Jones Energy, Inc. and Jones Energy Holdings, LLC v. Pima Oil and Gas, L.L.C. ( 2020 )

In The
Court of Appeals
Seventh District of Texas at Amarillo
________________________
No. 07-17-00456-CV
________________________
JONES ENERGY, INC. AND JONES ENERGY HOLDINGS, LLC, APPELLANTS
V.
PIMA OIL AND GAS, L.L.C., APPELLEE
On Appeal from the 31st District Court
Hemphill County, Texas
Trial Court No. 7263; Honorable Steven R. Emmert, Presiding
January 16, 2020
OPINION
Before QUINN, C.J., and PIRTLE and PARKER, JJ.
This is a contract construction case involving the interpretation of an Assignment
of Overriding Royalty Interest, dated June 9, 1999, recorded in Volume 508, Page 146,
of the Public Records of Hemphill County, between Spring Resources, Inc., as assignor,
and Pima Oil & Gas, L.L.C., as assignee. Pima, Appellee herein, filed suit against Jones
Energy, Inc. and Jones Energy Holdings, LLC, Appellants herein, alleging that Jones
Energy, Inc., as operator of the Gracie 117-1H well (a horizontal well), had failed to
properly account to Pima for its overriding royalty interest (“ORRI”) acquired by virtue of
that assignment. Following presentation of cross motions for summary judgment, the trial
court ruled that (1) Pima’s ORRI burdens production (unrestricted) from the Gracie 117-
1H well, (2) the “exception language” found in the assignment, upon which Jones based
its counter claims, was limited to the vertical wellbores of the Wright 117 Unit wells
referenced in the assignment (i.e., the exception did not apply to production from the
Gracie 117-1H wellbore), (3) Jones breached the assignment by failing to pay Pima
overriding royalties on production from the Gracie 117-1H wellbore, and (4) Pima recover
judgment against Jones for unpaid overriding royalties in the sum of $103,845.11,
prejudgment interest in the sum of $7,840.87, attorney’s fees of $140,000.00, conditional
appellate attorney’s fees of $100,000.00, plus post-judgment interest at the rate of five
percent per annum. By two issues, divided into seven subparts, Jones Energy, Inc.
contends the trial court erred by (1) granting Pima’s motion for summary judgment and
(2) denying its motion for summary judgment. We reverse and render in part and reverse
and remand in part.
BACKGROUND
On September 9, 1980, Grace H. Hill, individually and as Executrix of the Estate
of Charles H. Wright, deceased, as lessor, executed an oil and gas lease in favor of
Moody Energy Company, as lessee, covering Section 117, Block 41, H&TC Ry. Co.
Survey, Hemphill County, Texas. That lease was recorded at Volume 171, Page 55, of
the Public Records of Hemphill County, Texas. On October 1, 1991, Grace H. Hill,
individually and as Executrix of the Estate of Charles H. Wright, deceased, as lessor,
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executed an oil and gas lease in favor of John T. Wright, as lessee, covering the
southwest quarter of Section 117. The October 1991 lease was recorded at Volume 319,
Page 184, of the Public Records of Hemphill County, Texas.
Spring acquired its interest in Section 117 by virtue of an assignment recorded on
March 31, 1998, recorded at Volume 476, Page 33, of the Public Records of Hemphill
County, Texas. At the time of Spring’s acquisition of interest, the only producing wellbores
were the Gracie 117-1 and the Charles H. Wright 117-1.
Prior to Spring acquiring its interest in Section 117, Pima and Spring had entered
into a Retainer Agreement whereby Pima agreed to conduct geologic evaluations on
acquisition opportunities as requested by Spring for purposes of identifying proven
undeveloped locations, behind pipe zones, and other drilling opportunities. In exchange,
Spring agreed to assign Pima an ORRI. At the time of the execution of this Retainer
Agreement, the Charles H. Wright 1-117 well, a vertical well, was producing from the A
interval of the Granite Wash formation in the southwest quarter of Section 117. By March
1998, also prior to the execution of the Retainer Agreement, a second vertical well, the
Gracie 117-1, was producing from multiple intervals in the Big Timber Creed Douglas
Sand formation in the northwest quarter of Section 117.
In accordance with the terms of the Retainer Agreement, Pima was entitled to an
ORRI in Section 117. That ORRI interest was assigned to Pima via the Assignment of
Overriding Royalty Interest described above. The override assigned was a “2.50%
Overriding Royalty Interest (ORRI) in and to all of Assignors right, title, and interest in the
lease(s) described on Exhibit ‘A’ . . . and to future production from any drilling and/or
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spacing units contained in and/or described as all or a portion thereof of Section 117,
Block 41, H&TC Survey, Hemphill County, Texas (the Unit) or proportionately calculated
if the spacing unit covers acreage outside the referenced Section, Block, and Survey.”
The assignment further stated:
The assigned ORRI shall extend to and burden the interest of Assignor, its
successors and assigns, in 1) the Wright 117 unit well(s) producing on the lands
described above at the time of acquisition by the Assignor, save and except the
intervals of the formation(s) open to production in, and only in, the wellbore of the
aforementioned well(s) and 2) any additional leases or interest in leases acquired
by Assignor, its successors or assigns covering the Unit or the Leases.
(Emphasis added.)
The “lease(s) described on Exhibit ‘A’” provided as follows:
WRIGHT 117 UNIT (GRACIE #1-117)
ALL OF SECTION 117, BLK 41, H&TC SURVEY, HEMPHILL COUNTY, TEXAS
SAVE AND EXCEPT ALL RIGHTS ABOVE THE GRANITE WASH (11,000’)
IN THE SW/4, CONTAINING 640 ACRES, MORE OR LESS
LESSOR: Grace H. Hill, Individually and as Executrix
of the Estate of Charles H. Wright, Deceased
LESSEE: Moody Energy Company
LEASE DATE: September 9, 1980
RECORDING DATA: Volume 171, Page 55
DESCRIPTION: All of Section 117, BLK 41, H&TC RR Co.
Survey, Hemphill County, Texas
In July of 2011, subsequent to the execution of the Retainer Agreement and the
Assignment of Overriding Royalty Interest, a new horizontal wellbore was spudded. This
wellbore, the Gracie 117-1H, extended through and was completed in the Granite Wash
formation underlying the west half of Section 117. It is the production from this horizontal
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wellbore that forms the basis of Pima’s claim that it is entitled to additional compensation
as an ORRI.
On August 21, 2015, based on its interpretation of the Assignment, Pima notified
Jones Energy, Inc. of its claimed interest in production from the Gracie 117-1H well and
it demanded payment of overriding royalties allegedly due and owing. When payment
was not made, this suit followed. By its claims, Pima sought a declaratory judgment that
(1) its ORRI burdened production from the Gracie 117-1H and (2) the counterclaims of
Jones Energy, Inc. were invalid. Pima also sought a declaration that the “exception
language” found in the assignment was limited to the two vertical wells that were in
existence at the time the parties entered into their agreement.
On the other hand, Jones Energy, Inc. took the position that Pima was not entitled
to an ORRI because the Gracie 117-1H well was producing from the A interval of the
Granite Wash formation—an interval excluded by the terms of the assignment since it
was the same interval from which the Charles H. Wright 117-1 well was already
producing. Jones Energy, Inc. further alleged that Pima’s interpretation of the assignment
was contrary to the title opinions issued in 2008 and 2012, by two different attorneys.
In other words, Jones Energy, Inc. contended that production from the horizontal
wellbore was excluded from the assignment by virtue of the save and except provision in
the assignment; whereas, Pima asserted its claim on the basis that, at the time of the
acquisition of its assignment interest, the horizontal wellbore in question was not “open
to production” from the Gracie 117-1 vertical wellbore and, therefore, it was not excluded.
The distinguishing factor between the respective positions being whether the parties to
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the assignment intended to exclude production from a particular interval of a formation or
production from a particular wellbore.
On November 19, 2015, Pima filed its original petition seeking a declaratory
judgment as to its rights under the Assignment. Pima also sought recovery of ORRI
payments it claims were due and unpaid. Thereafter, in December 2016, Pima filed its
Partial Motion for Traditional Summary Judgment alleging that it was entitled to an ORRI,
by virtue of the Assignment, in the lease under which Jones operates the Gracie 117-1H
well. Pima claimed that because there were no disputed fact issues it was entitled to a
partial summary judgment based upon an interpretation, as a matter of law, of the
unambiguous language in the Assignment. On February 9, 2017, Jones filed its response
which included affidavits from (1) Bryan Garner, (2) Joel R. Hogue, (3) John Irwin, and
(4) Shane Brooks. Pima objected to the consideration of those affidavits on the basis that
they were being offered solely for the purpose of supporting an interpretation of certain
documents, a matter irrelevant in a proceeding where no party was contending that the
documents were ambiguous. In March 2017, Jones responded to Pima’s motion by filing
its own Motion for Partial Summary Judgment. Subsequently, the trial court granted
Pima’s motion to exclude the opinion testimony of Garner, Hogue, Irwin, and Brooks. It
then granted Pima’s motion for a partial summary judgment, while at the same time
denying Jones’s motion for a partial summary judgment. The judgment was subsequently
made final and this appeal followed.
STANDARD OF REVIEW
We review a trial court's ruling on a motion for summary judgment on the basis of
a de novo review. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005).
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A traditional summary judgment is proper only if the movant establishes there is no
genuine issue of material fact and that it is entitled to judgment as a matter of law. TEX.
R. CIV. P. 166a(c). See Diversicare General Partner, Inc. v. Rubio, 185 S.W.3d 842, 846
(Tex. 2003). In our review of a trial court's grant of summary judgment, we take as true
all evidence favorable to the nonmovant and indulge every reasonable inference and
resolve any doubts in the nonmovant's favor. Valence Operating Co., 164 S.W.3d at 661;
Provident Life and Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003).
Moreover, if, as here, a trial court's order granting summary judgment does not specify
the basis for the trial court's ruling, the summary judgment will be affirmed if any of the
theories advanced by the movant are meritorious. Joe v. Two Thirty Nine Joint Venture,
145 S.W.3d 150, 157 (Tex. 2004); Am. Zurich Ins. Co. v. Barker Roofing, L.P., 387 S.W.3d
54, 60 (Tex. App.—Amarillo 2012, no pet.).
When, as here, both parties move for summary judgment, each party bears the
burden of establishing that it is entitled to judgment as a matter of law. City of Garland v.
Dallas Morning News, 22 S.W.3d 351, 356 (Tex. 2000). “When both parties move for
summary judgment and the trial court grants one motion and denies the other, the
reviewing court should consider the summary judgment evidence presented by both sides
and determine all questions presented and render the judgment the trial court should have
rendered.” Canyon Regional Water Authority v. Guadalupe-Blanco River Authority, 258
S.W.3d 613, 616 (Tex. 2008) (quoting Texas Workers’ Compensation Comm’n v. Patient
Advocates of Texas, 136 S.W.3d 643, 648 (Tex. 2004)). In order to succeed, however,
a party must prevail on the strength of its own motion and not on the weakness of the
opposing motion.
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APPLICABLE LAW
The construction of an unambiguous instrument, such as the Assignment of
Overriding Royalty Interest involved in this case, is a question of law for the trial court.
Anadarko Petroleum Corp. v. Thompson, 94 S.W.3d 550, 554 (Tex. 2002). Accordingly,
an appellate court reviews the trial court’s decision under a de novo standard of review.
Id. In construing an unambiguous instrument, the primary duty of the court is to ascertain
the intention of the parties as expressed within the four corners of the instrument. Id.
(citing Luckel v. White, 819 S.W.2d 459, 461 (Tex. 1991)). In our review, we must give
the instrument its plain, grammatical meaning unless doing so would clearly defeat the
parties’ intentions. Thompson, 94 S.W.3d at 554 (citing Fox v. Thoreson, 398 S.W.2d 88,
92 (Tex. 1966)).
Furthermore, we must examine the entire instrument and attempt to harmonize all
of its parts, even if different parts of the same instrument appear contradictory or
inconsistent. Thompson, 94 S.W.3d at 554. This is because we must presume that the
parties intended every clause to have some effect. Id. That being said, we should not
construe an instrument as imposing a special limitation on rights being granted unless the
language of the instrument clearly, precisely, and unequivocally expresses that limitation.
Id. (citing Fox, 398 S.W.3d at 92).
ANALYSIS
Within the rubric of its two basic issues ((1) that the trial court erred in granting
Pima’s motion for summary judgment and (2) that the trial court erred in denying Jones’s
motion for summary judgment), Jones breaks its arguments into seven subparts. We will
address those subparts in a logical rather than sequential manner.
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By its seventh subpart (subpart G), Jones posits the trial court erred in sustaining
Pima’s evidentiary objections to the affidavits of Garner, Hogue, Irwin, Brooks, and
Denise Percival. In analyzing this subpart, we are mindful that an appellate court should
review a trial court’s decision to admit or exclude summary judgment evidence under an
abuse of discretion standard. Van Adrichem v. Agstar Fin. Servs., FLCA, No. 07-13-
00432-CV, 2015 Tex. App. LEXIS 11734, at *3 (Tex. App.—Amarillo 2015, no pet.) (mem.
op.). In initially ruling on Pima’s objections, the trial court stated that it was striking the
affidavits “insofar as such testimony relates to construction of the subject contract
provisions.”1 Because the construction of an unambiguous instrument is a matter of law
determination, upon which another’s opinion would not be binding, we cannot say that the
trial court acted unreasonably in sustaining Pima’s objections to affidavits designed only
to assist the trial court in its construction of such an instrument. As such, Jones’s subpart
G is overruled.
By subparts A, B, C, and D, Jones contends the trial court erred in finding Pima’s
ORRI burdened production from the horizontal wellbore designated as the Gracie 1-117H
well, while not finding the contrary. In that regard, Jones contends the Retainer
Agreement supports its interpretation (i.e., that production from the Gracie 1-117H well
was excluded from the ORRI by the “save and except” clause contained in the
Assignment) because it contains controlling contractual language clarifying the intent of
the parties. In support of its argument, Jones relies upon an examination of the
1 The trial court later struck the affidavits in their entirety.
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Assignment to argue that paragraph (7) reveals that the parties agreed that the Retainer
Agreement would control over the Assignment. Paragraph (7) provides as follows:
This Assignment is subject to that certain unrecorded Retainer Agreement
dated December 9, 1997, by and between Assignor and Assignee and the
obligations under same are superior to and free and clear of any mortgages,
production payments, overrides or other encumbrances of any kind or
nature created by Assignor after Assignor acquired the Leases.
(Emphasis added).
Therefore, because the ORRI is subject to the provisions of the Retainer
Agreement, Jones contends Pima’s right to an ORRI is limited by paragraph K of that
agreement which provides, “[o]n all currently existing Spring acreage where Pima
identifies a drilling prospect or heretofore unidentified behind pipe opportunity, Pima will
also be assigned an ORRI or CWI [Carried Working Interest], exclusive of producing
zone(s) in the wellbore(s) of the then existing wells . . . .” (Emphasis added). In other
words, Jones contends that by virtue of the exclusion provision Pima is not entitled to an
ORRI on production from any zone2 of a formation that was already producing at the time
of the Retainer Agreement. Because the Wright 117-1 well was producing from the A
interval of the Granite Wash formation at the time of the Assignment, Jones contends any
production from that interval of the formation is excluded from the ORRI granted by the
Assignment to Pima.
2 The parties have failed to argue a distinction between the terms “intervals of the formation(s),” as
used in the Assignment of Overriding Royalty Interest, and “zone(s),” as used in the Retainer Agreement.
To the extent that there is a conflict in meaning between those terms, we will defer to the term “interval of
the formation” where appropriate since it is the Assignment of Overriding Royalty Interest which is being
construed.
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Jones further contends that proper grammatical interpretation of the Retainer
Agreement supports its interpretation of the ORRI assigned to Pima. According to Jones,
a proper grammatical interpretation of the Retainer Agreement indicates that the
exclusion provision excluded zones, not wells, and that the phrase “in the wellbore(s)”
was nothing more than a prepositional phrase modifying the noun zone. As such, Jones
effectively argues it is “producing intervals of a formation” being excluded from the ORRI,
not wells or wellbores, and that the Assignment’s reference to wellbores is merely the
means by which the excluded producing intervals were identified. We agree.
The subordinating language contained in paragraph 7 of the Assignment makes it
clear that in the event of a conflict between the two documents, the Retainer Agreement
would control. In that regard, as it concerns the nature of the property interest being
exchanged by Spring for services to be rendered by Pima, the Retainer Agreement
provides as follows:
On properties acquired by Spring through acquisition of producing
properties as described in Paragraph I, Pima will be assigned an ORRI or
CWI on any properties where Pima has identified PUD’s, BP zones, or other
drilling opportunities (ideas), exclusive of producing zone(s) in the
wellbore(s) of the then existing wells, according to the above Table and
Paragraph K.
(Emphasis added).
In this sentence, the noun zone is the object of and is introduced by the modifying
phrase exclusive of. The phrase in the wellbore(s) is a prepositional phrase functioning
as a modifier of the phrase producing zone(s). Therefore, according to this paragraph of
the Retainer Agreement, Pima’s right to an ORRI excluded zones (intervals) that were
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being produced by the existing Gracie 1-117 and Wright 1-117 wells. Those zones
included the A interval of the Granite Wash formation and multiple other intervals of the
Big Timber Creed Douglas Sand formation.
Accordingly, the trial court erred in finding that Pima’s ORRI burdened production
from the A interval of the Granite Wash formation. Conversely, the trial court erred in
finding that the “exception language” found in the Assignment did not apply to production
from the horizontal well designated the Gracie 1-117H, to the extent such production was
from the A interval. Subparts A, B, C, and D are sustained.
By subpart E, Jones contends the trial court erred in finding that it breached the
Assignment by failing to pay Pima the ORRI due. Because we have found the trial court
erred in finding that an ORRI was owed in the first place, we likewise find that the trial
court erred in finding a breach of that agreement based on a failure to pay. Subpart E is
sustained.
Finally, by subpart F, Jones contends the trial court erred in awarding attorney’s
fees, interest, and costs of court to Pima. Again, because we have found the trial court
erred in finding that an ORRI was owed to Pima based upon production from the A interval
of the Granite Wash formation, we find the trial court erred in awarding a monetary
recovery in favor of Pima. Subpart F is sustained.
Based on the above and foregoing, we sustain Jones’s two issues—finding the
trial court erred in granting Pima’s motion for summary judgment and in denying Jones’s
motion for summary judgment.
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CONCLUSION
We reverse the judgment of the trial court and render judgment declaring that the
ORRI granted to Pima by the Assignment of Overriding Royalty Interest, dated June 9,
1999, recorded in Volume 508, Page 146, of the Public Records of Hemphill County,
Texas, does not extend to or burden production from the A interval of the Granite Wash
formation. To the extent that the trial court’s earlier ruling precluded a determination of
whether any of the production from the Gracie 1-117H well was coming from an interval
outside of the A interval, we remand this matter to the trial court for further proceedings
consistent with this opinion. Subject to any further proceedings, we also render a “take
nothing” judgment in favor of Jones on Pima’s action for monetary relief.
Patrick A. Pirtle
Justice
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