Court Opinion

ID: 6338712
Source: CourtListenerOpinion
Date Created: 2022-05-09 07:18:44.113228+00
Date Added: 2024-06-11T15:49:08.379526
License: Public Domain

Affirmed and Memorandum Opinion filed May 3, 2022.

                                      In The

                     Fourteenth Court of Appeals

                               NO. 14-20-00347-CV

                 THISTLE CREEK RANCH, LLC, Appellant

                                         V.
              IRONROC ENERGY PARTNERS, LLC, Appellee

                     On Appeal from the 21st District Court
                          Washington County, Texas
                         Trial Court Cause No. 36602

                          MEMORANDUM OPINION

      Appellant Thistle Creek Ranch LLC, as the lessor of two mineral leases, and
appellee Ironroc Energy Partners, LLC, as the lessee, sued each other for various
claims related to the leases. The primary dispute involved whether the leases had
terminated and whether Ironroc owed Thistle Creek unpaid proceeds. After the
trial court rendered a partial summary judgment in Ironroc’s favor that one of the
leases was not terminated and ruled at trial that Thistle Creek could not recover
certain statutory damages and attorney’s fees, the parties nonsuited or settled their
remaining claims without Thistle Creek waiving its right to appeal the two adverse
rulings.   The trial court signed a final judgment accordingly.      Thistle Creek
appeals, contending that the trial court erred by granting Ironroc’s motion for
summary judgment and denying Thistle Creek statutory damages and attorney’s
fees. We affirm.

                    I.     VALIDITY OF THE KETTLER LEASE

      In its first issue, Thistle Creek challenges the trial court’s summary
judgment ruling that one of the leases—the Kettler Lease—was valid and not
terminated due to a lack of production. Thistle Creek contends that Ironroc was
required to show, and failed to conclusively establish for purposes of summary
judgment, that there was “production in paying quantities.”

A.    Standard of Review and Legal Principles

      The general principles that govern the construction of contracts apply to the
construction of mineral leases. Sundown Energy LP v. HJSA No. 3, L.P., 622
S.W.3d 884, 888 (Tex. 2021).       Summary judgments and the construction of
contracts present questions of law that we review de novo. Id. When construing a
contract, our primary concern is to give effect to the written expression of the
parties’ intent as expressed within the four corners of the contract.       See id.;
Endeavor Energy Res., L.P. v. Discovery Operating Inc., 554 S.W.3d 586, 595
(Tex. 2018); see also Andarko Petroleum Corp. v. Thompson, 94 S.W.3d 550, 554
(Tex. 2002) (“When a lease terminates is always a question of resolving the
intention of the parties from the entire instrument.” (quotation omitted)). Words
must be construed in the context in which they are used, but courts cannot interpret
a contract to ignore clearly defined terms. Sundown, 622 S.W.3d at 888. We
avoid construing contracts in a way that renders contract language meaningless.
Id. Parties are free to decide their contract’s terms, and the law’s strong public
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policy favoring freedom of contract compels courts to respect and enforce the
terms on which the parties have agreed. Endeavor, 554 S.W.3d at 595.

      The dispute in this case focuses on the habendum clause, which defines the
duration of a mineral-lease estate. See id. at 597. This clause typically divides the
lease’s duration into a primary term for a fixed period of time and a secondary term
that continues after the primary term expires for “as long thereafter as oil, gas or
other mineral is produced.” Id. (quoting Andarko, 94 S.W.3d at 554). Under this
type of habendum clause, a lease may continue indefinitely as long as oil or gas is
produced, but the lease will automatically terminate if actual production
permanently ceases during the secondary term. Id. This type of habendum clause
requires “actual production in paying quantities.” Andarko, 94 S.W.3d at 554.

B.    Terms of the Lease and Undisputed Evidence

      In 1989, the parties’ predecessors entered into the Kettler Lease, whereby
Thistle Creek as the current lessor agrees to lease property to Ironroc as the current
lessee for the “purposes and with the exclusive right of exploring, drilling, mining
and operating for, producing and owning oil, gas, sulphur and all other minerals.”
Ironroc agrees “to use reasonable diligence to produce, utilize, or market the
minerals capable of being produced” from the property.

      The habendum clause provides:

      Unless sooner terminated or longer kept in force under other
      provisions hereof, this lease shall remain in force for a term of three
      (3) years from the date hereof, hereinafter called “primary term,” and
      as long thereafter as operations, as hereinafter defined, are conducted
      upon said land with no cessation for more than ninety (90)
      consecutive days.

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      “Operations” is defined as:

      operations for and any of the following: drilling, testing, completing,
      reworking, recompleting, deepening, plugging back or repairing of a
      well in search for or in any endeavor to obtain production of oil, gas,
      sulphur or other minerals, excavating a mine, production of oil, gas,
      sulphur or other mineral, whether or not in paying quantities.
      Ironroc attached evidence to its motion for summary judgment, and Thistle
Creek does not dispute, that gas has been produced under the lease with no
cessation greater than ninety consecutive days. Ironroc conceded that production
has not been profitable or in “paying quantities” since at least March 2018.

C.    Analysis

      Thistle Creek contends that the trial court “erred in granting summary
judgment in favor of Ironroc on the grounds that production in any amount, no
matter how small or unprofitable, was sufficient to maintain the Kettler Lease.”
Thistle Creek relies on well-settled case law interpreting the word “produced” or
“production” in a mineral-lease habendum clause to mean production “in paying
quantities.”   See Clifton v. Koontz, 325 S.W.2d 684, 690 (Tex. 1959) (citing
Garcia v. King, 164 S.W.2d 509, 511 (Tex. 1942)). Whether a well is producing in
paying quantities depends on a two-pronged analysis: (1) whether the well pays a
profit, even small, over operating expenses; and (2) if not, whether, 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 the well as it
had been operated. BP Am. Prod. Co. v. Laddex, Ltd., 513 S.W.3d 476, 482–83
(Tex. 2017).

      The habendum clause here, however, does not use the word “produced.” It
allows the lease to continue past the primary term “as long thereafter as operations,
as hereinafter defined, are conducted.” And “operations” include “production of

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oil, gas, sulphur or other mineral, whether or not in paying quantities.” Under the
plain terms of the lease and undisputed evidence in this case, the lease has not
terminated because the well has produced gas “whether or not in paying
quantities.” See Ladd Petroleum Corp. v. Eagle Oil & Gas Co., 695 S.W.2d 99,
107 (Tex. App.—Fort Worth 1985, writ ref’d n.r.e.) (holding that a mineral lease
did not terminate because, by the terms of the lease, “production need not be in
paying quantities”); cf. Ice Bros., Inc. v. Bannowky, 840 S.W.2d 57, 60 (Tex.
App.—El Paso 1992, no pet.) (regarding lease with similar habendum clause and
definition of “operations,” noting that the parties agreed that “the amount of
production was irrelevant since under the definition of operations in the lease,
production was not required to be in paying quantities”).

      Thistle Creek relies on other clauses in the lease, such as the reasonable-
diligence covenant and the clause regarding the purpose of the lease to be for
“producing” minerals. Thistle Creek contends that these clauses show the parties’
intent for production to be in paying quantities. But a court must give meaning to
all words in a contract, and a court cannot rewrite the contract to ignore the
definition of “operations” that expressly states production need not be in paying
quantities.   See Andarko, 94 S.W.3d at 554–57 (holding that the typical rule
requiring actual production to maintain the lease did not apply when the habendum
clause maintained the lease if gas “is or can be produced”). This habendum
clause, which does not require production “in paying quantities,” may be read in
harmony with a reasonable diligence covenant that gives rise to a claim for
damages for breach of the covenant. See id. at 560 (noting that breach of an
implied covenant, such as reasonable diligence, “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

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cancellation” (quoting Rogers v. Ricane Enters., Inc., 772 S.W.2d 76, 79 (Tex.
1989))). Thistle Creek’s reliance on any other case that included a similar purpose
or diligence clause is unpersuasive because the habendum clause did not extend the
leases based on production “whether or not in paying quantities.”                See
Hydrocarbon Mgmt., Inc. v. Tracker Expl., Inc., 861 S.W.2d 427, 432 (Tex.
App.—Amarillo 1993, no writ).

      Finally, Thistle Creek contends that, even if production need not be in
paying quantities to extend the lease, Ironroc had to conclusively establish that a
“reasonably prudent operator would, for the purpose of making a profit and not
merely for speculation, continue to operate the well as it had been operated.” See
Laddex, 513 S.W.3d at 483. This test, however, is part of the “two-pronged
analysis to answer this question” of “[w]hether a well is producing in paying
quantities.” Id. at 482–83. Because the habendum clause here does not require
production in paying quantities, the reasonably-prudent-operator test is inapposite.

      The trial court did not err by ruling that the Kettler Lease had not terminated
and granting summary judgment to Ironroc.           Thistle Creek’s first issue is
overruled.

              II.    STATUTORY DAMAGES AND ATTORNEY’S FEES

      In its second issue, Thistle Creek contends that the trial court erred by
refusing to award statutory damages and attorney’s fees under Section 91.406 of
Natural Resources Code.

A.    Standard of Review and Legal Principles

      The Natural Resources Code requires lessees such as Ironroc pay lessors
such as Thistle Creek proceeds from the sale of oil or gas from a well within
certain time periods. See Tex. Nat. Res. Code §§ 91.402, 91.403. The statute

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creates a cause of action for the nonpayment of oil or gas proceeds or interest on
those proceeds. See id. § 91.404(c). A lessee may recover minimum statutory
damages and attorney’s fees:

      If a suit is filed to collect proceeds and interest under this subchapter,
      the court shall include in any final judgment in favor of the plaintiff
      an award of:
          (1) reasonable attorney’s fees; and
          (2) if the actual damages to the plaintiff are less than $200, an
          additional amount so that the total amount of damages equals
          $200.

Id. § 91.406. The availability of attorney’s fees under this statute is a question of
law we review de novo. Headington Oil Co., L.P. v. White, 287 S.W.3d 204, 215
(Tex. App.—Houston [14th Dist.] 2009, no pet.); see Holland v. Wal-Mart Stores,
Inc., 1 S.W.3d 91, 94 (Tex. 1999). Attorney’s fees are not available on a claim to
quiet title, i.e., a suit to remove cloud from title.     See Moroney v. St. John
Missionary Baptist Church, Inc., 636 S.W.3d 698, 707 (Tex. App.—Houston [14th
Dist.] 2021, no pet. h.).

B.    Background

      Thistle Creek asserted counterclaims against Ironroc to remove a cloud on
title and to recover proceeds under Section 91.404. The basis for its claim to
remove a cloud of title was that the Kettler Lease and a second lease—the Grotte
Lease—had expired under the terms of the leases. Regarding the statutory claim,
Thistle Creek alleged that the proceeds were incorrectly calculated after the leases
had terminated in October 2016 without considering that Thistle Creek was a
cotenant rather than lessor.

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      Shortly before trial, Ironroc released the Grotte Lease,1 and the parties
settled Thistle Creek’s claim for proceeds and attorney’s fees related to the Kettler
Lease.      Regardless of when the Grotte Lease terminated,2 Thistle Creek
acknowledged at trial that no proceeds were owed:

      [Thistle Creek’s Counsel]: We couldn’t bring evidence to the jury
      that proceeds are currently owed because there are none owed because
      the well has not generated any net revenues that would be paid to a
      cotenant, so our actual damages are zero under that. Now, we did sue
      for whatever proceeds would be due. They just happen to be negative
      because the well has been such a bad well.
      ....
      I’ll stipulate for the record, I’ve said it many times, there’s no net
      revenue due associated with the relief or termination . . . .
      ....
      Our damages are less than $200. They’re negative. They’re zero.

Thistle Creek requested statutory damages of $200 and attorney’s fees.

      In the final judgment, the trial court ordered that Thistle Creek take nothing
on its claim for unpaid proceeds and attorney’s fees but ruled in favor of Thistle
Creek on its claim to remove a cloud on title on the Grotte Lease: “[Thistle
Creek’s] mineral interest in the land described in the Grotte Lease is free and clear
of the Grotte Lease and the Grotte Lease is removed as a cloud on title to said
mineral interests.”

      1
          The lease provides:
      Lessee may at any time and from time to time execute and deliver to lessor or file
      for record a release of this lease as to any part or all of said land or of any mineral
      or horizon thereunder, and thereby be relieved of all obligations as to the released
      acreage or interest.
      2
        The Grotte Lease utilized the same habendum clause as the Kettler Lease,
      discussed above, but in the definition of “operations,” the phrase “whether or not
      in paying quantities” was struck through.

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C.     Analysis

       Thistle Creek contends that it is entitled to statutory damages and attorney’s
fees because it (1) filed a suit to collect proceeds under Section 91.404, and (2) the
final judgment was “in favor of” Thistle Creek because the cloud on title from the
Grotte Lease was removed. Thistle Creek contends that its statutory claim was
intertwined with its title claim, and it obtained a “favorable” judgment on the title
claim. See Headington, 287 S.W.3d at 215–16 (“Applying the plain meaning of
the word ‘favorable,’ we consider any judgment favorable to the plaintiff when he
obtains a measure of relief which leaves him in a better position than he held
before filing suit.”).

       Although Thistle Creek obtained a favorable judgment on its quiet title
claim, Thistle Creek did not obtain a favorable judgment on its claim “to collect
proceeds and interest.” See Garcia v. Genesis Crude Oil, L.P., No. 13-14-00727-
CV, 2016 WL 1732436, at *4 (Tex. App.—Corpus Christi Apr. 28, 2016, no pet.)
(mem. op.) (holding that because the lessee had paid all royalties and interest, the
lessor’s claim for unpaid royalties and interest failed as a matter of law, and no
final judgment in favor of the lessor existed to entitle her to the statutory damages
or attorney’s fees). Thistle Creek cites no case in which a party was allowed to
recover statutory damages and attorney’s fees under Section 91.406 despite failing
to recover any actual damages on the claim. See Headington, 287 S.W.3d at 216
(allowing recovery of attorney’s fees because the trial court awarded unpaid
royalties); see also Prize Energy Res., L.P. v. Cliff Hoskins, Inc., 345 S.W.3d 537,
570–71 (Tex. App.—San Antonio 2011, no pet.) (same). We have found none.
The only reasonable interpretation of the statute is that the “judgment in favor of
the plaintiff” must be on the “suit . . . to collect proceeds and interest.” See Tex.
Nat. Res. Code § 91.406. It is not enough that a party allege a Section 91.404

                                          9
claim in their petition and then obtain a favorable judgment on some other claim,
as here. See EOG Res., Inc. v. Wagner & Brown, Ltd., 202 S.W.3d 338, 347–48
(Tex. App.—Corpus Christi 2006, pet. denied) (affirming denial of attorney’s fees
under Section 91.406 although the party obtained a judgment in its favor declaring
the party’s interest under the lease), cited with approval in Yowell v. Granite
Operating Co., 620 S.W.3d 335, 356 (Tex. 2020) (“The EOG court correctly held
that the trial court could refuse to award attorneys’ fees pursuant to section 91.406
because the party’s alternative claim had not yet resulted in a final judgment.”); see
also Westport Oil & Gas Co. v. Mecom, 514 S.W.3d 247, 256 (Tex. App.—San
Antonio 2016, no pet.) (holding that the royalty owners were not entitled to
attorney’s fees under Section 91.406 because the trial court granted summary
judgment against the royalty owners on their claims that the defendant violated
provisions of the Natural Resources Code).

      The trial court did not err by refusing to award statutory damages and
attorney’s fees under Section 91.406. Thistle Creek’s second issue is overruled.

                                III.   CONCLUSION

      Having overruled both of Thistle Creek’s issues, we affirm the trial court’s
judgment.

                                       /s/    Ken Wise
                                              Justice

Panel consists of Justices Wise, Spain, and Hassan.

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