* Circuit Judge for the Eighth Circuit, sitting by designation.

** Pu rsuant to 5 T H C IR

. R. 47.5, the Court has determined that this opinion should not be

published and is not precedent except under the limit ed circumstances set forth in 5 TH C IR

. R. 47.5.4.

1 UNITED STATES COURT OF APPEALS

For the Fifth Circuit

___________________________

No. 00-60754

___________________________

EXXON CORPORATION, A New Jersey Corporation

Plaintiff-Appellant,

VERSUS

CROSBY-MISSISSIPPI RESOURCE, LTD, a Mississippi Limited Partnership;

LYNN CROSBY GAMMILL, General Partner; STEWART GAMMILL, III, General Partner:

STEWART GAMMILL, III, as successor Trustee for Steward Gammill IV, Trust Number 2;

LUCIUS OLEN CROSBY GAMMILL, Trust Number 2;

JENNIFER LYNN GAMMILL, Trust Number 2; LUCIUS OLEN CROSBY GAMMILL;

STEWART GAMMILL, IV; JENNIFER LYNN GAMMILL;

STEWARD GAMMILL, III, as successor Trustee for Steward Gammill IV,

Defendants-Appellees.

Appeal from the United States District Court

for the Southern District of Mississippi

(3:89-CV-627 (B)(N))

December 28, 2001

Before GARWOOD, DAVIS, and MAGILL, * Circuit Judges.

W. EUGENE DAVIS, Circuit Judge: **

This appeal arises out of a dispute over the in terpretation of the term s of an Expl orati on1 Another panel of this court addressed issues unrelated to t his appeal in an unpublished

opinion.

2 Agreement bet ween Exxon Corporation (“Exxon”) and Crosby-Mississippi Resources, Ltd., et al

(“CMR”), initiated over twelve years ago. This is the third time issues from this case have been

presented to us. This appeal is a continuation of the issues addressed in our prior published opinion,

154 F.3d 202 (1998)( Exxon I ). 1 For the following reasons we affirm the district court in part and

reverse in part.

I.

The history of this dispute is reported in detail in our prior opinion. To aid the reader, we will

summarize those facts relevant to this appeal, supplemented as necessary to explain the new issues

that have arisen since that opinion. In 1983, Exxon and CMR entered into a joint oil and gas

Exploration Agreement to develop their respective mineral resources in an area of Mississippi. Exxon

held oil and gas leases covering more than 60,000 acres in t he contract area, while CMR owned

approximately 20,000 mineral acres in the contract area. Both Exxon and CMR contributed what

they o wned t o the joint oil and gas exploration effort. The parties agreed that Exxon contributed

76% and CMR 24% of th e oil and gas int erests in the contract area. Under the terms of the

Exploration Agreement, Exxon had the exclusive right to propose the first exploratory well. CMR

could choose to participate in the exploratory well up to its 24% contractual share. If CMR chose

to participate, it was required to bear its proporti onate share of the costs of the dri lling, testing,

completion, and producti on expenses of the well. By doing so, CMR would be entitled to 24% of

the well's commercial production. If CMR chose not to participate, however, CMR was still entitled2 The Exploration Agreement defines a drilling unit as "the area fixed for the drilling of one

well by order or rule of any state or federal body having authority."

3 Paragraph 7 of the Exploration Agreement read in pertinent part:

Each PARTY receiving proper notice

. . . of a PROPOSED EXPLORATORY WELL

. . . shall have thirty (30) days after receipt of said notice within which to notify the

proposing PART Y if said receiving PARTY elects to participate in the cost of the

PROPOSED drilling as to all or a ny part of its CONTRACTUAL INTEREST and

other interest; and failing an affirmative election

. . . e ach NON-CONSENTING

PARTY shal

l by this EXPLORATION AGREEMENT agree that the CONSENTING

PARTIES shall have the right to earn the NON-CONSENTING CONTRACTUAL

INTEREST of each N ON-CONSENTING PARTY, . . . . As to each

EXPLORATORY WELL, the CONSENTING PARTIES who CARRY their part of

the NON-CONSENTING CONTRACTUAL INTEREST shall

. . . be entitled to the

producti on from sa id well which would have been attributable to said NONCO NSENTING PARTY’s CONTRACTUAL INTEREST had said NONCONSENTING PARTY participated as to said CONTRACTUAL INTEREST,

subject, however, to any and all royalty due under the LEASE, calculated on said

NON-CONSENTING PARTY’s actual unleased miner al interest, and to an

overriding royalty of one eighth (1/8) of eight eighths (8/8) of production allocated

to the PARTIES, without any reduction for any royalties and /or any other burdens,

and calculated on said NON-CONSENTING PARTY’s CONTRACTUAL

INTEREST percentage

. . . and subject to the right of CONVERSION OPTION AT

PAYOUT.

4 Paragraph 8 of the Exploration Agreement reads in pertinent part:

If at the time each NEW EXPLORATORY WELL IS PR OPOSED . . . then the

3 to a royalty on any of its unleased mineral interests included in the drilling unit 2 for each well and to

an “overriding royalty” under provisions which are further explained below.

A substantial number of wells were drilled by the parties. CMR participated in some but not

in others. Almost from the beginning the part ies disagreed over a number of issues. The

disagreements eventually led to the filing of this action by Exxon in 1989 to collect amounts it claims

are due from CMR for its share of various expenses. CMR filed a counterclaim alleging numerous

claims of its own.

The dispute in Exxon I arose in part regarding the effect of Paragraphs 7 3 and 8 4 of theCONSENTING PARTY shall by earning the NON-CONSENTING PARTY's

CONTRACTUAL IN T EREST in said EXPLORATORY WELL likewise earn the

NON-CONSENTING PARTY's ri ghts to sai d NON-CONSENTING

CONTRACTUAL INTEREST to propose, drill, and complete or plug and abandon

DEVELOPMENT WELLS which are drilled in OFFSETTING CONTRACT UNITS

to said EXPLORATORY WELL, provided that no more than one hundred and eighty

(180) days shall elapse between the date said EXPLORATORY WELL is

COMPLETED or PLUGGED AND ABANDONED and the actual commencement

of drilling of the first DEVELOPMENT WELL drilled in an OFFSETTING

CONTRACT UNIT to said EXPLORATORY WELL, and the n between said first

such DEVELOPMENT WELL and the commencement of the drilling of the second,

and so on, on a continuous basis,

. . . . The CONSENTING PARTIES who CARRY

said NON-CONSENTING PARTY’s INTEREST in that portion of the

OFFSETTING CONTRACT UNIT or UNITS to sai d EXPLORATORY WELL

which is included in the CONTRACT UNIT for each such DEVELOPMENT WELL

shall thereby earn and be entitled t o receive said NON-CONSENTING PARTY’s

share of the producti on attributable to said portion, subject, however, to any and all

royalties due under the LEASE, calculated on said NON-CONSENTING PARTY’s

actual unleased mineral interests, and to an overriding royalty of one eighth (1/8) of

eight eighths (8/8) of production allocated to the PARTIES, without any reduction

for any royalties and /or any other burdens and calculated on said NONCONSENTING PARTY’s CONTRACTUAL INTEREST

. . . and subject to the right

of CONVERSION OPTION AT PAYOUT. . . .

5 Under the majority of oil and gas leases, it is "customary" that the lessor retains a royalty

interest consisting of a fraction of the gross amounts of oil or gas produced. This customary royalty

interest is often a 1/8 interest.

6 The Exploration Agreement defines a consenting party as "a party who agrees to join in and

pay its share of the drilling cost of any operati on conducted under the provisions of this agreement."

4 Exploration Agreement to certain properties acquired by Exxon after the inception of the agreement.

Under paragraph 7, if Exxon drilled an exploratory we ll and CMR did not participate, CMR,

however, was still entitled to a 1/8 "customary royalty" 5 if it owned the "actual, unleased mineral

interests" in the drilling unit. Moreover, Paragraph 7 of the contract provided CMR with an

additional 1/8 "overriding royalty" interest on "production allocated to the parties

. . . calculated on

. . . the non-consenting party's 6 contractual interest percentage." Thus, in the simplest case

-- whereBy contrast, a non-consenting party is "a party who elects not to participate in a proposed operation."

For all issues addressed in this appeal, Exxon is the consenting party and CMR is the non-consenting

party.

5 both parties collectively possessed 100% of the interests underlying a particular exploratory well and

CMR elected not to participate in the drilling of that well -- CMR would still receive an overriding

royalty of 1/8 of 24% of the 100% joint interests of Exxon and CMR.

If, under Paragraph 7, Exxon earned CMR's interest in an exploratory well, Paragraph 8

permitted Exxon to earn CMR's interest in any offset wells to the exploratory wel l , cal l ed

"developm

ent wells," under certain conditions. If Exxon met the conditions, it could earn CMR's

interest in the development wells, subject to CMR's customary 1/8 royalty (if CMR owned the "actual

unleased mineral interests") and the 1/8 overriding royalty on "production allocated to the parties."

Exxon t imely commenced drilling on the first exploratory well, Southern Minerals No. 1. CMR chose

not to participate. This well was successful and produced gas. Exxon then drilled the first

development well for Southern Minerals No. 1, c alled Sout hern Minerals No. 2, and a second

development well, called Crown-Zellerbach No. 24-11. Exxon ultimately drilled six more wells in

the area, which are not relevant to this appeal.

Unlike our simple example, Exxon and CMR did not own all of the drilling rights throughout

the Contract Area governed by the Exploration Agreement between them. It is not unusual in this

circumstance for the parties desiring to drill to acquire the outstanding interests from the third parties

who own unleased and outstanding interests. If those mineral interests are already under lease, the

parties desiring to drill may purchase the leases from the holders of the leases. If the parties holding

such leases wish to participate in the well, the leaseholders may "farm-out" their leased interest to the

parties desiring to drill the well. In such an event the contract is structured so that the purchaser or7 Pursuant to Paragraph 13 of the Exploration Agreement, “. . . it is agreed that, as to any

ACQUISITION, t he acquiring PARTY shall notify all other PARTIES promptly of the terms and

conditions of each such ACQUISITION, and said other PARTIES shall have thirty (30) days

following receipt of notice in which to elect to participate in each such ACQUISITION, for the dollar

price paid and/or possible parti cipat io n in t he drilling of a WELL, if that be required to earn a

farmout , retroactive to and effective as of the date of such ACQUISITION, and according to t he

CONTRACTUAL INTERESTS of the PARTIES . . . and all ACQUISITIONS shall otherwise be

subject to this EXPLORATION AGREEMENT.”

6 farmee acquires an interest in the lease by successfully drilling a well to a specified depth. When the

original leaseholder of a mineral lease sells (or "farms-out ") its mineral rights to a purchaser wishing

to drill in the leasehold, the purchaser acquires a "farm-in."

Subsequent to the signing of the Exploration Agreement, Exxon acquired "far m-ins" from

Cities Service Company, Clayton W. Williams, Jr. and David Smith (the “Farm-in Acquisitions”).

Under the terms of paragraph 13 of the Exploration Agreement, CMR had the right to participate in

these acquisitions up to its Contractual Interest by paying it s share o f the costs to drill the wells

required to accomplish these farm-in acquisitions. 7 CMR did not participation in any of the Farm-in

Acquisitions

In t he first bench trial, the trial court ruled that Exxon had earned CMR’s interests in the

disputed areas but also ruled that the contract unambiguously required Exxon to pay CMR the 1/8

o verriding royalty on gas production attributable to the farm-ins that Exxon acquired aft er t he

inception of the Expl

oratory Agreement. Because this first issue controlled many of the later disputes

between the parties, the district court certified its ruling for immediate appeal under Rule 54(b) of the

Federal Rules of Civil Procedure. Exxon appealed that ruling. A panel of this court “vacated the

decision of the district court that the Exploration Agreement is unambiguous with respect to whether

CMR is entitled to an overriding royalty on Exxon’s farm-in acquisitions” and remanded the case “for7

the consideration of parol evidence to determine the parties’ intent with respect to this issue.” On

remand, the district court held a two day bench tri al. Following the trial, the district court found

“that it was the intent of the parties that CMR was to be entitled to a one-eighth overriding royalty

on production from the farm-ins acquired solely by Exxon.”

A second issue arose after the district court m ade t he ruling described above. The parties

disagreed as to whether CMR had the right to exercise the Conversion Option at Payout as to CMR’s

overriding royalty interest on Farm-in Acquisitions. The Exploration Agreement defines Conversion

Option at Payout as “the opti on that each NON-CONSENTING PARTY shall have, as to each NONCONSENTING CONTRACTUAL INTEREST, to continue to rec eive t he overriding royalty

provided for in PARAGRAPHS 7 and 8 of the EXPLORATION AGREEMENT or to exchange said

overriding royalty for 50% of t he participating CONTRACTUAL INTEREST said NONCONSENTING PARTY would have owned had said PARTY participated in said WELL as to said

CONTRACTUAL INTEREST.

. .” This new Issue Ten was submitted to the district court on

motions for summary judgment. By an Opinion and Order dated July 18, 2000, the district court

found that “CMR is not judicially estopped from asserting a right to Conversion Option at Pay out”

and granted CMR’s motion for summary judgment, finding that CMR does have a Conversion Option

at Payout as to the subject overriding royalty interests, a nd t hat CMR had timely exercised that

option.

Exxon challenges both decisions of the district court.

II.

Exxon argues first that the district court erred in concluding t hat CMR is entitled to an

overriding royalty interest under Paragraphs 7 and 8 of the Exploration Agreement as to producti on8 Baldwin v. Stadler , 137 F.3d 837, 839 (5th Cir. 1998).

8 from Farm-in Acquisitions acquired solely by Ex x on, specifically the Cities Service Company, Clayton

W. Williams, Jr. and David Smith farm-ins. We start our analysis, as we must, with the conclusion

reached in Exxon I

, that the agreement itself is ambiguous on this issue. On remand, the district

court concluded on the basis of the parole evidence presented to it, that CMR carried its burden of

proof and that the parties intended to give CMR a one-eighth overriding royalty interest on all

producti on allocated to the parties, including producti on from the Farm-in Acquisitions. The district

court’s decision on this issue is a factual one, which is subject to review for clear error. 8

The district court gave great weight to the testimony of Mr. Gammill, CMR’s representative

in the negotiations. Mr. Gammill testified directly that it was his intention on behalf of CMR to have

the provisions in question cover all acquisiti o ns, including acquisitions obtained solely by Exxon.

Proposed revisions to the documents in Mr. Gammill’s handwriting, which Exxon accepted, support

his testimony. Although the agreement as interpreted by the district court is not co nsist ent with

common practices in the i ndust ry, neit her was the negotiating position of the parties. Because of

CMR’s extensive mineral interest holdings in the prospect area and CMR’s refusal to lease its acreage

to Exxon, Exxon was compelled to negotiate the Exploration Agreement with a mineral owner, which

it does not ordinarily do. Also, due to the impending expiration of many of Exxon’s leases within the

prospect, Exxon was under time pressure to obtain an agreement with CMR. Although the record

contains evidence that would point to the opposite conclusion, including testimony of other witnesses,

conduct of the parties and the language of the agreement itself, the district court’s concl usion has

evidentiary support and is not clearly erroneous.

A significant portion of Exxon’s argument on this issue is devoted to its position that there9

can be no overriding royalty interest in favor of CMR on the Farm-in Acquisitions without express

language of grant or reservation. Whatever the merits of those arguments, they did not carry the day

in Exxon I

, and we are precluded from revisiting these arguments dealing with the plain language of

the agreement.

III.

Exxon argues next that the district court erred in concluding that CMR is entitled to convert

to a working interest the overriding royalty inter est s at t ributable to Exxon’s Farm-in Acquisitions

which it acquired after execution of t he Exploration Agreement. This panel is in a procedurally

different position on thi s issue t han on the first issue. E xxon I did not address this question.

Accordingly, our review of the contractual language of the Exploration Agreement and the district

court’s interpretation of the contract is de novo.

The Exploration Agreement defines the Conversion Option at Payout as “the opti on that each

NON-CONSENTING PARTY sha ll have, as to each NON-CONSENTING CONTRACTUAL

INTEREST, to conti nue to receive the overriding royalty provided for in PARAGRAPHS 7 and 8

of the EXPLORATION AGREEMENT or to excha nge said overriding royalty for 50% of the

participating CONTRACTUAL INTEREST said NON-CONSENTING PARTY would have owned

had said PARTY participated in said WELL as to said CONTRACTUAL INTEREST.

. .” Simply

stated, CMR’s position is that if they are entitled to an overriding royalty as to an interest, they are

entitled also to the Conversion Option. CMR argues that the district court correctly concluded that

because CMR is entitled to the overriding royalty interest as to Exxon’s Farm-in Acquisitions, CMR

is also entitled to convert that overriding royalty interest into a working interest in those separately10

acquired properties under the terms of the option. We disagree.

CMR’s interpretation merges two distinct features of the Exploration Agreement. CMR’s

entitlement to an overriding royalty de rives from Paragraphs 7 and 8 of the agreement which deal

with the drilling of Expl

oratory and Development We lls. Those paragraphs set forth the rights of

CMR to participate in proposed wells and the consequences of not doing so. If CMR elects not to

participate in drilling a well, or if by not participating in an exploratory well CMR loses its right to

participate in the drilling of subsequent development wells, Exxon earns CMR’s interest in the wells

with CMR retaining an overriding royalty interest in the prospects. In this circumstance, when CMR

does not participate in the drilling costs, Paragraphs 7 and 8 have the effect of requiring CMR to

exchange its rights to production from its Contractual Interest in properties included in the unit as

a method of compensating Exxon for bearing all the drilling costs and risks. Once these wells pay out,

CMR retained the option to exchange the overriding royalty for a working interest equal to one-half

of the working interest it would have had if it had participated. Thus, all of these provisions deal with

the forfeiture and earning of rights between the parties as to prop ert ies each contributed to the

venture.

A separate provision, Paragraph 13, deals with acquisitions of mineral interests by the parties

within the contract area after the inception of the agreement. Under Paragraph 13, each party has

the right to participate in the acquisition of an interest by another party within the contract area by

paying its share of the acquisition price. In the case of the Cities Service, William, and Smith farmins, Exxon’s acquisition price was the cost of drilling a well to meet the specifications of the farm-ins.

As to these farm-ins, CMR did not participate in the drilling of the wells required to meet the terms9 Based on footnote 11 from Exxon I , it is not entirely clear whether CMR was given an

opportuni ty to participate in the farm-ins, either by failure of notice by Exxon or as a result of CMR’s

decision not to participate i n t he first exploratory well by which act CMR forfeited their right to

participate in related development wells. CMR raises no issue in this regard and there is no dispute

that CMR did not in fact participate in the Cities Service, William and Smith farm-ins.

11 of the farm-in. 9 Accordingly, CMR had no interest in these separately acquired properties that would

be subject to the forfeiture / retention features of Paragraphs 7 and 8.

CMR’s argument that it is ent it led to convert the overriding royalty interest on Exxon’s

separately acquired farm-ins under the Conversion Option would require us to read Paragraphs 7 and

8 as overriding the requirements of Par agraph 13. It is true that the Cities Service, Williams and

Smith farm-ins were acquired by Exxon by the drilling of a well, and that if CMR had participated in

the drilling of the farm-in well it would have owned a working interest in the farm-in area. However,

to interpret the Conversion Option as applying to the overriding royalty interests attributable to these

farm-ins would give CMR a means of by-passing the provisions of Paragraph 13. In other words,

CMR’s reading would allow them to acquire, without risk or expense, one-half of the working

interest Paragraph 13 requires them to pay for. We see nothing in the terms of the Conversion Option

at Payout that supports such a conclusion.

In addition, we see no basis in the language of the Conversion Option to apply it to properties

separately acquired by Exxon via the operati on of Paragraph 13. The Conversion Option gives the

holder of the overriding royalty interest the right to exchange the overriding royalty for one-half of

the working interest they would have owned if they had par t icipat ed in the drilling of the well.

Because the Conversion Option derives from Paragraphs 7 and 8, we read the “drilling participation”

the opti on refers to as participation under Paragraphs 7 and 8 and the interests referred to as interests

in properties jointly contributed by the part ies, as to which the forfeiture and conversion options10 Exxon argues that CMR is judicially estopped from claiming a working interest in the Cities

Service, Williams and Smith farm-ins. Because we decide the issue on the merits in Exxon’s favor,

we need not address that issue. However, our review of the record convinces us that the dist rict

court did not abuse its discretion in declining to apply the judicial estoppel doctrine in this instance.

12 apply. As the Cities Service, Williams and Smith farm-ins were not jointly contributed by the parties,

drilling participation for acquisition purposes is governed by Paragraph 13 and the Conversion Option

at Payout does not apply to overriding royalty interests attributable to those properties. 10

IV.

For the reasons stated above, we affirm the district court’s judgment in part, reverse in part

and remand this case to the district court for entry of judgment consistent with this opinion.

AFFIRMED IN PART. REVERSED IN PART. REMANDED.