Court Opinion

ID: 2988730
Source: CourtListenerOpinion
Date Created: 2015-09-23 02:34:52.030891+00
Date Added: 2024-06-11T15:02:21.794109
License: Public Domain

Reversed and Remanded and Memorandum Opinion filed September 25, 2012.

                                        In The

                      Fourteenth Court of Appeals
                               ___________________

                                NO. 14-11-00539-CV
                               ___________________

              NORTHERN NATURAL GAS COMPANY, Appellant

                                          V.

     ONEOK BUSHTON PROCESSING, INC., ONEOK FIELD SERVICES
            COMPANY, LLC, AND ONEOK, INC., Appellees

                      On Appeal from the 189th District Court
                              Harris County, Texas
                        Trial Court Cause No. 2009-52251

                       MEMORANDUM OPINION

      In six issues, Northern Natural Gas Company (“Northern”) appeals the trial court’s
final summary judgment in favor of ONEOK Bushton Processing, Inc. (“OBP”), ONEOK
Field Services Company, LLC (“OFS”), and ONEOK, Inc. (“OI”) (collectively, the
“ONEOK Entities”) and denial of Northern’s cross-motion for summary judgment. We
reverse and remand.
                                           I.    BACKGROUND1

        In March 1997, Enron-related entities affiliated with Northern sold to entities
related to KN Energy, Inc. (“KNE”) a natural gas processing complex (the “Bushton
Complex”) and certain natural gas gathering systems which delivered gas to an interstate
pipeline system owned by Northern.                  KN Gas Gathering, Inc. (“KNGG”) acquired
interests in upstream gathering systems connected to Northern’s pipeline. Northern’s
pipeline then delivered the gas to the Bushton Complex, which was acquired by KN
Processing, Inc. (“KNPI”).

        The natural gas flowing through the various pipelines contains drip liquids,
condensate, water, and sediment (“Liquids”). Liquids are collected at various locations
throughout the gathering systems and pipeline system. Additionally, Liquids are also
separated at compression sites along Northern’s pipeline and collected in tanks. As
discussed in depth below, these Liquids are the subject of provisions in an operating
agreement (the “Operating Agreement”) entered into by Northern, KNPI, KNGG, and
KNE, and an access and service agreement (the “Access Agreement”) between Northern
and KNGG. 2 Notably, under the Operating Agreement, Northern had the option to
terminate the agreement if natural gas was not processed at the Bushton Complex for
twelve consecutive months.

        Subsequently, OBP became the successor-in-interest of KNPI, OFS became the
successor-in-interest of KNGG, and OI became the successor-in-interest of KNE. A
dispute arose between Northern and the ONEOK Entities regarding ownership of the
                             3
downstream Liquids.               Northern desired to terminate the Operating Agreement,
contending that natural gas had not been processed at the Bushton Complex for more than

        1
            Apparently, the parties do not dispute the background facts described in this section.
        2
         When referring collectively to the Operating and Access Agreements, we will use the term the
“Agreements.” Further, when referring collectively to all parties to the Agreements, we will use the term
“Contracting Parties.”
        3
            We explain the meaning of “downstream Liquids” below in the section entitled “D. Analysis.”
                                                       2
twelve consecutive months.       According to Northern, termination of the Operating
Agreement would vest ownership of the downstream Liquids in Northern. Contrarily, the
ONEOK Entities argue that, even if the Operating Agreement were terminated, OFS, as
successor to KNGG, would still own the downstream Liquids pursuant to the Access
Agreement.

       In 2009, Northern filed suit against the ONEOK Entities, seeking a declaration that
OFS does not have any ownership interest in the downstream Liquids. The ONEOK
Entities filed a counterclaim, seeking a declaration that OFS has an ownership interest in
the downstream Liquids. The parties filed cross-motions for summary judgment. The
trial court granted the ONEOK Entities’ motion and denied Northern’s motion, implicitly
determining the Agreements unambiguously support the conclusion KNGG (and its
successor, OFS) has an ownership interest in the downstream Liquids.

                               II. SUMMARY JUDGMENT

       In six related issues, Northern contends the trial court erred by granting summary
judgment in favor of the ONEOK Entities and denying Northern’s motion for summary
judgment. Succinctly, Northern argues the Agreements are unambiguous and establish as
a matter of law that KNPI owns the downstream Liquids, and KNGG merely has a
possessory interest in such Liquids.

A.   Standard of Review

       We review declaratory judgments rendered in summary-judgment proceedings
under the same standards that govern summary judgments generally. Philipello v. Nelson
Family Farming Trust, 349 S.W.3d 692, 693 (Tex. App.—Houston [14th Dist.] 2011, pet.
denied). A party moving for traditional summary judgment must establish there is no
genuine issue of material fact and it is entitled to judgment as a matter of law. See Tex. R.
Civ. P. 166a(c); Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215–16
(Tex. 2003). If the movant establishes a right to summary judgment, the burden shifts to

                                             3
the non-movant to present evidence raising a material fact issue. See M.D. Anderson
Hosp. & Tumor Inst. v. Willrich, 28 S.W.3d 22, 23 (Tex. 2000); Centeq Realty, Inc. v.
Siegler, 899 S.W.2d 195, 197 (Tex. 1995).

       We review a summary judgment de novo. Valence Operating Co. v. Dorsett, 164
S.W.3d 656, 661 (Tex. 2005). In reviewing the trial court’s rulings on cross-motions for
summary judgment, we must consider all summary-judgment evidence, determine all
issues presented, and render the judgment the trial court should have rendered.          FM
Props. Operating Co. v. City of Austin, 22 S.W.3d 868, 872 (Tex. 2000). We may
consider evidence presented by both parties in determining whether to grant either motion.
Expro Americas, LLC v. Sanguine Gas Exploration, LLC, 351 S.W.3d 915, 919 (Tex.
App.—Houston [14th Dist.] 2011, pet. filed).

B.   Standards of Contract Construction

       In construing a contract, we must ascertain the true intentions of the parties as
expressed in the writing. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex.
2003). We should afford common words their plain meaning unless context indicates the
words are used in another sense.        Lesikar v. Moon, 237 S.W.3d 361, 367 (Tex.
App.—Houston [14th Dist.] 2007, pet. denied). We must consider the entire writing in an
effort to harmonize and give effect to all provisions so that none are rendered meaningless.
Id. A contract is not ambiguous if it is so worded that it can be given a definite or certain
legal meaning. Wal–Mart Stores, Inc. v. Sturges, 52 S.W.3d 711, 728 (Tex. 2001).
Conversely, a contract is ambiguous when its meaning is uncertain and doubtful or
reasonably susceptible to more than one interpretation. White Oak Operating Co., LLC v.
BLR Const. Comps., LLC, 362 S.W.3d 725, 733 (Tex. App.—Houston [14th Dist.] 2011,
no pet.). However, an ambiguity does not arise simply because the parties advance
conflicting interpretations of the contract. Sturges, 52 S.W.3d at 728. Rather, for an
ambiguity to exist, both interpretations must be reasonable. Id. Further, the issue of
contractual ambiguity may be considered sua sponte by a reviewing court.                 See
                                             4
Progressive Cnty. Mut. Ins. Co. v. Kelley, 284 S.W.3d 805, 808 (Tex. 2009). We should
not strain to find an ambiguity in a contract if, in doing so, we defeat the probable
intentions of the parties. Comunidad Balboa, LLC v. City of Nassau Bay, 352 S.W.3d 72,
76 (Tex. App.—Houston [14th Dist.] 2011, no pet.).

       Documents pertaining to the same transaction may be read together, even if they are
executed at different times and do not reference each other, and courts may construe all the
documents as if they were part of a single, unified instrument. In re Laibe Corp., 307
S.W.3d 314, 317 (Tex. 2010) (orig. proceeding) (per curiam). When parties execute
multiple written agreements to complete a transaction, we attempt to find harmony
between and within the agreements in determining the parties’ intent.             Comunidad
Balboa, 352 S.W.3d at 76.

C.   Operating and Access Agreements

       On March 31, 1997, Northern and KNPI, KNGG, and KNE (the “Operating
Parties”) entered into the Operating Agreement. In the Operating Agreement, Northern’s
interstate pipeline is referred to as the “Northern System,” and “Condensate and Drip
Liquids” is defined as “liquid hydrocarbons recovered at the surface without resorting to
processing.” Importantly, Section 3.7 of the Operating Agreement provides as follows:

       Condensate and Drip Liquids. All Condensate and Drip Liquids removed
       from any of the pipelines, equipment or facilities comprising the Northern
       System downstream of the custody transfer points in Kansas, Oklahoma, and
       the Texas panhandle will belong to KNPI and the Bushton Complex, and
       KNPI shall have title to such Condensate and Drip Liquids and the right to
       use, market or dispose of the same and to retain all revenues attributable to
       such Condensate and Drip Liquids; provided that KNPI shall be responsible
       for: i) the detailed accounting of such liquids and the BTUs they represent; ii)
       picking-up, hauling or paying any costs for such Condensate, Drip Liquids as
       well as associated basic sediment and water; iii) reimbursing Northern in the
       amount of Six Hundred Forty Thousand Dollars ($640,000.00) annually for
       Northern’s related capital and O&M costs; and iv) for the shrinkage
       attributable to such Condensate and Drip Liquids. KNPI shall also be

                                              5
       responsible for the liability and cost associated with the disposal of the
       pipeline drip and condensate.

(emphasis added).

       Also on March 31, 1997, Northern and KNGG (the “Access Parties”) entered into
the Access Agreement.       In the Access Agreement, (1) “Gathering System” means
“Hugoton gathering systems in southwest Kansas and the panhandle of Oklahoma” which
KNGG was acquiring and (2) “Transmission System” means Northern’s natural gas
transmission systems (i.e., pipeline) and appurtenant facilities.      The Access Parties
recognized that “at each location where the Gathering System connects to the
Transmission System, the transfer of custody of a flowing gas stream will occur.” The
Access Parties also acknowledged that Northern owns certain liquid-storage facilities
(“Facilities”) along the Transmission System and “[t]itle to and ownership of the Facilities
shall remain vested in Northern.”

       KNGG agreed to provide various services related to Northern’s Transmission
System and Facilities, including certain environmental, emergency, and repair and
maintenance services. Significantly, in section 1.2(a) of the Access Agreement, KNGG
agreed to provide the following service:

       Operation Services. KNGG, as often as Northern deems reasonably
       necessary, or with such frequency as will prevent the overflow of the
       Facilities, shall collect or cause to be collected all condensate, drip and
       BS&W (Liquid(s)) belonging to KNGG pursuant to Section 2.6 below,
       from the Facilities and shall dispose of such away from the Transmission
       System.

(emphasis added). Under Section 2.6, “All Liquids collected in the Facilities shall belong
to KNGG.” (emphasis added). In order to provide these services, Northern agreed that
KNGG shall have limited access to the Facilities. Further, “At those locations where
liquids are transferred from Facilities to KNGG or on KNGG’s behalf, KNGG agrees to
establish operating practices that will minimize the potential for adverse environmental
consequences.”
                                             6
D.    Analysis

       We first consider the Operating and Access Agreements separately. The Access
Agreement reasonably may be interpreted to vest ownership of the downstream Liquids in
KNGG, and the Operating Agreement reasonably may be interpreted to vest ownership of
the downstream Liquids in KNPI.

       In the Access Agreement, the Access Parties agreed that the Liquids “belong to”
KNGG, and KNGG shall dispose of the Liquids away from Northern’s Transmission
System. The “belonging to” and “belong to” language in sections 1.2(a) and 2.6 of the
Access Agreement plausibly suggests ownership. See Wells v. Ward, 207 S.W.2d 698,
699 (Tex. Civ. App.—Texarkana 1947, writ ref’d n.r.e.) (explaining the words “belong to”
are “synonymous with or mean the same as ‘to be the property of.’ They connote title or
ownership.”); see also Investors Syndicate Credit Corp. v. Ates, 420 S.W.2d 444, 445 (Tex.
Civ. App.—Tyler 1967, no writ) (same); cf. Tenneco Oil Co. v. Alvord, 416 S.W.2d 385,
388–89 (Tex. 1967) (concluding contract provision was unambiguous regarding ownership
because it provided “all present and future production” from specified wells “shall belong
to” owner of leases “so long as said wells continue to produce from the horizon from which
said wells are presently producing and until” wells are abandoned; “[t]he parties could
agree that a well belonged to one of them and that minerals produced from that hole would
belong to the owner thereof without that person owning all of the minerals in the land down
to the depth of that well.”). Nothing in the Access Agreement suggests that KNGG is
required to collect and transport the Liquids away from the Transmission System but then
maintain and store the Liquids until Northern—as continuing owner of the
Liquids—decides how to dispose of them. 4                 Accordingly, construing the Access

       4
          Northern contends that, under the Access Agreement, KNGG does not have ownership rights to
the Liquids because Northern decides when KNGG collects such Liquids. However, section 1.2(a) of the
Access Agreement provides, “KNGG, as often as Northern deems reasonably necessary, or with such
frequency as will prevent the overflow of the Facilities,” shall collect Liquids belonging to KNGG.”
(emphasis added). Hence, Northern may request collections, but KNGG’s obligation to collect the Liquids
is not dependent upon such requests.
                                                  7
Agreement by the plain meaning of its terms, it is reasonable to conclude KNGG owns, and
determines how and when to dispose of, the Liquids. See Lesikar, 237 S.W.3d at 367.

        Northern argues the term “Liquids” as used in the Access Agreement refers to all
Liquids, both upstream (which Northern does not own) and downstream (which Northern
owns) of custody transfer points. Thus, according to Northern, “belong to,” as used in the
Access Agreement, does not mean a grant of ownership because Northern could not have
conveyed upstream Liquids it does not own. Northern attempts to bolster this argument
by contending that, in the Operating Agreement, KNPI is conveyed title to only Liquids
removed “downstream of the custody transfer points” (which Northern owns and has the
right to convey). However, the ONEOK Entities presented some evidence supporting a
finding that KNGG owned the upstream Liquids. 5                       Thus, the Access Agreement
reasonably may be interpreted to mean that the Access Parties included the downstream
Liquids owned by Northern in the same category as the upstream Liquids owned by
KNGG when describing Liquids which “belong to” KNGG. Such an interpretation
supports a conclusion that Northern conveyed its downstream Liquids to KNGG.

        Contrarily, the Operating Agreement construed in isolation reasonably may be
interpreted to support a conclusion that KNPI is the sole owner of downstream Liquids.
The Operating Parties agreed that downstream Liquids “belong to KNPI and the Bushton
Complex, and KNPI shall have title to such Condensate and Drip Liquids and the right to
use, market or dispose of the same and to retain all revenues attributable to such
Condensate and Drip Liquids.” The Operating Parties further agreed that KNPI has the
following responsibilities related to the downstream Liquids: 1) “detailed accounting of
such liquids and the BTUs they represent”; 2) “picking-up, hauling or paying any costs for
such” Liquids and basic sediment and water; 3) reimbursing Northern $640,000 annually
“for Northern’s related capital and O&M costs”; 4) “shrinkage attributable to such”

        5
          Additionally, in its appellate briefing, Northern asserts, “[t]he parties agree KNGG, by virtue of
its ownership of the gathering system, and not the Access Agreement, owned the upstream liquids.”
                                                     8
Liquids; and 5) “liability and cost associated with the disposal of the pipeline drip and
condensate.” Nothing in the Operating Agreement suggests that KNGG shares ownership
of the downstream Liquids with KNPI.

        Standing alone, circumstances giving rise to reasonable interpretations of two
contracts pointing to different owners of the same downstream Liquids casts doubt on the
propriety of summary judgment in this case. This doubt is not resolved when we analyze
the Contracting Parties’ intent by attempting to construe the Agreements together, as the
parties invite us to do.6

        First, we note that, in the Operating Agreement, KNPI’s rights regarding the
downstream Liquids were described in more specific terms than were KNGG’s rights
regarding the Liquids in the Access Agreement. “[S]pecific and exact terms are given
greater weight than general language.”                  Worldwide Asset Purchasing, L.L.C. v.
Rent-A-Center East, Inc., 290 S.W.3d 554 560–61 (Tex. App.—Dallas 2009, no pet.).
Moreover, it appears KNPI agreed to provide consideration for the downstream Liquids,
notably, responsibility for shrinkage 7 related to the Liquids and $640,000 annually to
Northern for related costs. The Access Parties did not use specific language to describe
KNGG’s rights relative to the Liquids. Moreover, the Access Agreement does not contain

        6
          We recognize Northern and KNGG were parties to the Access Agreement whereas Northern,
KNGG, and KNPI and KNE were parties to the Operating Agreement. Despite this difference, we
construe the Agreements together because Northern and KNGG were parties to both Agreements and both
Agreements involve the same subject matter—disposition of the downstream Liquids. See Williston on
Contracts § 30:26 (noting written instruments pertaining to the same subject matter may be considered
together “even when the parties to the instruments are not the same, as long as the writings form part of a
single transaction and are designed to effectuate the same purpose” (citations omitted)). The parties
contend that the Agreements should be construed together, and we agree.
        7
           “Shrinkage” as used in the natural gas industry is defined as “The reduction in volume of wet
natural gas due to the extraction of some of its constituents, such as hydrocarbon products, hydrogen
sulphide,         carbon     dioxide,        nitrogen,        helium,      and        water        vapor.”
http://www.aga.org/Kc/glossary/Pages/s.aspx. (American Gas Association’s online glossary) (last visited
September 2012). Northern argues KNPI is required to reimburse Northern in money for any shrinkage
caused by removal of the downstream Liquids, and Northern uses such money to purchase additional gas
for its suppliers. However, KNPI’s responsibilities regarding shrinkage are not specified in the Operating
Agreement.
                                                    9
express terms whereby KNGG is required to provide consideration in exchange for
ownership of the Liquids. Northern argues that, under the doctrine of inclusio unius est
exclusio alterius, we should presume the Contracting Parties’ inclusion of specific
ownership language in the Operating Agreement means they intended to exclude such
language from the Access Agreement. See City of Houston v. Williams, 353 S.W.3d 128,
145 (Tex. 2011) (“[T]he doctrine of inclusio unius . . . is the presumption that purposeful
inclusion of specific terms in a writing implies the purposeful exclusion of terms that do
not appear.”). We agree that inclusion of more specific ownership language in the
Operating Agreement weighs in favor of Northern’s interpretation of the Agreements.

        What then are KNGG’s rights regarding the downstream Liquids?                              Did the
Contracting Parties intend KNGG would act as custodian, collecting downstream Liquids
from Northern’s Facilities, then transfering custody of such Liquids to KNPI? Northern
argues this interpretation is supported by a case in which the Supreme Court of Virginia
concluded the term “belonging to” as used in the Virginia Constitution meant “exclusive
right to its possession,” not ownership. Bd. of Supervisors of Wythe County. v. Med. Grp.
Found., Inc., 134 S.E.2d 258, 261–62 (Va. 1964).8 Northern also argues that the provision
“Title to and ownership of the Facilities shall remain vested in Northern” in the Access
Agreement proves the Access Parties considered “record title” and “beneficial ownership”
to be separate concepts. 9 According to Northern, it is clear the Contracting Parties

        8
           Northern also cites several cases that involve the differences between possession to property and
title of property, including bailment cases and criminal cases involving theft. It is unnecessary to our
disposition to discuss these cases.
        9
         Northern cites a 1906 case in which the United States Supreme Court discussed the difference
between “record title” and “beneficial ownership”:
        The expression ‘beneficial use’ or ‘beneficial ownership or interest’ in property is quite
        frequent in the law, and means, in this connection, such a right to its enjoyment as exists
        where the legal title is in one person and the right to such beneficial use or interest is in
        another, and where such right is recognized by law, and can be enforced by the courts, at
        the suit of such [beneficial] owner or of some one in his behalf.

Mont. Catholic Missions v. Missoula Cnty., 200 U.S. 118, 127–28 (1906); see also McAlister v. Eclipse Oil
Co., 98 S.W.2d 171, 176 (Tex. 1936) (explaining stockholders are beneficial owners and do not have legal
                                                    10
intended KNPI to be the sole owner of the downstream Liquids because, in section 3.7 of
the Operating Agreement, KNPI is granted both record title and the rights of a beneficial
owner to such Liquids, whereas the Access Parties mention neither “title” nor “ownership”
but merely “belong to” when describing KNGG’s rights to the Liquids in the Access
Agreement.        Thus, according to Northern, “belong to” is not synonymous with
“ownership,” particularly because KNGG’s “ownership” of other items is expressly
referenced in the Access Agreement.10 For these reasons, Northern argues the Contracting
Parties would have used the terms “own” or “title” instead of “belong to” had they intended
for KNGG to have any ownership interest in the Liquids.

        Northern also argues the meaning of the term “belong to” as used in section 3.7 of
the Operating Agreement supports its contention that the term “belong to” does not
connote ownership as used in section 1.2(a) of the Access Agreement. See Solvent
Underwriters v. Furmanite Am., Inc., 282 S.W.3d 661, 670 (Tex. App.—Houston [14th
Dist.] 2009, pet. denied) (“Words used in one sense in one part of a contract are, as a
general rule, deemed to have been used in the same sense in another part of the instrument,
where there is nothing in the context to indicate otherwise.” (citation omitted)). In section
3.7, the Operating Parties agreed downstream Liquids “will belong to KNPI and the
Bushton Complex, and KNPI shall have title to such [Liquids] and the right to use, market
or dispose of the same and to retain all revenues attributable to such [Liquids].” (emphasis
added). Northern argues “belong to” as used in this sentence does not refer to ownership
because KNPI’s title and ownership rights regarding the downstream Liquids are
separately delineated by other language in the same sentence. Further, the Bushton
Complex is not a legal entity but a gas processing plant incapable of owning or holding title

title of corporate property).
        10
            Specifically, in section 1.5(d) of the Access Agreement, KNGG is “responsible for maintaining
cathodic protection levels . . . on all facilities owned by KNGG that are located on Northern’s property,” and
in section 1.9, “Ownership of any new personal property added by KNGG shall be the property of KNGG.”
(emphasis added).
                                                     11
to the Liquids. Northern also argues that “belong to” must mean “possession” because
gas is possessed and then processed at the Bushton Complex.           Therefore, Northern
contends the Liquids “belong to” KNGG under the Access Agreement simply for purposes
of KNGG’s accessing the Facilities to possess the Liquids.          Northern argues this
interpretation is further supported by the fact that section 2.6 of the Access Agreement
specifies Liquids “collected in” the Facilities belong to KNGG, whereas section 3.7 of the
Operating Agreement specifies KNPI has title to and ownership of downstream Liquids
“removed from” the Facilities; Northern posits that “collected in” means “while physically
in the Facilities” and “removed from” means “after being physically removed from the
Facilities.”

       We do not necessarily disagree with Northern’s contention that the Agreements
may be reasonably interpreted to mean the Contracting Parties intended KNPI to be the
sole owner of the Liquids. However, to be entitled to summary judgment, Northern must
conclusively prove the Agreements do not support a reasonable interpretation that KNGG
has an ownership interest in the downstream Liquids. If the Access Parties intended
KNGG to be a mere custodian with only possessory rights, why did they fail to specify this
intent in the Access Agreement?

       Furthermore, although the term “belong to” may mean something other than
ownership when used in the Operating Agreement, the term arguably is used in a different
context in the Access Agreement. See Furmanite Am., 282 S.W.3d at 670 (recognizing
terms are generally given a consistent meaning throughout a contract unless context
indicates otherwise). First, courts and contracting parties sometimes use the somewhat
colloquial term “belong to” to mean “ownership” or “title.” See, e.g., Tenneco Oil Co.,
416 S.W.2d at 389; Investors Synd. Credit Corp., 420 S.W.2d at 445–46; Wells, 207
S.W.2d at 699–700. Other sources also indicate that the phrase “belong to” is commonly
understood to refer to ownership of property. See Black’s Law Dictionary (9th ed. 2009)
(“belong” means, inter alia, “To be the property of a person or thing . See OWNERSHIP”); Webster’s Ninth New Collegiate Dictionary 143 (9th
ed. 1991) (“belong” means, inter alia, “to be the property of a person or thing — used with
to”).

        Second, the Access Parties apparently associate the Liquids “belonging to” KNGG
with KNGG’s ability to “dispose of” the Liquids away from the Transmission System.
Two possible definitions of “dispose of” as used in this context are “[1] to transfer to the
control of another [, or 2] to get rid of
.” Webster’s Ninth New Collegiate Dictionary 365.
Under these definitions, KNGG would have the right to transfer control or “get rid” of the
Liquids—a right that is unrestricted under the Access Agreement. Moreover, in the
Operating Agreement, KNPI was expressly afforded the “the right to use, market or
dispose of the [downstream Liquids] and to retain all revenues,” but the “right to sell” was
not specifically referenced. Nevertheless, such right could reasonably be denominated as
included within KNPI’s right to “dispose of” the downstream Liquids. See Harrell v.
Hickman, 147 Tex. 396, 401–02, 215 S.W.2d 876, 879 (1949) (recognizing that the
“unrestricted right to dispose of” land is broad and includes the “right to sell” and right to
transfer as a gift). Therefore, it is reasonable to interpret the term “dispose of” as used in
the Agreements to relate to an ownership right.

        Third, in section 1.1 of the Access Agreement, the Access Parties defined
Northern’s Facilities and expressly recognized that Northern would retain title to and
ownership of the Facilities. It is reasonable to assume the Access Parties would have
included a similar provision had they intended for Northern to retain title to and ownership
of the downstream Liquids. See Williams, 353 S.W.3d at 145 (explaining doctrine of
inclusio unius).

        Fourth, in section 1.10 of the Access Agreement, Northern agreed not to dispose of
waste into tanks used to hold KNGG’s Liquids:

                                             13
      1.10 Automatic Dumps. Northern shall be responsible for maintaining and
      operating all automatic dumps and drips at the Facilities. Northern will not
      dispose of water, used engine oils, or other undesirable substances by
      dumping them into tanks or vessels used to receive or store KNGG’s liquids.

This provision reasonably may be interpreted to mean Northern agreed that it will not place
waste in the tanks because doing so would contaminate Liquids owned by KNGG. For the
aforementioned reasons, it is reasonable to interpret the term “belong to” as used in the
Access Agreement differently than the term is used in the Operating Agreement.

      Additionally, the duration provisions of the Operating and Access Agreements cast
doubt on an interpretation that the Contracting Parties intended KNGG would be a mere
custodian of the downstream Liquids. The Operating Agreement includes the following
duration provision:

      The term of this Agreement shall be for a period of eighteen (18) years
      commencing as of [April 1, 1997]; provided however, in the event the
      Bushton Complex does not process gas for a period of twelve (12)
      consecutive months, then Northern, at its sole election, may terminate this
      Agreement to be effective upon thirty (30) days prior written notice.

      Similarly, the Access Agreement contains a separate duration provision:

      This Agreement shall be effective from the date hereof [March 31, 1997],
      however, the Effective Date of this Agreement shall be the Effective Time of
      Closing as defined in [the purchase-and-sale agreement between KNGG and
      an Enron entity]. Subject to the terms hereof, commencing with the
      Effective Date of this Agreement, this Agreement shall have an initial term
      of eighteen years (“Initial Term”). Upon expiration of the Initial Term, this
      Agreement shall automatically renew from year to year thereafter, unless
      terminated by either Party by giving written notice of termination to the other
      Party at least ninety (90) days prior to the end of the Initial Term or any
      anniversary.

Although both Agreements have a term of eighteen years, the Operating Agreement does
not automatically renew at the end of the term and may be terminated by Northern when (as
alleged in this case) gas is not processed at the Bushton Complex for twelve consecutive
months.    Nevertheless, the Access Agreement automatically continues year-to-year
                                            14
following the initial term and may not be terminated early by Northern or KNGG except
for a material breach.11 Accordingly, the Contracting Parties anticipated future events that
would render the Operating Agreement terminated, but would not affect KNGG’s
obligation to collect and dispose of Liquids from Northern’s Facilities pursuant to the
Access Agreement. In such a situation, if KNGG does not own the Liquids, KNGG is
without direction regarding what to do with them. Should KNGG store the Liquids until
further notice from Northern? If so, who bears the costs for such storage and any related
environmental expenses?         These considerations would require additional agreements
between Northern and KNGG. However, a merger clause in the Access Agreement
expressly negates the need for additional agreements. 12 Ikon Office Solutions, Inc. v.
Eifert, 125 S.W.3d 113, 125 n.6 (Tex. App.—Houston [14th Dist.] 2003, pet. denied) (“A
‘merger clause’ is a provision in a contract to the effect that the written terms may not be
varied by prior or oral agreements because all such agreements have been merged into the
written document.” (citation omitted)). This factor weighs against a conclusion that the
Contracting Parties intended KNGG to be a mere possessory custodian of downstream
Liquids.

       We also reject Northern’s argument that KNGG must have intended KNPI to be the
sole owner of the downstream Liquids because KNGG was a party to both Agreements and
would not have agreed to section 3.7 had KNGG intended to obtain ownership of such
Liquids.    We cannot dismiss the reasonable possibility that, through the Operating
Agreement, KNGG was “disposing of” its interests in the downstream Liquids to KNPI.
In the Access Agreement, KNGG agrees to collect and dispose of the Liquids and
generally accept responsibility for any adverse environmental consequences which may

       11
           The duration provision of the Access Agreement contains a paragraph governing termination in
the instance of material breach.
       12
           Specifically, the Access Agreement includes the following merger clause: “This Agreement
constitutes the entire agreement concerning the subject matter between the parties hereto and shall be
amended only by an instrument in writing executed by both parties hereto.”
                                                  15
occur at the Facilities where Liquids are transferred to KNGG.              In the Operating
Agreement, KNPI agrees to be responsible for “picking-up, hauling or paying any costs
for,” the accounting of, and “the liability and costs associated with the disposal of”
Downstream Liquids.         Construed together, these provisions reasonably may be
interpreted to mean that KNGG transferred ownership of the downstream Liquids to KNPI
in exchange for KNPI’s assumption of all responsibilities and costs for such Liquids. We
recognize that, in the same provision of the Operating Agreement, KNPI also appears to
provide consideration to Northern for the downstream Liquids, i.e., $640,000 for
Northern’s “related capital and O&M costs” and for shrinkage attributable to downstream
Liquids; in the Access Agreement, KNGG did not agree to give such specific consideration
for the Liquids. However, this does not necessarily mean the Contracting Parties did not
intend KNGG would have an ownership interest in the Downstream Liquids. Northern,
KNPI, and KNGG were parties to the Operating Agreement and capable of negotiating a
transfer of the Downstream Liquids that mutually benefitted all parties.

       Finally, Northern contends that, assuming there is an ambiguity regarding
ownership of the Liquids, such ambiguity exists because section 3.7 of the Operating
Agreement is inconsistent with sections 1.2(a) and 2.6 of the Access Agreement.
Northern argues section 3.7, as the later-in-time provision, supersedes sections 1.2(a) and
2.6. When a contract pertains to the same subject matter as an earlier contract made by the
same parties but does not specify whether or to what extent the later contract is intended to
operate in discharge or substitution of the earlier contract, the later contract prevails to the
extent the contracts are inconsistent.      The Courage Co., L.L.C. v. The Chemshare
Corp., 93 S.W.3d 323, 333 (Tex. App.—Houston [14th Dist.] 2002, no pet.). The portion
of the earlier contract not in conflict with the later conflict remains enforceable. Id. We
reject Northern’s reliance on the later-in-time-prevails doctrine because, as explained
above, it is reasonable to conclude that, through the Operating Agreement, KNGG was

                                              16
“disposing of” its interests in the downstream Liquids to KNPI.                         Under such an
interpretation, the Agreements are not irreconcilably inconsistent.13

        In sum, construing the Agreements together, we cannot conclusively determine
what type or degree of interest regarding the downstream Liquids Northern intended to
convey to KNGG. The Agreements present an ambiguity relative to this issue. See
White Oak Operating, 362 S.W.3d at 733 (“A contract is ambiguous when its meaning is
uncertain and doubtful or is reasonably susceptible to more than one interpretation.”); see
also DeClaris Assocs. v. McCoy Workplace Solutions, L.P., 331 S.W.3d 556, 562 (Tex.
App.—Houston [14th Dist.] 2011, no pet.) (“An ambiguity in a contract may be said to be
patent or latent. Patent ambiguity in a contract is ambiguity that is apparent on the face of
the contract; latent ambiguity is ambiguity that only becomes apparent when a facially
unambiguous contract is applied under particular circumstances.”).14 Thus, we agree with
Northern that the trial court erred by granting the ONEOK Entities’ motion for summary
judgment. However, we reject Northern’s contention that the trial court should have

        13
            Additionally, we are unable to determine from this record whether the Operating Agreement
actually is the later-in-time agreement. Both Agreements were entered into on March 31, 1997, but it is
not determinable from the record which Agreement precedes the other. For example, the Operating Parties
could have entered into the Operating Agreement during the morning of March 31, to be effective April 1.
If so, Northern could have conveyed ownership of the Liquids to KNGG at any time before April 1 because
the Operating Agreement was not yet effective. See Franco v. Lopez, 307 S.W.3d 551, 554 (Tex.
App.—Dallas 2010, no pet.) (“[A]ppellees’ failure to perform these obligations . . . before the contract
became effective . . . did not constitute a breach or prevent them from enforcing the contract.”); John Paul
Mitchell Sys. v. Randalls Food Markets, Inc., 17 S.W.3d 721, 729 (Tex. App.—Austin 2000, pet. denied)
(involving dispute which was resolved by November 1997 settlement agreement, effective December 1997;
“If [defendant engaged in conduct violative of the settlement] before the effective date of the settlement,
that would not establish a breach of the settlement agreement. The conduct would have to occur after
[December 1997] to constitute a breach.”).
        14
            The ONEOK Entities attached to their motion for summary judgment letters from Northern to
OFS in which Northern apparently described OFS as the owner of the Liquids pursuant to the Access
Agreement. However, the ONEOK Entities also attached a letter in which Northern asserted the Liquids
belong to OFS pursuant to section 3.7 of the Operating Agreement. Construed together, these letters
further demonstrate that a fact issue exists regarding ownership of the downstream Liquids. On remand,
the parties are free to present evidence regarding the Contracting Parties’ intentions. See David J. Sacks,
P.C. v. Haden, 266 S.W.3d 447, 451 (Tex. 2008) (“Only where a contract is ambiguous may a court
consider the parties’ interpretation and admit extraneous evidence to determine the true meaning of the
instrument.” (citation omitted)).
                                                    17
rendered judgment in Northern’s favor and adopted Northern’s proffered contract
interpretation. See Hewlett-Packard Co. v. Benchmark Elecs., Inc., 142 S.W.3d 554,
561 (Tex. App.—Houston [14th Dist.] 2004, pet. denied) (“When a contract contains an
ambiguity, granting a motion for summary judgment is improper because interpretation of
the instrument becomes a fact issue.”). Northern’s first through sixth issues are sustained
in part and overruled in part.

       We reverse the trial court’s judgment and remand for further proceedings consistent
with this opinion.

                                                  /s/     Charles W. Seymore
                                                          Justice

Panel consists of Justices Seymore, Boyce, and Yates.15

       15
            Senior Justice Leslie Brock Yates sitting by assignment.
                                                    18