Unit Petroleum Co. v. David Pond Well Serv., Inc.

• Decision Date: 19 May 2014
• Docket Number: No. 07–12–00359–CV.,07–12–00359–CV.
• Citation: Unit Petroleum Co. v. David Pond Well Serv., Inc., 439 S.W.3d 389 (Tex. App. 2014)
• Parties: UNIT PETROLEUM COMPANY, Appellant v. DAVID POND WELL SERVICE, INC., d/b/a, D.W.P. Production, Appellee.
• Court: Texas Court of Appeals

439 S.W.3d 389

UNIT PETROLEUM COMPANY, Appellant

v.DAVID POND WELL SERVICE, INC., d/b/a, D.W.P. Production, Appellee.

No. 07–12–00359–CV.

Court of Appeals of Texas, Amarillo.

May 19, 2014.

Order on Overruling for Rehearing July 25, 2014.

Richard F. Brown, Matthew H. Hand, Robert C. Vartabedian, Brown & Fortunato, P.C., Amarillo, for Appellant.

Mitchell G. Ehrlich, Jessica McCallie, Ehrlich & McCallie, PLLC, Perryton, John Smithee, Joe W. Hayes, Templeton, Smithee, Hayes, Heinrich & Russell, L.L.P., Amarillo, for Appellee.

Before CAMPBELL and HANCOCK and PIRTLE, JJ.

OPINION

PATRICK A. PIRTLE, Justice.

Appellant, Unit Petroleum Company, appeals a judgment in favor of Appellee, David Pond Well Service d/b/a D.W.P. Production, in its action for a declaratory judgment related to the construction of two mineral leases: (1) an Oil, Gas and Mineral Lease between Unit, as Lessee, and Everett and Lora Tarbox, as Lessors, and (2) a subsequently executed Wellbore Oil & Gas Lease between Pond, as Lessee, and the Tarboxes, as Lessors.¹ Furthermore, Unit seeks to “quiet title” to its leasehold interest, particularly as it pertains to the right of a mineral interest owner to designate a proration unit for purposes of obtaining a permit to produce under appropriate governmental regulations. Unit contends the trial court erred (1) by failing to give effect to the plain language of its unambiguous lease, (2) in finding Pond ratified an earlier designation of an eighty acre proration unit² and (3) in ruling Unit is estopped from challenging Pond's claim to an appurtenant contractual right under its lease to designate a proration unit for the wellbore which would encompass portions of Unit's leasehold estate. We reverse the judgment of the trial court, render judgment declaring the rights of the parties as to those issues before this Court and remand for further proceedings consistent with this opinion.³

Background

Prior to 2003, the Tarboxes owned the south one-half of Section 539, Block 43, H. & T.C. RR. Co. Survey, Lipscomb County, Texas, containing 320 acres, more or less, encumbered by a then-existing oil, gas and mineral lease (designated for regulatory purposes by the Texas Railroad Commission as Lease No. 05840). By 2003, that prior lease had been assigned to BP America Production Company. In 1985, BP's predecessor, Vance Oil & Gas, Inc., drilled a well on the property and designated it the Tarbox # 1. By the end of 2003, the Tarbox # 1 had ceased to produce in paying quantities. BP acknowledged the well as a non-producing well and abandoned it, thereby allowing that lease to terminate.

Thereafter, on July 19, 2005, the Tarboxes, as lessors, executed a new Oil, Gas and Mineral Lease, in favor of Armer & Quillan, L.L.C., as lessee, covering the same property, in return for a bonus of $150 per acre—or approximately $48,000. Approximately five months later, Armer & Quillan assigned that lease to Unit Petroleum Company; therefore, for purposes of this opinion we refer to that lease as the “Unit Lease.” The Unit Lease provided, in pertinent part, as follows:

1. Lessor ... hereby grants, leases and lets exclusively unto Lessee for the purpose of (a) exploring, prospecting, drilling and mining thereof for the producing therefrom, and from lands operated therewith, oil, gas and all other minerals, (b) saving, treating, transporting and caring for said products, (c) removing therefrom, and from lands operated therewith, water, brine and other refuse, injecting the same, gas, and any other substances into the subsurface thereof, (d) exercising all rights and privileges hereinafter granted to Lessee, and (e) constructing, operating and maintaining thereon all structures and facilities necessary or convenient for any and all said purposes, together with reversionary rights of Lessor, the following described land in Lipscomb County, Texas, to-wit:

The S/2 of Section 539, Block 43, H & TC Survey covering 320.00 acres more or less.

See Exhibit “A” attached hereto and made a part of this lease....

The lease covers all of the land described above, and in addition thereto there is hereby leased, let and demised to the same extent as if it were described herein specifically, whether the same be in said survey or in adjacent surveys, all land owned or claimed by Lessor adjacent to the land herein-above particularly described ....

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4. Lessee is granted the right and power to pool all or any part of the leased premises with any other lands, as to any stratum or strata and as to any mineral or minerals, and as to all or any interests therein, and by whomsoever owned, for development and operation of the same as a unit or units....

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8. The rights of either party hereunder may be assigned in whole or in part....

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10. Lessor hereby warrants and agrees to defend the title to the leased premises.

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Exhibit “A”

Notwithstanding any of the provisions of this lease to the contrary, it is additionally agreed as follows:

RESERVATION OF WELLBORE OF TARBOX UNIT # 1: LESSOR reserves the wellbore of the Tabox (sic) Unit # 1 well located on the leased premises, to be produced by LESSOR or his assigns and lessees. This reservation only applies to the wellbore as it currently exists and production only from the Cleveland formation, defined herein as between the depths of 7,930 feet subsurface to 7,990 feet subsurface, in which the wellbore is currently completed.

At the time the Unit Lease was executed, no oil, gas or other minerals were actually being produced from the Tarbox # 1.

On July 25, 2005, six days after executing the Unit Lease, the Tarboxes, as lessors, executed a Wellbore Oil and Gas Lease in favor of David Pond Well Service, Inc., as lessee, hereinafter the “Wellbore Lease,” in return for a twenty-five percent royalty fee. The Wellbore Lease provided, in pertinent part, as follows:

LESSOR ... does hereby grant, lease and let exclusively unto LESSEE, its successors and assigns, for the purpose of exploring, drilling, and operating for and producing oil, and/or gas, and to produce, save, take care of, treat, transport and own said substances, the following described land in Lipscomb County, Texas, to-wit:

That portion of the South Half (S/2 of Section 539, Block 43, H. & T.C. RR. Co. Survey, Lipscomb County, Texas, limited to the Cleveland zone wellbore of the Tarbox # 1 well, said Cleveland zone defined herein as between the depths of 7,930 feet subsurface to 7,990 feet subsurface, and such land is hereinafter referred to as the “Leased Premises.”

Notwithstanding anything herein to the contrary, LESSEE's right of exploring, drilling and operating for and producing oil and/or gas from the Leased Premises shall be confined to the existing borehole of the Tarbox # 1 well, located 467 feet from the South line and 467 feet from the West line of Section 539, Block 43, H. & T.C. RR. Co. Survey, Lipscomb County, Texas, and any exploration, drilling, or production operations conducted by LESSEE at any other location upon the Leased Premises shall be considered a trespass for any and all purposes. By execution of this lease, the LESSOR assigns to LESSEE any and all rights that LESSOR has in any of the equipment above the ground or in the wellbore of the Tarbox # 1 well.

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9. DISCLAIMER OF WARRANTY. It is expressly agreed between the parties hereto that no warranty or covenant of title (express or implied) to the land covered hereby or to the oil and gas therein or produced therefrom is made by LESSOR and that no warranty, covenant, or guarantee of title shall be created by or arise from this lease.

The Wellbore Lease was recorded in the real estate records of Lipscomb County on August 2, 2005, and the Unit Lease was recorded September 14th. Pond stipulated during trial and on appeal that the interest acquired by virtue of the Wellbore Lease is a leasehold estate limited to “a fee simple determinable estate in the Cleveland zone from a depth of 7,930 feet to 7,990 feet in the 5 and 1/2 [inch] diameter or 17 and 1/4 [inch] circumference of the wellbore of the Tarbox # 1 well located 467 feet from the South line and 467 feet from the West line of Section 539, Block 43, H. & T.C. RR. Co. Survey, Lipscomb County, Texas.”⁴

Contained within the record is a sixty-five page exhibit which the parties stipulate contains certified copies of documents filed with the Texas Railroad Commission relating to the Tarbox # 1 well. That exhibit contains documents showing the Tarbox # 1 was drilled in 1984 on a pooled unit consisting of the north and south halves of Section 539. Although drilled to a total depth of 9,500 feet, testing deeper formations, the well was completed in the Cleveland formation. For the Cleveland formation completion, the operator designated a drilling unit consisting of the south half of Section 539. In August 1984, the well was classified as an oil well and placed in the Lipscomb, S.E. (Cleveland) field. In October 1984, the Railroad Commission approved a form P–4 changing the well's operator to Vance Oil & Gas, Inc. The exhibit further contains an undated plat, prepared on Vance Oil & Gas, Inc. letterhead and certified as correct by John A. Vance, the company's president. The plat depicts the location of the “V.O. & G. Tarbox # 1” within an outline of the west half of the southwest quarter of Section 539, bearing the notation “80 ac. Cleveland proration unit.” The plat bears handwritten notations including the lease number 05840 and “Lipscomb, SE (Cleveland).” The Railroad Commission records further contain a form P–4, filed in August 2005, signed by BP and Pond, making application to change the operator of the Tarbox # 1 well from BP to Pond.⁵ By that application, Pond sought a change of operator under lease name “Tarbox” and lease number “05840.” Absent from those same records are any documents establishing the Railroad Commission was provided a copy of the Wellbore Lease, the Unit Lease, or any other document showing Pond's leasehold interest as being...