Endeavor Energy Resources, L.P. and Endeavor Petroleum, L.L.C. v. Discovery Operating, Inc. and Patriot Royalty and Land, L.L.C.
554 S.W.3d 586
| Tex. | 2018Background
- Endeavor held mineral leases covering all of Section 4 (≈640 acres) and the northern half of Section 9 (≈320 acres) in Martin County; it completed two producing wells in each section but left one quarter of each section undeveloped (Section 4 SW quarter; Section 9 NW quarter).
- Leases contained: a habendum (primary/secondary) term, a continuous-development clause (preserve leases while operator maintains continuous drilling), and a retained-acreage clause (upon expiration/cessation, lease terminates except for lands "located within a governmental proration unit assigned to a well producing oil or gas…with each such governmental proration unit to contain the number of acres required to comply with [RRC] rules for obtaining the maximum producing allowable").
- Endeavor originally filed certified proration plats assigning ≈81.0–81.21 acres to each of its four wells (proration units), which did not include the disputed quarters; it later attempted to correct plats to 160-acre units (claiming tolerance acreage) after the primary terms expired.
- Patriot/Discovery concluded Endeavor’s leases had terminated as to the undeveloped quarters, leased those quarters, and Discovery drilled producing wells there; Discovery sued Endeavor for trespass-to-try-title. The trial court and court of appeals held Endeavor’s leases had terminated as to the disputed acreage; the Texas Supreme Court granted review.
- The central contract/regulatory question: whether the retained-acreage clause’s reference to a "governmental proration unit assigned to a well" and to the acreage necessary for the "maximum producing allowable" means (a) the operator’s actual assignment in its certified plat controls, or (b) a larger amount allowed by RRC field rules (i.e., 160 acres including tolerance acreage) controls.
Issues
| Issue | Plaintiff's Argument (Endeavor) | Defendant's Argument (Discovery) | Held |
|---|---|---|---|
| Meaning of "proration unit assigned to a well" | Ambiguous; could mean proration units the RRC assigns under field rules (i.e., Commission-determined unit size) | Unambiguous: refers to the operator’s assignment in certified proration plats filed with the RRC | "Assigned" unambiguously refers to the operator’s assignment via its regulatory filings (plat) |
| "Maximum producing allowable" — does it compel 160 acres per well? | "Maximum producing allowable" means the greatest acreage RRC rules permit (160 acres including tolerance), so Endeavor retained 160 acres per well despite filing 81-acre plats | Clause requires operator to include in its plat the number of acres needed under RRC rules to obtain the maximum allowable for that particular well; if operator’s filing already achieves that maximum, that filed acreage is retained | Retained acreage is the acreage the operator assigned in its certified plats so long as that assignment complies with rules to obtain the applicable maximum allowable; here ≈81 acres per well were sufficient and thus retained |
| Use of RRC filings to determine title / effect of contracts using regulatory designations | RRC records only govern allowables, not title; courts shouldn’t divest title based on regulatory filings alone | Parties may contract that operator filings determine retained lease acreage; regulatory context makes operator assignment the operative act | Contractual terms referencing regulatory proration units are enforceable; the parties agreed the operator’s assignment governs retained acreage |
| Forfeiture / special-limitation concern | Court of appeals’ construction effects an unjust forfeiture of productive acreage; avoid construing lease to produce forfeiture | The clause is a clear special limitation: parties bargained that unassigned acreage reverts; this is not disfavored forfeiture but an agreed termination condition | No impermissible forfeiture: the leases’ special-limitation language is clear and terminates unassigned acreage as of the triggering event |
Key Cases Cited
- Samson Expl., LLC v. T.S. Reed Props., Inc., 521 S.W.3d 766 (Tex. 2017) (leases are contracts; interpret their terms to ascertain parties’ intent)
- Anadarko Petroleum Corp. v. Thompson, 94 S.W.3d 550 (Tex. 2002) (interpret mineral leases from the four corners to ascertain intent; harmonize provisions)
- Browning Oil Co. v. Luecke, 38 S.W.3d 625 (Tex. App.—Austin 2000) (operator must designate proration unit and acreage, then certify productivity before receiving allowable)
- Mathews v. Sun Oil Co., 425 S.W.2d 330 (Tex. 1968) (production on part of a lease can hold entire lease absent special limitation)
- Freeman v. Magnolia Petroleum Co., 171 S.W.2d 339 (Tex. 1943) (special- limitation/termination upon stipulated event is enforceable)
- Samano v. Sun Oil Co., 621 S.W.2d 580 (Tex. 1981) (enforcement of drilling/reworking conditions in lease can cause automatic termination)
- Broussard v. Texaco, Inc., 479 S.W.2d 270 (Tex. 1972) (operators assign acreage to proration units; unassigned acreage remains)