Apache Deepwater, LLC v. McDaniel Partners, Ltd., 485 S.W.3d 900

1953 assignment: Ferguson conveyed four oil-and-gas leases (Cowden 36, Cowden 37, Peterman, Broudy) covering Surveys 36 and 37, cumulatively a 35/64 working interest, reserving a production payment of “1/16 of 35/64 of 7/8” until $3.55 million and 1.42 million barrels were received.
The reservation describes the payment as “one-sixteenth of the entire interest in the production … to which Assignor claims to be entitled under the terms of said respective oil and gas leases.”
Both Cowden leases later expired for lack of production; Peterman and Broudy remained held by production, leaving a 3/64 assigned working interest subject to the reservation.
Apache (successor to Tyson) began producing additional acreage in the surveys and issued a division order computing the reservation as 1/16 of 3/64 of 7/8.
McDaniel (Ferguson’s successor) demanded payment based on the original 1/16 of 35/64 of 7/8; after McDaniel sued, the trial court sided with Apache, the court of appeals reversed for McDaniel, and the Supreme Court of Texas granted review.

Issue	Plaintiff's Argument (McDaniel)	Defendant's Argument (Apache)	Held
Whether the production payment is a fixed fraction of the original cumulative working interest (35/64) and thus survives lease expirations	The reservation fixes the payment at 1/16 of 35/64 of 7/8 payable from total production from the surveys regardless of later lease terminations	The reservation ties 1/16 to each lease owner’s respective interest; when a lease expires, the portion of the payment carved from that lease is extinguished and the payable fraction falls accordingly	Payment is carved from the respective leasehold estates; portions attributable to expired leases are extinguished, so Apache’s reduced calculation is correct
Whether the assignment required an express clause to permit proportionate reduction upon lease termination	The absence of an express „piecemeal reduction" clause means the original fractional rate endures until the stated dollar/volume cap is reached	No express savings clause needed; production payments (like overriding royalties) terminate with the lease unless the parties expressly agreed otherwise, so termination of underlying leases reduces the payable share	The court rejects the need for an express proportional‑reduction clause and applies the general rule that such reserved interests end with the burdened lease unless an express provision preserves them

Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587 (Tex. 1996) (agreement ambiguity standard)
Dynegy Midstream Servs., Ltd. P'ship v. Apache Corp., 294 S.W.3d 164 (Tex. 2009) (contract construction principles)
Wal-Mart Stores, Inc. v. Sturges, 52 S.W.3d 711 (Tex. 2001) (unambiguous contract construed as written)
Seagull Energy E & P, Inc. v. Eland Energy, Inc., 207 S.W.3d 342 (Tex. 2006) (intent determined from the written instrument)
Hysaw v. Dawkins, 483 S.W.3d 1 (Tex. 2016) (holistic contract interpretation)
J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223 (Tex. 2003) (consider all provisions to give effect to the whole instrument)
Sunac Petroleum Corp. v. Parkes, 416 S.W.2d 798 (Tex. 1967) (overriding royalty extinguishes when lease terminates)