XOG Operating, LLC and Geronimo Holding Corporation v. Chesapeake Exploration Limited Partnership and Chesapeake Exploration, LLC
2015 Tex. App. LEXIS 9411
| Tex. App. | 2015Background
- This is an oil and gas “retained acreage” dispute involving four leases in Wheeler County, Texas.
- XOG Operating, LLC and Gerónimo Holding Corporation (XOG) sued Chesapeake Exploration Limited Partnership and Chesapeake Exploration, LLC (Chesapeake) for interpretation of the retained acreage clause in a 2003 assignment.
- Effective June 1, 2003, assignors conveyed 1,625 acres to EOG Resources, Inc.; the primary term was two years, with continuous operations beyond the term so long as wells produced, and termination except for retained acreage.
- Article IX provides that upon expiration, the lease reverts to the assignor except for the portion included within the proration unit of each well drilled and producing in paying quantities.
- The field rules for the Allison-Britt Field set a maximum prescribed proration unit of 320 acres; Stiles Ranch (Granite Wash) had no field rules; six wells were drilled (five in Allison-Britt, one in Stiles Ranch).
- Form P-15 filings designated fractional proration units totaling 802 acres, and the Railroad Commission published acreage corresponding to those filings; XOG argues retention is limited to these fractional acres while Chesapeake argues retention is the field-rule-based acreage (320 per well) or 320 in the absence of field rules, yielding a total retention that exceeds lease acreage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| What constitutes the proration unit for retention? | XOG: proration unit equals acres designated in Form P-15 filings. | Chesapeake: proration unit equals acres prescribed by field rules or 320 when none exist. | proration unit = 320 acres per well; Form P-15 fractional units do not control retention. |
| Does the clause 'that portion of said lease included within the proration unit' bind retention to field-rule units or permit fractional designations by Form P-15? | XOG: language ties retention to the operator’s Form P-15 designations. | Chesapeake: retention is defined by proration unit per field rules or 320 when absent. | retention is defined by the proration unit prescribed by field rules or 320; Form P-15 designations do not alter that default. |
| Did the trial court properly construe an unambiguous contract when interpreting Article IX? | XOG: contract ambiguity exists; extrinsic evidence permissible. | Chesapeake: contract unambiguous; apply plain meaning. | contract is unambiguous; courts apply terms as written; no error in summary judgment. |
Key Cases Cited
- Anadarko Petroleum Corp. v. Thompson, 94 S.W.3d 550 (Tex. 2002) (contract interpretation of oil/gas leases; determine parties’ intent from four corners)
- Petro Pro, Ltd. v. Upland Res., Inc., 279 S.W.3d 743 (Tex. App.—Amarillo 2007) (contract construction; save-and-except provisions)
- Frost Nat’l Bank v. L & F Distribs., Ltd., 165 S.W.3d 310 (Tex. 2005) (interpretation of contracts; ordinary meaning; four-corners rule)
- Friendswood Dev. Co. v. McDade & Co., 926 S.W.2d 280 (Tex. 1996) (contract interpretation; avoid unreasonable outcomes)
- Rogers v. Ricane Enters., Inc., 772 S.W.2d 76 (Tex. 1989) (contract termination when condition occurs; enforce conditions as written)