Andrew Cervantes v. The State of Texas--Appeal from 232nd District Court of Harris County

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State: Texas

Court: Texas Northern District Court

Docket No: 13-03-00394-CR

Case Date: 08/19/2004

Plaintiff: Andrew Cervantes

Defendant: The State of Texas--Appeal from 232nd District Court of Harris County

Preview:Elizabeth A. Birnbaum and H. Catherine Reams, Carol
J. Bailey, Mary L. Dorris, Nancy J. Doyle, Jay H.
Dushkin, Robert Ross Harrison, John H. Morris, Fran
Morris-Higgins, Michael F. Morris, Steven J. Morris,
Sean P. Morris, James G. Riley, et al. v. SWEPI LP,
f/k/a Shell Western E&P Inc. and Shell Oil Company,
and EOG Resources, Inc., f/k/a Enron Oil and Gas
Company--Appeal from 229th Judicial District Court of
Duval County
No. 04-00-00362-CV
Elizabeth A. BIRNBAUM, et al.,
Appellants
v.
SWEPI LP, et al.,
Appellees
From the 229th Judicial District Court, Duval County, Texas
Trial Court No. 13,940-A
Honorable Alex W. Gabert, Judge Presiding
Opinion by: Phil Hardberger, Chief Justice
Dissenting opinion by: Alma L. L pez, Justice
Sitting: Phil Hardberger, Chief Justice
Alma L. L pez, Justice
Karen Angelini, Justice
Delivered and Filed: March 7, 2001
AFFIRMED
This case involves the interpretation of an oil and gas lease. Appellants, a group of royalty owners ("Royalty
Owners"), sued EOG Resources, Inc. f/k/a Enron Oil and Gas Company and its predecessors in interest, SWEPI LP
f/k/a Shell Western E & P, Inc. and Shell Oil Company, (collectively the "Lessees") for breach of an oil and gas lease.
The Royalty Owners claimed that the Lessees were required to pay royalties on gas used for compressor and plant fuel.
The parties filed cross-motions for summary judgment, and the trial court rendered judgment in favor of the Lessees.
The Royalty Owners assert two points of error on appeal contending the trial court erred in: (1) denying their
objections to the affidavits of Stephen Lipari and B.P. Huddleston; and (2) granting summary judgment in favor of the
Lessees because the evidence conclusively established that they were entitled to be paid royalties on the plant fuel and
compressor fuel.
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This case must be resolved based on the language used in the oil and gas lease and the stipulation of fact. Because we
will not consider any of the affidavits in reaching our final disposition, we do not address the Royalty Owners' first
point of error. See Tex. R. App. P. 47.1 (court of appeals need only address issues necessary to final disposition of
appeal). We conclude that the trial court correctly interpreted the oil and gas lease and affirm the trial court's judgment.
Background
The oil and gas lease, as amended by a subsequent settlement agreement, provides, in pertinent part:
3(b) On all gas (exclusive of liquid hydrocarbons separated, extracted or manufactured therefrom under Subparagraphs
(c) and (d)) produced from said lands, and used off the premises or sold, including casinghead gas and residue gas sold
at the tailgate of any plant through which gas produced from said lands may be processed, one fifth (1/5) of the
"value" (as hereinafter defined) of such gas . . .
The "value" of the gas is defined as the volume of gas produced and used off the premises or sold measured in
MMBtus multiplied by the "Index Price." The "Index Price" is defined as the quoted price per MMBtu dry for gas for
the month of production published in the first issue of the production month in INSIDE FERC'S GAS MARKET
REPORT for delivered spot gas, Houston Ship Channel/Beaumont, Texas, large packages (3,500 Mcf/d and up),
maximum of range (high). The MMBtu's of the gas shall be determined at the field delivery point(s) - which is
currently the tailgate of the plant - as the sum of the MMBtu's of methane and heavier hydrocarbons (exclusive of
liquid hydrocarbons separated, extracted or manufactured, if any, pursuant to this paragraph and paragraphs (c) and (d)
below) contained in such gas as determined by chromatographic analysis or other accepted method in the industry.
The parties entered into a Stipulation of Fact for purposes of the cross-motions for summary judgment. The exhibits
attached to the Stipulation of Fact reference volumes of gas produced from the leased premises that were consumed as
compressor fuel and plant fuel in order to process the gas prior to delivery for sale at a point downstream from the
tailgate of the plant. Those volumes of gas were not included in EOG's calculation of royalty. The fuel consumed as
compressor fuel and plant fuel was consumed at the processing plant location, and the processing plant is not located
on the leased premises.
Gas streams from wells located on the leased premises are commingled with raw gas streams from other wells at the
inlet of a treating plant. The plant is not owned by the Lessees. Prior to the commingling of the well streams at the inlet
of the plant, volumes of gas from low pressure wells are run through separators located at the plant site for the removal
of liquids and then compressed, utilizing compressors located on the plant site, in order to deliver gas to the plant at
the required pressure. Volumes of gas from high pressure wells, which do not require compression, are run through
separators located on the plant site for the removal of liquids and then delivered to the inlet of the plant.
The volume of the gas from all well streams is reduced as a result of the separation of the liquid. The commingled
stream is further reduced by the removal of impurities in the plant. The impurities are removed to enable the gas to
meet pipeline standards. After the gas is processed through the plant for the removal of impurities, a portion of the
remaining volume is retained at the plant site for use as plant fuel and as compressor fuel. The compressor fuel is used
to compress gas from the low pressure wells prior to the commingling of the well streams at the plant's inlet. The
volume retained for use as plant fuel and compressor fuel is metered at the plant and tested for Btu content prior to its
use.
After the gas is processed for removal of impurities and after the volume to be retained for plant fuel and compressor
fuel is removed, the remaining volume is delivered to the purchasers. At the delivery point, the volume is metered, and
the amount of the MMBtus is determined. This delivery point to the purchasers is located at a point downstream from
the plant site, approximately 200 feet downstream from the tailgate of the plant. The MMBtus measured at the delivery
point are allocated proportionately to all of the wells that produced the original raw gas streams, including wells
located on the leased premises, and royalties are paid on the allocated MMBtus.
In the Lessees' motions for summary judgment, (1) the Lessees asserted that they are only required to pay royalties on
the "value" of the gas as defined in the oil and gas lease. The lease defines "value" as a given price multiplied by the
volume of gas measured in MMBtus as determined at the field delivery point. The Lessees asserted that the only field
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delivery point at which the MMBtus are measured is the point at which the gas is delivered to the purchasers. Since the
plant fuel and compressor fuel are removed prior to delivery, that volume is not included in the measurement.
In the Royalty Owners' motions for summary judgment, (2) the Royalty Owners contended that the Lessees are
required to pay royalty on the plant fuel and compressor fuel retained by the plant because it is gas "sold or used off
the premises." Alternatively, the Royalty Owners argue that the Lessees are required to pay the plant for processing the
gas, and, in an effort to reduce this cost, the Lessees provide the plant with free fuel. Because the oil and gas lease
does not permit any deductions from the royalty to be paid for the Lessees' costs, the Lessees should not be permitted
to indirectly recover the cost of the plant fuel and compressor fuel by failing to pay the Royalty Owners royalty on that
gas.
The trial court granted the Lessees' motions for summary judgment and denied the Royalty Owners' motions for
summary judgment. The judgment in favor of EOG states:
ORDERED, ADJUDGED AND DECREED that based on the summary judgment evidence presented (a) no royalties
are due and payable to Plaintiffs under the provisions of the oil and gas lease at issue in the above-referenced cause for
any volumes of gas consumed as compressor fuel or plant fuel in order to process the gas from the subject lease prior
to delivery for sale or use at the field delivery point, and (b) that the MMBtu's of the gas produced and sold from said
lease will be determined for royalty calculation purposes at the field delivery point, which is currently located at the
sales meter and delivery point to the purchaser at a point near to, but downstream from, the current treatment plant for
the Rosita Field.
Interpretation of Oil and Gas Lease
In their second point of error, the Royalty Owners contend that the trial court erred in granting summary judgment in
favor of the Lessees because the undisputed summary judgment evidence conclusively established that the Royalty
Owners were entitled to be paid royalty on the plant fuel and compressor fuel.
The construction of an unambiguous contract is a question of law, and we are not required to defer to any
interpretation afforded by the trial court. Coker v. Coker, 650 S.W.2d 391, 393-94 (Tex. 1983); Cross Timbers Oil Co.
v. Exxon Corp., 22 S.W.3d 24, 27 (Tex. App.--Amarillo 2000, [leave filed]). In construing an unambiguous oil and gas
lease, our task is to ascertain the parties' intentions as expressed in the lease. Heritage Resources, Inc. v. NationsBank,
939 S.W.2d 118, 121 (Tex. 1996). To achieve this goal, we examine the entire document and consider each part with
every other part so that the effect and meaning of one part on any other part may be determined. See Heritage
Resources, Inc., 939 S.W.2d at 121. We presume that the parties to a contract intend every clause to have some effect.
See Heritage Resources, Inc., 939 S.W.2d at 121. 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. See Heritage Resources, Inc.,
939 S.W.2d at 121. Finally, we enforce an unambiguous agreement as written. See Heritage Resources, Inc., 939
S.W.2d at 121. We are not permitted to rewrite the agreement to mean something it did not. Cross Timbers Oil Co. v.
Exxon Corp., 22 S.W.3d at 27. "Simply put, we cannot change the contract merely because we or one of the parties
comes to dislike its provisions or thinks that something else is needed in it." Id.; see also HECI Explor. Co. v. Neel,
982 S.W.2d 881, 888-89 (Tex.1998). Parties to a contract are "masters of their own choices and are entitled to select
what terms and provisions to include in a contract." Cross Timbers Oil Co. v. Exxon Corp., 22 S.W.3d at 27. "For a
court to change an unambiguous agreement merely because the court does not like the agreement, or because one of
the parties subsequently found it distasteful, would be to undermine not only the sanctity afforded the contract but also
the expectations of those who created and relied upon it." Id.
The Royalty Owners argue that the provision of the lease requiring payment of royalty for gas sold or used off the
leased premises governs our construction. Under this argument, use of the gas for plant fuel and compressor fuel is a
use off the leased premises. See Piney Woods Country Life Sch. v. Shell Oil Co., 726 F.2d 225, 241 (5th Cir. 1984).
The Lessees argue that the term "tailgate" is defined as the place where a product leaves a refinery or processing plant.
Applying that definition, the Lessees argue that royalty is only due on gas volume that leaves the plant. The Lessees
further argue that the oil and gas agreement only contemplates one field delivery point, not multiple points, because
the lease defines only one current field delivery point - the tailgate of the plant. This field delivery point, the tailgate,
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is the point at which the gas is metered when transferred to the purchasers' pipelines.
At the time the parties entered into the settlement agreement, they were aware that volumes of gas were being retained
for plant fuel and compressor fuel prior to the delivery of the volume of gas through the tailgate of the plant. By
defining the "value" of the gas on which royalties would be paid as the volume of gas measured in MMBtus multiplied
by the Index Price, the parties intended that royalties would be paid only on the volume of gas for which MMBtus
were measured. When they executed the settlement agreement, the parties were aware that MMBtus were being
measured only at the delivery point to the purchasers. Because the parties were aware that the volume of gas used for
plant fuel and compressor fuel was removed prior to the gas reaching the tailgate of the plant, which the settlement
agreement expressly stated to be the current field delivery point, and because the parties were aware that the MMBtu
content of the retained volume was not being measured, the parties could not have intended that royalties would be
paid on the volume of gas retained for plant fuel and compressor fuel.
Conclusion
The trial court's judgment is affirmed.
PHIL HARDBERGER,
CHIEF JUSTICE
PUBLISH
1. Separate motions for summary judgment were filed by SWEPI and EOG.
2. Separate motions for summary judgment were filed by various groups of royalty owners.
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