In The
Court of Appeals
Seventh District of Texas at Amarillo
No. 07-13-00439-CV
XOG OPERATING, LLC AND
GERONIMO HOLDING CORPORATION, APPELLANTS
V.
CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP
AND CHESAPEAKE EXPLORATION, L.L.C., APPELLEES
On Appeal from the 31st District Court
Wheeler County, Texas
Trial Court No. 12,375, Honorable Steven R. Emmert, Presiding
September 2, 2015
DISSENTING OPINION
Before QUINN, C.J., and CAMPBELL and PIRTLE, JJ.
For the reasons I will outline briefly, I am unable to agree with my colleagues’
reading of the retained acreage language in the assignment. The retained acreage
clause reads, in part, as follows:
Upon the expiration of the Primary Term of this Assignment . . . this
Assignment and all rights created hereunder shall terminate as to all lands
and depths covered hereby. Said lease shall revert to Assignor, save and
except that portion of said lease included within the proration or pooled
unit of each well drilled under this Assignment and producing or capable of
producing oil and/or gas in paying quantities. The term “proration unit” as
used herein, shall mean the area within the surface boundaries of the
proration unit then established or prescribed by field rules or special order
of the appropriate regulatory authority for the reservoir in which each well
is completed.
The majority adopts the interpretation of the language advanced by appellees
Chesapeake Exploration Limited Partnership and Chesapeake Exploration, LLC. It
reads the language to express the parties’ intention that on expiration of the primary
term, the assignee would retain the leasehold insofar as it applied to the number of
acres in each producing well’s proration unit, as established or prescribed by the
applicable field rules. Because, the majority says, the field rules for the Allison-Britt
(12,350’) Field prescribe a 320-acre proration unit, the assignee retained 320 acres per
well completed in that field, regardless of the acreage the operator chose to assign to
the well by its Form P-15.
But the assignment doesn’t say the assignee will retain the number of acres in a
unit prescribed by the field rules. It says the assignee will retain “that portion of said
lease included within the proration . . . unit,” and then defines “proration unit.” Merely
defining the term “proration unit” does not make the assignment say that the portion of
the lease included within the proration unit “is,” “must be” or “always equals” the
prescribed proration unit. By equating the former phrase “the portion within the
proration . . . unit” with the prescribed 320-acre proration unit, the majority effectively
has read the former phrase out of the parties’ agreement.
By its assumption the parties intended the assignee to retain 320 acres, the
majority also reads language into the parties’ agreement. The agreement’s “proration
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unit” definition speaks of “the area within the surface boundaries of the proration unit
then established or prescribed by field rules.” The assignment’s language does not
suggest the parties intended the assignee to retain the maximum acreage permitted for
a proration unit by the field rules.1
1
RULE 2 of the [field rules for the Allison-Britt (12,350’) Field] reads as
follows:
The acreage assigned to the individual gas well for the purpose of
allocating allowable gas production thereto shall be known as the
prescribed proration unit. No proration unit shall consist of more than
three hundred twenty (320) acres except as hereinafter provided; and the
two farthermost points in any proration unit shall not be in excess of six
thousand (6,000) feet removed from each other; provided that tolerance
acreage of ten (10) percent shall be allowed for each unit so that an
amount not to exceed a maximum of three hundred fifty-two (352) acres
may be assigned. For allowable assignment purposes, the prescribed
proration unit shall be a three hundred twenty (320) acre unit, and each
unit containing less than three hundred twenty (320) acres shall be a
fractional proration unit. All such proration units shall consist of
continuous and contiguous acreage which can reasonably be considered
to be productive of gas. No double assignment of acreage will be
accepted.
An operator, at his option, shall be permitted to form fractional units
of one hundred sixty (160) acres with a proportional acreage allowable
credit for a well on such unit with the two farthermost points of such one
hundred sixty (160) acre fractional unit not greater than four thousand five
hundred (4,500) feet removed from each other.
Operators shall file with the Commission certified plats of their
properties in said field which plats shall set out distinctly all of those things
pertinent to the determination of the acreage credit claimed for each well;
provided that if the acreage assigned to any proration unit has been
pooled, the operator shall furnish the Commission with such proof as it
may require as evidence that interests in and under such proration unit
have been so pooled.
The majority notes that the field rules provide for fractional proration units, and
wonders whether Chesapeake’s designated units containing fewer than 320 acres could
even be considered “proration units” under the assignment’s definition. Perhaps not,
but the acreage assigned to the well by Chesapeake still would be “that portion of said
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The majority’s reading of the assignment is untenable also because it fails to
accomplish the language’s purpose of identifying the acreage to be retained by the
assignee. If the language says only that the assignee retains 320 acres because that’s
the prescribed proration unit, it begs the question, “which 320 acres?” As the majority
points out, the field rules do not prescribe the particular acreage to be contained within
the prescribed proration unit. That fact is not an argument for reliance only on the field
rules for the identification of the acreage to be retained. It is an argument to give effect
to the language used by the parties, by which the assignee retains “that portion of said
lease included within the proration . . . unit.” The parties cannot identify “that portion”
merely by identifying the number of acres it may contain.2
The Eastland Court of Appeals recently addressed lease language similar to the
assignment language we encounter in this case. Endeavor Energy Res., L.P. v.
Discovery Operating, Inc., 448 S.W.3d 169 (Tex. App.—Eastland 2014, pet. filed). The
lease contained language stating that at the end of its primary term, it would terminate
as to all of the leased lands, except for “those lands and depths located within a
governmental proration unit assigned to a well . . . , with each such governmental
proration unit to contain the number of acres required to comply with the applicable
rules and regulations of the [Railroad Commission] for obtaining the maximum
producing allowable for the particular well.” Id. at 175-76. The parties took positions
like those we confront: the lessee contended the latter clause of the retained acreage
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lease included within the proration . . . unit,” which is the acreage to be retained under
the assignment’s plain language.
2
When the parties wanted to designate the configuration of the proration unit as
well as its number of acres, they did so, in the case of wells not subject to field rules or
special order.
4
language “automatically establishes the size of the proration units” to be the maximum
acreage, 160 acres. Id. at 177. The court disagreed, holding that the lessee’s
interpretation conflicted with the parties’ use of the word “assigned” in the language’s
earlier clause. The language in its entirety, the court found, demonstrated that the
parties intended “the last clause in [the retained acreage language] to define the amount
of acres that [the lessee] was to include in the governmental proration units that it
assigned in its certified proration plats filed with the [Railroad Commission].”
The parties to the assignment in our case did not use the phrase “lands and
depths located within a governmental proration unit assigned to a well.” But they used
the words “that portion of said lease included within the proration . . . unit.” The effect is
the same. The Eastland court recognized that it is by the filing of the certified proration
plat that acreage is assigned to a governmental proration unit for a well. Id. at 178.
Acreage is “included within” a proration unit in the same way.
I would give the language before us a construction like that the Eastland court
applied in Endeavor. 448 S.W.3d at 177-78. Such a construction would require
reversal of the trial court’s summary judgment in favor of appellees Chesapeake
Exploration Limited Partnership and Chesapeake Exploration, LLC, and remand to the
trial court. Because the Court affirms the summary judgment, I respectfully dissent.
James T. Campbell
Justice
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