AFE Oil and Gas, L.L.C. and EXPLO Oil, Inc. v. Charles Armentrout, Susan Armentrout Girvin, Lynn A. Morris, Sally Nelms, and Birds Fort Lake, Ltd.

CourtCourt of Appeals of Texas
DecidedMarch 6, 2008
Docket02-07-00100-CV
StatusPublished

This text of AFE Oil and Gas, L.L.C. and EXPLO Oil, Inc. v. Charles Armentrout, Susan Armentrout Girvin, Lynn A. Morris, Sally Nelms, and Birds Fort Lake, Ltd. (AFE Oil and Gas, L.L.C. and EXPLO Oil, Inc. v. Charles Armentrout, Susan Armentrout Girvin, Lynn A. Morris, Sally Nelms, and Birds Fort Lake, Ltd.) is published on Counsel Stack Legal Research, covering Court of Appeals of Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

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AFE Oil and Gas, L.L.C. and EXPLO Oil, Inc. v. Charles Armentrout, Susan Armentrout Girvin, Lynn A. Morris, Sally Nelms, and Birds Fort Lake, Ltd., (Tex. Ct. App. 2008).

Opinion

COURT OF APPEALS SECOND DISTRICT OF TEXAS FORT WORTH

NO. 2-07-100-CV

AFE OIL AND GAS, L.L.C. AND APPELLANTS EXPLO OIL, INC.

V.

CHARLES ARMENTROUT, SUSAN APPELLEES ARMENTROUT GIRVIN, LYNN A. MORRIS, SALLY NELMS, AND BIRDS FORT LAKE, LTD.

------------

FROM THE 48TH DISTRICT COURT OF TARRANT COUNTY

MEMORANDUM OPINION 1

Appellants AFE Oil and Gas, L.L.C. and Explo Oil, Inc. appeal from a

judgment in favor of Appellees Charles Armentrout, Susan Armentrout Girvin,

Lynn A. Morris, Sally Nelms, and Birds Fort Lake, Ltd. that a mineral lease had

1 See T EX. R. A PP. P. 47.4. terminated. In two issues, Appellants argue that the evidence is legally and

factually insufficient to support the jury’s finding that the well at issue was not

capable of producing gas when shut-in royalties were tendered. Because we

hold that the evidence is legally and factually sufficient to support the jury’s

finding, we affirm the trial court’s judgment.

F ACTS AND P ROCEDURAL H ISTORY

Appellees Armentrout, Girvin, Morris, and Nelms executed an oil, gas, and

mineral lease with AFE in 1997. The lease covered approximately 120 acres

of land in the formation known as the Barnett Shale. In February 2002, the

same parties executed successor leases in favor of AFE. One of these leases

covered a 40-acre tract, described as “Tract A”; the Armentrout No. 2 well had

been drilled on this tract while the 1997 lease was in effect. This 2002 lease

is the lease at issue on appeal. AFE assigned a working interest to Explo Oil.

AFE also assigned an interest in the lease to Premium Resources II (“PRII”)

through an agreement under which PRII became the designated operator of the

well and AFE maintained a portion of the working interest.

The lease originally had a primary term of one year; the lease stated that

it would be in effect during the primary term “and as long thereafter as

operations . . . are conducted upon said land with no cessation for more than

2 ninety (90) consecutive days.” 2 The term “operations” was defined as “drilling,

testing, completing, reworking, recompleting, deepening, plugging back or

repairing a well . . . in an endeavor to obtain production of oil, gas, sulphur or

other minerals . . . whether or not in paying quantities.” The lease further

provided that if the well was not actually producing by the end of the primary

term or at any time thereafter, the well could be shut in for up to ninety

consecutive days, and the lease would not terminate if, by the end of the ninety

days, royalties (called “shut-in royalties”) were paid to the lessors.3

On December 16, 2002, the parties executed an agreement to extend the

primary term of the lease on the land on which the well was located. This

agreement stated that the lease would be in force until August 1, 2003, “and

as long thereafter as oil, gas or other minerals are produced f[ro]m the [leased

land] . . . , and as long as operations as prosecuted under the terms of the

Lease.”

2 See Ridge Oil Co., Inc. v. Guinn Investments, Inc., 148 S.W.3d 143, 158-160 (Tex. 2004) (discussing cases construing similar lease provisions and determining what sort of operations will serve to keep the lease in force). 3 See Reid v. Gulf Oil Corp., 323 S.W.2d 107, 113-14 (Tex. Civ. App.—Beaumont 1959, no writ), aff’d, 161 Tex. 51, 337 S.W.2d 267 (1960) (construing a mineral lease in which the payment of shut-in royalties could constitute constructive production so as to keep the lease in force).

3 PRII began operations on the well on July 30, 2003. In August 2003, the

well was acid perforated, a technique used to stimulate production of a gas

well. In October 2003, PRII and AFE tendered payment of shut-in royalties to

Armentrout, Girvin, Morris, and Nelms, who rejected the payments.

Appellees subsequently brought suit against Appellant AFE seeking a

declaratory judgment that the mineral leases they had executed with AFE had

expired. They also sought to quiet title to the land covered by the leases.

Appellee Birds Fort Lake, Ltd., successor-in-interest to the other Appellees,

currently owns the lands covered by the leases; Appellant Explo Oil intervened

because it had acquired from AFE an interest in the well covered by the leases.

Appellees obtained a partial summary judgment that the 1997 lease had ended

on its own terms, but the parties went to trial over the 2002 lease.

At trial, the parties contested the issue of and produced conflicting

testimony on whether the well could produce natural gas at the time the shut-in

royalties were paid. Appellants contended that the lease was extended when

shut-in royalties were paid if the well was capable at that time of producing in

any quantity. The trial court thus submitted this question to the jury: “Do you

find that in October, 2003, the Armentrout No. 2 Well was not capable of

producing gas?” The trial court instructed the jury that a well is not capable of

producing gas if the well needs further work, repairs, or equipment in order to

4 produce gas. The jury sent a note to the trial judge asking, “[M]ust the gas be

able to flow in order to be considered ‘producible’?” The judge then submitted

this supplemental instruction: “In response to your question, you are instructed

that in order for a gas well to be ‘capable of producing gas’; the gas must be

able to flow.” The jury found that the well was not capable of producing gas,

and the trial court entered final judgment for Appellees.

A NALYSIS

In Appellants’ first issue, they argue that the evidence is legally

insufficient to support the jury’s finding that when shut-in royalties were

tendered, the well was not capable of producing gas. We may sustain a legal

sufficiency challenge only when (1) the record discloses a complete absence of

evidence of a vital fact; (2) the court is barred by rules of law or of evidence

from giving weight to the only evidence offered to prove a vital fact; (3) the

evidence offered to prove a vital fact is no more than a mere scintilla; or (4) the

evidence establishes conclusively the opposite of a vital fact.4 In determining

whether there is legally sufficient evidence to support the finding under review,

we must consider evidence favorable to the finding if a reasonable fact-finder

4 Uniroyal Goodrich Tire Co. v. Martinez, 977 S.W.2d 328, 334 (Tex. 1998), cert. denied, 526 U.S. 1040 (1999); Robert W. Calvert, “No Evidence” and “Insufficient Evidence” Points of Error, 38 T EX. L. R EV. 361, 362–63 (1960).

5 could and disregard evidence contrary to the finding unless a reasonable fact-

finder could not. 5 Anything more than a scintilla of evidence is legally sufficient

to support the finding.6

A typical gas lease runs for a set period of time—the primary

term—during which the lessee conducts the necessary operations to complete

a producing, and hopefully profitable, well. 7 At the end of the primary term, if

the well is producing gas, then the lease typically extends indefinitely for as

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AFE Oil and Gas, L.L.C. and EXPLO Oil, Inc. v. Charles Armentrout, Susan Armentrout Girvin, Lynn A. Morris, Sally Nelms, and Birds Fort Lake, Ltd., Counsel Stack Legal Research, https://law.counselstack.com/opinion/afe-oil-and-gas-llc-and-explo-oil-inc-v-charles-ar-texapp-2008.