First City Nat. Bank of Midland v. Concord Oil Co.
| Decision Date | 13 March 1991 |
| Docket Number | No. 08-90-00233-CV,08-90-00233-CV |
| Citation | 808 S.W.2d 133 |
| Parties | FIRST CITY NATIONAL BANK OF MIDLAND, Successor Independent Executor of the Estate of Boyd Laughlin, et al., Appellants, v. CONCORD OIL COMPANY, Appellee. |
| Court | Texas Court of Appeals |
William B. Browder, Jr., Stubbeman, McRae, Sealy, Laughlin & Browder, Midland, for appellants.
Richard C. Danysh, Matthews & Branscomb, San Antonio, for appellee.
Before OSBORN, C.J., and WOODARD and KOEHLER, JJ.
In a case involving the interpretation of an assignment of two oil and gas leases which called for the termination of production payments when at a time in the future "there remains unproduced 10% of the commercially recoverable liquid and gaseous hydrocarbons in and under such tract[,]" the court held that the payments were to terminate when oil production produced after July 1, 1974 from the two leases equalled 84,366 barrels and 246,031.2 barrels, respectively. The court also awarded attorney's fees to Appellants. All parties appeal. We affirm.
Appellants, First City National Bank of Midland, Successor Independent Executor of the Estate of Boyd Laughlin; H.L. Brinson; Josephine Laughlin; Juanita Wyche, Independent Executor of the Estate of Charles D. Wyche; and Michael James Collins are either the original parties or the successors in interest of the parties as "Sellers," who on July 1, 1959, sold and assigned their right, title and interest in twelve oil, gas and mineral leaseholds to Continental Investors, Inc., retaining and reserving to the Sellers certain production payments (Production Payment C or "PPC"), which were to commence and end as set forth in the assignment. Appellee, Concord Oil Company, is the successor in interest of Continental Investors. We are concerned here with the oil production in only two of the leases, designated respectively as the D.M. Womack Lease and the J.C. Womack Lease.
Under the assignment, the PPCs were not to commence until after other production payments, collectively called the Tobe Foster Production Payments A and B, had been discharged and terminated. After estimating the total reserves of oil remaining in all twelve tracts, the assignment provided in a subparagraph of paragraph IV.B:
Since it is possible that said Production Payment C may never become effective and since the parties intend that if it does become effective it shall not continue as to any tract for the duration of the econimic (sic) life of the lease covering such tract, when the Tobe Foster Production Payment has been retired, said parties, if they can do so by mutual agreement, shall determine, separately as to each of the 12 tracts shown on Exhibit A, the number of barrels of liquid hydrocarbons ... that thereafter can be commercially produced and saved from each of said 12 separate tracts. In the absence of such mutual agreement such determination shall be made in the manner set out immediately below.
The assignment then provided that the parties could either select a petroleum engineer by mutual agreement to make the determination of the number of barrels each tract could be expected to produce commercially or each select an engineer to make the determination. In the latter event, if the two engineers were unable to reach an agreement on the quantity of oil remaining to be produced commercially, they were to select a third engineer whose findings would be averaged with those of the first two to arrive at conclusive determinations for each tract.
In the next paragraph, the assignment provided:
From and after the time said initial redetermination of reserves has been made in the manner set forth above, Production Payment C, ... shall continue in effect until, ... the earliest occurrence of the following two alternatives, to-wit:
1. there remains in the ground and unproduced under said particular tract not less than 10% of the commercially recoverable reserves estimated in said initial redetermination to have been in and under said particular tract.
2. 15 years from the Effective Date. [July 1, 1959].
At that time there shall be one additional, which shall be the final, redetermination of reserves under said particular tract, which redetermination shall be made in accordance with the prodecure (sic) above set out for the making of said redetermination, and, from and after that time, said additional and final redetermination of reserves shall be controlling in so far as the continuance of Production Payment C as to said particular tract is concerned.
The assignment also provided that the PPC was to terminate as to each tract when there remained unproduced 10 percent of the oil in that tract, and the Sellers agreed to refund to Buyer any excess payments made after 10 percent of the reserves had been reached.
The Tobe Foster Production Payment on the two tracts terminated on or about July 1, 1969. However, following that termination, the parties did not make the initial redetermination regarding the number of barrels of commercially recoverable oil. Rather, in a letter agreement dated June 30, 1969, the parties agreed to waive the initial redetermination and to make a final redetermination sometime after July 1, 1974. The parties agree that a final redetermination was never made.
Appellee eventually brought this declaratory judgment action, requesting the court to declare the PPCs terminated as to the two tracts and for an accounting for proceeds received from April 30, 1984, or alternatively for an order setting the procedure to be used by the parties to determine the quantities of oil which could be commercially produced, based on the data available in 1974 and 1975. Appellants answered and requested a declaratory judgment that the PPCs are still in force.
The trial court entered an order on August 17, 1989 which required the parties to try to establish by mutual agreement the number of barrels of oil that could be commercially produced from the two tracts during three separate time periods: commencing on July 1, 1974, on December 20, 1985, on August 17, 1989 and continuing during the remainder of the economic life of the lease on each tract. After reaching a determination as to the total reserves, the parties were ordered to subtract the actual production from each tract up to each of the three dates to determine the remaining reserves as of those respective dates. The order provided that if the parties could not mutually agree on a determination, they were to select a mutually agreeable petroleum engineer to make the determinations. Similar to the provisions in the assignment, if the parties could not agree on an engineer, they each were required to select an engineer. The two engineers were then to attempt to reach an agreement on determinations for the three time periods.
Two engineers were appointed by the parties and they (the engineers) agreed on the following determinations of gross oil reserves in barrels:
Effective Date D.M. Womack J.C. Womack
7/1/74 93,740 273,368
12/20/85 45,394 132,526
8/17/89 23,377 68,248
The court selected July 1, 1974 as the proper date to determine the reserves remaining and held in the March 22, 1990 judgment that the PPC had not yet terminated as to either tract but would terminate on D.M. Womack Lease when 84,366 barrels of oil had been produced from the reserve amount as of July 1, 1974 and would terminate on J.C. Womack Lease when 246,031.2 barrels had been produced from the reserve determined for the same date. Although Appellants agree that PPC has not terminated, they contend in four points of error that the trial court erred (1) by its holding that PPC would terminate with respect to each tract when 90 percent of the reserves determined as of July 1, 1974 had been produced; (2) by failing to declare that PPC will not terminate as to each tract until a final determination is made that there remains unproduced 10 percent of the commercially recoverable oil; (3) by adopting July 1, 1974 as the final determination date; and (4) by failing to fix August 17, 1989 as the date for the final determination of the reserves in the two tracts. In two crosspoints, Appellee claims that the trial court erred by (1) failing to determine that the PPCs terminated on April 30, 1984 (sic), based on the testimony of Appellants' expert who had estimated in 1975 the oil reserves at two million barrels for the entire unit (which included the two Womack tracts) and on the day of the trial (February 21, 1989) estimated that 90 percent of the reserves in the two tracts had been extracted, and (2) awarding attorney's fees to Appellants.
Although neither party believes the assignment or the letter agreement to be ambiguous, they disagree as to the construction of the assignment and the effect that the final redetermination has on the time when the PPCs terminate. A disagreement regarding the meaning of a clause in a contract does not render the clause ambiguous. Medical Towers, Ltd. v. St. Luke's Episcopal Hospital, 750 S.W.2d 820, 822 (Tex.App.--Houston [14th Dist.] 1988, writ denied). Appellants assert that the trial court erroneously declared July 1, 1974 to be the final determination date and would have us construe the...
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