Opinion ID: 6108757
Heading Depth: 2
Heading Rank: 2

Heading: The Savings Clause

Text: Because we hold in the first part of this opinion that the Rule does not invalidate any part of Strieber's reservation, we must determine who held the interest in the NPRI at the expiration of the fifteen-year period. It is undisputed that no well was actually producing on December 27, 2011, meaning that Strieber's interest in the NPRI continued beyond that date only if the savings clause was satisfied. The savings clause contains three requirements: (1) there is a lease on the premises; (2) the lease is maintained in force and effect by payment of shut-in royalties or any other similar payments made ... in lieu of actual production; and (3) there is a well capable of producing oil, gas, or other minerals in paying or commercial quantities, but which is shut in for lack of market or any other reason. It is undisputed that Burlington held  a lease on the tract on December 27, 2011, but the parties disagree as to whether the second or third requirements were met. The trial court, in finding that Burlington's and Strieber's NPRI expired on December 27, impliedly found that the savings-clause requirements were not satisfied. The court of appeals held that a fact issue existed concerning ownership of the NPRI because the savings-clause language regarding other similar payments is ambiguous as a matter of law, and it remanded the case to the trial court for a jury to decide its meaning. 542 S.W.3d at 661 . We agree with the court of appeals that the savings clause is ambiguous. 7 We may construe a deed as a matter of law only if it is unambiguous. J. Hiram Moore, Ltd. v. Greer , 172 S.W.3d 609 , 613 (Tex. 2005). The question of whether a contract is ambiguous is a question of law for the court. Heritage Res., Inc. v. NationsBank , 939 S.W.2d 118 , 121 (Tex. 1996). A contract is ambiguous when its meaning is uncertain and doubtful or is reasonably susceptible to more than one interpretation. Id. In construing a contract, we must ascertain and give effect to the parties' intentions as expressed in the writing itself. El Paso Field Servs., L.P. v. MasTec N. Am., Inc. , 389 S.W.3d 802 , 805 (Tex. 2012). We give terms their plain, ordinary, and generally accepted meaning unless the instrument shows that the parties used them in a technical or different sense. Heritage Res., Inc. , 939 S.W.2d at 121 . If the contract is subject to two or more reasonable interpretations after applying the pertinent rules of construction, however, the contract is ambiguous, creating a fact issue on the parties' intent. Id. A delay rental is a periodic payment made by an oil-and-gas lessee to postpone exploration during the primary lease term. Delay Rental , BLACK'S LAW DICTIONARY (10th ed. 2014); Amber Oil & Gas Co. v. Bratton , 711 S.W.2d 741 , 743 (Tex. App.-Austin 1986, no writ). The purpose of a delay rental is to ensure that the lessee has no obligation to drill during the primary term by negating any implied obligation to test the premises. See Tex. Co. v. Parks , 247 S.W.2d 179 , 182 (Tex. Civ. App.-Fort Worth 1952, writ ref'd n.r.e.). A paid-up lease is one under which all delay rentals bargained for are paid in advance, and this single payment maintains the lease during the primary term. 1 TEXAS LAW OF OIL AND GAS § 4.3[A][3]. A shut-in royalty is a payment made by a lessee to the lessor to keep the lease in force when a well capable of producing is not utilized because there is no market for the oil or gas. Shut-in Royalty , BLACK'S LAW DICTIONARY (10th ed. 2014); BP Am. Prod. Co. v. Red Deer Res., LLC , 526 S.W.3d 389 , 395 (Tex. 2017). Payment of shut-in royalties is considered constructive production and will maintain the lease if its terms are satisfied. Red Deer Res., LLC , 526 S.W.3d at 395 . Though generally paid during the secondary term, a lease providing for such payments may require them anytime a well is shut-in for lack of production, whether it is during the primary or secondary term. 3 OIL AND GAS LAW § 632.1 (Most shut-in royalty clauses appear to be equally applicable during the primary and secondary term of the lease.); see also Freeman v. Magnolia Petroleum Co. , 141 Tex. 274 , 171 S.W.2d 339 , 341-42 (1943) (holding that a lease terminated when there was a well capable of production  before the end of the primary term but the lessee had not paid shut-in royalties until after the primary term ended). Burlington concedes that a fact issue exists as to whether the well on Lackey Unit A was capable of producing on December 27, 2011, the end of the fifteen-year period. Both Burlington and Strieber assert, however, that the $24,000 payment Burlington made to the Koopmanns to extend the primary term of its lease on the tract is similar to a shut-in royalty and thus meets the third savings-clause requirement. Burlington argues the payment functioned similarly to a shut-in royalty because both would keep alive an existing lease in lieu of actual production. Further, because this was a paid-up lease, Burlington argues the $24,000 was essentially prepayment of delay rentals for two years and that delay rentals are widely recognized to be a type of payment similar to shut-in royalties. Strieber and the Koopmanns had no way of knowing whether a future lease would provide for rentals on a delayed basis or paid up front, and thus provided a savings clause keyed to payments made by a lessee during that time. The Koopmanns, on the other hand, argue that the bonus payments cannot be considered similar to shut-in royalties because the two payments are tied to different parts of an oil and gas lease. Whereas a bonus payment is made to extend the primary term of a paid-up lease, the Koopmanns assert, a shut-in royalty is a payment made as a substitute for actual production. The Koopmanns offer examples of payments similar to shut-in royalties other than delay rentals or extension payments, arguing that any payment made during the secondary term in lieu of production would satisfy the requirement. Finally, when Burlington made the $24,000 payment, the Koopmanns argue, drilling operations had not even begun, and there was no well in existence necessitating any payments. As the court of appeals noted, there are both similarities and differences between shut-in royalties, delay rentals, and paid-up leases, depending on the criteria used to compare them. 542 S.W.3d at 655 . These payments function to extend the force and effect of an oil and gas lease through periods of nonproduction. 3 OIL AND GAS LAW § 631 (discussing shut-in royalties); Amber Oil & Gas Co. , 711 S.W.2d at 743 (discussing both). On the other hand, the timing of each is often different-delay rentals or payments to extend a lease's primary term are necessarily paid during the primary term, see 1 TEXAS LAW OF OIL AND GAS § 4.3[A][3], whereas shut-in royalties can be due during either the primary or secondary term. See 3 OIL AND GAS LAW § 632.1. We agree with the court of appeals that because there is more than one reasonable interpretation of other similar payments in the savings clause of Strieber's deed, the savings clause is ambiguous and thus creates a fact issue as to the parties' intent. Cf. Greer , 172 S.W.3d at 614 (holding that the trial court erred in granting summary judgment when a deed was ambiguous and created a fact issue as to the parties' intent).