISE ON THE LAW OF OIL 

& GAS 416–17.

Construing the cessation-of-production clause to 

apply when a well holding the lease ceases to be capable of production—and not simply when actual 

production ceases—accords with the cessation-of-production clause's plain language. Moreover, 

this construction avoids imposing an unnecessary 

limitation on the grant. See Fox, 398 S.W.2d at 92.

The court of appeals' construction of the cessation-of-production clause would require Anadarko to

resume drilling operations within sixty days of any

cessation in actual production even if the existing well 

remained capable of production. Such a construction

disregards the habendum clause's “can be produced” 

language, whereas our construction gives every clause 

some effect. See Heritage Res., 939 S.W.2d at 121.

Accordingly, the court of appeals incorrectly relied 

upon the cessation-of-production clause to hold that 

the habendum clause requires actual production to 

sustain the lease.

The court of appeals also misplaced its reliance 

on cases from other states. See 60 S.W.3d at 140. First, 

in looking to other states to determine how to interpret 

the lease here, the court of appeals disregarded our 

well-established rules about how to interpret oil and 

gas leases. See Heritage Res., 939 S.W.2d at 121;

Luckel, 819 S.W.2d at 461–62; Fox, 398 S.W.2d at 92.

Second, the cases the court of appeals cites actually 

support our views about this lease. In Greer, the New 

Mexico Supreme Court construed a habendum clause 

like the one in this case in conjunction with two savings clauses: a cessation-of-production clause and a 

shut-in royalty clause. Greer, 479 P.2d at 296. The 

New Mexico Court held that a gas well capable of 

production would only hold the lease if the lessee paid 

*557 an annual shut-in royalty. Greer, 479 P.2d at 

299. Thus, the New Mexico Court relied on provisions 

within the lease's four corners to ascertain the 

habendum clause's meaning.

Furthermore, the court of appeals erroneously relied upon an Oklahoma court of appeals opinion to 

support its view that the Anadarko habendum clause 

requires actual production. See Fisher, 830 P.2d at 

1387–88. In relying on Fisher, the court of appeals 

overlooked the fact that the Oklahoma Supreme Court

rejected the Fisher court's approach. See Pack v. Santa 

Fe Minerals, 869 P.2d 323, 327 (Okla.1994).

In Pack, the Oklahoma Supreme Court considered whether a lease held by a gas well capable of 

production but shut-in for more than sixty days expired under the cessation-of-production clause. Pack,

869 P.2d at 325. In construing both clauses, the Oklahoma Supreme Court concluded that the cessation-of-production clause operates as a savings clause 

and only applies when production—as defined in the 

habendum clause—ceases. Pack, 869 P.2d at 328.

“Any other conclusion would render the habendum 

clause useless after the primary term expires, a conclusion clearly not intended by the parties to the 

lease.” Pack, 869 P.2d at 328. Thus, the Oklahoma 

Supreme Court's analysis supports our viewpoint 

rather than Thompson's.

Finally, we reject Thompson's contention that 

allowing the capability of production to sustain the 

lease would allow the lessees to sustain the lease indefinitely—without actual production. Rather, the 

implied duty to manage and administer the lease as a 

reasonably prudent operator, which encompasses the 

implied duty to market the gas reasonably, would limit 

the lessees' ability to sustain the lease based on a well's 

capability of production. See Yzaguirre, 53 S.W.3d at 

373.

For these reasons, we hold that a well actually 

producing or capable of producing gas sustains this
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particular lease under the habendum clause. We also

hold that the cessation-of-production clause only applies if the lease would otherwise terminate under the 

habendum clause. Consequently, the court of appeals

erred in holding that, under this lease, “can be produced” means “actual production.”

B. CAPABILITY OF PRODUCTION

Because we conclude that actual production was 

not necessary to sustain the lease, we next consider 

whether the 1981 and 1985 cessations terminated the

lease. This depends upon whether the well holding the 

leased premises was capable of production during the 

two periods when actual production ceased longer 

than sixty days. According to Anadarko's brief, “[t]he 

evidence is undisputed here that the well was capable 

of production during the two periods when no production was shown,” because the evidence shows that

the well was shut-in for pipeline repairs. In response, 

Thompson contends that the well was not capable of 

production, because the well would not have produced 

if it had been “turned on.” See Hydrocarbon Mgt., Inc. 

v. Tracker Exploration, Inc., 861 S.W.2d 427, 433–34 

(Tex.App.-Amarillo 1993, no writ).

[15] We have determined that “the completion of 

a gas well capable of producing in paying quantities 

but shut-in due to lack of pipe line facilities or for 

other reasons is not considered production” and 

therefore does not sustain a mineral interest that lasts 

as long as oil or gas “is produced.” Peveto v. Starkey,

645 S.W.2d 770, 771 (Tex.1982) (quoting Midwest 

Oil Corp. v. Lude, 376 S.W.2d 18, 20 

(Tex.Civ.App.-Corpus Christi 1964, writ ref'd n.r.e.)); 

see also *558Giles v. McKanna, 200 S.W.2d 709, 712 

(Tex.Civ.App.-Austin 1947, writ ref. n.r.e.) (noting 

the “marked difference between the capacity to produce in paying quantities and actual production in 

paying quantities”). However, we have not defined 

what “capable of production” means.

One court of appeals considered this issue in deciding whether a lessee's paying shut-in royalties 

maintained a lease even though actual production had 

ceased. Hydrocarbon, 861 S.W.2d at 433–34. In this 

context, the Hydrocarbon court stated:

We believe that the phrase “capable of production in 

paying quantities” means a well that will produce in 

paying quantities if the well is turned “on,” and it 

begins flowing, without additional equipment or 

repair. Conversely, a well would not be capable of 

producing in paying quantities if the well switch 

were turned “on,” and the well did not flow, because 

of mechanical problems or because the well needs 

rods, tubing, or pumping equipment.

Hydrocarbon, 861 S.W.2d at 433–34.

[16] We approve the Hydrocarbon definition, 

because it is consistent with existing cases that discuss 

the difference between actual production and capability of production. See Peveto, 645 S.W.2d at 771 (a 

well is capable of production if it is shut-in because 

there is no available pipeline); Stanolind Oil & Gas 

Co. v. Barnhill, 107 S.W.2d 746, 749 

(Tex.Civ.App.-Amarillo 1937, writ ref'd) (a well is 

capable of production if it is shut-in because there is 

no available market); see also Davis, 254 S.W. at 309

(a well is incapable of production if the lessee removes 

the equipment and abandons all efforts to produce);

Pack, 869 P.2d at 327 (a well is incapable of production if the underlying mineral reserves are depleted). 

Accordingly, we hold that a well is capable of production if it is capable of producing in paying quantities without additional equipment or repairs.

IV. CONCLUSION

Here, the lease's habendum clause expressly 

states that the lease lasts as long as gas “is or can be 

produced.” Based on the habendum clause's plain 

meaning, we hold that a well actually producing gas or 

capable of producing gas sustains this particular lease. 

To be “capable of producing gas,” we conclude that a 

well must be capable of producing gas in paying 
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quantities without additional equipment or repairs.

Accordingly, we reverse the court of appeals' judgment and remand to the trial court for further proceedings consistent with this opinion. See

TEX.R.APP. P. 60.2(d). Because we resolve this case 

based on the lease-construction issue, we do not reach 

Anadarko's affirmative defenses.

Justice O'NEILL did not participate in this opinion.

ON MOTION FOR REHEARING

PER CURIAM.

We deny the motion for rehearing but write to 

clarify our decision.FN1

FN1. JUSTICE BAKER, author of the 

Court's original opinion, resigned effective 

August 31, 2002, and therefore did not participate on rehearing.

[17][18][19][20][21][22] In defining “capable of 

production” in our original opinion, we approved this 

definition from Hydrocarbon Management, Inc. v. 

Tracker Exploration, Inc., 861 S.W.2d 427, 433–34 

(Tex.App.-Amarillo 1993, no pet.):

We believe that the phrase “capable of production in 

paying quantities” means a well that will produce in 

paying quantities if the well is turned “on,” and it 

begins flowing, without additional equipment*559

or repair. Conversely, a well would not be capable 

of producing in paying quantities if the well switch 

were turned “on,” and the well did not flow, because 

of mechanical problems or because the well needs 

rods, tubing, or pumping equipment.

94 S.W.3d 550, 557. In so doing, we did not 

overrule or otherwise call into question our prior decisions regarding the proper interpretation of “production in paying quantities.” Specifically, we did not 

overrule or modify the longstanding requirement that 

for a well to produce in paying quantities, or to be 

capable of producing in paying quantities, there must 

be facilities located near enough to the well that it 

would be economically feasible to establish a connection so that production could be marketed at a 

profit. As we explained in Clifton v. Koontz, 160 Tex. 

82, 325 S.W.2d 684, 691 (Tex.1959), all the relevant 

circumstances must be considered in determining 

whether there are “paying quantities”:

In the case of a marginal well, such as we have 

here, the standard by which paying quantities is 

determined is whether or not under all the relevant

circumstances a reasonably prudent operator would, 

for the purpose of making a profit and not merely 

for speculation, continue to operate a well in the 

manner in which the well in question was operated.

....

The term “paying quantities” involves not only 

the amount of production, but also the ability to 

market the product (gas) at a profit. Whether there is 

a reasonable basis for the expectation of profitable 

returns from the well is the test. If the quantity be 

sufficient to warrant the use of the gas in the market, 

and the income therefrom is in excess of the actual

marketing cost, and operating costs, the production

satisfies the term “in paying quantities”. In the 

Hanks case, [24 S.W.2d 5, 6 (Tex. Comm'n 

App.1930, judgm't adopted)], the trial court found 

that the well completed by Hanks did not produce in

paying quantities within the contemplation of the 

terms of the lease, and this Court upheld such 

finding, holding that there was no evidence showing

that there were any facilities for marketing the gas 

or any near-by localities or industries which might

have furnished a profitable market therefor. The 

Court went further and pointed out the complete 

failure of the evidence to show what the gas could 

have been sold for at any probable market, and that

there was no evidence “tending to show that the well 

was situated in such proximity to any prospective 

market which would justify the construction of a 

pipe line for marketing same.”
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Id. at 691 (quoting Hanks v. Magnolia Petroleum 

Co., 24 S.W.2d 5, 6 (Tex. Comm'n App.1930, judgm't 

adopted)) (citations omitted); see also Stanolind Oil & 

Gas Co. v. Barnhill, 107 S.W.2d 746, 749 

(Tex.Civ.App.-Amarillo 1937, writ ref'd). In the case 

before us today, the well was connected to pipeline

facilities, and there was no question that it was capable 

of producing in paying quantities even though there

were periods during which there was no production.

In our original opinion in this case, we also said,

we reject Thompson's contention that allowing the 

capability of production to sustain the lease would

allow the lessees to sustain the lease indefinitely—without actual production. Rather, the implied 

duty to manage and administer the lease as a reasonably prudent operator, which encompasses the 

implied duty to market the gas reasonably, would 

limit the lessees'*560 ability to sustain the lease 

based on a well's capability of production.

94 S.W.3d at 557–58. But we did not intend to 

imply that the remedy for breach of an implied covenant to market production would be forfeiture or termination of a lease because we have consistently held 

that breach of an implied covenant in an oil and gas 

lease “does not automatically terminate the estate, but 

instead subjects the breaching party to liability for 

monetary damages, or in extraordinary circumstances, 

the remedy of a conditional decree of cancellation.” 

Rogers v. Ricane Enters., Inc., 772 S.W.2d 76, 79 

(Tex.1989); see also Rogers v. Ricane Enters., Inc.,

884 S.W.2d 763, 767–68 (Tex.1994); Stanolind, 107 

S.W.2d at 748 (holding that “the failure of the lessee 

further to develop the property is, under the holdings 

of the courts, a breach of an implied covenant, the

usual remedy for which is an action in damages”); 

W.T. Waggoner Estate v. Sigler Oil Co., 118 Tex. 509, 

19 S.W.2d 27, 32 (Tex.1929) (refusing “to treat as a 

limitation or as a condition subsequent the implied

covenant for reasonable development of premises 

leased for the mining of oil and gas”); Mon–Tex Corp. 

v. Poteet, 118 Tex. 546, 19 S.W.2d 32, 34 (Tex.1929)

(holding that a lease did not terminate when an implied covenant was breached but that there would be

liability for damages sustained); Tex. Co. v. Davis,

113 Tex. 321, 254 S.W. 304, 308 (Tex.1923) (reiterating that the implied covenant to explore and produce 

is not a condition subsequent that would give rise to 

the lease's termination if breached). The rationale for 

these holdings is to promote greater certainty about the 

continued existence of a lease:

[I]f reasonable diligence in performing every one of 

the lessee's exploring, developing, producing, and 

marketing operations was the test, neither lessor nor 

lessee could at any time have clearly or certainly 

known whether the estate granted was alive or 

ended. Such a test must inevitably diminish—if not 

destroy—the value of the rights of all parties derived from a mineral lease.

W.T. Waggoner Estate, 19 S.W.2d at 30–31.

We meant in our original decision that, as a practical matter, a lessee will not sustain a lease based on a 

well's capability of production without actual production of the well because the payment of damages for

the failure to reasonably market the gas would be a

strong incentive to connect the well to facilities that 

would permit actual production. And, in an extraordinary case, when damages would not furnish an adequate remedy, a court could conditionally order termination if a connection and actual production were

not commenced within a reasonable time. See id. at 

32.

[23] Finally, the motion for rehearing contends 

that several decisions of this Court and other courts 

compel a different result in this case. We disagree. The 

cases on which Thompson and the other Respondents 

rely are distinguishable because they involved different lease provisions, different facts, or both. The 

leases at issue in many of the cases said that the lease 

would remain in effect as long as oil or gas “is produced.” See Haby v. Stanolind Oil & Gas Co., 228 

F.2d 298, 301 (5th Cir.1955); Samano v. Sun Oil Co.,
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621 S.W.2d 580, 581 (Tex.1981); Francis v. Pritchett,

278 S.W.2d 288, 289 (Tex.Civ.App.-El Paso 1955, 

writ ref'd); Sunray DX Oil Co. v. Texaco, Inc., 417 

S.W.2d 424, 426–27 (Tex.Civ.App.-El Paso 1967, 

writ ref'd n.r.e.); Woodson Oil Co. v. Pruett, 281 

S.W.2d 159, 162 (Tex.Civ.App.-San Antonio 1955, 

writ ref'd n.r.e.); Hall v. McWilliams, 404 S.W.2d 606, 

607 (Tex.Civ.App.-Austin 1966, writ ref'd n.r.e.); 

Wainwright v. Wainwright, 359 S.W.2d 628, 629 

(Tex.Civ.App.-Fort Worth 1962, writ ref'd n.r.e.). But 

in this case, the lease said “is *561 or can be produced.” As we explained in our original opinion, “can 

be produced” does not mean actual production.

Only two decisions relied on by Thompson and 

the other Respondents involved leases that contained a 

“can be produced” provision. Davis, 254 S.W. at 305;

Hanks, 24 S.W.2d at 7, affirming Hanks v. Magnolia 

Petroleum Co., 14 S.W.2d 348, 349 

(Tex.Civ.App.-Eastland 1929). But the facts were 

very different from the facts in the case before us

today. In Davis, the lessee abandoned all operations on 

the lease after the wells it had drilled ceased to produce, and there was no production for about fourteen 

years. 254 S.W. at 305. There was also evidence that 

the lessee had expressly released the lease. Id. This 

Court held the lease had terminated. Id. at 309. In 

Hanks, the lessee drilled a successful well and then 

capped it. 24 S.W.2d at 5. The court held that there 

was no evidence that the well could produce in paying 

quantities because “[t]he record is wholly devoid of 

evidence showing that there were any facilities for

marketing the gas or any nearby localities or industries 

which might have furnished a profitable market 

therefor,” and “[n]o attempt was made to show what 

the gas could have been sold for at any probable 

market, nor was there any evidence tending to show 

that the well was situated in such proximity to any

prospective market which would justify the construction of a pipe line for marketing same.” Id. at 6. As 

noted above, that is not the situation in this case.

Accordingly, we deny the motion for rehearing.

Justice O'NEILL, Justice SMITH and Justice 

WAINWRIGHT did not participate in the decision on 

rehearing.

Tex.,2002.

Anadarko Petroleum Corp. v. Thompson

94 S.W.3d 550, 161 Oil & Gas Rep. 550, 45 Tex. Sup.

Ct. J. 1039

END OF DOCUMENT
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Court of Appeals of Texas,

El Paso.

CHESAPEAKE EXPLORATION, L.L.C., Chesapeake Operating, Inc., Anadarko Petroleum Corporation, and Swepi, L.P., Appellants,

v.

ENERGEN RESOURCES CORPORATION, Kaiser 

Francis Oil Company, Pride Energy Company, Crown 

Oil Partners, IV, L.P., Crump Energy Partners, L.L.C., 

Dalton H. Cobb, Jr., Michael B. Cobb, Bill Hightower, 

and Hightower Exploration, L.L.C., Appellees.

No. 08–13–00266–CV.

Oct. 1, 2014.

Background: Plaintiff oil companies brought action 

against defendant oil companies after each side requested that the other cease operations in 560–acre

portion of section that had been pooled with an 

80–acre portion of another section. The District Court, 

Ward County, Bob Parks, J., entered summary judgment in favor of plaintiffs. Defendants appealed.

Holding: The Court of Appeals, Yvonne T. Rodriguez, J., held that retained acreage clauses confirmed 

that production anywhere on certain section, or land 

pooled with it, was sufficient to maintain the leases as 

to the entirety of the section.

Affirmed.

West Headnotes

[1] Appeal and Error 30 893(1)

30 Appeal and Error

 30XVI Review

 30XVI(F) Trial De Novo

 30k892 Trial De Novo

 30k893 Cases Triable in Appellate 

Court

 30k893(1) k. In general. Most Cited 

Cases

The standard of review for construction of an 

unambiguous oil and gas lease is de novo.

[2] Mines and Minerals 260 73

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases

 260k73 k. In general; general rules of 

construction. Most Cited Cases

The primary duty of the court in interpreting an 

oil and gas lease is to ascertain the parties' intent as 

expressed within the four corners of the lease.

[3] Mines and Minerals 260 73

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases

 260k73 k. In general; general rules of 

construction. Most Cited Cases

In seeking to ascertain the parties' intent, the court 

must attempt to harmonize all parts of the oil and gas 

lease, even if different parts of the lease appear contradictory or inconsistent.
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[4] Mines and Minerals 260 73

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases

 260k73 k. In general; general rules of 

construction. Most Cited Cases

Construing the oil and gas lease to give effect to 

all of its provisions honors the parties' intent that every 

clause has some effect and in some measure evidences 

their agreement; accordingly, the court should not 

strike down any part of the lease, unless there is an 

irreconcilable conflict wherein one part of the lease 

destroys in effect another part thereof.

[5] Mines and Minerals 260 78.1(7)

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases

 260k78 Testing or Working

 260k78.1 Construction, Breach, and 

Penalties

 260k78.1(7) k. Place or portion 

developed; pooled or unitized tracts. Most Cited Cases

Retained acreage clauses in oil and gas lease did 

not provide for rolling termination of non-producing 

proration units, and instead, the leases confirmed that 

production anywhere on certain section, or land 

pooled with it, was sufficient to maintain the leases as 

to the entirety of the section, where the habendum 

clauses in both leases provided for continuation beyond the primary term as long as oil, gas, or other

mineral was produced from said land or land with 

which said land was pooled, and pooling clause, which 

stated that drilling operations and production on any 

part of the pooled acreage would be treated as if such 

drilling operations were upon or such production was 

from the land described in the lease whether the well 

or wells be located on the land covered by this lease or 

not, ensured that production anywhere on a pooled 

unit maintained the lease in effect as to all lands covered by the lease, both within and outside the unit, 

unless the lease expressly provided otherwise, and the 

plain, grammatical language of the retained acreage

clause did not expressly provide for rolling termination of proration units as they ceased to exist.

[6] Mines and Minerals 260 78.1(7)

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases

 260k78 Testing or Working

 260k78.1 Construction, Breach, and 

Penalties

 260k78.1(7) k. Place or portion 

developed; pooled or unitized tracts. Most Cited Cases

A habendum clause referring to “said land” extends the lease as to all the leased property while

production of oil or gas occurs anywhere on the 

property during the second term; thus, in the absence 

of anything in the lease to indicate a contrary intent, 

production on one tract will operate to perpetuate the 

lease as to all tracts described therein and covered 

thereby.

[7] Mines and Minerals 260 73

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases

 260k73 k. In general; general rules of 
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construction. Most Cited Cases

When an oil and gas lease terminates is always a 

question of resolving the intention of the parties from 

the entire instrument; however, Court of Appeals will 

not hold the lease's language to impose a special limitation on the grant unless the language is so clear, 

precise, and unequivocal that Court can reasonably 

give it no other meaning.

[8] Mines and Minerals 260 78.1(7)

260 Mines and Minerals

 260II Title, Conveyances, and Contracts

 260II(C) Leases, Licenses, and Contracts

 260II(C)3 Construction and Operation of 

Oil and Gas Leases

 260k78 Testing or Working

 260k78.1 Construction, Breach, and 

Penalties

 260k78.1(7) k. Place or portion 

developed; pooled or unitized tracts. Most Cited Cases

The primary legal consequence of pooling is that 

production and operations anywhere on the pooled 

unit are treated as if they have taken place on each 

tract within the unit; additionally, production from the 

pooled gas unit provides the lessors with an economic 

benefit in the form of royalty income.

*879 Shannon H. Ratliff, Lisa A. Paulson, Ratliff Law 

Firm, PLLC, Austin, William E. Berry, Jr., Cotton, 

Bledsoe, Tighe & Dawson, P.C., for Appellees.

Jane M.N. Webre, Scott, Douglass & McConnico, 

LLP, Austin, for Appellants.

Before McCLURE, C.J., RIVERA (Not Participating), and RODRIGUEZ, JJ.

OPINION

YVONNE T. RODRIGUEZ, Justice.

This case involves the construction of two oil and 

gas leases executed in 1976 (hereinafter, “the 1976

leases”) and their effect on a 640–acre section of land 

covered by the leases—Section 25. Section 25 was 

pooled with an adjacent section of land not covered by 

the 1976 leases—Section 18–to form two pooled gas 

units. One of the pooled units continues to produce to 

this day, but the other ceased producing completely in 

1988 when its well was plugged and abandoned. That 

particular well was completed in March 1979, and its 

operator designated all of Section 25 as the well's

proration unit in paperwork filed with the Texas 

Railroad Commission (hereinafter, “RRC”). Approximately two months thereafter, continuous development ended on the leased premises. The leases 

provide that when continuous development ends, the 

lease terminates as to all acreage except for:

[E]ach proration unit established under ... [the] rules 

and regulations [of the RRC ...] upon which there 

exists (either on the above described land or on 

lands pooled or unitized therewith) a well capable of 

producing oil and/or gas in commercial quantities 

....

The issue is whether, under the above-quoted 

“retained acreage” clause, the 1976 leases remain in 

effect as to all of Section 25, as urged by Plaintiffs–Appellees FN1 *880 (hereinafter “Energen”), or 

only as to an 80–acre portion of Section 25, as urged 

by Defendants–Appellants FN2 (hereinafter, “Chesapeake”). On cross-motions for summary judgment, the

trial court ruled in favor of Energen and against 

Chesapeake. We affirm.

FN1. Appellees are Energen Resources 

Corporation, Kaiser Francis Oil Company, 

Pride Energy Company, Crown Oil Partners, 

IV, L.P., Crump Energy Partners, L.L.C., 

Dalton H. Cobb, Jr., Michael B. Cobb, Bill 

Hightower, and Hightower Exploration, 

L.L.C. We refer to Appellees collectively as 

Energen, for we see nothing that requires us 
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to distinguish among them.

FN2. Appellants are Chesapeake Exploration, L.L.C., Chesapeake Operating, Inc., 

Anadarko Petroleum Corp., and SWEPI, L.P. 

We refer to Appellants collectively as 

Chesapeake because, again, we see nothing 

that requires us to distinguish among them.

FACTUAL AND PROCEDURAL BACKGROUND

The 1976 leases cover acreage located in Ward 

County, Texas, including the aforementioned Section

25 of Block 1, W & NW Ry. Co. Survey. Each lease 

contains a “pooling” clause, which states in pertinent 

part:

5. Lessee is hereby granted the right to pool or 

unitize this lease, the land covered by it or any part 

thereof with any other land, lease, leases, mineral

estates or parts thereof for the production of oil, gas, 

or any other minerals. ... Drilling operations and 

production on any part of the pooled acreage shall 

be treated as if such drilling operations were upon or 

such production was from the land described in this

lease whether the well or wells be located on the 

land covered by this lease or not. The entire acreage 

pooled into a unit shall be treated for all purposes ... 

as if it were included in this lease.

Pursuant to this provision, an 80–acre portion of 

Section 25 was pooled with a 560–acre portion of 

Section 18 to form a 640–acre pooled gas unit named

the Cadenhead No. 1 Pooled Gas Unit. This pooled 

unit's well, the Cadenhead No. 1 Well, was drilled and 

completed on the 560–acre portion of Section 18 in 

1978, and it has continually produced gas in commercial quantities since then. The next year, the Cadenhead No. 2 Well was completed on Section 25. 

This well was included in a 640–acre pooled gas unit 

named the Cadenhead No. 2 Pooled Gas Unit, which 

consisted of 560 acres from Section 25 and 80 acres

from Section 18. As mentioned earlier, the designated 

proration unit for the Cadenhead No. 2 Well included 

all of Section 25. Each lease also contains a provision 

requiring termination if the leased premises are not 

continuously developed as set forth in the leases' 

“continuous development” clauses. Those clauses 

provide in relevant part:

[12]D. Lessee shall continuously develop the above 

described land by commencing operations for the 

drilling of a well on or before the expiration of the 

primary term of this lease and thereafter shall allow 

not more than sixty (60) days to elapse between the

completion or abandonment of one well and the 

commencement of the next until the above described land is drilled to the density necessary to

obtain the maximum allowable per well under the 

rules and regulations of the Railroad Commission of

Texas (or other governmental authority having jurisdiction), or this lease shall terminate as to all of 

the above described land ....

As indicated earlier, after the Cadenhead No. 2 

Well was completed in March 1979, no additional 

wells were drilled on the leased premises. The Cadenhead No. 2 well was subsequently plugged back 

and recompleted in a shallower field in 1984. Four 

years later, it was abandoned.

Through subsequent transactions not relevant to 

this appeal, Energen and Chesapeake acquired their 

respective interests in Section 25. In 2011, Energen 

drilled a well on the 560–acre portion of Section 25 

that had been pooled with the 80–acre *881 portion of 

Section 18 and obtained a permit to drill another well. 

Chesapeake too obtained a permit to drill a well on the 

560–acre portion of Section 25. Each party requested 

that the other cease operations. Neither did, and the 

present action ensued.

In the trial court, both parties agreed with the 

principle that production anywhere on the pooled 
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premises is sufficient to maintain the entire lease unless the lease provides otherwise. They disagreed, 

however, on whether the retained acreage clause in 

each lease provided otherwise. Chesapeake argued the 

retained acreage clause provided otherwise because it 

applied “equally to ‘all’ of the lands under lease, even 

if pooling has occurred and even as to pooled lands.” 

According to Chesapeake, the clause expressly provides for continuous and automatic termination, i.e.,

“rolling” termination, of proration units as they cease 

to produce. Thus, when the proration unit for the Cadenhead No. 2 Well ceased to exist in 1988, the 1976 

leases terminated as to the 560–acre portion of Section 

25 on which that well had been drilled, irrespective of 

continued production from the Cadenhead No. 1 

Pooled Gas Unit.

Energen urged a different construction. According to Energen, the retained acreage clause did not

provide for “rolling” termination because the clause 

operated once and only once—when continuous development ceased. Under Energen's interpretation, all 

acreage included in a designated proration unit was

retained if a well capable of producing in commercial 

quantities existed on the leased premises or on acreage 

pooled with the leased premises when continuous 

development ended. Thus, “[b]ecause the Cadenhead 

No. 2 Well was then capable of producing in commercial quantities, the lease was preserved as to its 

designated proration unit, all of Section 25, a portion 

of which had previously been pooled with Section 

18.”

In essence, both parties agreed the retained 

acreage applied, but disagreed on its scope and temporal application.

THE RETAINED ACREAGE CLAUSE DOE 

NOT PROVIDE FOR “ROLLING” TERMINATION

In one issue, Chesapeake argues the trial court 

erred in concluding the 1976 leases did not require

“rolling” termination of non-producing proration units 

“to maintain the lease[s] in effect throughout the 

secondary term—not just at the moment that continuous development ends.” In so arguing, Chesapeake 

takes the position that the proration unit designated for 

the Cadenhead No. 2 Well was retained only while the 

well was producing, and when it ceased to produce in 

1988, the proration unit reverted to the lessors and was 

no longer subject to the 1976 leases. We disagree.

Standard of Review

[1] The trial court's summary judgment concerns 

the construction of an unambiguous oil and gas 

lease.FN3 The standard of review is therefore de novo. 

See Tex. Mun. Power Agency v. Pub. Util. Comm'n of 

Tex., 253 S.W.3d 184, 192 (Tex.2007) (reviewing 

grant of summary judgment de novo ); Anadarko 

Petroleum Corp. v. Thompson, 94 S.W.3d 550, 554 

(Tex.2002) (reviewing lease-construction questions 

de novo ).

FN3. The parties agree the lease is not ambiguous, and we do not hold otherwise. The 

parties also agree the resolution of this appeal 

hinges on the law, not on disputed facts.

Applicable Law

[2][3][4] The primary duty of the court in interpreting an oil and gas lease is to *882 ascertain the 

parties' intent as expressed within the four corners of 

the lease. Luckel v. White, 819 S.W.2d 459, 461 

(Tex.1991). In seeking to ascertain the parties' intent, 

the court must attempt to harmonize all parts of the 

lease, even if different parts of the lease appear contradictory or inconsistent. Id. at 461–62. Construing 

the lease to give effect to all of its provisions honors 

the parties' intent that every clause has some effect and 

in some measure evidences their agreement. Luckel,

819 S.W.2d at 462. Accordingly, the court should not 

strike down any part of the lease, unless there is an 

irreconcilable conflict wherein one part of the lease 

destroys in effect another part thereof. Id.
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Discussion

[5] When read in harmony with other portions of 

the leases, the retained acreage clauses do not provide 

for “rolling” termination of non-producing proration 

units as argued by Chesapeake. Instead, the language 

of the 1976 leases confirms that production anywhere 

on Section 25, or land pooled with it, is sufficient to 

maintain the leases as to the entirety of Section 25.

[6] The habendum clauses in both leases provide 

for continuation beyond the primary term “as long ... 

as oil, gas, or other mineral is produced from said land 

or land with which said land is pooled.” Under Texas 

law, a habendum clause referring to “said land” extends the lease as to all the leased property while

production of oil or gas occurs anywhere on the 

property during the second term. Ridge Oil Co., Inc. v. 

Guinn Invs., Inc., 148 S.W.3d 143, 149 (Tex.2004). 

Thus, “in the absence of anything in the lease to indicate a contrary intent, production on one tract will 

operate to perpetuate the lease as to all tracts described 

therein and covered thereby.” Mathews v. Sun Oil Co.,

425 S.W.2d 330, 333 (Tex.1968).

Concordant with this general principle, the lease's

pooling clauses provide that: “Drilling operations and 

production on any part of the pooled acreage shall be 

treated as if such drilling operations were upon or such 

production was from the land described in this lease 

whether the well or wells be located on the land covered by this lease or not.” Accorded its plain, grammatical meaning, this clause ensures that production 

anywhere on a pooled unit maintains the lease in effect 

as to all lands covered by the lease, both within and 

outside the unit, unless the lease expressly provides 

otherwise. Key Operating & Equip., Inc. v. Hegar,

435 S.W.3d 794, 798 (Tex.2014); Scott v. Pure Oil 

Co., 194 F.2d 393, 395 (5th Cir.1952); Texaco, Inc. v. 

Lettermann, 343 S.W.2d 726, 733

(Tex.Civ.App.-Amarillo 1961, writ ref'd n.r.e.).

As indicated earlier, Chesapeake and Energen 

disagree on whether operations conducted within the

pooled gas units serve to maintain the 1976 leases as 

to the entirety of Section 25. However, they agree the 

answer to their dispute lies in the proper interpretation 

of the retained acreage clauses, which control the 

termination of the leases after cessation of continuous 

development. “Retained acreage clauses were originally drafted to prevent the lessee from losing those 

portions of a lease that had productive wells located 

thereon if the rest of the lease terminated ... [but] ... 

[t]he term has expanded its meaning to include clauses 

that require the release of all acreage that, at the end of 

the primary term, is not within a drilling, spacing, or 

proration unit.” Bruce M. Kramer, Oil and Gas Leases 

and Pooling: A Look Back and A Peek Ahead, 45 

TEX. TECH L.REV. 877, 881 n. 28 (2013).

[7] Here, the leases' retained acreage clauses, in 

conjunction with the continuous development clauses, 

provide that the lessee's failure to continuously develop the *883 leased premises terminates the leases 

as to all unproductive acreage except for:

[E]ach proration unit established under ... [the] rules 

and regulations [of the RRC ...] upon which there 

exists (either on the above described land or on 

lands pooled or unitized therewith) a well capable of 

producing oil and/or gas in commercial quantities 

....

When a lease terminates “is always a question of 

resolving the intention of the parties from the entire 

instrument.” Thompson, 94 S.W.3d at 554. “However, 

we will not hold the lease's language to impose a 

special limitation on the grant unless the language is 

so clear, precise, and unequivocal that we can reasonably give it no other meaning.” Thompson, 94 

S.W.3d at 554.

The plain, grammatical language of the retained 

acreage clause does not expressly provide for rolling 

termination of proration units as they cease to exist. 

Instead, the plain, grammatical language shows that
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the parties intended the leases to continue as to each 

designated proration unit if the unit had a well capable 

of producing gas in commercial quantities when continuous development ceased. That the parties chose to 

maintain the lease as to each proration unit when 

continuous drilling stopped based on the ability of that 

unit's well to produce gas, rather than actual production, indicates they did not intend the retained acreage 

clause to be triggered any time actual production 

stops. To conclude otherwise would promote uncertainty about the continued existence of a lease. 

Moreover, adopting the construction urged by Chesapeake imposes an unnecessary limitation on the kind 

and character of the estate the parties chose to convey, 

i.e., an expansive one maintained by production from 

any part of pooled lands unless limited by language so 

clear, precise, and unequivocal that no other conclusion could be reached. That type of language is absent 

from the retained acreage clauses.

Chesapeake contends that the retained acreage 

clauses must be read to modify the habendum clauses

to require “rolling” termination of non-producing 

proration units, as designated by the Texas Railroad 

Commission, such that production from a pooled unit

will not maintain the leases as to proration units that 

ceased to exist. It makes two arguments in support of 

this construction, one of which finds no support in the 

leases, and the other of which finds no support in 

Texas case law.

Chesapeake first argues that “[t]he parties' use of

a specific regulatory term—[RRC-designated] proration unit—to define the extent to which the 1976 

leases would be maintained after continuous development” signals their intent “that the leases would

only be maintained as to lands within proration units 

for so long as such proration units existed.” Chesapeake thus asserts that because “[p]roration units are 

designed on a well-by-well basis and only exist for so 

long as the well for which the proration unit is designated produces [,]” the proration unit for the Cadenhead Well No. 2 ceased to exist when it was plugged.

But this construction is belied by the plain, express language of the retained acreage clauses. The

language in these clauses makes clear that: (1) proration units, as recognized by the state agency having 

regulatory jurisdiction over oil and gas development, 

are the portions of the leased premises maintained 

after continuous development ceases; and (2) each 

proration unit is maintained, not by the existence on 

the unit of a producing well, but by the existence on 

the unit of a well capable of producing in paying 

quantities. The use of the specific regulatory term in 

the retained acreage clause merely serves to identify 

with reasonable certainty the *884 property that remains under lease when continuous development 

ceases. In other words, the term “RRC-designated 

proration unit” functions as a mere descriptor in the 

clause, not as a normative one in the sense that it

prescribes what ought to be the outcome based on the 

application of RRC regulations. If the parties to the 

1976 leases had wished to provide for continual relinquishment of non-producing proration units, so that 

a proration unit would no longer be subject to the lease 

once production had ceased on that particular unit,

they could have done so by including such language.

But they did not, and it is not within our purview to 

rewrite the leases and alter the parties' contract. See 

Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 

162 (Tex.2003) (“But we may neither rewrite the 

parties' contract nor add to its language.”).

[8] Chesapeake also argues that the parties to the 

1976 leases could not have intended for production on 

a single unit to maintain the entire lease indefinitely 

after continuous development ceased. Although this 

argument has some equitable appeal, it is refuted by 

language of the lease, as demonstrated above. Moreover, maintaining the leases during the secondary term 

to acreage outside of producing proration units but

within a pooled unit would not be novel. “The primary 

legal consequence of pooling is that ‘production and 

operations anywhere on the pooled unit are treated as 

if they have taken place on each tract within the unit.’ 
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” Hegar, 435 S.W.3d at 798. Additionally, production 

from the pooled gas unit provides the lessors with an 

economic benefit in the form of royalty income. 

Granted, the lessors could have achieved an additional 

economic benefit by expressly stating that production 

on each proration unit is required to maintain the 

leases as to each of those units during the secondary 

term. However, they failed to do so. Absent proof of 

fraud or mutual mistake, neither of which was pled by 

the parties, we are not at liberty to rewrite the economic bargain struck by the parties to the 1976 leases. 

See Eagle Life Ins. Co. v. G.I.C. Ins. Co., 697 S.W.2d 

648, 651 (Tex.App.-San Antonio 1985, writ ref'd 

n.r.e.) (“Courts are not at liberty to rewrite the contract 

between the parties without pleading and proof of 

fraud or mutual mistake.”). Accordingly, we decline

Chesapeake's invitation to construe the retained 

acreage clauses—decades after the fact—as expressly

stating “that the leases would only be maintained as to 

lands within proration units for so long as such proration units existed” in the absence of clear, precise, and 

unequivocal language to that effect. See Lettermann,

343 S.W.2d at 732 (“[I]n the absence of clear language 

to the contrary, pooling clauses should not be construed in a narrow or limited sense.”).

Chesapeake next argues that “Texas case law directly on point confirms that the 1976 leases terminated as to the disputed acreage.” In support of this 

argument, Chesapeake relies chiefly on Nafco Oil & 

Gas, Inc. v. Tartan Res. Corp., 522 S.W.2d 703

(Tex.Civ.App.-Corpus Christi 1975, writ ref'd n.r.e). 

According to Chesapeake, Nafco stands for the proposition that “even where a retained acreage provision 

is silent as to whether a lease terminates as to a retained tract once the retained tract's well stops producing later in the life of the lease, the fee simple 

determinable nature of an oil and gas leases requires 

courts to imply such an intent ....” But Chesapeake's 

reliance on Nafco is misplaced. Although Nafco is 

distinguishable, the court's opinion in that case actually supports our conclusion. In Nafco, the court held 

that the habendum clause, as modified by the retained 

acreage clause, operated independently upon each 

tract and that production on one 160–acre tract would 

not maintain the lease as to *885 another 160–acre 

tract on which production had ceased. 522 S.W.2d at 

707–08. The retained acreage clause there provided 

that upon the lessee's failure to comply with the continuous drilling program, the lease terminated as to the 

entire premises except as to “the gas and gas rights ... 

in 160 acres ... around each well theretofore completed 

as a gas well, down to and including the sand from 

which such well produced gas.” Id. at 705. When 

continuous drilling ceased in 1954, four wells were

producing oil. Id. at 705. The two oil wells at issue 

ceased producing in 1968. Id. Relying on the 

habendum clause, the appellants argued that continued 

production from an oil well was sufficient to maintain 

the lease as to the oil wells even though those wells 

were not located on the same 160–acre tract of land on 

which the producing well was located. Id. at 705–06. 

The court disagreed, concluding that, “[i]n light of the 

provisions of this lease discussed above, it is evident 

that the well must be producing oil, or gas, at the date 

that lessee ceases permanent drilling operations required in paragraph 6, as amended, and the mineral 

(oil or gas) produced as of that date determines the 

acreage and mineral rights therein which said well will 

hold under the lease.” Id. at 708 [Emphasis added].

Nafco is distinguishable in that there is no indication the lease in that case contained a pooling 

clause. Nafco is also distinguishable because the retained acreage clause there expressly required actual 

production on each 160–acre tract when continuous 

development ceased. But significantly, the Nafco

court did not construe the retained acreage clause there 

to mean it operated continuously over the life of the 

lease. Rather, as the italicized language quoted above 

demonstrates, the Nafco court construed that clause to 

mean it operate once and only once—“at the date that 

lessee ceases permanent drilling operations ....” That 

interpretation comports with ours.

Like Nafco, the court's opinion in Humphrey v. 
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Seale, 716 S.W.2d 620 (Tex.App.-Corpus Christi 

1986, no writ), supports our conclusion. In Seale, the 

court held that, in the absence of language in the retained acreage clause calling for a continual relinquishment on non-producing lease acreage, the general rule provides that production anywhere on the 

leased premises maintains the lease. 716 S.W.2d at 

622. The retained acreage clause there provided that 

upon the lessee's failure to comply with the continuous 

drilling program, the lease terminated as to the entire 

premises except as to “forty (40) acres designated as a 

well block around such producing well, and said well 

block designation shall be filed of record immediately 

after said block has been designated by Lessee ....” Id.

at 621. When appellant acquired his interest in the 

leased premises in April 1982, two of the wells in 

dispute were no longer producing, but the other disputed well continued to produce until appellant ceased 

operations on it when he filed suit. Id. The appellees 

took “the position that 40 acres was retained around 

the well only while a well produced, and upon the 

cessation of production of a particular well, the 40 

acres surrounding that well reverted to the landowner 

and was no longer subject to the ... [l]ease.” Seale, 716 

S.W.2d at 621 The court disagreed, concluding:

[The retained acreage clause] does not require the 

lessee to relinquish additional acreage from the 

lease after the initial release is accomplished 

‘within 180 days of the first oil well.’ As all three of 

the 40–acre tracts are under the same lease and lease 

terms, production on one will keep the lease in effect for all.

Seale, 716 S.W.2d at 622 [Emphasis added].

*886 The retained acreage clause in Seale, like 

the one in Nafco, is not identical to the ones here. 

However, that difference is immaterial because the 

Seale court, like the Nafco court, did not construe the 

retained acreage clause there to mean it operated continuously over the life of the lease. Rather, as the 

italicized language quoted above demonstrates, the 

Seale court construed that clause to mean it operates 

once and only once—when the initial release of 

acreage occurred after continuous drilling ceased.

Chesapeake argues Seale does not support our 

conclusion because termination of the lease under the 

retained acreage clause there “was not automatic but 

rather required an affirmative action by the lessee,” 

and thus, it was not surprising that “the [c]ourt declined to imply a continuing release obligation that 

would effectuate ‘rolling’ lease termination.” But that 

was not the reason why the Seale court declined to 

construe the retained acreage clause in that case to 

mean it operated continuously over the life of the 

lease. Rather, the court declined to construe the clause 

in that manner because the clause did not provide for 

rolling termination in clear, precise, and unequivocal 

language. As the court was quick to note, “[i]f the

parties to the lease had wished to provide for a continual relinquishment of nonproducing acreage, so that 

a 40–acre tract would no longer be subject to the lease 

once production had ceased on that particular 40–acre 

tract, it would have been simple to include such language.” Seale, 716 S.W.2d at 622.

For the foregoing reasons, Chesapeake has not 

shown the trial court erred in concluding that the 1976 

leases failed to provide for rolling termination of

non-producing proration units.

CONCLUSION

The trial court's order granting Energen's motion 

for summary judgment is affirmed.

Tex.App.–El Paso,2014.

Chesapeake Exploration, L.L.C. v. Energen Resources

Corp.

445 S.W.3d 878

END OF DOCUMENT
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Only the Westlaw citation is currently available.

SEE TX R RAP RULE 47.2 FOR DESIGNATION 

AND SIGNING OF OPINIONS.

MEMORANDUM OPINION

Court of Appeals of Texas,

San Antonio.

CONOCOPHILLIPS COMPANY and Kaiser-Francis 

Oil Company, Appellants

v.

Maria Eva U. RAMIREZ and El Refugio, Ltd., Appellees.

No. 04-05-00488-CV.

June 28, 2006.

From the 49th Judicial District Court, Webb County,

Texas, Trial Court No. 2005-CVQ-000823-D1; Manuel R. Flores, Judge Presiding.

Michael V. Powell, Chrysta L. Castaneda, Locke 

Liddell & Sapp L.L.P., Dallas, Adolfo Campero, Jr., 

Campero & Becerra, P.C., Laredo, for Appellant.

Ricardo E. Morales, Person, Whitworth, Borchers & 

Morales, L.L.P., Laredo, for Appellee.

Sitting: SARAH B. DUNCAN, Justice KAREN 

ANGELINI, Justice SANDEE BRYAN MARION, 

Justice.

MEMORANDUM OPINION

Opinion by SARAH B. DUNCAN, Justice.

*1 On February 10, 1975, the predecessor-in-interest of ConocoPhillips and Kaiser-Francis 

Oil Company (collectively “Conoco”) leased 1053 

acres in Zapata County from the predecessors-in-interest of Maria Eva U. Ramirez and El 

Refugio, Ltd. (collectively “Ramirez”) for a primary 

term of five years. After the expiration of the primary 

term, the acreage the lessee is entitled to hold is governed by paragraph 18 of the lease, which provides in 

part as follows:

At the end of five years after the expiration of the 

primary term hereof, Lessee covenants and agrees to

execute and deliver to Lessor a written release of 

any and all portions of this lease which have not 

been drilled to a density of at least forty (40) acres 

for each producing oil well and three hundred and 

twenty (320) acres for each producing or shut-in gas 

well from depths above 5,000 feet from the surface 

of the ground and 640 acres for each producing or 

shut-in gas well from depths below 5,000 feet from 

the surface of the ground except that in case any rule 

adopted by the Railroad Commission of Texas or 

other regulating authority for any field on this lease 

provides for a spacing or proration establishing 

different units of acreage per well, then such established different units shall be held under this lease 

by such production, in lieu of the units above mentioned....

In short, paragraph 18 provides that, at the end of

five years after the expiration of the primary term, the 

lessee is entitled to hold 640 acres for each gas well 

drilled below 5,000 feet unless the Railroad Commission has “adopted” a rule “for” the field in which the 

gas well is drilled; if the Railroad Commission has

“adopted” a rule “for” a field, the lessee is entitled to 

the acreage specified in that rule.

The parties agree the lease's primary term expired 

on February 10, 1980; and, five years later, on February 10, 1985, two wells were producing gas from a

depth greater than 5,000 feet: the Serafin No. 1 gas 

well and the Serafin No. 4 gas well. The parties further 
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agree that the Railroad Commission “adopted” a rule

“for” the field in which the Serafin No. 4 gas well was 

drilled; and that field rule entitles Conoco to 176 acres 

surrounding the Serafin No. 4 gas well. But the parties 

disagree on whether the Railroad Commission 

“adopted” a rule “for” the field in which the Serafin 

No. 1 gas well was drilled. Ramirez argues the Railroad Commission “adopted” two rules-statewide 

Rules 37 FN1 and 38 FN2-“for” this field and, under 

these rules, the lessee is entitled to only forty acres 

around the well. Conoco argues statewide rules are not 

“adopted” “for” a field and therefore do not trigger the 

“except clause” in paragraph 18; accordingly, Conoco 

argues, it is entitled to 640 acres around the well. The 

trial court rendered judgment in Ramirez's favor, ruling that Conoco is entitled to only forty acres around 

the Serafin No. 1 gas well in accordance with the 

statewide rules. Conoco appealed. Because we agree 

with Conoco that statewide rules are not “adopted” 

“for” a field, we reverse the trial court's judgment and 

render judgment in Conoco's favor.

FN1. Rule 37, the Statewide Spacing Rule, 

provides in relevant part:

The distances mentioned in subsection (a) 

[-1200 feet between wells and 467 feet 

between any well and a property line-] are 

minimum distances to provide standard 

development on a pattern of one well to 

each 40 acres in areas where proration 

units have not been established.

16 TEX. ADMIN. CODE § 3.37(b) (2006)

(Tex.R.R. Comm'n, Statewide Spacing 

Rule). Because this part of statewide Rule 

37 remains unchanged since 1985, we cite 

to the current rule.

FN2. In 1985, Texas Railroad Commission 

Rule 38, Well Densities, provided in relevant 

part:

No well shall be drilled on less, but may be 

drilled on more, acreage than that hereafter 

prescribed as the proper amount for all oil 

and gas fields wherein only spacing rules, 

either special or statewide, are applicable 

... 467-1200 [feet] ... 40 [acres].

16 TEX. ADMIN. CODE § 3.38(b)(1), 

adopted effective Jan. 1, 1976 (repealed 

and replaced 1989) (current version at 16 

TEX. ADMIN. CODE § 3.38(b)(1)

(Tex.R.R. Comm'n, Well Densities) 

(hereinafter cited as Former Rule 

38(b)(1)).

*2 “To regulate oil and gas production, the Railroad Commission of Texas has adopted general rules 

applicable throughout the State....” R. R. Comm'n of 

Tex. v. WBD Oil & Gas Co., 104 S.W.3d 69, 70 

(Tex.2003). However, “because these general rules 

cannot adequately address the widely varying conditions found in the thousands of oil and gas reservoirs 

in Texas, the Commission may issue orders with detailed regulations for a specific field, which the 

Commission calls field rules.” Id. Because the general 

rules apply statewide, they must be promulgated in 

accordance with the rulemaking provisions of the 

Texas Administrative Procedure Act; field rules, on

the other hand, apply to a specific field and a specific 

group of operators and must therefore be adopted 

under the adjudication provisions of the TAPA. See id.

at 71. These differences make clear that a statewide 

rule is not a field rule. FN3 Accordingly, we hold that, 

because statewide Rule 37(b) and Former Rule 

38(b)(1) were not “adopted” “for” the field in which 

the Serafin gas well No. 1 was drilled, they are not 

field rules and therefore do not trigger the “except” 

clause in paragraph 18.

FN3. See, e.g., Browning Oil Co. v. Luecke,

38 S.W.3d 625, 633 n. 5 (Tex.App.-Austin 
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2000, pet. denied) (“Field rules are special 

rules that modify the Railroad Commission's 

[statewide regulations affecting] well spacing, density, prorationing, and casing requirements for designated fields to deal with 

differences in reservoir conditions.”); Seagull Energy E & P, Inc. v. R.R. Comm'n of 

Tex., 99 S.W.3d 232, 235-36 

(Tex.App.-Austin 2003, pet. granted) (distinguishing statewide and field rules).

Ramirez makes three arguments to the contrary. 

First, she argues paragraph 18 is ambiguous and points 

to the testimony of her expert that it was the Railroad 

Commission's policy for a proration analyst to “adopt” 

statewide rules “for a particular field when the field is 

discovered and application is made to the [Commission] by the operator.” However, parol evidence is not 

admissible to vary the terms of an unambiguous contract FN4; and a contract is ambiguous only if it is 

susceptible to more than one reasonable interpretation. 

See Universal C.I.T. Credit Corp. v. Daniel, 150 Tex. 

513, 243 S.W.2d 154, 157 (1951). In light of the 

longstanding distinction in Texas jurisprudence between statewide and field rules, we hold paragraph 18 

is unambiguous: it clearly provides that, if the Railroad Commission does not “adopt” a rule “for” a field, 

the lessee is entitled to 640 acres around a gas well 

drilled below 5,000 feet; if the Railroad Commission 

does “adopt” a rule “for” a field, the lessee is entitled 

to the acreage specified in that rule. Ramirez's ambiguity argument, as well as her interpretation of paragraph 18 and her expert's testimony, also erroneously 

equates the quite different concepts of “adoption” and 

“application.” To “adopt” means “to accept formally

and put into effect,” while to “apply” means “to put 

into operation or effect.” WEBSTER'S NINTH NEW 

COLLEGIATE DICTIONARY 58, 97 (1984). Under 

Texas law, an operator's application for a permit does 

not cause the Railroad Commission to “adopt” 

statewide rules; rather, the Commission promulgates

statewide rules through a formal rule-making procedure. The Commission “adopts” specific field rules 

following a formal adjudicative proceeding-a type of 

proceeding that indisputably did not occur before 

statewide Rule 37(b) and Former Rule 38(b)(1) were 

applied to the field in which the Serafin No. 1 gas well 

was drilled. In short, although these statewide rules 

apply to the field in which the Serafin No. 1 gas well 

was completed, these rules were not “adopted” “for”

the field. Accordingly, the “except” clause in paragraph 18 does not apply as a matter of law; and parol 

evidence from Ramirez's expert is irrelevant.

FN4. See Nat'l Union Fire Ins. Co. v. CBI 

Indus., Inc., 907 S.W.2d 517, 521 (Tex.1995)

(per curiam).

*3 Ramirez next argues that paragraph 18 is inconsistent with and trumped by the statewide rules.

However, the statewide rules merely establish minimum spacing and density requirements. See 16 TEX. 

ADMIN. CODE § 3.37(b) (“The distances mentioned 

in subsection (a) [-1200 feet between wells and 467

feet between any well and a property line-] are minimum distances to provide standard development on a

pattern of one well to each 40 acres in areas where

proration units have not been established.”); Former 

Rule 3.38(b)(1) (“No well shall be drilled on less, but 

may be drilled on more, acreage than that hereafter

prescribed as the proper amount for all oil and gas

fields wherein only spacing rules, either special or 

statewide, are applicable ... 467-1200 [feet] ... 40 

[acres]”). Paragraph 18, on the other hand, establishes 

the acreage the lessee is entitled to hold five years 

after the expiration of the primary term. Indeed, if we 

were to construe statewide Rule 37(b) and Former 

Rule 38(b)(1) as determining the amount of acreage 

the lessee is entitled to hold five years after the expiration of the primary term, it would render the part of 

paragraph 18 that applies in the absence of a field rule 

meaningless. The statewide rules would always control.

Ramirez also argues the drafters intended paragraph 18 to protect against the remote contingency 
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“that spacing or proration rules by a governing body 

may not exist at the time Paragraph 18 is triggered,” so 

that a lessee could hold the entire acreage with just one 

well. However, this construction of paragraph 18 

ignores its plain language and structure: the first proviso states the general rule (in the absence of a field 

rule, the lessee will hold 640 acres around a gas well 

drilled deeper than 5,000 feet), while the second proviso states the exception (if a field rule is adopted, the 

lessee will hold the acreage specified in the field rule). 

Under Ramirez's construction, the structure of paragraph 18 is turned on its head: the first clause would 

never apply, while the second “except” clause would

state both the general rule (fields governed by the

statewide rules) and the exception (fields governed by 

field rules). This construction would be not only 

nonsensical but contrary to general rules of construction. Cf. Knight v. Chicago Corp., 144 Tex. 98, 188 

S.W.2d 564, 566-67 (1945) (“Immediately following 

the above clause and in the same sentence is a proviso 

introduced by the words ‘provided, however,’ which 

are followed by the restrictive provisions. That proviso must be construed as a limitation or restraint upon 

the authority defined in the clause immediately proceeding it.... The parties undertook only to restrict the 

powers defined and not to enlarge thereon. To hold 

otherwise would be to make a restriction upon a power 

cover a broader field than the power itself.”).

In sum, although statewide Rule 37(b) and Former Rule 38(b)(1) apply to the field in which the 

Serafin No. 1 gas well was drilled, they were not 

“adopted” “for” this field. Accordingly, pursuant to 

the plain language of paragraph 18, Conoco is entitled 

to hold 640 acres surrounding the Serafin No. 1 gas

well. The trial court therefore erred in ruling to the 

contrary. Therefore, we reverse the trial court's 

judgment to the extent it declares that, as of February 

10, 1985, Conoco held forty acres located around the 

Serafin No. 1 gas well and render judgment that, as of 

February 10, 1985, Conoco held 640 acres located 

around the Serafin No. 1 gas well.

Tex.App.-San Antonio,2006.

ConocoPhillips Co. v. Ramirez

Not Reported in S.W.3d, 2006 WL 1748584 

(Tex.App.-San Antonio)

END OF DOCUMENT