Court Opinion

ID: 4325220
Source: CourtListenerOpinion
Date Created: 2018-10-27 01:34:57.391872+00
Date Added: 2024-06-11T08:47:24.434079
License: Public Domain

Opinion filed October 25, 2018

                                       In The

        Eleventh Court of Appeals
                                    __________

                                 No. 11-17-00028-CV
                                     __________

        ENDEAVOR ENERGY RESOURCES, L.P., Appellant
                                         V.
           ENERGEN RESOURCES CORPORATION AND
               JOHN THOMAS QUINN, Appellees

                     On Appeal from the 118th District Court
                            Howard County, Texas
                          Trial Court Cause No. 50827

                                    OPINION
      This appeal from a summary judgment involves a construction of a
continuous-development clause in an oil and gas lease.             The continuous-
development clause contained a provision for a “one hundred fifty (150) day
continuous development program.” This appeal focuses on the manner in which
days are calculated for the program. Specifically, we must interpret a provision that
permits “unused” days to extend a subsequent term under the program. The trial
court adopted Appellees’ construction of the provision. We affirm.
                                           Background Facts
        Appellant, Endeavor Energy Resources, L.P., is the successor in interest of
the leasehold estate in an oil and gas lease dated July 21, 2006, that Appellee John
Thomas Quinn executed in favor of OGX Resources LLC. The lease covers
approximately 11,302.98 acres of land in Howard County. The habendum clause of
the lease established a three-year primary term and a secondary term “as long
thereafter as oil and gas, or either of them[,] is produced in paying quantities from
the lands hereby leased”—subject to certain provisions, obligations, and limitations
within the lease.1 One such provision is a continuous-development clause set out in
Paragraph 16 of the lease. This clause permitted Endeavor to retain its leasehold
interest after the primary term to all of the acreage covered by the lease provided
that Endeavor maintained a continuous-development program. Failure to adhere to
the mandated schedule would cause the lease to terminate as to all acreage not
contained within a proration unit for each producing well under the lease’s retained-
acreage clause.
        Endeavor did not drill any wells prior to the expiration of the primary term on
July 21, 2009. Afterwards, Endeavor began drilling wells on the lease. Endeavor
spudded its first well, the “Quinn 8A #1 Well,” 145 days after the primary term
expired. During the next five years, Endeavor drilled eleven additional wells. There
is no dispute that these twelve wells complied with the timing requirements of the

        1
         Typically, an oil and gas lease is kept alive after its primary term only by production in paying
quantities or a savings clause. See Krabbe v. Anadarko Petroleum Corp., 46 S.W.3d 308, 315 (Tex. App.—
Amarillo 2001, pet. denied). If the lease’s primary term expires when there is nonproduction and there is
no savings clause or the lessee fails to comply with any savings clause in the lease, the lease and the lessee’s
determinable fee interest automatically terminate. See id.

                                                       2
lease’s continuous-development clause. Endeavor completed the twelfth well on
December 27, 2014. Endeavor did not drill another well within the next 300 days.
       On the 311th day after the completion of the twelfth well (November 2, 2015),
Quinn executed a lease in favor of Appellee Energen Resources Corporation.
Energen filed the underlying action against Endeavor on November 4, 2015, alleging
that the continuous-development program in the previous lease had lapsed.2
Energen asserted that the lease automatically terminated to all “non-dedicated
acreage.” Thereafter, Endeavor spudded the thirteenth well on November 12, 2015,
drilling it to completion on December 9, 2015. Endeavor asserted that this well was
timely drilled because Endeavor had accumulated 227 unused days under the
continuous-development program that permitted it to wait 377 days to commence
operations on the thirteenth well.
       The parties filed competing traditional motions for partial summary judgment
seeking the trial court’s interpretation of a provision in the continuous-development
clause that permitted Endeavor to accumulate unused days. The specific provision
reads as follows: “Lessee shall have the right to accumulate unused days in any 150-
day term during the continuous development program in order to extend the next
allowed 150-day term between the completion of one well and the drilling of a
subsequent well.” Under Endeavor’s interpretation, the number of days that it drilled
sooner than 150 days for each of the first twelve wells accumulated like “pennies in
a jar” for it to use on subsequent wells. Under this contention, Endeavor asserted
that it had accumulated 227 days from the first twelve wells that extended the
deadline for the thirteenth well to 377 days (150 days + 227 accumulated unused
days). Conversely, Energen asserted that unused days accumulated from one well
could only be used to extend the 150-day deadline for drilling the next well. Under

       2
        Quinn intervened in the trial court and aligned himself with Energen. Quinn adopted Energen’s
pleadings at trial, and he has adopted Energen’s brief on appeal.

                                                 3
Energen’s construction, the thirteenth well had to be spudded 186 days after the
twelfth well (July 1, 2015) because Endeavor only earned an additional thirty-six
days from the twelfth well because it was completed 114 days after the eleventh
well. The trial court agreed with Energen’s construction of the lease, granted
Energen’s motion for partial summary judgment, and denied Endeavor’s motion.
Energen subsequently filed a supplemental petition asserting supplemental causes of
action for declaratory judgment, trespass, and conversion.
      After the trial court resolved the lease interpretation issue by partial summary
judgment, the parties made stipulations concerning the claims that remained
pending. In its final judgment, the trial court incorporated the partial summary
judgment in favor of Energen. The trial court held that Endeavor’s lease terminated
to all non-dedicated acreage and depths on July 1, 2015, and that Endeavor’s lease
terminated to all land not included within a producing proration unit. The trial court
quieted title in favor of Energen and Quinn for this acreage. The trial court also
found that Endeavor committed a good-faith trespass on Energen’s leasehold
mineral estate with respect to the drilling of the thirteenth well, the “Quinn 34 No. 1
Well.”
                                       Analysis
      Endeavor asserts two issues on appeal. In its first issue, Endeavor challenges
the trial court’s grant of Energen’s motion for partial summary judgment and the
denial of Endeavor’s motion for partial summary judgment on the lease construction
issue. In its second issue, Endeavor challenges the trial court’s final judgment
denying all relief requested based on the trial court’s interpretation of the lease in
the partial summary judgment order. The resolution of both issues depends upon the
interpretation of the continuous-development provision.
      In this case, both parties moved for a partial summary judgment on traditional
grounds, seeking the trial court’s interpretation of the continuous-development
                                          4
provision. We review summary judgments de novo. Travelers Ins. Co. v. Joachim,
315 S.W.3d 860, 862 (Tex. 2010). Summary judgment is proper when no genuine
issues of material fact exist and the movant is entitled to judgment as a matter of
law. TEX. R. CIV. P. 166a(c). When the parties file competing summary judgment
motions and the trial court grants one and denies the other, “we consider the
summary judgment evidence presented by both sides, determine all questions
presented, and if the trial court erred, render the judgment the trial court should have
rendered.” Sw. Bell Tel., L.P. v. Emmett, 459 S.W.3d 578, 583 (Tex. 2015).
      “An oil and gas lease is a contract, and its terms are interpreted as such.”
Tittizer v. Union Gas Corp., 171 S.W.3d 857, 860 (Tex. 2005). We review and
construe mineral leases de novo, and our objective in doing so is to ascertain the
parties’ intent as expressed within the lease’s four corners. Endeavor Energy Res.,
L.P. v. Discovery Operating, Inc., 554 S.W.3d 586, 595 (Tex. 2018) (citing
Anadarko Petroleum Corp. v. Thompson, 94 S.W.3d 550, 554 (Tex. 2002)). In
construing an oil and gas lease, we seek to enforce the intention of the parties as
expressed in the lease. Tittizer, 171 S.W.3d at 860. “As with contracts generally,
the parties are free to decide their contract’s terms, and the law’s ‘strong public
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 (quoting
Phila. Indem. Ins. Co. v. White, 490 S.W.3d 468, 471 (Tex. 2016)).
      The continuous-development provision was contained in the following
portion of the lease:
            16. Notwithstanding any provisions herein to the contrary, the
      following provisions, obligations, and limitations shall control:
                   (a) “Proration Unit” as used herein means the
             smallest acreage proration unit allowable for a producing
             well under the proration rules and regulations of the
             Railroad Commission of Texas for the well situated

                                           5
thereon to obtain the maximum allowable production
which such well is consistently able to produce. The
proration unit shall be in the form of a square if it contains
forty (40) or one hundred sixty (160) acres with the well
located as near the center as reasonably practical or in the
form of a rectangle in which the longest sides are not
greater than twice the length of the shortest side if the
proration unit contains eighty (80) or three hundred twenty
(320) acres with the well being located in as near the center
of the rectangle as reasonably practical.
      (b) “Non-dedicated acreage” means any acreage not
included in a proration unit upon which is situated a
producing well.
       (c) If this lease is extended as to non-dedicated
acreage beyond the expiration of the primary term hereof,
this lease shall terminate as to non-dedicated acreage one
hundred fifty (150) days after the expiration of the primary
term unless during such one hundred fifty (150) day period
Lessee has commenced operations for the drilling of a well
in which case this lease shall be extended as to the
dedicated and non-dedicated acreage so long as operations
for the drilling of a subsequent well are commenced within
one hundred fifty (150) days after the completion of the
preceding well. This lease shall terminate as to all non-
dedicated acreage any time a subsequent well is not
commenced within one hundred fifty (150) days from the
completion of a preceding well. Each well herein
provided to be drilled, once spudded, shall thereafter be
drilled with reasonable and continuous diligence to a depth
below three thousand five hundred one feet (3,501ꞌ) below
the surface and shall be deemed to be completed ten (10)
days after the drilling rig moves off the hole or upon
removal of the completion rig, whichever is sooner.
Lessee shall have the right to accumulate unused days
in any 150-day term during the continuous
development program in order to extend the next
allowed 150-day term between the completion of one
well and the drilling of a subsequent well.

                              6
                      (d) Upon failure to comply with the one hundred
               fifty (150) day continuous development program herein
               provided, this lease shall terminate at to all non-dedicated
               acreage and as to all zones, formations and horizons which
               are below the base of the deepest formation from which
               production is then being obtained in each respective well.
We direct our attention to subsection (c) because it sets out the continuous-
development provision. 3 We are specifically interested in the last sentence because
it contains the provision that permitted Endeavor, as the lessee, to accumulate unused
days. We will refer to this sentence as the accumulation provision.
       Endeavor and Energen contend that the accumulation provision is
unambiguous. The interpretation of an unambiguous lease is a question of law for
the court, subject to de novo review. Samson Expl., LLC v. T.S. Reed Props., Inc.,
521 S.W.3d 766, 787 (Tex. 2017); Albert v. Dunlap Expl., Inc., 457 S.W.3d 554,
560 (Tex. App.—Eastland 2015, pet. denied). “The general principles that govern
our construction of contracts also govern our construction of mineral leases.”
Endeavor, 554 S.W.3d at 595 (citing Tittizer, 171 S.W.3d at 860). We give words
“their plain, common, or generally accepted meaning unless the contract shows that
the parties used words in a technical or different sense.” Plains Expl. & Prod. Co. v.
Torch Energy Advisors Inc., 473 S.W.3d 296, 305 (Tex. 2015).
       Endeavor contends that the plain language of the accumulation provision
shows that the parties agreed to allow Endeavor flexibility to accumulate unused
days over the course of the continuous-development program, which in this case
spanned five years, and to use them on an as-needed basis so long as Endeavor
drilled a well, on average, every 150 days. Conversely, Energen asserts that the plain
language of the accumulation provision only permitted Endeavor to extend the 150-

       3
         We have included the provisions surrounding subsection (c) because they provide context for
subsection (c).

                                                 7
day term for a well with unused days from the immediately preceding well. For the
reasons set forth below, we agree with Energen’s interpretation.
        The accumulation provision begins with the phrase: “Lessee shall have the
right to accumulate unused days in any 150-day term during the continuous
development program . . . .” This language indicates that the parties intended to
allow the lessee to accumulate unused days from any term during the continuous-
development program. The second half of the sentence specifies the manner in
which accumulated days may be used—“in order to extend the next allowed 150-
day term between the completion of one well and the drilling of a subsequent well.”
By limiting the use of unused days to the “next allowed” 150-day term, the language
of the accumulation provision limits the use of unused days arising from the “early”
drilling of one well to be used only to extend the 150-day term for the drilling of the
next well. “Next” is defined as “immediately adjacent (as in place, rank or time).”
MERRIAM-WEBSTER’S COLLEGIATE DICTIONARY 835 (11th ed. 2004); see In re
Tallgrass Prairie Holdings, LLC, 333 P.3d 899, 908 (Kan. Ct. App. 2014) (citing
THE AMERICAN HERITAGE DICTIONARY 1189 (5th ed. 2011) for the following
definition of “next”: “Immediately following, as in time, order, or sequence”).4
Accordingly, we agree with Energen’s interpretation of the accumulation provision.
        Endeavor asserts that Energen’s interpretation renders the words
“accumulate” and “extend” meaningless. Endeavor asserts that “accumulate” means
“to amass or collect” and that “extend” means “to ‘increase the duration of’ a time
period.” Endeavor asserts that, unless it was permitted to amass unused days like
pennies in a jar to be used whenever it chose to use them, perhaps years later, it was
not permitted to accumulate unused days to extend future terms. We disagree with
Endeavor that “accumulate” and “extend” are rendered meaningless.                                Under

        4
         Courts may look to dictionaries to discern the meaning of a commonly used term that the contract
does not define. Epps v. Fowler, 351 S.W.3d 862, 866 (Tex. 2011).

                                                   8
Energen’s construction, Endeavor was permitted to accumulate unused days from
the drilling of one well to extend the 150-day term for the next well. However, the
accumulation provision limited the manner in which Endeavor could accumulate
days to extend terms. We disagree that the provision’s limitation rendered the terms
meaningless.
        Endeavor also asserts that the phrase “150-day term” is a “label” that “is not
a limitation in any sense.” Endeavor further asserts that “150 days is only a
beginning, not an end.” Endeavor asserts that “terms” rather than “days” “are what
are important to the construction” of the accumulation provision.
Under Endeavor’s construction, the phrase “150-day” is omitted from the
accumulation provision.5 Under this construction, Endeavor asserts that the term
for drilling the thirteenth well, as measured from the completion of the twelfth well,
was 377 days because 227 unused days were available to extend the 150-day term
for the thirteenth well.
        We disagree that “150-day” is only a label in the accumulation provision. The
term is used at least seven times in Paragraph 16, including twice in the accumulation
provision. Subsection (d) clarifies that the continuous-development program was a
“one hundred fifty (150) day continuous development program.”                           Thus, the term
“150-day” is a significant part of the accumulation provision as well as the
continuous-development clause.                   Furthermore, the continuous-development
program was drafted as a well-to-well program with a 150-day requirement for the
drilling of each successive well. Under the express terms of the accumulation
provision, only unused days from the immediately preceding well could be used to
extend the 150-day period for the next well. Unused days from any other preceding
well did not extend the term for a later well because the provision required the term

        5
          Endeavor restates the accumulation provision as follows in its reply brief: “Lessee shall have the
right to accumulate unused days in any . . . term . . . in order to extend the next allowed . . . term.”

                                                     9
to reset to 150 days for each new well, with the only exception being unused days
from the immediately preceding well.
      Endeavor also asserts that Energen’s construction either ignores or adds
language to the lease. See Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 162
(Tex. 2003) (Courts may not rewrite the parties’ contract, nor should courts add to
its language.). Specifically, Endeavor contends that the plain language of the
provision does not “say that unused days may only be used in a certain term and, if
not used, are lost.” We disagree that Energen’s construction either ignores or adds
language to the accumulation provision. The plain language of the provision limits
the use of unused days to only the next allowed 150-day term. When the terms of a
contract are plain, definite, and unambiguous, courts must enforce the contract as
written. Royal Indem. Co. v. Marshall, 388 S.W.2d 176, 181 (Tex. 1965).
      Endeavor additionally asserts that its interpretation is consistent with the
dominant purpose of an oil and gas lease—to discover and produce oil and gas.
Specifically, Endeavor contends that, by including the right to accumulate unused
days to extend a 150-day continuous-development period, “the parties contemplated
and intended a development program which allowed flexibility in the timing of wells
so that the Lessee could benefit from the business environment it found itself in at
any particular moment.”
      The accumulation provision is contained within a continuous-development
clause.   The Texas Supreme Court addressed the purpose of a continuous-
development clause in Endeavor. 554 S.W.3d at 597. A continuous-development
clause serves to balance the interest of the lessor in seeking full development of the
leased acreage versus the lessee’s possible preference for delaying full production
based on market conditions. Id. When a lease covers a substantial amount of
acreage, the parties typically utilize a continuous-development clause to insure that
the large amount of acreage is fully developed. Bruce M. Kramer, Oil and Gas
                                         10
Leases and Pooling: A Look Back and a Peek Ahead, 45 Tex. Tech L. Rev. 877, 881
(2013). The clause is based on “continuous drilling operations.” Endeavor, 554
S.W.3d at 597 (quoting 3 Patrick H. Martin & Bruce M. Kramer, Williams & Meyers
Oil and Gas Law § 617 (LexisNexis Matthew Bender 2017)). As noted by the court,
“the required development efforts must ‘be continuous with no gap.’” Id. (quoting
Rogers v. Osborn, 261 S.W.2d 311, 315 (Tex. 1953) (Wilson, J., concurring)).
      The parties’ inclusion of a continuous-development clause indicates an intent
to promote continuous development of the entire leasehold estate. Clauses of that
type “replace the lessor’s need to utilize the implied covenant of reasonable
development as the sole means to see that its acreage is fully developed.” See
Kramer, 45 Tex. Tech L. Rev. at 881. Energen’s construction of the accumulation
provision is consistent with the purpose of the continuous-development clause.
Conversely, Endeavor’s construction, which permitted a gap in development of over
a year, conflicts with the purpose of a continuous-development clause.
      Finally, Endeavor contends that Energen’s construction would result in a
forfeiture because such an interpretation “divest[s] Endeavor of its leasehold interest
in the majority of the leased premises, without compensation.” Endeavor also asserts
that the continuous-development clause should not be interpreted as a special
limitation. The Texas Supreme Court addressed similar arguments in Endeavor with
respect to a retained-acreage provision contained within a continuous-development
clause. 554 S.W.3d at 606–07. The court held in Endeavor that the lower court’s
construction of a lease resulted in a partial termination, not a forfeiture, where the
partial termination arose from a special limitation on the lessee’s leasehold interests.
Id. at 606. “A special limitation in an oil and gas lease provides that the lease will
automatically terminate upon the happening of a stipulated event.” Id. A court will
not find a special limitation “unless the language is so clear, precise, and unequivocal
that we can reasonably give it no other meaning.” Id. (quoting Anadarko Petroleum,
                                          11
94 S.W.3d at 554).              We disagree with Endeavor’s assertion that the plain,
grammatical language of the accumulation provision can be read in a manner other
than Energen’s interpretation of it.                 Accordingly, the accumulation provision
imposed a special limitation with which Endeavor did not timely comply. Therefore,
the trial court did not err by granting Energen’s motion for partial summary
judgment and denying Endeavor’s motion for partial summary judgment. We
overrule Endeavor’s two issues on appeal.
                                         This Court’s Ruling
        We affirm the judgment of the trial court.

                                                                   JOHN M. BAILEY
                                                                   CHIEF JUSTICE

October 25, 2018
Panel consists of: Bailey, C.J.,
Willson, J., and Wright, S.C.J.6

Willson, J., not participating.

        6
          Jim R. Wright, Senior Chief Justice (Retired), Court of Appeals, 11th District of Texas at Eastland,
sitting by assignment.

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