PEC Minerals LP v. Chevron U.S.A., Inc.

439 F. App'x 413
Court of Appeals for the Fifth Circuit·Decided August 31, 2011·No. 10-40967·Unpublished·Cited by 1 cases

Opinions

PER CURIAM: *

This case involves the interpretation of a 1944 oil and gas lease (the “Lease”). Plaintiff-Appellant PEC Minerals LP (“PEC”), successor in interest to the original lessor, filed suit seeking to force Defendant-Appellee Chevron U.S.A. Inc. (“Chevron”), successor in interest to the original lessee, to release all its rights under the Lease to certain disputed acreage. PEC argued to the district court that a provision of the Lease amended the Lease’s “habendum” clause such that continued production of oil or gas on a particular unit of land continued the lease in force only as to that unit rather than to the entire acreage covered by the Lease. The district court held that the provision of the Lease relied upon by PEC did not amend the Lease’s habendum clause, and thus the district court granted Chevron’s motion for summary judgment. PEC now appeals. For the following reasons, we AFFIRM the district court’s ruling on summary judgment.

I.

In 1944, Louis Werner Saw Mill Company (the “Lessor”) entered into the Lease with Skelly Oil Company (the “Lessee”), which covered 29,105.70 acres in Panola County, Texas. Through subsequent transactions, PEC later became the successor in interest to the Lessor and Chevron became the successor in interest to the Lessee. The dispute in this case revolves around the interpretation of two provisions in the Lease.

Paragraph 2 of the Lease states: “Subject to the other provisions herein contained, this lease shall be for a term of ten years from this date (called “Primary term”) and as long thereafter as oil, gas or other mineral is produced from said land or land with which said land is pooled hereunder.” This is called the Lease’s habendum clause.

Paragraph 5(f) of the Lease provides for dividing the Lease into separate units of land and states the following:

But anything in this lease to the contrary notwithstanding, it is agreed that as additional consideration for the payment by Lessee of the said cash payment of $50,000.00 and its agreement to pay the said fixed rentals as and when due under the above provisions hereof, Lessee shall have the right, in event it shall, prior to March 10th, 1948, drill a well on said leased premises or on acreage pooled therewith productive of oil, gas or other minerals in paying quantities, to continue this lease in force as to each of the other undeveloped drilling or spacing units “all to be selected by Les-
[415] see as soon as practicable after the completion of such well” for as long as such paying production shall continue and without being obligated to conduct drilling operations on such undeveloped units, by paying or tendering to Lessor, or to its credit in said depository bank, commencing on or before March 10th, 1948, and annually thereafter until the end of the said primary term of this lease, a rental of one dollar per acre for each acre contained in each such undeveloped drilling or spacing unit or fraction thereof. But the commencement by Lessee of drilling operations on any such undeveloped drilling or spacing unit shall relieve Lessee from the payment of such rental thereon, and if paying production should result from such operations this lease shall continue in force as to the drilling or spacing unit on which such production is had for as long as such production continues. It is agreed that the provisions of this sub-paragraph (f) hereof shall be separable and shall be considered and applied as a separate agreement as respects each such undeveloped drilling or spacing unit.

(underline added). The meaning of the underlined language above is the central dispute between the parties.

The original primary term of the lease was for ten years. Through a series of amendments, the parties extended the primary term of the Lease to 1969. When the parties executed the final extension of the primary term in 1964 (the “1964 Agreement”), Chevron agreed to release any units of land not producing when the primary term expired:

[O]n March 10, 1969, Lessee will release back to the Lessor the acreage in said lease not then producing or embraced in a producing unit or embraced in a drilling unit upon which operations for drilling have commenced, provided that if such operations on such drilling unit do not result in paying production, the acreage included in such drilling unit shall be released to Lessor upon the completion of such drilling operations by Lessee.

The 1964 Agreement also stipulated that the original terms and provisions of the Lease shall otherwise remain in full force and effect.

On the date the primary term expired, Chevron did in fact release the units of land not producing oil or gas pursuant to the 1964 Agreement. Chevron retained 80 productive units, designated in an exhibit to its 1969 release. Of the original 80, six of the units are in dispute in this case.

As of October 2008, at least five of the six disputed units were not producing oil or gas.1 Around that time, PEC entered into a lease with a third party, XTO Energy, Inc. (“XTO”), to lease the disputed units. When XTO claimed a title defect on the basis of the Lease with Chevron, PEC requested that Chevron execute a full release of the disputed units. Chevron refused, and the present action ensued.

PEC filed suit in state court to establish clear title to 2,397.17 acres contained in the disputed units. Chevron removed the case to the federal district court. The parties filed cross motions for summary judgment. The parties both agreed that the Lease was unambiguous (although the parties asserted contradictory interpretations of the contractual language at issue). The district court, therefore, interpreted the Lease as a matter of law.

[416] The district court held that the language of Paragraph 5(f) was not clear, precise, and unequivocal. The district court concluded that under the habendum clause, production outside the disputed units held the Lease on the entire leased acreage, including the acreage in the disputed units. The district court held that Paragraph 5(f) concerned “delay rentals” and related matters that applied only during the Lease’s primary term and did not address the required action to maintain the Lease during the secondary term, which was controlled by the habendum clause. PEC now appeals the district court’s ruling.

II.

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PEC Minerals LP v. Chevron U.S.A., Inc., 439 F. App'x 413 (5th Cir. 2011).

439 F. App'x 413 (PEC Minerals LP v. Chevron U.S.A., Inc.) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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