ACCEPTED
04-14-00905-CV
FOURTH COURT OF APPEALS
SAN ANTONIO, TEXAS
11/2/2015 3:16:56 PM
KEITH HOTTLE
CLERK
No. 04-14-00905-CV
FILED IN
4th COURT OF APPEALS
In the Fourth District Court of Appeals SAN ANTONIO, TEXAS
San Antonio, Texas 11/2/2015 3:16:56 PM
KEITH E. HOTTLE
Clerk
Escondido Resources II, LLC,
Appellant,
v.
Justapor Ranch Company, L.C.,
Appellee.
On Appeal from the 49th Judicial District Court
Webb County, Texas,
Cause No. 2013-CV7-001396-D1
ESCONDIDO’S ORAL ARGUMENT EXHIBITS
James P. Keenan Robert Dubose Wallace B. Jefferson
State Bar No. 11167850 State Bar No. 00787396 State Bar No. 00000019
keenan@buckkeenan.com rdubose@adjtlaw.com wjefferson@adjtlaw.com
J. Robin Lindley ALEXANDER DUBOSE Rachel A. Ekery
State Bar No. 12366100 JEFFERSON & TOWNSEND LLP State Bar No. 00787424
lindley@buckkeenan.com 1844 Harvard Street rekery@adjtlaw.com
BUCK KEENAN, LLP Houston, Texas 77008 ALEXANDER DUBOSE
700 Louisiana, Suite 5100 Telephone: (713) 523-2358 JEFFERSON &TOWNSEND LLP
Houston, Texas 77002 Facsimile: (713) 523-4553 515 Congress Avenue
Telephone: (713) 225-4500 Suite 2350
Facsimile: (713) 225-3719 Additional counsel listed on Austin, Texas 78701
next page Telephone: (512) 482-9300
Facsimile: (512) 482-9303
ATTORNEYS FOR ESCONDIDO RESOURCES II, LLC
TABLE OF CONTENTS
Tab
The results of different conclusions about lease forfeiture.......................................1
III(b) - original lease provision – amount of monthly production royalties ............. 2
III(g) - accounting / adjustment payments ................................................................3
XIV – deadline for monthly production royalties / results of missing
deadline ...........................................................................................................4
Lease Amendment – amended amount of monthly production royalties ................. 5
The results of different conclusions about lease forfeiture
Does lease language require termination for Result
failure to reconcile underpayments?
1 – Unambiguously “no” – Only Escondido’s No termination (reverse and render)
interpretation is reasonable
2 - Ambiguous – Both interpretations are No termination (reverse and render)
reasonable
3 – Unambiguously “yes”, but not clear and No termination (reverse and render)
unequivocal: (1) only Justapor’s interpretation
is reasonable, but (2) language is not clear and
unequivocal 1
4 – Unambiguously “yes” and clear and Termination (affirm)
unequivocal: (1) only Justapor’s interpretation
is reasonable, and (2) language is clear and
unequivocal.
For authorities, see Brief of Appellant at 33-37.
1
Outdoor Sys., Inc. v. BBE, L.L.C., 105 S.W.3d 66, 71 (Tex. App.—Eastland 2003, pet. denied).
For the application of a “clear and unequivocal” standard in another context, see Sparks v. Texas
S. Univ., 824 S.W.2d 328, 330 (Tex. App.—Houston [1st Dist.] 1992, no writ) (requiring “explicit”
waiver of state immunity to suit).
III(b) - original lease provision – amount of monthly production royalties 2
“III.
The royalties to be paid by Lessee to Lessor are as follows, to-wit: ...
(b) On all gas production from this lease, ... Lessee shall calculate and pay royalties
to Lessor on One-Fourth (1/4th) of all gas produced from this lease and its constituents and
products sold or used therefrom, which royalties shall be calculated and paid to Lessor
based upon the highest of
(i) the CURRENT MARKET VALUE of such gas production from this lease
which is sold by, through or under Lessee or used by, through or under
Lessee,
(ii) the CURRENT HOUSTON SHIP CHANNEL PRICE for such gas
production, as hereinafter defined, or
(iii) the CURRENT PROCEEDS REALIZED BY LESSEE for such gas
production, without deduction of any costs or expense except as hereinafter
stipulated or,
(iv) the highest sales price of any gas were gas produced from the property
could be present when sold to a third party.”
2
CR3:982 ¶III(b) (returns, indentation, emphasis added).
2
III(g) - accounting / adjustment payments 3
Paragraph III(g) discusses topics including:
Accounting
“In accounting to Lessor for royalties payable hereunder, Lessee shall be
required, on a monthly basis, if requested by Lessor, to account to Lessor for
each well on leased premises based upon the volume of production....”
Overpayment
“If it is agreed by Lessor or the royalty owner in question that a royalty owner
was overpaid, then the overpaid royalty owner has the option of repaying
such overpayment or allowing Lessee to recoup such overpayment out of
future royalty payments on a schedule and in monthly amounts agreed to by
such overpaid royalty owner and Lessee. Any overpaid royalty owner shall
not be charged interest on overpaid sums....”
Underpayment
“In the event the prices and/or volumes used by Lessee in calculating and
payment of production royalties paid to Lessor was less than those required
to be paid, Lessee shall issue its check to make up the difference on or before
March 1st of each year.”
3
CR3:987-88 ¶III(g).
3
XIV – deadline for monthly production royalties / results of missing deadline4
“Royalties payable to Lessor in the manner hereinabove provided for are due and payable
to Lessor within a period of sixty (60) days following each month’s production of oil or
gas produced and sold from the premises. Thereafter, such payments shall be delinquent
and will bear interest at the rate of Ten (10%) percent per annum, compounded monthly,
until paid. In the event that such royalties are not paid and become delinquent, and there is
no title dispute or title defect, this lease shall terminate ipso facto on the date that such
royalties were due and not paid. In the event such royalties are not paid and become
delinquent, Lessor without other notice than this paragraph, shall be authorized to file suit
in the District Court of Webb County, Texas, for recovery of such delinquent royalties.…”
4
CR3:996-97 ¶XIV (emphasis added).
4
Lease Amendment – amended amount of monthly production royalties
“2.
Paragraph III is amended to provide:
(a) On all oil and other liquid hydrocarbons produced from this lease, Lessee shall be
required to pay Lessor the higher of one-fourth (1/4th) of the posted price for similar
type of oil produced in Texas Railroad District 4 (as said region now exists) or for
similar type of oil produced from this lease or the current market value of that
produced and saved from said land, subject only to deductions imposed by
purchaser, if any, for transportation of product to the purchasers facility. All oil or
other liquid hydrocarbons produced from this lease shall be treated and stored on
this lease until purchased by Lessee.
(b) II The term “HOUSTON SHIP CHANNEL PRICE” shall be construed to mean the
price or value which is equal to the highest reported on-shore spot purchase price
being paid during the month of production by purchasers of gas produced in the
Texas Gulf Area, to be determined on a monthly basis by reference to the index spot
gas price (large packages only) for gas delivered to pipelines at Houston Ship
Channel/Beaumont, Texas, as recorded in Inside F.E.R.C. vs. Gas Market Report
published by McGraw-Hill, minus five (.05) cents per MMBtu, (an agreed upon
reasonable transportation charge for this lease production) adjusted for MMBtu
content, and without any other deduction by Lessee save unreimbursed severance
taxes actually paid by the Lessee In behalf of Lessor to the taxing authority. In the
event the above designated gas price Index publication ceases to exist, (or ceases to
report such "Houston Ship Channel Price" hereinabove referred to), the lessor and
Lessee shall agree on another publication generally acceptable as providing
comparable accurate current data as to current on-shore spot prices for gas delivered
Into pipelines by purchasers In said area, which substituted publication shall be used
in lieu of the above-described publication as part of the foregoing standard, upon
which Lessor's royalty shall be calculated and paid. In the event no price Index
publication can be agreed upon as reliable, then a reliable governmental or other
non-partisan publication evaluating the same Information. shall be used, with
current payments to be made on the most current Information available and then
adjusted, as necessary, within thirty (30) days following the availability of the
governmental data or other nonpartisan publication, or if no such publication is
available for purposes, hereof, this standard, as an element for calculation of
Lessor’s royalties shall cease to exist. Provided however, Lessee shall have the right
to enter into gas sales’ contracts that will determine the price upon which gas
royalty is calculated if such contracts provide no less than a price redetermination
every six months and provide the following minimum terms:
Price:
5
The price to be paid by Buyer to Seller for each MMBtu of Gas purchased hereunder
shall be: (i) ninety-five percent (95%) of the “Houston Ship Channel Index Price”
for monthly volumes averaging 8,000 Mcf per day or less; (ii) ninety-six percent
(96%) of the “Houston Ship Channel Index Price” for monthly volumes averaging
5001- 10,000 Mcf per day; (iii) ninety-seven percent (97%) of the “Houston Ship
Channel Index Price” for monthly volumes averaging 10,001- 15,000 Mcf per day;
and (iv) ninety-eight percent (98%) of the “Houston Ship Channel Index Price” for
monthly volumes averaging over 15,000 Mcf per day....[additional minimum terms
omitted].
Provided further, Lessor shall provide copies of such contracts, and any
amendments thereto, to Lessee upon execution along with a written statement that
such contract indicates that all compensation received by Lessee for sale of the gas,
and Lessor has at all times the right to take his gas in kind as provided herein.” 5
5
CR3:1014-15 (emphasis added).
6
Respectfully submitted,
/s/Robert Dubose
James P. Keenan Robert Dubose
State Bar No. 11167850 State Bar No. 00787396
keenan@buckkeenan.com rdubose@adjtlaw.com
J. Robin Lindley ALEXANDER DUBOSE JEFFERSON
State Bar No. 12366100 & TOWNSEND LLP
lindley@buckkeenan.com 1844 Harvard Street
BUCK KEENAN, LLP Houston, Texas 77008
700 Louisiana, Suite 5100 Telephone: (713) 523-2358
Houston, Texas 77002 Facsimile: (713) 523-4553
Telephone: (713) 225-4500
Facsimile: (713) 225-3719 Wallace B. Jefferson
State Bar No. 00000019
wjefferson@adjtlaw.com
Rachel Ekery
State Bar No. 00787424
rekery@adjtlaw.com
ALEXANDER DUBOSE JEFFERSON
&TOWNSEND LLP
515 Congress Avenue, Suite 2350
Austin, Texas 78701
Telephone: (512) 482-9300
Facsimile: (512) 482-9303
Kirsten Castañeda
ALEXANDER DUBOSE JEFFERSON
&TOWNSEND LLP
4925 Greenville Avenue, Suite 510
Dallas, Texas 75206
Telephone: (214) 369-2358
Facsimile: (214) 369-2359
ATTORNEYS FOR APPELLANT
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CERTIFICATE OF SERVICE
On November 2, 2015, I electronically filed the Oral Argument Exhibits with
the Clerk of Court using the eFile.TXCourts.gov electronic filing system which will
send notification of such filing to the following:
Timothy Patton Jose M. Rubio, Jr.
TIMOTHY PATTON, P.C. JOE RUBIO LAW FIRM
14546 Brook Hollow #279 1000 Washington Street, Suite 4
San Antonio, Texas 78232 Laredo, Texas 78040
tpatton@tp-pc.com joerubio@joerubiolawfirm.com
Patton G. Lochridge
MCGINNIS LOCHRIDGE & KILGORE LLP
600 Congress Avenue, Suite 2100
Austin, Texas 78701
plochridge@mcginnis1aw.com
/s/Robert Dubose
Robert Dubose
8