Court Opinion

ID: 4051837
Source: CourtListenerOpinion
Date Created: 2016-09-29 01:48:28.835848+00
Date Added: 2024-06-11T14:05:22.530291
License: Public Domain

In The
                           Court of Appeals
                  Seventh District of Texas at Amarillo

                                 No. 07-13-00439-CV

                     XOG OPERATING, LLC AND
            GERONIMO HOLDING CORPORATION, APPELLANTS

                                         V.

            CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP
            AND CHESAPEAKE EXPLORATION, L.L.C., APPELLEES

                        On Appeal from the 31st District Court
                                Wheeler County, Texas
            Trial Court No. 12,375, Honorable Steven R. Emmert, Presiding

                                September 2, 2015

                            DISSENTING OPINION
               Before QUINN, C.J., and CAMPBELL and PIRTLE, JJ.

       For the reasons I will outline briefly, I am unable to agree with my colleagues’

reading of the retained acreage language in the assignment. The         retained   acreage

clause reads, in part, as follows:

               Upon the expiration of the Primary Term of this Assignment . . . this
       Assignment and all rights created hereunder shall terminate as to all lands
       and depths covered hereby. Said lease shall revert to Assignor, save and
       except that portion of said lease included within the proration or pooled
       unit of each well drilled under this Assignment and producing or capable of
       producing oil and/or gas in paying quantities. The term “proration unit” as
       used herein, shall mean the area within the surface boundaries of the
       proration unit then established or prescribed by field rules or special order
       of the appropriate regulatory authority for the reservoir in which each well
       is completed.

       The majority adopts the interpretation of the language advanced by appellees

Chesapeake Exploration Limited Partnership and Chesapeake Exploration, LLC.              It

reads the language to express the parties’ intention that on expiration of the primary

term, the assignee would retain the leasehold insofar as it applied to the number of

acres in each producing well’s proration unit, as established or prescribed by the

applicable field rules. Because, the majority says, the field rules for the Allison-Britt

(12,350’) Field prescribe a 320-acre proration unit, the assignee retained 320 acres per

well completed in that field, regardless of the acreage the operator chose to assign to

the well by its Form P-15.

       But the assignment doesn’t say the assignee will retain the number of acres in a

unit prescribed by the field rules. It says the assignee will retain “that portion of said

lease included within the proration . . . unit,” and then defines “proration unit.” Merely

defining the term “proration unit” does not make the assignment say that the portion of

the lease included within the proration unit “is,” “must be” or “always equals” the

prescribed proration unit.    By equating the former phrase “the portion within the

proration . . . unit” with the prescribed 320-acre proration unit, the majority effectively

has read the former phrase out of the parties’ agreement.

       By its assumption the parties intended the assignee to retain 320 acres, the

majority also reads language into the parties’ agreement. The agreement’s “proration

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unit” definition speaks of “the area within the surface boundaries of the proration unit

then established or prescribed by field rules.” The assignment’s language does not

suggest the parties intended the assignee to retain the maximum acreage permitted for

a proration unit by the field rules.1

       1
           RULE 2 of the [field rules for the Allison-Britt (12,350’) Field] reads as
follows:

              The acreage assigned to the individual gas well for the purpose of
       allocating allowable gas production thereto shall be known as the
       prescribed proration unit. No proration unit shall consist of more than
       three hundred twenty (320) acres except as hereinafter provided; and the
       two farthermost points in any proration unit shall not be in excess of six
       thousand (6,000) feet removed from each other; provided that tolerance
       acreage of ten (10) percent shall be allowed for each unit so that an
       amount not to exceed a maximum of three hundred fifty-two (352) acres
       may be assigned. For allowable assignment purposes, the prescribed
       proration unit shall be a three hundred twenty (320) acre unit, and each
       unit containing less than three hundred twenty (320) acres shall be a
       fractional proration unit.    All such proration units shall consist of
       continuous and contiguous acreage which can reasonably be considered
       to be productive of gas. No double assignment of acreage will be
       accepted.

               An operator, at his option, shall be permitted to form fractional units
       of one hundred sixty (160) acres with a proportional acreage allowable
       credit for a well on such unit with the two farthermost points of such one
       hundred sixty (160) acre fractional unit not greater than four thousand five
       hundred (4,500) feet removed from each other.

              Operators shall file with the Commission certified plats of their
       properties in said field which plats shall set out distinctly all of those things
       pertinent to the determination of the acreage credit claimed for each well;
       provided that if the acreage assigned to any proration unit has been
       pooled, the operator shall furnish the Commission with such proof as it
       may require as evidence that interests in and under such proration unit
       have been so pooled.

       The majority notes that the field rules provide for fractional proration units, and
wonders whether Chesapeake’s designated units containing fewer than 320 acres could
even be considered “proration units” under the assignment’s definition. Perhaps not,
but the acreage assigned to the well by Chesapeake still would be “that portion of said

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       The majority’s reading of the assignment is untenable also because it fails to

accomplish the language’s purpose of identifying the acreage to be retained by the

assignee. If the language says only that the assignee retains 320 acres because that’s

the prescribed proration unit, it begs the question, “which 320 acres?” As the majority

points out, the field rules do not prescribe the particular acreage to be contained within

the prescribed proration unit. That fact is not an argument for reliance only on the field

rules for the identification of the acreage to be retained. It is an argument to give effect

to the language used by the parties, by which the assignee retains “that portion of said

lease included within the proration . . . unit.” The parties cannot identify “that portion”

merely by identifying the number of acres it may contain.2

       The Eastland Court of Appeals recently addressed lease language similar to the

assignment language we encounter in this case.            Endeavor Energy Res., L.P. v.

Discovery Operating, Inc., 448 S.W.3d 169 (Tex. App.—Eastland 2014, pet. filed). The

lease contained language stating that at the end of its primary term, it would terminate

as to all of the leased lands, except for “those lands and depths located within a

governmental proration unit assigned to a well . . . , with each such governmental

proration unit to contain the number of acres required to comply with the applicable

rules and regulations of the [Railroad Commission] for obtaining the maximum

producing allowable for the particular well.” Id. at 175-76. The parties took positions

like those we confront: the lessee contended the latter clause of the retained acreage
____________________
lease included within the proration . . . unit,” which is the acreage to be retained under
the assignment’s plain language.
       2
         When the parties wanted to designate the configuration of the proration unit as
well as its number of acres, they did so, in the case of wells not subject to field rules or
special order.

                                          4
language “automatically establishes the size of the proration units” to be the maximum

acreage, 160 acres.      Id. at 177.     The court disagreed, holding that the lessee’s

interpretation conflicted with the parties’ use of the word “assigned” in the language’s

earlier clause. The language in its entirety, the court found, demonstrated that the

parties intended “the last clause in [the retained acreage language] to define the amount

of acres that [the lessee] was to include in the governmental proration units that it

assigned in its certified proration plats filed with the [Railroad Commission].”

       The parties to the assignment in our case did not use the phrase “lands and

depths located within a governmental proration unit assigned to a well.” But they used

the words “that portion of said lease included within the proration . . . unit.” The effect is

the same. The Eastland court recognized that it is by the filing of the certified proration

plat that acreage is assigned to a governmental proration unit for a well. Id. at 178.

Acreage is “included within” a proration unit in the same way.

       I would give the language before us a construction like that the Eastland court

applied in Endeavor. 448 S.W.3d at 177-78.        Such a construction would require

reversal of the trial court’s summary judgment in favor of appellees Chesapeake

Exploration Limited Partnership and Chesapeake Exploration, LLC, and remand to the

trial court. Because the Court affirms the summary judgment, I respectfully dissent.

                                           James T. Campbell
                                               Justice

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