Court Opinion

ID: 4071540
Source: CourtListenerOpinion
Date Created: 2016-09-30 02:09:11.210272+00
Date Added: 2024-06-11T14:32:16.937185
License: Public Domain

ACCEPTED
                                                                                     04-15-00066-CV
                                                                         FOURTH COURT OF APPEALS
                                                                              SAN ANTONIO, TEXAS
                                                                                6/15/2015 7:03:25 AM
                                                                                      KEITH HOTTLE
                                                                                              CLERK

                         No. 04-15-00066-CV

                     In the Court of Appeals 4th COURT FILED IN
                                                            OF APPEALS
                for the Fourth District of Texas6/15/2015 7:03:25 AM
                                                 SAN ANTONIO, TEXAS

                      San Antonio, Texas          KEITH E. HOTTLE
                                                        Clerk

                     CONOCOPHILLIPS COMPANY,
                                                              Appellant,
                                     V.

               VAQUILLAS UNPROVEN MINERALS, LTD.,
                                                                  Appellee.

                   From Cause No. 2014 CVQ000 438 D4
              406th Judicial District Court, Webb County, Texas
                Honorable Oscar J. Hale, Jr., Presiding Judge

     REPLY BRIEF OF APPELLANT, CONOCOPHILLIPS COMPANY

Michael V. Powell                         Adolfo Campero
 State Bar No. 16204400                    State Bar No. 00793454
 Email: mpowell@lockelord.com              Email: acampero@camperolaw.com
Cynthia K. Timms                          Campero & Associates, P.C.
 State Bar No. 11161450                   315 Calle Del Norte, Suite 207
 Email: ctimms@lockelord.com              Laredo, Texas 78041
Elizabeth L. Tiblets                      Tel: 956-796-0330
 State Bar No. 24066194                   Fax: 956-796-0399
 Email: etiblets@lockelord.com
Locke Lord LLP
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201-6776
Tel: 214-740-8520
Fax: 214-740-8800

                     ATTORNEYS FOR APPELLANT
                     CONOCOPHILLIPS COMPANY
                                          TABLE OF CONTENTS
INDEX OF AUTHORITIES.................................................................................... iii

QUESTION 1

In 1998, when the Railroad Commission adopted the Vaquillas Ranch
(Lobo Cons.) Field Rules, how, at that time, did those rules establish any
units different from 640 acres per producing or shut-in gas well, as required
by Sentence (2) in the retained acreage clause? ........................................................ 1
QUESTION 2:

Then, in what sense had “different units” from 640 acres been established
when ConocoPhillips’ continuous drilling program ended, also as required
by Sentence (2) of the retained acreage clause? ........................................................ 2
QUESTION 3:
If, as Vaquillas contends, the “manifest purpose” of the retained acreage
clause was to effect a release of all acreage not drilled to the maximum
density allowed by Railroad Commission rules (i.e, one well each 40 acres),
why does the clause not just say that? ....................................................................... 2
QUESTION 4:

Why doesn’t Vaquillas’s proposed interpretation of the retained acreage
clause violate the long-established rule that “we will not hold the lease’s
language to impose a special limitation on the grant unless the language is so
clear, precise, and unequivocal that we can reasonably give it no other
meaning? ....................................................................................................................4
ADDITIONAL REPLIES TO VAQUILLAS’S BRIEF............................................ 7

         Vaquillas’s “Suggestions” about the Field Rules ............................................ 7

         Vaquillas’s Erroneous Interpretation of the Retained Acreage Clause ......... 10

PRAYER FOR RELIEF ..........................................................................................16
CERTIFICATE OF COMPLIANCE .......................................................................18

CERTIFICATE OF SERVICE ................................................................................19

                                                              ii
                                      INDEX OF AUTHORITIES

                                                                                                              Page(s)
CASES
Anadarko Petroleum Corp. v. Thompson,
  94 S.W.3d 550 (Tex. 2002)...................................................................................5

Birnbaum v. SWEPI LP,
   48 S.W.3d 254 (Tex. App.—San Antonio, pet. denied) .....................................14
Chesapeake Exploration, L.L.C. v. Energen Resources Corp.,
  445 S.W.3d 878 (Tex. App.—El Paso 2014, no writ) .......................................... 5

ConocoPhillips Co. v. Ramirez,
  2006 WL 1748584 (Tex. App.—San Antonio 2006) (not designated for
  publication) .........................................................................................................11

Endeavor Energy Resources, L.P. v. Discovery Operating, Inc.,
  448 S.W.3d 169 (Tex. App.—Eastland 2014, pet. filed) ...............................5, 15
Fox v. Thoreson,
  398 S.W.2d 88 (Tex. 1966)...................................................................................5
Plains Exploration & Production Co. v. Torch Energy Advisors Inc.,
   No. 13-0597, Slip op. (Tex., June 12, 2015) ........................................................ 6

Rogers v. Ricane Enterprises, Inc.,
  772 S.W.2d 76 (Tex. 1989)...................................................................................5
Springer Ranch, Ltd. v. Jones,
   421 S.W.3d 273 (Tex. App.—San Antonio 2013, no pet.) ................................11
Terrill v. Tuckness,
   985 S.W.2d 97 (Tex. App.—San Antonio 1998, no writ) .................................... 6

                                                           iii
OTHER AUTHORITIES
16 T.A.C. § 3.37 (Statewide Rule 37) ....................................................................... 9

16 T.A.C. § 3.38 (Statewide Rule 38) .............................................................1, 9, 12
Scott Lansdown, Continuous Development/Retained Acreage Clauses in Oil
   and Gas Leases, Including Drilling Requirements, Acreage and Depth
   Retention Terms and Related Matters, 64th OIL & GAS INST. 291
   (Matthew Bender 2013) ........................................................................................4

Scott C. Petry, Drafting the Retained Acreage Clause: The Effect of
   Governmental Authority on Retained Acreage, State Bar of Texas
   Advanced Oil, Gas and Energy Resources Law Course p. 6 (2009).................. 11
2 E. Smith & J. Weaver, TEXAS LAW OF OIL AND GAS (LexisNexis 2014) .............. 4

                                                       iv
                      CONOCOPHILLIPS’ REPLY BRIEF
TO THE HONORABLE COURT OF APPEALS:

         The Appellee’s Brief filed by Vaquillas Unproven Minerals, Ltd.

(“Vaquillas”) fails to come to grips with four important questions:

              1.    In 1998, when the Railroad Commission adopted the

Vaquillas Ranch (Lobo Cons.) Field Rules, how, at that time, did those rules

establish any units different from 640 acres per producing or shut-in gas well,

as required by Sentence (2) in the retained acreage clause?

         The answer is: “they did not.” As ConocoPhillips has explained, the only

proration or spacing units specified by the Field Rules were minimum, 40-acre

drilling units for obtaining permits to drill new wells. Those “drilling units” had

no application to ConocoPhillips’ already-drilled and producing gas wells in this

Field.    Furthermore, the 40-acre minimum for drilling units was derived by

applying the Field Rules’ spacing rule to the Table in Statewide Rule 38, the same

rule that applied before the Field Rules were adopted. 16 T.A.C. § 3.38(b)(2)(A).

Consequently, when the Field Rules were adopted, all existing wells had already

been drilled in compliance with those same minimum drilling unit requirements.

         Unlike many other field rules, the Field Rules applicable in this case

“established” nothing about the maximum number of acres that could be assigned

to, or associated with, already-producing or shut-in gas wells in the Field.

                                          1
             2.     Then, in what sense had “different units” from 640 acres

been established when ConocoPhillips’ continuous drilling program ended,

also as required by Sentence (2) of the retained acreage clause?

       The answer is: “in no sense.” There was nothing inconsistent or conflicting

between the Field Rules and the agreement in Sentence (1) of the retained acreage

clause that ConocoPhillips could retain 640 acres around each producing and shut-

in gas well at the time the retained acreage clause operated.

       Grammatically, the phrase, “such established different units shall be held

under this lease by such production, in lieu of the . . . 640 units above mentioned,”

is in the past tense, i.e., it refers to “different units” already “established” before it

became time for the retained acreage clause to operate. But under Vaquillas’s

incorrect reading of the clause, “different units” would be “established” only in the

present, at the time the retained acreage clause operates, and would be

“established” by the operation of the retained acreage clause clause, not as the

result the Commission’s adopting of Field Rules years earlier.

             3.     If, as Vaquillas contends, the “manifest purpose” of the

retained acreage clause was to effect a release of all acreage not drilled to the

maximum density allowed by Railroad Commission rules (i.e, one well each 40

acres), why does the clause not just say that?         (See Vaquillas Brief pp. 7, 28-

29).

                                            2
      Vaquillas’s alleged “manifest purpose” could clearly and easily have been

written into the retained acreage clause as follows:

            “. . . Lessee covenants and agrees to execute and deliver to
      Lessor a written release of any and all portions of this lease which
      have not then been drilled to the maximum density allowed by
      Railroad Commission rules.”

That is, in effect, what Vaquillas claims the retained acreage clause means on

page 28 of its Brief; but that, of course, is a far cry from what the retained acreage

clause actually says.

      Vaquillas’s argument that when the parties executed these Leases, they

intended to effect a release of all portions of the leases not drilled to the maximum

lawful density of one well per each 40 acres conflicts directly with Sentence (1) of

the retained acreage clause, which states the lessee retains 640 acres for each

producing or shut-in gas well.      Indeed, the language of Sentence (1) states

precisely that the lessee will release “any and all portions of this lease which have

not been drilled to a density of at least . . . 640 acres for each producing and shut-

in gas well.” If the parties meant “drilled to a density of 40 acres” instead of 640

acres, as Vaquillas now contends, it would have been easy to make that change.

Sentence (1) of the retained acreage clause, along with pooling clause’s providing

for pooling of 640 acres for gas wells, demonstrates the parties’ acceptance that the

                                          3
norm for gas well development on the Vaquillas Leases would be one well per 640

acres.1

             4.    Why doesn’t Vaquillas’s proposed interpretation of the

retained acreage clause violate the long-established rule that “we will not hold

the lease’s language to impose a special limitation on the grant unless the

language is so clear, precise, and unequivocal that we can reasonably give it

no other meaning?”

       Rather than answer this question, Vaquillas tries to side-step it on pages 26-

27 of its Brief. Vaquillas says the Court should dismiss the rule as having “no

application here” and “no practical effect in the construction of an unambiguous

contract.” But the Texas Supreme Court does not require a finding of ambiguity

before applying the rule, and as ConocoPhillips has already briefed, Texas courts

1
    Retaining 640 acres for gas wells is customary in the industry. Mr. Lansdown,
    in his article, Continuous Development/Retained Acreage Clauses in Oil and
    Gas Leases, Including Drilling Requirements, Acreage and Depth Retention
    Terms and Related Matters, 64th OIL & GAS INST. 291 (Matthew Bender 2013),
    states “the standard amounts [of acreage retained under Continuous
    Development Clauses] were . . . 640 acres for each producing gas well (plus a
    10%) tolerance.” Id. at 314 n. 87. (Lansdown’s article uses the phrase
    “Continuous Development Clause” to include both a continuous development
    clause and the retained acreage clause that operates when the continuous
    development program ends. Id. at 296.)

    Professors Smith and Weaver state: “Typically, one oil well is allowed on a 40-
    acre tract, and one gas well on a 640-acre tract.” 2 E. Smith & J. Weaver,
    TEXAS LAW OF OIL AND GAS § 8.2(D)(2) (LexisNexis 2014).

                                          4
frequently have applied the rule to interpret retained acreage clauses.

(ConocoPhillips’ opening Brief p. 30).

         In Anadarko Petroleum Corp. v. Thompson, 94 S.W.3d 550 (Tex. 2002)

(from which the quotation in Question 4, above, comes) the Court expressly

described the lease at issue as unambiguous, yet applied the rule. Id. at 554-56.

There was no determination of ambiguity in Rogers v. Ricane Enterprises, Inc.,

772 S.W.2d 76 (Tex. 1989). Rather, the Court applied the rule to construe an

assignment as a matter of law. Id. at 79. The same was true in Fox v. Thoreson,

398 S.W.2d 88 (Tex. 1966), in which the Court described the rule as a “sound rule

of interpretation” and then applied it to construe a lease as a matter of law. Id. at

92.

         More recently, in Chesapeake Exploration, L.L.C. v. Energen Resources

Corp., 445 S.W.3d 878 (Tex. App.—El Paso 2014, no writ), discussed on page 30

of ConocoPhillips’ opening brief, the El Paso Court did not find any ambiguity in

two oil and gas leases, id. at 881 n. 3, but nevertheless applied the rule in

interpreting a retained acreage clause in those leases. Id. at 883. 2

2
      Vaquillas’s reliance at page 27 of its Brief on Endeavor Energy Resources, L.P.
      v. Discovery Operating, Inc., 448 S.W.3d 169 (Tex. App.—Eastland 2014, pet.
      filed), is misplaced. As interpreted by the Eastland Court, the retained acreage
      clause in that lease unambiguously obligated the lessee to file a certified
      proration plat for each well with the Railroad Commission, and the clause then
      allowed the operator to retain only the specific acreage the operator had

                                           5
      This Court described the procedure for deciding whether a contract is

ambiguous in Terrill v. Tuckness, 985 S.W.2d 97, 102-03 (Tex. App.—San

Antonio 1998, no writ) (stating: “An instrument is ambiguous only when the

application of the rules of construction leaves it unclear which meaning is the

correct one.” (emphasis in original)). Accord, Plains Exploration & Production

Co. v. Torch Energy Advisors Inc., No. 13-0597, Slip op. at 14-15 (Tex., June 12,

2015) (“if the contract is subject to two or more reasonable interpretations after

applying the pertinent construction principles, the contract is ambiguous, creating a

fact issue regarding the parties intent.”).

      Consequently, contrary to Vaquillas’s argument, this Court should construe

the exception in the retained acreage clause in a manner that avoids requiring

ConocoPhillips to forfeit 15,000 additional acres from the mineral estate Vaquillas

granted to it by the Vaquillas Leases. The exception in Sentence (2) of the retained

acreage clause does not require the result for which Vaquillas contends at all, much

less so clearly, precisely, and unequivocally that the exception can be given no

other meaning.

   designated on that plat. Id. at 178-79. The Vaquillas Leases contain no such
   requirement.

                                              6
            ADDITIONAL REPLIES TO VAQUILLAS’S BRIEF
      Vaquillas’s Brief not only fails to answer (or answer correctly) the four

questions listed above, it embellishes the record of the Commission’s adoption of

Field Rules for the Vaquillas Ranch (Lobo Cons.) Field, and proposes to this Court

an awkward and incorrect interpretation of the retained acreage clause that this

Court should not accept.

      ConocoPhillips will address both flaws in Vaquillas’s arguments.

                Vaquillas’s “Suggestions” about the Field Rules

      Vaquillas suggests that when the Commission adopted the Field Rules, the

Commission “considered the evidence and applied its expertise” to make a

determination that gas wells in this Field drain only 40 acres, should be drilled

every 40 acres, or that 40 acres was “the appropriate density of development” for

the Vaquillas Ranch. See, e.g., Vaquillas Brief pp. 3-4 n.3, 28. For those kinds of

statements in its Brief, Vaquillas cites only to the Commission’s Examiner’s

Report and Recommendation on the original Field Rules and to Rule 2 in the Field

Rules, itself. See Vaquillas Brief p, 3, citing Conclusion of Law No. 3 in the

Examiner’s Report (CR252 ¶ 3) and Vaquillas Brief pp. 3-4 n. 4, citing only to

Rule 2 of the Field Rules (CR247).

      The record does not support Vaquillas’s argument. Conclusion of Law No.

3 in the Examiner’s Report and Recommendation states only that “[a]pproval of

                                        7
the proposed field consolidation, adoption of the proposed field rules and

suspension of the allocation formula will prevent waste and will not harm

correlative rights.” (CR252 ¶3). And then, far from decreeing there should be a

gas well drilled every 40 acres in this Field,       Field Rule 2 states:     “The

aforementioned distances in the above rule [467 feet from a lease line and 1,200

feet between wells] are minimum distances to allow an operator flexibility in

locating a well.”

      One can search the Examiner’s Report (CR250) and the Field Rules

(CR252) in vain for any reference to evidence that was offered or considered by

the Commission about the spacing rules in Rule 2 of the Field Rules or any

“appropriate density of development” for the Vaquillas Ranch ( Lobo Cons.) Field.

The purpose of these particular Field Rules was to consolidate 56 previously-

designated Lobo gas fields into a single field so that wells in the Field could

continue to produce to lower economic limits, thereby resulting in higher gas

volumes per well. See the “Discussion of the Evidence” and Findings of Fact 2-7

in the Examiner’s Report and Recommendation (CR251-52).

      Nothing in the record indicates that when the Commission promulgated the

spacing rule in Rule 2 of the Field Rules, it did any more than carry the standard,

Statewide Rule 37 distances of 467 and 1,200 feet forward into these Field Rules.

The spacing in these Field Rules requires reference to the very same Table in

                                        8
Statewide Rule 38 for minimum drilling units as Statewide Rule 37 required before

these Field Rules were adopted. See 16 T.A.C § 3.37(a)(1) & 3.38(b)(2). So, both

the Statewide spacing rule in effect before the Field Rules were adopted (467-

1,200) and the spacing rule of the Field Rules (467-1,200) point to the very same

line in the Table in Statewide Rule 38, which requires minimum drilling units of 40

acres for both oil and gas wells.

       In effect, Vaquillas’s argument about the Field Rules proves too much. If

the Commission “found” that the minimum 40-acre density specified by Statewide

Rule 38 was the “appropriate density of development” by adopting these Field

Rules, surely Statewide Rules 37 and 38 would have led these parties to the same

conclusion years before, when the Vaquillas Leases were executed. 3 If the parties’

intent at that time was to require the lessee to drill the Vaquillas acreage to the

maximum lawful density, that maximum density was exactly the same—40 acres

per well—when the Leases were signed. If that had been the parties’ intent, they

could easily and clearly have stated that “intent” in the retained acreage clause, but

did not. (See Question No. 3 in this Reply Brief, above).

3
    Vaquillas placed into the record of this case the original Special Order of the
    Railroad Commission, dated August 15, 1955, which established minimum, 40-
    acre “acreage requirements” for spacing rules of 467 feet from a lease line and
    1,200 feet between wells. (See CR269, stating that “no well shall be drilled on
    less acreage” than acreages specified in the table). Consequently, the same
    minimum 40-acre density requirement has been in effect throughout the time
    both Vaquillas Leases have existed.

                                          9
    Vaquillas’s Erroneous Interpretation of the Retained Acreage Clause

      Vaquillas offers, throughout its Brief, a meat-cleaver approach to

interpretation of the Vaquillas Leases. Vaquillas tells the Court that Sentences

(1) and (2) of the retained acreage clause apply to mutually-exclusive situations

and have no relationship to each other.    Consequently, Vaquillas says that if the

Commission has adopted field rules and those rules identify, for any purpose, any

unit of acreage “different from” 640 acres for gas wells, then Sentence (2) controls

to the complete exclusion of both Sentence (1) and all other provisions of the

Leases that are inconsistent with the forfeiture Vaquillas seeks to effect by its

proposed reading of Sentence (2).

      Vaquillas points to the spacing rule in the Field Rules and then to Statewide

Rule 38 and says only that the minimum 40-acre drilling unit created by reading

those rules together is “different from” 640 acres. Vaquillas says “never mind” to

the obvious fact that a 40-acre minimum drilling unit has nothing to do with, and

does not conflict in any way with, carrying out of the parties’ agreement in

Sentence (1) that the lessee retains 640 acres for gas wells when the retained

acreage clause operates.

                                          10
       There is no conflict between two unrelated purposes of: (a) requiring a

minimum of 40 acres for drilling a new well,4 and (b) retaining 640 acres for each

producing and shut-in gas well at the time the retained acreage clause operates.

This Court drew the correct distinction between those different purposes of the two

provisions in Ramirez, when it wrote that Statewide Rules (just like these Field

Rules) “merely establish minimum spacing and density requirements,” but the

retained acreage clause “establishes the acreage the lessee is entitled to hold” when

that clause operates. ConocoPhillips Co. v. Ramirez, 2006 WL 1748584 at *3

(Tex. App.—San Antonio 2006) (not designated for publication).

       Stripped to its core, Vaquillas’s argument is mind-numbingly simplistic:

“40” is different from “640.” That argument, which lacks even a semblance of

substance, should be rejected by this Court. To accept Vaquillas’s argument would

not be “avoiding when possible and proper a construction which is unreasonable,

inequitable, and oppressive.” Springer Ranch, Ltd. v. Jones, 421 S.W.3d 273, 280

(Tex. App.—San Antonio 2013, no pet.).

4
    One author recently explained a “drilling unit” as follows: “A ‘drilling unit’ is
    the ‘acreage assigned to a well for drilling purposes’ and is the acreage
    submitted with the RRC Form W-1 drilling permit to show sufficient acreage
    for density requirements. It is a regulatory term of art with limited purposes
    and it is not even required for permits on vertical wells anymore.” Scott C.
    Petry, Drafting the Retained Acreage Clause: The Effect of Governmental
    Authority on Retained Acreage, State Bar of Texas Advanced Oil, Gas and
    Energy Resources Law Course p. 6 (2009).

                                         11
      On pages 17-18 of its Brief, Vaquillas tries to make a play on the words

“prescribed” and “requirement” that are found in Statewide Rule 38. Because

Vaquillas finds those words, which it says are close enough to “establish,” it claims

the Field Rules do, in fact, “establish” different units. Not true. First, the words

Vaquillas has found are in Statewide Rule 38, not in the Field Rules. But more

importantly, Vaquillas omits to acknowledge the sole purpose for which Statewide

Rule 38 “prescribes” standard drilling units and “requires” a minimum of 40 acres

in those units. As the text of the Rule makes crystal clear, that purpose is to define

a “standard unit” in order to explain the Rule’s “general prohibition,” which is that

“no well shall be drilled on substandard acreage.”          16 T.A.C. § 3.38(b)(1).

“Substandard acreage” is defined to mean “less acreage than the smallest amount

established for standard or optional drilling units.” 16 T.A.C § 3.38(a)(4). So the

purpose of the words in Rule 38 is only to say the Commission will not issue

drilling permits for tracts smaller than those prescribed in the Table.

      In other sections of its Brief, Vaquillas strives to explain away the obvious

inconsistencies that ConocoPhillips’s original Brief pointed out between

Vaquillas’s interpretation of Sentence (2) of the retained acreage clause and other

provisions of the Leases. In each case, Vaquillas dismisses the inconsistency by

claiming that when the exception in Sentence (2) applies, other provisions of the

Lease that conflict with Vaquillas’s interpretation of Sentence (2) simply go away.

                                          12
See Vaquillas Brief p. 21 (“That any drilling unit established as the result of Field-

Rule spacing would likely be less than 640 acres does not create surplusage”); p.

23 (“The 640-acre pooling authorization is not rendered surplusage”); p. 24 (“The

requirement that each retained unit contain ‘at least’ one well is not rendered

surplusage”); and p. 25 (That a particular Field-Rule spacing establishes the

drilling unit for gas wells at the same acreage as the drilling unit for oil wells does

not create surplusage”). See also Vaquillas Brief pp. 6-7.

      Vaquillas agrees these other clauses—such as the pooling clause and the

one-well-per-retained-block-of-contiguous-acreage requirement in Sentence (4) of

the retained acreage clause—are rendered meaningless under Vaquillas’s

interpretation of Sentence (2). Yet Vaquillas insists these clauses are not true

“surplusage” because they apply when Sentence (2) does not, but only then. They

become “surplusage” in Vaquillas’s mind only when the exception in Sentence (2)

applies. Vaquillas explains this theory most pointedly on page 6 of its Brief: “An

exception that renders a default provision inapplicable under some, or even most,

circumstances dose not thereby render the default provision superfluous.”

      Obviously, Vaquillas’s proposed interpretation is a strained one, not in

keeping with the rule that a contract should be interpreted so that none of its

provisions is rendered superfluous, or the rule that the Court should “consider each

part [of the lease] with every other part so that the effect and meaning of one part

                                          13
on any other part may be determined.” Birnbaum v. SWEPI LP, 48 S.W.3d 254,

257 (Tex. App.—San Antonio, pet. denied).

      Vaquillas’s argument improperly isolates Sentence (2) of the retained

acreage clause from other provisions of the Vaquillas Leases and exalts an

exception into a super-powerful clause that overrides other provisions of the

Leases. In effect, Vaquillas tries to turn the “exception” into the “rule,” and the

“rule” into the exception.

      Indeed, Vaquillas turns the retained acreage clause on its head.    Vaquillas

refers throughout its Brief to the 640 acres agreement in Sentence (1) as the

“default retention” or the “default retained-acreage provision” (rather than the

parties’ basic agreement about the quantity of acreage that may be retained, as it

plainly is). Vaquillas writes that Sentence (2) “will override the default provision

[by which Vaquillas means Sentence (1)] where a formally-adopted rule for the

field provides for a spacing that establishes a [by which Vaquillas obviously means

“any”] unit of acreage less than 640 acres.” Vaquillas Brief p. 22.

      That is an unreasonable construction of this retained acreage clause. The

reasonable interpretation, which gives meaning to all provisions of the clause, as

well as the pooling clause, the one well clause, and other provisions of the Leases,

is that the general rule governs, thereby allowing ConocoPhillips to retain 640

acres per gas well, unless the Commission adopts a field rule that overrides the

                                         14
parties’ agreement that ConocoPhillips may hold 640 acres with gas wells, or in

the language of the clause “establishes” different units of acreage that must, by

law, be observed for gas wells instead of the 640 acres to which the parties agreed.

      For examples, the field rules described in the three Supreme Court cases

described on page 23 of ConocoPhillips’ opening brief required operators to assign

fewer than 640 acres to producing wells. The rules in those cases permitted

maximum 320, 160, and 352-acre producing units. If those field rules applied

here, the retained acreage clause in the Vaquillas Leases would reduce the acreage

ConocoPhillips could retain for gas wells. But the Field Rules at issue here contain

no such provisions. As another example, the field rules for the Spraberry (Trend

Area) Field quoted in Endeavor Energy Resources, L.P., discussed on page 27 of

Vaquillas’s Brief, stated: “The standard drilling and proration units are established

hereby to be EIGHTY (80) ACRES except as herein provided. No proration unit

shall consist of more than EIGHTY (80) ACRES except as hereinafter provided.”

Endeavor, 448 S.W.3d at 173. If the Vaquillas Ranch (Lobo Cons.) Field Rules

had a similar provision, that, too, legally would modify the parties’ agreement that

ConocoPhillips could retain 640 acres, but they do not.

      There is no friction between the Field Rules for the Vaquillas Ranch (Lobo

Cons.) Field and these parties’ plainly-stated agreement that ConocoPhillips may

retain 640 acres for each gas well that it drilled before the end of its continuous

                                         15
drilling program (and that remains producing or shut-in). ConocoPhillips can

retain 640 acres per producing or shut-in gas well, yet comply in every respect with

these Field Rules, just like it complied with the very same spacing and density

requirements before these Field Rules were adopted.

      A final comment on Vaquillas’s statement that ConocoPhillips has advanced

a   supposedly    “Shylockian    interpretation.”   Obviously   pleased     with   its

Shakespearean reference, Vaquillas summons the Bard’s merciless moneylender to

center stage four times in its Brief. But Vaquillas is trying to write Shylock into

the wrong play.

      ConocoPhillips has never argued, as Vaquillas asserts for its reference to

Shylock, that Sentence 2 applies only if “Rule 38 (through which Field Rule

operates to establish density) prescribed fixed units of acreage that could not be

varied in either direction by the operator.” Vaquillas Brief p. 14. ConocoPhillips

has said the exception in Sentence (2) would come into play if the Railroad

Commission had “established” by Field Rules different units that made it legally

necessary to modify the parties’ agreement that ConocoPhillips may retain 640

acres for each producing or shut-in gas well. That simply did not happen.

                               PRAYER FOR RELIEF
      ConocoPhillips respectfully restates the Prayer for Relief contained on pages

31-32 of its original Brief.

                                         16
Respectfully submitted,

/s/ Michael V. Powell
Michael V. Powell
  State Bar No. 16204400
  Email: mpowell@lockelord.com
Cynthia K. Timms
  State Bar No. 11161450
  Email: ctimms@lockelord.com
Elizabeth L. Tiblets
  State Bar No. 24066194
  Email: etiblets@lockelord.com
Locke Lord LLP
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201-6776
Tel: 214-740-8520
Fax: 214-740-8800

Adolfo Campero
 State Bar No. 00793454
 Email: acampero@camperolaw.com
Campero & Associates, P.C.
315 Calle Del Norte, Suite 207
Laredo, Texas 78041
Tel: 956-796-0330
Fax: 956-796-0399

ATTORNEYS FOR APPELLANT
CONOCOPHILLIPS COMPANY

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                     CERTIFICATE OF COMPLIANCE
       Pursuant to Texas Rule of Appellate Procedure 9.4(i)(3), as amended
effective December 1, 2012, the undersigned certifies that this Petition complies
with the length limitations of Rule 28.3(g) (which the undersigned understands
now to be stated in Rule 9.4(i)) and the typeface requirements of Rule 9.4(e).

      1.     Exclusive of the contents excluded by Rule 9.4(i)(1), this Brief
contains 4,790 words as counted by the Word Count function (including textboxes,
footnotes, and endnotes) of Microsoft Office Word 2010.
      2.    This Brief has been prepared in proportionally spaced typeface using:

            Software Name and Version: Microsoft Office Word 2010
            Typeface Name: Times New Roman
            Font Size: 14 point

                                     /s/ Michael V. Powell
                                     Michael V. Powell

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                         CERTIFICATE OF SERVICE
      I hereby certify that on the 15th day of June, 2015, a true and correct copy of
Reply Brief of Appellant, ConocoPhillips Company, was served by eFile Texas
and/or pdf on Appellees through its counsel of record listed below:

Gregg Owens                                Raul Leal
 Email: gregg.owens@haysowens.com           Email: rleal@rl-lawfirm.com
Robert G. Hargrove                         Raul Leal Incorporated
 Email: rob.hargrove@haysowens.com         5810 San Bernardo, Suite 390
Hays & Owens L.L.P.                        Laredo, Texas 78041
807 Brazos Street, Suite 500               Tel: 956-727-0039
Austin, Texas 78701                        Fax: 956-727-0369
Tel: 512.472.3993
Fax: 512.472.3883

A. Michael Jung                            Armando X. Lopez
 Email: michael.jung@strasburger.com        Email: mandox@rio.bravo.net
Strasburger & Price, LLP                   Law Offices of Armando X. Lopez
901 Main Street, Suite 4400                1510 Calle Del Norte, Suite 16
Dallas, Texas 75202-3794                   Laredo, Texas 78041
Tel: 214-651-4724                          Tel: 956-726-0722
Fax: 214-651-4330 (main)                   Fax: 956-726-6049
Fax: 214-659-4022 (direct)

Counsel for Vaquillas Unproven
Minerals, Ltd.

                                       /s/ Michael V. Powell
                                       Michael V. Powell

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