Anadarko Petroleum Corp v. Thompson, CO-TRUSTEE
| Decision Date | 20 December 2000 |
| Docket Number | CO-TRUSTEE |
| Parties | (Tex.App.-Amarillo 2000) ANADARKO PETROLEUM CORPORATION, Appellant v. PHILLIP THOMPSON, INDIVIDUALLY AND AS TRUSTEE OF THE TERRY THOMPSON CHILDREN'S TRUST, FRANCES DIANE NEAL,OF THE TERRY THOMPSON, JR. TRUST FOR THE BENEFIT OF MARGARET THOMPSON, AMARILLO NATIONAL BANK,OF THE TERRY THOMPSON, JR. TRUST FOR THE BENEFIT OF MARGARET THOMPSON, FRANCES DIANE NEAL,OF THE TERRY THOMPSON, JR. TRUST FOR THE BENEFIT OF FRANCES DIANE NEAL, AMARILLO NATIONAL BANK,OF THE TERRY THOMPSON, JR. TRUST FOR THE BENEFIT OF FRANCES DIANE NEAL, TROY LEE THOMPSON, TRUSTEE OF THE THOMPSON MINERAL TRUST #1, SHERAE MELYNN THOMPSON BENE, TRUSTEE OF THE THOMPSON MINERAL TRUST #1, DAVID SNEED THOMPSON, TRUSTEE OF THE THOMPSON MINERAL TRUST #2, KENNETH WAYNE THOMPSON, TRUSTEE OF THE THOMPSON MINERAL TRUST #2, DOUGLAS N. PERKINS, PRESIDENT OF L. B. BRENT, INC., A TEXAS CORPORATION, MANAGING GENERAL PARTNER OF L. B. BRENT PROPERTIES, LTD., Appellee NO. 07-99-0147-CV |
| Court | Texas Court of Appeals |
FROM THE 69TH DISTRICT COURT OF MOORE COUNTY; NO. 97-8; HON. RON ENNS, PRESIDING
[Copyrighted Material Omitted]
[Copyrighted Material Omitted]
Before BOYD, C.J., and QUINN and JOHNSON, JJ.
Anadarko Petroleum Corporation (Anadarko) appeals from a final judgment entered in favor of Thompson.1 Through that judgment, the trial court, among other things, declared that a certain oil and gas lease (under which Anadarko was lessee) had terminated. Believing that the judgment should be reversed, Anadarko contends that the trial court erred in concluding that the lease had terminated due to cessation of production and, alternatively, rejecting its defenses of revival, adverse possession, laches, and quasi-estoppel. We affirm.
In 1936, the predecessors in interest of Thompson entered into a gas lease with Texas-Interstate Pipe Line Co. (TP). Through the lease, the lessors, among other things, "granted, leased, and let[], unto" TP "[a]ll of Section 63, Block 44, H & T C Ry Co. Survey . . ." for "the purpose of mining and operating for and producing gas . . . ." Of particular importance to this appeal are two clauses in the lease. The first states that it "shall remain in force for a term of one (1) year and as long thereafter as gas is or can be produced." The parties construe this provision to be the habendum clause, and we refer to it as such. The second clause states:
If, after the expiration of the primary term of this lease, production on the leased premises shall cease from any cause, this lease shall not terminate provided lessee resumes operations for drilling a well within sixty (60) days from such cessation, and this lease shall remain in force during the prosecution of such operations and if production results therefrom, then as long as production continues."
It is the interplay of these two provisions which gave rise to the current dispute.
Thompson read that portion of the habendum clause stating "can be produced" as requiring actual production in paying quantities. In other words, once the primary term ended, the lease could be maintained only by production in paying quantities. Furthermore, because actual production of gas from the field stopped, at one time or another, for more than 60 days, the lease terminated, according to Thompson. Anadarko disagreed with the interpretation, however. It opted to read the habendum clause literally. That is, it read the phrase "can be produced" to mean capable of being produced, as opposed to actual production. And, since gas was always capable of being produced from the field, despite the brief interruptions in actual production, the lease never terminated. The foregoing dispute was brought to a head when Thompson sued Anadarko for a declaration that the lease had ended and for damages. Thompson subsequently moved for a partial summary judgment requesting the court to adopt its interpretation of the habendum clause, which the court eventually did. So too did it award damages, after trial on the merits, for gas allegedly converted by Anadarko once the lease had terminated.
Issue One - Did the court err in entering partial summary judgment
declaring that the lease terminated or, what does the habendum clause say?
Anadarko asserts that the trial court erred in granting the partial summary judgment "because the lease was capable of producing gas in paying quantities." That is, the habendum clause simply used the words "can be produced" when addressing the extension of the lease past its primary term. Those three words, according to Anadarko, should be construed literally. And, when one does so, they merely connote an ability to produce in paying quantities, not actual production. While a literal interpretation of the phrase would urge the adoption of Anadarko's stance, precedent reveals 1) that references to production in an habendum clause are seldom construed literally and 2) we must reject the construction proffered by Anadarko.
Years ago, in Garcia v. King, 164 S.W.2d 509 (Tex. 1942), our Supreme Court stated that "to understand and properly interpret the language used by the parties [to an agreement] we must consider the objects and purposes intended to be accomplished by them in entering into the contract." Id. at 512. The agreement before it at the time was a mineral lease. The habendum clause contained therein read "this lease shall be for a term of 10 years . . . and as long thereafter as oil, gas and other minerals is produced from said land." Id. at 510. More importantly, the dispute between King and Garcia concerned whether "produced" simply meant any production or production in paying quantities. Obviously, the literal meaning of the word omitted the qualifier of "in paying quantities." So, in resolving the controversy, the objective of those entering into the agreement was perused. That objective, according to the court, consisted of the desire "to secure development of the property for the mutual [economic] benefit of the parties." Id. at 512. If the lease could not be operated at a profit then the parties could reap no benefits, the court continued. Id. at 512-13. Thus, to accomplish the objectives intended, the court interpreted "produced" to mean production in paying quantities, as opposed to just any production. Id.; Gulf Oil Corp. v. Reid, 337 S.W.2d 267, 269 (Tex. 1960).
From Garcia we derive two rules applicable to our situation. The first we mentioned above pertains to the need to construe mineral leases in accordance with the objectives of the parties. Indeed, Anadarko itself acknowledged the propriety of this rule in its brief. There, it argued that the "language used by the original contracting parties should be given its plain grammatical meaning unless it definitely appears that the intention of the parties would thereby be defeated." (Emphasis added). The second rule compelled by Garcia involves the objectives or intent attributable to those entering such agreements. One of them is the intent to reap economic benefit from the development of the property. And, unless the agreement readily illustrates the purpose to be something else, we must construe the document and its words in a way fulfilling that purpose. Garcia v. King, supra.
At bar, we have the words of the original parties as well as the teachings of Garcia to aid us in divining the objectives vis-a-vis the lease before us. In paragraph one of the document, the lessors expressed that they leased the property to TP "for the purpose of mining and operating for and producing gas . . . " among other things. This stated purpose mirrors that which the Garcia court found to be implicit in mineral leases, that is "to secure development of the property for the mutual [economic] benefit of the parties." Id. at 512. With this purpose in mind, we turn to Anadarko's contention to see if it would further the expressed and implied objectives of the original parties.
Again, Anadarko believes the phrase "can be produced" simply refers to the "'physical ability'" or capability to produce gas in paying quantities. If this was a correct interpretation of the words, then one would immediately confront the problem of explaining how the aforementioned objective is furthered in situations where gas could be produced but is not. For instance, if Anadarko was correct, the lessee could conceivably forego all development of the field yet maintain the lease by merely establishing that gas could be produced in paying quantities if the lessee cared to produce gas. The outcome would be tantamount to that which the Garcia court sought to avoid. That is, "[t]he lessors should not be required to suffer a continuation of the lease . . . merely for speculation purposes on the part of the lessees." Garcia v. King, 164 S.W.2d at 513. So, the goal legally implicit and factually explicit in our lease would be thwarted if "can be produced" meant nothing more than the "'physical ability'" to draw gas in paying quantities.
The adoption of Anadarko's construction would also render meaningless other paragraphs of the lease. For instance, paragraph 11, states that:
[i]f, after the expiration of the primary term of this lease, production on the leased premises shall cease from any cause, this lease shall not terminate provided lessee resumes operations for drilling a well within sixty (60) days from such cessation, and this lease shall remain in force during the prosecution of such operations and if production results therefrom, then as long as production continues."
Why should there be any reason to mention the need to resume drilling operations and, thereby, pursue actual production to maintain the lease if the only thing that was required was the mere ability to produce? The answer is: there would not be. Thus, to hold that the ability to produce alone prolongs the lease would be to...
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