Murphy Exploration & Prod. Company—usa, Corp. v. Shirley Adams, Charlene Burgess, Willie Mae Herbst Jasik, William Albert Herbst, Helen Herbst, & R. May Oil & Gas Co.

• Decision Date: 01 June 2018
• Docket Number: No. 16–0505,16–0505
• Citation: 560 S.W.3d 105
• Parties: MURPHY EXPLORATION & PRODUCTION COMPANY—USA, a Delaware Corporation, Petitioner, v. Shirley ADAMS, Charlene Burgess, Willie Mae Herbst Jasik, William Albert Herbst, Helen Herbst, and R. May Oil & Gas Company, Ltd., Respondents
• Court: Texas Supreme Court

560 S.W.3d 105

MURPHY EXPLORATION & PRODUCTION COMPANY—USA, a Delaware Corporation, Petitioner,

v.Shirley ADAMS, Charlene Burgess, Willie Mae Herbst Jasik, William Albert Herbst, Helen Herbst, and R. May Oil & Gas Company, Ltd., Respondents

No. 16–0505

Supreme Court of Texas.

Argued December 5, 2017

OPINION DELIVERED: June 1, 2018

Rehearing Denied November 30, 2018

Macey Reasoner Stokes, J. Mark Little, Jason A. Newman, Baker Botts L.L.P., Houston TX, for Petitioner Murphy Exploration & Production Company—USA, A Delaware Corporation.

Mary A. Keeney, John B. McFarland, Graves Dougherty Hearon & Moody, P.C., Austin TX, for Respondents.

George Parker Young, Kelli L. Walter, Vincent P. Circelli, Circelli, Walter & Young, PLLC, Forth Worth TX, James W. Christian, Stephen Ray Smith, Christian, Smith, & Jewell, Houston TX, Catherine M. Stone, John W. Petry, Linda S. McDonald, Ruben Valadez, Langley & Banack, Inc., San Antonio TX, for Amicus Curiae Chesapeake Eagle Form MDL Royaly Owners.

Dana B. Deaton, Joseph B.C. Fitzsimons, Robert Park, Uhl, Fitzsimons, Jewett & Burton, PLLC, San Antonio TX, for Amicus Curiae Texas Land & Mineral Owners Association.

Charles R. ‘Skip’ Watson Jr., Davis, Gerald & Cremer, PC, Austin TX, for Amicus Curiae Texas Oil & Gas Association.

Justice Lehrmann delivered the opinion of the Court, in which Chief Justice Hecht, Justice Devine, Justice Brown, and Justice Blacklock joined.

This action stems from a contract dispute over an offset provision in an oil and gas lease. The court of appeals held that the lessee did not conclusively demonstrate compliance with the provision and reversed the trial court's summary judgment in the lessee's favor. Because the court of appeals read a requirement into the lease that its unambiguous language does not support, we reverse the court's judgment.

I. Background

Shirley Mae Herbst Adams and William Albert Herbst entered into essentially identical oil and gas leases with Murphy Exploration & Production Company's predecessor-in-interest. The leases cover two contiguous 302–acre tracts in Atascosa County. The leases each contain a provision obligating Murphy to either drill an offset well, pay royalties, or release acreage in the event a producing well is completed on an adjacent tract within 467 feet of the leased tracts. In its entirety, the offset provision states:

It is hereby specifically agreed and stipulated that in the event a well is completed as a producer of oil and/or gas on land adjacent and contiguous to the leased premises, and within 467 feet of the premises covered by this lease, that Lessee herein is hereby obligated to, within 120 days after the completion date of the well or wells on the adjacent acreage, as follows:

(1) to commence drilling operations on the leased acreage and thereafter continue the drilling of such off-set well or wells with due diligence to a depth adequate to test the same formation from which the well or wells are producing from [sic] on the adjacent acreage; or

(2) pay the Lessor royalties as provided for in this lease as if an equivalent amount of production of oil and/or gas were being obtained from the off-set location on these leased premises as that which is being produced from the adjacent well or wells; or

(3) release an amount of acreage sufficient to constitute a spacing unit equivalent in size to the spacing unit that would be allocated under this lease to such well or wells on the adjacent lands, as to the zones or strata producing in such adjacent well.

Comstock Oil & Gas, LP drilled a producing horizontal well (the Lucas well) on the tract adjacent to and southwest of the tracts covered by the leases. The Lucas well, which was landed in the Eagle Ford Shale formation, is 350 feet from the lease boundary and thus triggered the offset provision. Rather than pay royalties based on the Lucas well's production or release acreage, Murphy chose to exercise the provision's first option and commenced drilling operations. Specifically, within 120 days of the Lucas well's completion date, Murphy commenced drilling a horizontal well (the Herbst well) on the leased acreage. It is undisputed that the Herbst well was also landed in the Eagle Ford Shale formation and was thus drilled "to a depth adequate to test the same formation" from which the Lucas well was producing. However, the Herbst well is approximately 1,800 feet from the pertinent lease line. The horizontal laterals of both wells run parallel to the lease line.

Murphy completed the Herbst well in November 2012 and began paying royalties on production. Six months later, the lessors and royalty owners under the leases (collectively, Herbst) sued Murphy for breach of contract, alleging that Murphy failed to comply with the offset provision.¹ Murphy counterclaimed, seeking declaratory relief regarding its obligations under and compliance with the leases. The parties filed cross-motions for partial summary judgment. Herbst argued that the Herbst well is too far from the lease boundary to qualify as an offset well, in light of both the common meaning of the term "offset" and the oil and gas industry's understanding of the term "offset well" as a well intended to protect against drainage.

Murphy asserted that the provision imposes no location or minimum spacing requirement for the offset well; it requires only that the well be drilled "on the leased acreage" and "to a depth adequate to test the same formation from which the well or wells are producing from [sic] on the adjacent acreage." Murphy thus argued that this provision, "drafted with horizontal shale wells in mind, only require[s] the lessee to counterbalance (or offset) production from the tight shale formation, recognizing that there is little to no drainage in the Eagle Ford shale, and therefore no reason to locate the offset well near the lease line."

The trial court granted Murphy's motion, denied Herbst's, and rendered a final judgment granting Murphy declaratory relief and awarding Murphy costs and conditional appellate attorney's fees, but no trial court fees. Herbst appealed, challenging both the summary judgment and the award of attorney's fees. The court of appeals reversed and remanded, holding that Murphy did not conclusively prove that it complied with the offset provision and thus was not entitled to summary judgment. 497 S.W.3d 510, 511 (Tex. App.—San Antonio 2016). The court did not reach the merits of Herbst's independent challenges to the fee award. Id. at 517. We granted Murphy's petition for review.² In this Court, Murphy affirmatively waives its claim to conditional appellate attorney's fees.

II. Discussion

A. Standard of Review

We review a trial court's summary judgment de novo. Valence Operating Co. v. Dorsett , 164 S.W.3d 656, 661 (Tex. 2005). Summary judgment is appropriate when no genuine issue of material fact exists and the movant is entitled to judgment as a matter of law on the issues presented. TEX. R. CIV. P. 166a(c). A defendant may obtain summary judgment by, among other things, conclusively negating at least one element of the plaintiff's cause of action. Frost Nat'l Bank v. Fernandez , 315 S.W.3d 494, 508 (Tex. 2010). In reviewing a summary judgment, we take as true all evidence favorable to the nonmovant, indulging every reasonable inference and resolving any doubts in the nonmovant's favor. Valence Operating Co. , 164 S.W.3d at 661.

In this breach-of-contract case, Murphy's compliance with the leases, or lack thereof, hinges on the proper interpretation of those leases. In construing an oil and gas lease, as with any contract, our task is to "ascertain the true intentions of the parties as expressed in the writing itself." Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am. , 341 S.W.3d 323, 333 (Tex. 2011). This analysis begins with the contract's express language. Id. We "examine and consider the entire writing in an effort to harmonize and give effect to all the provisions of the contract so that none will be rendered meaningless." Seagull Energy E & P, Inc. v. Eland Energy , 207 S.W.3d 342, 345 (Tex. 2006) (emphasis removed) (quoting Coker v. Coker , 650 S.W.2d 391, 393 (Tex. 1983) ). We "give terms their plain, ordinary, and generally accepted meaning unless the instrument shows that the parties used them in a technical or different sense." Heritage Res., Inc. v. NationsBank , 939 S.W.2d 118, 121 (Tex. 1996). Addressing oil and gas leases in particular, we have explained that where the lease "expressly defines the duty, we will not impose a more stringent obligation unless it is clear that the parties intended to [do so]." Exxon Corp. v. Emerald Oil & Gas Co. , 348 S.W.3d 194, 215 (Tex. 2011).

Further, we may "consult the facts and circumstances surrounding a negotiated contract's execution to aid the interpretation of its language." URI, Inc. v. Kleberg County , 543 S.W.3d 755, 757 (Tex. 2018). That is, we may consider "objectively determinable facts and circumstances that contextualize the parties' transaction" and "inform" the meaning of the language used, but we may not use surrounding circumstances to alter or contradict an unambiguous contract's terms. Id. at 758 ; see also First Bank v. Brumitt , 519 S.W.3d 95, 110 (Tex. 2017) ("[C]ourts may not rely on evidence of surrounding circumstances to make the language say what it unambiguously does not say.").

B. Analysis

Here, the pertinent lease provision states that if "a well is completed as a producer of oil and/or gas on land adjacent and contiguous to the leased premises, and within 467 feet of the premises covered by this lease," then within 120 days of the well's completion Murphy must "commence drilling operations on the leased acreage and thereafter continue the drilling of such off-set well or wells with due diligence to a depth adequate to test the same formation from which the well or wells are producing from [sic] on the adjacent acreage." The parties do not dispute that Murphy commenced drilling operations...