ConocoPhillips Company v. Vaquillas Unproven Minerals, LTD.

ACCEPTED
04-15-00066-CV
FOURTH COURT OF APPEALS
SAN ANTONIO, TEXAS
4/9/2015 3:46:42 PM
ORAL ARGUMENT REQUESTED KEITH HOTTLE
CLERK

No. 04-15-00066-CV
FILED IN

In the Court of Appeals
4th COURT OF APPEALS
SAN ANTONIO, TEXAS

for the Fourth District of Texas
4/9/2015 3:46:42 PM
KEITH E. HOTTLE
San Antonio, Texas 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

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
 IDENTITY OF PARTIES AND COUNSEL
Party Counsel

ConocoPhillips Company, Michael V. Powell
State Bar No. 169204400
Appellant mpowell@lockelord.com
Cynthia K. Timms
State Bar No. 11161450
ctimms@lockelord.com
Elizabeth L. Tiblets
State Bar No. 24066194
etiblets@lockelord.com
LOCKE LORD LLP
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201-6776
Telephone: (214) 740-8000
Telecopier: (214) 740-8800

Adolfo Campero
State Bar No. 00793454
acampero@camperolaw.com
Campero & Associates, P.C.
315 Calle Del Norte, Suite 207
Laredo, Texas 78041
Telephone: (956) 796-0330
Telecopier: (965) 796-0399

ii
 Party Counsel

Vaquillas Unproven Minerals, Ltd., Raul Leal
State Bar No. 24032657
Appellees rleal@rl-lawfirm.com
RAUL LEAL INCORPORATED
5810 San Bernardo, Suite 390
Laredo, Texas 78041
Telephone: (956) 727-0039
Telecopier: (956) 727-0369

Armando X. Lopez
State Bar No. 12562400
mandox@rio.bravo.net
LAW OFFICES OF ARMANDO X.
LOPEZ
1510 Calle Del Norte, Suite 16
Laredo, Texas 78041
Telephone: (956) 726-0722
Telecopier: (956) 726-6049

Gregg Owens
State Bar No. 15383500
gregg.owens@haysowens.com
Robert G. Hargrove
State Bar No. 09303300
rob.hargrove@haysowens.com
Alicia R. Ringuet
State Bar No. 24074958
alicia.ringuet@haysowens.com
HAYS & OWENS L.L.P.
807 Brazos Street, Suite 500
Austin, Texas 78701
Telephone: (512) 472-3993
Telecopier: (512) 472-3883

iii
Party Counsel

P. Michael Jung
State Bar No. 11054600
michael.jung@strasburger.com
STRASBURGER & PRICE, LLP
901 Main Street, Suite 4400
Dallas, Texas 75202-2794
Telephone: (214) 651-4724
Telecopier: (214) 659-4022

iv
 TABLE OF CONTENTS

IDENTITY OF PARTIES AND COUNSEL ........................................................... ii

TABLE OF CONTENTS ...........................................................................................v

INDEX OF AUTHORITIES.....................................................................................vi

STATEMENT OF THE CASE .................................................................................. 1
STATEMENT REGARDING ORAL ARGUMENT ............................................... 2
ISSUE PRESENTED .................................................................................................3

STATEMENT OF FACTS ........................................................................................4
SUMMARY OF THE ARGUMENT ......................................................................11

ARGUMENT ...........................................................................................................14
1. The Field Rules did not “establish” different units of acreage per well. ...... 14

A. The parties’ competing interpretations................................................14

B. Analysis of the retained acreage clause in light of the Field
Rules ....................................................................................................16

2. If there were any doubt about the proper interpretation of Sentence
(2), the Court should apply the strong presumption in Texas law
against making that sentence a “limitation on the grant.” .............................27

PRAYER FOR RELIEF ..........................................................................................31
CERTIFICATE OF COMPLIANCE .......................................................................33

CERTIFICATE OF SERVICE ................................................................................34
APPENDIX TO APPELLANT’S BRIEF................................................................35

v
 INDEX OF AUTHORITIES

Page(s)
CASES
Anadarko Petroleum Corp. v. Thompson,
94 S.W. 3d 550 (Tex. 2002)....................................................................13, 27, 29

Birnbaum v. SWEPI LP,
48 S.W.3d 254 (Tex. App.—San Antonio 2001, pet. denied)............................16
Chesapeake Exploration, L.L.C. v. Energen Resources Corp.,
445 S.W.3d 878 (Tex. App.—El Paso 2014, no pet.) ..................................13, 30

Clifton v. Koontz,
325 S.W.2d 684 (Tex. 1959) ..............................................................................23
ConocoPhillips Co. v. Ramirez,
No. 04-05-00488-CV, 2006 WL 1748584 (Tex. App.—San Antonio,
2006) (not designated for publication) .........................................................21, 22
EOG Resources, Inc. v. Killam Oil Co., Ltd.,
239 S.W.3d 293 (Tex. App.—San Antonio 2007, pet. denied)....................21, 27
Fox v. Thoreson,
398 S.W.2d 88 (Tex. 1966).................................................................................29
Halbouty v. Railroad Commission,
357 S.W.2d 364 (Tex. 1962) ..............................................................................23
Heritage Resources, Inc. v. NationsBank,
939 S.W.2d 118 (Tex. 1996) ..............................................................................16
Humphrey v. Seale,
716 S.W.2d 620 (Tex. App.—Corpus Christi 1986, no writ) ............................28
Jones v. Killingsworth,
403 S.W.2d 325 (Tex. 1965) ..............................................................................18

Knight v. Chicago Corp.,
183 S.W.2d 666 (Tex. Civ. App.—San Antonio 1944), aff’d, 188 S.W.2d
564 (Tex. 1945)...................................................................................................30

vi
Knight v. Chicago Corp.,
188 S.W.2d 564 (Tex. 1945) ........................................................................29, 30

Matthews v. Sun Oil Co.,
425 S.W.2d 330 (Tex. 1968) ..............................................................................28

Natural Gas Pipeline Co. v. Pool,
124 S.W.3d 188 (Tex. 2003) ..............................................................................27

Prize Energy Resources, L.P. v. Cliff Hoskins, Inc.,
345 S.W.3d 537 (Tex. App.—San Antonio 2011, no pet.) ................................28

Railroad Commission v. Woods Exploration and Producing Co.,
405 S.W.2d 313 (Tex. 1966) ..............................................................................23

Rogers v. Ricane Enterprises, Inc.,
773 S.W.2d 76 (Tex. 1989).................................................................................29
Rowley v. Braley,
286 S.W. 241 (Tex. Civ. App—Amarillo 1926, writ dism’d)............................17
Shown v. Getty Oil Co.,
645 S.W.2d 555 (Tex. App.—San Antonio 1982, writ ref’d.) ...........................28
Springer Ranch, Ltd. v. Jones,
421 S.W.3d 273 (Tex. App.—San Antonio 2013, no pet.) ..............14, 16, 18, 27
State v. Bilbo,
392 S.W.2d 121 (Tex. 1965) ..............................................................................16
Tomlin v. Petroleum Corp. of Texas,
694 S.W.2d 441 (Tex. App.—Eastland 1985, no writ) ......................................30

STATUTES AND RULES
TEX. CIV. PRAC. & REM. CODE § 37.009..................................................................32

TEX. CIV. PRAC. & REM. CODE § 51.014(d) ............................................................... 1
TEX. R. APP. P. 43.2(c) .............................................................................................14

16 T.A.C. §3.38(b)(1) ..............................................................................................10
vii
OTHER AUTHORITIES
BLACK’S LEGAL DICTIONARY at 626 (9th ed. 2009) ..........................................17, 18
J. Hayes, Texas Railroad Commission: Some Basics Every Practitioner
Should Know, 28 State Bar of Texas, Oil, Gas and Mineral Law Section
Report 3, 20 (June 2004).....................................................................................23
WEBSTER’S THIRD NEW INTERNATIONAL UNABRIDGED DICTIONARY (1993) .......... 18

viii
 STATEMENT OF THE CASE
This interlocutory appeal requests the Court to interpret, de novo, near-

identical “retained acreage clauses” in two oil and gas leases. Plaintiff-Appellee

Vaquillas Unproven Minerals, Ltd. (“Vaquillas”), the Lessor, claims the retained

acreage clauses caused Defendant-Appellee ConocoPhillips Company

(“ConocoPhillips”), a Lessee, to forfeit substantially more acreage than

ConocoPhillips voluntarily released when ConocoPhillips’ program of continuous

drilling ended. ConocoPhillips disagrees, saying it retained the proper blocks of

acreage under the leases.

Vaquillas sued ConocoPhillips in the 406th District Court, Webb County.

(CR:190). ConocoPhillips filed a traditional motion for summary judgment based

on its interpretation of the leases. (CR:27). Vaquillas filed a traditional cross-

motion for partial summary judgment based on its interpretation of the retained

acreage clause. (CR:200). The trial court, The Honorable Oscar J. Hale, Jr.,

denied ConocoPhillips’ motion for summary judgment and granted Vaquillas’

cross-motion. (CR:433, Appendix (“App.”) B).

The trial court granted ConocoPhillips’ unopposed motion for interlocutory

appeal under TEX. CIV. PRAC. & REM. CODE § 51.014(d). (Id.) By Order dated

February 13, 2015, this Court granted ConocoPhillips’ Petition for Permission to

Appeal. (App. A).

1
 STATEMENT REGARDING ORAL ARGUMENT
Appellant ConocoPhillips requests oral argument.

The question presented by this interlocutory appeal comes before the Court

on cross-motions for summary judgment and presents a question of law.

Nevertheless, the appeal requires the Court to construe retained acreage clauses in

oil and gas leases in light of field rules adopted by the Railroad Commission of

Texas, as well as that Commission’s Statewide Rule 38.

ConocoPhillips believes oral argument could be helpful to the Court as the

Court considers various provisions of the oil and gas leases and the Commission’s

rules. There is also a great deal at stake in this appeal. The trial court has decreed

that ConocoPhillips has forfeited approximately 15,000 acres from decades-old

Webb County oil and gas leases on which ConocoPhillips has drilled over 200

natural gas wells.

2
 ISSUE PRESENTED
Did the trial court err by denying ConocoPhillips’ Motion for Summary

Judgment and by granting Vaquillas’ Cross-Motion for Partial Summary

Judgment? (App. B).

More specifically, the retained acreage clauses authorize ConocoPhillips to

retain 640 acres around each existing gas well at the end of the continuous drilling

program, unless Railroad Commission field rules provide for spacing or proration

“establishing different units of acreage per well.” If that exception is triggered,

those “established different acreages” are held in lieu of 640 acres. Did the trial

court err by holding that spacing requirements in the field rules, which require a

minimum of 40 acres in order to obtain a drilling permit for a new well, caused

ConocoPhillips’ leases to terminate except for 40 acres around each existing gas

well?

3
 STATEMENT OF FACTS
The Oil and Gas Leases. ConocoPhillips is Lessee, and Vaquillas the

Lessor, under two oil and gas leases covering Webb County land. Sworn copies of

the leases are in the record at CR:47-88 and 283-323, and copies are attached as

Appendices C and D to this Brief (the “Leases”) (CR:192).

By the Lease at Appendix C, granted in 1974 and amended in 1987,

Vaquillas (and its predecessors) conveyed to ConocoPhillips’ predecessor the

mineral estate underlying 26,622.79 acres for “five years . . . and as long thereafter

as oil, gas or other mineral is produced from said land or land with which said land

is pooled hereunder.” (CR:192, 209). By the Lease at Appendix D, dated 1987,

Vaquillas granted the mineral estate under an additional 6,740 acres, except the

term of that Lease was for “three years . . . and as long thereafter as oil, gas or

other mineral is produced from said land or land with which said land is pooled.”

(Id.)

All of the wells at issue in this case are natural gas wells. For gas wells,

both Leases authorize ConocoPhillips to pool units up to 640 acres in size.

Paragraph 4 of the Leases, which grants pooling authority, states:

. . .units pooled for gas hereunder shall not substantially exceed
in area 640 acres each plus a tolerance of ten percent (10%) thereof,
provided that should governmental authority having jurisdiction
prescribe or permit the creation of units larger than those specified, for
the drilling or operation of a well at a regular location or for obtaining
maximum allowable from any well to be drilled, drilling or already

4
 drilled, units thereafter may conform substantially in size with those
prescribed or permitted by governmental regulation.

Paragraph 4 gives the Lessee “the right and power to pool or combine the

acreage covered by this lease or any portion thereof as to oil and gas, or either of

them, with any other land covered by this lease and/or with any other land, lease,

or leases in the immediate vicinity thereof . . . .” Paragraph 16 restricts that power

somewhat by restricting pooling only to other lands owned in whole or part by

Vaquillas, but that restriction is not pertinent here.

Vaquillas’ claim in this action is based on one isolated provision in

Paragraph 18, the retained acreage clause, of the Leases. In order to facilitate the

discussion in this Brief, ConocoPhillips will separate and number the four phrases

or sentences of that clause that are pertinent here, and then refer to those

“Sentences” by number: 1

Sentence (1): “On November 1, 1990, Lessee covenants and agrees

to execute and deliver to Lessor a written release of any and all

portions of this lease which have not been drilled to a density of at

least 40 acres for each producing oil well and 640 acres for each

producing or shut-in gas well,”

1
The provisions quoted are from the 26,622.79-acre Lease at Appendix C. The
only difference between the language of Paragraph 18 in the two Leases is that
Paragraph 18 of the 6,740-acre Lease (App. D) starts with: “At the end of the
primary term, Lessee covenants and agrees . . . .”
5
Sentence (2): “except that in case any rule adopted by the Railroad

Commission of Texas or other regulating authority for any field on

this lease provides for a spacing or proration establishing different

units of acreage per well, then such established different units shall be

held under this lease by such production, in lieu of the 40 and 640-

acre units above mentioned;”

Sentence (3): “provided, however, that * * * if, after the completion

or abandonment of any such well Lessee commences the drilling of an

additional well within Ninety (90) days from the completion or

abandonment of the preceding well, or continuously conducts drilling

operations in good faith and with reasonable diligence on said lease

without any cessation for longer than Ninety (90) days, said lease

shall remain in full force and effect during such drilling operations

and until the end of Ninety (90) days after the completion or

abandonment of the final well, at which time Lessee shall execute and

deliver to Lessor said written release, releasing all portions of the

lease not then so developed.”

Sentence (4): “Each retained unit shall contain at least one (1) well

producing or capable of producing oil or gas in paying quantities, and

the acreage within a unit shall be contiguous.”

6
(Emphasis added).

Sentence (3), quoted above, established the continuous drilling program that

extended the date after which ConocoPhillips had to release acreage. There is no

dispute that by continuous drilling, ConocoPhillips maintained the 26,622.70-acre

Lease in full force and effect for many years after November 1, 1990, and the

6,740-acre Lease in full force and effect many years after the end of its primary

term. ConocoPhillips’ continuous drilling program ended at or about the date

alleged in Vaquillas’ Petition, June 21, 2012. (CR:193; 242). Vaquillas counted

that by that date, ConocoPhillips had drilled 208 wells on the two Leases.

(CR:203, 224).

In early 2014, ConocoPhillips filed Partial Releases in the Webb County

deed records that released all acreage covered by the Leases except for 640 acres

around each producing or shut-in gas well, as permitted by Sentence (1) of the

retained acreage clause. (CR:194; 90-179). Vaquillas contends those Partial

Releases were insufficient and asserts that at the end of the continuous drilling

program, ConocoPhillips’ Leases terminated as to all acreage except 40 acres

around each producing or shut-in gas well. (CR:195-96; 227). Vaquillas moved

for summary judgment that 25,042 of the total 33,363 acres Vaquillas granted to

ConocoPhillips by the Leases “reverted” to Vaquillas when the continuous drilling

7
program ended, and consequently, ConocoPhillips must release 15,351 more acres

than those released by the Partial Releases it already filed. (CR:203, 204-05).

The Field Rules. Vaquillas bases its contention on the exception in

Sentence (2) of Paragraph 18, quoted above, and the Railroad Commission’s Field

Rules for the Vaquillas Ranch (Lobo Cons.) Field, Webb County, Texas (the

“Field Rules”). The Commission initially adopted Field Rules for the Lobo

Consolidated Field in 1998 (App. E, CR:183, 245). It amended those rules in

2010 (App. F, CR:181, 254). There is no dispute that these Field Rules apply to

the field that includes the Leases.

The Field Rules do not “establish” any mandatory units of acreage per well.

Neither the Commission’s adoption of Field Rules in 1998, nor its amendment of

those rules in 2010, required ConocoPhillips to make any changes to its gas wells

on the Leases.

Rule 3 in the original 1998 Field Rules is the proration rule for the field.

(App. E). Unlike other forms of proration rules, Rule 3 of these Field Rules does

not specify a maximum amount of acreage that may be allocated to a well as a

factor in the proration formula. 2 Vaquillas correctly explains proration rules as

2
There is an example in the record of another field rule that does limit the size of
proration units to 160 acres. (CR:188-89). Rule 2 of the Temporary Field
Rules for the Big Reef (Edwards) Field, Webb County, adopted June 2002,
states: “No proration unit shall consist of more than ONE HUNDRED SIXTY
(160) ACRES [plus a 10 percent tolerance].” Id.
8
follows: “[a] prescribed proration unit does not address the number of acres

necessary to drill a well. It simply specifies the maximum amount of acres that an

operator may assign to a well as a proration unit for that well. * * * Prescribed

proration units are by their nature maximum-sized units, because they prescribe the

maximum acreage that an operator may assign to a well as a proration unit for

production allowable purposes.” (CR:208-09, emphasis added). ConocoPhillips’

point is that the Field Rules for this field contain no “prescribed proration units,”

and they do not specify, in any other way, a maximum amount of acres

ConocoPhillips may pool for any well.

In the trial court, Vaquillas did not base its argument on the proration rule,

Rule 3 of the Field Rules. Rather, it based its argument on Rule 2, the spacing

rule. (CR:211-13; 222 n.59).

Rule 2 provides no different spacing from the Statewide Rules applicable

before field rules were adopted for this field, i.e., the spacing in the rule requires a

minimum of 40 acres for obtaining a permit to drill a new well. (App. E). Rule 2

accomplishes that result by providing that wells may not be drilled closer than 467

feet to any lease line, or 1,200 feet from another well in the same reservoir. (App.

F). These are the same spacing distances that are found in the Statewide Spacing

Rule applicable in the absence of field rules. See 16 T.A.C. § 3.37(a)(1).

9
 When, as here, a field rule contains only spacing rules, a Table in the

Commission’s Statewide Rule 38(b)(2) supplies the minimum acreage necessary

for obtaining a Commission permit to drill a new well.3 For the 467 and 1,200 feet

spacing in these Field Rules, the Table specifies a minimum drilling unit of 40

acres. (Statewide Rule 38 and its Table are attached as Appendix G). The Table

shows the number of acres that are included in the “standard unit” associated with

various spacing rules, i.e., the smallest amount of acreage required for obtaining a

drilling permit for a well, irrespective whether the well is ultimately completed as

an oil or gas well. But the only prohibition established by Rule 38 is that “[n]o

well shall be drilled on substandard acreage.” 16 T.A.C. §3.38(b)(1).

“Substandard acreage” means “[l]ess acreage than the smallest amount established

for standard or optional drilling units.” Id. at §3.38(a)(4). Thus, as pertinent here,

3
The Table is as follows:

10
the only prohibition regarding acreage that may be derived from these Field Rules

is that the Commission will not issue a permit for drilling a new well on less than

40 acres.

Statewide Rule 38 is titled “Well Densities,” 16 T.A.C. §3.38 (App. G), and

the 40-acre requirement for a drilling unit is a density, not a spacing, requirement.

Statewide Rule 38 defines a “drilling unit” as “the acreage assigned to a well for

drilling purposes.” 16 T.A.C. § 3.38(a)(2) (App. G, emphasis added). As

Vaquillas correctly explains: “[t]he density requirement [prescribes] the minimum

number of acres the operator must have to drill a well. * * * Such units are by the

nature minimum-sized units, because they prescribe the minimum acreage required

to obtain a Railroad Commission permit to drill a well.” (CR:208).

The Field Rules establish no density requirement, or other unit size

requirement, that extends beyond the issuance of a drilling permit.

SUMMARY OF THE ARGUMENT
The Leases granted ConocoPhillips a fee simple determinable estate in the

minerals in and under 33,363 acres of Webb County land. By the time

ConocoPhillips’ continuous drilling program ended in 2012, ConocoPhillips had

drilled more than 200 gas wells on that land. Under Sentence (1) in the retained

acreage clause, ConocoPhillips was entitled to retain, under lease, 640 acres for

11
each gas well. ConocoPhillips was obligated to release the remainder of the

acreage back to Vaquillas, which it did.

Contrary to Vaquillas’ argument, the exception in Sentence (2) of the

retained acreage clause does not apply. The Railroad Commission’s Field Rules,

adopted in 1998, did not provide “a spacing or proration establishing different units

of acreage per well.” The Field Rules did nothing but carry forward from the

Statewide Spacing Rule the same requirement that an operator must assemble a

minimum of 40 acres before the Commission will issue a permit to drill a new

well. The Field Rules effected no change to ConocoPhillips’ gas wells in the field.

Consequently, when ConocoPhillips’ continuous drilling program ended, no units

different from 640 acres had been “established” in the field by Field Rules.

If Vaquillas were correct in contending that Sentence (2) of the retained

acreage clause limits ConocoPhillips to retaining only the minimum acreage

required to obtain a permit to drill a new well, that minimum acreage will likely be

less than 640 acres. Accordingly, Vaquillas’ interpretation erroneously makes the

exception in Sentence (2) swallow the 640-acre general rule in Sentence (1).

In addition, Vaquillas’ proposed interpretation would render illusory the

pooling clause’s authority to pool up to 640 acres for gas wells, and render

superfluous Sentence (4)’s statement that ConocoPhillips must have at least one

12
well per block of retained acreage. ConocoPhillips could not drill more than one

well on Vaquillas’ proposed retained 40-acre blocks.

Vaquillas’ interpretation would also obliterate the parties’ clear

differentiation between the acreage assigned to oil wells (40 acres) and gas wells

(640 acres) that is stated twice in the Leases. Under Vaquillas’ interpretation, both

oil and gas wells would retain only 40 acres.

But most significantly, Vaquillas’ erroneously interpretation of Sentence (2)

violates the established rule of Texas law 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.” E.g.,

Anadarko Petroleum Corp. v. Thompson, 94 S.W. 3d 550, 554 (Tex. 2002). This

rule applies when interpreting retained acreage clauses. E.g., Chesapeake

Exploration, L.L.C. v. Energen Resources Corp., 445 S.W.3d 878, 883 (Tex.

App.—El Paso 2014, no pet.).

Specifically, Vaquillas claims Sentence (2) results in more than 15,000

additional acres “reverting” to Vaquillas under the retained acreage clause. But

Sentence (2) does not mandate that result “so clearly, precisely, and

unequivocally” so that the Court could “reasonably give it no other meaning.”

13
 ARGUMENT
Standard of Review. This Court reviews the trial court’s summary

judgment ruling de novo. E.g., Springer Ranch, Ltd. v. Jones, 421 S.W.3d 273,

279 (Tex. App.—San Antonio 2013, no pet.). When, as here, both parties moved

for summary judgment and the trial court granted one motion and denied the other,

this Court considers the summary judgment evidence presented by both sides,

determines all questions presented, and if the Court determines the trial court erred,

renders the judgment the trial court should have rendered. Id. See TEX. R. APP. P.

43.2(c).

1. The Field Rules did not “establish” different units of acreage per
well.

A. The parties’ competing interpretations
In Sentence (1) of the retained acreage clause, the parties agreed that

ConocoPhillips was entitled to retain 640 acres “for each producing or shut-in gas

well” when its continuous drilling program ended. Consequently, when

ConocoPhillips filed its Partial Releases of the Leases, it correctly retained 640

acres per gas well as agreed in Sentence (1).

Vaquillas, on the other hand, contends the exception in Sentence (2)

controls. Vaquillas claims that under the exception, the Field Rules “provide for a

spacing or proration establishing different units of acreage per well,” and thus,

14
“such established different units shall be held” in lieu of the 640-acre units

specified in Sentence (1).

In the trial court Vaquillas offered no substantial analysis of the Field Rules,

except to say those rules identify one kind of unit—a minimum 40-acre drilling unit

to obtain a Commission permit to drill a new well. (CR:215). From that

observation, Vaquillas leapt, erroneously, to the conclusion that the minimum 40-

acre requirement for a drilling permit in those rules triggered the exception in

Sentence (2). Vaquillas moved for (and was granted) partial summary judgment

that ConocoPhillips “retains only 40 acres for each producing and shut-in-gas well

drilled by [ConocoPhillips] on the oil and gas leases that are the subject of this

lawsuit.” (CR:202).

Consequently, the lease interpretation question for this Court is whether

ConocoPhillips correctly retained 640 acres per well under Sentence (1) of the

retained acreage clause, or whether (as Vaquillas contends) the Field Rules

triggered the exception in Sentence (2) of that clause? As will be discussed in

greater detail below, Vaquillas maintains that Sentence (2) operates as a limitation

on the grant ConocoPhillips received by virtue of the Leases. Consequently,

Vaquillas argues that all acreage granted by the Leases to ConocoPhillips

“reverted” to Vaquillas at the end of the continuous drilling program, except for 40

acres around each existing well. Vaquillas’ Petition expressly states: “At the

15
Release Date, the Reverted Minerals automatically reverted to Vaquillas.”

(CR:195, see also CR:196).

B. Analysis of the retained acreage clause in light of the Field
Rules
The general rules for construing oil and gas leases are well known. The

Court examines the entire lease “and consider[s] each part with every other part so

that the effect and meaning of one part on any other part may be determined.”

Heritage Resources, Inc. v. NationsBank, 939 S.W.2d 118, 121 (Tex. 1996);

Birnbaum v. SWEPI LP, 48 S.W.3d 254, 257 (Tex. App.—San Antonio 2001, pet.

denied). The Court gives terms in the lease “their plain, ordinary, and generally

accepted meaning unless the instrument shows that the parties used them in a

technical or different sense.” Heritage, 939 S.W.2d at 121; Birnbaum, 48 S.W.3d

at 257. When construing oil and gas leases, the Court should “avoid when possible

a construction which is unreasonable, inequitable, and oppressive. Springer

Ranch, 421 S.W.3d at 287.

Neither party contends the retained acreage clause is ambiguous, so the

Court may interpret the clause as a matter of law. E.g, Springer Ranch, 421

S.W.3d at 279. Furthermore, the Court may interpret the Commission’s Field

Rules as a matter of law. See, e.g., State v. Bilbo, 392 S.W.2d 121, 122 (Tex.

1965) (interpretation of certificate issued by the Commission presents a question of

law).

16
 “Establishing” and “established” different units. The contested language

in the retained acreage clause is Sentence (2)’s statement that “in case any rule

adopted by the [Commission] . . . provides for a spacing or proration establishing

different units of acreage per well, then such established different units shall be

held under this lease by such production, in lieu of the . . . 640-acre units above

mentioned.”

In that language, the parties twice used forms of the word, “establish.” The

first time “establish” is used, the form is “establishing,” which modifies the phrase

“rule adopted by the Commission [that] provides for a spacing or proration.” That

usage suggests the “establishing” of different units of acreage per well occurs

when the Commission adopts a field rule.

The second time the parties used a version of “establish,” they employed the

past tense, i.e., they referred to “established different units,” suggesting that

different units had already been “established” in the past. In the context of the

entire phrase, the meaning is that different units were “established” when the Field

Rules were adopted, as a result of the Field Rules.

The ordinary meaning of “establish” is “to settle, make, or fix firmly.”

BLACK’S LEGAL DICTIONARY at 626 (9th ed. 2009). Similarly, an old Texas case

says “established” means “[m]ake steadfast, firm, or stable, to settle on a firm or

permanent basis.” Rowley v. Braley, 286 S.W. 241, 245 (Tex. Civ. App—Amarillo

17
1926, writ dism’d). WEBSTER’S THIRD NEW INTERNATIONAL UNABRIDGED

DICTIONARY (1993) says “establish” means either “to make firm or stable,” or to

“settle or fix after consideration by enactment or agreement.” Id. at 778.4

These Field Rules did not “establish” different units. Using those

common definitions of “establish,” it is incorrect to argue that the Field Rules

“made firm or stable,” “settled on a permanent basis,” or “settled or fixed after

consideration by enactment or agreement” a requirement that units for gas wells

must be different from the 640 acres granted by the pooling authority of the Leases

and specified for retention under Sentence (1) of the retained acreage clause. Upon

the Commission’s adopting of the Field Rules, those rules neither required nor

made any change to ConocoPhillips’ gas wells in the field, i.e., the Field Rules

imposed no requirement that different units be “established” for wells in

production or shut-in awaiting production.

The Field Rules contain only one requirement that pertains to quantity of

acreage. They do that by means of the spacing rules—at least 467 feet from lease

4
The Supreme Court’s opinion in Jones v. Killingsworth, 403 S.W.2d 325 (Tex.
1965), illustrates the importance of focusing on the specific words parties
employ in oil and gas leases. In Jones, the Court held that the word
“prescribed” did not mean “permitted.” Consequently, before Sentence (2)
comes into play, the Commission must “establish” units of a different size than
640 acres. The parties did not say the exception in Sentence (2) comes into
play if the Commission adopts a Field Rule that merely permits drilling on units
of fewer than 640 acres, and that is all the Field Rules do. They permit
operators to drill on a minimum of 40 acres, but they do not “establish” 40-acre
units.
18
lines and 1,200 feet from other wells—found in Rule 2. By applying those

minimum spacing rules to the Table in Statewide Rule 38, 16 T.A.C. § 3.38(b)(2)

(App. G, fn. 3, infra), one sees that the minimum density, or drilling unit size, is 40

acres. As Vaquillas correctly explains: “[t]he density requirement [prescribes] the

minimum number of acres the operator must have to drill a well.” (CR:208).

Thus, the sole acreage requirement imposed by the Field Rules is a minimum

acreage requirement for the obtaining of a permit to drill a new well. The Field

Rules do not say there is anything wrong with a 640-acre unit for any producing or

shut-in gas well. Simply put, nothing in the Field Rules “established” different

units from the 640-acre retained acreage units to which the parties agreed in

Sentence (1) of the retained acreage clause.

Two additional rules of oil and gas lease construction. There are two

additional reasons why Vaquillas’ proposed interpretation of the retained acreage

clause is wrong:

First, under Vaquillas’ interpretation that minimum drilling units

control, the exception in Sentence (2) would swallow the general rule in Sentence

(1). Whether a particular field is governed by a special field rule or by Statewide

Rules 37 and 38, the Commission requires an operator to assemble a minimum

number of acres before the Commission will issue a drilling permit for a new well.

And it is unlikely that the minimum number of acres the Commission would

19
require for a drilling permit would be more than 640. One may see that by

reviewing the Table in Statewide Rule 38 on which Vaquillas relies, reproduced at

fn. 3, infra. The largest “standard drilling unit” in the entire Table is 40 acres. See

16 T.A.C. § 3.38(b)(2)(A) (App. G). All other drilling units listed in the Table are

smaller, ranging from 2 to 20 acres. Id.

Consequently, if what Vaquillas claims were correct—i.e., that one would

look to the minimum acreage required for a drilling unit by a Field Rule—then the

general rule of 640-acres in Sentence (1) likely would never apply. Under

Vaquillas’ argument, if a field rule exists, one first would look to see what

minimum drilling units were triggered by the spacing rules in that rule, by

consulting either the rule itself or Statewide Rule 38’s Table. Then as Vaquillas

wants this Court to interpret the retained acreage clause, that minimum drilling

unit—usually 40 acres, likely never more than 640 acres—will always prevail.

Sentence (1)—the 640-acre general rule—would become meaningless. The

exception will have swallowed the rule.

It would have been simple for the parties to write the interpretation for

which Vaquillas contends into the retained acreage clause. To capture Vaquillas’

proposed interpretation, the parties needed to write only that when the retained

acreage clause operates, the lessee may retain around each well only the minimum

amount of acreage required by the Commission to obtain a drilling permit. That is

20
the construction for which Vaquillas contends and the construction the trial court

adopted. But as this Court has said, courts may not rewrite leases in the guise of

interpreting them. E.g., EOG Resources, Inc. v. Killam Oil Co., Ltd., 239 S.W.3d

293, 300 (Tex. App.—San Antonio 2007, pet. denied). Yet that is what Vaquillas

wants this Court to do.

This Court considered a retained acreage clause very similar to the one in

these Leases in ConocoPhillips Co. v. Ramirez, No. 04-05-00488-CV, 2006 WL

1748584 (Tex. App.—San Antonio, 2006) (not designated for publication). For

one of the wells at issue in Ramirez, the Serafin No. 1, there were no applicable

field rules. Instead, the Commission’s Statewide Rules applied. Ramirez sought to

limit ConocoPhillips’ retained acreage for the Serafin No. 1 to 40 acres by relying

on the minimum 40-acre drilling units resulting from application of Statewide Rule

37’s spacing requirements to the Table in then-existing Statewide Rule 38. See

2006 WL 1748584 at *1. The spacing required by Statewide Rule 37 was 467 and

1,200 feet, the same spacing carried into the Field Rules at issue in this appeal. See

16 T.A.C. §3.37(a)(1). The Table in Statewide Rule 38 expressly applies both to

Statewide Rules and field rules, so Statewide Rule 37’s spacing triggered 40-acre

drilling units, just like the Field Rules at issue here. See Ramirez, 2006 WL

1748584 at *3.

21
 Although the trial court ruled for Ramirez, this Court reversed, rejecting

Ramirez’s attempt to limit ConocoPhillips to 40 acres of retained acreage around

the Serafin No. 1 well by application of Statewide Rule 38 through the spacing

requirements stated in Statewide Rule 37. The exception in the retained acreage

clause in Ramirez required, as does the retained acreage clause here, for the

Commission to adopt a rule “for a field.” In Ramirez, this Court gave meaning to

the phrase, “for a field,” and held the Commission’s Statewide Rules were not

adopted “for a field.” Consequently, Ramirez’s attempt to apply the exception in

that retained acreage clause failed at the threshold. 2006 WL 1748584 at *2.

But one of the reasons this Court gave for its holding in Ramirez is

applicable here. This Court observed that if Ramirez’s arguments had been

correct, “the structure of [the retained acreage clause] is turned on its head: the

first clause [here Sentence (1)] would never apply, while the ‘except’ clause [here

Sentence (2)] would state both the general rule . . . and the exception.” If

Vaquillas were correct, the exact same would be true in this appeal. The general

rule in Sentence (1) would never apply. The exception in Sentence (2) always will.

As this Court wrote in Ramirez, that construction “would be not only nonsensical

but contrary to general rules of construction.” Ramirez, 2006 WL 1748584 at *3.

This certainly does not mean, as Vaquillas argued below, that the word

“spacing” in Sentence (2), where that sentence refers to “spacing or proration,” has

22
no meaning. Over the years, the Commission has adopted field rules that establish

maximum densities for wells in specific fields. There are mentions of such field

rules in decided cases. See, e.g., Railroad Commission v. Woods Exploration and

Producing Co., 405 S.W.2d 313, 326 (Tex. 1966) (Smith, J., dissenting) (stating

that field rules at issue “established a 320-acre spacing unit rule.”); Halbouty v.

Railroad Commission, 357 S.W.2d 364, 368 (Tex. 1962) (quoting field rule

stating: “the above spacing rule and the other rules to follow are for the purpose of

permitting only one well to each one hundred and sixty (160) acre proration unit”);

Clifton v. Koontz, 325 S.W.2d 684, 695 (Tex. 1959) (stating that field rules at issue

“provide for 320-acre units with 10 percent tolerance so that a maximum of 352

acres may be assigned.”). 5 But the Commission did not include such a provision in

the Field Rules at issue in this appeal.

If the Field Rules for the Lobo Consolidated Field had established a

maximum unit size for gas wells different from 640 acres (which they did not),

ConocoPhillips would have been required to conform to the rules as soon as they

became effective. Different units would have been “established,” and Sentence (2)

would then apply when the continuous drilling program ended. In other words, if

5
“Rule 38 establishes the minimum number of acres that must be assigned to
each well in order to obtain a drilling permit. In the absence of special field
rules, the minimum requirement is 40 acres per well.” J. Hayes, Texas Railroad
Commission: Some Basics Every Practitioner Should Know, 28 State Bar of
Texas, Oil, Gas and Mineral Law Section Report 3, 20 (June 2004) (emphasis
added).
23
the Field Rules had “established” different units, those different units would have

taken effect when the Field Rules were adopted. But the Field Rules effected no

changes to acreages for producing wells.

Second, under Vaquillas’ interpretation, the power granted in

Paragraph 4 of the Leases to pool up to 640 acres for gas wells would be

destroyed. As explained above, Paragraph 4 of both Leases granted

ConocoPhillips the power to pool for gas wells up to 640 acres. Paragraph 4 also

provides that if the Commission “prescribes or permits” the creation of larger units,

ConocoPhillips’ power to pool would include those larger units. (App. C & D).

Also as explained above, the general rule in Sentence (1) of the retained acreage

clause allows ConocoPhillips to retain 640 acres for each gas well.

That both Paragraphs associate gas wells with 640-acre blocks of acreage is

not coincidence. Vaquillas’ proposed interpretation of Sentence (2) would create

three surprisingly negative results for the lessee.

(A) Even though the Lessor granted the right to pool up to 640 acres for

gas wells, each 640-acre unit, although properly pooled and operated in good faith,

would abruptly shrink to 40 acres when the retained acreage clause operates. 6 This

6
Vaquillas argued in the trial court that ConocoPhillips would had to drill 16 gas
wells per 640-acres in order to “fully develop the acreage” and thereby earn the
right to retain that 640 acres under the retained acreage clause. (CR:379). That
argument conflicts with the authority Vaquillas granted ConocoPhillips in
Paragraph 4 to pool 640 acres for gas wells, and it also directly conflicts with
24
would be true—and oddly so—even though Rule 2 of the Field Rules, on which

Vaquillas relies, has been in effect since February 24, 1998, yet this “shrinking”

did not occur when (or since) those Field Rules were adopted.

(B) The retained acreage clause does not operate to terminate the Leases;

it requires only a release of certain acreage from the Leases. Consequently, after

the retained acreage clause operates, the pooling clause in Paragraph 4 should

remain in full force in effect.

But, under Vaquillas’ erroneous interpretation, the pooling clause becomes a

dead letter. Under Vaquillas’ interpretation, ConocoPhillips would retain under

lease only 40 acre blocks around individual wells. It will be impossible for

ConocoPhillips to exercise the power granted in Paragraph 4 to pool up to 640

acres, or even to drill a new gas well on an existing 640 acre unit. Consequently,

Vaquillas’ proposed interpretation of Paragraph 18, the retained acreage clause,

cannot be harmonized with Paragraph 4 of the same Leases.

Furthermore, under Vaquillas’ erroneous interpretation of Sentence (2), two

words in Sentence (4) of the retained acreage clause are rendered superfluous.

the general rule in Sentence (1) of the retained acreage clause. Under
Vaquillas’ contentions, the pooling authority for gas wells under Paragraph 4
and Sentence (1) of the retained acreage clause would become illusory.

The Leases do not state, as Vaquillas erroneously claims, that ConocoPhillips
was obligated to “drill . . . additional wells to develop the leasehold acreage to
the density provided by Railroad Commission rules.” (CR:203).
25
Sentence (4) states there must be “at least” one well per block of retained acreage.

If Vaquillas’ 40-acre argument were correct, there could never be more than one

well per 40-acre block of retained acreage because the Commission would not

issue a permit for a second well, either for oil or gas.

On the other hand, all paragraphs of the Leases harmonize under

ConocoPhillips’ interpretation of the retained acreage clause. ConocoPhillips

retains 640-acre blocks of acreage around wells, the same as Paragraph 4, the

pooling authority, allows it to do. Consequently, ConocoPhillips may continue to

pool and maintain 640-acre gas units. Furthermore, ConocoPhillips may obtain

permits to drill new wells on those 640-acre blocks, so as long as the Field Rule’s

from-lease-line and between-well spacing requirements are met.

(C) The Leases plainly contemplate that the operator will assign different

acreages to oil and gas wells. Paragraph 4 restricts pooling for oil wells to 40

acres, but allows pooling for gas wells up to 640 acres. Sentence (1) of the

retained acreage clause allows ConocoPhillips to retain only 40 acres around

producing oil wells, but 640 acres around gas wells. Vaquillas’ proposed

interpretation of Sentence (2) would completely destroy the differentiation the

parties clearly intended between acreages assigned to producing oil and gas wells.

Vaquillas’ argument causes that result by relying, at bottom, on Statewide Rule 38,

which does not distinguish, for drilling permit purposes, between oil and gas wells.

26
 As this Court frequently has observed, courts should strive to harmonize and

give effect to all provisions of the Leases “so that none will be rendered

meaningless.” E.g., Springer Ranch, 421 S.W.3d at 279; EOG Resources, 239

S.W.3d at 300. ConocoPhillips’ is the only interpretation that gives meaning to all

provisions of the Leases. Vaquillas’ incorrect interpretation does not. Indeed, it is

simply impossible to find within Sentence (2) the wholesale revisions to the Leases

Vaquillas’ erroneous interpretation would make.

2. If there were any doubt about the proper interpretation of
Sentence (2), the Court should apply the strong presumption in
Texas law against making that sentence a “limitation on the
grant.”
For the reasons above, the Commission’s Field Rules covering these Leases

do not trigger the exception in Sentence (2) of the retained acreage clause in the

Leases. But even if there were any doubt, this Court should apply the strong Texas

law presumption against construing a lease provision to effect a limitation on the

grant. Under that presumption, the Court should not interpret Sentence (2) to work

the forfeiture for which Vaquillas contends.

By way of background, these Texas oil and gas leases were conveyances by

which Vaquillas and its predecessors granted to ConocoPhillips’ predecessor the

fee simple determinable in the mineral estate under the land described in the

Leases. Natural Gas Pipeline Co. v. Pool, 124 S.W.3d 188, 192 (Tex. 2003);

accord Anadarko Petroleum Corp. v. Thompson, 94 S.W.3d 550, 554 (Tex. 2002);

27
Prize Energy Resources, L.P. v. Cliff Hoskins, Inc., 345 S.W.3d 537, 551-52 (Tex.

App.—San Antonio 2011, no pet.). As described above, the Leases at issue

conveyed mineral estates to ConocoPhillips for five and three year primary terms

and “as long thereafter as oil, gas, or other mineral is produced from said land or

land with which said land is pooled hereunder.” 7

Furthermore, “an oil, gas and mineral lease is indivisible by its nature.

Production from any part of the lease keeps the lease in effect during the primary

term as for so long as oil, gas and other minerals are being produced as to all lands

described in the instrument.” Shown v. Getty Oil Co., 645 S.W.2d 555, 560 (Tex.

App.—San Antonio 1982, writ ref’d.); accord, Matthews v. Sun Oil Co., 425

S.W.2d 330, 333 (Tex. 1968); Humphrey v. Seale, 716 S.W.2d 620, 622 (Tex.

App.—Corpus Christi 1986, no writ). ConocoPhillips had completed more than

two hundred gas wells on the Leases by the time its continuous drilling program

ended. (CR:203).

Accordingly, ConocoPhillips’ production from the two Leases entitles

ConocoPhillips to maintain the Leases in full force and effect until an event of

7
Vaquillas attempted to minimize the legal effect of the Leases in the trial court,
suggesting the Leases merely “transferred the rights to explore, drill, produce,
and market the minerals to an oil and gas company with the skill and financial
ability to do so.” (CR:206). No doubt the Leases did that, but as discussed
above, they did more. They conveyed the mineral estate in fee simple
determinable to ConocoPhillips. The significance is that, as discussed in this
section of this Brief, the presumption against construing lease clauses to effect
limitations on the grant is fully applicable to the retained acreage clause.
28
defeasance, or limitation on the grant, occurs. The first limitation on the grant,

found in the habendum clause in Paragraph 2 of the Leases, is cessation of

production in paying quantities, which has not occurred. The second limitation on

the grant is in Sentence (1) of the retained acreage clause, which obligates

ConocoPhillips to release all but 640 acres around producing or shut-in gas wells.

ConocoPhillips has complied. Under Vaquillas’ erroneous argument, Sentence (2)

of the retained acreage clause would operate as a third, very substantial “limitation

on the grant.” Consequently, in “limitation-on-the-grant” terminology, the

question posed by this appeal is whether because of Sentence (2), ConocoPhillips

forfeited and must now release over 15,000 additional acres because that

additional, alleged limitation on the grant caused ConocoPhillips to forfeit all but

40 acres around producing and shut-in gas wells?

Texas law creates a strong presumption against giving Sentence (2) the

limitation-on-the-grant effect for which Vaquillas contends. As the Supreme Court

has held time and again, “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.” Anadarko Petroleum Corp., 94 S.W.

3d at 554; accord, Rogers v. Ricane Enterprises, Inc., 773 S.W.2d 76, 79 (Tex.

1989); Fox v. Thoreson, 398 S.W.2d 88, 92 (Tex. 1966); Knight v. Chicago

Corp., 188 S.W.2d 564, 566 (Tex. 1945).

29
 When the Knight case was before this Court, Justice Norvell, then a member

of this Court, held that even if there are two reasonable constructions of a lease, the

Court will choose the one that does not result in “a forfeiture (or termination of the

estate upon limitation).” Knight v. Chicago Corp., 183 S.W.2d 666, 671 (Tex. Civ.

App.—San Antonio 1944), aff’d, 188 S.W.2d 564 (Tex. 1945).

Texas courts apply the presumption against a limitation on the grant when

interpreting retained acreage clauses. See Chesapeake Exploration, L.L.C. v.

Energen Resources Corp., 445 S.W.3d 878, 883 (Tex. App.—El Paso 2014, no

pet.) (citing Anadarko Petroleum Corp., 94 S.W.3d at 554, and stating “adopting

the construction [of a retained acreage clause] urged by Chesapeake imposes an

unnecessary limitation on the kind and character of the estate the parties chose to

convey, i.e., an expansive one maintained by production from any part of pooled

lands unless limited by language so clear, precise, and un-equivocal that no other

conclusion could be reached.”); Tomlin v. Petroleum Corp. of Texas, 694 S.W.2d

441, 442 (Tex. App.—Eastland 1985, no writ) (citing Fox, 398 S.W.2d at 92, and

applying the presumption against a limitation on the grant to hold that retained

acreage clause expressly referring only to oil wells did not mandate release of

acreage around gas wells).

ConocoPhillips requests the Court to apply the presumption in this appeal.

ConocoPhillips does not agree that Vaquillas’ construction of Sentence (2) is

30
reasonable, equitable or unoppressive. Indeed, as described above in this Brief,

when one gives the words “establishing” and “established” their plain and ordinary

meaning, the exception in Sentence (2) is not triggered, and the general rule of

Sentence (1) prevails. But whatever else one may say about Vaquillas’

interpretation of Sentence (2), one certainly cannot say that sentence, when viewed

in light of the Field Rules, is so clear and precise that no conclusion other than

Vaquillas’ proposed reading can be reached. Consequently, Vaquillas’

interpretation of Sentence (2)—which would create a very significant additional

limitation on ConocoPhillips’ grant—should be rejected.

PRAYER FOR RELIEF
ConocoPhillips prays this Court will reverse the trial court’s Amended order

on Cross-Motions for Summary Judgment (CR:433, App. B), grant

ConocoPhillips’ Motion for Summary Judgment, and deny Vaquillas’ Cross-

Motion for Partial Summary Judgment. The Court should reverse the declaration

on page 1 of the trial court’s Order and declare that ConocoPhillips did not breach

the Leases by retaining 640 acres per producing and shut-in gas wells when

ConocoPhillips’ continuous drilling program ended, and is not required to release

additional acreage, as Vaquillas contends.

ConocoPhillips also prays for recovery of its costs on appeal, remand to the

trial court for determination whether ConocoPhillips is entitled to costs, including

31
reasonable attorneys’ fees, under Texas Civil Practice & Remedies Code § 37.009,

and for all other relief to which it is entitled.

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

32
 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 7,189 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

33
 CERTIFICATE OF SERVICE
I hereby certify that on the 9th day of April 2015, a true and correct copy of
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

34
 No. 04-15-00066-CV

In the Court of Appeals
for the Fourth District of Texas
San Antonio, Texas
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

APPENDIX TO APPELLANT’S BRIEF

Tab
Court of Appeals Order Granting Petition for Permission to
Appeal.......................................................................................................... A
Trial Court Amended Order on Cross-Motions for Summary Judgment........ B
Oil, Gas and Mineral Lease (26,622.79 acres)......................................... C
Oil, Gas and Mineral Lease (6,740 acres)....................................................... D
Railroad Commission Order Adopting Field Rules for the
Vaquillas Ranch (Lobo Cons.) Field Dated February 24, 1998 .................. E
Railroad Commission Final Order Amending Field Rules for the
Vaquillas Ranch (Lobo Cons.) Field Dated November 2, 2010 .................... F
Railroad Commission Statewide Rule 38......................................................... G

35
 FILE COPY

ConocoPhillips
CompanyAppellant/s

Fourth Court of Appeals
San Antonio, Texas
February 13, 2015

No. 04-15-00066-CV

CONOCOPHILLIPS COMPANY,
Appellant

v.

VAQUILLAS UNPROVEN MINERALS, LTD.,
Appellee

From the 406th Judicial District Court, Webb County, Texas
Trial Court No. 2014CVQ000438-D4
Honorable Oscar J Hale, Jr., Judge Presiding

ORDER
Sitting: Sandee Bryan Marion, Chief Justice
Karen Angelini, Justice
Marialyn Barnard, Justice

The appellant’s unopposed petition for permission to appeal from an interlocutory order
is GRANTED. TEX. R. APP. P. 28.3. “A separate notice of appeal need not be filed” as “a notice
of appeal is deemed to have been filed on [the date of this order].” Id. at 28.3(k). This appeal is
governed by the rules for accelerated appeals. Id.

The clerk’s record is due no later than February 23, 2015. Id. at 35.1(b). The clerk of
this court is directed to file a copy of this order with the trial court clerk. Id. at 28.3(k).

_________________________________
Sandee Bryan Marion, Chief Justice

IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the said
court on this 13th day of February, 2015.

___________________________________
Keith E. Hottle
Clerk of Court
 :;

CAUSE NO. 2014CVQ000438 D4

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AMENDED ORDER ON CROSS-MOTIONS FOR SUMMARY JU ..
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On October 30,2014, Defendant's Motion for Summary Judgment and lai tiffs Cross-

Motion for Partial Summary Judgment were heard. The Court, having reviewed the motion,

briefs, responses, competent summary judgment evidence, and argument of counsel, rules on
"

these motions as follows.

IT IS ORDERED, ADJUDGED, AND DECREED that Defendant's Motion for

Summary Judgment is DENIED.

IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that Plaintiffs Cross-

Motion for Partial Summary Judgment is GRANTED. The Court DECLARES that Defendant

has breached the 26,622.79-acre Lease and the 6,740-acre Lease by failing to release all acreage

in excess of 40 acres for each producing and shut-in natural gas well capable of producing in

paying quantities.

This Order of the Court decides the central question in this case, which is the number of

acres under two oil and gas leases that Defendant ConocoPhillips Company retains under the

"retained acreage" clauses of the leases at the conclusion of ConocoPhillips' continuous drilling

operations. The Court finds that the question decided by this order is a controlling question of

AMENDED ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT PAGEl

433
 law as to which there is a substantial ground for difference of opinion. The Court also fmds that

I
.,'.'1
immediate appeal of the order will materially advance the ultimate termination of this litigation.

This Court's Order, and the underlying controlling question of law, involve the parties'

competing legal interpretations of the language of the "retained acreage" clauses and certain

Field Rules adopted by the Railroad Commission of Texas. Although the Court has ruled in

favor of the Plaintiff lessor, Vaquillas Unproven Minerals, Ltd., the Court concludes there are

substantial grounds for difference of opinion regarding whether the leases allow ConocoPhillips

to retain 40 acres per well, as Plaintiff contends, or 640 acres, as ConocoPhillips contends.

An immediate appeal from this Court's Order will materially advance the final

conclusion of litigation. Plaintiff seeks judgment ordering ConocoPhillips to execute releases of

over 15,000 acres described in the leases, as well as possible direct and consequential damages

flowing from ConocoPhillips' alleged breach of the "retained acreage" clauses of the leases. If

ConocoPhillips is forced to release the acreage but later wins an appeal determining that

ConocoPhillips' original interpretation is correct, significant problems could develop. On the

.; other hand, the lessor, Vaquillas Unproven Minerals, Ltd. is interested in having the release of
.,:]
acreage as soon as possible. Furthermore, the Court and the parties anticipate that a

determination of Plaintiffs damages, if any, will be costly and time-consuming.

ConocoPhillips desires to take an interlocutory appeal. The Court rules that such appeal

shall be defined by the lease interpretation question addressed in the parties' cross-motions for

summary judgment. More specifically, the question is whether the leases' retained acreage

clause allows ConocoPhillips Company to retain only 40 acres per each producing or shut-in gas

well it has drilled on the two leases, or whether ConocoPhillips is allowed to retain 640 acres

(Plus I 0% tolerance) for each wells.

AMENDED ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT PAGE 2

434
 IT IS HEREBY ORDERED that, pursuant to Texas Civil Practice & Remedies Code §

51.014(d) (West. Supp. 2014) an interlocutory appeal is ALLOWED from this Order.

IT IS FURTHER ORDERED that trial of this action is stayed pending the interlocutory

,j appeal. The Court's Pre-Trial Guideline Order and Scheduling Order are hereby VACATED.
-:1

The parties may proceed with discovery and pretrial proceedings by agreement or with leave of

Court.

SIGNED this 4- day Of9"'=".jI.tAA-..,=="T\------' 2015.

( )~,,~
Ho1:"Oscar 1. Hale, Jr.
Judge Presiding

AMENDED ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT PAGE 3

435
·,.,
'l
APPROVED AS TO FORM:

'

."!
.;

I
~ ~~p'<..q
Michael V Powell
State Bar No. 16204400
Email: mpowell@lockelord.com
-I 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.
'I 315 Calle Del Norte, Suite 207
I Laredo, Texas 78041
j
] Tel: 956-796-0330
Fax: 956-796-0399

ATTORNEYS FOR DEFENDANT
CONOCOPHILLIPS COMPANY

)
•

AMENDED ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT PAGE 4

436
 - ---- - - - - - - -- -- ---

APPROVED AS TO FORM:

I
-, /s/ P. Michael lung
P. Michael lung
State Bar No. 11054600
Email: michael.jung@strasburger.com
STRASBURGER & PRICE, LLP
901 Main Street, Suite 4400
Dallas, Texas 75202-3794
Tel: 214-651-4724
Fax: 214-651-4330 (main)
Fax: 214-659-4022 (direct)

Gregg Owens
State Bar No. 15383500
Email: gregg.owens@haysowens.com
Robert G. Hargrove -
State Bar No. 09303300
Email: rob.hargrove@haysowens.com
i
-I
HAYS & OWENS L.L.P.
807 Brazos Street, Suite 500
I Austin, Texas 78701
-j Tel: 512-472-3993
.1 Fax: 512-472-3883

Annando X. Lopez
State Bar No. 12562400
Email: mandox@rio.bravo.net
LA W OFFICES OF ARMANDO X. LOPEZ
1510 Calle Del Norte, Suite 16
Laredo, Texas 78041
Tel: 956-726-0722
Fax: 956-726-6049

Raul Leal
State Bar No. 24032657
Email: rleal@rl-lawfirm.com
RAUL LEAL INCORPORATED
5810 San Bernardo, Suite 390
Laredo, Texas 78041
Tel: 956-727-0039
Fax: 956-727-0369

ATTORNEYS FOR V AQUILLAS
UNPROVEN MINERALS, LTD.

AMENDED ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT PAGES

437
 .'\" ~-'. '~wWi
P'i>du~tn U {'"'' ?O,~lnllnll ~ SI'lionlr, Co •• 1l0UI\0~. T'~II
uo ACAI PoOUnr- Pr:ovilion _, I
~!, " OIL, GAS AND Mliu(RAL LEASE AMENDING OIL', GAS AND''ntNERAL.
LEASE DATED JUNE 15, 1974 (AS AMENDED) BETWEEN LESSOR-AND LESSEE HEREIN

26,622.79-acres of land, more or less, situated'in Webb County. Texas more
fully described in Exhibit "A" attacli"ed"'he'reto and made a part of this Lease
for all relevant purposes. including limitations upon warranty as specifically
set out therei~.

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".

ADDENDUM TO AMENDED OIL AND GAS LEASE
From Vagui11as Ranch Co., Ltd. et a1
To Conoco Inc., Oated November 1, 1987

12. Should Lessee be prevented from complying with covenants of this
lease by reason of conditions or acts set forth in Paragraph '11' hereof,
then Lessee agrees annually to pay to Lessor an amount equal to the delay
rentals herein provided for during such period of prevention, whether same
be during or subsequent to the primary term, and such payment shall be made
at the end of each year of prevention either to Lessor or to the depository
above named for credit to the account of Lessor.

13. This lease does not cover or include any right or privilege of
hunting or fishing on any part of the above described land, cwd Lessee
agrees with lessor that neither he nor his assigns or agents or employees
of his aSSigns, will bring firearms or dogs upon the leased premises, and
should this provision against hunting and fishing be violated by any
agents I servants, employees or contractors of Lessee's assigns, any such
person so Violating same shall have no further right to enter upon the
leased premises, and such person shall be regarded as and shall be a
trespasser on the premises of Lessor and be subject to the penalties
imposed upon trespassers under the laws of the State of Texas.

14. It Is expressly agreed and understood that after production of

oil and gas in commercial quantities is obtained from the leased premises,
the mi nimum annua 1 income to Lessor from payment of renta 1s , shut- i n
royalty and royalty on production shall be sum of not less than Two ($2.00)
Dollars per acre on the total acreage retained and then covered by this
lease, but this provision shall not impair the right and privilege of
Lessee, his successors and aSSigns, to release and surrender any part of
the above described leased premises as herein provided. Lessee, his
successors and aSSigns, shall determine within 90 days from the expiration
of any lease year during which royalties have been paid on actual
production the amount of any deficiency, and shall within said gO-day
period pay such deficiency to Lessor or deposit same to Lessor's credit at

i-CIlP
- -0012146i
----
-1-
GWB2/dm 130(1)

, -,- ,.. , , 49
the depository hereinabove designated. Default in the payment of such
deficiency shall "at operate to tenllinate this lease or any part hereof,
but Lessee, his successors and assigns, agrees to personally pay such
deficiency to Lessor at Laredo in Webb County, Texas, together with any
reasonable cost, including attorney's fees, incurred by Lessor in
collecting such deficiency if not paid within the gO-day period hereinabove
provided for.

15. Nothwithstanding any other provision herein contained, this oil,
gas and mineral lease is limited to oil, gas and sulphur and minerals
produced with oil and gas, and does not include minerals other than oil,
gas and sulphur and minerals produced with oil and gas, as Lessor herein
excludes from the leasehold estate herein granted, and reserves unto
himself, his heirs and assigns, all minerals other than oil, gas and
sulphur and minerals that may be produced with oil and gas, but it is
expressly agreed that 'gas' as used herein includes gas, condensate,
distillate or any other gaseous substance or any other mineral produced
with oil and gas, including sulphur.

16. The right to pool under Paragraph '4' of this Oil, gas and
mineral lease shall be limited to lease or leases on land belonging ·to
Lessor herein, or in which lessor owns an interest in the oil, gas and
other minerals.

17. For the purposes of the annual renta 1 payments due under
paragraph 5, Lessor and Lessee agree that said payments have been timely

paid and received, and that this Lease is perpetuated, without the
necessity of further delay rental payments, until the expiration of the
primary term.

18. On November 1, 1990, Lessee covenants and agrees to execute and
deliver to Lessor a written release of any and all portions of this lease
which have not been drilled to a density of at least 40 acres for each
producing oil well and 640 acres for each producing or shut-in gas well,
except that in case any rule adopted by the Railroad Commission of Texas or
other regulating authority for any field on this lease provides for a

!CiiP" ooi21471
-2- -----~-----
GWB2/dm 130(1)

50
spacing or proration establishing different units of acreage per well, then
such established different units shall be held under this lease by such
production, in lieu of the 40 and 640-acre units above mentioned; provided,
however, that if at such date lessee is engaged in drilling or reworking
operations the date for the execution and delivery of such release shall be
postponed and the entire lease shall remain in force so long "as operations
on said well or wells are prosecuted with reasonable diligence, and if,
after the completion or abandonment of any such well lessee commences the
drilling of an additional well within Ninety (90) days from the completion
or abandonment of the preceding well, or continuously conducts drilling
operations in good faith and with reasonable diligence on said lease
"Without any cessation for longer than Ninety (90) days, said lease shall
remain in full force and effect during such drilling operations and until
the end of Ninety (90) days after the completion or abandonment of the
final well, at which time lessee shall execute and deliver to lessor said
written release, releasing all portions of the lease not then so developed.
Each retained unit shall contain at least one (1) well producing or capable
of producing oil or gas in paying quantities, and the acreage within a unit
shall be contiguous.

If, after the date the partial release called for under this Paragraph 18
takes affect, all production from a retained unit around a well or wells
cease to produce oil or gas in commercial or in paying quantities, Lessee
shall have one hundred eighty (180) days thereafter within which to
commence operations to establish or re-establish production therein in
commercial or paying quantities, whether such production be from the same
wellbore or other wellbore. If such operations result in commercial
producti on, then thi s 1ease, as it app 1 i es to such un it sha 11 continue
until such commercial or paying production again ceases. However, if such
operations do not result in commercial production, then Lessee shall have
ninety (90) days after completion of such operations within which to
commence drilling or reworking operations within such unit, and this lease,
as it applies to said unit, shall remain in force so long as operations on
said well or for drilling or reworking of any additional well therein are
prosecuted with no cessation of more than ninety (90) consecutive days, and
if they result in the production of oil or gas therein, so long thereafter

lCOPOo121"~
-3- --------:--
GWB2/dm 130(1)
51
as oil or gas is produced from said unit. As to any unit upon which
commercial production may periodically terminate, the above right to timely
resume operations and continue this lease as to such unit shall be
reoccurring right.

The stipulation above as to the size of retained tracts around wells shall
never be construed as a satisfaction of Lessee's right, duty and obligation
to reasonably develop the leasehold held by Conoco or its successors or
assigns. After November 1, 1990, Lessee agrees to drill such additional
wells on the leased premises or such portions thereof as may be in force

and effect from time to time, as may be necessary to reasonable develop the
same for the production of oil and/or gas as a reasonable prudent operator.

19. A portion of paragraph 3 has been deleted and the following is in lieu
thereof.

(b) ,on gas, including caSinghead gas or other gaseous substances,

produced from said land, the Lessors royalty shall be calculated and
paid as follows:

a) Sales To Non-Affiliated Third Parties:
In the event Lessee enters into a gas sales contract with a

non-affiliated third party, Lessor's royalty shall be one-sixth
(1/6) of the gross proceeds received by Lessee from the sale of
such gas.

b) Sales To Related Or Affiliated Entities For Resale:
In the event Lessee enters into a gas sales contract to sell gas
to a related or affiliated entity, then Lessor's royalty shall be
computed on the greater of the following:
1. One-sixth (1/6) of the gross proceeds received by lessee or
any affiliate or related entity from the sale of such gas to
the first non-affiliated entity, or

2. One-sixth (1/6) of the highest price reasonably obtainable
for gas by Lessee and other producers or operators in the

-4-
GWB2/dm 130(1)
52
 east one-fourth of Webb County, Texas, who are producing gas

of like kind, quality and quantity.

In this regard, it is understood that the "highest price
reasonably obtainable" may be equal to, but is not
necessarily, the highest price then being obtained by other
producers or operators in the east one-fourth Of Webb
County, Texas, who are producing gas of 11ke kind, quality
and quantity.

c) Taking, Selling Or Delivery Of Gas To Lessee Or Its Related Or
Atfil iated Entities For Use (Not For Resale):
In the event Lessee takes gas for its own use, or sells or
transfers gas to a related or affiliated entity for use, then
Lessor's royalty shall be computed on tbe greater of the
following:

1. One-sixth (1/6) of the highest price reasonably obtainable
for gas by Lessee and other producers 01" operators in the
east one-fourth of Webb County, Texas, who are producing gas
of like kind, quality and quantity.

In this regard; it is understood that the "highest price
reasonably obtainable" may be equal to but is not
necessarily the highest price then being obtained by other
producers or operators in the east one-fourth of Webb
County, Texas, who are producing gas of like kind, quality
and quantity, or

2. One-sixth (1/6) of the quarterly weighted average of the
pri ces being pa i d by "purchasers" (as here; nafter defi ned)
in the east one-fourth of Webb County, Texas, who are
purchas i ng gas of 1i ke ki nd and qua 1i ty. For the purposes
of calculating the average price under this Paragraph c2,
prices paid shall be those as reported in the Energy
Planning Book publ ication or as reported to the State of

-5-
GWB2/dm 130(1)
53
 Texas for severence tax purposes. uPurchasers" shall mean

the. three largest purchasers based on volume of gas
purchased for such calendar quarter, in the east one-fourth
of Webb County, Texas. For an example of the calculation of
the quarterly weighted average of such price, see Exhibit
UB"

Lessor and Lessee shall meet within eleven (11)· months after the end
of each calander year. At least thirty (30) days prior to such meeting,
Lessee should furnish to Lessor a statement or other documentation of the
basis upon which royalties accrued to lessor under the terms of the Lease
for the previous calender year. Any additional royalties calculated by
Lessee to be due, if any, shall be paid at such meeting. Within one (1)
year from delivery of the above referred to statement or other
documentation, lessor shall notify Lessee of any discrepancies. Failure to
notify lessee timely of any discrepancies shall constitute final acceptance
of royalty payments as covered by such s~atements or other documentation.
The first period for which Lessee shall prepare such statements or other
documentation shall begin on April 1, 1988 and end on December 31, 1988.
Nothing in this paragraph shall preclude Lessor from claiming any royalty
which Lessor is entitled to as a result of mistake in computation,
oversight in computation, or error in computation of royalty or which may
result from the subsequent disclosure of a discrepancy.

LESSOR'S royalty shall be without deduction for any costs. such as,
but not limited to, costs of producing, gathering, storing, separating,
treating, dehydrating, compreSSing, processing, transporting and otherwise
making the oil, gas and associated substances ready for sale or use, except
for a) severance and related taxes, and b) reasonable transportation
expenses which may be necessary to be paid to non-affiliated third parties
or entities to get Lessor's gas to a market or point of sale off the leased
premises and which sale or sales will result in a net price equal to or
higher than if said gas had been sold at the wellhead.

LESSOR'S royalty on all production from depths below the stratigraphic
equivalent of the top of the Cretaceous System as seen at 12,810 feet

---------
lcop 0012151 I
-6-
GWB2/dm 130(1)

54
in the electric log of the Vaquillas #7 Well located 260' FNL and
1,700' FWL of Survey 987, A2061, Webb County, Texas, under the lands
now held by Lessee under this Lease shall be one-fifth (1/5) instead
of one-sixth (1/6).

LESSEE may submit a copy of a proposed gas sales contract to Lessor
which is acceptable to Lessee and request that Lessor approve same for
royalty computation purposes. Lessor shall have thirty (30) days after
receipt of a gas contract to approve same. If lessor approves same or does

not timely decline to do so, then lessor's royalty on gas sold under such
gas sales contract shall be based on the gross proceeds received under said
contract.

GAS contracts with a term in excess of three (3) years shall contain a
provision for price redetermination no later than the end of the 3rd year
and subsequent price redeterminations thereafter at intervals no greater
than two (2) years apart.

20. Lessee agrees to fill all slush pits and level the same when they
have ceased to be used and to restore the land to as near its original
state as is practicable and to pay for damages to the surface of the land
and the improvements, water wells, growing crops and livestock thereon, and
to any other personal property of Lessor, Vaquillas Ranch Company, Ltd.,
occasioned by, arising out of, or resulting from operations by Lessee, his
agents, employees or independent contractors on the land hereby leased to
Lessee. Lessee also agrees, when requested in writing by Lessor, to
divulge to Lessor true and correct information as requested by Lessor as to
all drilling, producing and marketing operations conducted under this lease
and to furnish to lessor copies of all electric well logs taken hereunder;
provfded, however, Lessee shall not be obligated to release such
information until it has been released to the industry.

21. lessee hereby agrees to ensure that the two exit gates on F.M.
2895 (Forest Gate and Reynolds Gate) are guarded in an efficient and
prudent manner during drill ing, reworking or plugging operations and at
other times as mutually agreed to by Lessee and Lessor. As to the exit

-7-
GWB2/dm 130(1)

55
gate on the north side of U.S. Highway 59, Lessee agrees to use its best
efforts to work out an arrangement with other exploration companies using
such gate to ensure that it is guarded in an efficient and prudent manner
during drilling, reworking or plugging operations and other times as
mutually agreed to by Conoco and Lessor. Further, Lessee agrees to use its
best efforts to work out an arrangement with TransAmerican Natural Gas
Corporation or its successors or assigns to ensure that the exit gate
located 9 miles north of Aguilares, Texas, on F.M. 2895 is guarded in an

efficient and prudent manner during drilling, reworking or plugging
operations and at other times as mutually agreed to by Lessee and lessor.
In regard to gates used by Lessee and other exploration companies, Lessee
agrees to pay its share of the cost of guarding such gates when such gate
guards are required under this agreement. Lessee shall not be obligated to
furnish a gate guard on any gate which has been abandoned or is not being
used by Lessee.

22. Lessee agrees that before abandoning any well drilled on said
lease for oil or gas purposes, it will notify the owner or the surface
estate in person or by telephone of its intention to do so, and it will
allow said owner of the surface estate a reasonable time, not exceeding
twenty-four (24) hours thereafter, within which to elect to take over the
hole for the purpose of attempting to make and complete a water well.
lessee agrees to consult with such surface owner as to the location of a
potential water zone, without any liability or warranty for such
consultation. Upon the owner of the surface estate election, within the
specified time, to attempt to complete the well as a water well and
complying with all rules and regulations of the Railroad Commission of
Texas and applicable statutes, Lessee will, at its expense, set all plugs
to just below the deSignated water sand as may be required by the Railroad
Corrmi ss ; on and thereafter deli ver the we 11 to sa i d owner of the surface
estate, leaving in such well all surface casing and such intermediate
casing as may have been run and set to at least the depth of the designated
water sand and thereafter the owner of the surface state shall own the well
and shall be responsible for all subsequent matters in connection with the
well and for compliance with the applicable statutes and regulations of all
regulatory agencies having jurisdiction. Lessee shall have no liability to

-8-
GWB2/dm 130( 1) --~-~---
IcOP 0012153 I
- -..- - -.- - -
, ,

56
--
Lessor in connection with any of the operations which may be conducted by
the owner of the surface estate who shall thereafter bear all
responsibility and liability with respect thereto. It is expressly
understood that Lessee shall not be required to furnish any additional
casing or other equipment for any well plugged back at the request of the
owner of the surface estate under this paragraph. Should the owner of the
surface estate elect not to attempt to make a producing water well out of
any such hole, Lessee shall plug the well in accordance with all applicable
rules, regulations and statutes.

23. It is expressly agreed and understood that for the purposes of
this lease the following definitions shall apply:

lICorranencesll - A well shall be deemed commenced on the
date which the drilling bit enters the
earth for the drilling of a well.
IIAbandoned li - A well shall be deemed abandoned on the
day when it is finally plugged as a dry
hole.
"Completed" - A well shall be deemed completed thirty
(30) days after the day the Lessee sets
production casing.
24. Lessor and lessee agree to 1imit the commencement of actual

drilling during deer hunting season to 1) those wells drilled in areas
which would not disturb deer hunting, and 2) offset wells. If Lessee must
commence a well during deer hunting season to perpetuate said lease, then
Lessor will either a) not object to the drilling of such well during deer
hunting season or b) agree to extend the commencement date for such well to
a mutually agreeable date after deer hunting season ends. For the purposes
of this paragraph "deer hunting season II shall be that period defined by

State law.

25. Nothwlthstanding anything contained herein to the contrary, the
Lessor at any time and from time to time, upon not less than ninety (90)
days notice to the holder of this lease, may elect to require the payment
of any royalties accruing to such royalty owner under this lease to be made
in kind; provided that any expenses incident to the exercise of such

election shall be borne by Lessor and such election shall be for periods of
not less than twelve (12) months. Lessor shall only be allowed to take in

-9-
GW82/dm 130(1)
57
kind when lessee is producing for his own account. In the event of such an
election by Lessor, Lessee shall cooperate fully with Lessor in allowing
Lessor to take their royalty in kind, including permitting Lessor to use
Lessee's wellhead equipment and, to the extent that Lessee has assignable
rights, the use of lessee's purchaser's transportation facilities in good
faith and not to exceed prevailing charges for similar services in the
industry at the time if Lessee or its affiliates are transporting the gas,
but if Lessee has a third party contract for the transport of said gas,
Lessor will be bound by said contract. Should Lessee desire to enter into
a gas purchase contract having a term of more than one (1) year, then (a)
Lessee shall include in such contract a provision that allows Lessor to
elect to take its gas in kind and be released from such contract one
hundred twenty (120) days after notice, or (b) Lessor may approve of such
contract in writing, in which event, lessor may elect to tak.e its gas in
kind either at the end of such gas contact or one (1) year after notice to
Lessee, whichever happens sooner. Any equipment installed by Lessor
necessary to take in kind must be approved by lessee and maintained
according to lessee's specifications.

If Lessee is unable to obtain a more favorable gas contract because of
lessor's reservation of this election to take in kind, then lessee may
elect to give notice of its intention to sign a gas contract acceptable to
Lessee and request that lessor join in signing same, and if lessor elects
to Sign same, then Lessor's royalty share of revenue shall be bound by such
contract and Lessor may not elect to take its royalty in kind during the
term of such gas purchase contract.

26. This Amendment is applicable to only that leasehold interest
presently owned and held by Conoco Inc. Nothing contained herein shall in
any way inure to the benefit of or be applicable to third parties who hold
or claim any interest in said 26,622.79 acre lease or who claim an
undivided interest therin either jointly or separately with Conoeo.
Nothing herein shan in any way prejudice any claim, demand or cause of
action which Vaquillas may have or assert against third parties holding any
leasehold interests in Vaquillas lands. Nothing herein shall be construed
as a release or modification of any right, claim or cause of action which

-10- i'cop.~ls51
GWB2/dm 130(1) ---~-------

58
Vaquillas may have aga.inst third parties who claim any interest in said
26,622.79 acre lease or any other Vaqui11as lease.

27. Lessor does further RATIFY, CONFIRM and ADOPT all of the terms,
provisions and conditions of said June 15, 1974 Lease, as amended and as it
applies to those rights held by Conoco Inc. thereunder, and that such
lease, as amended and as it applies to Conoee Inc. is in full force and
effect as of this date. Further, nothing contained herein shall in any way
inure to the benefit of or be' applicable to any interest held by third
parties in and to the June 15, 1974 Oil and Gas lease.

DATED this <51'~ day of January, 1988.
VAQUILLAS RANCH COMPANY, LTD. VAQUILLAS UNPROVEN MINERAL TRUST

8y:

By:

VAQUILLAS PROVEN MINERAL TRUST CONOCO INC.

. Wal er, Jr., rustee !jd By: ~.f~~~-Jl/~
By: 6: ,~og*~ &~ 'tl~
E. er
I
uiros, ru tee
)

-11-
GWB2/dm 130(1)
59
 EXH I 8 I T "A"

.!!llir A8STRACT CERTIFICATE GRANTEE ACRES

16~9 I'll 0 llS8 eeso • RGNG 640;0
1651 1112 1159 eeso & RGNG 640.0
1652 2876 1159 \/. H. Taylor 640.0
1661 1122 1164 CCSO & RGNG 640.0
1663 1123 1165 ecso & RGNG 640.0
1633 1323 4/808 GC & SF 640.0
163~ 2252 4/808 GC & SF 659.96
1665 1124 1166 CCSO & RGNG 640.0
5.1/21666 2253 1166 eeso & RGNG 328.75
N.l/2 1666 3142 1166 ceso & RGNG 328.79
468 2255 236 AS & H 659. '"
467 799 236 AS • H 640.0
1635 1797 17 TC Ry. 640.0
865 1438 12/2541 H • GN 640.0
1683 1115 1175 CCSO & RGNG 640.0
1691 1267 5446 Ge • SF 640.0
1696 2418 5448 GC • SF 640.0
1695 1268 5448 Ge • SF 640.0
279 (pt. only) 1353 3702 GC & SF 458.2
1004 2421 21105 J. Poi tevent 634.58
1692 2419 5~~6 GC • SF . 613.04
1693 1269 5447 GC. SF 640.0
2112 2420 & 1925 631 B.~F. James 627.12
276 i552 3700 Ge & SF 640.23
228 2550 134~, .. CCSO ,& 'RGNG 636.93
'227 1133 13W~ ceso & RGNG 640.0
988 2593 2/103 J •. Pol tevent 637.10
987' 2061 .211,93' J .. Poltevent 640.0
213' 1141 13~9. eeso & RGNG 640.0
275' 1336 3700 ' , 'GC ',,& "SF' 640.0
·27H' 1337 3701 cqQ& RGNG 640;0
:~'.1/~ '31. BI9Ck 2 1043 453 ..eeso:,,& ,~GNG 320.0
, 25. Block 2 1042 ~52 'eeso & RGNG 640.0
'232" 2148 1346 CCSO & ReNe 462.70
'233" 1117 1347 ceso &ReNe 4~5.9
N.H2 51. Block 2 1045 460 . ecso & ReNe 320.0
,259 (pt. only) 1137 1074 eeso &RGNG 600.0
1955 1328 4526 Ge & SF 640.0
2057 985 302 eeso & ReNG 652.25
2060 (pt. only) 3329-30 303 CT & H 440.0
LI/2 2059 984 303 eT& H 320.0
E.l/2 1953" 1329 4527 Ge& SF 320.0
1627 (Pt. only) 1324 4683 Ge & SF 160.0
1629 (pt. only) 1275 4682 GC & SF 292.65
\/.1/2 1662 2230 1164 eeso & RGNe
E.l/21648 329.31
\/.1/21648
24" 1157 eeso & RGNe 325.75
3301 1157 ceso & ReNe 325.75
26. Block 21'1 452 R. D •. Barnsley 640.0
2335 3025 School W. Brown 27.3
E.l/2 1956* 2560 4526 Ge & SF 327.34
Lessor's·warranty hereunder as to all of Surveys 987,273,275,27],26, the E.l/Z of 1953,
E.I/2 of 1956 and ~Ol.9 acres out of Survey 233 (all except 54 acreS out of SW corner of said
Sur. 23;) Is expressly limited to 1/2 of the executIve rights In the 011. and gas rights In
and under said lands, and as to all of Survey 232 :I~ :e~pressly limited to 4/5 of the execut ive
rIghts In the oll.and gas rights. . .,

The following parts of surveys are expressly exc1uded'~eref~om, -vIz.·:.
(I) The SE 1/4 of S~ 1/4, 511 1/4 of HE 1/4 (80 acs.L'andN ',1/2 of S~ I/~ and S\/ 1/4 of s~ 1/4
(120 acs.) of CT&H Survey 2060. ..' .".', ..... ' ..

(2) The w. 3/4 or GC~SF Survey 1627 described tn O&G Lse. to Daniel A. Pedrotti dated
September 24, 1973, as a~ended.

Any part of a survey listed herein not included \.,.Ithin any specific fraction.,1 reference
preceding the su'rver refercnc;e.
(4) The HE 160 acre' of GC&SF Survey 279.
(5) ·Block 11 as per the E.D.Claggett Subdivision of rccord 2 Plat Records 29, Wcbh County,
contiJinlng ~O acre~ tl~in9 the N\I I/lf of SE Ill; of CCSO & RGNG Survl'~' 259.
I

(6) All of the \"I. 320 ;l.:r~'i> of Survey 1629 d(.'scribl!d and included In O&G lsc. tu l),lIllel A.
Pedrotti dated $"j'\.';:lh\.'r 2~, 1973, a,s amcndt"d,
T~OPOOI2i57:.
--~---~-.--- 60
 EXlIlIlT •

C.lculatlon of toy.hy to b. SNld on ,II d.. ~I't'.nd to L..... or ,utill.tll for UII ,.M
nn for 1' . . . 1.') In ,,"cardlne. vlth p.,.,rlp)! 19.

"lnclp.h ,.y L.llor roy.Uy b.nd on thl ,r ..ttr of th' v.l;ht.d .v.,.;. price
ptld by th. th,u lar, .. t volUdtrtc pUrchllra for the ".l.nd,r qulner
In the .. at q\lIrttl' of v.bb Covnty 01' the 1III10"ttll 'Yin'll' of th. pr!c; ..
us.d by tilt L... or for roy., lY P')'MAt pIoIrpD . . . .

Oat. Sourc.s [n...vy 'luvdn; loot publication or IS reported to til. nu. of tun hlr
IIv.rene. tax pvrpaa.,.

sup 1. [lIlc;ul". th. v.I'IIht.d IIV'1'II0' prln tor the IIMth for ,lIc;h of tllll 'hI''' ttr..,."
volu-. P\lrc;hllll. for til quirt., 11"_ the tax r.carda.

Pureh .... fro .. 's!I!P'ny A

L.ne , 100,000 2.00 ZOO,a63
Unit 14 ao,ooo 1.51 120,eOO

leO,ezt I." 29t,733

TOtAL Unftltd T.... 360,ez,
Tren._I .. ton

613,396/160,e21 • SI.70/MMltu.

IIp .. t pl'oc.du,. for reNlnln~ two lIantlll for thll purch ... r .nd for remaining tlla
purch .......

Step 2. Calcul't. the vahllt.d IVerl\l' prle. of the thr •• Ilrv.n va\ulII.trlc pur!;""'" lor
the qulrllt u.lno JIIOntilly VII" .. troll IUp 1.

"onth·J'oy,ry '9!§ Month· ,ebruuy 19815 Honth , H.reh IfIU!

Emb.WL VOlUM Prlca Extension VO\\nI' Pr!c. Exten.lon Val~. Prlc. Ext.nslan
Me' l/HCf • MCf S/HC' • Me' S/KC' •
United Tax.. 360,821 1.10 613,396 397,130 1.515 627,465 3Z0,l06 1.58 506,083
TUMIII .. lon

UTUO!
South Gulf

Tot.l.
'oo,m
ill..222 LH
1,136,044
1.5$ 620,346
~
=
350,723

1,833,74Z 1,047,009
1.60
WI.
561,157
lll.m
500,1261.55
~.'~,5~'"--o'~~~'~'"'

1,613,255 1,121,432
775,195

1,756,658

SUI! of Volu.." lUll ot ExUn,'o!\, Vefghud Ayerai' P~!c,

Toul. 3,304,485 5,263,855 1.59

sup 3. tlleulu. w.IGht.d ,v,nv' prtu und by L..... to calcul'tI roy.lty p'YIII,nta on
' " d,llvered to L..... or .HtI"t .. and not for 1' . . . 1••

Month.January 'filII Month.February 191111 Mgnth·Mush 1988

Voh... Pl'lc. Extln.fan vatu-. Prfc. Ext.n.lon \/01101IIII Prlc. Exun,lon
MCf '/IICf • Kef SIMCf
• 'Of $-/Her
•
155,000 1.60 248,000 140,000 1.62 Z26,aOO 155,000 l.se 244,900

III! 9' YoIV .." SUP' 9' ClIun.'on. ""phtrd Aysrur Pelu

719,100 1.60

IUp 4. COIIPIr. w.l,ht.d 'Y'l"Ig. price c,IGullt.d In Sup 2 to lh. 1I.!vhud ..... r.'. , .....
prlc. c,lcul.ud In n.p 3.

SI.60IHCf I, lraUer th.n St.59/KCf '0 no .ddltlon.t !"Oy.lty P.YIII,/1t •• r, requlrad
10r th h qull'ur.

VOIUIIII .nc! prlc" v"d In thlt t . . .pl. Itl Utld for IIlunl'ulan .nd ... y nat b.
nfl'''I .... ' of .ctu.1 condltlona.

61
THE STATE OF TEXAS §
§
COUNTY OF WEBB §
<.{iL
This instrument was acknowledged before me on the q day of
January, 1988, by J. O. WALKER, JR., General Partner of Vaquillas Ranch
Co., Ltd., A Texas Limited Partnership, on behalf of said partnership.

~ .. &LA," *~V{'~
Notary Public in an or
The State of Texas. <)C)
My COl11llission Expires 7-3- 0 ,

Lt:l\lRA BA LL€vJ
Printed/stamped name of Notary.

THE STATE OF TEXAS §
§
COUNTY OF WEBB §
oy--L
This instrument was acknowledged before me on the I day of
January, 198B, by E. WALKER QUIROS, General Partner of Vaquillas Ranch Co.,
Ltd., A Texas Limited Partnership, on behalf of said partnership.

THE STATE OF TEXAS §
§
COUNTY OF WEBB §

This instrument was acknowledged before me on the 9~ day of
January, 1988, by GENE S. WALKER, General Partner of Vaqulilas Ranch Co.,
Ltd., A Texas Limited Partnership, on behalf of said partnership.

~ ub~in and for
The State of Texas. J- 09'
My Comission Expires 7- 3- "
~fI<)RA 804 usvJ
Printed/stamped name of Notary.

THE STATE OF TEXAS §
§
COUNTY OF WEBB §

This instrument was acknowledged before me on the 9~ day of
January, 1988, by EVAN B. QUIROS, General Partner of Vaquillas Ranch Co ..
Ltd., A Texas Limited Partnership, on behalf of said partnership.

d.cblJ ~,J(1,,'}j
Notary Public in and for
The State of Texas.
My COI11Ilisslon Expires '1-3-&,,9
/v,q v I~/I t5A LUi vJ
Printed/stamped name of Notary.
-12-
GWB2/dm 130( I)
62
THE STATE OF TEXAS §
§
COUNTY OF WEBB §
~
This instrument was acknowledged before me on the CJ day of
January, 1988, by J. O. WALKER, JR .. Trustee for The Vaquillas Unproven
Mineral Trust.

c~ . itA- .~fi. flu.if
Notary ~ublic in a~for
The State of Texas. 00
My Commission Expires: 7- 3- 6 I

LA) t>RA b>A UEN
Printed/stamped name of Notary.

THE STATE OF TEXAS §
§
COUNTY OF WEBB §
~
This instrument was acknowledged before me on the 7'
day of
January, 1988, by E. WALKER QUIROS, Trustee for the Vaquillas Unproven
Mineral Trust.

~"~4~~
Notary Pu lie 1n and for
The State of Texas.
My Commission Expires: 7-:3- 8'9
0A tJfG,4 HI! LLEvJ
Printed/stamped name of Notary.

THE STATE OF TEXAS §
§
COUNTY OF WEBB §
n~
Thi 5 instrument was acknowledged before me on the -, day of
January, 1988, by GENE S. WALKER, Trustee of the Vaquillas Unproven Mineral
Trust.

~"94~," oOr"t
~Pub ie in and for
The State of Texas
My Commission Expires: '1- 3- 111
/""1IUi2A 1:54 LLSvJ
Printed/stamped name of Notary.

THE STATE OF TEXAS §
§
COUNTY OF WEBB §

This instrument was acknowledged before me on the day of
January, 1988, by EVAN B. QUIROS, Trustee of Vaquillas Unproven Minera 1
Trust. ~ "
- ~ !! ), a"
~y Public in and for
4J! 0,,,9-'
The State of Texas
My Commission Expires: '7-3-117
Lc,[)f(,a 15", LLe:vJ
Printed/stamped name of Notary.

-13-
GWB2/dm 130(1)

63
THE STATE OF TEXAS §
§
COUNTY OF WEBB §

This instrument was acknowledged before me on the '1 ~ day of
January, 1988, by J. O. WALKER, JR., Trustee of Vaquillas Proven Mineral
Trust.

NOtarY ic in and for
The State of Texas "
My Commission Expires: 7-3- i?{
IvAM.A /2,,'b!t.on

•
OIL, GAS AND MINERAL LEASE
THIS AGltEEKENT mat. lbb,-1.~ .. _ _ _ _ _ _ .4&T ot. Novemb~L ____ R__ R. __ 'R. __ .. __ ._...lI..!!?_. ,*_11
Vaguillas Rancl!SomruillY.t.-Ltd.; Vaqui11~Jm.p.roven_MinJrral Tn,tst i ...Y!9..l!.!.+1.~!"9.Y.~!L
~~ral-1.~ust..LI!f:..t,!!!~nd thr.g.H8!L.!~f!...&rulenLPJ!r..t.~ ....-h..JLr.....IDt1.lter. Jr ~._. ___ ._. _
_ ~. Wal~r.-JlU-..!~,~~~~!!$~L~M_~"!!!J_I.. ....Q.\!ill_I!· , . ___._.'._.____ ..'

;::.~:~ 0111 ~ IrIOra) ...boN add ..... lu_ ., p..!.~o:-i~;J:D86:-~p Texa! 7804i=~===_====_~
and __G..?.!!~~.£:..z.y_~_~ox 219L..Jlo'!~!Q..lh_~~!lP_..l.1.£?_~____ ,. __ ._. ___ .• t.-. WlTNESS!:TH1
-I. ~ III ccmaW...,LlOII ot......!en Dollar"§._!lE.Q._.9,~J~~~!,-o_4....rul!Ly'~.!..\@blt;L~..QJ!§.!~.E~!!2.!L._R'-_...»oIl&r,
II...! 0.00 ) In bDd paM!,. ot Lbe lO,llUII bu.ln Pf'OyIW. Illd of u.. Apft_t. of LMaw blf'lln toat.lM4, bereb, paa,ta.
kuM L114 lott.o uclual....,. viii,;·L.'_ fur tb. rnupoM 01 IlIn,UaIUlla. t:XpJ.orllll'. Pr'OtPlCltill•• kDU ... u>d mIlIllI&' lor ...d. Pf'Odud.n.. 011. "" I.N!
all otb ... mIr.lra", COII41Kt.1D.S p;plor.~n. noIo.le and I'toph,.1c&1 .",....,.. b,. ~a»b, COra UIl. 1'n.'Pi&;r &114, 1n&.. n.tl • - ...~:~~.
au, ...tv ant! ~Ir flllld ......01 air lIIto ...bnrt.... nratl, II}'I .... pipe Una. bullcUl" ..-da "nita,. ~ ItILlD.... te _ _ U11M III _ ' - IlnIoo
hIr'M tbtr.ull IIII!. 0.. , O.... r end. Urwl ludi _1IId or claim.:! b, Lutor adlac&llt alii! _ il INO 't~ to prod.\I~ "VI, tat. cer. or, kNot.
t.ralI.IlJOl1. &114 _" laid llrodtlcb, ud. boaf;lll&' It. IIIIplonn. ~ toU_IN!' duenbtcl Iud hL __ H~ W _ _ _ _ _ _ _• _ _• ___ Co"II~. T...... ""..I"

6~740 acres of land~ more or less~ situated in Webb County, Texas, more fully
described in Exhibit "AI] attached hereto and made a part of this Lease for all
relevant purposes, including limitations upon warranty as specifically set out
therein,

67
.'

irATI; or .

~
OOUIITY .,._ __
~~L-
--}
_ _ ._ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ._ __

=-_~ 't:r ':...bt~~ ~-iii;;;ii~...nbMrlbed to the lorqolq hl~t. UI4 KlIIIO'WIedp;!. to =- tbd _he.... aecut«l
GI.. " ulld" l1li' bud al'l4 lilt&! or ofnoe., u. .. u... ___ -U7 ot _ _ ._ _ _ _ _ _ ~ __________ • A. D. 11. ____ .••

--_.__._--_ ....
NotaQ Publlll h~ fAd for .----~~. -----
T&1UJ'OlNr A.CKHOWLJmOMEHT

OOVNnO)': ._--}

N0f.u7 !'ubi" I. _4 tOl'____ ....,,,, LLe"J
Printed/stamped name of Notary.

THE STATE OF TEXAS §
§
COUNTY OF WEBB §

This instrument was acknowledged before me on the g~ day of
January, 1988, by E. WALKER QUIROS, Trustee for the Vaquillas Unproven
Mineral Trust.

- '.
~~2ht~~
The State of Texas. 9
My Conmission Expires: '7-:3- g
LlluRA BAU,£vJ
Printed/stamped name of Notary.

THE STATE OF TEXAS §
§
COUNTY OF WEBB §

This instrument was acknowledged before me on the 9 --r/:...J
day of
January, 1988, by GENE S. WALKER, Trustee of the Vaquillas Unproven Mineral
Trust.

Notary Pu ~in and for
The State of Texas
My Commission Expires: 7-3- 'i?'7
LA ORA 3,0 LLE:vJ
Printed/stamped name of Notary.

THE STATE OF TEXAS §
§
COUNTY OF WEBB §
'-f-L;
This instrument was acknowledged before me on the 9 day of
January, 1988, by EVAN B. QUIROS, Trustee of Vaquillas Unproven Mineral
Trust.

-.:/~ ~c~n~Y
The State of Texas a
My Commission Expires: 7-3-f? I
JvMR/i J:3A LLevJ
Printed/stamped name of Notary.

-13-
GWB2/dm 130(1)
84
• • -, ,.

--- 85
Co· ._

, ,

COUNTY OF WEBB
•
THE STATE OF TEXAS §
§
§
.
• o~
This instrument was acknowledged before me on the ,-,-::-.:-'--0'==-, day of
January, 1988, by J. O. WALKER, JR., Trustee of Vaquillas Proven Mineral
Trust.

{~?/
.,- <: :; ~ j

..-"<; ~ ~~ OCk.ft---
atarYUiC'in an for
The State of Texas
My Coomission Expires: '7'-:3 - J?9
~
\ .. /~ LA ORA ~ UBvJ
~"
,... - ...... Printed/stamped name of Notary.
.

THE STATE OF TEXAS §
§
COUNTY OF WEBB §

This instrument was acknowledged before me on the day of 9'f1-,
January, 1988, by E. WALKER QUIROS, ~: vaqu~ Proven Mineral Trust.

_' t,
"," ,
Notary putiM in
The State of Texas
an~ 00
My Commi ss i on Expi res: 7- 3 - tJ f

LfiIJ/(,q 13A L1..HvJ
Printed/stamped name of Notary,

THE STATE OF TEXAS §
§
COUNTY OF WEBB §

This instrument was acknowledged before me on the 9-tV
day of
January, 1988, by GENE S.WALKER, Trustee of Vaquillas Proven Mineral Trust.

}'
",
~. .~
~~~d~~l(y
The State of Texas
'" . My Commission Expires! 7-3-/?9
i..JAOI2A BA U_~ vJ
' ..
-:. " Printed/stamped name of Notary_
"

THE STATE OF TEXAS §
§
COUNTY OF WEBB §
~'
This instrument was acknowledged before me on the 9 day of
January, 1988, by EVAN B. QUIROS, Trustee of Vaquillas Proven Mineral
Trust.

~uh4 ~" O~.a-='
Notary Public in and for
The State of Texas OQ
My Conmission Expires: 7-3-0 I

0Mi(A 80'1 LLBv.j
Printed/stamped name of Notary.

-14-
GWB2/dm 130( 1)
86
• • .,..
,.

87
..

THE STATE OF TEXAS
• §
§
•
COUNTY OF WEBB §

Thi s instrument '1 cit . day of
Attorney·in-Fact
corporation.

The State of Texas
My Commission Expires: 9-/8' -yf'
L)e//«. fl1<>. Y'A-"er27
Printed/Stamped name of Notary.

·15-
GWB2/dm 130(1)
88
-
RAILROAD COMMISSION OF TEXAS
OFFICE OF GENERAL COUNSEL

OIL AND GAS DOCKET
NO. XX-XXXXXXX

FINAL ORDER
CONSOLIDATING VARIOUS FIELDS INTO A NEW FIELD CALLED
THE VAQUILLAS RANCH (LOBO CONS.) FIELD AND
ADOPTING FIELD RULES FOR THE
VAQUILLAS RANCH (LOBO CONS.) FIELD
WEBB COUNTY, TEXAS

The Commission finds that after statutory notice in the above-numbered docket
heard on October 8, 1997, the presiding examiner has made and filed a report and
recommendation containing findings of fact and conclusions of law, for which service was
not required; that the proposed application is in compliance with all statutory
requirements; and that this proceeding was duly submitted to the Railroad Commission
of Texas at conference held in its offices in Austin, Texas.

The Commission, after review and due consideration of the examiner's report and
recommendation, the findings of fact and conclusions of law contained therein, hereby
adopts as its own the findings of fact and conclusions of law contained therein, and
incorporates said findings of fact and conclusions of law as if fully set out and separately
stated herein.

Therefore, it is ordered by the Railroad Commission of Texas that the following
fields located in Webb County, Texas, are hereby combined into a new field called the
Vaquillas Ranch (Lobo Cons.) Field (No. q3~t 5 400 ):

BALTAZAR (LOBO 6 10470) FIELD 05357400
BARNSLEY (LOBO 10900) FIELD 05791 800
BARNSLEY (LOBO) FIELD 05791 400
BONEBRAKE (LOBO 6) FIELD 10419 500
BONEBRAKE (UPPER LOBO) FIELD 10419 800
CALICHE CREEK (LOBO) FIELD 14735225
CARR (LOBO 10100) FIELD 15874 350
CARR (LOBO 8300) FIELD 15874 235
CARR (LOBO 8600) FIELD 15874 250
CARR (LOBO 8700) FIELD 15874275
CARR (LOBO) FIELD 15874200
CARR (WILCOX 8200) FIELD 15874 600
CARR (WILCOX 8300) FIELD 15874 700
CARR (WILCOX) FIELD 15874 500
CATTO (LOBO 9900) FIELD 16405400
CATTO (LOBO 10200) FIELD 16405 500

EXHIBIT
A-4
245
 OIL AND GAS DOCKET NO. XX-XXXXXXX PAGE 2

DESPARADO (LOBO 6) FIELD 24394500
DIAMONDBACK (LOBO 3) FIELD 24574400
GATO CREEK (9800) FIELD 34238400
GATO CREEK (LOBO 1) FIELD 34238 300
GATO CREEK (LOBO 1-SEGA) FIELD 34238 325
GATO CREEK (LOBO 3) FIELD 34238 350
GATO CREEK (LOBO 6 SEGMENT A) FIELD 34238 375
GATO CREEK, SE (9800) FIELD 34242 980
GATO CREEK, SE (LOBO 1) FIELD 34242 500
GATO CREEK, SE (UP. LOBO STRAY) FIELD 34242 750
HIRSCH (LOBO 9746) FIELD 41659075
JURASCHEK (LOBO) FIELD 47740 500
JURASCHEK (WILCOX 11600) FIELD 47740600
LUNDELL (LOBO 9200) FIELD 55755 180
LUNDELL (LOBO) FIELD 55755 175
MCLEAN (LOBO) FIELD 59725500
MUJERES CREEK (LOBO 1) FIELD 63668 300
MUJERES CREEK (LOBO 3) FIELD 63668400
MUJERES CREEK (LOBO 6) FIELD 63668500
MUJERES CREEK (LOBO) FIELD 63668250
MUJERES CREEK, SOUTH (LOBO) FIELD 63670500
NICHOLSON (LOBO 3) FIELD 65469020
NORDAN (LOBO) FIELD 65934500
POZO (LOBO) FIELD 72838500
RANCHO VIEJO, S. (LOBO 6) FIELD 74570 100
RANCHO VIEJO (LOBO 3) FIELD 74568680
RANCHO VIEJO (LOBO 6) FIELD 74568700
VAQUILLAS RANCH (LOBO 8100) FIELD 93215450
VAQUILLAS RANCH (UP. LOBO STRAY) FIELD 93215600
VAQUILLAS RANCH (WALKER 8300) FIELD 93215680
VAQUILLAS RANCH (WALKER 8600) FIELD 93215690
VAQUILLAS RANCH (WALKER, N.) FIELD 93215670
VAQUILLAS RANCH (WILCOX 11,100) FIELD 93215 700
VAQUILLAS RANCH (WILCOX 11,600) FIELD 93258750
VAQUILLAS RANCH (WILCOX 11,900) FIELD 93215 725
VAQUILLAS RANCH (YARSA) FIELD 93258 900
VENADA (9800) FIELD 93436 800
VENADA (LOBO) FIELD 93436300
VERGARA (LOBO 9300) FIELD 93537750
VERGARA (LOBO) FIELD 93537 500

It is further ordered that the following rules are adopted for the Vaquillas Ranch (Lobo
Cons.) Field:

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RULE 1: The entire Lobo Formation from the Lobo Unconformity to the top of the Wills
Point (Midway Shale) and including the above listed fields in Webb County, Texas, shall be
designated as a single reservoir for proration purposes and be designated as the Vaquillas
Ranch (Lobo Cons.) Field.

RULE 2: No gas well shall hereafter be drilled nearer than FOUR HUNDRED SIXTY
SEVEN (467) feet to any property line, lease line or subdivision line and no well shall be drilled
nearer than ONE THOUSAND TWO HUNDRED (1,200) feet to any applied for, permitted or
completed well in the same reservoir on the same lease, pooled unit or unitized tract. The
aforementioned distances in the above rule are minimum distances to allow an operator flexibility
in locating a well, and the above spacing rule and the other rules to follow are for the purpose
of permitting only one well to each drilling and proration unit. Provided however, that the
Commission will grant exceptions to permit drilling within shorter distances and drilling more wells
than herein prescribed whenever the Commission shall have determined that such exceptions
are necessary either to prevent waste or to prevent the confiscation of property. When exception
to these rules is desired, application therefore shall be filed and will be acted upon in accordance
with the provisions of Commission Statewide Rule 37 and 38, which applicable provisions of said
rule are incorporated herein by reference. Provided however, that persons who are presumed
to be affected by a request for an exception to the between-well spacing requirement shall be
limited to the operators and ownersllessees of tracts, lease or units within one mile or less of the
proposed well.

In applying this rule the general order of the Commission with relation to the subdivision
of property shall be observed.

RULE 3: The daily allowable production of gas from individual wells completed in the
subject field shall be determined by allocating the allowable production, after deductions have
been made for wells which are incapable of producing their gas allowables, among the individual
wells in the following manner:

TEN percent (10%) of the total field allowable shall be allocated equally among the
individual wells producing from this field.

NINETY percent (90%) of the total field allowable shall be allocated among the individual
wells in the proportion that the deliverability of such well, as evidenced by the most recent
G-10 test filed with the Railroad Commission bears to the summation of the deliverability
of all proratable wells producing from this field.

It is further ordered by the Railroad Commission of Texas that the allocation formula for
the Vaquillas Ranch (Lobo Cons.) Field be suspended. The allocation formula may be reinstated
administratively if the market demand for gas in the Vaquillas Ranch (Lobo Cons.) Field drops
below 100% of deliverability. If the market demand for gas in the Vaquillas Ranch (Lobo Cons.)
Field drops below 100% of deliverability while the allocation formula is suspended, the operator
shall immediately notify the Commission and the allocation formula shall be immediately

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reinstated. Failure to give such notice to the Commission may result in a fine (as provided for
in Tex. Nat. Res. Code §86.222) for eac day the operators fail to give notice to the Commission.

Effective this d/f ~ay of , 19q9 .

COMMISSIO~
a:zON

248