Samson Lone Star Limited Partnership, N/K/A Samson Lone Star, L.L.C. v. Charles G. Hooks, III, Individually and as Independent of the Estate of Charles G. Hooks, Jr., as Trustee of the Scott Ira McKeever Trust and the David Wayne McKeever Trust, and on Behalf of Chas. G. Hooks & Son, a General Partnership

Opinion

ACCEPTED 01-09-00328-CV FIRST COURT OF APPEALS HOUSTON, TEXAS 7/6/2015 5:08:20 PM ORAL ARGUMENT REQUESTED CHRISTOPHER PRINE CLERK

No. 1-09-00328-CV FILED IN In the 1st COURT OF APPEALS HOUSTON, TEXAS

First Court of Appeals 7/6/2015 5:08:20 PM CHRISTOPHER A. PRINE Houston, Texas Clerk

Samson Lone Star, Limited Partnership n/k/a Samson Exploration LLC Appellant—Cross Appellee, v.

Charles G. Hooks III, Individually and as Independent Executor of the Estate of Charles G. Hooks, Jr., as Trustee of the Scott Ira McKeever Trust and the David Wayne McKeever Trust, and on behalf of Chas. G. Hooks & Son, a General Partnership; McKeever Partnership, Ltd.; Charles G. Hooks III and Sue Ann Hooks, as Co-Trustees Under the Will of Charles G. Hooks, Sr. Appellees—Cross-Appellants.

Appeal from Cause B173008-B, 60th District Court Jefferson County, Texas _________________________________________________

SAMSON’S SUPPLEMENTAL APPELLANT’S BRIEF

M.C. Carrington Michael V. Powell State Bar No. 03880800 mpowell@lockelord.com MEHAFFY WEBER P.C. State Bar No. 16204400 P.O. Box 16 Cynthia Keely Timms Beaumont, Texas 77704 ctimms@lockelord.com Telephone: (409) 835-5011 State Bar No. 11161450 Facsimile: (409) 835-5177 LOCKE LORD LLP 2200 Ross Avenue, Suite 2200 Dick Watt Dallas, Texas 75201 State Bar No. 20977700 Telephone: (214) 740-8000 WATT BECKWORTH THOMPSON Facsimile: (214) 740-8800 HENNEMAN & SULLIVAN LLP 1800 Pennzoil Place, South Tower 711 Louisiana Street Houston, Texas 77002 Telephone: (713) 650-8100 Facsimile: (713) 650-8141

July 6, 2015 NAMES OF ALL PARTIES The following is a complete list of the names and addresses of all parties to

the trial court’s final judgment and their counsel:

APPELLANT/CROSS-APPELLEE 1. Appellant is Samson Lone Star Limited Partnership n/k/a Samson Exploration LLC (“Samson”).

2. Samson is represented by the following counsel of record:

a. Michael V. Powell and Cynthia Keely Timms, Locke Lord LLP, 2200 Ross Avenue, Suite 2200, Dallas, Texas 75201 (appeal).

b. M.C. Carrington (trial and appeal), Matt Marchak (trial only), and Patricia Chamblin (trial and appeal), Mehaffy Weber, P.C., P.O. Box 16, Beaumont, Texas 77704.

c. Dick Watt (trial and appeal), T. Neal Nobles (trial), and Katherine W. Strange (trial), Watt Beckworth Thompson & Henneman, L.L.P., 1800 Pennzoil Place, South Tower, 711 Louisiana Street, Houston, Texas 77002.

APPELLEES/CROSS-APPELLANTS 1. Appellees are Charles G. Hooks III, Individually and as Independent Executor of the Estate of Charles G. Hooks, Jr., as Trustee of the Scott Ira McKeever Trust and the David Wayne McKeever Trust, and on behalf of Chas. G. Hooks & Son, a General Partnership; McKeever Partnership, Ltd; Charles G. Hooks III and Sue Ann Hooks, as Co-Trustees under the Will of Charles G. Hooks, Sr. (the “Plaintiffs”). 2. Appellees are represented by the following counsel of record:

a. David Gunn (appeal), Beck Redden L.L.P., OneHouston Center, 1221 McKinney St., Suite 4500, Houston, Texas 77010-2010

b. Paul F. Simpson (trial and appeal), McGinnis, Lochridge, & Kilgore, L.L.P., 711 Louisiana Street, Suite 1600, Houston, Texas 77002.

i c. Pat Lochridge (trial and appeal), Don H. McGee (trial), J. Derrick Price (trial), and Scott S. Cooley (trial), McGinnis, Lochridge, & Kilgore, L.L.P., 600 Congress Ave., Suite 2100, Austin, Texas 78701. d. Jon B. Burmeister (trial), Moore Landrey, L.L.P., 905 Orleans Street, Beaumont, Texas 77701. e. Gerald Flatten (trial), Rienstra, Dowell & Flatten, 595 Orleans, Suite 1007, Beaumont, Texas 77701. f. Shannon H. Ratliff (Tex. S. Ct.) and Marla Broaddus (Tex. S. Ct.), Ratliff Law Firm, PLLC, 600 Congress Avenue, Suite 3100, Austin, Texas 78701.

g. Dale Wainwright (Tex. S. Ct.), Bracewell & Giuliani, LLP, 111 Congress Ave., Suite 2300, Austin, Texas 78701.

ii TABLE OF CONTENTS NAMES OF ALL PARTIES ......................................................................................i

TABLE OF CONTENTS ......................................................................................... iii

INDEX OF AUTHORITIES................................................................................... vii

STATEMENT OF THE CASE ............................................................................... xii STATEMENT REGARDING ORAL ARGUMENT ............................................xiv ISSUES PRESENTED.............................................................................................xv

A. Issues Involving Plaintiffs’ Fraud Claim.......................................................xv 1. Fraud ........................................................................................................xv

2. Statute of Limitations for Fraud ........................................................... xvii 3. Fraud Damages ..................................................................................... xvii

B. Issues Involving Plaintiffs’ Most Favored Nations Claim ...........................xix

CASE HISTORY .......................................................................................................1 A. Fraud ................................................................................................................2

B. Breach of Lease Claims ...................................................................................3 1. Most Favored Nations ...............................................................................3

2. Incremental Formation Production............................................................ 5

3. Unpooling ..................................................................................................6 C. Post-Judgment Interest ....................................................................................7

D. Attorneys’ Fees ................................................................................................7 E. Hooks’ Cross-Appeal.......................................................................................8

F. Samson’s Appeal Issues on Remand ............................................................... 9

STATEMENT OF FACTS ......................................................................................10

iii A. Hooks Was a Very Experienced Oil and Gas Attorney ................................10

B. Samson Drilled the Black Stone Minerals No. 1 Gas Well...........................11

C. The Jefferson County Lease Contained Offset Obligations ..........................11

D. Samson Contacted Plaintiffs, Offering to Include 50 Acres of Plaintiffs’ Jefferson County Lease in the Unit .............................................13 E. Hooks Requested a Plat, and Samson Sent Him One, to Show the Location of Plaintiffs’ Land within the Unit ................................................14

F. Hooks Testified He Relied on the “1400´± Scaled” Depiction to Determine the Distance of the BSM1 Well from Plaintiffs’ Jefferson County Lease ................................................................................................17

G. Plaintiffs Agreed to Include their 50 acres in the BSM1 Unit. .....................19

H. Other Operations Near and on the BSM1 Unit .............................................20

I. This Lawsuit ..................................................................................................21 SUMMARY OF THE ARGUMENT ......................................................................24

ARGUMENT ...........................................................................................................29 A. Standard of Review........................................................................................29

B. There is Legally and Factually Insufficient Evidence of Common Law Fraud .............................................................................................................30 1. There is legally and factually insufficient evidence of a misrepresentation on which Hooks claims to have relied.......................31

2. There is legally and factually insufficient evidence of reliance.............. 35

3. There is legally and factually insufficient evidence Samson intended to defraud Plaintiffs ..................................................................36

4. There is legally and factually insufficient evidence of a duty to disclose or any failure to disclose ...........................................................40

a. There is legally and factually insufficient evidence of a duty to disclose .......................................................................................40

iv b. There is legally and factually insufficient evidence of a failure to disclose ...........................................................................42

C. There is Legally and Factually Insufficient Evidence of Statutory Fraud .............................................................................................................45

1. Statutory fraud does not apply to this case because there is no real estate transaction of the type required by that statute .............................45

2. There is legally and factually insufficient evidence of the elements of statutory fraud .....................................................................................46

D. There is Factually Insufficient Evidence to Support the Jury’s Finding that Plaintiffs Could Not Have Discovered the Alleged Fraud Claim until April 2007 ............................................................................................47

E. There is Legally and Factually Insufficient Evidence to Support the Fraud Damages Finding ...............................................................................51

1. Plaintiffs did not prove fraud damages and, instead, proved only the same damages they would have presented for the breach of oil and gas lease claim they previously lost on summary judgment ............ 52

2. Plaintiffs never pleaded for consequential damages; they only pleaded for out-of-pocket damages .........................................................54 3. Plaintiffs were not entitled to consequential damages as a part of an out-of-pocket measure of recovery ....................................................54

4. Furthermore, Plaintiffs could not seek compensatory damages unless they set aside the pooling agreement, which is something they never sought to do ...........................................................................55

5. Plaintiffs were not entitled to their compensatory royalty damages based on production from the DuJay1 well ............................................56

6. The fraud damages improperly include “late charges” of 18% compounded monthly ..............................................................................57

7. The damages have to be reversed because they include incremental formation production damages, which the Supreme Court held were improper .......................................................................59

v 8. If this Court reverses and remands for a new trial on fraud damages, then fraud liability will have to be retried as well .................. 60

F. The Court Must Also Remand the Favored Nations Damages for a Recalculation and Should Determine Issues Regarding the Application of Prejudgment Interest to Newly Awarded Favored Nations Damages ..........................................................................................61

PRAYER FOR RELIEF ..........................................................................................63 CERTIFICATE OF COMPLIANCE .......................................................................66

CERTIFICATE OF SERVICE ................................................................................67

Tab Final Judgment (1Supp2d CR:4-11) ................................................................. Tab A Charge of the Court (19CR:3262-76) ............................................................... Tab B Damages Stipulation (Court Ex. A) .................................................................. Tab C

Samson v. Hooks Ct. App. Opinion (389 S.W.3d 409) .................................... Tab D Hooks v. Samson Tex. S. Ct. Opinion (457 S.W.3d 52) ................................... Tab E

vi INDEX OF AUTHORITIES

Page(s) CASES Arbor Windsor Court, Ltd. v. Weekley Homes, LP, No. 14-13-00480-CV, 2015 WL 1245548 (Tex. App.—Houston [14th Dist.] Mar. 17, 2015, no pet.)..............................................................................39

Baylor Univ. v. Sonnichsen, 221 S.W.3d 632 (Tex. 2007) ........................................................................52, 55 Blue Bell, Inc. v. Peat, Marwick, Mitchell & Co., 715 S.W.2d 408 (Tex. App.—Dallas 1986, writ ref’d n.r.e.) .............................39 Bradford v. Vento, 48 S.W.3d 749 (Tex. 2001).....................................................................32, 40, 46

Burbage v. Burbage, 447 S.W.3d 249 (Tex. 2014) ........................................................................29, 54 Burleson State Bank v. Plunkett, 27 S.W.3d 605 (Tex. App.—Waco 2000, pet. denied).......................................45 Case Corp. v. Hi-Class Bus. Sys. of Am., Inc., 184 S.W.3d 760 (Tex. App.—Dallas 2005, pet. denied)....................................54 City of Keller v. Wilson, 168 S.W.3d 802 (Tex. 2005) ........................................................................29, 52 Coastal Oil & Gas Trust v. Garza Energy Trust, 268 S.W.3d 1 (Tex. 2008)...................................................................................52 Ehrhardt v. Elec. & Instrumentation Unlimited, 220 F. Supp. 2d 649 (E.D. Tex. 2002)................................................................40 Ernst & Young, L.L.P. v. Pac. Mut. Life Ins. Co., 51 S.W.3d 573 (Tex. 2001)...........................................................................35, 39

Fazio v. Cypress/GR Houston I, L.P., 403 S.W.3d 390 (Tex. App.—Houston [1st Dist.] 2013, pet. denied) ...............57

vii Ford Motor Co. v. Ridgway, 135 S.W.3d 598 (Tex. 2004) ..............................................................................29

Formosa Plastics Corp. v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41 (Tex. 1998)...........................................................................53, 55

Fortune Prod. Co. v. Conoco, Inc., 52 S.W.3d 671 (Tex. 2000)...........................................................................52, 55

Goldman v. Olmstead, 414 S.W.3d 346 (Tex. App.—Dallas 2013, pet. denied)....................................56

Grant Thornton LLP v. Prospect High Income Fund, 314 S.W.3d 913 (Tex. 2010) ..............................................................................36

Greater Houston Transp. Co. v. Phillips, 801 S.W.2d 523 (Tex. 1990) ..............................................................................44 Haase v. Glazner, 62 S.W.3d 795 (Tex.2001)..................................................................................31 Harkins v. North Shore Energy, L.L.C., No. 13-12-00504-CV, 2014 WL 1789572 (Tex. App.—Corpus Christi May 1, 2014, pet. pending) .................................................................................33

Hartford Fire Ins. Co. v. C. Springs 300, Ltd., 287 S.W.3d 771 (Tex. App.—Houston [1st Dist.] 2009, pet. denied) ............... 35 HECI Exploration Co. v. Neel, 982 S.W.2d 881 (Tex. 1998) ........................................................................41, 43

Hooks v. Samson Lone Star, Ltd. P’ship, 457 S.W.3d 52 (Tex. 2015)...........................................................................passim

IHS Cedars Treatment Ctr. v. Mason, 143 S.W.3d 794 (Tex. 2004) ..............................................................................57

Ikon Office Solutions v. Eifert, 125 S.W.3d 113 (Tex. App.—Houston [14th Dist.] 2003, pet. den.)................. 32 Ins. Co. of N. Am. v. Morris, 981 S.W.2d 667 (Tex. 1998) ..............................................................................40

viii Jelinek v. Casas, 328 S.W.3d 526 (Tex. 2010) ..............................................................................50

Johnson & Higgins of Texas, Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507 (Tex. 1998) ........................................................................62, 63

Kerr-McGee Corp. v. Helton, 133 S.W.3d 245 (Tex. 2004) ..............................................................................52

Lee & Lee Int’l, Inc. v. Lee, 261 F. Supp. 2d 665 (N.D. Tex. 2003) ...................................................21, 47, 57

Lewis v. Bank of Am. NA, 343 F.3d 540 (5th Cir. 2003) ........................................................................36, 46

Life Ins. Co. v. Murray Inv. Co., 646 F.2d 224 (5th Cir. 1981) ..............................................................................45 Maritime Overseas Corp. v. Ellis, 971 S.W.2d 402 (Tex. 1998) ........................................................................29, 30 In re Media Arts Group, Inc., 116 S.W.3d 900 (Tex. App.—Houston [14th Dist.] 2003, orig. proc.) .............. 32 Miller v. Raytheon Aircraft Co., 229 S.W.3d 358 (Tex. App.—Houston [1st Dist.] 2007, no pet.) ......................31 Montgomery Cnty. Hosp. Dist. v. Brown, 965 S.W.2d 501 (Tex. 1998) ........................................................................36, 46 Nat’l Prop. Holdings, L.P. v. Westergren, 453 S.W.3d 419 (Tex. 2015) ..............................................................................35

Nolan v. Bettis, 577 S.W.2d 551 (Tex. Civ. App.—1979, writ ref’d n.r.e.) ................................45 Olympia Marble & Granite v. Mayes, 17 S.W.3d 437 (Tex. App.—Houston [1st Dist.] 2000, no pet.) ........................58 Ortiz v. Jones, 917 S.W.2d 770 (Tex.1996)................................................................................30

ix Pegasus Energy Grp., Inc. v. Cheyenne Petroleum Co., 3 S.W.3d 112 (Tex. App.—Corpus Christi 1999, no pet.) ...........................62, 63

Petras v. Criswell, 248 S.W.3d 471 (Tex. App.—Dallas 2008, no pet.) ..........................................46

Porter v. Irvine, 658 S.W.2d 711 (Tex. App.—Houston [1st Dist.] 1983, no writ) .....................45

Rancho La Valencia, Inc. v. Aquaplex, Inc., 383 S.W.3d 150 (Tex. 2012) ........................................................................60, 61

Ratcliff v. Trenholm, 596 S.W.2d 645 (Tex. Civ. App.—Tyler 1980, writ ref’d n.r.e.).......................45

Samson Lone Star. Ltd. P’ship v. Hooks, 389 S.W.3d 409 (Tex. App.—Houston [1st Dist.] 2012), rev’d in part, aff’d in part and remanded, 457 S.W.3d 52 (Tex. 2015).......................................passim Sawyer v. E.I. Du Pont de Nemours and Co., 430 S.W.3d 396 (Tex. 2014) ........................................................................36, 46

Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171 (Tex. 1997) ..............................................................................46

Scott v. Sebree, 986 S.W.2d 364 (Tex. App.—Austin 1999, pet. denied) ...................................53 Serv. Corp. Int’l v. Guerra, 348 S.W.3d 221 (Tex. 2011) ..............................................................................50

Simulis, L.L.C. v. Gen. Elec. Capital Corp., 439 S.W.3d 571 (Tex. App.—Houston [14th Dist.] 2014, pet. denied).............32

Slagle v. Clark, 237 S.W.2d 430 (Tex. Civ. App.—Amarillo 1951, no writ)........................33, 46

Spethmann v. Anderson, 171 S.W.3d 680 (Tex. App.—Dallas 2005, no pet.) ..........................................46 Statewide Bank and SN Servicing Corp. v. Keith, 301 S.W.3d 776 (Tex. App.—Beaumont 2009, pet. abated)..............................54

x Tracy v. Annie’s Attic, Inc., 840 S.W.2d 527 (Tex. App.—Tyler 1992, writ denied).....................................57

United Teacher Assocs. Ins. Co. v. Union Labor Life Ins. Co., 414 F.3d 558 (5th Cir. 2005) ..............................................................................40

In re Webber, 350 B.R. 344 (Bankr. S.D. Tex. 2006) ...............................................................46

Williams v. Khalaf, 802 S.W.2d 651 (Tex. 1990) ..............................................................................47

Willis v. Marshall, 401 S.W.3d 689 (Tex. App.—El Paso 2013, no pet.) ........................................39

CONSTITUTION, STATUTES, AND RULES 16 Tex. Admin. Code §3.11 (2015) .........................................................................44 Tex. Bus. & Com. Code §27.01(a) ....................................................................45, 47 Tex. Gov’t Code § 73.003(b) ....................................................................................xv

Tex. R. App. P. 44.1.................................................................................................60 Tex. R. App. P. 44.1(b) ............................................................................................60 Tex. R. App. P. 61.2.................................................................................................60

Tex. R. Civ. P. 56 .....................................................................................................54

TREATISES AND LAW REVIEWS EXAMINATION, §15.15 (3d Ed. 2015) .................................................................32

26A C.J.S. Deeds § 274 (2015)................................................................................33 OWEN L. ANDERSON ET AL., HEMINGWAY OIL AND GAS LAW AND TAXATION, §7.13 AT 386 (4th ed. 2004) ...............................................................11

RESTATEMENT (SECOND) OF TORTS, §551 (1977) .............................................40, 41

xi TO THE HONORABLE COURT OF APPEALS:

This supplemental brief refers collectively to the Appellees/Cross-

Appellants as “Plaintiffs” and to Mr. Charles G. Hooks, III as “Hooks.”

STATEMENT OF THE CASE Nature of the Case: On November 16, 2006, Plaintiffs joined a pre- existing lawsuit brought by several lessors. Plaintiffs asserted several breach of oil and gas lease claims as well as fraud in connection with oil and gas leases located in Jefferson and Hardin Counties. Later, that case was severed into three actions, this Hooks action being one of them. Several of the breach claims were decided on motions for summary judgment and the remaining claims were tried to a jury in November 2008.

Trial Court: The Hon. Gary Sanderson in the 60th District Court in Jefferson County. Trial Court Disposition: The original judgment in this case was against Samson for $21,749,376, plus attorneys’ and expert witness fees, costs, (all totaling $22,251,297). $20,081,638 of the judgment rested on jury findings of fraud. Of that amount, nearly $13 million was an 18% contractual “late charge”; and around $3.5 million pertained to a well as to which Hooks admitted he had not been defrauded. The judgment also awarded damages for several alleged breaches of Plaintiffs’ oil and gas leases, adding $1,615,481 to the judgment. Those alleged breaches included a favored nations claim, a claim for additional payments based on incremental formation production, and a claim Samson had wrongfully “unpooled” a unit. The judgment also awarded $52,257 to Plaintiffs for their ad valorem tax payments.

xii Court of Appeals: This Court’s panel was composed of Justice Keyes (authoring judge), joined by Justice Massengale and with Justice Sharp, concurring and dissenting. The panel decided this case in a published decision after it was transferred to this Court on a docket equalization order. The opinion appears at Samson Lone Star. Ltd. P’ship v. Hooks, 389 S.W.3d 409, 440 (Tex. App.—Houston [1st Dist.] 2012), rev’d in part, aff’d in part and remanded, 457 S.W.3d 52 (Tex. 2015).

Court of Appeals’ Disposition: This Court reversed the judgment against Samson, except for the $52,257 Samson agreed to pay Plaintiffs for ad valorem tax payments. Supreme Court Disposition: The Supreme Court granted Plaintiffs’ petition for review and affirmed in part, reversed in part, and remanded to this Court for consideration of arguments previously undecided by this Court. Hooks v. Samson Lone Star, Ltd. P’ship, 457 S.W.3d 52, 70 (Tex. 2015). The Supreme Court affirmed this Court’s judgment reversing the trial court’s summary judgments on the incremental formation production and “unpooling” issues. Id. at 65, 66. That Court reversed this Court’s reversal of the summary judgment on the favored nations issue. Id. at 63. The Supreme Court also reversed this Court’s rendition of judgment against Plaintiffs as to Plaintiffs’ fraud claim based solely on limitations barring that claim as a matter of law. The Supreme Court remanded the fraud limitations issue to this Court for further consideration of the factual sufficiency of the jury’s limitations finding. The Supreme Court also remanded for this Court to consider the legal and factual sufficiency of the fraud liability and damages issues. Id. at 61.

xiii STATEMENT REGARDING ORAL ARGUMENT This case was previously briefed to this Court in 2009 and 2010 and orally

argued in 2011. One of the judges of the original panel no longer serves on the Court.

When this case was argued in 2011, a member of this Court stated this case was

possibly the most complicated case then-pending before the First Court of Appeals.

The previous oral argument focused on issues no longer before the Court, such

as whether Plaintiffs’ fraud claims were barred by limitations as a matter of law. The

Supreme Court’s decisions against Samson were narrowly focused. As a result,

virtually all of Samson’s appellate points regarding the jury’s findings of fraud and

fraud damages remain for determination by this Court. The remand also involves

other issues including the most favored nations damages and interest charges. Oral

argument would assist the Court in addressing issues that remain before the Court, as

informed by the Supreme Court’s opinion. Those issues remain complicated, and oral

argument will assist the Court in addressing them. Furthermore, this case has always

been factually complex, and remains so following this Court’s and the Supreme

Court’s prior opinion.

This case was transferred to this Court through docket equalization. Samson

consents to this Court conducting oral argument in Houston. Tex. Gov’t Code §

73.003(b) (allowing parties to request transferee appellate court to conduct oral

argument in the court’s regular location).

xiv ISSUES PRESENTED

A. Issues Involving Plaintiffs’ Fraud Claim 1. Fraud

Plaintiffs sued Samson for fraud allegedly arising from Samson’s written

offer to pool 50 acres out of one of Plaintiffs’ leases into a gas unit. The unit well

was not drilled on Plaintiffs’ tract; it was drilled on a different tract. Plaintiffs,

acting through Mr. Charles G. Hooks III (“Hooks”), accepted Samson’s offer to

pool in 2001. PX156, 157.

Before Hooks accepted the offer, he requested a plat showing where

Plaintiffs’ acreage would lie within the unit. Samson sent Hooks a scaled plat

depicting the lands and leases to be included in the unit.

That plat included several indications of where the bottom hole of the well

was located, including one Hooks interpreted to mean the bottom hole was 1400

feet from Plaintiffs’ lease. The plat actually said “1400´± Scaled.” Nearly eight

years later, Hooks testified he relied on the “1400´± Scaled” indication (while

ignoring other indications) when he consented to the pooling. Hooks claimed if he

had known the well’s bottom-hole was located closer than 1320 feet to Plaintiffs’

lease line, he would not have agreed to the unit (the BSM1 unit), but would have

demanded that Samson comply with offset obligations set out in Plaintiffs’ oil and

gas lease.

xv There is no legally or factually sufficient evidence of fraud as to each of the

following:

a) fraud - misrepresentation – Hooks testified he relied on a measurement that

was indefinite on its face and on a scaled plat to determine whether a well’s

bottom hole was within 1320 feet of Plaintiffs’ lease line.

b) fraud - reliance - Hooks read “1400´± Scaled” to mean exactly 1400 feet.

c) fraud - intent to deceive - There is no evidence Hooks told Samson why he

wanted the plat or that he wanted a plat to answer his unstated question

about the proximity between a well’s bottom hole and Plaintiffs’ lease line.

d) fraud - duty to disclose – There was no fiduciary or confidential relationship

between Samson and the Plaintiffs, no continued reliance by Plaintiffs on the

plat, no knowledge by Samson that Plaintiffs might be relying on the plat in

this way, and Plaintiffs could have found the precise location of the bottom

hole by consulting public records.

e) statutory fraud - There was no “sale” of land but only a consent by

Plaintiffs to pooling, and the evidence underlying the jury’s finding of

statutory fraud has the same misrepresentation, reliance, and intent

insufficiencies as the evidence underlying the common law fraud finding.

Since statutory fraud fails, the judgment’s award of expert witness fees and

deposition costs should be reversed.

xvi 2. Statute of Limitations for Fraud

Hooks and his wife executed the pooling agreement that is the subject of

Plaintiffs’ fraud claim in May 2001. Plaintiffs did not file any lawsuit against

Samson until November 2006 and did not amend to assert fraud claims until May

2007. There were multiple publicly-filed records from which Plaintiffs could have

discovered their alleged fraud claim at least by February 2003, and some of those

records were in the official land records of both Jefferson and Hardin Counties. At

trial, the jury found that, had Plaintiffs exercised reasonable diligence, they could

not have discovered their fraud claim until April 2007. Hooks’ testimony on that

subject was nothing more than the simple statement that he did not learn of the

claim until during discovery in the lawsuit during the Spring of 2007.

There is factually insufficient evidence that:

a) Plaintiffs could not have discovered the alleged fraud in the exercise of

reasonable diligence prior to four years before they filed suit for fraud.

b) Plaintiffs could not have discovered the alleged fraud by exercising

reasonable diligence prior to April 2007.

3. Fraud Damages Plaintiffs originally pleaded this action as one for breach of an oil and gas

lease. They pleaded that Samson did not pay compensatory royalty on production

from Samson’s wells on adjacent leases and units, which they claimed were

xvii bottomed within 1320 feet of their Jefferson County lease line. Plaintiffs also

pleaded fraud in the alternative. The trial court rendered summary judgment

against Plaintiffs on their breach of lease compensatory royalty claim. Plaintiffs

then tried their alleged fraud claim to the jury, but Plaintiffs introduced no

evidence of fraud damages and did not seek to set aside their written consent to the

pooled unit. Plaintiffs’ damages evidence was (i) based on exactly the same

calculation as their breach of lease claim for compensatory royalties, (ii) calculated

as if their fraud claim were a breach of lease claim, and (iii) as if their consent to

join the unit did not exist. The damages also included (i) contractual late fees

(prejudgment interest) compounded monthly at 18% (ii) damages attributable to

another well as to which Hooks admitted there was no fraud; and (iii) incremental

formation production damages later found by this Court and the Supreme Court to

have been improper.

There is legally and factually insufficient evidence of damages when

a. Plaintiffs’ evidence was not of fraud damages, but was of only breach of

lease damages.

b. Plaintiffs’ damages questions sought measures of special damages for which

they had not pleaded and to which they were not entitled as a measure of

out-of-pocket fraud damages.

xviii c. Plaintiffs did not seek or obtain an order setting aside their written consent

to the pooled unit, but presented evidence of damages as if their land was

never a part of the pooled unit while continuing to accept payments based on

their continued inclusion in the unit.

d. The fraud damages awarded by the jury include compensatory damages for

another well as to which Plaintiffs admit there was no fraud.

e. The damages include a prejudgment interest rate of 18%, rather than 5%,

and interest was compounded monthly when it should be simple.

f. The damages included incremental formation production damages even

though Plaintiffs’ formation production claim has been reversed by this

Court and the Supreme Court and rendered against Plaintiffs on appeal.

g. As of the time of trial (and continuing through today), Plaintiffs continued to

accept payments from Samson as if Plaintiffs were still a part of the unit.

The fraud damages must be recalculated to take these payments into

account.

B. Issues Involving Plaintiffs’ Most Favored Nations Claim The Supreme Court reversed this Court’s judgment with respect to

Plaintiffs’ most favored nations (“favored nations”) claim, holding Plaintiffs were

due an increased royalty rate of 28.28896% (rather than the lease rate of 25%) for

production attributable to Plaintiffs’ three leases to Samson. The favored nations

xix damages awarded Plaintiffs in the judgment were based on a stipulation between

the parties. Court Ex A. The stipulation set out favored nations damages sums with

and without incremental formation production included. Both this Court and the

Supreme Court reversed Plaintiffs’ judgment for incremental formation production

damages. As awarded in the original judgment, the favored nations damages

include the substantial amounts attributable to the incremental formation

production claims. Furthermore, the damages only go through May 2008.

The fraud damages for the wells included in the BSM1 unit incorporated

favored nations amounts for those wells in the fraud damages. Should this Court

again reverse the fraud portion of the original judgment, Plaintiffs will seek an

increased royalty percentage for production attributable to production from the

wells in that unit.

This Court must remand the favored nations damages for recalculation:

a. The original judgment’s favored nations damages include incremental

formation production damages, although Plaintiffs’ incremental formation

production claim has now been reversed by this Court and the Supreme

Court.

b. Assuming reversal of any of the jury’s fraud liability, limitations, or

damages findings, Plaintiffs’ favored nations increased royalty interest in

production from the BSM1 unit will need to be calculated and awarded.

xx c. Any prejudgment interest awarded on the favored nations damages must be

simple interest, not compounded monthly as Plaintiffs originally sought on

all their damages.

xxi CASE HISTORY This case returns to this Court following this Court’s reversal of the

judgment below (except for an agreed-upon amount for ad valorem taxes) and the

Supreme Court’s partial reversal, partial affirmance, and remand of this Court’s

judgment.

The original judgment in this case was against Samson for $21,749,376.15,

plus attorneys’ and expert witness fees, costs, and post-judgment interest at the rate

of 18%. Samson Lone Star, Ltd. P’ship v. Hooks, 389 S.W.3d 409, 440 (Tex.

App.—Houston [1st Dist.] 2012), rev’d in part, aff’d in part and remanded, 457

S.W.3d 52 (Tex. 2015). The judgment arose from an oil and gas case involving

allegations of fraud and breach of lease. $20,081,638 of the judgment’s total award

rested solely on jury findings of fraud. Of the fraud damages, $12,995,832

consisted of an 18% contractual “late charge”; $3,547,241 pertained to the one

well (the BSM1 well) about which Plaintiffs complained at trial; and $3,538,565

pertained to another well as to which Hooks admitted he was not defrauded. In

addition, Plaintiffs’ evidence of alleged fraud damages were based on the

assumption Plaintiffs would win all their breach of lease claims, including their

claim for payments based on incremental formation production (“formation

production”). As a result, the fraud damages have certain contractual lease claims

included within those damages, even though those claims have been reversed.

1 The breach of lease claims—in addition to their inclusion in the fraud

damages—separately added another $1,667,738 to the judgment. Those breach

allegations included $848,854 for increased payments under a favored nations

provision, $766,626 for additional payments under a claim that Samson had

wrongfully “unpooled” a unit, and $52,257 for damages related to ad valorem

taxes.

The claims, this Court’s actions, and the Supreme Court’s actions are

summarized below:

A. Fraud Plaintiffs asserted that had Hooks known the true bottom-hole location of the

well drilled on the adjacent tract, he would not have agreed to include his Jefferson

County lease within a unit (the Black Stone Minerals No.1 “BSM1” unit) and,

instead, would have demanded compensatory royalties—one of the contractual

remedies provided by Plaintiffs’ lease. This Court reversed the fraud portion of the

judgment because it found, as a matter of law, Plaintiffs’ fraud claims were barred

by limitations. This Court concluded Plaintiffs could have discovered the adjacent

well’s location from a directional survey filed in public Railroad Commission

records. 389 S.W.3d at 428-30.

With regard to fraud, the Supreme Court held and ordered:

2 • Noting the allegedly-fraudulent plat that was the basis for Plaintiffs’ fraud claim

was also filed in Railroad Commission records attached to a P-12 pooling

authorization form, the Supreme Court held: “when the defendant’s fraudulent

misrepresentations extend to the Railroad Commission record itself, earlier

inconsistent filings cannot be used to establish, as a matter of law, that

reasonable diligence was not exercised.” 457 S.W.3d at 61. The Court

continued: “Under these circumstances, reasonable diligence remains a fact

question.” Id.

• Based on its limitations ruling, the Supreme Court remanded for this Court’s

consideration “the factual and legal sufficiency of the evidence with regard to

common-law fraud, statutory fraud, and damages for fraud, as well as the

factual sufficiency of the evidence regarding when Hooks, by the exercise of

reasonable diligence, would have discovered the fraud.” Id.

B. Breach of Lease Claims Three breach of lease claims decided against Samson were a part of

Samson’s previous appeal to this Court. The claims and the Supreme Court’s

actions on those claims are:

1. Most Favored Nations Plaintiffs’ leases to Samson contain a “most favored nations” clause

requiring Samson to pay Plaintiffs the same royalty percentage Samson pays a

3 third party should Samson enter into a lease (within a 3-mile radius of Plaintiffs’

premises) with a royalty exceeding 25%. 389 S.W.3d at 434. Samson entered into a

pooling agreement with the State in which Samson paid the State an increased

allocation of unit production as consideration for the State’s approval of a unit. The

Supreme Court noted the increased allocation of production was equal to a royalty

increase from 25% to 28.28896%. 457 S.W.3d at 62. This Court reversed the

favored nations judgment because Samson did not enter into a new “lease” with the

State, but entered into a settlement agreement called a “pooling agreement.” 389

S.W.3d at 435. The Supreme Court reversed, holding the payment to the State

meant “Samson increased the State's 25% royalty on production from its tract to

28.28896%” and “the royalty imposed by the Pooling Agreement is ‘payable

under’ the lease….” 457 S.W.3d 52 at 63. The Supreme Court concluded “the

court of appeals erred in holding that Samson did not breach the most-favored

nations clause.” Id.

The judgment lists “Damages for breach of Most Favored Nations Clause”

of $848,854.01. 1Supp2dCR:6. That amount is attributable to two wells: the Joyce

DuJay No.1 and the Joyce DuJay “A” No.1 wells. But that amount is composed of

(i) $431.450.71 of damages for both wells plus prejudgment interest (contractual

“late charges” calculated at 18 percent compounded monthly) resulting from the

favored nations increased royalty decimal of 3.28896%; plus (ii) $417,403.30 of

4 base damages and interest (“late charges”) for both wells attributable to formation

production damages. Court Ex A.

2. Incremental Formation Production.

Plaintiffs claimed Samson was required to pay royalty based on all liquid

condensate, and—on top of that—was required to pay royalty based on that same

condensate production again as if the condensate were produced as a gas. 389

S.W.3d at 435-37; 457 S.W.3d at 63-65. Plaintiffs’ claims were based on a lease

term stating, “all such [royalty] calculations shall be based on formation

production as reported on Texas Railroad Commission forms P-1 and P-2.” 457

S.W.3d at 63. This Court held the formation production clause “does not operate to

double the amount of royalties owed on the liquid condensate produced from the

well.” 389 S.W.3d at 437. This Court reversed the summary judgment in Plaintiffs’

favor and rendered judgment in Samson’s favor on that issue. Id. at 437, 440-41.

The Supreme Court affirmed on this issue, agreeing with this Court’s “decision

with regard to the formation-production claims.” 457 S.W.3d at 65.

Because of the disposition of this issue, any final judgment entered in this

case cannot include amounts for formation production. But both the alleged fraud

damages and the favored nations damages include formation production damages.

For fraud, the jury awarded and the judgment granted damages of $20,081,638,

which precisely matched the damages Plaintiffs’ expert set out in his fraud

5 damages exhibit, PX608. 1Supp2dCR:6; 19CR:3268. That exhibit is titled,

“Summary of Lost Compensatory Royalty with Incremental Formation

Production….” PX608 (emphasis added). Thus, the damages awarded for fraud

include formation production damages (as does favored nations damages), which

cannot be a part of any judgment.

3. Unpooling

Plaintiffs’ third breach of lease claim was that Samson allegedly wrongfully

“unpooled” a pooled unit by amending it. As the Supreme Court noted, “[b]ecause

the owner of 87.5% of the mineral interest in the tract where the well in this unit

was located refused to pool, Samson decided to ‘amend’ the unit designation.” 457

S.W.3d at 65. Samson notified Hooks of the amendment and Plaintiffs accepted the

payments made to them from the amended unit. Id. This Court held that under the

circumstances of this case, “Hooks accepted and ratified the amendment and

redesignation of the units.” 389 S.W.3d at 434. The Supreme Court affirmed this

Court’s unpooling judgment, holding: “[b]ecause of the undisputed contents of the

notice letter, Hooks' acceptance of royalties for the new unit, and Hooks' refusal to

challenge the new unit, we decide the question of ratification as a matter of law.”

457 S.W.3d at 66. Because of the disposition of this issue, there is nothing left for

this Court to consider with regard to “unpooling,” and any final judgment entered

in this case cannot include “unpooling” damages.

6 C. Post-Judgment Interest The trial court’s judgment imposed post-judgment interest at the rate of 18%

compounded annually. Because the only remaining portion of the judgment after

the appeal to this Court was for ad valorem taxes—the subject of a trial stipulation

between the parties—this Court held the proper post-judgment interest rate was

5%, rather than 18%. 389 S.W.3d at 439. The Supreme Court held the “leases only

impose ‘the maximum [interest] rate allowed by law’ for past-due royalties.” 457

S.W.3d at 69 (emphasis added). Accordingly, to the extent Hooks ultimately

“recovers for past due royalties, he is entitled to an 18% interest rate” but “[f]or

other recoveries, the statutory rate of 5% applies….” 457 S.W.3d at 70.

D. Attorneys’ Fees The trial court’s judgment awarded attorneys’ fees in accordance with a

stipulation between the parties. Following the reversal of all claims on appeal

(leaving only the agreed-upon ad valorem tax amounts to be paid by Samson), this

Court also reversed the attorneys’ fees award. 389 S.W.3d at 438. The Supreme

Court, however, held Plaintiffs were entitled to recover on their favored nations

claims, thus entitling them to the stipulated amounts of attorneys’ fees. 457 S.W.3d

at 69. The fees were $300,000 through trial and another $70,000 through all

appeals. 18CR:3166.

7 E. Hooks’ Cross-Appeal Plaintiffs filed a cross-appeal challenging a summary judgment denying their

claims that Samson had supposedly breached offset obligations concerning

Plaintiffs’ two leases in Hardin County, north of the lease at issue on the fraud

claim. This Court affirmed that summary judgment based on Samson’s limitations

defense. The Supreme Court reversed this Court’s affirmance because it disagreed

the claims were entirely barred by limitations. 457 S.W.3d at 68-69. That portion

of the case has also been remanded for this Court’s consideration of “the merits of

Hooks’ claim for breach of the offset provisions and the proper construction of”

the clause at issue. Id. at 69.

In their cross-appeal, Plaintiffs asserted their offset obligation that applied

when a well was drilled on lands “not more than … 1320´ from the leased

premises” applied even when a well was drilled much farther than 1320 feet from

Plaintiffs’ leased premises. Plaintiffs’ theory is based on a common provision in

Texas oil and gas leases stating operations on pooled units

…shall be considered as operations for drilling on or production of gas from the Leased Premises, whether or not the well or wells be located on the Leased Premises, and the entire acreage constituting such unit or units shall be treated for all purposes, except the payment of royalties on production from the pooled unit, as if the same were included in this Lease. [PX26¶V(E), PX27¶V(E).]

Plaintiffs assert this provision means all their lease terms (and the terms of

any other lease with such a provision) are spread to the entire unit so that if a well

8 is drilled within 1320 feet of any unit line (as opposed to a lease line as the lease

says), Samson owes offset obligations to Plaintiffs even though the well is not

within 1320 feet of their lease. Moreover, Samson did in fact offset the wells at

issue in Plaintiffs’ cross-appeal and Plaintiffs failed to provide notice to Samson of

Samson’s alleged default.

Because these offset obligation claims are the subject of Hooks’ cross-

appeal, Samson will address these claims in its response to Hooks’ supplemental

brief on this subject.

F. Samson’s Appeal Issues on Remand As a result of the Supreme Court’s decision, the issues raised by Samson in

its appeal that were remanded for this Court’s consideration are:

1. Legal and factual sufficiency of the evidence supporting common law fraud;

2. Legal and factual sufficiency of the evidence supporting statutory fraud;

3. Legal and factual sufficiency of the fraud damages, along with a remand for

a reduction and recalculation of the fraud damages, including attendant

prejudgment and post-judgment interest issues;

4. Factual sufficiency of the jury’s finding on limitations;

5. Remand for recalculation of favored nations damages owed to Plaintiffs,

with consideration of interest issues including whether Plaintiffs are entitled

9 to 18% prejudgment interest compounded monthly, as they requested during

the first trial.

STATEMENT OF FACTS

A. Hooks Was a Very Experienced Oil and Gas Attorney Hooks was an attorney with extensive experience in oil and gas matters.

13RR:9. For 33 years, in addition to practicing law, Hooks managed his family’s

considerable investments in oil, gas and mineral estates. 13RR:9-10. Plaintiffs

owned properties in Louisiana and 36 Texas counties. 13RR:11. Hooks has

negotiated at least 100 oil and gas leases. 13RR:10-11.

Samson holds three separate oil and gas leases from Plaintiffs:

(1) 640 acres in Jefferson County (PX25) (called the “Jefferson County lease”). Fifty acres from the southwest corner of this lease is the land at issue in Plaintiffs’ fraud claims. (2) 95 acres in Hardin County (PX26). (3) 10 acres in Hardin County (PX27). The primary issue at trial was Plaintiffs’ fraud claim. Plaintiffs were co-

tenants in the mineral estate on the Jefferson County lease. 12RR:46-47, 13RR:26-

27. Plaintiffs own 42.75% of the minerals in that tract; another extended family

whom Samson called “the Broussards,” owned the remaining 57.25% of the

10 minerals. PX25; 12RR:46-47, 13RR:26-27. Plaintiffs’ Jefferson County lease did

not grant authority to pool. PX25¶V(E).1

B. Samson Drilled the Black Stone Minerals No. 1 Gas Well In April 2000, Samson began drilling the Black Stone Minerals No. 1 Gas

(“BSM1”) well in the Walker Pettitt Survey in Hardin County. That survey lies

immediately west of the Pine Island Bayou, which is the Hardin/Jefferson County

line. The bayou forms the western boundary of Plaintiffs’ Jefferson County lease

and the 50 acres included in the BSM1 unit. PX25; PX569. The BSM1 well was

completed in August 2000; first gas sales occurred October 2000. PX569, 627. The

well was drilled as a directional well in accordance with Railroad Commission

rules. The bottom of the hole was drilled to a location southeast of the surface

location. 11RR:122-24; 8 H. WILLIAMS & C. MEYERS, OIL AND GAS LAW 264

(2008) (directional drilling is “[t]he drilling of a well that departs materially from

the vertical,” frequently because of surface conditions). As reported in public

records, the BSM1 well was originally planned with a bottom hole 1080 feet (i.e.,

within 1320 feet) from Plaintiffs’ lease line. PX616; 12RR:48-49.

C. The Jefferson County Lease Contained Offset Obligations Plaintiffs’ Jefferson County lease provided if the leased lands were not

pooled, and a gas well was drilled within 1320 feet of the leased premises, Samson 1 “Pooling is the combining of tracts or interests, or parts of tracts or interests, for facilitating more orderly development and production of oil, gas and associated products.” OWEN L. ANDERSON ET AL., HEMINGWAY OIL AND GAS LAW AND TAXATION, §7.13 AT 386 (4th ed. 2004). 11 had to do one of: (1) drill a well on the lease; (2) pay Plaintiffs compensatory

royalty equal to their share of production from the adjacent producing well as if

that well had been drilled on their lease; or (3) release the Lease and have no

further obligations. PX25¶VI(A).2 Separately, in addition to the offset obligations,

Samson could at any time release “any portion or portions” of the lease “and be

relieved of all obligations as to the acreage surrendered….” PX25¶IV(B). Samson

did not owe any offset obligations if the well drilled within 1320 feet was on land

pooled with Plaintiffs’ lease.

Samson decided to create a 704-acre unit for the BSM1 well. Samson’s plan

was to include 50 acres out of the Broussards’ lease and Plaintiffs’ Jefferson

County lease in that unit. That would require Samson to pay royalty to Plaintiffs

based on their proportionate interest in the unit, but it would otherwise extinguish

Samson’s offset obligations. Otherwise, Samson simply could have released

2 The Jefferson County lease provides at ¶VI(A): “A. …[I]n the event a well producing from a unit not comprised of acreage from the leased premises … which has been classified as “gas” … is completed on adjacent or nearby lands not more than … [1,320’] from the leased premises … Lessee covenants and agrees to, within ninety (90) days from the date production is first sold …, either (1) commence with due diligence operations for the actual drilling of an offset well on the leased premises…, (2) pay Lessors as compensatory royalty … a sum equal to the royalties which would be payable under this Lease on the production from said adjacent or nearby producing well had same been producing on the leased premises, or (3) in lieu of drilling such offset well or paying such compensatory royalty, release by recordable instrument the offset acreage…. Notwithstanding anything herein to the contrary, Lessee shall have no obligations under this Article … in the event a producing well ... is already offset by a well on the leased premises or on acreage pooled therewith producing from the same producing horizon …” [Emphasis added.] The provision above measures the distance between the lease and where the nearby well is “completed.” The well at issue was completed very near its bottom-hole location. 12 Plaintiffs’ lease pursuant to lease paragraphs VI(A) or IV(B), the latter of which

permitted Samson to release the lease at any time. PX25¶¶IV(B), VI(A). Samson

took steps to obtain pooling authority from Plaintiffs and other mineral owners

whose consent Samson needed to form the unit. E.g., PX62, 63, 65. 3

D. Samson Contacted Plaintiffs, Offering to Include 50 Acres of Plaintiffs’ Jefferson County Lease in the Unit On February 15, 2001, Mr. Lanoue—a landman then working for Samson—

wrote Hooks requesting Plaintiffs’ consent to pool 50 acres of Plaintiffs’ Jefferson

County Lease with adjacent land containing the BSM1 well (the “BSM1 unit”).

PX65, 160.4 The Broussard family already had consented to the unit as to their

interest in the same acreage. PX63, 65; 12RR:122-23. Hooks wanted additional

information and telephoned Lanoue on February 20, 2001. 12RR:124, 177; PX160.

Hooks and Lanoue discussed a range of topics concerning the well and the unit.

PX160. Among Hooks’ notes of the conversation was the statement the BSM1 well

was about 1500 feet west of Pine Island Bayou—the western boundary of

Plaintiffs’ Jefferson County lease—a boundary that can move as the river moves.

PX160. Hooks’ notes do not indicate whether the two were discussing the well’s

surface or bottom-hole location, or a generalized number between the two.

3 It is typical for the planned unit to change as the well is designed and drilled. 15RR:54-56. Thus, there were different plats showing different participants in the possible unit configurations. 15RR:56. 4 As it appears in the record, PX65 is not identical to what Samson sent to Hooks, but is an annotated version of the letter. 12RR:175. The original letter more closely resembled PX63, which did not have a plat attached. 12RR:176. 13 E. Hooks Requested a Plat, and Samson Sent Him One, to Show the Location of Plaintiffs’ Land within the Unit During the February 2001 phone call, Hooks requested a plat showing the

unit; Lanoue sent him one the next day. 12RR:180-81; PX64. Hooks testified he

wanted the plat to see (1) how his property fit within the unit, and (2) whether the

well was within 1320 feet of his lease. 12RR:180. But Hooks admitted he may not

have told Lanoue he was interested in the offset obligation. 13RR:25. He also

admitted he may not have said he needed to know whether the well was within

1320 feet of his lease. 13RR:25. Consistent with Hooks’ explanation of the first

reason he wanted the plat, Lanoue testified he sent Hooks the plat so Hooks could

understand where his land lay within the unit. 12RR:124.

The plat Lanoue sent is attached to PX65. 12RR:181. It is similar to plats

sent to other lessors, including the State of Texas (see, e.g., PX62). It was prepared

in August 2000, around the time the well was completed and months before

Lanoue contacted Hooks. The plat regularly was used through October 2001.

12RR:33, 49-50. The plat shows the well deviated toward Plaintiffs’ lease. Lanoue

testified he estimated the well’s bottom hole location on the plat, using only a ruler

to do so. 12RR:110-111. The plat repeatedly says it is “scaled,” meaning someone

used a ruler, not a survey, to make the plat. 16RR:62-63; 13RR:70-71 (Hooks,

agreeing to definition of “scaled”). It also uses the symbol: “±” in key places. As a

result, the plat does not purport to be exact or survey-accurate:

14 Following is a segment of the plat, with color coding added to highlight

certain features:

15 The plat has a line (red) depicting something is “1400´±” from the western

boundary of Plaintiffs’ Jefferson County lease. PX65. (The 50 acres included in

the unit from Plaintiffs’ lease is in yellow.) An arrow (green) points to a bottom

hole location not on that line, but to an east-west location slightly north of the line

and approximately 3/4 of the way along that line. Three-fourths of 1400 is 1050.

The plat provides the following information in the lower left corner:

PX65.

So the plat also states the bottom hole of the well is “1400´± Scaled” from

the eastern line of the unit (purple line, shown above). PX65 (“FEL” means “from

east line of unit”). The eastern line of the unit is on Plaintiffs’ lease. PX65.

16 Running a line 1400´± westward from the unit’s eastern line would place the well

on or nearly on Plaintiffs’ Lease. PX65; 12RR:62-63.

These signals are contradictory. If the estimation of “1400´±” were to the

well’s bottom hole location, the BSM1 well could be farther than 1320 feet from

Plaintiffs’ lease. “1400´± Scaled” from the east line of the unit indicates the BSM1

well could have been closer than 1320 feet to Plaintiffs’ lease. The arrow pointing

to a bottom-hole location 3/4 of the way along the “1400´± Scaled” line showed

the BSM1 well was about 1050 feet from Plaintiffs’ lease. That is very close to the

original estimated bottom-hole location of 1080 feet from Plaintiffs’ Lease.

F. Hooks Testified He Relied on the “1400´± Scaled” Depiction to Determine the Distance of the BSM1 Well from Plaintiffs’ Jefferson County Lease To determine the BSM1 well’s distance from his Lease, Hooks testified he

focused on the line estimating “1400´± Scaled”:

Q. And what did you do to verify that the—what he told you was true about the well being located 1500 feet away from Pine Bayou—Pine Bayou?

A. [Hooks] Well, I looked at the—what was indicated on the plat; and it shows me that it was approximately—the bottom hole location was approximately 1400 feet west of Pine Island Bayou.

Q. Now, that's a little bit different than the 1500 feet that he told you over the telephone, right?

A. A little bit. I assumed that he was talking in generalities in that case and that once he got the plat it was more specific on the plat.

Q. Well, did that spark any concern that he might be lying to you if he told you 1500 on the telephone and then gave you a plat that was 1400?

17 A. No. I—the plat speaks for itself.

*** Q. Now, I want to—well, first of all, after you got this plat and checked it out and confirmed what Mr. Lanoue had told you over the telephone, what did you then do? Did you agree to—to accept the pooling?

A. Well, once I had satisfied myself that everything was in order, was appropriate, then I decided I would send back the letter that he had requested me to sign agreeing to this but with some changes on it.

12RR:181-183. On cross-examination, Hooks continued to stress his reliance on

the “1400´± Scaled” distance:

Q. But, yet, you didn't call him [Lanoue], did you, and ask him for some clarification?

A. Well, I didn't think I needed any clarification. It seemed clear to me that it was—it was 1400 feet away from the bayou. ***

Q. All right, Mr. Hooks. So, anyway, you concluded that wherever in there the bottom hole was that it was in a satisfactory location, right? A. Yes. I—I concluded that it was fourteen—approximately 1400 feet west of Pine Island Bayou. [13RR:33, 35.] Hooks emphasized he relied on the plat’s estimate of “1400´± Scaled” to the

exclusion of everything else, including Lanoue’s statement over the telephone.

13RR:36. He testified, “when I saw a surveyor’s plat that shows 1400 feet, I

assume that’s more accurate than what his—his verbal estimation was.” 13RR:36;

see also 13RR:68 (“I assumed that he was just estimating and—verbally, but the

18 plat would be more accurate”). Hooks made no further inquiries regarding the

location of the well’s bottom hole. 13RR:39.

G. Plaintiffs Agreed to Include their 50 acres in the BSM1 Unit. On May 25, 2001, Hooks and his wife signed a letter consenting to pool 50

acres from the Jefferson County lease into the BSM1 unit. PX65. They specified

their acceptance was “conditioned upon the subsequent execution by Lessors and

Lessee of a formal lease amendment document to be prepared by [Hooks] and

submitted to [Samson].” PX65. Plaintiffs never prepared such a document.

12RR:187-88. At trial, Hooks testified repeatedly he always intended to be a part

of the unit and considered Plaintiffs’ 50 acres to be part of the unit. 13RR:14-17.

Hooks also agreed to the division order setting out Plaintiffs’ percentage

distribution of the unit’s proceeds. PX156, 157.

After Plaintiffs consented to the unit, Samson sent them royalty checks for

their unit interest in production for the three wells eventually drilled on the BSM1

unit. PX552. Plaintiffs cashed those checks continuing through trial and now for

more than six years after the trial. 12RR:203-04; 13RR:44-45. Plaintiffs never

sought any judicial decree setting aside their consent to the pooled unit.

19 H. Other Operations Near and on the BSM1 Unit Samson drilled other wells in the vicinity of Plaintiffs’ lease after Plaintiffs

consented to join the BSM1 unit. One of those wells was the Joyce DuJay No. 1

well (“DuJay1 well”), north of the Jefferson County lease. PX565. That well was

completed in January 2002 and included in a unit called the DuJay1 unit. PX21,

552, 565. Plaintiffs’ two Hardin County leases were included in the DuJay1 unit.

PX21, 552. The bottom-hole location of the DuJay1 well was also within 1320 feet

of Plaintiffs’ Jefferson County lease. PX640. Samson owed no offset obligations as

to the DuJay1 well because—although the well was drilled within 1320 feet of the

Jefferson County lease—it was already offset by the BSM1 well 5 Hooks testified

he had not been defrauded with regard to the DuJay1 well:

Q. All right. Now, nobody tricked you into – or nobody did anything to deceive you or defraud you with respect to the DuJay 1 well, did they?

A. [Hooks] Not that I'm aware of.

Q. Well, you never talked to Mr. Lanoue about it. Nobody ever sent you anything that you say is fraudulent. With respect to the DuJay 1 nobody did anything—or from Samson, anyway, nobody did anything to trick you or hoodwink you or defraud you or something with respect to the DuJay 1, right?

A. Not that I'm aware of, no.

5 The Jefferson County lease states, “Lessee shall have no [offset] obligations under this Article VI in the event a producing well on nearby or adjacent land is already offset by a well on the leased premises or on acreage pooled therewith producing from the same producing horizon from which production has been secured….” PX25 ¶VI (A). Both the BSM1 well and the DuJay1 well produced from the same formation and offset one another. 20 13RR:53. Nevertheless, alleged “damages” for the DuJay1 were included in the

jury’s award of “fraud damages.” PX608; 19CR:3268.

Other wells followed the DuJay1. See PX552; 13RR:136. Plaintiffs did not

claim any of these additional wells was within 1320 feet of the Jefferson County

lease.

No well was ever drilled on any of Plaintiffs’ three leases to Samson. The

royalties Samson paid to Plaintiffs always were based on the inclusion of

Plaintiffs’ leases in a pooled unit, with unit wells drilled on someone else’s

property. Through May 2008, Plaintiffs received over $510,000 in royalty from the

BSM1 unit (the subject of Plaintiffs’ fraud claim), and over $2.14 million in

royalty from Samson for wells drilled on units pooled with one or more of

Plaintiffs’ three leases. 16RR:21-22; DX3; PX552. Now, seven years later, those

payments—all received and deposited by Plaintiffs—are much higher than in 2008.

Despite these facts, Plaintiffs claim to have been damaged in excess of $22

million. 6

I. This Lawsuit In August 2004, an action was filed against Samson styled Joyce DuJay Lee

v. Samson. 1CR:2. The Lee plaintiffs complained about pooling issues unrelated to

the BSM1 well. In December 2004, a second action, Thomas Klorer et al. v.

6 In recent trial court filings, Plaintiffs now assert their claims exceed $52 million. 21 Samson, was filed in which other landowners also complained about the same

unrelated pooling issue. 1Supp1stCR:2. Those two actions were consolidated in

August 2005. 2CR:295.

On his birthday in the fall of 2006, Hooks attended a seminar for oil and gas

lawyers. 12RR:165-66; 13RR:50. There, he met Plaintiffs’ attorney Paul Simpson,

who told Hooks he was handling the consolidated actions against Samson.

12RR:165-67. Following that encounter, Plaintiffs joined the pending case on

November 16, 2006. 3CR:440. At that time, however, Plaintiffs did not plead fraud

claims. 3CR:440-465. They added fraud allegations May 7, 2007. 4CR:467, 490-

94. In the May 7, 2007 petition, Plaintiffs alleged in the alternative—relying on

differing facts—(1) they had never been part of the BSM1 unit and Samson

breached its lease by not paying compensatory royalties; or (2) if they were a part

of the unit, Samson defrauded them into joining the unit. 4CR:487-94. Plaintiffs

had not notified Samson about their fraud or lease breach allegations prior to filing

those claims. Accordingly, Samson drilled wells in the vicinity of the BSM1 unit in

reliance on Plaintiffs’ participation in that unit.

In September 2007, the trial court severed the action into three cases, one of

which became this Hooks action, which was tried and is now this appeal. 4CR:626.

The trial court granted summary judgment dismissing Plaintiffs’ breach of lease

claim with regard to the drilling of the BSM1 well because it was barred by

22 limitations. That left Plaintiffs with only their fraud claim. 18CR:3162. Plaintiffs

did not appeal from the granting of the breach of lease summary judgment. The

fraud claim was tried to the jury, along with the formation production claim. The

judgment entered following the jury trial, in combination with previous summary

judgment rulings, awarded the following amounts [1Supp2dCR:6; Court Ex. A]:

18% "Late Fee" Total Damages Compounde Judgment Amount d Monthly Damages

A. Fraud- 1. Blackstone Minerals No. 1 Well $3,547,241 2. Joyce DuJay No. 1 Well $3,538,565 3. Total Fraud $7,085,806 $12,995,832 $20,081,638

B. Breach of Lease- 1. Most Favored Nations $416,325 $432,529 $848,854 2. Unpooling-Black Stone Minerals "A" No. 1 Well $288,653 $477,974 $766,627 3. Ad Valorem Taxes $52,257 $0 $52,257 4. Total Breach of Lease $757,235 $910,503 $1,667,738

C. Total Listed Damages $7,843,041 $13,906,335 $21,749,376

D. Plaintiffs’ Attorneys' and Experts' Fees Plus Costs $501,921 $0 $501,921

E. Total Trial Court Damages $8,344,962 $13,906,335 $22,251,297

23 SUMMARY OF THE ARGUMENT There is legally and factually insufficient evidence to support either the

jury’s common law or statutory fraud findings. There is factually insufficient

evidence to support the jury’s finding Hooks, in the exercise of reasonable

diligence, could not have discovered his fraud claim until April 2007. Further,

there is legally and factually insufficient evidence to support fraud damages and

prejudgment interest on those damages.

Common Law Fraud Liability. There is legally and factually insufficient

evidence to support Plaintiffs’ common law fraud claim for the following reasons:

• The plat was marked “scaled,” meaning it was inexact and the distance upon

which Plaintiff testified he relied said “1400´± Scaled”. A distance of

“1400´± Scaled” is too indefinite to form the basis of a misrepresentation

when someone is attempting to determine whether a well is 1320 feet from a

lease line. Plaintiffs’ witnesses admitted there had to be at least some give

on the 1400 number, with Plaintiffs’ expert admitting it could be a 100 foot

tolerance.

• Hooks ignored the “±” part of the plat when he supposedly relied on the

“1400´± Scaled” distance call. He could not justifiably have relied on such

an indefinite measurement when he was looking for a precise answer to his

supposed question—a question he never even posed to Samson.

24 • Hooks admitted he may not have told Samson why he cared about the

location of the BSM1 well. Samson’s landman, Lanoue, thought Hooks

wanted the plat only to see where Plaintiffs’ lease was located within the

unit, which the plat plainly showed. There was no evidence Samson had any

intent in supplying the plat to defraud Plaintiffs into consenting to the unit.

• Plaintiffs failed to prove a duty to disclose existed. First, as a matter of law,

no duty to disclose existed. Second, there is legally and factually insufficient

evidence of the breach of a duty to disclose. Samson did not know Plaintiffs

were relying on the plat in the way Hooks testified. Further, Plaintiffs were

not “continuing” to rely on the plat after the date they consented to the unit.

Finally, in contrast to the requirement Plaintiffs must lack an equal

opportunity to discover “the truth,” Plaintiffs had access to multiple public

records from which they could have learned the bottom hole’s precise

distance from their lease line.

Statutory Fraud Liability. Statutory fraud does not even apply to these facts

because there was no “sale” of real estate. Moreover, for the same reasons as

above, there is legally and factually insufficient evidence of statutory fraud. That

claim requires the same misrepresentation, intent, and reliance elements as

common law fraud. There is no, or insufficient, evidence of any of those elements.

25 Statute of Limitations for Fraud. The misrepresentation allegedly occurred in

February 2001 and Plaintiffs supposedly acted on it in May 2001, when they

signed the pooling consent. But Plaintiffs did not file their fraud claim until May

2007. Limitations for fraud is four years. There is factually insufficient evidence to

support the jury’s finding that Plaintiffs, by exercising reasonable diligence, could

not have discovered their fraud claim until April 2007. Hooks’ testimony on the

issue was nothing more than a statement of when he actually learned about the

claim. He did not provide any evidence why, in the exercise of reasonable

diligence (as an experienced oil and gas attorney and mineral owner), he could not

have discovered his claim earlier. Accordingly, there is factually insufficient

evidence to support the jury’s answer to when Plaintiffs could have discovered the

alleged fraud by exercising reasonable diligence.

Improper Fraud Damages. There was legally and factually insufficient

evidence supporting Plaintiffs’ damages evidence for the following reasons:

• There was no evidence of a fraud measure of damages. Instead, Plaintiffs

presented only breach of lease damages as alleged fraud damages.

• Although Plaintiffs attempted to categorize their damages as “consequential”

damages, they never pleaded for consequential damages.

• In this alleged fraud in the inducement case, Plaintiffs had a choice of (1)

setting aside the agreement they claim they were induced to sign (the

26 pooling consent) or (2) standing on that agreement and seeking fraud

damages. Plaintiffs never attempted to set aside the agreement to pool but

nevertheless sought damages as if that consent to pooling did not exist.

Throughout this case, they accepted royalty payments from that unit and

continue to do so to this day.

• Approximately half of Plaintiffs’ claimed fraud damages were attributable to

another well—the DuJay1 well—as to which Hooks admitted he was not

defrauded. Moreover, to the extent Plaintiffs were seeking compensatory

royalty damages for the DuJay1 well, there was no evidence (and

insufficient evidence) those damages were foreseeable at the time the

alleged fraud supposedly occurred.

• Almost ⅔ of the fraud damages ($12,995,832) represents an improper

contractual “late charge” of 18% compounded monthly. The 18% interest

rate “only” applies to “past due royalties” not to fraud damages. Hooks, 457

S.W.3d at 69-70. Fraud damages are an “other recovery” to which “the

statutory rate of 5% applies.” Id. at 70. Here, the 18% contractual late charge

was incorporated into the fraud damages calculations and is part of the jury’s

damages award, so there is no proper evidence of fraud damages. PX608;

1Supp2dCR:6.

27 • The fraud damages also incorporated damages for formation production. The

Supreme Court held Plaintiffs are not entitled to formation production

damages. Accordingly, the fraud damages must be reversed.

• Plaintiffs have continued to accept royalties from the unit. Accordingly,

those payments have to be taken into account if any damages are awarded to

Plaintiffs.

Recalculation of Favored Nations Damages. The parties entered into a

stipulation of the favored nations damages, both with and without formation

production damages. The favored nations damages awarded in the original

judgment are incorrect now because they, like the fraud damages, include

formation production damages. Thus, the favored nations damages need to be

recalculated. Moreover, because the damages currently only go through May 2008,

Plaintiffs certainly will request those damages be made current. As a consequence,

this Court should remand the favored nations damages to be recalculated by the

trial court. In connection with that remand, Plaintiffs asserted the late payment

provision provides for monthly compounding of interest at 18%. The Supreme

Court agreed to the 18% interest rate for past-due royalties. But Plaintiffs are

entitled to prejudgment interest measured by the standard “simple” interest

measure. Other courts, interpreting contract language similar to the language at

issue in this case, have held the language allows for 18% simple interest.

28 ARGUMENT

A. Standard of Review Samson’s appeal presents both legal and factual insufficiency of the

evidence challenges to the jury’s findings on fraud and fraud damages. Further,

this appeal presents factual insufficiency challenges to the jury’s limitations

finding on fraud. Finally, this appeal presents legal questions surrounding damages

remand, interest calculation questions, and damages recalculations.

This Court should sustain a legal sufficiency challenge on issues on which

Plaintiffs bear the burden of proof if “the evidence demonstrates a complete

absence of a vital fact, or if the evidence offered is no more than a scintilla.”

Burbage v. Burbage, 447 S.W.3d 249, 259 (Tex. 2014). “We regard evidence that

creates a mere surmise or suspicion of a vital fact as, in legal effect, no evidence.”

Id.; accord Ford Motor Co. v. Ridgway, 135 S.W.3d 598, 601 (Tex. 2004). The

evidence must be considered in the light most favorable to the judgment but credit

must be given to evidence a reasonable juror could not disregard. City of Keller v.

Wilson, 168 S.W.3d 802, 807 (Tex. 2005).

When considering a factual sufficiency challenge, the court “must consider

and weigh all of the evidence, not just that evidence which supports the verdict.”

Maritime Overseas Corp. v. Ellis, 971 S.W.2d 402, 407 (Tex. 1998). The appellate

court is authorized to set aside the verdict in the circumstance that it is so contrary

29 to the overwhelming weight of the evidence that the verdict is clearly wrong and

unjust. Id.; see also Ortiz v. Jones, 917 S.W.2d 770, 772 (Tex.1996).

The Supreme Court did not decide the legal or factual sufficiency of

Plaintiffs’ fraud claims. This Court reversed and rendered judgment on the fraud

claim based on limitations. The Supreme Court held that ruling was incorrect and

remanded for this Court’s consideration of the other arguments “concerning

Hooks’ fraudulent inducement claims” including “the factual and legal sufficiency

of the evidence with regard to common-law fraud, statutory fraud, and damages for

fraud….” 457 S.W.3d at 61. Furthermore, the limitations issue has been remanded

for reconsideration on factual sufficiency grounds.

Nothing in the Supreme Court’s opinion addresses the fraud liability and

damages challenges now remanded to this Court. Nor is there any decision on

limitations factual sufficiency.

B. There is Legally and Factually Insufficient Evidence of Common Law Fraud To recover damages for fraud, Plaintiffs must prove:

(1) a material representation that was false when made; (2) when the representation was made, the speaker knew it was false or made it recklessly as a positive assertion without any knowledge of its truth; (3) the speaker made the representation with the intent that the other party should act upon it; (4) the party actually and justifiably relied on the representation; and (5) thereby suffered injury.

30 Miller v. Raytheon Aircraft Co., 229 S.W.3d 358, 380-81 (Tex. App.—Houston

[1st Dist.] 2007, no pet.). “Fraudulent inducement is a subspecies of fraud; ‘with a

fraudulent inducement claim, the elements of fraud must be established as they

relate to an agreement between the parties.’” 457 S.W.3d at 57 (quoting Haase v.

Glazner, 62 S.W.3d 795, 798–99 (Tex.2001)).

1. There is legally and factually insufficient evidence of a misrepresentation on which Hooks claims to have relied Hooks’ reliance was limited. He made it very clear he only relied on the plat,

and then on only one representation on the plat: the line saying “1400´± Scaled.”

He repeatedly disclaimed any reliance on Lanoue’s statements in their telephone

call. 12RR:181-183; 13RR:33-36, 68. He testified the “plat speaks for itself,” he

did not need “any clarification” and the plat was “more accurate” than Lanoue’s

“verbal estimation.” 12RR:181-183; 13RR:33-36.

Hooks did not point to anything else on which he relied. He did not claim he

had relied upon the X,Y coordinates on the plat. He testified he disregarded the

contradictory statement in the legend that the well was bottomed “1400´± Scaled”

from the east line of the unit. 13RR:38-39. Hooks did not rely on anything other

than the plat and he relied only on the one statement on the plat.

The problem is the plat does not say “1400´ absolute.” That is plainly how

Hooks read it; but that it not what it says. The plat does not say it is an accurate

survey. In fact, it says the opposite. Hooks admitted at trial “scaled” means there

31 may be inaccuracies in the plat. 13RR:71 (admitting there could be “some room for

error” in a plat that says it is “scaled”); 16RR:62-63 (scaled map is subject to

error). And the plat does not say “1400´”. It says “1400´± Scaled”. And the

measurement was to a waterway whose boundaries can move.

Both the statement the plat is “scaled”—meaning it says on its face it is

inaccurate—and the statement “1400´±” mean the plat did not represent the line

measured anything precisely 1400 feet from Plaintiffs’ lease.

The symbol “±” indicates a tolerance from 1400 feet. Plaintiffs’ expert

surveyor explained Lanoue’s original verbal estimate that the well was

approximately 1500 feet from Plaintiffs’ lease could be explained by the plat’s

indication of “1400´±”. 12RR:53, 67-68; see also 13RR:36, 68 (Hooks similarly

excusing Lanoue’s 1500 foot description). In other words, “1400´± Scaled” could

mean a variance of 100 feet one way or the other. 12RR:53, 67-68. If “1400´±”

could include 1500 feet, then it could equally encompass 1300 feet. 1300 feet

would place the well closer than 1320 feet to Plaintiffs’ lease.

Indefinite statements cannot form the basis of a misrepresentation. Bradford

v. Vento, 48 S.W.3d 749, 759 (Tex. 2001). 7 The purpose of using terms like “more

or less” or “plus or minus” is to relieve exactness. 4 A. LEOPOLD, TEXAS PRACTICE

7 Accord, Simulis, L.L.C. v. Gen. Elec. Capital Corp., 439 S.W.3d 571, 577, 579 (Tex. App.— Houston [14th Dist.] 2014, pet. denied); Ikon Office Solutions v. Eifert, 125 S.W.3d 113, 128 n. 11 (Tex. App.—Houston [14th Dist.] 2003, pet. den.); In re Media Arts Group, Inc., 116 S.W.3d 900, 910 (Tex. App.—Houston [14th Dist.] 2003, orig. proc.). 32 SERIES, LAND TITLES AND TITLE EXAMINATION, §15.15 (3d Ed. 2015). Adding “±”

to a number signals indefiniteness, as Plaintiffs’ expert confirmed. Plaintiffs’

surveyor could not put a number on what “±” might mean. 12RR:54. However, she

allowed that “1400´±” could permit differences of 100 feet. 12RR:53, 67-68.

Hooks testified he thought “±” meant a few feet one direction or another. 13RR:36.

Courts addressing acreage or distance calls using terms like “plus or minus”

or “more or less” allow for variances at least up to 10%. See Slagle v. Clark, 237

S.W.2d 430, 433-34 (Tex. Civ. App.—Amarillo 1951, no writ); Harkins v. North

Shore Energy, L.L.C., No. 13-12-00504-CV, 2014 WL 1789572, at *8 (Tex.

App.—Corpus Christi May 1, 2014, pet. pending) (“more or less” allowed a

difference greater than 5%). For example, the Slagle court observed one

jurisdiction had fixed the discrepancy at 10%. Slagle noted the discrepancy before

it was less than 10% and held there was no fraud. Id. at 434; see also 26A C.J.S.

Deeds § 274 (2015) (“more or less” relieves a “stated distance or quantity of the

attribute of exactness”).

Here, if the 10% rule is applied, “1400´±” would include everything from

1260 to 1540 feet. Even greater latitude is warranted when the term “Scaled” is

used. There is less than a 6% difference between 1400 and 1320. So, even if

someone read the plat as did Hooks, ignoring the arrow showing the well’s bottom-

hole location to be about 1050 feet from Plaintiffs’ lease line, there was no

33 misrepresentation. “1400´± Scaled” warns it is inaccurate and the “±” causes

“1400´” to be too close to the 1320 foot line. There was no actionable

misrepresentation here as a matter of law. Alternatively, there is factually

insufficient evidence to support the jury’s finding.

Furthermore, Hooks specifically admitted at trial there was no fraud as to a

substantial portion of what the jury awarded as fraud damages. Plaintiffs’ expert

presented fraud damages that included compensatory royalties supposedly owed on

two wells—the BSM1 well (located in the BSM1 unit where the fraud supposedly

occurred) and another well—the DuJay1 well. PX608; 19CR:3268 (jury awarding

amount to which Plaintiffs’ expert testified). Half what the jury awarded for fraud

was for the DuJay1 well. PX608 ($3,538,565.24 of the total $7,085,806.02 fraud

damages is for DuJay1 well; an additional $12,995,832.05 is “late charges” for

both wells). But the DuJay1 well was not drilled until significantly after Plaintiffs

consented to the BSM1 unit, and was in a different unit from the BSM1 well.

Hooks admitted he was not defrauded as to the DuJay1 well. Hooks was asked:

“[N]obody did anything to deceive you or defraud you with respect to the DuJay 1

well, did they?” He answered: “Not that I'm aware of.” 13RR:53.

So, Hooks admitted there was no fraud with regard to the well comprising

half the jury’s award for fraud damages.

34 2. There is legally and factually insufficient evidence of reliance

For the same reasons the uncertainty of “1400´± Scaled” means there was no

legally or factually sufficient evidence of misrepresentation, there was similarly no

and insufficient evidence of reliance. Hooks’ testimony demonstrates he treated

“1400´±” as if it was simply “1400´.” 13RR:36. He did not “rely” on what was

represented to him. He concluded the distance from the well to his property was

1400 feet, exactly, and he relied upon his own conclusion. He did not rely on

Samson’s plat, which said the “1400´” was “±” and the entire plat was “Scaled.”

There must be legally and factually sufficient evidence that a plaintiff

“actually” and justifiably relied on the alleged misrepresentation. Ernst & Young,

L.L.P. v. Pac. Mut. Life Ins. Co., 51 S.W.3d 573, 577 (Tex. 2001); accord, Nat’l

Prop. Holdings, L.P. v. Westergren, 453 S.W.3d 419, 423 (Tex. 2015); Hartford

Fire Ins. Co. v. C. Springs 300, Ltd., 287 S.W.3d 771, 781 (Tex. App.—Houston

[1st Dist.] 2009, pet. denied). The evidence here is lacking. Hooks “relied” on

something other than the plat description. He relied on his own mental filling-in of

the number “1400´” without taking into account the “± Scaled.” Hooks assumed an

answer to his unexpressed question concerning the well’s location from Samson’s

indefinite statement “1400´± Scaled,” contained on a plat sent to Hooks for another

purpose, and did not tell Samson he had leaped to that conclusion or otherwise

seek confirmation.

35 Cases hold a plaintiff has not relied as a matter of law when the statements

he supposedly relied upon are indefinite. Grant Thornton LLP v. Prospect High

Income Fund, 314 S.W.3d 913, 923 (Tex. 2010) (quoting Lewis v. Bank of Am. NA,

343 F.3d 540, 546-47 (5th Cir. 2003); Sawyer v. E.I. Du Pont de Nemours and Co.,

430 S.W.3d 396, 401 (Tex. 2014); Montgomery Cnty. Hosp. Dist. v. Brown, 965

S.W.2d 501, 503 (Tex. 1998).

There was legally and factually insufficient evidence of reliance.

3. There is legally and factually insufficient evidence Samson intended to defraud Plaintiffs There is no and insufficient evidence Samson intended for Plaintiffs to rely

on the “1400´± Scaled” or any other measurement on the plat to determine the

distance between their lease and the bottom-hole location of the BSM1 well.

Hooks was asked at trial whether he mentioned his concerns about Samson’s offset

obligations during the conversation with Lanoue that resulted in Lanoue’s sending

the plat. 13RR:25. Hooks admitted he may not have mentioned them:

Q. Did you mention to Mr. Lanoue anything about offset obligations in that phone call? A. [Hooks] I don't know if we specifically talked about offset obligations. We talked about the location of the well; and I believe that was clear, that that was a potential issue. Q. Well, you did not tell Mr. Lanoue that you were concerned about whether the well was going to be within 1,320 feet. You never said that specifically, did you?

A. I may not have…. [13RR:25 (emphasis added).] 36 Lanoue testified he sent this plat because he understood Hooks wanted to

visualize the location of Plaintiffs’ Lease within the unit:

Q. And, then, did you then send Mr. Hooks some additional information about the Black Stone Minerals well and unit? A. [Lanoue] He had called and was not sure—was not sure where their land was laying. He wanted to know where their tract was going to be located within the unit and requested a plat. So, I sent him one. I faxed him one. [12RR:124.]

Lanoue also testified the lease’s offset provision was not a topic of

conversation when he sent the plat to Hooks. 12RR:92-93. Lanoue explained, “The

plat I’d sent to the Hooks wasn’t intended to be a plat showing where the—how far

away the well was located. It was purely an informational plat to show where their

tract was to be located within the unit.” 12RR:93 (emphasis added). The plat sent

to Hooks was not one created at Hooks’ request. Lanoue drew it six months before

he ever talked to Hooks. 12RR:49-50. Moreover, Lanoue used it and similar plats

from August 2000 through October 2001. 12RR:49-50.

Samson derived no advantage—monetary or otherwise—from Plaintiffs’ 50

acres being in the unit. Plaintiffs’ 57.25% cotenant in the lease—the Broussards—

already had agreed to the pooling. 15RR:63. If Plaintiffs refused to join the unit,

Samson could have released their 50 acres from their lease. PX25 ¶IV(B). The

Jefferson County lease expressly gave Samson the authority “at any time” to

37 release any portion of the lease “and be relieved of all obligations as to the acreage

surrendered.” PX25¶IV(B).

Had Samson been aware of Mr. Hooks’ allegations earlier, it obviously

would have released Plaintiffs’ lease, and Plaintiffs would have received none of

the $510,000 Samson paid them for their participation in the BSM1 unit through

May 2008, plus additional payments thereafter. 15RR:63. Samson’s geophysicist,

Mr. Beale, testified without contradiction that if Hooks had refused to consent to

the unit, Samson would have released Plaintiffs’ Jefferson County lease. 15RR:62.

Most of the Jefferson County lease was separated from productive acreage by a

geological fault. 15RR:65-66. Hooks agreed that, had Samson released his lease

and kept the Broussard lease in the unit, Samson would have made more money

than it did by including Plaintiffs’ interest in the unit:

Q. And if you did not join the unit and your property was released, your interest in the property was released, the portion that would have gone to you would have just stayed with Samson, wouldn't it? A. I believe that's correct. Q. And that's perfectly legal, isn't it? A. Yes. Q. They would not have been doing anything improper, illegal, or wrong by doing that, would they? A. I suppose not. Q. So, they had zero incentive, didn't they, Mr. Hooks, to feel compelled to do whatever it took to get you into the unit? A. I don't know what their incentive is.

38 Q. Given that they had more money in their pocket without you going into the unit, would you agree with me that certainly is a counterincentive? A. I—if that were the case, it would appear to be.

13RR:44. Hooks could not identify any reason why Samson would want to defraud

him into consenting to the unit. 13RR:44; see also 15RR:63. In other words,

Samson would have benefitted by releasing Plaintiffs’ lease and excluding

Plaintiffs from the unit, rather than by including them. 8

Proof of intent requires something more than a foreseeable possibility

someone might rely on something. “The mere fact that it should be known that

another will rely upon a misrepresentation does not, of itself, establish that the

misrepresentation was made with the intent to induce reliance.” Blue Bell, Inc. v.

Peat, Marwick, Mitchell & Co., 715 S.W.2d 408, 415 (Tex. App.—Dallas 1986,

writ ref’d n.r.e.); see Ernst & Young, 51 S.W.3d at 579-80 (citing Blue Bell).

Rather, “[t]he ‘intent’ element of a fraud action imports a significantly greater

degree of purposeful conduct than does the ‘foreseeability’ element of a negligence

action.” Blue Bell, 715 S.W.2d at 415; Willis v. Marshall, 401 S.W.3d 689, 702

(Tex. App.—El Paso 2013, no pet.) (quoting Blue Bell in a fraudulent inducement

8 There is a breach notification provision in the Jefferson County lease, but Plaintiffs never complied with it. See Arbor Windsor Court, Ltd. v. Weekley Homes, LP, No. 14-13-00480-CV, 2015 WL 1245548, at *1 (Tex. App.—Houston [14th Dist.] Mar. 17, 2015, no pet.) (breach notification provision is condition precedent). Because Samson was not informed of any potential breaches, it did not release any portion of the Hooks lease, which it was free to do at any time. Had Samson released Plaintiffs’ lease in whole or in part, Plaintiffs would have received no money from the BSM1 unit and Samson would have avoided Plaintiffs’ fraud claim with all the attendant costs. 39 case); see also Ehrhardt v. Elec. & Instrumentation Unlimited, 220 F. Supp. 2d

649, 660 (E.D. Tex. 2002). There is legally and factually insufficient evidence of

an intent to defraud.

4. There is legally and factually insufficient evidence of a duty to disclose or any failure to disclose a. There is legally and factually insufficient evidence of a duty to disclose

Question No. 1 presented the jury with alternative instructions on intentional

misrepresentation and a failure to disclose. 19CR:3266. Samson objected to these

instructions because there was no evidence raising a duty to disclose. 17RR:28.

Whether a party has a duty to disclose is a question of law. Bradford, 48

S.W.3d at 755. “Generally, no duty of disclosure arises without evidence of a

confidential or fiduciary relationship.” Ins. Co. of N. Am. v. Morris, 981 S.W.2d

667, 674 (Tex. 1998).

Restatement of Torts §551 describes other circumstances where parties may

have a duty to disclose. RESTATEMENT (SECOND) OF TORTS, §551 (1977). Here, the

instruction apparently was based on an alleged duty to disclose “subsequently

acquired information.” Id. But the Supreme Court has “never adopted section

551.” Bradford, 48 S.W.3d at 756.9 Samson did not have a fiduciary or

9 As the Fifth Circuit noted, “[a] reasonable jurist might well conclude … that a duty to disclose exists in Texas only in the context of a confidential or fiduciary relationship.” United Teacher Assocs. Ins. Co. v. Union Labor Life Ins. Co., 414 F.3d 558, 566 (5th Cir. 2005). Nevertheless, “courts after Bradford (including [the Fifth Circuit]) have not gotten the message, but have 40 confidential relationship with Plaintiffs that could create a duty to disclose. See

HECI Exploration Co. v. Neel, 982 S.W.2d 881, 888 (Tex. 1998). There was no

duty to disclose as a matter of law in this case.

Even if there were a duty to disclose outside a fiduciary or confidential

relationship, that duty would not have existed here. In this case, the “duty to

disclose” supposedly arose “when a party makes a representation and later acquires

new information which makes the representation untrue or misleading….”

19CR:3266 (jury instructions). Under that circumstance, there is supposedly a duty

to “disclose such information to anyone whom [the party] knows to be still acting

on the basis of the original statement.” Id. Plaintiffs asserted Samson had a duty to

notify Plaintiffs of a change made to its plat in November 2001, correcting the

bottom-hole location. 17RR:8.

In order for a duty to disclose to exist under these instructions, there had to

be sufficient evidence Samson knew (1) Hooks had relied on the “1400´± Scaled”

notation and (2) was “still acting on the basis of the original statement.”

19CR:3266; see also RESTATEMENT §551. There was no (and insufficient)

evidence of either of these two elements. First, there is legally and factually

insufficient evidence Samson knew Hooks had used the plat to determine whether

the well was 1320 feet from his lease. Second, Plaintiffs had already taken the one

instead continued to find that a duty to disclose can exist in Texas absent a confidential or fiduciary relationship.” Id. 41 action Hooks testified they took based on the plat—signing a written consent to

pooling on May 25, 2001. Since the plat was not corrected until November 2001,

there is no or insufficient evidence Plaintiffs were “still acting on the basis of the

original statement.”

b. There is legally and factually insufficient evidence of a failure to disclose

The charge defined a “failure to disclose” as:

[1] the party fails to disclose a material fact within the knowledge of that party; [2] the party knows that the other party is ignorant of the fact and does not have an equal opportunity to discover the truth; [3] the party intends to induce the other party to take some action by failing to disclose the fact; and [4] the other party suffers injury as a result of acting without knowledge of the undisclosed fact. [19CR:3266.]

Bearing in mind the alleged “failure to disclose” was of Samson’s November

2001 plat (17RR:8), there was no or insufficient evidence of three of the four stated

elements. Skipping to the third element, there was no or insufficient evidence

Samson intended to induce Hooks to do anything when it sent him the original plat,

or when it did not send him the corrected plat. There was no or insufficient

evidence Samson knew Hooks was trying to determine whether the bottom hole

was within 1320 feet of Plaintiffs’ lease; Hooks had not said that was why he

wanted the plat. 12RR:124; 13RR:25. On the fourth element, Plaintiffs suffered no

injury because of the alleged subsequent nondisclosure. The only injury of which

Plaintiffs complain is their granting written consent to pooling. They had already

42 sustained that supposed “injury” previously when they agreed to include their 50

acres in the unit; that occurred significantly before the time Samson corrected the

plat.

The second element calls for sufficient evidence Samson knew Hooks was

ignorant of the well’s distance from his land and did not “have an equal

opportunity to discover the truth….” 19CR:3266. As stated above, there is no or

insufficient evidence Samson knew Hooks was silently questioning the bottom

hole’s distance from his lease line. Moreover, there is no evidence Plaintiffs lacked

an equal opportunity to discover the truth. Hooks could have directly asked

Samson whether the well’s bottom hole was within 1320 feet of Plaintiffs’ lease or

whether the offset obligations had been triggered; but he did not. He was an

experienced Texas oil and gas attorney who could have requested the directional

survey from Samson. But he did not do that either.

Furthermore, Hooks could have reviewed publicly-available records.

“[F]ilings and other materials publicly available from the Railroad Commission are

a ready source of information….” HECI, 982 S.W.2d at 887. “As owners of an

interest in the mineral estate, [Plaintiffs] had some obligation to exercise

reasonable diligence in protecting their interests.” Id. at 886.10 The Texas

10 The Supreme Court fraud holdings were limited to the limitations issue. 457 S.W.3d at 61. Its holdings and other statements do not assert Plaintiffs did not have access to the Railroad 43 Administrative Code requires a directional survey be filed at the Railroad

Commission.11 16 Tex. Admin. Code §3.11 (2015). Parties are presumed to know

the law. See Greater Houston Transp. Co. v. Phillips, 801 S.W.2d 523, 525 n.3

(Tex. 1990) (“all persons are presumed to know the law.”).

In accordance with Railroad Commission requirements, a directional survey

had been filed with the Railroad Commission six months before Lanoue contacted

Hooks. DX5. Hooks could have used it to determine (or have someone determine)

the well’s precise bottom hole location. DX5; 12RR:80; 16RR:53-54, 72, 85-86,

102-03. A plat (the “Schlumberger plat”) was filed along with the survey. DX13.

Although “some data on the plat does not completely correspond to the data on a

later correct plat,” the Supreme Court noted “the plat correctly placed the bottom

hole within the protected zone.” 457 S.W.3d at 56 n. 4. In fact, the Schlumberger

plat shows the location of the well’s bottom hole as being only slightly further

away from Plaintiffs’ lease than the 1080 feet originally planned. Thus, Plaintiffs

had access to official records showing the well’s bottom hole was within 1320 feet

of Plaintiffs’ lease.

There is legally and factually insufficient evidence of a failure to disclose.

Commission records for purposes of a duty to disclose or that Plaintiffs did not have “an equal opportunity to discover the truth.” 11 A directional (or inclination) survey is “[a] well survey that measures the degree of departure of a hole from the vertical and the direction of the departure.” 8 H. WILLIAMS & C. MEYERS, OIL AND GAS LAW 265 (2008).

44 C. There is Legally and Factually Insufficient Evidence of Statutory Fraud In Question No. 2, the jury found Samson violated Tex. Bus. & Com. Code

§27.01(a), which proscribes fraud in a real estate transaction. That statute is a form

of penalty and is strictly construed. Porter v. Irvine, 658 S.W.2d 711, 715 (Tex.

App.—Houston [1st Dist.] 1983, no writ); Ratcliff v. Trenholm, 596 S.W.2d 645,

650 (Tex. Civ. App.—Tyler 1980, writ ref’d n.r.e.).

1. Statutory fraud does not apply to this case because there is no real estate transaction of the type required by that statute The May 25, 2001 consent to pooling did not effect a sale of real estate.

Rather, it granted consent for Samson to pool a mineral interest Samson already

held under Plaintiffs’ Jefferson County Lease. The agreement did not involve a

transaction within §27.01.

Texas courts hold §27.01 is limited to misrepresentations made to induce

another into a contract “for the sale of land or stock.” Burleson State Bank v.

Plunkett, 27 S.W.3d 605, 611 (Tex. App.—Waco 2000, pet. denied) (emphasis

added); Nolan v. Bettis, 577 S.W.2d 551, 556 (Tex. Civ. App.—1979, writ ref’d

n.r.e.). The statute does not apply where there is “no sale of real estate … as

contemplated by the statute.” Life Ins. Co. v. Murray Inv. Co., 646 F.2d 224, 227

n.2 (5th Cir. 1981). Here, there was no such sale. Samson gained a limited power

to pool a mineral estate it already owned as lessee.

45 2. There is legally and factually insufficient evidence of the elements of statutory fraud

For the same reasons there was legally and factually insufficient evidence of

common law fraud, the evidence was equally lacking as to statutory fraud.

Statutory fraud requires proof of a misrepresentation of a material fact, intent to

induce reliance, and reasonable reliance by the person entering the contract.

Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 182 (Tex. 1997); Petras v.

Criswell, 248 S.W.3d 471, 475 (Tex. App.—Dallas 2008, no pet.); Spethmann v.

Anderson, 171 S.W.3d 680, 688 n.1 (Tex. App.—Dallas 2005, no pet.).

As with common law fraud, “a representation is not material if it is ‘vague

and indefinite in its nature and terms.’” In re Webber, 350 B.R. 344, 367 (Bankr.

S.D. Tex. 2006); see also Sawyer, 430 S.W.3d at 401; Montgomery Cnty., 965

S.W.2d at 503. The “1400´± Scaled” line was indefinite and could not have been

the basis of a material representation. See Bradford, 48 S.W.3d at 759; Slagle, 237

S.W.2d at 433-34. Nor could Hooks justifiably rely on the “1400´±” description.

See Lewis, 343 F.3d at 546-47; Montgomery Cnty., 965 S.W.2d at 503. Likewise,

there is no and insufficient evidence Samson intended to use the plat to convince

Hooks the well was more than 1320 feet from his property. There is legally and

factually insufficient evidence of a misrepresentation, reliance, or intent to support

the jury’s finding on Question No. 2.

46 Since statutory fraud fails, the judgment’s award of expert witness fees and

deposition costs, which rest on §27.01(e), should be reversed.

D. There is Factually Insufficient Evidence to Support the Jury’s Finding that Plaintiffs Could Not Have Discovered the Alleged Fraud Claim until April 2007 Plaintiffs consented in 2001 to Samson’s pooling of acreage from their

Jefferson County lease to form the BSM1 unit. PX65 (agreement), PX157

(consenting again as to interest specified in PX156). Over 5 years later, in

November 2006, Plaintiffs joined the already-pending and consolidated Lee and

Klorer actions. 3CR:440; 12RR:165-67; 13RR:50-51. The Lee and Klorer actions

did not include fraud allegations. 1CR:2, 114; 2CR:297; 3CR:391, 413. Plaintiffs

did not plead fraud until May 2007, nearly 6 years after Plaintiffs consented to the

unit. 4CR:467, 490-92. The statute of limitations for fraud is four years. Williams

v. Khalaf, 802 S.W.2d 651, 652 (Tex. 1990). Plaintiffs cannot legally prejudice

Samson by sitting on claims for so long.

With regard to limitations, the jury was asked: “By what date should the

Hooks, in the exercise of reasonable diligence, have discovered the fraud of

Samson?” 19CR:3274. Hooks testified the alleged fraud was “discovered” in

Spring 2007. 12RR:165-67; 13RR:50-51. Initially, the jury answered the

limitations question: “Hooks Birthday.” 19CR:3274. Hooks had met Paul Simpson,

Plaintiffs’ lead trial lawyer, on Hooks’ birthday in 2006 at a lunch meeting of the

47 Houston Bar Association’s Oil Gas and Mineral Law section. 12RR:165-66.

Instructed to clarify their answer, the jury responded “April 2007”—months after

Hooks’ birthday. 19CR:3274; 12RR:165-66.

There is factually insufficient evidence to support the jury’s finding that

Plaintiffs should not have discovered facts putting them on notice of the alleged

fraud before April 2007.

The following testimony is the only evidence touching on why Plaintiffs

supposedly should not have, in the exercise of reasonable diligence, discovered

their fraud claim until 2007:

Q. Well, at what point in time just generally did you-all, through the discovery process, uncover what had happened to you?

A. Oh, I think it was in the spring, the following spring that information came out. [12RR:167.] *** Q. Now, once—I guess it was in the fall of 2006 when you and Mr. Simpson ran into each other up at the Houston Club, right?

A. Yes.

Q. And that's the first time that you—or sometime thereafter—and I don't know if it was that day or when—but at some point then you became, you know, unhappy and felt like you had been defrauded, right?

A. After some further information came to light that that was apparently the situation. [13RR:50-51.]

That is it: a simple bald-faced statement something came to light sometime

during the spring of 2007 in discovery. There is no explanation why the claim—

48 which at least could have been discovered in various separate public records—

could not have been discovered previously. There is no explanation why discovery

was needed to find out about the fraud claim. There is no explanation what facts

discovery revealed to Plaintiffs that put them on notice of alleged fraud. Nothing.

There is the bare assertion, and nothing more.

The fraud claim is based on the location of a well. That well had been in the

same place since July 2000 when Schlumberger ran the directional survey and

since August 2000 when Schlumberger filed that survey in the Railroad

Commission records. It is not as if Plaintiffs were dealing with a moving target.

The well’s bottom-hole location has been in the same place since the summer of

2000. Why it took Plaintiffs nearly seven years to locate the well’s bottom-hole is a

mystery.

Moreover, the “April 2007” answer is wholly unsupported by the

uncontradicted evidence Plaintiffs, themselves, put in the record. Plaintiffs

acknowledge Samson filed a correct plat in the official public records of both

Hardin and Jefferson Counties in January and February 2003. 16RR:13 (Plaintiffs’

cross-examination); PX19. That plat showed the correct bottom-hole location for

the BSM1 well and was attached to an amended unit designation. 11RR:183-84;

12RR:6-7; 16RR:13; PX19.

49 So according to Plaintiffs’own evidence, the official public land records of

Jefferson County contained correct bottom-hole location information more than

four years prior to the date Plaintiffs filed their fraud claims.

Plaintiffs did not introduce a scintilla of evidence regarding why “in the

exercise of reasonable diligence” Hooks should not have discovered the alleged

fraud before April 2007. Plaintiffs provided no explanations or details, but only a

bare assertion of when the alleged fraud was actually discovered, without further

explanation. Evidence is insufficient when it is only “generalized” and

“conclusory.” Serv. Corp. Int’l v. Guerra, 348 S.W.3d 221, 232 (Tex. 2011). “Bare

assertions” with no accompanying explanation do not provide sufficient evidence

to pass the scintilla threshold. Jelinek v. Casas, 328 S.W.3d 526, 540 (Tex. 2010).

If Hooks’ testimony were sufficient to establish when facts putting him on

notice of alleged fraud should have been discovered in the exercise of reasonable

diligence, then there is little reason to have limitations in fraud cases. His

testimony was, in essence, “we discovered the claim when we discovered it.” So

long as someone testifies a claim was not discovered until it was discovered, then

all fraud claims and all claims subject to the discovery rule will be timely filed.

The question was “By what date should the Hooks, in the exercise of

reasonable diligence, have discovered the fraud of Samson?” 19CR:3274

(Question 9, emphasis added). There was no evidence concerning the “should” part

50 of this inquiry and there was no evidence concerning the “exercise of reasonable

diligence” inquiry. There was only an answer to the unasked and irrelevant

question, “when did you happen to discover the alleged fraud?”

There is factually insufficient evidence to support the jury’s response to

Question 9, and this Court should remand for a new trial on the limitations issue.

E. There is Legally and Factually Insufficient Evidence to Support the Fraud Damages Finding Plaintiffs’ evidence was of a legally incorrect measure of damages. 12 The

judgment for $20,081,638.07 for “damages proximately caused by fraud” should

be reversed. 19CR:3268 (verdict); 1Supp2CR:6 (judgment). There is no evidence

and factually insufficient evidence to support the jury’s answer to Question 3.

Leading up to trial, Plaintiffs pleaded, first, that they were not in the BSM1

unit and Samson had breached the Jefferson County lease by not meeting its offset

obligations. 16CR:2756-57. In the alternative, Plaintiffs pleaded that, if they were

in the unit, it was because Samson defrauded them into giving consent.

16CR:2759. The trial court granted Samson’s motions for summary judgment on

Plaintiffs’ offset obligations breach of lease claims. 18CR:3162. That left Plaintiffs

with only a fraud-in-the-inducement claim. But Plaintiffs continued to seek the

identical contract measure of damages, even including damages for a well as to

12 Samson repeatedly objected to Plaintiffs’ use of an incorrect measure of damages. 18CR:3171- 73, 3200-07, 3232; 19CR:3322-26, 3353-58; 10RR:43-44; 17RR:10-14. 51 which they admitted there was no fraud. So Plaintiffs pursued fraud liability, but

sought breach of contract damages. Awarding judgment for contract damages was

error. There was no legally or factually sufficient evidence to support the damages

awarded.

Because Plaintiffs chose to pursue an incorrect measure of damages, there is

no evidence of damages. The damages testimony is based on a flawed

methodology and is “no evidence” of damages or causation. City of Keller, 168

S.W.3d at 813; Kerr-McGee Corp. v. Helton, 133 S.W.3d 245, 247 (Tex. 2004),

abrogated in part on other grounds, Coastal Oil & Gas Trust v. Garza Energy

Trust, 268 S.W.3d 1, 18-19 (Tex. 2008).

For all the following reasons, the jury’s fraud damages award was

unsupported and should be reversed and either rendered or remanded:

1. Plaintiffs did not prove fraud damages and, instead, proved only the same damages they would have presented for the breach of oil and gas lease claim they previously lost on summary judgment There are two measures of fraud damages for the necessary and usual result

of fraud: (1) out-of-pocket and (2) benefit-of-the-bargain. Baylor Univ. v.

Sonnichsen, 221 S.W.3d 632, 636 (Tex. 2007); Fortune Prod. Co. v. Conoco, Inc.,

52 S.W.3d 671, 681 (Tex. 2000). Out-of-pocket damages are restitutionary

damages that “measure the difference between the value of that which was parted

with and the value of that which was received.” Sonnichsen, 221 S.W.3d at 636;

52 see also Formosa Plastics Corp. v. Presidio Eng’rs & Contractors, Inc., 960

S.W.2d 41, 49 (Tex. 1998). Benefit-of-the-bargain damages derive from an

expectancy theory and “evaluate the difference between the value that was

represented and the value actually received.” Id. The damages for statutory fraud

are measured in the same way as common law fraud. Scott v. Sebree, 986 S.W.2d

364, 368 (Tex. App.—Austin 1999, pet. denied). Leading up to trial, Plaintiffs

pleaded an out-of-pocket damages measure (16CR:2760-61), but the evidence does

not fit within that measure.

The charge did not instruct the jury to find either out-of-pocket damages or

benefit-of-the-bargain damages. 19CR:3268. Instead, it asked only about Plaintiffs’

“lost income.” 19CR:3268. After trial, Plaintiffs’ motion for judgment plainly

admitted the judgment “is based on contract, i.e., Plaintiffs’ oil and gas leases with

Samson.” 19CR:3281. Plaintiffs elected to present only contract damages to the

jury. The judgment rests on fraud liability findings, but on contract damages.

Calculations that take into account “expected lost profits on a bargain that

was never made” are not properly a part of an out-of-pocket calculation. Formosa

Plastics, 960 S.W.2d at 49. Plaintiffs’ damages formula was composed entirely of

lost profits in the form of lost income. 19CR:3268. That was the only measure of

damages asked of the jury. Id. Plaintiffs did not plead for or seek benefit of the

bargain damages.

53 2. Plaintiffs never pleaded for consequential damages; they only pleaded for out-of-pocket damages

In their previous briefing to this Court, Plaintiffs argued compensatory

royalty damages were permissible consequential damages. But, Plaintiffs were

required to plead for consequential damages. Tex. R. Civ. P. 56; Burbage, 447

S.W.3d at 261 n.6; Statewide Bank and SN Servicing Corp. v. Keith, 301 S.W.3d

776, 786 (Tex. App.—Beaumont 2009, pet. abated). Although Plaintiffs’ petition

mentioned compensatory royalties, it did so only in relation to their out-of-pocket

measure of damages. 13 Plaintiffs did not plead for compensatory royalties as

consequential damages. 16CR:2741-73. In fact, Plaintiffs never mentioned the

term “consequential damages” or “lost profits” anywhere in their pleading.

Accordingly, they were not entitled to recover consequential damages.

3. Plaintiffs were not entitled to consequential damages as a part of an out-of-pocket measure of recovery

Plaintiffs clearly pled an out-of-pocket measure of recovery. 16CR:2760-61.

Out-of-pocket damages are purely restitutionary. What Plaintiffs submitted to the

jury was a lost profits measure of damages, which they now assert were actually

consequential damages. “Lost profits is not a calculation of out-of-pocket

damages.” Case Corp. v. Hi-Class Bus. Sys. of Am., Inc., 184 S.W.3d 760, 778-79

13 They pled: “The Landowners are thus entitled to damages equal to at least the difference between the value of that with which they parted, and the value they actually received…. Such damages would equal at least the compensatory royalties the Landowners would have been due under the Hooks Jefferson County lease in the absence of any pooling….” 16CR:2760-61. 54 (Tex. App.—Dallas 2005, pet. denied); accord, Formosa Plastics, 960 S.W.2d at

49-50. Under the out-of-pocket measure Plaintiffs pleaded, they were not entitled

to recover lost profit-compensatory damages.

4. Furthermore, Plaintiffs could not seek compensatory damages unless they set aside the pooling agreement, which is something they never sought to do Plaintiffs’ evidence was of an alleged fraud-in-the-inducement claim. They

claimed Samson supposedly made misrepresentations to convince Plaintiffs to sign

a pooling consent they otherwise would not have signed. On their fraud-in-the-

inducement claim, Plaintiffs had a choice. They could stand on the bargain and

recover fraud damages, or they could seek rescission of their consent to pool. See

Fortune Prod., 52 S.W.3d at 676-77. They could not do both. Yet, Plaintiffs never

attempted to set aside the pooling agreement and—to this day—have accepted

substantial royalty payments paid to them solely because of that pooling

agreement.

The problem is Plaintiffs waited too long before suing under their breach of

lease theory; limitations lapsed on that claim. So Plaintiffs could not sue on the

underlying contract. And, importantly, as the Supreme Court has pointed out,

Plaintiffs cannot sue through fraud to seek their contractual damages if the contract

is unenforceable. Sonnichsen, 221 S.W.3d at 637. Importantly, however, Plaintiffs

55 cannot remain a part of the pooled unit and then pretend for damages purposes that

their lease is not a part of the unit. 14

Plaintiffs had their opportunity to seek a proper measure of damages. They

refused to do so. Having had that opportunity, and having failed to prove damages

under a correct legal measure, this Court should render judgment against Plaintiffs.

See, e.g., Goldman v. Olmstead, 414 S.W.3d 346, 363-64 (Tex. App.—Dallas

2013, pet. denied).

5. Plaintiffs were not entitled to their compensatory royalty damages based on production from the DuJay1 well

Even if consequential damages were permitted, “lost profits” based on the

DuJay1 well are not recoverable. The DuJay1 well is the source of half the $20

million in fraud damages. When asked at trial, Hooks flatly admitted no one had

done “anything to deceive [him] or defraud [him] with respect to the DuJay1 well.”

13RR:53.

Samson contacted Plaintiffs about pooling their lease into the BSM1 unit in

February 2001, and Plaintiffs consented to pool in May 2001. PX65. Plaintiffs

received their first check for unit production in September 2001. PX552. Samson

did not begin drilling the DuJay1 well until October 2001. PX565. The proximate

cause standard applicable to consequential damages requires proof of cause in fact

14 Because Plaintiffs did not set aside their pooling consent, they should receive no damages. At a minimum, however, Samson should receive credit for the payments it has been making to Plaintiffs on the BSM1 unit since the time of Plaintiffs’ damages calculations for trial. 56 and forseeability. IHS Cedars Treatment Ctr. v. Mason, 143 S.W.3d 794, 798-99

(Tex. 2004); see also Fazio v. Cypress/GR Houston I, L.P., 403 S.W.3d 390 (Tex.

App.—Houston [1st Dist.] 2013, pet. denied) (damages measured at the time of the

fraud, not some future time). If the initial act merely creates a condition by which

the second act could occur, the resulting harm is not a cause in fact. IHS, 143

S.W.3d at 799. Here, there would have to be evidence Samson would have drilled

the DuJay1 well (1) even if Plaintiffs had not agreed to pool; (2) within 1320 feet

of Plaintiffs’ tract; and (3) not released Plaintiffs’ tract to address offset issues. 15

See Lee & Lee Int’l, Inc. v. Lee, 261 F. Supp. 2d 665, 677 (N.D. Tex. 2003); see

also Tracy v. Annie’s Attic, Inc., 840 S.W.2d 527, 537 (Tex. App.—Tyler 1992,

writ denied). There was no evidence of these things.

It was error to award damages based on the DuJay1 well and this Court

should reverse the judgment for fraud damages.

6. The fraud damages improperly include “late charges” of 18% compounded monthly

Approximately two-thirds of Plaintiffs’ fraud damages—an astonishing $13

million—are not actual damages at all. Instead, that sum is a “late charge”

measured at the rate of 18% compounded monthly. PX608. Those charges are

15 Samson was authorized under Plaintiffs’ Jefferson County lease at any time to release “any portion or portions” of the lease “and be relieved of all obligations as to the acreage surrendered….” PX25¶IV(B). This was not tied to the offset obligations paragraph. So, if Samson had known any of its well locations were a problem for Plaintiffs, Samson could have released all or a portion of Plaintiffs’ lease. 57 improper and the fraud damages judgment should be reversed on that ground as

well.

Plaintiffs’ “late charge” damages are another way in which Plaintiffs are

attempting to convert their barred contract case into fraud damages. The Jefferson

County lease states: “All past due royalties (including any compensatory royalties

payable under Paragraph VI.B) shall be subject to a Late Charge based on the

amount due and calculated at the maximum rate allowed by law….” PX25

¶XVII(C) (emphasis added).

“Late charges” are not proper out-of-pocket damages. 16 The “late charges”

should not be included in Plaintiffs’ fraud damages. Those charges were a part of

Plaintiffs’ breach of lease claim they lost on summary judgment. Those charges are

not part of any fraud claim. With a fraud claim, the aggrieved party can seek

prejudgment interest, not “late charges.” And the prejudgment interest is to be

assessed by the court, not the jury. See Olympia Marble & Granite v. Mayes, 17

S.W.3d 437, 441 (Tex. App.—Houston [1st Dist.] 2000, no pet.).

Moreover, the Supreme Court directly addressed this issue. The Court

restricted the 18% interest rate to “past due royalties” and held that rate could not

apply to other claims: 16 Because Plaintiffs did not seek consequential damages at all in connection with their fraud claims, they did not plead for late charges as fraud consequential damages. Although Plaintiffs pleaded for late charges as a part of their contract claims, they never pled for late charges as a part of their fraud claim. 16CR:2753 (contract), 2757-58 (contract); 2765 (interest and attorneys’ fees under Natural Resources Code), 2771 (maximum damages). 58 The leases only impose “the maximum [interest] rate allowed by law” for past-due royalties. Accordingly, to the extent Hooks recovers for past due royalties, he is entitled to an 18% interest rate. For other recoveries, the statutory rate of 5% applies because Hooks has not directed us to any portion of the leases providing otherwise.

457 S.W.3d at 69-70.

Regardless how Plaintiffs measured their alleged fraud damages, those

damages are damages for fraud, not breach of lease. Accordingly, Plaintiffs’ fraud

cause of action is an “other recovery” for which “the statutory rate of 5% applies.”

457 S.W.3d at 70. As it stands, there is no (and insufficient) evidence of any fraud

damages. But, if any portion of Plaintiffs’ fraud damages survive, the trial court

must be restricted to adding 5% simple prejudgment interest to those damages.

And the post-judgment interest would also be 5%.

7. The damages have to be reversed because they include incremental formation production damages, which the Supreme Court held were improper The fraud damages included Plaintiffs’ formation production damages

within the damages calculation. The exhibit on which the jury based its damages

was PX608. That exhibit calculated fraud damages as $20,081,638.07. PX608. The

jury awarded precisely that amount: $20,081,638.07. 19CR:3268. PX608 is titled

“Summary of Lost Compensatory Royalty with Incremental Formation

Production.” So, the jury’s damages award included formation production

amounts.

59 The Supreme Court held this Court was correct in determining Plaintiffs

were not entitled to formation production damages. 457 S.W.3d at 64-65. As a

consequence, the fraud damages must be reversed for improperly including

formation production damages.

8. If this Court reverses and remands for a new trial on fraud damages, then fraud liability will have to be retried as well

Rule of Appellate Procedure 44.1 dictates, if this Court orders a new trial on

damages, it must also order a new trial on liability:

(b) Error Affecting Only Part of Case. If the error affects part of, but not all, the matter in controversy and that part is separable without unfairness to the parties, the judgment must be reversed and a new trial ordered only as to the part affected by the error. The court may not order a separate trial solely on unliquidated damages if liability is contested.

Tex. R. App. P. 44.1(b) (emphasis added). There is a companion rule for the

decisions of the Supreme Court. See Tex. R. App. P. 61.2. There is no question this

rule means what it says. “Failure to comply with this rule is reversible error.”

Rancho La Valencia, Inc. v. Aquaplex, Inc., 383 S.W.3d 150, 152 (Tex. 2012).

There is no question here damages are unliquidated and liability is contested.

That being the case, if this Court reverses for a new trial on damages, it must also

remand for a new trial on fraud liability.

60 F. The Court Must Also Remand the Favored Nations Damages for a Recalculation and Should Determine Issues Regarding the Application of Prejudgment Interest to Newly Awarded Favored Nations Damages As with the fraud damages, the favored nations damages wrongly include

formation production damages. The judgment awards a total of $848,854 for the

favored nations claim. 1Supp2dCR:6. The parties had stipulated to different

amounts in accordance with whether formation production damages should be

included with the favored nations damages. Court ExA. The amount in the

judgment includes formation production. Id. The stipulation for favored nations

damages without formation production was $431,450.71. Id. As a result, the

judgment needs to be reversed on this ground as well.

It can be expected that Plaintiffs will request that their favored nations

decimal increases be paid to them for production occurring after the end of May

2008. Furthermore, should this Court reverse and render judgment on the fraud

portion of the case, Plaintiffs will also seek favored nations damages on the BSM1

well because favored nations damages were initially included in their fraud

damages.

In the trial of this action, Plaintiffs relied on the late payments provision to

calculate their prejudgment interest. That provision states:

All past due royalties (including any compensatory royalties payable under Paragraph VI.B) shall be subject to a Late Charge based on the amount due and calculated at the maximum rate allowed by law commencing on the day after the last day on which such monthly

61 royalty payment could have been timely made and for every calendar month and/or fraction thereof from the due date until paid, plus attorney’s fees, court costs, and other costs in connection with the collection of the unpaid amounts. Any Late Charge that may become applicable shall be due and payable on the last day of each month when this provision becomes applicable.

PX25, PX 26, PX27¶XVII(C). The Supreme Court held this language set an

interest rate of 18% for past due royalties, but “only” for past due royalties.

Plaintiffs assumed previously the late payment provision meant they would

receive 18% prejudgment interest compounded monthly as prejudgment interest.

But there is nothing in the late payment provision saying that. And there is nothing

in the Supreme Court’s decision saying that either.

Typically, prejudgment interest is computed as simple interest. Johnson &

Higgins of Texas, Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 532 (Tex. 1998)

(prejudgment interest is calculated as simple interest). The question is whether

there is anything in the leases changing the simple interest rate for prejudgment

interest. The answer is “no.”

Another appellate court has previously decided this question in Samson’s

favor. The language of Plaintiffs’ leases is very similar to the contract at issue in

Pegasus Energy Grp., Inc. v. Cheyenne Petroleum Co., 3 S.W.3d 112, 123 (Tex.

App.—Corpus Christi 1999, no pet.). In Pegasus, the contract provided if a

required payment was not timely made, “the unpaid balance shall bear interest

monthly at the… maximum contract rate permitted by the applicable usury laws in 62 the [applicable] state.” Id. (emphasis added). In calculating the prejudgment

interest due under that contract, the court held Kenneco applied and prejudgment

interest was to be computed as simple interest. Id. at 124-25.

When this case is remanded for a recalculation of the favored nations

damages, the prejudgment interest awarded as to those damages should be simple

interest.

PRAYER FOR RELIEF Appellant Samson prays that the Court will again reverse the trial court’s

judgment on the fraud claim and render judgment that Plaintiffs take nothing on

their fraud claim. In the alternative, Samson prays that the Court reverse and

remand for a new trial on the fraud liability and fraud damages claims as well as

the fraud limitations defense.

In the further alternative, Samson prays that the Court will reform the

judgment to eliminate improper damages awards identified in this brief, including

formation production damages, late charges, fraud damages attributable to the

DuJay 1 well, witness fees, and deposition costs in accordance with Samson’s

arguments set out above, and to reduce the prejudgment and postjudgment interest

rate to the proper rate of 5%. Further, this Court should remand for the trial court

to credit Samson for the royalty payments it has made to Plaintiffs based on

63 production from the BSM1 unit since the damages were calculated prior to the

judgment.

Additionally, Samson requests that the favored nations damages be

remanded for a recalculation and that prejudgment interest be assessed on any new

calculations of favored nations damages using a simple interest rate for

prejudgment interest. Samson further requests its costs and any additional relief to

which it may have shown itself entitled.

64 Respectfully submitted,

LOCKE LORD LLP

/s/ Cynthia K. Timms Michael V. Powell mpowell@lockelord.com State Bar No. 162004400 Cynthia K. Timms ctimms@lockelord.com State Bar No. 11161450 LOCKE LORD LLP 2200 Ross Avenue, Suite 2200 Dallas, Texas 75201-6776 (214) 740-8000 (214) 740-8800 (Fax)

M.C. Carrington State Bar No. 03880800 MEHAFFY WEBER P.C. P.O. Box 16 Beaumont, Texas 77704 Telephone: (409) 835-5011 Facsimile: (409) 835-5177

Dick Watt State Bar No. 20977700 WATT BECKWORTH THOMPSON HENNEMAN & SULLIVAN LLP 1800 Pennzoil Place, South Tower 711 Louisiana Street Houston, Texas 77002 Telephone: (713) 650-8100 Facsimile: (713) 650-8141

ATTORNEYS FOR APPELLANT SAMSON LONE STAR LIMITED PARTNERSHIP N/K/A SAMSON EXPLORATION LLC 65 CERTIFICATE OF COMPLIANCE Pursuant to Texas Rule of Appellate Procedure 9.4(i)(3), as amended

effective December 1, 2012, the undersigned certifies that this Brief complies with

the length limitations of Rule 9.4(i) and the typeface requirements of Rule 9.4(e).

1. Exclusive of the contents excluded by Rule 9.4(i)(1), this Brief

contains 14,969 words as counted by the Word Count function (including

textboxes, footnotes, and endnotes) of Microsoft Office Word 2010.

2. This Brief has been prepared in proportionally spaced typeface using:

Software Name and Version: Microsoft Office Word 2010

Typeface Name: Times New Roman

Font Size: 14 point

/s/ Cynthia K. Timms Cynthia K. Timms

66 CERTIFICATE OF SERVICE I hereby certify that on the 6th day of July, 2015, a true and correct copy of

Samson’s Supplemental Appellant’s Brief was served by eFile Texas on Appellees

through their counsel of record listed below:

Paul F. Simpson David M. Gunn McGinnis, Lochridge, & Kilgore Beck Redden & Secrest, L.L.P. L.L.P., OneHouston Center 1111 Louisiana 1221 McKinney St., Suite 4500 Suite 4500 Houston, Texas 77010-2010 Houston, Texas 77002 dgunn@brsfirm.com psimpson@mcginnislaw.com

Patton G. Lochridge Jon B. Burmeister J. Derrick Price Moore Landrey, L.L.P. 600 Congress Avenue 905 Orleans Street Suite 2100 Beaumont, Texas 77701 Austin, Texas 78701 jburmeister@moorelandrey.com plochridge@mcginnislaw.com

/s/ Cynthia K. Timms Cynthia K. Timms

67 No. 1-09-00328-CV

In the First Court of Appeals Houston, Texas

Samson Lone Star, Limited Partnership n/k/a Samson Exploration LLC Appellant—Cross Appellee, v.

Charles G. Hooks III, Individually and as Independent Executor of the Estate of Charles G. Hooks, Jr., as Trustee of the Scott Ira McKeever Trust and the David Wayne McKeever Trust, and on behalf of Chas. G. Hooks & Son, a General Partnership; McKeever Partnership, Ltd.; Charles G. Hooks III and Sue Ann Hooks, as Co-Trustees Under the Will of Charles G. Hooks, Sr. Appellees—Cross-Appellants.

Appeal from Cause B173008-B, 60th District Court Jefferson County, Texas _________________________________________________

APPENDIX TO SAMSON’S SUPPLEMENTAL APPELLANT’S BRIEF

Tab

Final Judgment (1Supp2d CR:4-11) ................................................................. Tab A

Charge of the Court (19CR:3262-76) ............................................................... Tab B

Damages Stipulation (Court Ex. A) .................................................................. Tab C Samson v. Hooks Ct. App. Opinion (389 S.W.3d 409) .................................... Tab D

Hooks v. Samson Tex. S. Ct. Opinion (457 S.W.3d 52) ................................... Tab E CAUSE NO. Bl73008-B CHARLES G. HOOKS III, § IN THE DISTRICT COURT OF INDIVIDUALLY AND AS § INDEPENDENT EXECUTOR OF THE § ESTATE OF CHARLES G. HOOKS, JR., § AS TRUSTEE OF THE SCOTT IRA § MCKEEVER TRUST AND THE DAVID § WAYNE MCKEEVER TRUST, ANDON § BEHALF OF CHAS. G. HOOKS & SON, A § GENERAL PARTNERSHIP; MCKEEVER § PARTNERSHIP, LTD; CHARLES G. § JEFFERSON COUNTY, TEXAS HOOKS III AND SUE ANN HOOKS, AS § CO-TRUSTEES UNDER THE WILL OF § CHARLES G. HOOKS, SR., § Plaintiffs, § § vs. § § SAMSON LONE STAR, L.P ., § Defendant. § 60TH JUDICIAL DISTRICT

FINAL JUDGMENT

On November 3, 2008, came on to be heard the above styled and numbered cause.

Plaintiffs Charles G. Hooks III, Individually and as Independen! Executor of the Estate of

Charles G. Hooks, Jr., as Trustee of the Scott Ira: Mckeever Trust and the David Wayne

McKeever Trust, and on Behalf of Chas. G. Hooks & Son, a General Partnership; McKeever

Partnership, Ltd; Charles G. Hooks III and Sue_ Ann Hooks, as Co-Trustees under the Will of

Charles G. Hooks, Sr. (collectively, "the Hooks"), appeared by duly designated representatives

and by and through attorneys of record and announced ready for trial. Defendant Samson Lone

Star Limited Partnership, n/k/a Samson Lone Star, L.L.C. ("Samson"), appeared by

representative and by and through attorneys ofrecord and also announced ready_ for trial.

WHEREUPON, a jury having been previously demanded, twelve (12) qualified jurors

were duly selected, impaneled, and sworn. The cause then proceeded to trial with the· making of

opening statements by the parties, followed by introduction of evidenGe. On November 10, 2008,

4 after Plaintiffs completed their case-in-chief, Defendant filed a Motion for Directed Verdict,

which the Court denied. On November 12, 2008, after conclusion of the evidence, with Plaintiffs

and Defendant having rested their cases in open court, the Court submitted the questions of fact

to the jury on special issues. On November 13, 2008, the jury announced that it had reached a.

verdfot and returned it to the Court. The jury's verdict was as follows:

> In response to Question No. I, the jury found by a vote of eleven (11) to one that Samson committed fraud against the Hooks; > In response to Question No. 2, the jury found by a vote of eleven (11) to one that Samson committed statutory fraud against the Hooks; > In response to Question No. 3, the jury found by a vote of eleven (11) to one that the sum of money if paid now in cash that would fairly and reasonable compensate the Hooks for their damages proximately caused by such fraud is ~')(\ /'\01 .c:tg '"'· i.PkV,VOI,U.J .Vt,

.> The jury did not answer Questions Nos. 4,-5, 6, or 7; > In response to Question No. 8,.the jury found by a vote of eleven (11) to one that Samson's failure to pay royalty based on formation production resulted in underpayment of royalty under the threy Hooks oil and gas leases entered as Exhibits 25, 26, and 27; and · · .> In response to Question No. 9, the jury found by a unanimous vote that the . HookS, in the exercise of reasonable diligence, should have discovered the fraud of Samson by April 2007. The verdict form was signed by the eleven jurors who concurred in the answers to Questions

Nos. 1, 2, 3, and 8. The Charge of the Court and verdict of the jury, which. the Court hereby

adopts, are incorporated herein by reference.

In ·addition, before trial, the Court had entered Orders on motions for partial summary

judgment with regard to certain claims at issue .in thi~ case. The following Orders on motions for

partial summary judgment are hereby reaffirmed and incorporated herein.by reference:

)>- · Order on Plaintiffs' First Amended Motion for Pmiial Summary Judgment (Tract 4114 Leases), recommended by Special Master W. Frank Newton on July 29, 2008, and adopted by the Court on July 30, 2008; arid

-2- 5 );:> Order Granting Plaintiffs' First Amended Motion for Partial Summary Judgment (Unpooling), recommended by Special Master W. Frank Newton on July 29, 2008, and adopted by the Court on July 30, 2008;

Therefore, IT IS ORDERED, ADJUDGED, AND DECREED as follows:

);:> Pursuant to the Order on Plaintiffs' First Amended Motion for Partial Summary Judgment (Tract 4/14 Leases), the royalty rate under the Hooks oil and gas leases at issue in this case (admitted as Exhibits 25, 26, and 27 at trial) has been equal to 28 .28896% since November 2001; and );:> Pursuant to the Order Granting Plaintiffs' ·First Amended Motion for Partial Summary Judgment (Unpooling), Defendant Samson must pay Plaintiffs royalty on production from Samson's Black Stone Minerals A-1 well based on the royalty revenue interest Plaintiffs are due pursuant to the Black Stone Minerals "'A" No. 1 Gas Unit as described in Samson's Designation of Gas Unit for the Black Stone Minerals "A" No. 1 Gas Unit filed ofrecord at Volillne 1259, Page 237 of the Official Public Records of Hardin County, Texas.

Moreover, Plaintiffs and Defendant Samson entered in.to certain stipulations m

connection with this case and entered into the Court's record. Accordingly, the following

stipulations are incorporated herein by reference:

);:> Stipulation (regarding damages) signed by counsel for the parties and filed . November 7, 2008; and . );:> Stipulation Regarding Attorneys' Fees signed by counsel for the parties and filed October 31, 2008.

THEREFORE, pl}rsuant to the jury's verdict, the Comi's Orders on Motions for Partial

Summary Judgment, and the parties' Stipulations cited above, it is ORDERED, ADJUDGED,

AND DECREED that· Plaintiffs have and recover .actual damages from Defendant Samson as

follows:.

Damages }Jroximately caused by fraud: · $20,081,638.07 Damages for breach of Most Favored Nations Clause : $ 848,854.01 Damages for ''Unpooling" claim related to Black Stone Minerals A-1 well: $ 766,626.85 Damages Related to Ad Valorem Taxes: $ 52,257.22 Total Damages: $21,749,376.15

-3-

6 IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that Plaintiffs shall have

and recover from Defendant Samson attorneys' fees in the followi.ng amounts under the

· following circumstances (pursuant to the parties' Stipulation Regarding Attorneys' Fees): the

sum of $300,000 for services rendered through the trial of this case; an additional $50,000 in the

... event of an appeal to the Court of Appeals; an additional $10,000 if a petition for review is filed

with the Texas. Supreme Court; and an additional $10,000 if the Texas Supreme Court grants the

petition for review.

IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, Plaintiffs shall have·

and recover from Samson the following expert· witness fees: for Nedra Foster, $47,351.79; and

· for Charies E. Graham, $58,689.07.

IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, Plaintiffs shall have

and recover from Sarrison $5,493.51 for costs for copies of depositions;

IT IS· FURTHER ORDERED, ADJUDGED, AND DECREED that all costs of court

spent or incurred in this case are adjudged against Defendant Samson, and that "Plaintiffs shall

have and recover from Samson all costs of court incurred by Plaintiffs. .

IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, in addition to the

foregoing, Plaintiffs shall have and recover from Sam.son post-judgment interest on the total

amount of this judgment, including damages, attorneys' fees, expert witness.fees, and costs of COUli, at th_e rate of 18%; compounded annually~ ·

- 4 - .. IT IS FURTHER ORDERED, ADJUDGED, AND DECREED as follows:

> Defendant Samson shall pay Plaintiffs royalty on production from Samson's Black Stone Minerals A-I well, commencing with·production after May 2008, based on the royalty revenue interest Plaintiffs are due pursuant to the Black Stone Minerals "A" No. 1 Gas Unit as.described in Samson's Designation of Gas Unit for the Black Stone Minerals "A" No. 1 Gas Unit filed of record at Volume 1259, Page 237 of the Official Public Records of Hardin County, Texas; > Any royalty owed on production after May 2008 under Plaintiffs' oil and gas leases at issue in this case (admitted as Exhibits 25, 26, and 27 at trial) shall be based on a royalty rate of 28.28896%; > Any royalty owed on gas production after May 2008 under the oil and gas · leases at issue in this case (admitted as Exhibits 25, 26, and 27 at trial) shall be based on formation production gas volumes as reported on Texas Railroad Commission records; > Defendant Samson shall be liable for all ad valorem taxes levied upon Plaintiffs' interest in the oil and gas .leases at issue (admitted as Exliibits 25, 26, and 27 at trial) after November 2007, as long as those leases remain in effect; and > Defendant Samson shall provide Plaintiffs with the following notices and information as required by the oil and gas leases at issue in this case while thos.e leases are in effect: • Copies of all electric logs, formation surveys, or any other test made in a well or wells on the land described in the leases or units into which they were poole.d; • Copies of written designations of production units; • Copies of all applications and reports filed with the Texas Railroad Commission in connection with Samson's operations under Plaintiffs' Leases; • Advanced notice of any deductions or adjustments against present or · future royalty payments for royalty payments previously paid, with full explanation of such overpayment; • . Title opinions; • Daily operation reP.orts . during drilling, ·completion, or reworking operations; • Seismic or other geophysical data obtained by Samson on the leased premises or units into which the leased premises are pooled, including basic d?-ta, scaled and ·platted maps, and final stacked and migrated seismic data at all depths across su.ch acreage (for which Plaintiffs will use their best· efforts during .the term of the applicable Lease to maintain all such data so provided in confidence until otherwise released from this

-5-

8 J. '

obligation by Samson or until Samson releases such data to the general oil and gas industry, whichever occurs earlier; and • Notice of any oil and gas lease Samson enters into covering any land within three miles of the exterior boundary of the leased premises or units into which the leased.premises are. pooled. All writs and prncesses for the .enforcement and collection of this judgment or the costs

of court may issue in accordance with the law if this judgment is not timely paid.

IT IS FINALLY ORDERED, ADJUDGED, AND DECREED that any relief requested in

this case but not expressly granteq herein is DENIED.

This is a final judgment that disposes of all parties, claims, and counterclaims, and is

appealable. ~

SIGNED L'ris I/' uay of )J1ty-iJ,_y-N ji~--=I~J+--.-J.G-=:.____:: :_______

. -·6-

9 APPROVED AS TO FORM:

McGINNIS, LOCHRIDGE & KILGORE, L.L.P.

By: ~~~~~~~~~~~~~~~

Paul F. Simpson State Bar No. 18403800 3200 One Houston Center 1221 McKinney Street Houston, Texas 77010 . 713-615-85 00 Telephone 713-615-8585 Facsimile

Patton G. Lochridge State Bar No. 12458500 DohH.Magee StateBarNo. 12811800 J. Derrick Price . State Bar No. 24041726 600 Congress Avenue, Suite 2100 Austin, Texas 78701 (512) 495-6000 Telephone (512) 495-6093 Facsimile

RIENSTRA, DOWELL & FLATTEN Gerald R. Flatten State Bar No. 07112500 . 595 Orleans, Suite 1007 "Beaumont, Texas 77701 (409) 833-6317 Telephone (409) 833-9560 FAX

MOORE LANDREY, L.L.P. Jon B. Burmeister State Bar No. 03425500 390 Park Street, Suite 500 . Beaumont, Texas 77701 (409) 835-3891 Telephone (409) 835-2707

ATTORNEYS FOR PLAINTIFFS, CHARLES G. HOOKS III, ET AL.

-7-

10 APPROVED AS TO FORM:

IvlEHAFFYVIEBER,P.C.

By: ~~~~~~~~~~~~~~~-

.tvl. C. Carrington State Biµ- No. 03880800 .tvlatt .tvlarchak State Bar No. 024037025 Post Office Box 16 Beaumont, Texas 77704 (409) 835-5011 Telephone (409) 835-5177 Facsimile

VIATT BECKWORTH THOMPSON & HENNEMAN, L.L.P . . Dick Watt State Bar No. 20977700 John B_.J?,~ckworth State Bar No. 202021500 T. Neal Nobles State Bar No. 24007753 Katherine W. Strange. State Bar No. 24043942 1800 Pennzoil Place, South Tower 711 Louisiana Street · Houston, T~xas 77002 . (713) 650-8100 Telephone (713) 650-8141 Facsimile

ATTORNEYS FOR DEFENDANT SAMSON LONE STAR, L.P., n/k/a SAMSON LONE STAR, L.L.C.

-8- Cr::J ORIGINAL CAUSE NO. Bl 73008-B

CHARLES G. HOOKS III, et al., § IN THE DISTRICT COURT OF Plaintiffs, § § vs. § JEFFERSON COUNTY, TEXAS § SAMSON LONE STAR, L.P., § Defendant. § 60TH JUDICIAL DISTRICT

CHARGE OF THE COURT

LADIES At'JD GENTLEMEN OF THE JURY:

This case is submitted to you by asking questions about the facts, which you must decide from the evidence you have heard in this trial. You are the sole judges of the credibility of the witnesses and the weight to be given their testimony, but in matters of law, you must be governed by the instructions in this charge. In discharging your responsibility on this jury, you will observe all the instructions which have previously been given you. I shall now give you additional instructions which you should carefully and strictly follow during your deliberations.

1. Do not let bias, prejudice or sympathy play any part in your deliberations.

2. In arriving at your answers, consider only Llie evidence introduced here under oath and such exhibits, if any, as have been introduced for your consideration under the rulings of the court, that is, what you have seen and heard in this courtroom, together with the law as given you by the court. In your deliberations, you will not consider or discuss anything that is not represented by the evidence in this case.

3. Since every answer that is required by the charge is important, no juror should state or consider that any required answer is not important.

4. You must not decide who you think should win, and then try to answer the questions accordingly. Simply answer the questions, and do not discuss nor concern yourselves with the effect of your answers.

5. You will not decide the answer to a question by lot or by drawing straws, or by any other method of chance. Do not return a quotient verdict. A quotient verdict means that the jurors agree to abide by the result to be reached by adding together each juror's figures and dividing by the number of jurors to get an average. Do not do any trading on your answers; that is, one juror should not agree to answer a certain question one way if others will agree to answer another question another way.

6. Unless otherwise instructed, you may answer a question upon the vote of ten or more jurors. If you answer more than one question upon the vote of ten or more jurors, the same group of at least ten of you must agree upon the answers to each of those questions. These instructions are given you because your conduct is subject to review the same as that of the witnesses, parties, attorneys and the judge. If it should be found that you have disregarded any of these instructions, it will be jury misconduct and it may require another trial by another jury; then all of our time will have been wasted.

The presiding juror or any other who observes a violation of the court's instructions shall immediately warn the one who is violating the same and caution the juror not to do so again.

When words are used in this charge in a sense that varies from the meaning commonly understood, you are given a proper legal definition, which you are bound to accept in place of any other meaning.

Answer "Yes" or "No" to all questions unless otherwise instructed. A "Yes" answer must be based on a preponderance of the evidence unless you are otherwise instructed. If you do not find that a preponderance of the evidence supports a "Yes" answer, then answer "No." The term "preponderance of the evidence" means the greater weight and degree of credible evidence admitted in this case. Whenever a question requires an answer other than "Yes" or "No," your answer must be based on a preponderance of the evidence unless you are otherwise instructed. General Instruction: Circumstantial Evidence

A fact may be established by direct evidence or by circumstantial evidence, or both. A fact is established by direct evidence when proved by documentary evidence or by witnesses who saw the act done or heard the words spoken. A fact is established by circumstantial evidence when it may be fairly and reasonably inferred from other facts proved.

General Instruction: Corporations

The defendant is a corporation. All persons are equal before the law, and a corporation is entitled to the same consideration you give any other person. Certain rules define how corporations act and are held responsible for acts or omissions:

A corporation acts through its officer, agents, and employees. Unless otherwise indicated in this charge, any act or omission of any officer, agent, or employee of any of the defendants is the act or omission of that defendant if it occurred while acting within the scope of his actual or apparent authority in the performance of his duties for that defendant.

A corporation is held responsible for the knowledge possessed by those people who are its representatives or agents acting within the scope of their actual or apparent authority.

General Instruction: Damages

Damages, if any, must be proven with a reasonable degree of certainty. This does not, however, require proof as to an absolute mathematical certainty. If a wrong has been done from which monetary loss results, you may make a just and reasonable estimate of damages based on relevant data, including opinion evidence, even if the extent of the injury cannot be proven precisely. Damages cannot be remote or contingent.

In answering questions about damages, answer each question separately. Do not increase or reduce the amount in one answer because of the instructions in or your answers to any other questions about damages. Do not speculate about what any party's ultimate recovery may or may not be. Any recovery will be determined by the court when it applies the law to your answers at the time of judgment. DEFINITIONS, QUESTIONS, AND SPECIAL INSTRUCTIONS

The "Hooks" means Plaintiffs Charles G. Hooks III, Individually and as Independent Executor of the Estate of Charles G. Hooks, Jr., as Trustee of the Scott Ira Mckeever Trust and the David Wayne McKeever Trust, and on Behalf of Chas. G. Hooks & Son, a General Partnership; McKeever Partnership, Ltd; and Charles G. Hooks III and Sue Ann Hooks, as Co-Trustees under the Will of Charles G. Hooks, Sr.

"Samson" means Defendant Samson Lone Star, L.P.

The Hooks Leases means the three Oil, Gas and Liquid Hydrocarbon Leases granted by the Hooks to Samson and entered as Exhibits 25, 26, and 27 in this case. Question No. 1

Did Samson commit fraud against the Hooks?

Fraud occurs when-

a. a party makes a material misrepresentation, b. the misrepresentation is made with knowledge of its falsity or made recklessly without any knowledge of the truth and as a positive assertion, c. the misrepresentation is made with the intention that it should be acted on by the other party, and d. the other party relies on the misrepresentation and thereby suffers injury.

"Misrepresentation" means a false statement of fact.

You are instructed that when a party makes a representation and later acquires new information which makes the representation untrue or misleading, the party must disclose such information to anyone whom he knows to be still acting on the basis of the original statement. In such instance, fraud also occurs when-

a. the party fails to disclose a material fact within the knowledge of that party, b. the party knows that the other party is ignorant of the fact and does not have an equal opportunity to discover the truth, c. the party intends to induce the other party to take some action by failing to disclose the fact, and d. the other party suffers injury as a result of acting without knowledge of the undisclosed fact.

Answer "Yes" or "No": ~ [ {- \ Question No. 2

Did Samson commit Statutory Fraud against the Hooks?

Statutory Fraud occurs when-

a. there is a false representation of a past or existing material fact,

b. the false representation is made to a person for the purpose of inducing that person to enter into a contract, and

c. the false representation is relied on by that person in entering into that contract.

Answer "Yes" or "No":'{,ar [I - ) If your answer to Question No. 1 or Question No. 2 is "Yes," then answer the following question. Otherwise, do not answer the following question.

Question No. 3

What sum of money, if any, if paid now in cash, would fairly and reasonably compensate the Hooks for their damages, if any, that were proximately caused by such fraud?

"Proximate cause" means that cause which, in a natural and continuous sequence, produces an event, and without which cause such event would not have occurred. In order to be a proximate cause, the act or omission complained of must be such that a person using the degree of care required of him would have foreseen that the event, or some similar event, might reasonably result therefrom. There may be more than one proximate cause of an event.

Consider the following elements of damages, if any, and none other:

Lost income to the Hooks that was a natural, probable, and foreseeable consequence of Samson's fraud.

Do not speculate about what any party's ultimate recovery may or may not be. Any recovery will be determined by the court when it applies the law to your answers at the time of judgment. Do not add any amount for interest on damages, if any.

Answer separately in dollars and cents: $ 8o.ciff1b.?ff',07 I

feJ- I {- I Answer the following question only if you unanimously answered "Yes" to Question No. 1. Otherwise, do not answer the following question.

To answer "Yes" to the following question, your answer must be unanimous. You may answer "No" to the following question only upon a vote of ten or more jurors. Otherwise, do not answer the following question.

Question No. 4

Do you find by clear and convincing evidence that the harm to the Hooks resulted from fraud?

"Clear and convincing evidence" means the measure or degree of proof that produces a firm belief or conviction of the truth of the allegations sought to be established.

Answer "Yes" or "No": If you unanimously answered Question No. 2 "Yes," then answer the following question. Otherwise, do not answer the following question.

Question No. 5

Do you find by clear and convincing evidence that Samson had actual awareness of the falsity of the representation or promise you found to be fraud in Question No. 2?

"Clear and convincing evidence" means the measure or degree of proof that produces a firm belief or conviction of the truth of the allegations sought to be established.

Actual awareness may be inferred where objective manifestations indicate a person acted with actual awareness.

Answer "Yes" or "No": If you unanimously answered "Yes" to Question No. 4 or Question No. 5, answer the following question. Otherwise, do not answer the following question.

You must unanimously agree on the amount of any award of exemplary damages.

Question No. 6

What sum of money, if any, if paid now in cash, should be assessed against Samson and awarded to the Hooks as exemplary damages, if any, for the conduct found in response to either Question No. 4 or Question No. 5?

"Exemplary damages" means an amount that you may in your discretion award as a penalty or by way of punishment.

Factors to consider in awarding exemplary damages, if any, are-

a. The nature of the wrong.

b. The character of the conduct involved.

c. The degree of culpability of Samson.

d. The situation and sensibilities of the parties concerned.

e. The extent to which such conduct offends a public sense of justice and propriety.

f. The net worth of Samson.

Answer in dollars and cents, if any.

Answer: $. _ _ _ _ _ __ If you unanimously answered "Yes" to Question No. 4 or Question No. 5, answer the following question. Otherwise, do not answer the following question.

To answer "Yes" to the following question, your answer must be unanimous. You may answer "No" to the following question only upon a vote of ten or more jurors. Otherwise, you must not answer the following question.

Question No. 7

Do you find beyond a reasonable doubt that Samson secured execution by the Hooks of a document by deception, and was the value of the property affected $1,500 or more?

"Securing the execution of a document by deception" occurs when a person causes another person to sign any document affecting property, and does so by deception, with the intent to defraud or harm any person.

A person acts with intent with respect to the nature of his conduct or to a result of his conduct when it is the conscious objective or desire to engage in the conduct or canse the result.

"Deception" means creating or conJirrning by words or conduct a false impression of law or fact that is likely to affect the judgment of another in the transaction, and that the actor does not believe to be true.

"Property" means: (a) real property; (b) tangible or intangible personal property, inclnding anything severed from land; or (c) a document, including money, that represents or embodies anything of value.

You are instructed that "beyond a reasonable doubt" means proof of such a convincing character that you would be willing to rely and act upon it without hesitation in the most important of your own affairs.

Answer "Yes" or HNo": Question No. 8

Did Samson's failure to pay royalty based on formation production result in underpayment of royalty under the Hooks Leases?

Answer "Yes" or "No": ~u!/1- )

\_;')l'f"1 ,.... v .J. If your answer to Question No. 1 or Question No. 2 is "Yes," then answer the following question. Otherwise, do not answer the following question.

Question No. 9

By what date should the Hooks, in the exercise of reasonable diligence, have discovered the fraud of Samson?

Answer with a date in the blank below: A/Y't 'J Answer: ffu-o k' -4 /],I rrb)A'f_ (}Q V 7 'fc:.s . l L - D After you retire to the jury room, you will select your own presiding juror. The first thing the presiding juror will do is to have this complete charge read aloud and then you will deliberate upon your answers to the questions asked.

It is the duty of the presiding juror-

1. to preside during your deliberations,

2. to see that your deliberations are conducted m an orderly marmer and m accordance with the instructions in this charge,

3. to write out and hand to the bailiff any communications concerning the case that you desire to have delivered to the judge,

4. to vote on the questions,

5. to write your answers to the questions in the spaces provided, and

6. to certify to your verdict in the space provided for the presiding juror's signature or to obtain the signatures of all the jurors who agree with the verdict if your verdict is less than unanimous.

You should not discuss the case with anyone, not even with other members of the jury, unless all of you are present and assembled in the jury room. Should anyone attempt to talk to you about the case before the verdict is returned, whether at the courthouse, at your home, or elsewhere, please inform the judge of this fact.

When you have answered all the questions you are required to answer under the instructions of the Court, and your presiding juror has placed your answers in the spaces provided and signed the verdict as presiding juror or obtained the signatures, you will inform the bailiff at the door of the jury room that you have reached a verdict. You will then return into court with your verdict.

~~ JUDGE PRE ING CERTIFICATE

We, the jury, have answered the above and foregoing questions as herein indicated, and herewith return same into Court as our verdict. (To be signed by the presiding juror if unanimous.)

PRE~!oP: Printed Name of Presiding Juror

(To be signed by those rendering the verdict if not unanimous.)

Jurors' Signatures Jurors' Printed Names

l.

2.

3.

4. tw,e. q G./,h < 5. WtlMlt J:tlt!/.saJ 6. ,~Jirll ~1 neS 7. fu~ .rAoL\) 8. Go-t. o 9.

10.

11. CAUSE NO. Bl 73008-B

CHARLES G. HOOKS III, et al., § IN THE DISTRICT COURT OF Plaintiffs, § § vs. § JEFFERSON COUNTY, TEXAS § SAMSON LONE STAR, L.P., § Defendant. § 60TH JUDICIAL DISTRICT

STIPULATION

Plaintiffs Charles G. Hooks III, et al. and Defendant Samson Lone Star, L.P. enter into

this Stipulation as to certain damages claimed by Plaintiffs. All parties reserve their respective

rights on all appellate issues (except as to ad valorem taxes), and by entering into this Stipulation

do not waive any rights as they relate to liability issues (except as to ad valorem taxes) or any

liability issues not addressed herein (including any offset claims). Further, Plaintiffs do not

waive their objection to this method of proving up its damages under its various causes of action.

Damages Related to Most Favored Nations Clause (Lease, XXIX) 1

Unpaid royalty on production through May 2008, plus Late Charges as of August 1,

2008, for the Joyce DuJay No. 1 Gas Unit, Well No. 1, and Joyce DuJay A. No. 1 gas Unit, Well

No. 1, but not including Plaintiffs' claims for royalty based on Formation Production:

Lost Royalty $212,825 .25 Late Charges $218,625.46

Unpaid royalty on production through May 2008, plus Late Charges as of August 1,

2008, for the Joyce Du.Tay No. 1 Gas Unit, Well No. 1, and Joyce DuJay A. No. 1 gas Unit, Well

No. 1, but including Plaintiffs' claims for royalty based on Formation Production2 :

1 See Order on Plaintiffs' First Amended Motion for Partial Summary Judgment (Tract 4/14 Leases).

2 Entitlement to royalty payment on Incremental Natural Gas Formation Production is an uuresolved issue as of the date of this Stipulation. EXHIBIT

Gouii-r A Lost Royalty $416,324.65 Late Charges $432,529.36

Damages Related Solely to Formation Production (Lease 'If III)

Incremental unpaid royalty on formation production through May 2008, plus Late

Charges as of August 1, 2008, for the Joyce DuJay No. 1 Gas Unit, Well No. 1, and Joyce DuJay

A. No. 1 gas Unit, Well No. 1, but not including Plaintiffs' claims for Most Favored Nations

royalty:

Lost Royalty $179, 839.66 Late Charges $189,034.41

Damages Related to "Unpooling" Claim3

Unpaid royalty on the Blackstone Minerals A-1 well on production through May 2008,

plus Late Charges as of August 1, 2008, assuming application of the Most Favored Nations

Clause (Lease ~ XXIX), but not including Plaintiffs' claims for royalty based on Formation

Production:

Lost Royalty $268,006.98 Late Charges $446,252.13

Unpaid royalty on the Blackstone Minerals A-1 well on production through May 2008,

plus Late Charges as of August I, 2008, assuming application of the Most Favored Nations

Clause (Lease ~ XXIX), and including Plaintiffs' claims for royalty based on Formation

Production4 :

Lost Royalty $288,652.54 Late Charges $477,974.31

3 Pursuant to Order Granting PJa.intiffs' First Amended Motion for Partial Summary Judgment (Unpooling) of July 30, 2008.

4 See footnote 2, supra

-2- Unpaid royalty on the Blackstone Minerals A-1 well on production through May 2008,

plus Late Charges as of August 1, 2008, including Plaintiffs' claims for royalty based on

Formation Production, but excluding Plaintiffs claims based on the Most Favored Nations

Clause (Lease if XXIX):

Lost Royalty $259,978.40 Late Charges $433,775.24

Unpaid royalty on the Blackstone Minerals A-1 well on production through May 2008,

plus Late Charges as of August 1, 2008, excluding Plaintiffs' claims based on both the Most

Favored Nations Clause (Lease if XXIX), and for royalty based on Formation Production:

Lost Royalty $241,44 7 .3 3 Late Charges $405,075.61

Liability and Damages Related to Ad Valorem Taxes

Samson owes Plaintiffs $52,257.22 for reimbursement of ad valorem taxes paid through

November, 2007. Plaintiffs agree not to claim, and waive any claim, that Samson owes Plaintiffs

Late Charges for such ad valorem taxes or reimbursement.

AGREED:

Paul Simpson Patton G. Lochridge State Bar No. 18403800 State Bar No. 12458500 MCGINNIS LOCHRIDGE & KILGORE LLP Don H. Magee 3200 One Houston Center State Bar No. 12811800 1221 McKinney Street J. Derrick Price Houston, Texas 77010 State Bar No. 24041726 713-615-8500 Telephone MCGINNIS LOCHRIDGE & KILGORE LLP 713-615-8585 Facsimile 600 Congress Avenue, Suite 2100 Austin, Texas 78701 (512) 495-6000 Telephone (512) 495-6093 Facsimile

-3- Gerald R. Flatten Jon B. Burmeister State Bar No. 07112500 State Bar No. 03425500 RIENSTRA, DOWELL & FLATTEN MOORE LANDREY, L.L.P. 595 Orleans, Suite 1007 390 Park Street, Suite 500 Beaumont, Texas 77701 Beaumont, Texas 77701 (409) 833-6317 Telephone (409) 835-3891 Telephone (409) 8 -9560 FAX (409) 835-2707

ATTORNEYS FOR PLAINTIFFS, CHARLES G. HOOKS III, ET AL.

M. C. Carrington Dick Watt Mehaffy Weber 1800 Penzoil Place, South Tower P.O. Box 16 711 Louisiana Street Beaumont, TX 77704 Houston, Texas 77002

By: ~)~ Dick Watt

ATTORNEYS FOR DEFENDANT, SAMSON LONE STAR, L.P.

-4- Samson Lone Star, Ltd. Partnership v. Hooks, 389 S.W.3d 409 (2012) 177 Oil & Gas Rep. 542

KeyCite Red Flag - Severe Negative Treatment Judgment Affirmed in Part, Reversed in Part by Hooks v. Samson Lone Star, Limited Partnership, Tex., January 30, 2015

389 S.W.3d 409 Court of Appeals of Texas, Houston (1st Dist.).

SAMSON LONE STAR, LIMITED PARTNERSHIP n/k/a Samson Lone Star L.L.C., Appellant, v. Charles G. HOOKS, III, Individually and as Independent Executor of the Estate of Charles G. Hooks, Jr., as Trustee of the Scott Ira McKeever Trust and the David Wayne McKeever Trust, and on behalf of Chas. G. Hooks & Son, a General Partnership; McKeever Partnership, Ltd.; Charles G. Hooks, III and Sue Ann Hooks, as Co–Trustees under the Will of Charles G. Hooks, Sr., Appellees.

No. 01–09–00328–CV. | May 31, 2012. | Opinion Dissenting and Concurring on Rehearing March 1, 2012.

Synopsis Background: Oil and gas lessors brought action against lessee alleging breach of contract, fraud, fraudulent concealment, statutory fraud, negligent misrepresentation, violation of the Texas Natural Resources Code for failure to properly pay royalties, statutory negligence, and common law negligence per se, and sought injunctive relief and declaratory judgment. The 60th District Court, Jefferson County, Gary Sanderson, J., granted lessee partial summary judgment and entered a jury verdict in favor of lessors on remaining claims.

Holdings: On cross appeals, and on rehearing, the Court of Appeals, Evelyn V. Keyes, J., held that:

[1] lessors' fraud claims concerning the pooling of interests accrued under discovery rule no later than date when information concerning actual location of bottom hole of disputed well was a matter of public record;

[2] lessors accepted and ratified the amendment and redesignation of original unit into pooled units;

[3] the most favored nations clauses in leases did not apply to trigger royalties payable to the lessors equal to those payable under settlement agreement reached between lessee and State;

[4] formation production clause in leases did not operate to double the amount of royalties owed on the liquid condensate produced from well;

[5] trial court abused its discretion by including permanent injunctive relief in its order;

[6] a stipulated payment of ad valorem taxes by lessee did not entitle lessors to claim attorney fees as prevailing parties under a separate pre-trial fee stipulation; and

[7] postjudgment interest on ad valorem taxes that lessee was obligated to pay pursuant to stipulation was to be calculated based on statutory rate.

Affirmed in part and reversed in part.

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 1 Samson Lone Star, Ltd. Partnership v. Hooks, 389 S.W.3d 409 (2012) 177 Oil & Gas Rep. 542

Jim Sharp, J., issued an opinion concurring in part and dissenting in part.

West Headnotes (50)

[1] Fraud Elements of Actual Fraud 184 Fraud 184I Deception Constituting Fraud, and Liability Therefor 184k2 Elements of Actual Fraud 184k3 In general To prove fraud, a plaintiff must show that the defendant made (1) a material misrepresentation (2) that was either known to be false when made or was asserted without knowledge of its truth (3) which was intended to be relied upon (4) which was indeed relied upon and (5) which caused injury.

Cases that cite this headnote

[2] Fraud Acts induced by fraud 184 Fraud 184I Deception Constituting Fraud, and Liability Therefor 184k24 Acts induced by fraud To prove fraudulent inducement, the elements of fraud must be established as they relate to a contract.

Cases that cite this headnote

[3] Limitation of Actions Nature of statutory limitation 241 Limitation of Actions 241I Statutes of Limitation 241I(A) Nature, Validity, and Construction in General 241k1 Nature of statutory limitation Statutes of limitations are intended to compel plaintiffs to assert their claims within a reasonable period of time while the evidence is fresh in the minds of the parties and witnesses.

Cases that cite this headnote

[4] Limitation of Actions Causes of action in general 241 Limitation of Actions 241II Computation of Period of Limitation 241II(A) Accrual of Right of Action or Defense 241k43 Causes of action in general As a general rule, a cause of action accrues and the statute of limitations begins to run when facts come into existence that authorize a party to seek a judicial remedy.

Cases that cite this headnote

[5] Limitation of Actions Causes of action in general Limitation of Actions In general; what constitutes discovery

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 2 Samson Lone Star, Ltd. Partnership v. Hooks, 389 S.W.3d 409 (2012) 177 Oil & Gas Rep. 542

Limitation of Actions Knowledge as to extent of harm or damage 241 Limitation of Actions 241II Computation of Period of Limitation 241II(A) Accrual of Right of Action or Defense 241k43 Causes of action in general 241 Limitation of Actions 241II Computation of Period of Limitation 241II(F) Ignorance, Mistake, Trust, Fraud, and Concealment or Discovery of Cause of Action 241k95 Ignorance of Cause of Action 241k95(1) In general; what constitutes discovery 241 Limitation of Actions 241II Computation of Period of Limitation 241II(F) Ignorance, Mistake, Trust, Fraud, and Concealment or Discovery of Cause of Action 241k95 Ignorance of Cause of Action 241k95(1.5) Knowledge as to extent of harm or damage In most circumstances, a cause of action accrues when a wrongful act causes a legal injury, regardless of when the plaintiff learns of that injury or if all resulting damages have yet to occur; however, the discovery rule exception to the statute of limitations operates to defer accrual of a cause of action until the plaintiff knew or, by exercising reasonable diligence, should have known of the facts giving rise to the cause of action.

Cases that cite this headnote

[6] Limitation of Actions Discovery of Fraud 241 Limitation of Actions 241II Computation of Period of Limitation 241II(F) Ignorance, Mistake, Trust, Fraud, and Concealment or Discovery of Cause of Action 241k98 Fraud as Ground for Relief 241k100 Discovery of Fraud 241k100(1) In general The statute of limitations for fraud begins to run from the time the party knew of the misrepresentation. V.T.C.A., Civil Practice & Remedies Code § 16.004(a)(4).

Cases that cite this headnote

[7] Limitation of Actions What constitutes discovery of fraud 241 Limitation of Actions 241II Computation of Period of Limitation 241II(F) Ignorance, Mistake, Trust, Fraud, and Concealment or Discovery of Cause of Action 241k98 Fraud as Ground for Relief 241k100 Discovery of Fraud 241k100(12) What constitutes discovery of fraud Oil and gas lessors' fraud claims against lessee, based on lessee's alleged false representations as to location of well to induce lessors to agree to amend lease to allow a portion of it to be pooled, accrued under the discovery rule no later than date when the necessary information concerning actual location of bottom hole of well was a matter of public record. V.T.C.A., Civil Practice & Remedies Code § 16.004(a)(4).

Cases that cite this headnote

[8] Limitation of Actions Diligence in discovering fraud 241 Limitation of Actions

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 3 Samson Lone Star, Ltd. Partnership v. Hooks, 389 S.W.3d 409 (2012) 177 Oil & Gas Rep. 542

241II Computation of Period of Limitation 241II(F) Ignorance, Mistake, Trust, Fraud, and Concealment or Discovery of Cause of Action 241k98 Fraud as Ground for Relief 241k100 Discovery of Fraud 241k100(11) Diligence in discovering fraud Statute of limitations for fraud begins to run when the claimant knew or could have discovered the fraud by the exercise of reasonable diligence. V.T.C.A., Civil Practice & Remedies Code § 16.004(a)(4).

Cases that cite this headnote

[9] Limitation of Actions Questions for Jury 241 Limitation of Actions 241V Pleading, Evidence, Trial, and Review 241k199 Questions for Jury 241k199(1) In general When a cause of action accrues for limitations purposes is normally a question of law.

Cases that cite this headnote

[10] Mines and Minerals In general; general rules of construction 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k73 In general; general rules of construction An oil and gas lease is a contract and is therefore interpreted as such.

Cases that cite this headnote

[11] Contracts Language of contract 95 Contracts 95II Construction and Operation 95II(A) General Rules of Construction 95k147 Intention of Parties 95k147(2) Language of contract When construing a contract, the primary goal of the courts is to give effect to the parties' written expression of their intent.

Cases that cite this headnote

[12] Mines and Minerals In general; general rules of construction 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k73 In general; general rules of construction The courts will enforce the intentions of the parties to an unambiguous oil and gas lease as expressed in the lease.

Cases that cite this headnote

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 4 Samson Lone Star, Ltd. Partnership v. Hooks, 389 S.W.3d 409 (2012) 177 Oil & Gas Rep. 542

[13] Contracts Construction as a whole Contracts Extrinsic circumstances 95 Contracts 95II Construction and Operation 95II(A) General Rules of Construction 95k143.5 Construction as a whole 95 Contracts 95II Construction and Operation 95II(A) General Rules of Construction 95k169 Extrinsic circumstances In determining the agreement, the court examines all parts of the contract and the circumstances surrounding its formulation.

Cases that cite this headnote

[14] Mines and Minerals Community leases, unitization, or pooling arrangements 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k79 Rent or Royalties 260k79.1 In General 260k79.1(5) Community leases, unitization, or pooling arrangements With respect to oil and gas royalty interest owners, pooling results in a cross-conveyance of interests in land by agreement among the participating parties, each of whom obtains an undivided joint ownership in the royalty earned from the land in the block created by the agreement and each of whom receives royalty on the basis of the percentage of that party's acreage to the whole block; pooling effects a cross-conveyance among the owners of the minerals under the various tracts in the pool so that all cotenants own undivided interests under the unitized tract in the proportion that their contribution bears to the unitized tract.

Cases that cite this headnote

[15] Mines and Minerals Community leases, unitization, or pooling arrangements 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k79 Rent or Royalties 260k79.1 In General 260k79.1(5) Community leases, unitization, or pooling arrangements When an oil and gas lease is executed by all of the owners of different mineral interests in two or more tracts, the royalties payable under the lease will be pooled, and all royalty interest owners in the land subject to the lease will share in production, no matter where the well is drilled on the leasehold.

2 Cases that cite this headnote

[16] Mines and Minerals Place or portion developed; pooled or unitized tracts Mines and Minerals Community leases, unitization, or pooling arrangements

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 5 Samson Lone Star, Ltd. Partnership v. Hooks, 389 S.W.3d 409 (2012) 177 Oil & Gas Rep. 542

260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k78 Testing or Working 260k78.1 Construction, Breach, and Penalties 260k78.1(7) Place or portion developed; pooled or unitized tracts 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k79 Rent or Royalties 260k79.1 In General 260k79.1(5) Community leases, unitization, or pooling arrangements An oil and gas lessee has no power to pool without the lessor's express authorization, usually contained in the lease's pooling clause.

Cases that cite this headnote

[17] Mines and Minerals Place or portion developed; pooled or unitized tracts Mines and Minerals Community leases, unitization, or pooling arrangements 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k78 Testing or Working 260k78.1 Construction, Breach, and Penalties 260k78.1(7) Place or portion developed; pooled or unitized tracts 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k79 Rent or Royalties 260k79.1 In General 260k79.1(5) Community leases, unitization, or pooling arrangements For pooling to be valid, it must be done in accordance with the terms of the methods and purposes specified in the oil and gas lease.

Cases that cite this headnote

[18] Mines and Minerals Place or portion developed; pooled or unitized tracts Mines and Minerals Community leases, unitization, or pooling arrangements 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k78 Testing or Working 260k78.1 Construction, Breach, and Penalties 260k78.1(7) Place or portion developed; pooled or unitized tracts 260 Mines and Minerals 260II Title, Conveyances, and Contracts

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 6 Samson Lone Star, Ltd. Partnership v. Hooks, 389 S.W.3d 409 (2012) 177 Oil & Gas Rep. 542

260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k79 Rent or Royalties 260k79.1 In General 260k79.1(5) Community leases, unitization, or pooling arrangements Good-faith pooling of oil and gas leases can be exercised multiple times; however, the lessors' land may be pooled only to the extent stipulated in the lease.

Cases that cite this headnote

[19] Mines and Minerals Place or portion developed; pooled or unitized tracts Mines and Minerals Community leases, unitization, or pooling arrangements 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k78 Testing or Working 260k78.1 Construction, Breach, and Penalties 260k78.1(7) Place or portion developed; pooled or unitized tracts 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k79 Rent or Royalties 260k79.1 In General 260k79.1(5) Community leases, unitization, or pooling arrangements When pooling oil and gas leases, joinder by all interest owners is not necessary for a pooled unit to be valid; rather, a tenant in common has the legal right to incorporate a pooling agreement into an original oil and gas lease without the consent or joinder of the other cotenants, creating a valid contract binding the undivided interest of the cotenant making the agreement.

1 Cases that cite this headnote

[20] Mines and Minerals Place or portion developed; pooled or unitized tracts Mines and Minerals Extent of production, paying quantities, and marketing 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k78 Testing or Working 260k78.1 Construction, Breach, and Penalties 260k78.1(7) Place or portion developed; pooled or unitized tracts 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k78 Testing or Working 260k78.1 Construction, Breach, and Penalties 260k78.1(8) Extent of production, paying quantities, and marketing

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 7 Samson Lone Star, Ltd. Partnership v. Hooks, 389 S.W.3d 409 (2012) 177 Oil & Gas Rep. 542

The timely completion of a producing well under the terms of the pooling agreement and within the unit area set out in the unitization agreement will serve to continue the lease in full force and effect so long as gas is being produced in commercial quantities.

Cases that cite this headnote

[21] Mines and Minerals Community leases, unitization, or pooling arrangements 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k79 Rent or Royalties 260k79.1 In General 260k79.1(5) Community leases, unitization, or pooling arrangements A cotenant who enters into an oil and gas lease binding its royalty interest in the completed and producing well and who accepts its pro rata share in the royalties from the well calculated under the terms of the unitization agreement is estopped to deny the validity of the unitization agreement as to its interest therein.

Cases that cite this headnote

[22] Mines and Minerals Place or portion developed; pooled or unitized tracts 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k78 Testing or Working 260k78.1 Construction, Breach, and Penalties 260k78.1(7) Place or portion developed; pooled or unitized tracts An oil and gas lessee cannot unilaterally terminate a unit that has a producing pooled well; rather, for a lessee to terminate a unit, either the lessors must agree to the unpooling or the lease must expressly authorize such termination.

Cases that cite this headnote

[23] Mines and Minerals Community leases, unitization, or pooling arrangements 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k79 Rent or Royalties 260k79.1 In General 260k79.1(5) Community leases, unitization, or pooling arrangements When a mineral interest owner accepts royalty checks from a pooled oil and gas unit, he has accepted that unit.

2 Cases that cite this headnote

[24] Estoppel Contracts Mines and Minerals Community leases, unitization, or pooling arrangements 156 Estoppel 156III Equitable Estoppel

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 8 Samson Lone Star, Ltd. Partnership v. Hooks, 389 S.W.3d 409 (2012) 177 Oil & Gas Rep. 542

156III(B) Grounds of Estoppel 156k89 Acquiescence 156k92 Acceptance of Benefits 156k92(2) Contracts 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k79 Rent or Royalties 260k79.1 In General 260k79.1(5) Community leases, unitization, or pooling arrangements Under the doctrine of equitable estoppel, mineral interest owners can not repudiate a pooled oil and gas unit designation after accepting royalties attributable to that unit.

1 Cases that cite this headnote

[25] Estoppel Contracts Mines and Minerals Community leases, unitization, or pooling arrangements 156 Estoppel 156III Equitable Estoppel 156III(B) Grounds of Estoppel 156k89 Acquiescence 156k92 Acceptance of Benefits 156k92(2) Contracts 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k79 Rent or Royalties 260k79.1 In General 260k79.1(5) Community leases, unitization, or pooling arrangements By accepting royalty checks from amended and redesignated pooling units, which oil and gas lessors had been notified replaced the original unit, and by not asserting any rights to royalties from original unit or making any timely claim against lessee in regard to the amendment and redesignation of original unit, lessors accepted and ratified the amendment and redesignation and were estopped to assert an interest in royalties from production from well within the unit area set out in the unitization agreement.

Cases that cite this headnote

[26] Mines and Minerals Community leases, unitization, or pooling arrangements 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k79 Rent or Royalties 260k79.1 In General 260k79.1(5) Community leases, unitization, or pooling arrangements Under its plain terms, the most favored nations clause in the lessors' oil and gas leases did not apply to trigger royalties payable to the lessors equal to those payable under the settlement agreement reached between lessee and the State; the pooling agreement executed by lessee and the State did not constitute a third party lease so that lessee's obligation

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 9 Samson Lone Star, Ltd. Partnership v. Hooks, 389 S.W.3d 409 (2012) 177 Oil & Gas Rep. 542

to pay the lessors increased royalties under the clause was triggered, but rather the difference between the royalties payable to the State on production from the pooled unit and the royalties paid to lessors represented the amount agreed upon by lessee and the State to induce it to accept the amended unit in place of the conflicting unit and to compensate the State for its loss of royalties from the former well due to lessee's amendment and redesignation of the new unit.

Cases that cite this headnote

[27] Sales Amount agreed on 343 Sales 343II Construction of Contract 343k74 Price, Expenses, and Costs of Transportation 343k75 Amount agreed on A “most favored nations clause” is a vendor protection clause that enables the vendor to receive the benefit of increases in the market price of his product over the term of a long range contract with a purchaser.

Cases that cite this headnote

[28] Sales Amount agreed on 343 Sales 343II Construction of Contract 343k74 Price, Expenses, and Costs of Transportation 343k75 Amount agreed on A most favored nations clause, enabling the vendor to receive the benefit of increases in the market price of his product over the term of a long range contract with a purchaser, is enforced according to its terms.

Cases that cite this headnote

[29] Mines and Minerals Rights and liabilities 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k79 Rent or Royalties 260k79.1 In General 260k79.1(1) Rights and liabilities Under its plain language, the formation production clause in oil and gas leases did not operate to double the amount of royalties owed on the liquid condensate produced from the well; the clause did not state that lessee had to pay a 25% royalty on “formation production” in addition to royalty on gas and liquids as produced, but rather the unambiguous meaning of the lease provisions was that the lessors were entitled to a 25% royalty on all gas and liquid hydrocarbons at the time proceeds were received from their sale.

1 Cases that cite this headnote

[30] Contracts Ambiguity in general 95 Contracts 95II Construction and Operation 95II(A) General Rules of Construction 95k176 Questions for Jury 95k176(2) Ambiguity in general

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 10 Samson Lone Star, Ltd. Partnership v. Hooks, 389 S.W.3d 409 (2012) 177 Oil & Gas Rep. 542

Whether a contract is ambiguous is a question of law for the court.

Cases that cite this headnote

[31] Contracts Construction as a whole Contracts Construing whole contract together 95 Contracts 95II Construction and Operation 95II(A) General Rules of Construction 95k143.5 Construction as a whole 95 Contracts 95II Construction and Operation 95II(A) General Rules of Construction 95k147 Intention of Parties 95k147(3) Construing whole contract together Court construes the parties' intentions as expressed in a contract, considering the entire writing and attempting to harmonize and give effect to all of the contract's provisions with reference to the whole agreement.

Cases that cite this headnote

[32] Contracts Subject, object, or purpose as affecting construction Contracts Reasonableness of construction 95 Contracts 95II Construction and Operation 95II(A) General Rules of Construction 95k143 Application to Contracts in General 95k143(4) Subject, object, or purpose as affecting construction 95 Contracts 95II Construction and Operation 95II(A) General Rules of Construction 95k151 Language of Instrument 95k154 Reasonableness of construction Courts construe contracts from a utilitarian standpoint bearing in mind the particular business activity sought to be served and will avoid when possible and proper a construction which is unreasonable, inequitable, and oppressive.

Cases that cite this headnote

[33] Contracts Existence of ambiguity Contracts Ambiguity in general 95 Contracts 95II Construction and Operation 95II(A) General Rules of Construction 95k143 Application to Contracts in General 95k143(2) Existence of ambiguity 95 Contracts 95II Construction and Operation 95II(A) General Rules of Construction 95k176 Questions for Jury 95k176(2) Ambiguity in general

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 11 Samson Lone Star, Ltd. Partnership v. Hooks, 389 S.W.3d 409 (2012) 177 Oil & Gas Rep. 542

If, after the rules of construction are applied, the contract can be given a definite or certain legal meaning, it is unambiguous and court construes it as a matter of law.

1 Cases that cite this headnote

[34] Injunction Grounds in general; multiple factors 212 Injunction 212I Injunctions in General; Permanent Injunctions in General 212I(B) Factors Considered in General 212k1032 Grounds in general; multiple factors A permanent injunction is proper only when there is evidence of four elements: (1) a wrongful act; (2) imminent harm; (3) irreparable injury; and (4) no adequate remedy at law.

Cases that cite this headnote

[35] Appeal and Error Injunction 30 Appeal and Error 30XVI Review 30XVI(H) Discretion of Lower Court 30k950 Provisional Remedies 30k954 Injunction 30k954(1) In general Ruling granting a permanent injunction is reviewed for an abuse of discretion.

Cases that cite this headnote

[36] Injunction Contracts 212 Injunction 212IV Particular Subjects of Relief 212IV(K) Contracts 212k1351 In general Courts do not enforce contractual rights by permanent injunction unless the complaining party can show an inadequate remedy at law and irreparable injury.

Cases that cite this headnote

[37] Injunction Contracts Specific Performance Performance impossible 212 Injunction 212IV Particular Subjects of Relief 212IV(K) Contracts 212k1351 In general 358 Specific Performance 358I Nature and Grounds of Remedy in General 358k11 Defenses or Objections to Relief 358k13 Performance impossible In order to grant specific performance of a contract via an injunction, present performance of the contract's terms must be possible.

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 12 Samson Lone Star, Ltd. Partnership v. Hooks, 389 S.W.3d 409 (2012) 177 Oil & Gas Rep. 542

1 Cases that cite this headnote

[38] Specific Performance Contracts for continuous acts during long period 358 Specific Performance 358II Contracts Enforceable 358k75 Contracts for continuous acts during long period A court should not decree by specific performance future contractual performance requiring a party to perform a continuous series of acts, extending through a long period of time, over which the court exercises its supervision.

1 Cases that cite this headnote

[39] Action Legal or Equitable 13 Action 13II Nature and Form 13k21 Legal or Equitable 13k21.1 In general Unless a significant public interest is involved, parties to a contract are left to their remedies at law.

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[40] Mines and Minerals Judgment and relief; damages Mines and Minerals Actions 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k78 Testing or Working 260k78.7 Actions 260k78.7(6) Judgment and relief; damages 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k79 Rent or Royalties 260k79.7 Actions There was no evidence that oil and gas lessors were in danger of imminent harm or irreparable injury from lessee's failure to pay them production royalties or ad valorem taxes or failure to provide them with lease notices and information, as required for a grant of permanent injunction requiring lessee to fulfill certain contractual provisions upon pain of contempt of court.

Cases that cite this headnote

[41] Mines and Minerals Judgment and relief; damages Mines and Minerals Actions 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 13 Samson Lone Star, Ltd. Partnership v. Hooks, 389 S.W.3d 409 (2012) 177 Oil & Gas Rep. 542

260k78 Testing or Working 260k78.7 Actions 260k78.7(6) Judgment and relief; damages 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k79 Rent or Royalties 260k79.7 Actions Oil and gas lessors failed to show that they had no adequate remedy at law for their grievances against lessee, as required for grant of permanent injunction requiring lessee to fulfill certain contractual provisions upon pain of contempt of court, in action arising from lessee's failure to pay production royalties and ad valorem taxes and failure to provide lessors with lease notices and information.

Cases that cite this headnote

[42] Mines and Minerals Judgment and relief; damages 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k78 Testing or Working 260k78.7 Actions 260k78.7(6) Judgment and relief; damages Permanent injunction requiring oil and gas lessee to fulfill certain contractual provisions with lessor upon pain of contempt of court impermissibly decreed future contractual performance; the possibility of present performance was required.

Cases that cite this headnote

[43] Mines and Minerals Judgment and relief; damages Mines and Minerals Actions 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k78 Testing or Working 260k78.7 Actions 260k78.7(6) Judgment and relief; damages 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k79 Rent or Royalties 260k79.7 Actions A stipulated payment of ad valorem taxes by oil and gas lessee did not entitle lessors to claim attorney fees as prevailing parties under a separate pre-trial fee stipulation in lessors' action alleging fraud, formation production, unpooling, and most favored nations claims, where nothing in the ad valorem tax stipulation indicated that it was intended to constitute an admission that the lessors had prevailed on that issue.

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 14 Samson Lone Star, Ltd. Partnership v. Hooks, 389 S.W.3d 409 (2012) 177 Oil & Gas Rep. 542

Cases that cite this headnote

[44] Stipulations Conclusiveness and Effect 363 Stipulations 363k15 Conclusiveness and Effect 363k16 In general A stipulated agreement between the parties will not be given greater effect than intended.

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[45] Stipulations Stipulation as to evidence 363 Stipulations 363k15 Conclusiveness and Effect 363k18 Matters Concluded 363k18(6) Stipulation as to evidence A stipulation will not be construed as an admission of a fact intended to be controverted.

Cases that cite this headnote

[46] Mines and Minerals Licenses; severance and production taxes 260 Mines and Minerals 260III Operation of Mines, Quarries, and Wells 260III(A) Statutory and Official Regulations 260k87 Licenses; severance and production taxes Postjudgment interest on ad valorem taxes that oil and gas lessee was obligated to pay pursuant to stipulation with lessors was to be calculated based on statutory rate, where stipulation did not provide an interest rate. V.T.C.A., Finance Code § 304.003.

Cases that cite this headnote

[47] Interest On Judgments 219 Interest 219II Rate 219k38 On Judgments 219k38(1) In general When the interest rate is not specified in a contract, postjudgment interest should be calculated based on the statutory rate. V.T.C.A., Finance Code § 304.003.

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[48] Evidence Weights, measures, and values 157 Evidence 157I Judicial Notice 157k18 Weights, measures, and values Court of Appeals may take judicial notice of the correct, published prime rate on an appeal involving a dispute as to postjudgment interest not specified in a contract. V.T.C.A., Finance Code § 304.003.

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[49] Limitation of Actions Breach of contract in general Mines and Minerals Protection against waste or drainage; offset wells 241 Limitation of Actions 241II Computation of Period of Limitation 241II(A) Accrual of Right of Action or Defense 241k46 Contracts in General 241k46(6) Breach of contract in general 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k78 Testing or Working 260k78.1 Construction, Breach, and Penalties 260k78.1(11) Protection against waste or drainage; offset wells Oil and gas lessors' claims that lessee breached its offset obligations were breach of contract claims that accrued at the time of the breach.

Cases that cite this headnote

[50] Limitation of Actions Breach of contract in general 241 Limitation of Actions 241II Computation of Period of Limitation 241II(A) Accrual of Right of Action or Defense 241k46 Contracts in General 241k46(6) Breach of contract in general A breach of contract claim accrues for limitations purposes when the contract is breached.

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*415 On Appeal from the 60th District Court, Jefferson County, Texas, Trial Court Case No. B173008–B. 1

1 Originally appealed to the Ninth Court of Appeals, this case was transferred to this Court by the Texas Supreme Court pursuant to its docket equalization efforts. See TEX. GOV'T CODE ANN. § 73.001 (Vernon 2005).

Attorneys and Law Firms

Cynthia Keely Timms, Michael V. Powell, Locke Lord LLP, Dallas, TX, Dick Watt, Thomas Neal Nobles, Katherine W. Strange, Watt Beckworth Thompson Henneman & Sullivan, LLP, Houston, TX, M.C. Carrington, Mehaffy & Weber, Beaumont, TX, for Appellant.

David M. Gunn, Beck, Redden & Secrest, L.L.P., Paul F. Simpson, McGinnis, Lochridge & Kilgore, L.L.P., Houston, TX, Patton G. Lochridge, J. Derrick Price, Don. H. Magee, McGinnis, Lochridge & Kilgore, L.L.P., Austin, TX, Jon B. Burmeister, Moore Landry, Gerald R. Flatten, Beaumont, TX, for Appellees.

Panel consists of Justices KEYES, SHARP, and MASSENGALE.

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 16 Samson Lone Star, Ltd. Partnership v. Hooks, 389 S.W.3d 409 (2012) 177 Oil & Gas Rep. 542

OPINION ON REHEARING

EVELYN V. KEYES, Justice.

Following the issuance of our March 1, 2012 opinion and judgment on rehearing, appellant, Samson Lone Star, Limited Partnership n/k/a Samson Lone Star L.L.C. (“Samson”), moved for further rehearing on issues relating to the supersede as bond and surety. Appellees, Charles G. Hooks, et al. (“the Hooks”), moved for further rehearing asking this Court to clarify its ruling regarding post judgment interest. Subsequently, on April 16, 2012, the Hooks moved for en banc reconsideration of our March 1, 2012 opinion. We grant both motions for rehearing, withdraw our opinion and judgment of March 1, 2012, and issue this opinion and judgment in their stead. We dismiss the Hooks' April 16, 2012 motion for en banc reconsideration as moot. 2

2 See Brookshire Bros., Inc. v. Smith, 176 S.W.3d 30, 40 & n. 2 (Tex.App.-Houston [1st Dist.] 2004, pet. denied). This is an appeal from a final judgment against Samson for more than $21 million in favor of the Hooks. Samson has a number of oil and gas leases from landowners in Hardin and Jefferson Counties, including the Hooks. The judgment arises from an oil and gas case in which the Hooks brought suit against Samson with respect to three oil and gas leases, two in Hardin County, Texas (the “95–acre Lease” and the “10–acre Lease,” collectively the “Hardin County Leases”) and one in Jefferson County, Texas (the “Jefferson County Lease”). The Hooks sued Samson for breach of contract, fraud, fraudulent concealment, statutory fraud, negligent misrepresentation, violation of the Texas Natural Resources Code by failure to properly pay royalties, statutory negligence, common law negligence per se, injunctive relief, and declaratory judgment.

The trial court granted Samson's motion for partial summary judgment on whether it had breached certain offset obligations under the Leases. It also granted the Hooks' motions for summary judgment on claims for additional royalties related to their claims of “unpooling” with respect to the Hardin County Leases and breach of the “most favored nations” clause in both Hardin County Leases and the Jefferson County Lease.

The questions of whether Samson committed fraud against the Hooks with respect to a well drilled within the buffer zone of the Hooks' Jefferson County Lease *416 and whether it underpaid royalties by not paying royalties for “formation production” in all three Leases were tried to a jury. The trial court rendered judgment on the verdict, holding Samson liable to the Hooks for fraud and underpaid royalties, and it entered a final judgment that left intact the summary judgment in Samson's favor on offset obligations and the summary judgments in favor of the Hooks on their unpooling claim and their most favored nations clause claims. Samson has appealed the final judgment, and the Hooks have cross-appealed.

In eight issues, Samson complains that (1) there is legally and factually insufficient evidence of common law fraud; (2) there is legally and factually insufficient evidence of statutory fraud; (3) the statute of limitations bars the Hooks' fraud claims; (4) there is legally and factually insufficient evidence to support the jury's finding on fraud damages; (5) the trial court erred in interpreting the phrase “formation production” in the Hooks' Leases as requiring Samson to pay twice for molecules of gas produced as condensate; (6) the trial court erred in entering judgment in favor of the Hooks for additional royalties based on the unpooling issue with respect to the Hardin County Leases and on the most favored nations clauses in all three Leases; (7) the trial court erred in elevating lease provisions into a permanent injunction, and there is no evidence to support the injunction or attorney's fees; and (8) the trial court erred by granting post-judgment interest at the rate of 18%, compounded annually. 3

3 This issue was added at Samson's request by order dated June 10, 2010, and both parties were required to and did file supplemental briefs thereon. In a single issue, the Hooks complain on cross-appeal that the trial court erred in rendering summary judgment in favor of Samson on the issue of whether Samson breached certain offset obligations in the Hooks' leases. We affirm the trial court's summary judgment order in favor of Samson on its offset obligations.

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 17 Samson Lone Star, Ltd. Partnership v. Hooks, 389 S.W.3d 409 (2012) 177 Oil & Gas Rep. 542

With respect to Samson's appeal, we affirm the portion of the trial court's judgment awarding the Hooks reimbursement for ad valorem taxes as stipulated by the parties, and we reverse the remainder of the final judgment of the trial court and render judgment that the Hooks take nothing on those claims.

I. SAMSON'S APPEAL

A. BACKGROUND

1. The Hooks' Jefferson County Lease and the BSM No. 1 Unit In 1999, the Hooks entered into the Jefferson County Lease with Samson. This lease covered 640 acres owned by the Hooks in the Dyches survey in Jefferson County, Texas and was bordered by Pine Island Bayou, which also serves as the county line between Jefferson and Hardin Counties.

Article VI of the Jefferson County Lease was a section called “Offset Obligations.” In this section, Samson covenanted to operate the leased premises as a reasonably prudent operator would and to protect the leased premises from drainage. Article VI also contained specific obligations for Samson in case of potential drainage. This Article provided that if a gas well were completed within 1,320 feet from the leased premises, then, within 90 days from the date of the sale of first production from that well, Samson must take one of three actions: (1) drill an offset well; (2) pay the Hooks “compensatory royalties”—in addition to any royalties currently due—in a sum equal to the royalties that would be payable under the *417 Lease on the production from the adjacent or nearby producing well as if it had been producing on the leased premises; or (3) release the offset acreage. 4 The Jefferson County Lease did not provide for pooling.

4 Article VI(A) of the Jefferson County Lease provided, in pertinent part, as follows: [I]n the event a well producing from a unit not comprised of acreage from the leased premises ... which has been classified as “gas” ... is completed on adjacent or nearby lands not more than one thousand three hundred and twenty feet (1,320′) from the leased premises, or draining the leased premises, Lessee covenants and agrees to, within ninety (90) days from the date production is first sold, removed or otherwise marketed from said adjacent or nearby producing well, either (1) commence with due diligence operations for the actual drilling of an offset well on the leased premises to the base of the formation from which the adjacent or nearby producing well is producing, (2) pay Lessors as compensatory royalty, in addition to any royalties currently due, a sum equal to the royalties which would be payable under this lease on the production from said adjacent or nearby producing well had same been producing on the leased premises, or (3) in lieu of drilling such offset well or paying such compensatory royalty, release by recordable instrument the offset acreage, as hereinafter defined. “Offset Acreage,” as used hereinabove, shall be defined as a unit which would surround such a well if same were completed on the leased premises; provided, however, that if any portion of the offset acreage would be included in a producing unit designated by Lessee hereunder, then if Lessee elects to surrender and release such offset acreage, it may retain and except from such release the producing stratum or strata included in such producing unit, but such offset acreage must conform to the depth, size and shape limitations contained in Paragraph V. herein. The provisions hereof shall apply regardless of whether lands upon which offset wells may be located are owned by Lessor or any of them or not, and with regard to wells located within the hereinabove prescribed distances from the leased premises, regardless of whether drainage is actually proved to be taking place or not. Notwithstanding anything herein to the contrary, Lessee shall have no obligations under this Article VI in the event a producing well on nearby or adjacent land is already offset by a well on the leased premises or on acreage pooled therewith producing from the same producing horizon from which production has been secured from any well on nearby or adjacent lands. In April 2000, Samson began drilling a gas well, the Black Stone Minerals No. 1 (the “BSM No. 1 well”), on a tract it owned in Hardin County adjacent to the Hooks' 640–acre Jefferson County Lease. This adjacent tract was located in Hardin County. The surface drillsite was outside the 1,320–foot buffer zone around the Hooks' Jefferson County Lease that triggered Samson's offset obligations under Article VI(A) of the Lease. However, the well was a directional well that slanted away from the surface drillsite. Originally, the BSM No. 1 well was planned with a bottom hole location 1,080 feet from the Hooks' lease line on

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 18 Samson Lone Star, Ltd. Partnership v. Hooks, 389 S.W.3d 409 (2012) 177 Oil & Gas Rep. 542

the east, a location within the 1,320–foot buffer zone of the Hooks' Jefferson County Lease. This proposed well location was reflected on a plat titled “Proposed Well Location [BSM No.]1 Walker Pettitt League, A–43, Hardin County, Texas,” which was prepared and signed by a third-party surveyor on March 22, 2000. The surveyor certified that “this is a true and correct plat based on a ground survey made under my supervision on March 22, 2000.” This plat was filed with the Railroad Commission of Texas (“Railroad Commission”).

The March 22, 2000 plat showed a 704–acre gas pooling unit (the “BSM No. 1 unit”) designated by Samson that ran along Pine Island Bayou, the Hardin County/Jefferson County line, on the east. This line was also the western boundary of the tract containing the Hooks' Jefferson County Lease. The Hooks and their co-owners of the tract on which their Jefferson *418 County Lease was located were not named as lessors in the table shown on the plat of the designated unit. An arrow shown on the plat pointed to the location of the proposed bottom hole about at the beginning of a line that ran to the eastern line of the unit at Pine Island Bayou, the county line. Notations on the plat stated:

The Proposed Surface Location is:

630′ FSL x 1600′ FEL Survey

2750′± Scaled FWL x 3834′ FNL Unit.

The Proposed Bottom Hole Location is:

330′ FSL x 330′ FEL Survey

870′± Scaled FSL x 1080′± Scaled′ FEL Unit.

It is undisputed that “FSL” meant “From the Southern Line” of the Walker Pettitt Survey, “FNL” meant “From the Northern Line” of the Survey, and “FEL” meant “From the Eastern Line” of the Survey, which was the Hardin County/Jefferson County line at Pine Island Bayou. Thus, in this notation, the surface location of the BSM No. 1 well was 1,600 feet from the eastern line of the survey at Pine Island Bayou, and the proposed bottom hole location was about 1,080 feet from the eastern line, which marked the western line of the Hooks' Jefferson County Lease. The proposed bottom hole was therefore within the 1,320–foot buffer zone for the Jefferson County Lease.

Although the March 22, 2000 plat of the designated BSM No. 1 unit estimated the location of the proposed bottom hole location of the BSM No. 1 well, the exact bottom hole location of the well, following drilling, could only be ascertained from a directional survey. This survey was completed in July 2000 and was also filed with the Railroad Commission. Both parties agree that the survey showed the BSM No. 1 well to be bottomed 1,184 feet from the Hooks' Jefferson County Lease, within the 1,320–foot buffer zone of the Lease. Thus, Samson had an obligation under the terms of the “Offset Obligations” in the Hooks' Jefferson County Lease to (1) drill an offset well, (2) pay the Hooks “compensatory royalties,” or (3) release the “offset acreage” within 90 days from the date production was first “sold, removed, or otherwise marketed” from the well.

The BSM No. 1 well was completed in August 2000, and the first gas sales occurred in late October 2000. Because the bottom hole of the well was within the 1,320–foot buffer zone of the Hooks' Jefferson County Lease, the first gas sales triggered Samson's offset obligations under the terms of the Lease. The Hooks complain, and the jury found, however, that Samson did not follow the provisions in Article VI(A) of the Jefferson County Lease, which provided that, within 90 days of the first sale of gas from a well within its buffer zone, Samson must drill an offset well, pay the Hooks compensatory royalties, or release the offset acreage. Instead, the jury found that Samson attempted to avoid those obligations by seeking to pool the Hooks' interest in the production from the BSM No. 1 well with those of other mineral owners, despite the lack of pooling authority in the Jefferson County Lease, while concealing the bottom hole location of the BSM No. 1 well.

In December 2000, Samson filed a P–12 “Pooling Authority” form with the Railroad Commission that reflected a reconfigured BSM No. 1 pooling unit. By letter, Samson informed the Commission that a portion of the 704 acres in the original BSM

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 19 Samson Lone Star, Ltd. Partnership v. Hooks, 389 S.W.3d 409 (2012) 177 Oil & Gas Rep. 542

No. 1 unit was to be put into a separate 308.41–acre pooling unit for the proposed Black Stone Minerals No. A–1 well (the “BSM A–1 well”). Attached to the letter was a “Certificate of Pooling Authority,” which represented the Broussard tract, on which the Hooks' Jefferson County Lease lay, as one of the tracts whose mineral-rights owners either had *419 given Samson pooling authority under an instrument currently in effect or had pooled their interests into the reconfigured BSM No. 1 unit. Also attached was a plat of the redesignated704–acre pooling unit dated November 16, 2000 and certified by Samson's land man, Glenn Lanoue.

The arrows pointing to the surface and bottom hole locations on the November 16 plat of the redesignated BSM No. 1 unit were the same as those pointing to the proposed surface and bottom hole locations on the original March 22, 2000 plat of the unit. However, the acreage of the unit had been changed to show a different 704–acre configuration for the BSM No. 1 unit from that originally filed with the Railroad Commission. The redesignated BSM No. 1 unit, unlike the previously designated BSM No. 1 unit, extended beyond the eastern line of Hardin County at Pine Island Bayou into Jefferson County. The certificate, signed by Lanoue, stated that “this is a true and correct plat based on the best of my knowledge November 16, 2000.”

On February 15, 2001, Samson sent the Hooks a letter offering to pool 50 acres covered by the Hooks' Jefferson County Lease into there designated BSM No. 1 gas pooling unit for the BSM No. 1 well. Attached to the letter was a copy of the plat of the reconfigured unit Samson had filed with the Railroad Commission in December 2000.

On February 20, 2001, before accepting Samson's offer to pool—which would require amendment of Article VI of the Hooks' Jefferson County Lease to permit pooling—Charles Hooks, the landowner and an attorney who had participated in a number of oil and gas deals, called Lanoue and sought more information. Charles Hooks inquired about the BSM No. 1 well's location and about how his property fit in the unit. Lanoue told him that the well was about 1,500 feet away from Pine Island Bayou, the boundary between Hardin and Jefferson Counties and the western line of the Hooks' Jefferson County Lease.

Hooks requested a plat showing where his acreage would lie within the proposed reconfigured BSM No. 1 unit. That same day, Lanoue sent Hooks the scaled plat of the redesignated BSM No. 1 pooling unit that Samson had filed with the Railroad Commission in December 2000. This plat was certified by Lanoue as “a true and correct plat based on the best of my knowledge December 28, 2000.” A number of changes had been made to the March 22, 2000 plat showing the original BSM No. 1 gas pooling unit to reflect the redesignated unit. The plat of the reconfigured unit had different boundaries extending further west and also further east into Jefferson County, encompassing part of the Broussard tract on the east that had not been included in the original unit designation. The plat had been highlighted to show the location of the Hooks' 50 acres east of Pine Island Bayou.

Like the March 2000 plat of the original BSM No. 1 unit, the plat of the redesignated BSM No. 1 unit contained the arrow pointing to the location of the bottom hole, but it gave slightly changed coordinates from those of the proposed bottom hole of the BSM No. 1 well on the March 2000 plat. At trial, Lanoue testified that he changed these coordinates with a ruler. Also, instead of a line running from the proposed bottom hole location and showing ±1,080 feet to the eastern line of the unit at Pine Island Bayou, the plat showed a different line to the bayou with an undesignated starting point. The plat also showed an eastern border of the reconfigured BSM No. 1 unit beyond the bayou and encompassing a portion of the Hooks' Jefferson County Lease. Above the line was the designation “±1400#.” An arrow stating *420 “BHL” and giving the well coordinates pointed to a point on the line about one quarter of the way from the western starting point of the line to the eastern end of the line at the bayou. Thus, if the designation “±1400#” were interpreted as the distance from the bottom hole to the bayou, the bottom hole of the BSM No. 1 well would be outside the 1,320 foot buffer zone for the Jefferson County Lease. However, if the “±1400#” designation were interpreted as the distance from the undesignated starting point of the line to the bayou and the arrow one- quarter of the way along it were interpreted as the bottom hole location, the bottom hole of the well would be within the buffer zone of the Hooks' Lease, triggering Samson's offset obligations under Article VI(A) of the Jefferson County Lease.

In addition, the plat stated:

The Bottom Hole Location is:

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 20 Samson Lone Star, Ltd. Partnership v. Hooks, 389 S.W.3d 409 (2012) 177 Oil & Gas Rep. 542

290′ FSL x 740′ FEL Survey

500′ Scaled FNL x 1400′± Scaled′ FEL Unit.

This language in the plat thus expressly stated that the bottom hole of the BSM No. 1 well was located about 1,400 feet from the eastern line of the redesignated BSM No. 1 unit, which encompassed the Hooks' 50 acres from their Jefferson County Lease between Pine Island Bayou and the eastern edge of the redesignated unit. According to this notation, the bottom hole of the BSM No. 1 well was within 1,320 feet of the “leased premises,” and, therefore, inside the buffer zone for the Hooks' Jefferson County Lease

Lanoue testified at trial that he added the notation that showed the bottom hole of the BSM No. 1 well to be ±1,400 feet from the eastern line of the unit in August 2000 to reflect the newly shaped unit. He also testified that he got the notation “740 feet from the east line and 290 feet from the south line” “from myself.” He did not go to the directional survey which had been previously completed to determine the exact location of the bottom hole. However, he intended the numbers to be “[a]s accurate as a land guy is using a ruler on a scaled piece of paper that might not even be to scale.”

Hooks testified at trial, however, that Lanoue orally told him that the BSM No. 1 well was 1,500 feet from Pine Island Bayou. He then looked at the plat and concluded that the bottom hole location was approximately 1,400 feet west of Pine Island Bayou and thus outside the line that would have triggered the 1,320 foot offset provisions in the Jefferson County Lease. He made no other inquiries regarding the plat or the bottom hole of the well, and he did not check the records filed with the Railroad Commission to determine the exact location of the bottom hole.

After making the pooling offer to the Hooks, Lanoue executed the designation of the BSM No. 1 pooling unit in February 2001 and recorded it in the county's real property records on March 7, 2001, showing the Hooks as participating in the pool for the BSM No. 1 unit. However, the Hooks did not actually consent to pool the 50 acres from their Jefferson County Lease into the BSM No. 1 unit until May 25, 2001, and they conditioned their assent on a formal amendment to the lease which they were to prepare and submit to Samson. The Hooks did not prepare the formal amendment, however, and the parties never executed such an amendment. Instead, the Hooks agreed to a division order setting out their percentage distribution of the unit's proceeds, which stated that Samson would pay the Hooks royalties based on a stated percentage of their acreage in the unit to the entire acreage of the BSM No. 1 unit unless notified otherwise in writing.

*421 After the Hooks agreed to be included in the BSM No. 1 unit, Samson sent royalty checks to them for their unit interest continuing through the time of trial, and the Hooks cashed the royalty checks. However, the royalty checks did not include additional compensatory royalties calculated under the terms of Article VI of the Hooks' Lease for a well drilled within the 1,320–foot buffer zone of the Hooks' Jefferson County Lease.

After the Hooks agreed to pool 50 acres of their Jefferson County Lease into the BSM No. 1 unit, Samson drilled a second well, the Joyce DuJay No. 1 well (“DuJay No. 1 well”), within the 1,320–foot buffer zone of the Hooks' Jefferson County Lease. That well was completed in January 2002 and made part of another pooling unit, the DuJay No. 1 unit, in which the Hooks also participated and from which they received royalties. This well was offset by the BSM No. 1 unit. Hooks testified that he was not defrauded with respect to the DuJay No. 1 unit.

2. The Hooks' Hardin County Leases, the BSM A–1 Well and Pooling Unit, and the Hooks' “Unpooling” Claim In addition to their Jefferson County Lease, the Hooks also owned two leases in Hardin County near the BSM No. 1 well, the 95–acre and 10–acre Hardin County Leases. Unlike the Hooks' Jefferson County Lease, these Leases did provide for pooling in terms that were essentially the same with respect to the manner and methods of pooling.

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 21 Samson Lone Star, Ltd. Partnership v. Hooks, 389 S.W.3d 409 (2012) 177 Oil & Gas Rep. 542

The Hardin County Leases both contained language calling for an instrument “identifying and describing the pooled acreage” and stating that a “pooled unit shall become effective on the date such instrument or instruments are so filed for record.” Article V(E) of the pooling provision in each Lease also stated that production from any part of a pooled unit that included the leased premises was considered production from the leased premises “regardless of whether ... such production was secured before or after the date of this lease or the date of the instrument designating the pooled unit.” The 95–acre Lease provided in Article V(E) as follows:

E. Lessee [Samson], at its option, is hereby given the right and power in its discretion to pool or combine, as to any one or more formations, the land covered by this Lease or any portion of said land, insofar only as gas or gas condensate rights are concerned ... with other land, lease or leases in the immediate vicinity thereof, except to the extent and in the manner hereinafter stipulated. With respect to any such unit so formed, Lessee shall execute in writing an instrument or instruments identifying and describing the pooled acreage, and file same for recording in the office of the County Clerk in Hardin County, Texas; and the pooled unit shall become effective on the date such instrument or instruments are so filed for record. Notwithstanding anything hereof to the contrary, pooled units created hereunder and comprising all or part of the herein leased premises shall not exceed the maximum acreage figures permitted for all production units of oil or gas wells completed at certain depths under Article V. hereof unless the Railroad Commission of Texas or any governmental authority having and asserting jurisdiction over the subject matter thereof prescribes for the drilling or operation of a well at a regular location, or permits for the obtaining of the maximum allowable from any well to be drilled, drilling, or already drilled, larger pooled units than any of those herein permitted, then any such pooled unit may be established or enlarged to conform to the size either required of a well *422 or permitted for the obtaining of the maximum allowable. For any well drilled on and completed at depths beneath the surface of a tract covered by this lease there shall be no pooling with other lands, unless such tract is insufficient, due to either its lack of size or prior unitization hereunder, to comprise the maximum acreage figures permitted hereunder in which case all of said tract (95 acres more or less) or the then un-unitized portion of same shall be so pooled; and Lessee may include in such pooled unit such other acreage as may be available to comprise the maximum acreage figures permitted under the terms of this lease. For a well drilled on or completed at depths beneath the surface of lands other than the herein leased premises, not less than all (100%) of the lands (95 acres more or less) or the then un-unitized portion of same shall be so pooled; and Lessee may include in such pooled unit such other acreage as may be available to comprise the maximum acreage figures permitted under the terms of this lease.

Operations for drilling on or production of gas from any part of the pooled unit which includes all or a portion of the Leased Premises, regardless of whether such operations for drilling were commenced or such production was secured before or after the date of this lease or the date of the instrument designating the pooled unit, shall be considered as operations for drilling on or production of gas from the Leased Premises, whether or not the well or wells be located on the Leased Premises, and the entire acreage constituting such unit or units shall be treated for all purposes, except the payment of royalties on production from the pooled unit, as if the same were included in this Lease. The above right and power to pool may be exercised at any time and from time to time and before or after a well has been drilled, or while a well is being drilled. Lessee may vacate any unit formed by it hereunder by instrument in writing filed for record in said county at any time when there is no unitized substance being produced from such unit. The pooling for gas hereunder by Lessee shall also pool and unitize all liquid gas, and the royalty interest payable to Lessor thereon shall be computed the same as on gas. For the purpose of computing the royalties to which owners of royalties shall be entitled on production from each production unit, there shall be allocated to the applicable separate tract acreage included in such production unit a pro rata portion of the production produced from such production unit. Such allocation shall be on an acreage basis; that is to say, there shall be allocated to the applicable separate tract acreage within the unit that pro rata portion of the production produced from the production unit which the number of surface acres covered by such separate tract and included in the production unit bears to the total number of surface acres included in the production unit, commencing with the date of first production from the production unit.

(Emphasis added.)

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In February 2001, Samson finished directionally drilling and completed the BSM A–1 well north of the BSM No. 1 well on Samson's own lease in Hardin County (the “Black Stone Minerals/FirnBank lease”). The mineral interests underlying this lease were owned 87.5% by Black Stone Minerals and 12.5% by FirnBank as cotenants.

Samson did not have the contractual authority to pool under its leases with either Black Stone Minerals or FirnBank. Samson therefore negotiated with the leaseholders for such a right and concluded that both of the lessors were in agreement. *423 Accordingly, on March 12, 2001, Samson filed a Unit Designation for a 704–acre unit called the Black Stone Minerals “A” No. 1 Gas Unit (the “BSM A–1 unit”). The BSM A–1 unit designation unitized the Black Stone Minerals/FirnBank lease, as well as the Hooks' 10–acre and 95–acre Hardin County Leases and other tracts, including leases beneath Pine Island Bayou owned by the State. The designation reflected that it was effective as of the date of first production, and it included a list of the leases pooled, including the Hooks' Hardin County Leases. The designation for the BSM A–1 unit included gas production at all depths between 6,000 and 13,800 feet, although the BSM A–1 well produced gas only from the shallow EY5 formation.

FirnBank consented to be pooled into the BSM A–1 Unit in May 2001. Samson also obtained written consent from the Hooks to pool their Hardin County Leases into the BSM A–1 unit. In addition, it obtained the agreement of the Texas General Land Office and the School Land Board (collectively, the “State of Texas”), who owned adjacent land, to pool that land into the unit. However, Black Stone Minerals, the 87.5% owner of the mineral interests underlying the drill site, declined to consent to the pooling unit.

Samson drilled and completed the BSM A–1 well, and the well began producing in June 2001 from the depth range of the formation at the horizon from 12,304 to 12,332 feet. In December 2001, Samson finished another gas well, the DuJay No. 1 well. The DuJay No. 1 well produced from some of the same land designated to the BSM A–1 unit, but it reached from 13,150 to 13,176 feet—a lower horizon than the BSM A–1 well. The DuJay No. 1 well began producing in January 2002.

In February 2002, after failing to receive Black Stone Minerals' consent to the BSM A–1 pooling unit, Samson amended the BSM A–1 unit designation. It executed and recorded a designation for a new unit, the Joyce DuJay No. 1 Gas unit (“DuJay No. 1 unit”) that recited an effective date as of first production of the DuJay No. 1 well, i.e., January 2002. The DuJay No. 1 unit designated a new, smaller, 571–acre unit with a different name, different leases, different depths and different boundaries from the BSM A–1 unit. The DuJay No. 1 unit included some of the deeper strata of the originally designated BSM A–1 unit, but it excluded the EY5 horizon from which the BSM A–1 well was producing at 12,304 to 12,332 feet. Instead, the designated DuJay No. 1 unit pooled its leases as to gas well production from 12,800 feet and deeper, including some already-pooled depths carved out of the BSM A–1 unit (12,400–13,800 feet) and deeper strata (below 13,800 feet). Because of its depth limitations, the DuJay No. 1 unit included the DuJay No. 1 well, but not the shallower-completed BSM A–1 well. The designated acreage excluded most of the Black Stone Minerals/FirnBank lease, but it included the Hooks' Hardin County Leases and the State's leases.

Samson did not get consent from the Hooks to vacate or amend the BSM A–1 unit or to “unpool” their interests from the BSM A–1 unit or well. However, it informed the Hooks that the BSM A–1 unit had been amended and the unit name had been changed. It stated, “Please note that the Unit Designation for the Black Stone Minerals ‘A’ No. 1 is being amended and will now be called the Joyce DuJay No. 1 unit. No additional action is needed on your part.” After the BSM A–1 unit was amended, reconstituted, and renamed the DuJay No. 1 unit, Samson paid, and the Hooks accepted, royalty payments from pooled production from the DuJay No. 1 well from the date of first production until *424 after commencement of trial in the instant case. The BSM A–1 well was produced as a lease well on Samson's Black Stone Minerals/FirnBank leases and was not included in any unit. Samson did not pay the Hooks royalties on the BSM A–1 well, and the Hooks took no action to enforce any rights with respect to the original BSM A–1 unit.

Subsequently, Samson drilled another DuJay well (the “DuJay A–1 well”) and created a separate pooling unit for that well. The DuJay A–1 unit differed from the DuJay No. 1 unit by depth limitation and acreage. The DuJay A–1 well began producing on September 25, 2002. However, Samson did not file the DuJay A–1 unit designation until July 2003. The Hooks' Hardin County

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Leases were likewise pooled into the designated DuJay A–1 unit, and the Hooks accepted royalties on the production from that unit as well from the date of first production until after trial had begun in the instant action.

3. The Hooks' Hardin County Leases and the “Most Favored Nation” Clause The Hooks' Hardin County Leases also contained a “most favored nation” clause. This clause provided that, under certain circumstances, the royalties payable to the Hooks must be elevated to match the highest royalty payable to Samson's other lessors.

4. The Hooks' Leases and the “Formation Production Clause” Article III(K) of each of the Hooks' Leases contained a “formation production clause.” Article III provided that the Hooks were to receive as royalties 25% of “the market value at the wells” on the “gas, including casinghead gas or other gaseous substances produced from said land,” or 25% of “the price received therefor by Lessee.” Likewise, they were to receive as royalties 25% of “all liquid hydrocarbons that may be produced from said land.” Article III(K) provided, “For the purposes of calculating all royalties payable under Article III herein, it is expressly provided that all such calculations shall be based on formation production as reported on Texas Railroad Commission forms P–1 and P–2.”

B. PROCEDURAL HISTORY

1. Trial Court Proceedings In August 2004, several mineral-rights owners who had leased to Samson filed a suit against Samson styled Joyce DuJay Lee v. Samson Lone Star. The plaintiffs, who did not include the Hooks, complained about pooling issues unrelated to the BSM No. 1 well. In December 2004, other landowners, also not including the Hooks, filed a second action, styled Thomas Klorer et al. v. Samson, complaining about the same issues. In August 2005, these two actions were consolidated.

On his birthday in November 2006, Charles Hooks, as an oil and gas attorney, attended a seminar for oil and gas attorneys. There, he met an attorney who told him he was handling the Klorer and Lee cases against Samson.

On November 16, 2006, the Hooks were added to the consolidated suit in a Fifth Amended Petition. This petition alleged against Samson various breaches of contract and common law and statutory negligence related to the Hooks' Jefferson County Lease and their two Hardin County Leases. Among other things, the Hooks claimed that Samson had breached the Jefferson County Lease by not paying compensatory royalties based on the bottom hole of the BSM No. 1 well being within 1,320 feet from their Lease. The Hooks also claimed that Samson had improperly “unpooled” the BSM A–1 unit, and they sued to obtain all royalties they would have received from that unit as if all *425 the lessors, including Black Stone Minerals, had agreed to pool, to be added to the royalties they received from the DuJay No. 1 and DuJay A–1 units(the “unpooling claim”). The Hooks also asked for a declaratory judgment regarding the construction of the “most favored nations” clauses in their Leases, which they argued was triggered by a royalty paid to the State of Texas under a pooling agreement with Samson that was higher than the royalty paid to the Hooks under their pooling agreements. Finally, the Hooks sought the payment of royalties to them on “formation production” under the terms of all three Leases. The Hooks did not, however, plead any fraud claims at that time.

The Hooks added fraud, fraudulent inducement, and statutory fraud claims with respect to the Jefferson County Lease in a Sixth Amended Petition, filed on May 7, 2007. The Hooks alleged in the alternative (1) that their Jefferson County Lease had never been a part of the BSM No. 1 unit because no agreement to amend that Lease to allow pooling was entered, and, therefore, they were entitled to damages under the Lease for the loss of their rights to require Samson either to drill an offset well, pay them compensatory royalties, or release their acreage, and (2) that Samson had made false representations to them as to the configuration of the BSM No. 1 unit and the location of the BSM No. 1 well to induce them to agree to amend the Jefferson County Lease to allow a portion of it to be pooled in the BSM No. 1 well and unit(the “offset obligations claim”). They contended that Samson had falsely represented “that the [BSM No. 1] (gas) well was more than 1,320′ from the nearest

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lease line of the Hooks Jefferson County Lease” so that its offset obligations were not triggered under the Lease. The Hooks claimed that the representations were intended to save Samson from having to pay them the substantially greater compensatory royalties that would have been payable under the terms of the Lease for infringement of the 1,320–foot buffer zone.

In September 2007, the trial court severed the consolidated action against Samson into three different actions, one of which was the Hooks' action against Samson for fraud and breach of contract. 5

5 The severed lawsuits are Klorer v. Samson Lone Star, No. B–173,008; Bordages v. Samson Lone Star, No. B–173,008–A; and Hooks v. Samson Lone Star, No. B–173,008–B. Only Hooks has gone to trial. Klorer and Bordages remain pending. Subsequently, the Hooks moved for partial summary judgment on several of their claims based on the terms of their Leases. The Hooks moved for summary judgment on the unpooling claim, claiming that Samson did not have authority to vacate the BSM A–1 unit into which their Hardin County Leases were pooled and that, therefore, Samson had breached its lease contract by failing to pay them royalties on the BSM A–1 well. The Hooks also moved for summary judgment on their most favored nation claim, formation production claim, and offset claims. They argued that Samson failed to pay them “royalties based on a greater ‘Most Favored Nations' rate and compensatory royalties on certain offset encroaching wells.”

Samson moved for partial summary judgment on the offset obligations provision, on the formation production claims, and on the most favored nation claim. Samson also moved for summary judgment on the Hooks' unpooling claim on the basis of limitations.

The trial court granted the Hooks' motion for summary judgment and denied Samson's motion on the unpooling claim. It assessed damages of $766,626.85 against Samson on the Hooks' unpooling claim.

*426 The trial court also granted the Hooks' summary judgment motion on their claim for breach of the most favored nations clause in their Hardin County Leases and awarded them $848,854.01 in damages.

The trial court granted Samson's motion for summary judgment for breach of the offset obligations provision in the Jefferson County Lease on limitations, and it denied the Hooks' corresponding motion. The trial court also disposed of some other contract claims by other partial summary judgment motions.

In 2008, the case went to trial solely on the Hooks' fraud claims with respect to the Jefferson County Lease and their formation production claims. The fraud claims included the Hooks' claims that Samson's landman, Lanoue, had made misrepresentations to them to get them to allow Samson to add their 50 acres subject to the Jefferson County Lease to the BSM No. 1 pooling unit for the BSM No. 1 well, which was within the 1,320–foot buffer zone for the Lease. The Hooks contended Samson made these misrepresentations to avoid abiding by the terms of Article VI(A) of the Jefferson County Lease, which they contended would have required Samson to drill an offset well, release their acreage, or pay them compensatory royalties, and, therefore, they were entitled to damages. The Hooks also claimed that they were entitled to additional royalties under the formation production clauses in both their Jefferson County and their Hardin County Leases.

The jury answered “yes” to the questions of whether Samson committed fraud and statutory fraud with respect to the BSM No. 1 well. It assessed damages against Samson for fraud in the amount of $20,081,638.07. The jury found that, in the exercise of reasonable diligence, the Hooks should have discovered Samson's fraud by Charles “Hook's Birthday April 2007.” It did not respond, however, to the questions asking for a finding, by clear and convincing evidence, that the harm to the Hooks resulted from fraud or that Samson had actual awareness of the falsity of the representations or promise that the jury had found to be fraud. 6 Therefore, it did not award exemplary damages. The jury also did not respond to the question requesting it to “find beyond a reasonable doubt that Samson secured execution by the Hooks of a document by deception” and that the property had a value of $1,500 or more. 7

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6 Question Four, the question asking for a finding that the harm to the Hooks resulted from fraud, and Question Five, asking for a finding that Samson had actual awareness of the falsity of the representation, instructed the jury to answer the questions only if it unanimously answered “yes” to Questions One and Two. Only eleven of the twelve jurors answered “yes” to Questions One and Two; therefore, the jury properly refrained from answering Questions Four and Five. 7 Question Seven, seeking a finding that Samson secured execution of a document by deception, instructed the jury to answer the question only if it unanimously answered “yes” to Question Four or Five. Because the jury did not answer Question Four or Five, it properly refrained from answering Question Seven. Finally, the jury found that Samson's failure to pay royalties based on formation production resulted in underpayment of royalties on all three of the Hooks' Leases.

The trial court entered final judgment on the jury's verdict, awarding the Hooks $20,081,638.07 for damages proximately caused by Samson's fraud with respect to the BSM No. 1 well. The final judgment also reaffirmed and incorporated the trial court's previous summary judgment rulings in favor of the Hooks. In addition to the fraud award, the judgment awarded *427 the Hooks$766,626.85 in damages for the “unpooling” claim related to the BSM A–1 well, $848,854.01 in damages for breach of the Leases' most favored nations clause, and $52,257.22 in damages related to ad valorem taxes. 8 Finally, the final judgment included an award of attorney's fees, expert witness fees, costs for copies of depositions, and pre- and post-judgment interest in favor of the Hooks.

8 At trial, Samson stipulated that it owed the Hooks $52,257.22 for ad valorem taxes that the Hooks had paid through November 2007. This stipulation and the amount of ad valorem taxes owed by Samson to the Hooks is not challenged on appeal.

2. Claims on Appeal Samson has appealed the judgment on the trial verdict and the partial summary judgments entered against it, and the Hooks have cross-appealed the partial summary judgments entered against them, all of which were incorporated in the final judgment.

Samson contends on appeal that the trial court erred in entering judgment on the jury's finding that it committed fraud with respect to the Hooks' Jefferson County Lease and that it withheld royalties on formation production with respect to all three of the Hooks' claims. It also contends that the trial court erred in granting the Hooks' motion for summary judgment on their unpooling claim with respect to the BSM A–1 well, in granting summary judgment on the Hooks' claim for royalties under the most favored nations clause in their Jefferson and Hardin County Leases, and in denying its own motion for summary judgment on those claims. Finally, Samson contends that the trial court erred by granting a permanent injunction in its final judgment requiring Samson to fulfill certain contract provisions on pain of contempt of court, that it erred in awarding attorney's fees to the Hooks, and that it erred in awarding the Hooks 18% post-judgment interest compounded annually.

The Hooks contend on cross-appeal that the trial court erred in ruling in Samson's favor on their claims that Samson breached the offset obligations clause in the Hardin County Leases.

C. DISCUSSION

1. The Trial Court's Judgment on the Hooks' Fraud Claims with Respect to the Jefferson County Lease In its third issue, Samson contends (1) that there is legally and factually insufficient evidence to support the jury's finding that the Hooks could not have discovered their fraud claims until April 2007 and (2) that the statute of limitations bars the Hooks' claim for fraud, fraudulent inducement, and statutory fraud with respect to the Jefferson County Lease.

[1] [2] To prove fraud, a plaintiff must show that the defendant made (1) a material misrepresentation (2) that was either known to be false when made or was asserted without knowledge of its truth (3) which was intended to be relied upon (4) which was indeed relied upon and (5) which caused injury. Dow Chem. Co. v. Francis, 46 S.W.3d 237, 242 (Tex.2001). To

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prove fraudulent inducement, these same elements of fraud must be established as they relate to a contract. Coastal Bank SSB v. Chase Bank of Tex., N.A., 135 S.W.3d 840, 843 (Tex.App.-Houston [1st Dist.] 2004, no pet.). The statute of limitations for fraud is four years. TEX. CIV. PRAC. & REM.CODE ANN. § 16.004 (Vernon 2002).

[3] [4] [5] “Statutes of limitations are intended to compel plaintiffs to assert their claims ‘within a reasonable period of time while the evidence is fresh in the minds of the parties and witnesses.’ ” Wagner & *428 Brown, Ltd. v. Horwood, 58 S.W.3d 732, 734 (Tex.2001) (quoting Computer Assocs. Int'l, Inc. v. Altai, Inc., 918 S.W.2d 453, 455 (Tex.1996)). “As a general rule, a cause of action accrues and the statute of limitations begins to run when facts come into existence that authorize a party to seek a judicial remedy.” Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 221 (Tex.2003). In most circumstances, “a cause of action accrues when a wrongful act causes a legal injury, regardless of when the plaintiff learns of that injury or if all resulting damages have yet to occur.” Id.

[6] The statute of limitations for fraud is four years. TEX. CIV. PRAC. & REM.CODE ANN. § 16.004(a)(4) (Vernon 2002); Exxon Corp. v. Emerald Oil & Gas Co., 348 S.W.3d 194, 216 (Tex.2011). “The statute of limitations for fraud begins to run from the time the party knew of the misrepresentation.” Emerald Oil, 348 S.W.3d at 216; see also Little v. Smith, 943 S.W.2d 414, 420 (Tex.1997) (“Generally, in a case of fraud the statute of limitations does not commence to run until the fraud is discovered or until it might have been discovered by the exercise of reasonable diligence.”).

[7] The Hooks claimed, and the jury found, that in making their determination to agree to the pooling of 50 acres of their Jefferson County Lease in the BSM No. 1 unit, they relied solely on Lanoue's oral statement that the BSM No. 1 well was about 1,500 feet from their Lease line and on Charles Hooks' interpretation of the plat of the BSM No. 1 unit provided to him in response to his conversation with Lanoue on February 15, 2001. The Hooks also contended, and the jury found, that they did not discover that the bottom hole of the BSM No. 1 well was within their 1,320–foot buffer zone, entitling them to additional compensation royalties, until well within the limitations period as extended by application of the discovery rule. 9 Specifically, the Hooks claimed that they relied on Charles Hooks' interpretation of the designation “±1400#” on the line on the plat of the redesignated unit drawn from an undesignated point to Pine Island Bayou as meaning that the bottom hole of the BSM No. 1 well was about 1,400 feet, or more than 1,320 feet, from their Lease, and, therefore, outside the buffer zone. They did not inquire into seemingly contradictory information in that document showing an arrow pointing to the bottom hole of the BSM No. 1 well about one-quarter of the way along the 1,400–foot line from an undesignated point to Pine Island Bayou, the western line of their Jefferson County Lease. Nor did they inquire into the notation that the bottom hole was about 1,400 feet “FEL unit,” i.e., from the eastern line of the reconfigured BSM No. 1 unit, which included 50 acres of their Jefferson County Lease. Both of these notations would have indicated to them that the bottom hole of the BSM No. 1 well was clearly within the Lease's 1,320–foot buffer zone. Similarly, the Hooks did not seek available records from either Samson or the Railroad Commission that would have shown them the actual location of the BSM No. 1 well's bottom hole.

9 Although the jury found that the Hooks' cause of action for fraud accrued on “Hooks' birthday April 2007,” the record shows that Hooks' birthday was in November and that it was on his birthday in November 2006 that he attended the seminar for oil and gas attorneys where he first heard about the other mineral-rights owners' suits against Samson. Had the Hooks exercised reasonable diligence, they should have known of the exact location of the bottom hole when the directional survey was filed with the Railroad Commission in July 2000. See Emerald Oil, 348 S.W.3d at 216; *429 Little, 943 S.W.2d at 420. Charles Hooks was an oil and gas attorney and had participated in more than 100 oil and gas leases at the time of trial, and he knew that Lanoue had certified the plat furnished to Hooks as being made on his own knowledge in December 2000, but he never sought to investigate the results of the directional survey filed with the Railroad Commission in July 2000, which showed the exact location of the bottom hole. Nor did the Hooks conduct due diligence in seeking the plat of the originally designated BSM No. 1 unit certified by the surveyor in March 2000, showing the proposed bottom hole of the BSM No. 1 well, which was likewise filed with the Railroad Commission in July 2000. Both of these publicly available documents would have shown that the well was proposed to be and was bottomed within the 1,320–foot buffer zone of the Jefferson County Lease, triggering Samson's obligations to them under Article VI(A) of that Lease. Any inquiry into the records

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available from the lessee, Samson, or from the Railroad Commission would have shown the Hooks the actual location of the BSM No. 1 well's bottom hole in February 2001, when pooling was first proposed to them.

The Hooks' fraud claims were not filed until May 2007, more than six years after pooling was proposed to them by Samson. We conclude that the Hooks knew or should have known information that led to the discovery of the alleged fraud no later than February 2001, as the necessary information was a matter of public record at that time. See BP Am. Prod. Co. v. Marshall, 342 S.W.3d 59, 66 (Tex.2011) (holding that information disclosing lessee's failure to continue good faith efforts to develop oil and gas lease was available from public records and “from several other sources, including the lessee”); HECI Exploration Co. v. Neel, 982 S.W.2d 881, 886 (Tex.1998) (holding that, because several sources of information about common reservoirs and operations are available to royalty owners, including Railroad Commission records, discovery rule deferring accrual of cause of action does not apply to claims of royalty owners for damage to common oil and gas reservoir).

[8] The statute of limitations for fraud begins to run when the claimant knew or could have discovered the fraud by the exercise of reasonable diligence. See Little, 943 S.W.2d at 420. Thus, the statute of limitations began to run in February 2001, but the Hooks did not file suit until May 2007, which is well outside the limitations period. See Emerald Oil, 348 S.W.3d at 216. We hold that the Hooks' fraud claims are barred by limitations as a matter of law.

On rehearing, the Hooks argue that the issue of when they could have discovered the fraud was a question for the jury, citing Lesley v. Veterans Land Board, 352 S.W.3d 479, 485–86 (Tex.2011). That case addressed an alleged mistake in a reservation of a mineral interest. Id. The supreme court held that there were fact issues as to whether this mistake was so plain as to charge the grantor with knowledge of the mistake. Id. at 486. The court concluded, “In these circumstances, it cannot be said that, as a matter of law, Lesley knew or should have known of the mistake in her deed when she executed it. Whether her claim for reformation is barred by limitations involves disputed facts.” Id. This scenario is distinguishable from the present case.

[9] When a cause of action accrues is normally a question of law. Emerald Oil, 348 S.W.3d at 202. Our analysis of when the Hooks knew or should have known of facts that in the exercise of reasonable diligence would have led to the discovery of the alleged wrongful act demonstrates *430 that they should have known of the alleged fraud, as a matter of law, in February 2001, more than six years before they filed suit. There is no disputed fact issue here regarding whether this information was plain enough to charge the Hooks with this knowledge—it is undisputed that this information was readily available in Samson's records and in the records filed with the Railroad Commission. Moreover, there was sufficient information available on the plat of the redesignated BSM No. 1 unit—namely the information that the bottom hole of the well was “±1400” feet from the eastern line of the unit that encompassed their 50 acres—that should have put them on inquiry notice. Thus, the reasoning in Lesley does not apply in this case.

We sustain Samson's third issue.

2. Summary Judgments Entered Against Samson on the Hardin County Leases

(a) Samson's “Unpooling” of the BSM A–1 Unit

In its sixth issue, Samson challenges the trial court's summary judgment awarding the Hooks damages on their claim for royalties from the BSM A–1 unit due to Samson's improper unpooling of that unit.

Samson contends that because Black Stone Minerals, the 87.5% owner of the mineral rights on the drill site tract did not consent to pooling, (although FirnBank, the owner of a 12.5% interest in the mineral rights did), the “essential purpose for forming that unit had failed” and the BSM A–1 unit as originally designated was not formed. Thus, the amendment of the unit to exclude the non-consenting drill site mineral owner, Black Stone Minerals, was justified. Samson further argues that, after the BSM A– 1 unit was amended and renamed the DuJay No. 1 unit, the Hooks accepted royalty payments from production on both DuJay

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units, which gave the Hooks a higher percentage of the production than they would have received under the BSM A–1 unit. Samson argues that, by accepting the royalty payments from the DuJay No. 1 well and the DuJay A–1 well, the Hooks accepted the amendment to the BSM A–1 unit and they understood and acknowledged that the BSM A–1 unit was not formed.

Alternatively, Samson argues that, if the amendment to the BSM A–1 unit was improper, the BSM A–1 unit still exists and the Hooks should have been paid in accordance with their interests in that unit, not in accordance with their interest in the two DuJay units, which were improperly formed. Moreover, it argues that the extent of the unit must be limited to FirnBank's 12.5% interest in the drill site tract because only FirnBank consented to pool its undivided interest in the gas produced from the BSM A–1 well.

The Hooks argue that the BSM A–1 unit was validly formed when FirnBank, the owner of a 12.5% undivided interest in the mineral rights to the drill site, consented to the unit and that this pooled unit could not be vacated or amended so long as gas continued to be produced from the BSM A–1 well. The Hooks agreed to the pooling of their Hardin County Leases in the BSM A–1 unit. Therefore, they argue, they are entitled to royalties from the BSM A–1 well in addition to the royalties they accepted from their participation in the DuJay No. 1 and DuJay A–1 pooling units.

[10] [11] [12] [13] An oil and gas lease is a contract and is therefore interpreted as such. Tittizer v. Union Gas Corp., 171 S.W.3d 857, 860 (Tex.2005). When construing a contract, the primary goal of the courts is to give effect to the parties' written expression of their intent. PG & E Gas *431 Transmission v. City of Edinburg, 59 S.W.3d 225, 227 (Tex.App.-Corpus Christi 2001, no pet.). The courts will enforce the intentions of the parties to an unambiguous oil and gas lease as expressed in the lease. Tittizer, 171 S.W.3d at 860. In determining the agreement, the court examines all parts of the contract and the circumstances surrounding its formulation. Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 591 (Tex.1996); PG & E Gas Transmission, 59 S.W.3d at 227–28.

[14] [15] With respect to royalty interest owners, “pooling results in ‘a cross-conveyance of interests in land by agreement among the participating parties, each of whom obtains an undivided joint ownership in the royalty earned from the land in the “block” created by the agreement’ ” and each of whom receives royalty on the basis of the percentage of that party's acreage to the whole block. Browning Oil Co. v. Luecke, 38 S.W.3d 625, 633 (Tex.App.-Austin 2000, pet. denied) (quoting MCZ, Inc. v. Triolo, 708 S.W.2d 49, 52–53 (Tex.App.-Houston [1st Dist.] 1986, writ ref'd n.r.e.)). In other words, pooling effects a cross- conveyance among the owners of the minerals under the various tracts in the pool so that all cotenants own undivided interests under the unitized tract in the proportion that their contribution bears to the unitized tract. Montgomery v. Rittersbacher, 424 S.W.2d 210, 213 (Tex.1968). Thus, when an oil and gas lease is executed by all of the owners of different mineral interests in two or more tracts, the royalties payable under the lease will be pooled, and all royalty interest owners in the land subject to the lease will share in production, no matter where the well is drilled on the leasehold. London v. Merriman, 756 S.W.2d 736, 739 (Tex.App.-Corpus Christi 1988, writ denied).

[16] [17] [18] An oil and gas lessee has no power to pool, however, without the lessor's express authorization, usually contained in the lease's pooling clause. Tittizer, 171 S.W.3d at 860; Se. Pipe Line Co. v. Tichacek, 997 S.W.2d 166, 170 (Tex.1999); Luecke, 38 S.W.3d at 634 (holding that lessee's authority to pool is derived solely from terms of lease, and lessee has no power to pool absent express authority). “For pooling to be valid, it must be done in accordance with the terms of the methods and purposes specified in the lease.” Tittizer, 171 S.W.3d at 860; Tichacek, 997 S.W.2d at 170. Good-faith pooling can be exercised multiple times. See Expando Prod. Co. v. Marshall, 407 S.W.2d 254, 259–60 (Tex.Civ.App.-Fort Worth 1966, writ ref'd n.r.e.). However, “[t]he lessors' land may be pooled only to the extent stipulated in the lease.” Tittizer, 171 S.W.3d at 860 (quoting Jones v. Killingsworth, 403 S.W.2d 325, 327–28 (Tex.1965)).

[19] [20] [21] Joinder by all interest owners is not necessary for a pooled unit to be valid. See Ladd Petroleum Corp. v. Eagle Oil & Gas Co., 695 S.W.2d 99, 106 (Tex.App.-Fort Worth 1985, writ ref'd n.r.e.); see also Whelan v. Placid Oil Co., 274 S.W.2d 125, 128 (Tex.Civ.App.-Texarkana 1954, writ ref'd n.r.e.) (holding that tenant in common has right to execute lease on his undivided interest in common property, notwithstanding nonjoinder of cotenant); Donnan v. Atl. Richfield, 732 S.W.2d 715, 717 (Tex.App.-Corpus Christi 1987, no writ) (stating that cotenant has right to incorporate pooling agreement into oil or gas

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lease without consent or joinder of cotenants, thereby binding his undivided interest). Rather, a tenant in common has the legal right to incorporate a pooling agreement into an original oil and gas lease without the consent or joinder of the other cotenants, creating a valid contract binding the undivided interest of the cotenant *432 making the agreement. Whelan, 274 S.W.2d at 128. In such a case, the timely completion of a producing well under the terms of the pooling agreement and within the unit area set out in the unitization agreement will serve to continue the lease in full force and effect so long as gas is being produced in commercial quantities. Id. A cotenant who enters into such a lease binding its royalty interest in the completed and producing well and who accepts its pro rata share in the royalties from the well calculated under the terms of the unitization agreement is estopped to deny the validity of the unitization agreement as to its interest therein. Id. at 129.

[22] A lessee cannot unilaterally terminate a unit that has a producing pooled well. See Ladd Petroleum Corp., 695 S.W.2d at 106–07. Rather, for a lessee to terminate a unit, either the lessors must agree to the unpooling or the lease must expressly authorize such termination. Id. at 107; see Williamson v. Mobil Producing Tex. & N.M., Inc., 737 S.W.2d 917, 921 (Tex.App.- Beaumont 1987, writ denied) (“So, clearly, the lessee, if it is ‘after the discovery of the same,’ can change the pooling unit only subsequent to the cessation of production....”).

[23] [24] When a mineral interest owner—a lessor—accepts royalty checks from a pooled unit, he has accepted that unit. See Montgomery, 424 S.W.2d at 214–15. Under the doctrine of equitable estoppel, mineral interest owners can not repudiate a unit designation after accepting royalties attributable to that unit. Cambridge Prod. Inc. v. Geodyne Nominee Corp., 292 S.W.3d 725, 732 (Tex.App.-Amarillo 2009, pet. denied).

Here, The Hardin County Leases granted Samson the authority to pool those leases with other land or leases. Under that authority, Samson obtained the Hooks' agreement to pool their interests with the undivided interests of the two drill site lessors, Black Stone Minerals and FirnBank, in the BSM A–1 unit. One of the two drillsite lessors—FirnBank—consented to the BSM A–1 unit. In addition, Samson pooled other lands and its own working interests into that unit. However, Black Stone Minerals refused to pool. Samson had no authority to pool Black Stone Minerals' interests without its express consent. See Tittizer, 171 S.W.3d at 860; Tichacek, 997 S.W.2d at 170; Luecke, 38 S.W.3d at 634. But it did not lack authority to form a gas production unit that included the mineral interests of Black Stone Minerals's cotenant, FirnBank. See Ladd Petroleum Corp., 695 S.W.2d at 106; Whelan, 274 S.W.2d at 128.

We agree with the Hooks that the originally designated BSM A–1 unit was validly formed, creating a valid contract binding FirnBank, the cotenant making the agreement, and the Hooks. See Whelan, 274 S.W.2d at 128. Thus, the Hardin County Leases and FirnBank's undivided 12.5% interest in the acreage of the designated unit, as well as the leases of the other consenting landowners, constituted a valid pooling unit. However, FirnBank pooled only its own undivided 12.5% interest in the production from the BSM A–1 unit. See id. at 129. The BSM A–1 unit that was created for the BSM A–1 well did not include the interest of Black Stone Minerals, who had not consented to pool its undivided mineral interest in the drill site lease, as a lessor. See Tittizer, 171 S.W.3d at 860; Tichacek, 997 S.W.2d at 170; Luecke, 38 S.W.3d at 634. Neither FirnBank nor the Hooks had the authority to bind Black Stone Minerals to their own agreement to pool. See Montgomery, 424 S.W.2d at 213; Whelan, 274 S.W.2d at 128.

[25] While there was production from the original BSM A–1 unit, Samson had no *433 authority to dissolve that unit. See Williamson, 737 S.W.2d at 921. Nevertheless, when Black Stone Minerals refused to pool, Samson treated the BSM A–1 well as continuing as an independent lease well on the Black Stone Minerals/FirnBank Lease that was not pooled in any unit. Samson did not pay the Hooks royalties on the production from the BSM A–1 well, nor did the Hooks complain that they were not receiving royalties. Instead, it amended and redesignated the pooling unit to exclude the BSM A–1 well and the EY5 formation from which it was producing, which Samson renamed the DuJay No. 1 unit.

Samson pooled the Hooks' interests and those of the other interest holders in the originally designated BSM A–1 unit into both the DuJay No. 1 unit and the DuJay A–1 unit, pursuant to its right under the Hardin County Leases to exercise pooling authority multiple times, “at any time and from time to time....” Samson notified the Hooks, stating, “Please note that the Unit

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Designation for the Black Stone Minerals ‘A’ No. 1 is being amended and will now be called the Joyce DuJay No. 1 Unit. No additional action is needed on your part.”

The amended unit and redesignated pooling unit included reduced acreage from the Black Stone Minerals/FirnBank lease as well as the Hooks' Hardin County Leases and others from the original BSM A–1 unit, including the State's leases. Although the new DuJay No. 1 unit did not include the horizon from which the BSM A–1 well was producing, it did include deeper strata that had been included in the original BSM A–1 unit, including the depths from which the DuJay No. 1 well was producing. Subsequently, Samson designated a second new gas production unit that overlapped with the original BSM A–1 unit, which it named the DuJay A–1 unit. The DuJay A–1 unit included different strata not included in the DuJay No. 1 unit.

The completion of a producing well, the BSM A–1, within the unit area set out in the unitization agreement served to continue the leases granted to Samson by FirnBank, the Hooks, and the other landowners in full force and effect so long as any “unitized substance” continued to be produced from the BSM A–1 well, subject to unpooling through agreement of the lessors or through cessation of the production of unitized substance as provided in the habendum clause of the Hardin County Leases. See Ladd Petroleum Corp., 695 S.W.2d at 107; Whelan, 274 S.W.2d at 128. Therefore, Samson's redesignation of the BSM A–1 unit constituted a breach of the Hardin County Leases by Samson, as did its failure to pay the Hooks royalties on the production from the BSM A–1 well unless the lessors agreed to the unpooling.

The Hooks took no action to assert any rights under the originally designated BSM A–1 unit in response to Samson's amendment and redesignation of the BSM A–1 unit as the DuJay No. 1 unit and its subsequent designation of the DuJay A–1 unit until they filed suit for breach of contract against Samson in November 2006, more than four years from the date of first production and more than four years from the date the BSM A–1 unit was amended and redesignated and the Hooks were notified. Instead, the Hooks expressly agreed to accept the redesignation and terms of the new units, binding themselves to accept royalties pursuant to their pro rata share of the royalties from the DuJay No. 1 and DuJay A–1 units as calculated under the terms of the DuJay No. 1 and DuJay A–1 unitization agreements, and they did accept royalties from the production of both DuJay units until the time of trial in this case.

*434 We conclude that, by accepting royalty checks from the amended and redesignated pooling units, the DuJay No. 1 and DuJay A–1 units, which they had been notified replaced the BSM A–1 unit, and by not asserting any rights to royalties from the original BSM A–1 unit or making any timely claim against Samson in regard to the amendment and redesignation of the BSM A–1 unit, the Hooks accepted and ratified the amendment and redesignation of the units. See Fortune Prod. Co. v. Conoco, Inc., 52 S.W.3d 671, 678 (Tex.2000) (stating that ratification is adoption or confirmation by person with knowledge of all material facts of prior act which he had right to repudiate); Montgomery, 424 S.W.2d at 214–15.

We hold, therefore, that the Hooks are estopped to assert an interest in royalties from production from the BSM A–1 well by their ratification of the amended and redesignated BSM A–1 unit.

We sustain Samson's sixth issue.

(b) The Hooks' Summary Judgment on the “Most Favored Nations” Clause in the Jefferson and Hardin County Leases

[26] In its seventh issue, Samson claims that the trial court erred in rendering summary judgment in the Hooks' favor on the “most favored nations” lease clause contained in all three of the Hooks' Leases. This clause provided that, under certain circumstances, the royalties payable to the Hooks must be elevated to match the highest royalty payable to Samson's other lessors. Specifically, the clause provides:

XXIX. MOST FAVORED NATIONS CLAUSE

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If Lessee shall enter into an oil and gas lease(s) part of which is located within three (3) miles of any exterior boundary of the subject lands covered by the Subject Lease, hereinafter referred to as “Third Party Lease,” Lessee shall notify Lessor of such fact. If the reserved royalty or the amount per acre payable for delay rentals, shut-in rentals or minimum royalty, at any time payable under such Third Party Lease, is higher than the like royalty and amounts payable as provided in the Subject Lease, the royalty or amount payable per acre in the Subject Lease, which is less than that provided in the Third Party Lease shall be immediately increased so that it will equal the royalty or other amounts payable under the Third Party Lease. The subject Lease and the Third Party Lease must be calculated in substantially the same manner, such that the comparison of the Subject Lease and the Third Party Lease is based on the same effective net royalty or other payments, and that same shall include or deduct the same types of charges, taxes and other burdens from such interests.

The trial court granted summary judgment in the Hooks' favor, holding that this clause was triggered by royalty paid to the State of Texas under a pooling agreement with Samson that was higher than the royalty due to the Hooks.

It is undisputed that the State of Texas's lease under Pine Island Bayou (“State of Texas Lease”) is a “Third Party Lease” within the meaning of that term in the most favored nations clause in the Leases in that it covers land located within three miles of the lands covered by the Hooks' Leases. The State, like FirnBank and the Hooks, originally consented to pooling to form the BSM A–1 unit. It declined, however, to consent to the subsequent DuJay No. 1 unit. In order to obtain the State's consent to pool its lease under Pine Island Bayou into the DuJay No. 1 unit, Samson entered into a pooling agreement wherein Samson became obligated to pay the State *435 a 28.28896% royalty on production from the DuJay No. 1 well, as opposed to the 25% it had been paying the State and was paying to the Hooks. The issue, therefore, is whether the pooling agreement executed by Samson and the State constitutes a “Third Party Lease,” i.e., an oil and gas lease located within three miles of any exterior boundary of any of the Hooks' Leases with a higher royalty than that provided for in the Hooks' Leases, so that Samson's obligation to pay the Hooks increased royalties under the most favored nations clause in those leases was triggered.

[27] [28] A most favored nations clause is “a vendor protection clause [that] enables the vendor to receive the benefit of increases in the market price of his product over the term of a long range contract with a purchaser.” Lone Star Gas Co. v. Howard Corp., 556 S.W.2d 372, 374 (Tex.Civ.App.-Texarkana 1977, writ ref'd n.r.e.). Such a clause is enforced according to its terms. See id. at 375–76.

The most favored nations clause in the Leases referred specifically to Samson's obligation to pay the Hooks royalty per acre equal to that payable under any Third Party “oil and gas lease(s) part of which is located within three (3) miles of any exterior boundary of the subject lands covered by [the Hooks'] Lease that Samson entered.” Here, however, Samson did not enter an “oil and gas lease” with the State that required it to pay higher royalties per acre than it was paying the Hooks under their Leases. It entered a settlement agreement, called a “Pooling Agreement,” that raised only the royalty payable to the State on production from the DuJay No. 1 unit.

The difference between the royalties payable to the State on production from the DuJay No. 1 unit and the royalties paid to the Hooks did not represent a difference in the market price of gas at the time the pooling agreement was entered; nor did it represent a general increase in the royalty rate on the State's leases. It was an amount agreed upon by Samson and the State to induce the State to accept the amended unit in place of the BSM A–1 unit and to compensate the State for its loss of royalties from the BSM A–1 well due to Samson's amendment and redesignation of the BSM A–1 unit as the DuJay No. 1, excluding the BSM A–1 well formation.

We conclude that, under its plain terms, the most favored nations clause in the Hooks' Leases does not apply to trigger royalties payable to the Hooks equal to those payable under the settlement agreement reached between Samson and the State. Therefore, we hold that the trial court erred in granting the Hooks' motion for summary judgment for damages under the most favored nations clause in the Hardin County Leases.

We sustain Samson's seventh issue.

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3. The Hooks' Claims Under the Formation Production Clause in the Jefferson and Hardin County Leases [29] In its fifth issue, Samson complains about the jury's finding, in response to Question Number 8, that Samson's failure to pay royalty based on formation production resulted in underpayment of royalty under the Hooks' Jefferson and Hardin County Leases and the trial court's judgment awarding the Hooks damages based on the formation production clause in the Leases. Samson contends the issue was erroneously submitted to the jury because the construction of the contractual provision involved was a question of law for the trial court; therefore, the jury's response to Question Number 8 is immaterial. Samson argues that, as a matter of law, the lease provision in question, properly *436 construed, does not require Samson to pay for formation production, as this would require it to pay twice for molecules of gas produced at the surface of the well as liquid condensate. It also contends that there is legally and factually insufficient evidence that the Hooks' Leases required Samson to pay twice for those molecules of gas. It states that, by giving effect to the jury's answer to Question Number 8, the trial court increased all the other categories of damages assessed against it.

Condensate consists of “hydrocarbons that exist in the form of gas when contained in the natural gas reservoir underground, which condense into liquid form when released from the reservoir's higher pressure and temperature.” Bowden v. Phillips Petroleum Co., 247 S.W.3d 690, 704 n. 7 (Tex.2008). When gas is produced, it goes through a mechanical separator through which condensate drops out as a liquid at the wellhead. The Railroad Commission has implemented a system by which producers report the amount of gas in the reservoir before it is produced. This system requires producers to use a formula to calculate the volume of reservoir gas produced at the surface as a liquid. “Formation production” is thus the calculation of the total amount of natural gas taken from the reservoir in whatever form it arrives at the surface, whether in the form of gas or in the form of liquid condensate. Formation production calculations allow the Railroad Commission to track the amount of gas coming out of the ground to avoid overproduction.

Article III of each of the Hooks' Leases contained several paragraphs specifying how royalties were to be paid. It reads in pertinent part:

III ROYALTIES:

Lessors reserve for themselves ... the following royalties ...

....

B. (1) On gas, including casing head gas or other gaseous substances produced from said land, Twenty–Five percent (25%) of the market value at the wells of such gas, or Twenty–Five percent (25%) of the price received therefor by Lessee, whichever is greater ...

D. An equal Twenty–Five percent (25%) part of all other liquid hydrocarbons that may be produced from said land ...

....

K. For the purposes of calculating all royalties payable under Article III herein, it is expressly provided that all such calculations shall be based on formation production as reported on Texas Railroad Commission forms P–1 and P–2.

The Hooks base their formation production argument on Article III(K). They contend that although this provision expressly refers to the entirety of Article III, which covers payments for both liquids and gas, it requires that all calculations shall be based on gas as it exists in the reservoir so that royalties must be paid on liquid condensate both as it is produced in liquid form and as it exists in gaseous form in the reservoir.

[30] [31] [32] [33] The interpretation of the formation production provision in the Hooks' Leases is a matter of contract construction. Whether a contract is ambiguous is a question of law for the court. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223,

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229 (Tex.2003). We construe the parties' intentions as expressed in the document, considering the entire writing and attempting to harmonize and give effect to all of the contract's provisions with reference to the whole agreement. Frost Nat'l Bank v. L & F Distribs., 165 S.W.3d 310, 311–12 (Tex.2005). “We construe contracts *437 ‘from a utilitarian standpoint bearing in mind the particular business activity sought to be served’ and ‘will avoid when possible and proper a construction which is unreasonable, inequitable, and oppressive.’ ” Id.; accord Ace Ins. Co. v. Zurich Am. Ins. Co., 59 S.W.3d 424, 428 (Tex.App.- Houston [1st Dist.] 2001, pet. denied). If, after the rules of construction are applied, the contract can be given a definite or certain legal meaning, it is unambiguous and we construe it as a matter of law. Frost Nat'l Bank, 165 S.W.3d at 312.

Article III of the Hooks' Leases, governing the payment of royalties, addresses a number of royalty payment issues. In each case, it unambiguously states that Samson will pay 25% of the proceeds it receives, whether for gas or for liquids, as royalties to the Hooks unless the proceeds are below market value, in which case it must pay 25% of market value. In no place do the Leases state that, having paid royalties to the Hooks from the proceeds it receives on the sale of gas or liquid condensate, Samson must pay for the condensate a second time as it existed as gas in the reservoir. Article III does not state that Samson must pay a 25% royalty on “formation production” in addition to royalty on gas and liquids as produced, and we decline to read that provision into the unambiguous language of the Lease. See Mann Frankfort Stein & Lipp Advisors Inc. v. Fielding, 289 S.W.3d 844, 850 (Tex.2009) ( “[T]erms are to be implied in contract, not because they are reasonable, but because they are necessarily involved in the contractual relationship, such that the parties must have intended them and must have failed to express them only because of sheer inadvertence or because they are too obvious to need expression.”). We agree with Samson that the unambiguous meaning of these lease provisions is that the Hooks are entitled to a 25% royalty on all gas and liquid hydrocarbons at the time proceeds are received from their sale.

We hold that, under its plain language, the formation production clause in Article III(K) of the Hooks' Jefferson County and Hardin County Leases does not operate to double the amount of royalties owed on the liquid condensate produced from the well. Therefore, the trial court erred in awarding the Hooks damages calculated under the formation production clause in their Leases.

We sustain Samson's fifth issue.

4. The Trial Court's Grant of a Permanent Injunction In its eighth issue, Samson claims that the trial court erred by granting a permanent injunction in its judgment that requires it to fulfill certain contractual provisions upon pain of contempt of court. Samson claims that no evidence was presented of the elements necessary for a permanent injunction.

The first item of injunctive relief requires Samson to pay the Hooks royalty on production from the BSM A–1 well commencing with production after May 2008. The fourth item states that Samson shall be liable for all ad valorem taxes on the Hooks' interests in the oil and gas leases at issue after November 2007, as long as those leases are in effect. The fifth item requires Samson to provide the Hooks with certain notices and information “as required by the oil and gas leases in this case while those leases are in effect.”

[34] [35] [36] [37] [38] [39] A permanent injunction is proper only when there is evidence of four elements: (1) a wrongful act; (2) imminent harm; (3) irreparable injury, and (4) no adequate remedy at law. Jordan v. Landry's Seafood Rest., Inc., 89 S.W.3d 737, 742 (Tex.App.-Houston [1st Dist.] 2002, pet. denied). The ruling is reviewed for an abuse of discretion. Id. Courts do not *438 enforce contractual rights by permanent injunction unless the complaining party can show an inadequate remedy at law and irreparable injury. Cytogenix, Inc. v. Waldroff, 213 S.W.3d 479, 487 (Tex.App.-Houston [1st Dist.] 2006, pet. denied). Moreover, in order to grant specific performance of a contract via an injunction, present performance of the contract's terms must be possible. Id. “A court should not decree future contractual performance by requiring a party to perform a continuous series of acts, extending through a long period of time, over which the court exercises its supervision.” Id. Unless a “significant public interest” is involved, parties to a contract are “left to their remedies at law.” Id.

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[40] [41] [42] The Hooks have failed to cite to us any evidence showing that they are in danger of imminent harm or irreparable injury from Samson's failure to pay them royalties on production from the BSM A–1 well or ad valorem taxes or failure to provide them with lease notices and information. Nor have they shown that they have no adequate remedy at law for their grievances. Moreover, at least three of the items of injunctive relief decree future contractual performance, which is forbidden by Cytogenix. Id. Accordingly, we conclude that the trial court abused its discretion by including injunctive relief in its order (1) in the absence of any evidence of the elements of a permanent injunction and (2) when the injunctive relief decrees future contractual performance.

We sustain Samson's fifth issue.

5. Attorney's Fees and Post judgment Interest Rate [43] In its eighth issue, Samson complains about the grant of attorney's fees in the final judgment. The parties stipulated that the Hooks' right to collect attorney's fees was contingent on the Hooks prevailing at trial and on appeal. During trial, the parties also stipulated that Samson owed the Hooks $52,257.22 related to ad valorem taxes. Although Samson asked this Court to reverse the trial court's judgment “in its entirety,” the parties do not challenge the agreement as to Samson's payment of ad valorem taxes. However, the Hooks argue on rehearing that Samson's stipulation regarding ad valorem taxes means that the Hooks prevailed on a claim, and, thus, they are entitled to stipulated attorney's fees under the terms of a separate pre-trial fee stipulation.

The pre-trial fee stipulation provided that the stipulated attorney's fees “are owed to [the Hooks] by [Samson] if [the Hooks] prevail on any of their claims.” The agreement then provided specific exceptions for claims not relevant here. The parties made a separate stipulation during trial that addressed the issue of the ad valorem taxes.

[44] [45] An “agreement between the parties will not be given greater effect than intended,” and “[a] stipulation will not be construed as an admission of a fact intended to be controverted.” Austin v. Austin, 603 S.W.2d 204, 207 (Tex.1980). Nothing in the ad valorem tax stipulation indicated that it was intended to constitute an admission that the Hooks had prevailed on that issue. Thus, the stipulated payment of ad valorem taxes does not entitle the Hooks to claim attorney's fees. See id. Because we have reversed the portions of the judgment in favor of the Hooks on which they could claim to be prevailing parties, and upon which their right to attorney's fees is contingent, we conclude that the Hooks are not entitled to attorney's fees.

We sustain Samson's eighth issue.

[46] Additionally, in two sentences in its appellate brief, Samson claimed that *439 “[i]t was error to award post judgment interest of 18% compounded annually. Instead, the post judgment interest should be at the same rate as a proper prejudgment interest rate.” We asked for and received supplemental briefing from both parties on this issue. The supplemental issue, as phrased by Samson, is as follows: “Should the post judgment interest rate be 5% as set by Texas Finance Code § 304.003, rather than the rate of 18% as stated in the Final Judgment?” In its supplemental briefing and in its motion for rehearing filed on March 16, 2012, the Hooks argue that post judgment interest should be awarded at the “maximum allowed by law (per the leases).” However, the agreement under which Samson is obligated to pay the ad valorem taxes, the only recovery to which the Hooks are entitled, is the stipulation entered by the parties during trial, not the leases. The ad valorem tax stipulation does not provide an interest rate.

[47] [48] When the interest rate is not specified in a contract, post judgment interest should be calculated based on the statutory rate provided in Texas Finance Code section 304.003. See TEX. FIN.CODE ANN. § 304.003 (Vernon 2006) (providing judgment interest rate when interest rate or time price differential is not in contract). Section 304.003(b) provides that, “[o]n the 15th day of each month, the consumer credit commissioner shall determine the post judgment interest rate to be applied to a money judgment rendered during the succeeding calendar month.” Id. § 304.003(b). Section 304.003(c) provides that, with exceptions not applicable here, “[t]he post judgment interest rate is ... the prime rate as published by the Board of Governors of the Federal Reserve System on the date of computation” or “five percent a year if the prime rate ... described by Subdivision (1) is less than five percent.” Id. § 304.003(c)(l )-(2). The prime rate is published in the Texas Register by the Secretary of State.

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Id. § 304.004 (Vernon 2006). This Court may take judicial notice of the correct, published rate on appeal. See Office of Pub. Util. Counsel v. Pub. Util. Comm'n of Tex., 878 S.W.2d 598, 600 (Tex.1994).

Here, when the trial court entered its final judgment on December 11, 2008, the judgment interest rate according to the consumer credit commissioner was five percent. See Judgment Rate Summary, http://www.occc.state.tx. us/pages/int_rates/Index.html (last visited May 22, 2012). Thus, the post judgment interest rate on Samson's obligation to pay the stipulated ad valorem taxes should be five percent. See TEX. FIN.CODE ANN. § 304.003(c).

We sustain Samson's issue on the post judgment interest rate.

C. CONCLUSION

We reverse the trial court's final judgment awarding the Hooks damages on their fraud, fraudulent inducement, statutory fraud, and formation production claims and render judgment that the Hooks take nothing by these claims. We likewise reverse the trial court's final judgment as it reaffirms and incorporates its summary judgments on the Hooks' unpooling and most favored nations claims and render judgment that the Hooks take nothing by these claims. Because of our holding on these issues, we vacate the trial court's award of attorney's fees. Finally, we vacate the permanent injunction entered against Samson by the trial court. We further hold that the proper post judgment interest rate is five percent.

II. THE HOOKS' CROSS–APPEAL

Before trial, the Hooks and Samson filed cross-motions for summary judgment on the issue of whether Samson breached the *440 offset obligations in the Hardin County Leases. The trial court granted Samson's motion and denied the Hooks' motion on this issue without stating its reasons.

The Hooks filed a cross-appeal claiming, in one issue, that the trial court erred in granting Samson's motion for summary judgment and denying their own. The Hooks include in this issue sub-issues regarding the correct interpretation of Samson's offset obligations under the Jefferson County and Hardin County Leases, an exception in the Leases for pre-existing wells, and the statute of limitations.

Samson contends that the Hooks have waived their appeal of the summary judgments by failing to preserve it. It further argues that the trial court correctly interpreted the Hardin County Leases with respect to the issues raised by the Hooks on cross-appeal and correctly rendered summary judgment holding that the Hooks' offset claims are contract claims that are barred by limitations.

A. STANDARD OF REVIEW

To prevail on a summary judgment motion, a movant has the burden of proving that it is entitled to judgment as a matter of law and that there is no genuine issue of material fact. TEX.R. CIV. P. 166a(c); Cathey v. Booth, 900 S.W.2d 339, 341 (Tex.1995). Neither party herein argues that a genuine issue of material fact exists which precludes summary judgment; instead, both claim that, as a matter of law, they are entitled to summary judgment based on the language of the Leases.

B. STATUTE OF LIMITATIONS

[49] [50] The Hooks' claims that Samson breached its offset obligations are breach of contract claims. The four-year statute of limitations applies to the Hooks' contract claims. See Stine v. Stewart, 80 S.W.3d 586, 592 (Tex.2002); HECI Exploration

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 36 Samson Lone Star, Ltd. Partnership v. Hooks, 389 S.W.3d 409 (2012) 177 Oil & Gas Rep. 542

Co., 982 S.W.2d at 885. “It is well-settled law that a breach of contract claim accrues when the contract is breached.” Stine, 80 S.W.3d at 592.

Here, Samson's alleged breach of its offset obligations occurred ninety days from the date of first production from the wells in question. For the BSM No. 1 well, the ninety days ran in January 2001. For the BSM A–1 well, the ninety days ran in September 2001. The Hooks did not file suit until November 2006, more than five years later.

We conclude that the Hooks' cause of action for Samson's breach of its offset obligations was barred by the four-year statute of limitations.

Because our resolution of this issue is dispositive, we do not reach the other sub-issues raised in the Hooks' cross-appeal. 10

10 Likewise, we do not reach Samson's claims of waiver. We overrule the Hooks' issue on cross-appeal.

III. CONCLUSION

We modify the applicable post judgment interest rate to five percent and affirm the portion of the trial court's judgment awarding the Hooks $52,257.22 related to ad valorem taxes as stipulated by the parties. We reverse the remaining portions of the final judgment of the trial court, including the awards to the Hooks of $20,081,638.07 for damages proximately cause by fraud, $848,854.01 for damages for breach of the most favored nations clause, and $766,626.85 for damages for “unpooling” related to the BSM A–1 well, attorney's fees, other fees and costs. We hold that the Hooks take nothing by those *441 claims, and we vacate the permanent injunction entered against Samson.

Justice SHARP, concurring in part and dissenting in part.

DISSENTING AND CONCURRING OPINION ON REHEARING

JIM SHARP, Justice. I withdraw my dissenting and concurring opinion dated August 25, 2011 and substitute this opinion in its stead. I continue to dissent in part and concur in part.

It is undisputed that Samson drilled a directional well bottomed within the “buffer zone” established in the Hooks' Jefferson County Lease (the “Lease”) and failed to elect between the three alternatives outlined in the Lease, thus exposing itself to liability for breach of contract. If the Lease had allowed pooling, Samson could have solved the problem by pooling the lands covered by the Lease with the adjacent lands. The Lease, however, did not allow pooling.

Samson's solution to this problem was to begin misrepresenting various “facts” to escape the consequences of its actions. Its landman, Lanoue, filed papers with the Railroad Commission falsely certifying that Samson had pooling authority from the Hooks. He later filed paperwork in the county's real property records falsely indicating that the Hooks had already agreed to pool. Lanoue then sent a letter to the Hooks asking them to agree to pool the westernmost 50 acres of the Hooks' acreage in the Lease into the BSM 1 Unit. When Charles Hooks called Lanoue and asked for more information about the well's location, Lanoue represented to Hooks that the well was located approximately 1500 feet from the lease line, a location outside the buffer zone. When Charles Hooks asked for a plat, Lanoue faxed him one that represented a bottom-hole location that was +/–1400 feet from the lease line, the accuracy of which he, Lanoue, had certified with no reference to an actual bottom-hole

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 37 Samson Lone Star, Ltd. Partnership v. Hooks, 389 S.W.3d 409 (2012) 177 Oil & Gas Rep. 542

location, although it was ascertainable from a prior directional survey. Instead, when asked the origin of those measurements, he answered: “I got them from myself.” On this basis the Hooks agreed to the formation of the unit.

Thus it is clear that Samson, through its representative, took action to cover up its own error by both oral and written misrepresentations to its lessor, born of “assuming” and “hoping.” It is further clear that the Hooks, after asking for and receiving verification of Lanoue's oral representation in the form of a plat, believed its lessee's representations and made no attempt to go beyond them to discover the truth or falsity thereof. On these facts, the majority has found that the discovery rule does not apply to the Hooks' fraud, fraudulent inducement, and statutory fraud claims and that they are barred by limitations as a matter of law.

I reluctantly concur, based on the Texas Supreme Court's holding in BP America Production Co. v. Marshall, 342 S.W.3d 59 (Tex.2011). In that case, the Texas Supreme Court makes clear that no lies on the part of a lessee, however self-serving and egregious, are sufficient to toll limitations, as long as it is technically possible for the lessor to have discovered the lie by resort to the Railroad Commission records. This burden the Court imposes upon lessors is severe. It is now a lessor's duty to presume that any statement made by its lessee is false and to ransack the esoteric and oft-changing records at the Railroad Commission to discover the truth or falsity of its lessee's statements. If, as is often the case, these records are technical in nature and require expert review to ferret out the truth, it is the lessor's job to hire experts out of its own pocket to perform *442 such a review. If a lessor fails to take these steps, then it will have failed in exercising reasonable diligence to protect its mineral interests and, if the lessee's fraud is successful for longer than the limitations period, the lessor's claims will be barred by limitations.

Such is the case here. Had the Hooks presumed that Samson's oral representations, followed by written representations, about the bottom-hole location of the well were false, and had they hired an expert to resort to Railroad Commission records to trace the various filings (some of which were also false), that expert could have hit upon the directional survey and, by virtue of his expertise, interpreted it to prove the falsity of the representations. Instead they merely relied on the oral and written representations of their lessee, without undergoing what doubtless seemed to them the useless expense of hiring an expert to rake through the Railroad Commission records with an eye towards exposing a potential falsehood.

I believe the Texas Supreme Court has placed an unnecessary and very heavy burden on lessors by its ruling in BP America, one that will result either in much money being spent unnecessarily on prophylactic forensic review of Railroad Commission records or in many viable claims being lost to limitations. As we are, however, bound to follow the Court's rulings, I reluctantly concur in that part of the opinion that finds the Hooks' fraud, fraudulent inducement, and statutory fraud claims barred by limitations as a matter of law.

I dissent, however, to that part of the majority's opinion that sustains Samson's challenge to the trial court's findings concerning “unpooling” by amending a unit.

Early in 2001, Samson drilled the Black Stone Minerals No. A–1 well (“BSM A-l Well”) on a separate Samson lease. The mineral interests underlying this lease were owned 87.5% by Black Stone Minerals and 12.5% by FirnBank.

Because Samson was without contractual authority to pool pursuant to its leases with either Black Stone or FirnBank, it sought to negotiate with them for such a right. Before such agreement, if any, was reached, however, Samson unilaterally concluded that both of the lessors were in agreement. Pursuant to this unilateral conclusion, in March 2001, Samson filed a unit designation for a 704–acre unit called the Black Stone Minerals “A” No. 1 Gas Unit (the “BSM A-l Unit”), which unitized the above- described leases as well as the Hooks' Hardin County leases (the “Hardin County Leases”). The designation recited that it was effective as of the date of first production. Firnbank consented to the pooling in May 2001. Written consent to pool was also obtained from the Hooks. The 87.5% interest owner, Black Stone Minerals, however, declined to consent.

Samson drilled and completed the BSM A–1 Well and it began producing in June 2001 from the depth range of the BSM A– 1 Unit as designated by Samson. In December 2001, Samson finished another gas well (“Joyce DuJay No. 1 Well”) from the surface of the BSM A–1 Unit that was completed within the area and depth limits of the BSM A–1 Unit. In February 2002,

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 38 Samson Lone Star, Ltd. Partnership v. Hooks, 389 S.W.3d 409 (2012) 177 Oil & Gas Rep. 542

Samson executed and recorded a designation for a Joyce DuJay No. 1 Gas Unit (“DuJay 1 Unit”) that recited an effective date as of first production of the DuJay No. 1 Well. Although termed an “Amendment” of the BSM A–1 Unit, it designated a new, smaller, 570–acre unit with a different name, different leases, different depths and different boundaries than the BSM A–1 Unit. The DuJay 1 Unit included some of the deeper strata of the BSM A–1 Unit, but excluded the horizon from which the BSM A–1 Well was producing. Thereafter, the BSM A–1 Well was produced as a *443 lease well, not included in any unit. Subsequently, Samson drilled another DuJay well (“DuJay A–1”) and created a separate unit for that well (the “DuJay A–1 Unit”). The DuJay A–1 Unit differed from the DuJay 1 Unit by depth limitation and acreage. The Hooks' Hardin County Leases were listed in all three unit designations: the BSM A–1, the DuJay 1, and the DuJay A–1.

Samson claimed that the DuJay 1 Unit was an “amendment” of the BSM A–1 and thus that the BSM A–1 Unit no longer existed. In other words, it took the position that, because it failed to sign up all the other leaseholders in the BSM A–1 Unit, it could “de-designate” the earlier-designated BSM A–1 Unit. If Samson was correct, it did not need to pay the Hooks for their proportionate share of the BSM A–1 Well; if not, it did.

The Hooks moved for summary judgment claiming that Samson had no authority to terminate or invalidate the BSM A–1 Unit and therefore had breached its lease contract by failing to pay the Hooks royalties on the BSM A–1 Well. The trial court granted this motion. Samson, in its sixth point, contends that the trial court erred in granting this motion (and in denying its own cross-motion).

The majority opinion holds that, by accepting royalties from the DuJay 1 and DuJay A–1 Units, the Hooks “accepted” those units and thus, “[t]heir interest in the BSM A–1 unit was, therefore, terminated, and they are estopped to deny the validity of the unitization agreements for the DuJay 1 and DuJay A–1 as to their interest therein.” The majority bases this decision on its conclusion that “a previously designated unit necessarily terminates upon the agreement of all the parties to the agreement to participate in a unit that is incompatible with the prior unit; and the parties who have consented to a new unitization of the same interests are estopped to deny termination of the prior inconsistent unit designation.” The majority posits that accepting royalties from a unit the depth or acreage of which overlaps at all with any other unit amounts to a de facto agreement to terminate any earlier unit containing any part of the same depth or acreage.

The Hardin County Leases, however, contain no such limitations. Instead, the Hardin County Leases give Samson the right to exercise pooling authority multiple times, “at any time and from time to time.” The language of the leases neither limits this pooling authority to certain depths, nor states or implies that pooling is only valid when the multiple pools do not overlap at any depth. To hold instead that the right to pool multiple times is limited to units that have no overlap is to imply a term in the contract that does not exist. A court is not free to make contracts for parties, nor must it imply terms in a contract without exercising extreme caution. See Universal Health Servs., Inc. RCW v. Renaissance Women's Group, P.A., 121 S.W.3d 742, 747 (Tex.2003). The Texas Supreme Court has held that “terms are to be implied in contract, not because they are reasonable, but because they are necessarily involved in the contractual relationship, such that the parties must have intended them and must have failed to express them only because of sheer inadvertence or because they are too obvious to need expression.” Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 850 (Tex.2009) (citing 11 Richard A. Lord, Williston on Contracts § 31:7 (4th ed.1999)). The rule set up by the majority is not one that is “necessarily involved” in the contractual relationship between a lessor and lessee and we ought not imply it.

*444 If such a limitation to the right to accept royalties from multiple pools exists, then, it must exist as a matter of law. The majority, however, cites no law for the proposition that accepting royalties from more than one unit covering some of the same depths and lands (termed “conflicting” units in the majority opinion) serves to terminate an earlier-designated unit.

Instead, it is black-letter law that a lessee cannot unilaterally terminate a unit, once formed. Good-faith pooling can be exercised multiple times. Expando Prod., Co. v. Marshall, 407 S.W.2d 254, 259–60 (Tex.Civ.App.-Fort Worth 1966, writ ref'd n.r.e.) (citing Texaco, Inc. v. Letterman, 343 S.W.2d 726, 731 (Tex.Civ.App.-Amarillo 1961, writ ref'd n.r.e.). The right to pool leases, however, does not mean the lessee can unilaterally terminate a unit that has a producing pooled well. See Ladd Petroleum

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 39 Samson Lone Star, Ltd. Partnership v. Hooks, 389 S.W.3d 409 (2012) 177 Oil & Gas Rep. 542

Corp. v. Eagle Oil & Gas Co., 695 S.W.2d 99, 10607 (Tex.App.-Fort Worth 1985, writ ref'd n.r.e.). When a lease provides that a lessee may dissolve a unit, once formed, when there is no “unitized substance” being produced from the unit, the lessee may not dissolve a unit as long as a well is still producing on it. See Williamson v. Mobil Producing Tex. & N.M., Inc., 737 S.W.2d 917, 921 (Tex.App.-Beaumont 1987, writ denied) (“So, clearly, the lessee, if it is ‘after the discovery of the same,’ can change the pooling unit only subsequent to the cessation of production.”).

Here, no party argues that there was a cessation of production from the BSM A–1 Unit. The only basis for finding that the BSM A–1 Unit was no longer valid is the majority's holding that, by accepting royalty on “conflicting” pooled units, the Hooks accepted those units and thus their interest in the BSM A–1 Unit terminated and they are estopped to deny the validity of the unitization agreements for the DuJay 1 and DuJay A–1 as to their interests. The majority cites three cases in support of this proposition. See Cambridge Prod., Inc. v. Geodyne Nominee Corp., 292 S.W.3d 725, 732 (Tex.App.-Amarillo 2009, pet. denied); Ladd, 695 S.W.2d at 107; Whelan v. Placid Oil Co., 274 S.W.2d 125, 128 (Tex.Civ.App.Texarkana 1954, writ ref'd n.r.e.). None, however, actually supports the majority's position. Cambridge holds that a top-lessee, the rights of which derive from its underlying lessors, is estopped from taking the position that a unit is terminated when its underlying lessors had taken an inconsistent position by accepting royalties from the unit. Cambridge, 292 S.W.3d at 732. Ladd holds that “an unpooling could only come about through an agreement of the lessors, or through a cessation of production as provided for in the habendum clauses.” Ladd, 695 S.W.2d at 107. In Whelan, the Texarkana court found that parties that have accepted royalty pursuant to a unitization agreement are estopped from denying the validity of the unitization agreement. Whelan, 274 S.W.2d at 128.

All of these cases are distinguishable from the case at bar and none set up the rule that the majority asserts. The Hooks do not deny that they have “consented” to the DuJay 1 Unit. Instead, their position is that each of the units (the BSM A–1 Unit, the DuJay 1 Unit and the DuJay A–1 Unit) is independent of the other, and all could and did exist at the same time. Samson did not exhaust its right to pool by designating the BSM A–1 Unit, so its later DuJay 1 and DuJay A–1 Units were also valid. This position is consistent with the language of the pooling clause itself, which states that “[t]he above right and power to pool may be exercised at any time and from time to time.”

The majority's ruling creates a new limitation on pooling, one found neither in the *445 language of the Hardin County Leases nor in case law, and one which has serious ramifications for the oil and gas industry. I believe that this limitation is legally unsupported, unnecessary, and detrimental to the legitimate interests of both lessors and lessees.

For the reasons set forth above, I dissent to the portion of the majority's opinion sustaining Samson's sixth issue.

All Citations

389 S.W.3d 409, 177 Oil & Gas Rep. 542

End of Document © 2015 Thomson Reuters. No claim to original U.S. Government Works.

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 40 Hooks v. Samson Lone Star, Limited Partnership, 457 S.W.3d 52 (2015) 58 Tex. Sup. Ct. J. 252

457 S.W.3d 52 Supreme Court of Texas.

Charles G. Hooks III, et al., Petitioners, v. Samson Lone Star, Limited Partnership, n/k/a Samson Lone Star LLC, Respondent

No. 12–0920 | Argued September 17, 2014 | OPINION DELIVERED: January 30, 2015 | Rehearing Denied May 1, 2015

Synopsis Background: Lessors of land for gas wells brought action against lessee to recover for breach of contract, fraud, fraudulent concealment, statutory fraud, negligent misrepresentation, violation of Texas Natural Resources Code for failure to properly pay royalties, statutory negligence, and common law negligence per se. They also sought injunctive relief and declaratory judgment. The 60th District Court, Jefferson County, Gary Sanderson, J., entered summary judgment on some claims and entered judgment on jury verdict in favor of lessors on remaining claims. Cross appeals were taken. The Houston Court of Appeals, First District, Evelyn V. Keyes, J., 389 S.W.3d 409, affirmed in part and reversed in part. Petition for review was granted.

Holdings: The Supreme Court, Devine, J., held that:

[1] as a matter of first impression, reasonableness of diligence in discovering alleged fraud was question of fact;

[2] lessee breached most favored nations clause by increasing state's 25% royalty;

[3] lessee was not required to pay royalty on volume of condensate in addition to royalty on gas volume in reservoir;

[4] lessors ratified amendment altering boundaries of gas pool and changing name and, therefore, were not entitled to receive royalties from old unit; and

[5] four-year statute of limitations did not bar claim for recurring royalties owed within four years before filing of suit.

Affirmed in part, reversed in part, and remanded.

West Headnotes (23)

[1] Limitation of Actions Causes of action in general Limitation of Actions Concealment of Cause of Action 241 Limitation of Actions 241II Computation of Period of Limitation 241II(A) Accrual of Right of Action or Defense 241k43 Causes of action in general 241 Limitation of Actions 241II Computation of Period of Limitation 241II(F) Ignorance, Mistake, Trust, Fraud, and Concealment or Discovery of Cause of Action

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 1 Hooks v. Samson Lone Star, Limited Partnership, 457 S.W.3d 52 (2015) 58 Tex. Sup. Ct. J. 252

241k104 Concealment of Cause of Action 241k104(1) In general Generally, causes of action accrue, and statutes of limitation begin to run, when facts come into existence that authorize a claimant to seek a judicial remedy, but a person cannot be permitted to avoid liability for his actions by deceitfully concealing wrongdoing until limitations period has run.

Cases that cite this headnote

[2] Limitation of Actions Discovery of Fraud 241 Limitation of Actions 241II Computation of Period of Limitation 241II(F) Ignorance, Mistake, Trust, Fraud, and Concealment or Discovery of Cause of Action 241k98 Fraud as Ground for Relief 241k100 Discovery of Fraud 241k100(1) In general Because fraud vitiates whatever it touches, limitations period applicable to claim of fraud does not start to run until the fraud is discovered or the exercise of reasonable diligence would discover it.

2 Cases that cite this headnote

[3] Fraud Elements of Actual Fraud 184 Fraud 184I Deception Constituting Fraud, and Liability Therefor 184k2 Elements of Actual Fraud 184k3 In general Fraudulent inducement is a subspecies of fraud; with a fraudulent inducement claim, the elements of fraud must be established as they relate to an agreement between the parties.

1 Cases that cite this headnote

[4] Limitation of Actions Discovery of Fraud 241 Limitation of Actions 241II Computation of Period of Limitation 241II(F) Ignorance, Mistake, Trust, Fraud, and Concealment or Discovery of Cause of Action 241k98 Fraud as Ground for Relief 241k100 Discovery of Fraud 241k100(1) In general Limitations period applicable to claim of fraudulent inducement does not start to run until the fraud with respect to the contract is discovered or the exercise of reasonable diligence would discover it.

2 Cases that cite this headnote

[5] Limitation of Actions Fraud and concealment of cause of action 241 Limitation of Actions 241V Pleading, Evidence, Trial, and Review 241k199 Questions for Jury 241k199(2) Fraud and concealment of cause of action Although date a cause of action accrues is normally a question of law, reasonable diligence in discovering alleged fraud is an issue of fact with regard to statute of limitations.

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 2 Hooks v. Samson Lone Star, Limited Partnership, 457 S.W.3d 52 (2015) 58 Tex. Sup. Ct. J. 252

1 Cases that cite this headnote

[6] Limitation of Actions Concealment of Cause of Action 241 Limitation of Actions 241II Computation of Period of Limitation 241II(F) Ignorance, Mistake, Trust, Fraud, and Concealment or Discovery of Cause of Action 241k104 Concealment of Cause of Action 241k104(1) In general Although fraudulent concealment allows the statute of limitations to be tolled for causes of action besides fraud itself, the standard of reasonable diligence remains the same; fraudulent concealment only tolls the running of limitations until the fraud is discovered or could have been discovered with reasonable diligence.

2 Cases that cite this headnote

[7] Limitation of Actions Fraud and concealment of cause of action 241 Limitation of Actions 241V Pleading, Evidence, Trial, and Review 241k199 Questions for Jury 241k199(2) Fraud and concealment of cause of action Reasonableness of lessors' diligence in discovering lessee's underlying fraud that bottom hole for another gas well was not within protected zone for lease that prohibited pooling was question of fact, not law, with regard to running of statute of limitations applicable to lessors' claims of fraud and fraudulent inducement by misrepresenting bottom- hole location, thus depriving lessors of royalties, and fraudulently inducing lessors to amend lease and pool, even though correct public Railroad Commission filing existed; more recent filings contained false information, fraudulent information itself tainted the public record, and lessors were not required as matter of law to double-check the more recent filings against earlier filings.

Cases that cite this headnote

[8] Mines and Minerals Community leases, unitization, or pooling arrangements 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k79 Rent or Royalties 260k79.1 In General 260k79.1(5) Community leases, unitization, or pooling arrangements Lessee breached most favored nations clause of lease by failing to increase lessors' 25% royalty after granting to state a royalty of 0.7969% on gas production from pooled unit and thus increasing state's 25% royalty on production from its tract to 28.28896%; production anywhere on pooled unit was production on every tract in the unit, and royalty imposed by the pooling agreement was “payable under” the lease.

Cases that cite this headnote

[9] Mines and Minerals Place or portion developed; pooled or unitized tracts 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 3 Hooks v. Samson Lone Star, Limited Partnership, 457 S.W.3d 52 (2015) 58 Tex. Sup. Ct. J. 252

260II(C)3 Construction and Operation of Oil and Gas Leases 260k78 Testing or Working 260k78.1 Construction, Breach, and Penalties 260k78.1(7) Place or portion developed; pooled or unitized tracts Production anywhere on a pooled unit of oil and gas is production on every tract in the unit.

Cases that cite this headnote

[10] Mines and Minerals Community leases, unitization, or pooling arrangements 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k79 Rent or Royalties 260k79.1 In General 260k79.1(5) Community leases, unitization, or pooling arrangements Oil and gas well lessor receives royalties under a pooling agreement, even if no production occurs directly on that lessor's tract, because production elsewhere on the pooled unit is attributed to the lessor's tract, and lessor receives royalties on production attributed to the lessor's tract because of the underlying lease.

Cases that cite this headnote

[11] Mines and Minerals Community leases, unitization, or pooling arrangements Mines and Minerals Amount and time of payment 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k79 Rent or Royalties 260k79.1 In General 260k79.1(5) Community leases, unitization, or pooling arrangements 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k79 Rent or Royalties 260k79.3 Amount and time of payment Oil and gas well lessor's royalty on production from pooled unit as a whole reflects lessor's royalty on production from its individual tracts in proportion to the size of the tracts relative to the overall unit.

Cases that cite this headnote

[12] Mines and Minerals Community leases, unitization, or pooling arrangements 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k79 Rent or Royalties 260k79.1 In General 260k79.1(5) Community leases, unitization, or pooling arrangements

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 4 Hooks v. Samson Lone Star, Limited Partnership, 457 S.W.3d 52 (2015) 58 Tex. Sup. Ct. J. 252

Pooling effects a cross-conveyance among owners of minerals under the various tracts of royalty or minerals in a pool so that they all own undivided interests under the unitized tract in the proportion their contribution bears to the unitized tract.

Cases that cite this headnote

[13] Mines and Minerals Amount and time of payment 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k79 Rent or Royalties 260k79.3 Amount and time of payment Lease provision basing royalty calculations on gas formation production as reported on Railroad Commission forms did not require lessee to pay royalty on volume of condensate in addition to royalty on gas volume in reservoir, but simply required lessee to convert volume of condensate to equivalent volume in gas, ensuring that the total volume for royalties related to the volume that lessee reported to Railroad Commission; the clause did not require payment of royalties on everything as gas, and royalties based on condensate as condensate were without reference to formation production.

Cases that cite this headnote

[14] Contracts Language of contract 95 Contracts 95II Construction and Operation 95II(A) General Rules of Construction 95k147 Intention of Parties 95k147(2) Language of contract In construing contracts, courts must ascertain and give effect to the parties' intentions as expressed in the document.

Cases that cite this headnote

[15] Contracts Construction as a whole 95 Contracts 95II Construction and Operation 95II(A) General Rules of Construction 95k143.5 Construction as a whole Courts attempt to harmonize all contractual provisions by analyzing the provisions with reference to whole agreement.

Cases that cite this headnote

[16] Contracts Subject, object, or purpose as affecting construction 95 Contracts 95II Construction and Operation 95II(A) General Rules of Construction 95k143 Application to Contracts in General 95k143(4) Subject, object, or purpose as affecting construction Courts construe contracts from a utilitarian standpoint bearing in mind the particular business activity sought to be served.

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Cases that cite this headnote

[17] Contracts Reasonableness of construction 95 Contracts 95II Construction and Operation 95II(A) General Rules of Construction 95k151 Language of Instrument 95k154 Reasonableness of construction When possible and proper, courts avoid contract construction which is unreasonable, inequitable, and oppressive.

Cases that cite this headnote

[18] Contracts Questions for Jury 95 Contracts 95II Construction and Operation 95II(A) General Rules of Construction 95k176 Questions for Jury 95k176(1) In general If, through use of relevant rules of construction, contract can be given a definite meaning, courts construe it as a matter of law.

Cases that cite this headnote

[19] Mines and Minerals Community leases, unitization, or pooling arrangements 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k79 Rent or Royalties 260k79.1 In General 260k79.1(5) Community leases, unitization, or pooling arrangements Lessors ratified amendment altering boundaries of gas pool and changing name and, therefore, were not entitled to receive royalties from old unit after accepting royalties from new unit without ever receiving royalties on the earlier designation; lessors had full knowledge that something had changed and consented by their actions.

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[20] Appeal and Error Estoppel to Allege Error 30 Appeal and Error 30XVI Review 30XVI(C) Parties Entitled to Allege Error 30k881 Estoppel to Allege Error 30k881.1 In general Lessors did not waive claims for breach of offset provisions of gas lease by filing a proposed judgment with trial court on claims won by lessors in suit against lessee; lessors specifically reserved the right to challenge prior orders of the court.

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© 2015 Thomson Reuters. No claim to original U.S. Government Works. 6 Hooks v. Samson Lone Star, Limited Partnership, 457 S.W.3d 52 (2015) 58 Tex. Sup. Ct. J. 252

[21] Contracts Failure to make payments 95 Contracts 95V Performance or Breach 95k312 Acts or Omissions Constituting Breach in General 95k312(3) Failure to make payments If terms of an agreement call for periodic payments during course of the contract, a cause of action for such payments may arise at the end of each period.

Cases that cite this headnote

[22] Mines and Minerals Actions 260 Mines and Minerals 260II Title, Conveyances, and Contracts 260II(C) Leases, Licenses, and Contracts 260II(C)3 Construction and Operation of Oil and Gas Leases 260k79 Rent or Royalties 260k79.7 Actions If lessee breached gas well lease by drilling gas wells within 1,320 feet of pooled units, its failure to perform obligations under offset provision requiring lessee to drill offset well or release acreage within ninety days of production from infringing well resulted in implied election of third alternative imposing monthly obligation to pay compensatory royalties, and, thus, four-year statute of limitations did not bar claim for recurring royalties owed within four years before filing of suit.

Cases that cite this headnote

[23] Interest Judgments founded on contract fixing rate 219 Interest 219II Rate 219k38 On Judgments 219k38(2) Judgments founded on contract fixing rate Gas well leases imposing maximum interest rate allowed by law for past-due royalties entitled lessors to post-judgment interest of 18% for any overdue royalties, but statutory rate of 5% applied to any other recoveries. Tex. Fin. Code Ann. §§ 304.002, 304.003(c).

Cases that cite this headnote

*54 ON PETITION FOR REVIEW FROM THE COURT OF APPEALS FOR THE FIRST DISTRICT OF TEXAS

Attorneys and Law Firms

Dale Wainwright, Bracewell & Giuliani, LLP, Jason Derrick Price, Patton G. Lochridge, McGinnis Lochridge & Kilgore LLP, Marla Diane Broaddus, Shannon H. Ratliff, Ratliff Law Firm, P.L.L.C., Austin, TX, David M. Gunn, Erin Hilary Huber, Beck Redden L.L.P., Paul F. Simpson, McGinnis Lochridge, Houston, TX, for Petitioner.

Cynthia Keely Timms, Michael V. Powell, Locke Lord LLP, Dallas, TX, J. Matthew Marchak, M. C. Carrington, Mehaffy & Weber P.C. Beaumont, TX, Dick Watt, Watt Beckworth Thompson Henneman & Sullivan LLP, Houston, TX, for Respondent.

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 7 Hooks v. Samson Lone Star, Limited Partnership, 457 S.W.3d 52 (2015) 58 Tex. Sup. Ct. J. 252

Opinion

JUSTICE DEVINE delivered the opinion of the Court.

In this oil and gas appeal, we consider whether a mineral owner's claims of fraud *55 and breach of contract in the leasing and pooling of his mineral interests are, as a matter of law, barred by limitations. A jury determined that the mineral owner, in the exercise of reasonable diligence, discovered the fraud less than four years before filing suit, and the trial court accordingly concluded that the claims were not barred by limitations. The jury also found fraud and damages in the mineral owner's favor, and the trial court rendered judgment on the jury's verdict. The court of appeals, however, reversed most aspects of the mineral owner's judgment, concluding that the fraud should have been discovered, as a matter of law, more than four years before the mineral owner filed suit because the relevant information was available in the Texas Railroad Commission's public records. 389 S.W.3d 409, 429–30, 439–40 (Tex.App.–Houston [1st Dist.] 2012).

While we agree that public records may under certain circumstances establish a lack of diligence in the discovery of fraud as a matter of law, here the records themselves were tainted by fraud and thus provide no conclusive proof on the subject. Because we conclude that the mineral owner's diligence in discovering the underlying fraud was in this instance a question of fact for the jury, we reverse the court of appeals' judgment on this and other issues in part, affirm its judgment on other issues in part, and remand the cause to the court of appeals for review of a factual sufficiency of the evidence complaint and other issues not considered because of the court's ruling on limitations.

I. Background and Procedural History

Charles G. Hooks III (“Hooks”) 1 sued Samson Lone Star Limited Partnership, now known as Samson Lone Star, LLC (“Samson”), in 2006, 2 alleging, among other things, breach of contract and failure to pay royalties under Texas Natural Resources Code section 91.404. Later amendments to Hooks' petition included allegations of fraud, fraudulent inducement, and statutory fraud. These claims centered on three oil and gas leases that Hooks, the lessor, executed with Samson, the lessee, in 1999. Two leases were in Hardin County, Texas (the “Hardin County Leases”), and one was in Jefferson County, Texas (the “Jefferson County Lease”).

1 The plaintiffs consist of multiple parties. We refer to them collectively as “Hooks.” Specifically, the parties are Charles G. Hooks III, acting individually and as independent executor of the estate of Charles G. Hooks, Jr., as Trustee of the Scott Ira McKeever Trust and the David Wayne McKeever Trust, and on behalf of Chas. G. Hooks & Son, a General Partnership; McKeever Partnership, Ltd.; and Charles G. Hooks III and Sue Ann Hooks, as co-trustees under the will of Charles G. Hooks, Sr. 2 Hooks joined a preexisting lawsuit brought by various lessors against Samson. Hooks' suit was later severed from the other claims. This appeal from a final judgment involves seven claims raised by Hooks. First, Hooks alleges that Samson fraudulently induced Hooks to amend the Jefferson County Lease to allow for pooling. Second, Hooks asserts that Samson breached the most- favored-nations clause in all three leases, failing to pay Hooks the same higher royalty that it paid to a nearby lessor. Third, Hooks contends that Samson breached the formation-production clause in each lease by calculating gas royalties based on proceeds instead of the volume of gas leaving the reservoir. Fourth, Hooks claims that Samson wrongly “unpooled” a unit into which the two Hardin County Leases were pooled, and seeks damages for royalties allegedly owed from this unit. Fifth, Hooks alleges that *56 Samson breached certain offset provisions in the two Hardin County Leases. Sixth, pursuant to a pretrial stipulation, Hooks contends that Samson must reimburse Hooks for attorney's fees. And seventh, Hooks asserts that the proper post-judgment interest rate is 18%, rather than 5% as decided by the court of appeals.

Hooks prevailed on the majority of his claims in the trial court. The trial court granted summary judgment for Hooks on the most- favored-nations clause claims and “unpooling” claims, but granted summary judgment for Samson regarding Hooks' allegations

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that Samson breached the offset provisions of the Hardin County Leases. The jury returned a verdict for Hooks on the fraud and formation-production claims. The trial court's final judgment awarded Hooks more than $21 million in damages, ordered Samson to pay the stipulated attorney's fees, and applied a post-judgment interest rate of 18%. The court of appeals, however, reversed, holding that Hooks take nothing except for $52,257.22, a stipulated amount to reimburse Hooks for payment of ad valorem taxes. Id. at 440–41.

II. Fraud and Limitations

Hooks' fraud claims relate to the Jefferson County Lease. This lease, which prohibited pooling, contained “offset obligations” providing that if a gas well were completed within 1,320 feet of Hooks' lease line but was not unitized with Hooks' acreage, then Samson would either drill an offset well, pay Hooks compensatory royalties, or release the offset acreage. In 2000, Samson drilled a well that bottomed about 1,186 feet from Hooks' lease, within the 1,320–foot protected zone. But, instead of complying with the original offset obligations, Samson asked Hooks to amend the Jefferson County Lease in 2001 to pool into a unit associated with the new well. In connection with this request, Samson provided Hooks with a plat that incorrectly placed the well's bottom hole outside of the protected zone. A plat with the same false information had already been filed with the Railroad Commission. Older Railroad Commission records, however, contained a directional survey and an attached plat 3 that correctly placed the bottom hole within the 1,320–foot boundary. 4 Other preliminary Railroad Commission filings demonstrated that Samson originally intended the well to bottom within 1,320 feet of Hooks' lease.

3 The parties dispute whether, based on the record in this case, the plat was attached to the directional survey in the Railroad Commission filing. This does not affect our holding, and we assume without deciding that it was attached. 4 Although the plat correctly placed the bottom hole within the protected zone, some data on the plat does not completely correspond to data on a later correct plat. Hooks brought his fraud claims in 2007, alleging that Samson deprived Hooks of compensatory royalties by misrepresenting the well's bottom-hole location and fraudulently inducing Hooks to amend the lease and pool. A jury found that Samson committed fraud and statutory fraud, awarding more than $20 million in damages on these claims, and the trial court rendered judgment on the jury's verdict. The court of appeals, however, reversed, holding that the four-year statute of limitations for fraud barred the claims. Id. at 428–29 (citing TEX. CIV. PRAC. & REM. CODEE § 16.004(a)(4)).

Hooks argues that the court of appeals erred because the statute of limitations did not begin to run until Hooks “knew or should have known of facts that in the exercise of reasonable diligence would have led to the discovery of the wrongful *57 act.” Exxon Corp. v. Emerald Oil & Gas Co., 348 S.W.3d 194, 216 (Tex.2011) (quoting Little v. Smith, 943 S.W.2d 414, 420 (Tex.1997)). The jury found that, in the exercise of reasonable diligence, Hooks should have discovered Samson's fraud by 2007. Samson responds that, as a matter of law, reasonable diligence would have discovered the true location of the well's bottom hole in 2000 or 2001. Samson points to this Court's decisions in BP America Production Co. v. Marshall, 342 S.W.3d 59 (Tex.2011), and Shell Oil Co. v. Ross, 356 S.W.3d 924 (Tex.2011), where reasonable diligence required sophisticated lessors to acquaint themselves with “readily accessible and publicly available information” from Railroad Commission records. Ross, 356 S.W.3d at 929; see Marshall, 342 S.W.3d at 68–69. According to Samson, the directional survey and its associated plat, as well as filings showing the original proposed location of the well's bottom hole, should have been discovered by the exercise of reasonable diligence by 2001 at the latest, meaning that Hooks' fraud claims are barred by limitations.

[1] [2] We have long held that “fraud prevents the running of the statute of limitations until it is discovered, or by the exercise of reasonable diligence might have been discovered.” Ruebeck v. Hunt, 142 Tex. 167,176 S.W.2d 738, 739 (1943). 5 Generally, “[c]auses of action accrue and statutes of limitation begin to run when facts come into existence that authorize a claimant to seek a judicial remedy,” Emerald Oil, 348 S.W.3d at 202, but “a person cannot be permitted to avoid liability for his actions by deceitfully concealing wrongdoing until limitations has run,” S.V. v. R.V., 933 S.W.2d 1, 6 (Tex.1996). Because “fraud vitiates

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whatever it touches,” Borderlon v. Peck, 661 S.W.2d 907, 909 (Tex.1983), limitations does not start to run until the fraud is discovered or the exercise of reasonable diligence would discover it, Marshall, 342 S.W.3d at 69.

5 See also Emerald Oil, 348 S.W.3d at 216; Marshall, 342 S.W.3d at 68; Computer Assocs. Int'l, Inc. v. Altai, Inc., 918 S.W.2d 453, 455 (Tex.1996); Woods v. William M. Mercer, Inc., 769 S.W.2d 515, 517 (Tex.1988). [3] [4] The same rule applies to claims of fraudulent inducement. Fraudulent inducement is a subspecies of fraud; “with a fraudulent inducement claim, the elements of fraud must be established as they relate to an agreement between the parties.” Haase v. Glazner, 62 S.W.3d 795, 798–99 (Tex.2001). Accordingly, the same principle applies: limitations does not start to run until the fraud with respect to the contract is discovered or the exercise of reasonable diligence would discover it.

[5] [6] And just when would reasonable diligence discover the wrong? And who decides? 6 Although “the date a cause of action accrues is normally a question of law,” *58 Etan Indus., Inc. v. Lehmann, 359 S.W.3d 620, 623 (Tex.2011) (per curiam), reasonable diligence is an issue of fact, Estate of Stonecipher v. Estate of Butts, 591 S.W.2d 806, 809 (Tex.1979). 7 Nevertheless, in some circumstances, we can still determine as a matter of law that reasonable diligence would have uncovered the wrong. 8 A survey of our decisions reveals the reasons for holding, as a matter of law, that the exercise of reasonable diligence would lead to the discovery of the wrong within the statutory period. 9

6 Hooks and amicus Cardwell, Hart & Bennett, LLP cite cases stating that if there is a fraudulent misrepresentation, it is no defense that proper inquiry might have revealed the truth. See, e.g., Buchanan v. Burnett, 102 Tex. 492, 119 S.W. 1141, 1142 (1909); Labbe v. Corbett, 69 Tex. 503, 6 S.W. 808, 811 (1888); Mitchell v. Zimmerman, 4 Tex. 75, 79–80 (1849). These cases, however, stand for the general proposition that one may be liable for fraud even if it could be discovered by due diligence; they do not hold that limitations is extended even if due diligence would reveal the fraud. Also, at least one amicus, Cardwell, Hart & Bennett, LLP, invokes a lessee's implied covenant to act as a reasonably prudent operator. But we held in HECI Exploration Co. v. Neel that “[i]mplied covenants do not dispense with the need for royalty owners to exercise due diligence in enforcing their contractual rights, express or implied, within the statutory limitations period.” 982 S.W.2d 881, 887 (Tex.1998). 7 See also Shah v. Moss, 67 S.W.3d 836, 846 (Tex.2001) (“To avoid summary judgment on limitations grounds, Moss must have raised a fact issue to support his fraudulent-concealment assertion.”); Hurlbut v. Gulf Atl. Life Ins. Co., 749 S.W.2d 762, 766 (Tex.1987) (“[W]e agree that whether the plaintiffs knew or should have known of the fraud ... raises a fact issue....”); Borderlon, 661 S.W.2d at 909 (“A fact issue exists whether, in the exercise of reasonable diligence, Borderlon knew, or should have known ..., that the presence of the foreign object in her abdomen gave rise to a cause of action against Dr. Peck.”); Cherry v. Victoria Equip. & Supply, Inc., 645 S.W.2d 781, 782 (Tex.1983) (“The ultimate duty to weigh the evidence, determine credibility and decide if fraudulent concealment actually existed rests upon the trier of fact.”); Ruebeck, 176 S.W.2d at 740 (“What will constitute reasonable diligence to discover fraud and when the fraud might have been discovered by the exercise of such diligence are necessarily questions which must be determined from all the facts and circumstances in evidence in each particular case. When, under the facts in evidence, reasonable minds might differ on such issues, the findings of the jury thereon are binding on the appellate court.”). 8 See, e.g., Etan Indus., 359 S.W.3d at 623 (“On these facts, we hold as a matter of law that the estoppel effect of the alleged fraudulent concealment ended in December 2002 at the latest. By that date, the Lehmanns were apprised of facts, conditions, and circumstances sufficient to cause a reasonable person to make inquiry that would lead to the discovery of the concealed cause of action.”); Ross, 356 S.W.3d at 929 (“Because the Rosses could have discovered Shell's alleged fraud through the use of reasonable diligence, we hold that, as a matter of law, the doctrine of fraudulent concealment cannot apply to toll the statute of limitations.”); Marshall, 342 S.W.3d at 69 (“[A]s a matter of law, the Marshalls would have been able to discover BP's fraud through the use of reasonable diligence.”); Kerlin v. Sauceda, 263 S.W.3d 920, 926 (Tex.2008) (“As a matter of law, the Ballis could have discovered the existence of any claims before limitations expired through the exercise of reasonable diligence.”). 9 Hooks denies relying on the discovery rule or fraudulent concealment. Although fraudulent concealment allows the statute of limitations to be tolled for causes of action besides fraud itself, the standard of reasonable diligence remains the same: “Fraudulent concealment only tolls the running of limitations until the fraud is discovered or could have been discovered with reasonable

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diligence.” Marshall, 342 S.W.3d at 67. Consequently, cases discussing fraudulent concealment are relevant to the meaning of reasonable diligence. In Shell Oil Co. v. Ross, we considered untimely claims made by Ross—an attorney who “understood the oil and gas industry”— and his family that Shell had underpaid gas royalties. 356 S.W.3d at 926. Despite Shell's allegedly fraudulent representations, the Rosses had a duty to “make themselves aware of relevant information available in the public record.” Id. at 928. We held that “[d]iligence is required when claimants have been ‘put on notice of the alleged harm of injury-causing actions.’ ” Id. (quoting Emerald Oil, 348 S.W.3d at 207). 10 Discrepancies in royalties paid to the Rosses on different wells put them on notice. Id. at 929. A publicly available price index illuminated the underpayments, *59 as did General Land Office records demonstrating that Shell paid higher royalties to the State even though it owed the Rosses the same royalty. Id. Had the Rosses exercised reasonable diligence, this “[r]eadily accessible and publicly available information” would have revealed the underpayments. Id. Accordingly, as a matter of law, they did not exercise reasonable diligence.

10 Samson and Hooks dispute whether parties must be put on notice of potential harm before they have a duty to exercise reasonable diligence, as well as whether Hooks was on notice. We need not reach these questions here. Instead, we decide the case by assuming, without deciding, that Hooks should exercise reasonable diligence. In BP America Production Co. v. Marshall, we held that the statute of limitations was not tolled when BP fraudulently represented that it was maintaining continuous operations on a lease. 342 S.W.3d at 67–69. This case also involved a sophisticated plaintiff who “understood the oil and gas industry.” Id. at 69. The public record contained two public filings with the Railroad Commission: a well log and a plugging report that contained “highly technical information.” Id. at 66. Had the Marshalls read these two documents together, they would have discovered that BP was not conducting good-faith continuous operations. Id. at 69. “[A]s a matter of law, the Marshalls would have been able to discover BP's fraud th[r]ough the use of reasonable diligence.” Id.

We have reached similar conclusions in other cases. For example, if the plaintiff has “actual knowledge ... of injury-causing conduct,” then this “starts the clock on the limitations period” “[i]rrespective of the potential effect of fraudulent concealment.” Emerald Oil, 348 S.W.3d at 209. The availability of court records may indicate under some circumstances that reasonable diligence would have found the information. See Kerlin, 263 S.W.3d at 926. Land title records and probate proceedings create constructive notice, “an irrebuttable presumption of actual notice,” which prevents limitations from being delayed. Mooney v. Harlin, 622 S.W.2d 83, 85 (Tex.1981); Sherman v. Sipper, 137 Tex. 85, 152 S.W.2d 319, 321 (1941). These cases reveal that when there is actual or constructive notice, or when information is “readily accessible and publicly available,” Ross, 356 S.W.3d at 929, then, as a matter of law, the accrual of a fraud claim is not delayed.

[7] The present case does not fall into any of the categories where we can determine, as a matter of law, that reasonable diligence would have timely uncovered the fraud. Though Samson relies extensively on Marshall and Ross, Hooks correctly identifies an important distinction: in those cases, the public record itself was not tainted by the fraud. We have not previously considered whether reasonable diligence would uncover a correct public Railroad Commission filing when more recent filings contain false information.

In December 2000, Samson submitted a plat to the Railroad Commission as part of an application to pool. The plat was signed by Glenn Lanoue, Samson's landman, and dated November 16, 2000, certifying that it was “a true and correct plat based on the best of my knowledge.” The plat had a label stating “Proposed Well Location,” but, unlike some earlier plats in the record, the individual data on this plat were not themselves also marked as “proposed.” The plat gave “X” and “Y” coordinates for the well's bottom-hole location, the distance of the well from various survey lines, and the well's surface location along with the bottom hole's location relative to the surface. Trial testimony established that this data is internally consistent, placing the well's bottom hole more than 1,320 feet from Hooks' lease line even though the well actually bottomed within the 1,320–foot protected zone. When Lanoue was asked where he obtained the bottom hole's distance from the survey *60 lines, he testified that he created them himself. 11

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11 His deposition testimony was: “I got them from myself.” Samson later provided a plat with the same information to Hooks in connection with Samson's request to amend the lease and allow pooling. Samson argues the plat was ambiguous and indefinite, creating a need for Hooks, an experienced oil and gas lessor, to investigate further. On the plat is the notation “1400' ± scaled,” but trial testimony presented different interpretations of what points this distance measured between. Elsewhere, the plat expressly states that the bottom-hole location is “1400' ± scaled' FEL Unit.” Testimony indicated that “FEL” means “from the eastern line” of the pooled unit. Another testified that taking the notation literally would be unreasonable because if the well truly bottomed about 1,400 feet from the eastern line of the unit, as opposed to Hooks' lease line, it would be very close to Hooks' lease, perhaps even within it.

Months earlier, a directional survey performed by an independent surveyor and an accompanying plat were filed with the Railroad Commission. Some information on the directional survey clearly contradicts the Lanoue plat discussed above, and Samson urges that the information on the survey could have easily been used to estimate the bottom hole's true location. Hooks argues that it would take an expert to interpret the survey and pinpoint its location.

We cannot say that, as a matter of law, Hooks should have discovered the accurate information when the more recent filing falsely conveyed that the well had been completed outside the protected zone. Although reasonable diligence should examine readily available information in the public record, it may stop at more recent filings with the Railroad Commission, without needing to double-check more recent filings against earlier filings. This accords with our prior decisions. We have held that “fraud vitiates whatever it touches,” Borderlon, 661 S.W.2d at 909, in this case, the public record. We have held that not all Railroad Commission records create constructive notice, HECI Exploration Co., 982 S.W.2d at 886, meaning that, in some circumstances, Railroad Commission filings may exist that one is not charged with discovering. We have held that fraudulent concealment is “an equitable doctrine that ... is fact-specific.” Marshall, 342 S.W.3d at 67. And we have held that “a person cannot be permitted to avoid liability for his actions by deceitfully concealing wrongdoing until limitations has run.” S.V., 933 S.W.2d at 6. Though reasonable diligence should lead to information in the public record, here, the fraudulent information itself taints the public record. To require, as a matter of law, that Hooks double-check the more recent filings against earlier filings is a higher burden than reasonable diligence requires.

Samson argues that the directional survey is the “gold standard,” and that the fraudulent plat was filed to show unit lines for pooling purposes, not to provide the exact location of the well's bottom hole. Samson observes that, in some situations, Texas law mandates directional surveys performed by independent surveyors, see 16 TEX. ADMIN. CODE §§ 3.11(c)(2)(A); 3.12 (Tex.R.R. Comm'n), and asserts that Hooks should have known this and looked for the survey to establish the bottom hole's true location. Samson also argues that because Lanoue told Hooks the well was about 1,500 feet from the lease line, but then sent Hooks a plat indicating the bottom hole was about 1,400 feet away, very close to the protected zone, these *61 inconsistencies should have caused Hooks to inquire further. None of these arguments avail. Had Hooks gone to the Railroad Commission, the more recent filing would have been a plat with the same inaccurate information, placing the well's bottom hole beyond the protected zone. Hooks is not required, as a matter of law, to double-check it against the earlier directional survey. To the extent some information on the Lanoue plat is unclear, a careful reader could have examined other information on the plat (e.g., the “X” and “Y” coordinates, distances from lease lines, and location of the bottom hole relative to the surface) to resolve any ambiguity, determining that the plat placed the bottom hole outside the protected zone. Indeed, Hooks presented testimony that this plat clearly placed the bottom hole outside of the protected zone. Thus, though Samson's arguments regarding potential ambiguities on the plat, and the availability and superiority of the directional survey, may be appropriate for the factfinder to consider when determining whether reasonable diligence would have uncovered the fraud, they do not establish that, as a matter of law, Hooks did not exercise reasonable diligence.

Amicus Texas Oil and Gas Association suggests that holding for Hooks will encourage litigants to guise their breach-of-contract claims as fraud claims to avoid the statute of limitations. We disagree. To establish fraudulent inducement, “the elements of fraud must be established as they relate to an agreement between the parties.” Haase, 62 S.W.3d at 798–99. Many breach-of- contract cases do not implicate the elements of fraud. Only when fraud is established with regard to the contract may fraudulent inducement be established, and, in any case, the suit is based on the fraud itself rather than a breach of contract. Moreover,

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because fraudulent concealment may toll the statute of limitations for contract claims, no incentive will exist to recast them as fraud claims.

We hold that when the defendant's fraudulent misrepresentations extend to the Railroad Commission record itself, earlier inconsistent filings cannot be used to establish, as a matter of law, that reasonable diligence was not exercised. Under these circumstances, reasonable diligence remains a fact question. The factfinder, no doubt, may consider the failure to examine older records when determining whether reasonable diligence was exercised, but their availability is not enough to establish that reasonable diligence was not exercised as a matter of law.

Because the court of appeals mistakenly concluded that the date by which Hooks reasonably should have discovered Samson's fraud was a question of law, it did not reach Samson's other arguments concerning Hooks' fraudulent inducement claims. See 389 S.W.3d at 428–30. These include the factual and legal sufficiency of the evidence with regard to common-law fraud, statutory fraud, and damages for fraud, as well as the factual sufficiency of the evidence regarding when Hooks, by the exercise of reasonable diligence, would have discovered the fraud. We remand these issues for the court of appeals' consideration.

III. Breach of Most–Favored–Nations Clause Claims

[8] When an oil and gas lease contains a most-favored-nations clause, it typically provides that a lessee who pays higher royalties on nearby leases must pay matching royalties to the lessor under the subject lease. Here, all three leases contain an identical most-favored-nations clause, providing that

*62 If Lessee shall enter into an oil and gas lease(s) part of which is located within three (3) miles of any exterior boundary of the subject lands covered by the subject Lease, hereinafter referred to as “Third Party Lease”, Lessee shall notify Lessor of such fact. If the reserved royalty or the amount per acre payable for delay rentals, shut-in rentals or minimum royalty, at any time payable under such Third Party Lease, is higher than the like royalty and amounts payable as provided in the subject Lease, the royalty or amount payable per acre in the subject lease, which is less than that provided in the Third Party Lease shall be immediately increased so that it will equal the royalty or other amounts payable under the Third Party Lease. The subject Lease and the Third Party Lease must be calculated in substantially the same manner, such that the comparison of the subject Lease and the Third Party Lease is based on the same effective net royalty or other payments, and that same shall include or deduct the same types of charges, taxes and other burdens from such interests.

The trial court determined on summary judgment that Samson breached the clause by paying a higher royalty to the State of Texas.

Samson leased a qualifying oil and gas interest from the State at the same 25% royalty Samson paid Hooks. In 2003, to induce the State to consent to a Pooling Agreement, Samson increased the State's royalty. This Pooling Agreement allocates production among different interest owners based on their individual shares in their own tracts and the proportion that their tracts play in the overall unit. This general allocation is made “provided that the state [']s unit royalty interest shall be 0.7969%.” Considering the size of the State's tract relative to the size of the entire unit, this is equivalent to a royalty of 28.28896% on the production allocated to the State's tract. In other words, the State's royalty of 0.7969% on production from the unit equates to a 28.28896% royalty on production allocated to the State's tract.

Samson argues that the most-favored-nations clause does not apply because the clause regards the “reserved royalty ... payable under” another lease, whereas Samson paid the State higher royalties under the Pooling Agreement. If the clause were to apply to more than just leases, then it would have said so, Samson argues. Samson also asserts that the Pooling Agreement increased the State's allocation of production from the unit without raising the royalty.

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[9] [10] [11] [12] We disagree. To resolve this dispute, we apply the “ ‘primary legal consequence’ of pooling to this case —that production anywhere on a pooled unit is treated as production on every tract in the unit.” See Key Operating & Equip., Inc. v. Hegar, 435 S.W.3d 794, 798–99 (Tex.2014) (quoting See Pipe Line Co. v. Tichacek, 997 S.W.2d 166, 170 (Tex.1999)). The reason a lessor receives royalties under a pooling agreement, even if no production occurs directly on that lessor's tract, is because production elsewhere on the pooled unit is attributed to the lessor's tract. And the reason the lessor receives royalties on production attributed to the lessor's tract is because of the underlying lease. It follows that a lessor's royalty on production from the unit as a whole reflects the lessor's royalty on production from its individual tracts in proportion to the size of the tracts relative to the overall unit. This accords with the nature of pooling, which “effects a cross-conveyance among the owners of minerals under the various tracts of royalty or minerals in a *63 pool so that they all own undivided interests under the unitized tract in the proportion their contribution bears to the unitized tract.” Montgomery v. Rittersbacher, 424 S.W.2d 210, 213 (Tex.1968). In other words, the royalty owed on production from the whole unit is necessarily tied to the royalty owed on production from the lessor's individual tracts. To increase one is to increase the other.

Thus, by definition, Samson's grant of a royalty to the State of 0.7969% on production from the unit means that Samson increased the State's 25% royalty on production from its tract to 28.28896%. For purposes of the most-favored-nations clause, the royalty imposed by the Pooling Agreement is “payable under” the lease, and the Pooling Agreement itself states that it was entered into by the State “as Lessor” and Samson “as Lessee.”

The court of appeals here defined a most-favored-nations clause as “a vendor protection clause” that “enables the vendor to receive the benefit of increases in the market price of his product over the term of a long range contract with a purchaser.” 389 S.W.3d at 435 (quoting Lone Star Gas Co. v. Howard Corp., 556 S.W.2d 372, 374 (Tex.Civ.App.–Texarkana 1977), writ ref'd n.r.e., 568 S.W.2d 129 (Tex.1978) (per curiam)) (emphasis added). Though this may be the purpose of such clauses, unless they expressly so provide, we are not authorized to examine whether increased prices were caused by market forces or, as seems to be the case here, other considerations. The reason for giving the State a higher royalty—inducing it to pool—is irrelevant in determining whether the most-favored-nations clause applies.

For all these reasons, we conclude that the court of appeals erred in holding that Samson did not breach the most-favored- nations clause.

IV. Breach of Formation–Production Clause Claims

[13] Article III of each lease specifies a 25% royalty on “gas, including casinghead gas or other gaseous substances produced from said land,” as well as a 25% royalty on “all other liquid hydrocarbons that may be produced from said land.” At the end of Article III, each lease also states that

For the purposes of calculating all royalties payable under Article III. herein, it is expressly provided that all such calculations shall be based on formation production as reported on Texas Railroad Commission forms P–1 and P–2.

Hooks claims that Samson has paid gas royalties on proceeds from gas sales rather than on the total amount of formation production. Samson disputes Hooks' interpretation of the formation-production clause. The trial court awarded damages for breach of the clause, but the court of appeals reversed. 389 S.W.3d at 437.

[14] [15] [16] [17] [18] “In construing contracts, we must ascertain and give effect to the parties' intentions as expressed in the document.” Lopez v. Muñoz, Hockema & Reed, L.L.P., 22 S.W.3d 857, 861 (Tex.2000). We attempt to harmonize all contractual provisions by “analyzing the provisions with reference to the whole agreement.” Frost Nat'l Bank v. L & F Distribs., Ltd., 165 S.W.3d 310, 312 (Tex.2005) (per curiam). We “construe contracts from a utilitarian standpoint bearing in mind the particular business activity sought to be served,” and, when possible and proper, we avoid a “construction which is unreasonable, inequitable, and oppressive.” Reilly v. Rangers Mgmt., Inc., 727 S.W.2d 527, 530 (Tex.1987). If, through the use of relevant

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 14 Hooks v. Samson Lone Star, Limited Partnership, 457 S.W.3d 52 (2015) 58 Tex. Sup. Ct. J. 252

rules of construction, the contract can be given a definite meaning, we construe it *64 as a matter of law. Frost Nat'l Bank, 165 S.W.3d at 312.

The parties do not dispute the meaning of formation production; rather, they dispute what it means to calculate all royalties based on formation production. As used on the old Railroad Commission forms P–1 and P–2, 12 formation production describes the total volume of gas removed from the underground reservoir. Not all gas, however, that leaves the reservoir as gas continues to be a gas at the surface; instead, some condenses. “Condensate is hydrocarbons that exist in the form of gas when contained in the natural gas reservoir underground, which condense into a liquid form when released from the reservoir's higher pressure and temperature.” Bowden v. Phillips Petroleum Co., 247 S.W.3d 690, 704 n.7 (Tex.2008). When reporting the total volume of gas removed from the reservoir to the Railroad Commission, Samson would convert the volume of condensate at the surface to its equivalent volume as a gas.

12 These forms, referred to by the leases, are no longer used by the Railroad Commission. Instead, Form PR has replaced them. According to the instructions accompanying Form PR, “[f]or gas well gas, you no longer need to convert the condensate production to a gas equivalent volume; the RRC will automatically convert the volume.” TEX. R.R. COMM'N, INSTRUCTIONS FORM P R: MONTHLY PRODUCTION REPORT, available at http:// www.rrc.texas.gov/media/2646/formpr–instructions–final–02–2005.pdf. This opinion need not—and does not—interpret “formation production” as used by the new form. Hooks argues that because all royalties must be based on formation production, and formation production is the volume of all production while it existed in the reservoir as gas, then the 25% royalty paid on gas should be for the volume of gas removed from the reservoir instead of the volume of gas at the surface. Notably, however, Hooks contends that Samson must still pay a 25% royalty on the volume of condensate taken from the wellhead. In other words, Hooks asserts that the formation-production clause requires that a 25% royalty be paid on the liquid condensate, which must then be converted to its equivalent in gas volume so that another 25% royalty may be paid on it again. Samson responds that Hooks' interpretation unreasonably imposes a double royalty by requiring Samson to pay royalties on condensate twice: first as condensate, and then again as a gas as part of formation production. Samson submits that the formation-production clause means Samson must pay for produced minerals, either as gas or as condensate, but not that Samson must pay royalties on condensate twice.

The formation-production clause provides that all royalty calculations be based on formation production. Hooks' approach, however, causes only gas royalties (for gas as gas and for condensate as gas) to be based on formation production. For royalties on condensate as condensate, Hooks' approach bases them solely on the amount of condensate without reference to formation production. We disagree with that interpretation.

The formation-production clause simply requires Samson to convert the volume of condensate to its equivalent volume in gas, ensuring that the total volume that Samson pays royalties on relates to the volume that Samson reports to the Railroad Commission. The conversion ensures that Samson pays royalties on an appropriate volume of production, not that Samson pays royalties on some production twice. In other words, the clause does not require that royalties be paid on everything as gas. Otherwise, the instruction that all royalties be based on formation production would be ignored, because royalties would be paid on condensate without reference to formation *65 production. This interpretation of the clause, unlike Hooks', allows royalties on condensate (as well as on gas) to be based on formation production, as the leases require.

Hooks also argues that Samson failed to pay royalties on gas that was not ultimately sold, such as lost or consumed gas. Hooks points to the testimony of a Samson employee that Samson pays royalties based on dollars received rather than on formation production. But Hooks presented no evidence of the royalties that should have been paid on the unsold gas; Hooks merely aggregates this amount (if any) with the royalties that Hooks claims are owed on condensate when converted back to gas. Absent specific evidence of damages for lost and used gas—as opposed to a combined amount for lost and used gas and condensate as part of formation production—Hooks cannot prevail, and thus we need not determine whether Samson breached the contract by failing to pay royalties on lost and used gas. In sum, we agree with the court of appeals' decision with regard to the formation- production claims.

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 15 Hooks v. Samson Lone Star, Limited Partnership, 457 S.W.3d 52 (2015) 58 Tex. Sup. Ct. J. 252

V. “Unpooling” Claims

[19] The two Hardin County Leases authorized Samson to pool. Samson pooled both of Hooks' Hardin County Leases into the “Blackstone Minerals ‘A’ No. 1” unit, effective as of the date of first production in June 2001. Because the owner of 87.5% of the mineral interest in the tract where the well in this unit was located refused to pool, Samson decided to “amend” the unit designation. A letter from Samson dated October 24, 2001, notified Hooks of an “Amendment and Name Change of Black Stone Minerals ‘A’ No. 1 Unit Designation, Hardin County, Texas”:

Reference is made to Samson Lone Star Limited Partnership's letter dated March 20, 2001, in which approval to pool on 640–acre plus 10% tolerance was received. Please note that the Unit Designation for the Black Stone Minerals “A” No. 1 is being amended and will now be called the Joyce Du Jay No. 1 Unit.

No additional action is needed on your part, this letter is meant for informational purposes only. Please update your records with the new name and call the undersigned should you have any questions.

The amended unit was effective in January 2002, when production began.

As filed in the Hardin County records, the amendment did not merely change the name of the existing unit but also significantly altered its boundaries. Whereas the original unit extended from a depth of 6,000 feet to a depth of 13,800 feet, the new Joyce Du Jay No. 1 Unit, beginning at 12,400 feet below surface, extends down without limit. Samson has paid Hooks royalties on production from the Joyce Du Jay No. 1 Unit, but not from the original Blackstone Minerals A–1 Unit. Accordingly, Hooks seeks royalties on the original unit, claiming that Samson did not have the authority to “unpool” the Blackstone Minerals A– 1 Unit. The trial court agreed, granting summary judgment in Hooks' favor. Samson responds—and the court of appeals held —that Hooks ratified the new unit by accepting royalties on it, and therefore cannot recover from the old unit. 389 S.W.3d at 434. Samson also asserts that if Hooks is entitled to royalties from the original unit, then these should be offset by the royalties Hooks has already received on the Joyce Du Jay No. 1 Unit.

Notably, Hooks does not question the validity of the Joyce Du Jay No. 1 Unit; rather, Hooks alleges that he should receive royalties from both the original unit *66 and the Joyce Du Jay No. 1 Unit. Hooks notes that the Hardin County Leases allowed unlimited pooling. Although Samson claimed it was “amending” the original unit, Hooks suggests that the change effectively added another unit without eliminating the original one.

Factually, Hooks' position is problematic. Samson's letter to Hooks made clear that it purported to “amend” the unit designation, not merely create an additional unit. The letter stated that it concerned an “amendment and name change,” (emphasis added), so Hooks should have been aware that the pooled area could change. The original designation and the amended designation, as well as their differences, were a matter of public record. Though Hooks did not know exactly how Samson amended the unit designation, Hooks was nevertheless aware that Samson amended it, and Hooks regularly accepted royalty checks for the Joyce Du Jay No. 1 Unit without ever receiving royalties on the earlier designation. Under these circumstances, Hooks cannot claim additional royalties from the older unit because Hooks ratified the amendment, having full knowledge that something had changed and by his actions consenting to it, failing even to challenge the new unit. See Fortune Prod. Co. v. Conoco, Inc., 52 S.W.3d 671, 677 (Tex.2000). Because Hooks does not deny the validity of the new unit, one that existed only after Hooks was notified that the old unit was being amended, Hooks cannot later assert that he should also receive royalties from the old unit. See Ohrt v. Union Gas Corp., 398 S.W.3d 315, 329 (Tex.App.–Corpus Christi 2012, pet. denied) (“Prolonged silence or inaction in not asserting a known right is conduct that may amount to waiver.”); see also Bob Montgomery Chevrolet, Inc. v. Dent Zone Cos., 409 S.W.3d 181, 195 (Tex.App.–Dallas 2013, no pet.) (“Any act inconsistent with an intent to avoid a contract has the effect of ratifying the contract.”). Because of the undisputed contents of the notice letter, Hooks' acceptance of royalties for the new unit, and Hooks' refusal to challenge the new unit, we decide the question of ratification as a matter of law. 13

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 16 Hooks v. Samson Lone Star, Limited Partnership, 457 S.W.3d 52 (2015) 58 Tex. Sup. Ct. J. 252

13 See, e.g., Thomson Oil Royalty, LLC v. Graham, 351 S.W.3d 162, 166 (Tex.App.–Tyler 2011, no pet.); Barker v. Roelke, 105 S.W.3d 75, 85 (Tex.App.–Eastland 2003, pet. denied); Old Republic Ins. Co. v. Fuller, 919 S.W.2d 726, 728 (Tex.App.–Texarkana 1996, writ denied). We base our holding solely on the facts that Hooks received notice of an amendment to the unit designation, accepted royalties from the amended unit, and does not challenge the amended unit. We need not decide other issues raised by the parties, such as whether Samson had authority to amend the unit or whether pooled units may overlap. See 389 S.W.3d at 431–33. We affirm the judgment of the court of appeals with regard to Hooks' “unpooling” claims.

VI. Breach of Hardin County Offset Provision Claims

Like the Jefferson County Lease, the two Hardin County Leases also contain offset provisions requiring that if a well is completed within 1,320 feet of Hooks' lease line but is not unitized with Hooks' acreage, then within ninety days of production from the infringing well, Samson must either drill an offset well, pay Hooks compensatory royalties, or release the offset acreage. Under these offset provisions, if Samson elects to pay compensatory royalties, then it has a recurring monthly obligation to pay them. The first compensatory royalty would be due “following the expiration of ninety (90) days after the end *67 of said calendar month in which production [is] first marketed.”

The Hardin County Leases allow pooling and also contain what the parties have termed an “entire-acreage clause”:

Operations for drilling on or production of gas from any part of the pooled unit which includes all or a portion of the Leased Premises ... shall be considered as operations for drilling on or production of gas from the Leased Premises, ... and the entire acreage constituting such unit or units shall be treated for all purposes, except the payment of royalties on production from the pooled unit, as if the same were included in this Lease.

Samson pooled the Hardin County Leases and drilled additional gas wells within 1,320 feet of the pooled units but more than 1,320 feet from Hooks' individual tracts. Hooks argues that the entire-acreage clause extended the 1,320–foot protected zone around the units themselves, and that Samson breached by disregarding the offset provisions. In the trial court, Samson moved for summary judgment on this claim on several grounds, including limitations, which the trial court granted. The court of appeals affirmed because of limitations. 389 S.W.3d at 440.

[20] Before analyzing the issue of limitations, we first consider Samson's argument that Hooks waived his claims for breach of the offset provisions by filing a proposed judgment with the trial court. In Hooks' motion for judgment, he averred that he moved for judgment “without waiving any rights to contest or appeal prior orders of the Court.” And, the statement “APPROVED AS TO FORM” was above Hooks' attorney's signature on the proposed judgment. Samson asserts that these reservations did not preserve Hooks' right to appeal, invoking Litton Industrial Products, Inc. v. Gammage, where we “disapprove [d] a practice by which a party, by motion, induces the trial court on the one hand to render a judgment, but reserves in a brief the right for the movant to attack the judgment if the court grants the motion.” 668 S.W.2d 319, 322 (Tex.1984). Importantly, Litton Industrial Products applies only to arguments inconsistent with the specifics of the requested judgment. See id.

In contrast, when the argument asserted on appeal is not inconsistent with the judgment, the argument is not waived. See Diamond Shamrock Ref. Co. v. Hall, 168 S.W.3d 164, 170 (Tex.2005). This is because “[t]here must be a method by which a party who desires to initiate the appellate process may move the trial court to render judgment without being bound by its terms.” First Nat'l Bank v. Fojtik, 775 S.W.2d 632, 633 (Tex.1989) (per curiam). Here, Hooks specifically reserved the right to challenge prior orders of the court, and by moving for judgment on the claims that Hooks won, Hooks did not waive his right to appeal on claims that he lost.

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 17 Hooks v. Samson Lone Star, Limited Partnership, 457 S.W.3d 52 (2015) 58 Tex. Sup. Ct. J. 252

Regarding limitations, Samson argues, and the court of appeals held, that the four-year statute of limitations bars Hooks' claims for breach of the offset provisions because the offset provisions were first breached in 2001, at least five years before Hooks filed suit. 389 S.W.3d at 440; see TEX. CIV. PRAC. & REM. CODEE § 16.004. Hooks responds that compensatory damages under the offset provisions are owed monthly, Samson's breach is recurring, and Hooks can recover damages for royalties that should have been paid during the four years preceding the filing of suit. See, e.g., Lyle v. Jane Guinn Revocable Trust, 365 S.W.3d 341, 355 (Tex.App.–Houston [1st Dist.] 2010, pet. denied). Samson denies that the breach, if any, has been recurring. Specifically, Samson argues that the offset provisions authorized *68 Samson to elect to release the offset acreage or drill an offset well or pay compensatory royalties. Samson contends that it is not bound by the recurring provision when it could have opted for a non-recurring one, and damages for breach of a non-recurring provision are barred by limitations.

[21] It is true that, “if the terms of an agreement call for periodic payments during the course of the contract, a cause of action for such payments may arise at the end of each period.” Intermedics, Inc. v. Grady, 683 S.W.2d 842, 845 (Tex.App.–Houston [1st Dist.] 1984, writ ref'd n.r.e.). 14 The question remains whether, because the contract gave Samson alternatives that were not recurring, Samson may prevent Hooks from suing based on the one recurring obligation. Samson cites a Fifth Circuit case holding that when a party refuses to make an election under an alternative contract, the choice does not devolve to the other party. See Liberty Bank v. Talman Home Mortg. Corp., 877 F.2d 400, 407 (5th Cir.1989). The Fifth Circuit held that when the “breaching party had the option of choosing between two alternatives at the time of breach, ‘the measure of damages is the loss caused by reason of the promisor failing to perform the promise with the lesser value.’ ” Id. (quoting Stewart v. Cran– Vela Rental Co., 510 F.2d 982, 986 (5th Cir.1975)). Although Samson has not presented evidence of alternative measures of damages, it presumably argues that limitations reduces the alternative damages to zero. Hooks responds by citing a decision from 1849, Hemming v. Zimmerschitte, where this Court observed that there “does not appear on the record, as presented, a manifestation of willingness on the part of the obligor to discharge his obligation; and the right of election, if applicable at all, is lost and cannot avail the defendant.” 4 Tex. 159, 164 (1849). We have not addressed the issue since then.

14 See, e.g., Barnes v. LPP Mortg., Ltd., 358 S.W.3d 301, 307 (Tex.App.–Dallas 2011, pet. denied); Lyle, 365 S.W.3d at 355; Headington Oil Co., L.P. v. White, 287 S.W.3d 204, 214 (Tex.App.–Houston [14th Dist.] 2009, no pet.); F.D. Stella Prods. Co. v. Scott, 875 S.W.2d 462, 465–66 (Tex.App.–Austin 1994, no writ); Dvorken v. Lone Star Indus., Inc., 740 S.W.2d 565, 567 (Tex.App.–Fort Worth 1987, no writ). [22] We need not reach the general issue of the measure of damages for breach of an alternative contract. The Hardin County Leases required Samson to begin drilling an offset well or release the acreage within ninety days of production from the infringing well. But Samson must pay compensatory royalties slightly later—“on or before the first day of the calendar month next following the expiration of ninety (90) days after the end of said calendar month in which production [is] first marketed.” Assuming that Samson breached, then by waiting without performing the first two alternatives, Samson impliedly elected to perform the later one, the only choice remaining after the first ninety days had passed. If Samson breached the offset provisions, then Samson's failure to timely elect an alternative creates an implied election of the recurring compensatory royalty payments. Accordingly, if Samson did indeed breach, then Hooks is entitled to damages for royalties owed within four years of filing suit. This accords with the nature of damages: providing “just compensation for the loss or damage actually sustained.” Stewart v. Basey, 150 Tex. 666, 245 S.W.2d 484, 486 (1952). When the law would allow compensation under a recurring alternative (i.e., compensatory royalties) but not under a non-recurring alternative, it would not be just to allow the obligor's silent, continuous breach to constitute an election of the non-recurring alternative.

*69 The court of appeals held for Samson on limitations and did not reach the merits of Hooks' claim for breach of the offset provisions and the proper construction of the entire-acreage clause. See 389 S.W.3d at 440. Because limitations does not apply to the compensatory royalties that may have been owed within the four years preceding suit, we remand for the court of appeals to consider the merits of Hooks' claims.

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 18 Hooks v. Samson Lone Star, Limited Partnership, 457 S.W.3d 52 (2015) 58 Tex. Sup. Ct. J. 252

VII. Attorney's Fees Claims

The parties stipulated that if Hooks “prevail[ed] on any of [his] claims” (with exceptions not applicable here), Samson would reimburse Hooks for a stipulated amount of attorney's fees. Because Hooks prevailed on several claims in the trial court, the trial court granted Hooks these attorney's fees. The court of appeals, however, held that Hooks take nothing except for $52,257.22, a stipulated amount to reimburse Hooks for ad valorem taxes that the leases required Samson to pay. Id. at 438. It also held that reimbursement for the ad valorem taxes did not constitute “prevail[ing] on [a] claim[ ]” as contemplated by the stipulation. Id. Accordingly, the court of appeals did not require Samson to pay attorney's fees. Id.

We need not decide whether the ad valorem taxes trigger Samson's obligation to pay attorney's fees under the stipulation. Rather, under our decision today, Hooks prevails on another claim such that he is entitled to the stipulated amount of fees. 15 We reverse the court of appeals on this point.

15 At the least, Hooks prevails on his claims under the most-favored-nations clause. Other claims, such as fraud and breach of the Hardin County offset provisions, are remanded to the court of appeals for further consideration.

VIII. Interest Rate Claims

[23] Hooks seeks, and the trial court granted, a post-judgment interest rate of 18%. Each lease provides that “past due royalties ... shall be subject to a Late Charge based on the amount due and calculated at the maximum rate allowed by law.” Because the court of appeals reversed all of Hooks' damages except for compensation for ad valorem taxes, it reduced the interest rate to 5%. Id. at 439.

The Texas Finance Code provides for a maximum post-judgment interest rate of 18% on contract claims:

A money judgment of a court of this state on a contract that provides for interest or time price differential earns post-judgment interest at a rate equal to the lesser of: (1) the rate specified in the contract, which may be a variable rate; or (2) 18 percent a year.

TEX. FIN. CODE § 304.002. But, if the contract does not specify the interest rate, then the rate is determined under section 304.003 of the Finance Code. Under section 304.003(c), the post-judgment interest rate is “the prime rate as published by the Board of Governors of the Federal Reserve System on the date of computation,” not to exceed 15% a year or fall below 5% a year. Id. § 304.003(c). “On the 15th day of each month, the consumer credit commissioner shall determine the post-judgment interest rate to be applied to a money judgment rendered during the succeeding calendar month.” Id. § 304.003(b). Here, the trial court's final judgment was rendered in December 2008, and the judgment interest rate according to the consumer credit commissioner was five percent. 16

16 See OFFICE OF THE CONSUMER CREDIT COMM'R, JUDGMENT RATE SUMMARY , available at http:// www.occc.state.tx.us/pages/int_ rates/Judgment% 20Rate% 20Summaries/ Thru% 202014% 20Judgment% 20Rate% 20Summary.pdf. The leases only impose “the maximum [interest] rate allowed by law” for past-due royalties. Accordingly, to the extent *70 Hooks recovers for past due royalties, he is entitled to an 18% interest rate. For other recoveries, the statutory rate of 5% applies because Hooks has not directed us to any portion of the leases providing otherwise. We affirm in part and reverse in part the court of appeals' judgment regarding post-judgment interest rates.

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 19 Hooks v. Samson Lone Star, Limited Partnership, 457 S.W.3d 52 (2015) 58 Tex. Sup. Ct. J. 252

IX. Conclusion

In summary, we reverse the court of appeals regarding limitations for fraud, the most-favored-nations clause, limitations for breach of the offset provisions in the Hardin County Leases, and attorney's fees. We affirm in part and reverse in part regarding the applicable post-judgment interest rate. And we affirm regarding the formation-production and “unpooling” claims. We remand to the court of appeals for further action consistent with this opinion.

All Citations

457 S.W.3d 52, 58 Tex. Sup. Ct. J. 252

End of Document © 2015 Thomson Reuters. No claim to original U.S. Government Works.

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 20 HYPERLINKED MATERIALS p • • ••

PD.l)IN COUNT'(, KOUNTZE. TX , GL~NDA ALSTOll, COONTY CLERK ~l/23/2003 6200.3-10169 U:43:35Al1 B-BS2 P-255 SECOND AMF!NllMWf IO D!lSIGNATIQN OF GAS lmrf SAMSON WNE STAR lJM!TI'.P PAll.TNJ!RSHJP - BLACK STONE MINERALS NO I GAS !.!NIT ~GAS~

1llllnmlllmnnm1~un ::... '§ !CNOW All.MEN BY THESE PRESENTS: COUNT!ES OF HARDIN & JEFFERSON §

WHEREAS, Samson Lone Star Limited Partnership. a Texas limited partnership, on Febnuuy 28, 2001,. previously cxceuted a Designation of Gas Unit· .Sarnaon Lone Star limited Plll1ll""hip • Black Stone Minerals No. l Gas Unit covering 7()4 acres (hemn.tler reform! l.o as th• "Designatio1)'1, which i!i recorded in Volume 1258, Page 696, Official Public Records. Hardin County, T::xa.s, and unda DocumoPI No. 2001008270, Official Public Records of Real Property, Jefferson County, Texas; and WHEREAS, Samsonl.oneStarLimitcd.Partnc:rshipOJ\Junc 6 2001.prcviouslyexecuted an Amendnu:µt to the Designation. which is recorded in Volume ifri, P88c 42, Official Public Records, Ha,rdin County, Texas, B!ld under Document No. 2001023987, Official Public Records of Real Propaty, leffcr.;on Couo

• WHERBAS, pursuant to the options. powers and rights granted undc:rthe Exhibit ..A" leas-es, together with all amendments thereto, if any. l..es!ee haJ detennirJ.ed that Ui !ts judgment, in order to properly explore. develop and operate the premises covered by the BxhlDit •A" leases and in order to promote the conservation of gas, in.. under and that may be produced .frQm the lands covered by the Exhibit "A" lea.sos, Lessee desires to onitiz• and pool.the l!xluoit "A" Jeasos INSOFAR AND ONLY INSOFAR as said le83CS cover the Pooled Mineral as defined below and the !ands shown an Exhibit "B" attached hereto and further described on Exhibit "C" }lm:to. and made a part hc:rwf for all purposes. to fonn a single gas operating production unit to be known 8.9 the SAMSON LONE STAR LIMITED PARTNERSHIP; ET AL BLACK STONE MINERALS NO. I GAS UNIT. NOW, THEREFORi in consideration ofthe premises, Lessee, asowncrofthcExhjbjl "A.. Jcases.,, docs pursuant to the terms of the Exhibit "A" leases, aod all amendments thereto. Dl!SlGNATE, POOL, CONSOLIDATE, COMBINE and UNITIZE the l!xhibit "A" leases INSOFAR AND ONLY INSOFAR as said kases •over the Pooled Mineral and the !ands shown on Exhibit "8" and described by field ao~es on Elhib~t ''C" attached berefo,_and Less~ does further POOL, CONSOLIDAT!!. COMBINE and UNITIZE the minerals, royalties, workin inten:Sts, overriding royalties, production payments !lnd other intcr~ts pertaining to the Exhibi 1A.. lenses iluof'ar as the Exhibit "A» teases and other interests under the lands shoVm on Exlii ·r "B" and IUrtb.er described by field notes on Exhibit "C"' cover and inc.Jude the Pooled Mineral as einafter dc:flrY.1! to fonu s single gas operating production mtit known as the S~ON L f. STAR LIMITED PARTNERSHIP, ET AL-BLACKSTONE MINERALS NO.! GAS UNIT, ontsining a total of704.00 acres as shown on Exhibit "B" and described on Exhibit "C'".

"P90lcd Mineral" as used herein shall mean &i'LS and all Qther hydrocarbons pr any gas weIJ. and all other products from a gas welJ or wells in said unit, provided such ocCW"S bclov.· a dc:plh of 12.000 feet subsurface. A *gas well'" M used herein means rcc»gnized and classified Dy the Railroad Commission of the State of'Tc::xas, and this all production ofthe Pooled Mineral from any gas well located ther<:<>n. However, this :ipply to or cover production from an oil wcJI as recognized and classified by th Commission of the State of Texas. Subject to the provisions hereof, production from the Poolcd'Mineral shalJ be allocated to the separate b'Bcts covered by each of the Exhibit "A .. Jeases _wjthin the unjt in proportion that the

• number of surface acres in ench separate tract within tbe unit beam to the totai number of surface acres within the unit .

PLAINTIFF'S EXHIBIT 19 SAMSON-13926 HAMi11 CCMHY, KOUNTZE, TX ,;/23/2003 #2003-10169 GLEllyA ALSTON, COIJNJY CLERK 11:43:35AM B-13S2 e-255 The undc:rsigne.d. reserves the right to amend this Designation of Gas Unit from time to time and at anytime. in order to correct any error herein or to include in this writ, as herein described, any outstanding leas.es or any un1eascd tract or any undivided interest located within the boundaries thereof. or to change the boundaries or the depth thereof: by appropriate instrument com:cting same or committing any SlJch outstanding interest to this unit As. to any outstanding interest in lhis unit not committed hereto, the undersigned parties do not intend that this Designation of Gas Unit shall in any way pool, unitize or affect such outstanding interests or the rights of the ownCTS thereot: unless and until such outstanding interests have been committed by appropriate instrument, and, as to 8IlY outstanding working int~ soch instrument should be ae:cuted by the then owner or owners of the working interest in the lends and/or leases pooled hcrcin.

The undersigned further reserve the right (insofar as such right may be permitted under the tc:nns of the Exhibit• A" leases) to dissolve this umt at anytime by instrumco1 filed for record in the Office of the County Clerk of Hardin and Jefferson Counties, Texas, aft.,. any failure to establish unit production or the cessatioil of production and/or opcrst:ions on said unit, as the case may be. This Second Amendment to Designation of Gas Unlt is executed this ~ day of :f~ 1 .l.003., but effective as of the date of first production of the Black Stone Mmcrals No. 1 Well (AP! No. 42-199-32802) located in the Walker Pettitt SWYey, A-43, Hardin County, Texas. SAMSONWNESTARLIMITEDPARTNERSHIP, a Texas limited partnership

By: SlllnSOU R"'°urc"" Company G<:ncral Partner

By:~-r??-- 1.p R~ Sc.he!Ucker · Vi.ce "Pr"-Aident :... Gulf Coaet D1:rl.aiett

STATEOFOKLAHOMA § § COUNTY OF TIJLSA §

This instrument wes acknowledged before me this Iblh day of;)~ llit>o3 by Coast M'rls\onof . Samson Resources Company; PhUl1p R. Sctaucbr. W'-1:41lf en i>'armer of Samson Lone Star Llmite-d Partnership, a Texas limited partnership, on behalf of said limited partnership.

NCtUrf)' P11tiilc Old•hon'lll ~ms~ - OFFlCIAL 81!AL JUDY McGREW No~andfor TUlSA COOHTY the St.e.te of ahoma

My Commission Expires: C/ -J.:3-03

• -2-

SAMSON-13927 HARDIN COUNTY. KOUNTZE, ~h 01/23/2003 #2003-10169 .GLENDA ALSTON, COIJN:Y Clti{J( 11:4:l:35AM B-1352 P-257 EXHIBIT"A" ATIACHEDTOANDMADEAPARTOF SECOND AMENDMENT TO DESIGNATION OF GAS UNIT SAMSON WNE STAR LIMITED PARTNERSHJP- BLAC!C STONE MINERALS NO: I GAS UNIT 704.00 ACRE GAS UNIT

Oil Gas and MjnemJ Leases

1. Oil and Gas Luse dated effective June 15, 1999, from Black Stone Minorals Company, L.P ., as Lessor, to Samson lone Star Limited Partnershl:e, as Lessee, a memorandum of which is recorded in Yohnne 1I91, Page 847, Official Public Records, Hardin County, Texas. 2. Oil, Gas & Liquid Hydrocarlx>n Lease dated effective June 30, 1999, fu:Jm FimBank, a Nebraska General Pannenhip, for the benefit of Hosford/Hamilton Trusts, as Lessor, to Samson Lone Star Limited Partners.hip, as Lessee, a memorandum of which is recorded in Volwne.1194, Page 818, Official Public Records, Hardin County, Texas. 3. Oil, Gas snd Miooral Lease dated Man:b 14, 1977, from Joyce Du Jay Lee and husband, Harold Lee. as Lessor, to Texaco Inc., as Lessee. recorded in Volume 645, Page 760, Deed Records. Hardin County, Texas. 4. Oil, Gas and Minoral Lease dated Man:h 14, 1977, fiomJoyce Du Jay Lee, Guardian of the P=n and Estate of Nita Du Jay Dickinson, a Peroon Mentally lncompcten~ as Lessor, to Texaco Inc., as L

6. Oil. Gas & Llquid Hydrocarbon Lease and Financing Statement dated April 5, 1999, from Joe A. Bordages, et al, as Lessors, to Samson Lone Star Limited Partnership, as Lessee, a memorandum of which is recorded in counterparts under Clerk's File Nos. 1999019008, 1999019262, 1999031331, 1999024687, 1999019261 and 1999044286, Official Public Records of Real Property, Jefferson County, Texas.

7. Oil, Gas & Liquid Hydrocarbon Lease and Financing Statement dated April 5, 1999, from Donald Wyatt Hdsig, et al, as Lessors, to Samson Lone Star Limited Partnership, as Lessee, a memorandum of which is recorded in counterparts under Clerk's File Nos. 1999018838, 1999020387, 1999020388,.1999020389, !999020390 Wld 1999020391, Official Public Records ofReal Property, Jefferson CoWlty, Texas.

8. Oil, Gas & liquid Hydrocarbon Lease and Financing Statement dated April 19, 1999, from Charles G. Hooks, Ill, ct al, as Lessors, to Samson Lone Star Limited Partnership, as Lessee, a memorandum of which is recorded under Clerk's Fili= No. 1999016773, Official Public Records of Real Property, Jefferson County, Texas.

9. Oil, Gas & Liquid Hydrocstbon Lease and Financing Statement dated November l 0, 1998, from Louis M. Broussard, ~t al, as Lessors, to Samson Lone Star Limited Partnership, e.s Lessee, a memorandum ofwb.ich is rccordcd ill counterparts unda Clerk's File Nos. 99~ 9902783 sod XX-XXXXXXX, Official Public Records of Real Property, Jeffornon County, Texas. l 0. Oil and Gas Lease da.tod March 2, 1977, from PICA Investment Venture, as Lessor. to Dal !as E. Gordon. Jt., as Lessee, recorded in Volume 2014. Page 274, Deed Records. Jefferson County, Texas. as smcnded by (i) Amendment dated Man:h 2, 1977, from PICA lnvesunent Venture. as Lessor, to Dallas E. Gordon, Jr.. as Lessee, recorded in Volume 2166. Page 282, Deed Records, Jefferson County, Texas., and (ii) Amendment dated HoVftmbt.,.. £.. 2001 • from PlCA Investment Verlturc, as Lessor, to Sa..mson Lone Star Linuted Partnership, as Lessee, recorded under Clerk's File No. 200101iil163 Official Public Records of Reaf Property, Jefferson County, Texas.

I I. Qi~ Gas and Minoral Lease dated April 13, I 977, from Geitrude Day Baker, as Lessor, to Texaco Inc., as Lessee, recorded in Volume 2001, Page 428, Deed Records, Jefferson County, Texas.

12. Oil. Gas and Mineral Lease dated April 22. 1977, from Mary Dey, as Lessor, to Texaco Inc., as Lessee, recorded in Volu'mc 2001, Page 426, Deed Records. Jefferson CoWlty, Texas .

• SAMSON-13928 . HARDIN truNTY, IDMTZL TX Uit.13/2{)03 #2003-10169 GUNDA ·ALSTON, CllUNTY CLER!\ 11 :43:35AM ~-1352 P-258 13. Oil, Gas snd Mineral Lcase dated August 4, 1980, from Julia Day, as Lessor, to Texaco Inc., as Lessee, reconied mVolume 2278, Page 138, DeedR"""1'da, Jeffcraon County, Texas, as ratified by(i) Ratification of Oil, Gas end Mineral Leases dated effectiveFebruary28, 2001, from Carl Joseph Baker, Jr., as Lessor, to Som.son Lone Star Limited Partnership, as Lessee, ra:onied tmder Clerk'• File No. 2001026735, Official Public Records of Real Property, Jefferson County, Texas, snd (ii) Ratification of Oil, Gas and Mineral Leases dated effective February 28, 2001, from George Robert Baker, as Leasor, to Samson Lone Star Limited Par1Dernhip, as Lessee, reconied llllder Clcrlt' s File No. 200!03 I 560, Official Public Records of~ Property, Jeff=n County, Texas.

14. Oil, Gas and Mineral Lcase dated August 4, 1980, from Gcsiena C. Day, as Lessor, to Texaco Inc., as Lessee, n::corded in Volume 2284, Page JOO, Deed Records, Jefferson County, Texas. IS. Oil, Gas and Mineral Lease dated August 4, 1980, from Ga1rude Day Baker, aa Less<>r, to Texaco Ine., as Lessee, recorded in Volume 2284, Page 94, Deed Records, Jefferson County, Texas. as ratified by (i) RatiJication of Oil, Gas and Mineral Leases dated effective February 28, 2001, from Carl Joseph Baker, Jr., as Lessor, to S8Il180n Lone Star Limited Partnership, as Lessee, reconied under Clerk's File No. 2001026735, OfficiAI Public Records of Real Property, Jefferson Cotmty, Texas, and (Ii) Ratification ofOil, Gas and Mineral Leases dated effective February 28, 2001, from George Robert Baker, as Lessor, to Samson Lone Star Limited Psrtnenhip, as Lessee, reconied tmderClak's File No. 200 I 031560, Official Public Records of Real Property, Jeffi:r.lon Cotmty, Texas. 16. Oil, Gas and Mineral Lcase dated August 4, 1980, from Elizabelh L Day Schoonover, as Lessor, to Texaco Inc., as Lessee, reconied in Volume 2284, Page 98, Deed Records, Jetreraon County, Texas, as ratified by (i) RatiJication of Oil, Gas Bnd Mineral Leases dated effective February 28, 2001, from Carl Joseph Baker, Jr., aa Lessor, to Samson Lone Star Limited Psrtnenhip, as Lessee, recorded underClcrlt's File No. 2001026735, Official Public Reeon!s of Real Property, Jeff=on County, Texas, snd (rl) RatiJication of Oil, Gas and Mineral Leases dated cffectiveFebruary28, 2001,from Gror&e RobatBaker, as Lessor, to SIUDB<>ll Lone S!Br Limited Psrtn=hip, as Lessee, n:eonied under Clerk's File No. 2001031560, Official Public Records of Real Property, lelferaon County, Texos. 17. Oil, Gas and Mineral I...easc Oated May 31, 1977, from Gesiena C. Day, as Lessor, to Texaco Inc., as Lessee, recorded in Volume2009,Page 278,Deed Records.Jefferson County, Texas.

18. Oil, Gas and Mineral Lease dated April 27, t 977, from Julia Day, B8 Lessor, to Texaco inc., as Lessee, recorded in Volume 2005, Page 102, Deed Records, Jeffemm County, Texas.

19. Oil, Gas wid Mineral Lcase dated August 5, 1980, from Gcsiena C. Day, as Lessor. to Texaco Inc., as Lessee, recorded in Volume 2284, Page 102, Deed Records, Jefferson County, Texas.

20. Oil, Gas aod Mineral Lease dated August 5, 1980, ·from Elizabe1h L. Day Schoonover, as Lessor, to Texaco Inc., as Lessee, recorded in Volume 229~ Page 282, Deed Records, Jcffers<>n County, Texas, as ratified by (i) Ratification of Oil, Gas and Mineral Leases daied effective February 28. 2001, from Carl Joseph Baker, Jr., as Lessor, to Samson Lone Star Limited Partnernbip. as Lessee. recorded under Clerk's File No. 2001026735, Official Public Records of Real Property, Jefferson County, Texas, and (ill RatiJication of Oil, Gas and Mineral Leases dated effective February 28, 2001, from George Robert Baker. as Lessor, to Samson Lone Star Limited Partnership, as Lessee, re.corded under Clerk's File No. 200!031560, Official Public Records of Real Property, Jefferson County, Texas. 21. Oil, Gas lllld Mineral Lease dated August 5, 1980, from Gerirude Day Baker, as Lessor, to Texaco Inc., as Lessee, recorded in Volume 22&4, Page 96, Deed Records, Jefferson Counly, Texas. as ratified by (i) Ratification ofOil, Gas and Mineral Leases dated effective February 28, 200?, from Cari Joseph Baker, Jr., as Lessor, to Samson Lone Star Limited Partnership, as Lessee, reconied lllldcr Clerk's File No. 2001026735, Official Public Records of Real Property, Jefferson County, Texas, and (ii) Ratification ofOiL Gas and Mineral Leases dated effective February 28, 2001, from George Robert Baker, as Lessor, to Samson Lone Star Linritcd Partnerahip, as Lessee, recorrled under Clerk• s File No. 2001031560, Official Public Records of Real Property, Jefferson County, Texas.

22. Oil, Gas and Mineral Lease dated April 13, 1977, from Elizabeth L Schoonovr=r, as Lessor, to Texaco Inc., as LesseC, recorded in Volwne 2002, Page 319, Deed Records, Jefferson Courny, Texas. 23. 0:11, Gas and Mineral Lease dated March 16, 1977, from Mittie J. Robertson and husband, Ivan D. Robertson. as Lessors, to Texaco Inc., as Lessee, recorded in Volume 1992, Page 284, Deed Records, Jefferson County, Texas .

• A-2

SAMSON-13929 HARDIN COUNTY, KOUNTZE, TX . GLENDA ALSTON, COUNTY CLtH.<. 01/2312005 #2005-10169 11:43:35A:1 B-1352 P·25S 24. Oil Bild Gas Lease dated February 12, 1979, from Atlmttic Richfield Company, as U=or, to Texaco Inc.• as Lessee. recorded in Volume 2160, Page 486, Deed Records, Jefferson County. Texas..

25. Oil, Gas and Mincrlll Lease dated Oc!Dber 2, 1979, from William Rnsse!l Campbell, as Leasor, to Texaco Inc .• as Lessee, recorded in Volume 2189, Page 401, Deed Record~ Jefferson County, Texas.

26. Oil and Gas Lease dated March 27, 2000, from PICA lnves!ment Venture, a Texas Joint Venture, as Lessor, to Samson Lone Star Limited Partnership, as Lessee.

27. Memorandum of Oil and Gas Lease dated May 5, 2000, from PICA Investment Venture, a Texas Joint Venture. as Lessor, to Samson Lone Star Limited Partner'Ship. BB Lessee, recorded under Clak'• File No. 2000026104, Official Public Records, Jeffcrnon County, Texas.

2ll. Oil, Gas and Llquid Hydrocaibon Lease dated November 10, 2001, from PICA Investment Venture, a Texas Joint Venture, as Lessor, to Samson Lone Star Limited Partnership, as Leasec.

29. Mernorandmn of Oil, Gas and Liquid Hydrocarbon Lease dated November 6, 2001, from PICA Jnveatment Venture. a Texas Joint Venture, as Lessor, lo Samson Lone Star Limited Partnership, as L

• A-3

SAMSON-13930 .- ('")

°' ('") .,.... I z 0 U) ~ <( U)

r·-:---:-:-~~~~~-:-.-~~~~~~~~~~~~~-:-~~~~~~~~,-~~r==;=================:r===;:::::==;- JoHH T. }MCUBIK & ASSOCUTES, INC. This plot is oc<.omponicd by o &eporote t:J11tscriplion ond iroct ~- ''"« Pen:llt'lt •l09- Ct-.t.tlo' •'.ilallort1, lno. 7741? Unit lroct lislin9, SIQc:k Slone Ui~rcia Co., LP., et cl 422.4-0 60.0000 cno "'-' l!ll/2'0-0-49!. ro-: 281/2'0-2 4 1$ Boundary ' 2 Joyce o., Joy Lee tt of 15.05 2.1378 5.~~ 0.78B4 !:e?El~~~~~~~~~-.-~..,.,,.,....,,.... Stole of T11oo'I 0 I 61. 6 NtJ5't5'05T - 4277.88' •' a,._..l&Q..,, et ol ''""" 23.00 7.1023 J.S512 ";""- W. JORDAN NOJ"44'54'"W ~~ '', PICA In,,., et 01 o" JOy Lee et 01 .>oyi:.i- 1'0,\8 19.9160. ~~{ 68 1514 59' Tracts in th~ Robert B. \"'\ne Sur-.ey or.d the w;n;em C. Gt.r\rudc Doy Bolter 1.0! 0.14J4 ~::::: A- 4 "' "'' H 7)5 N86"/5.'06"£ Oyctun: Siuvty ore colculoted to !he Bonk ol Pine ls!ond Bayou. The trocls in !he Dovid Cnoot Survey •tire c:oleuloled to the C:cl'ller1lne of P~· J (() 'f tf ~ '@1}'J B 101"'4.. Milli

G~ -~----- "~· :" •. i'J Cl ~ 1\WM. C. DYCHES - r. & N. o. RR. wALKER PEITIIT .cruAL suRFACE Loc...rnoN "' ""' ___ •• }'J "'<::, A-112 ( > S Loo< Slo• L. · @ ' ·

,j(}'>_,,~~~J56. ' A415 A43 00 .::;: ,.,. - · • ' . !'<..,

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~~ .0~ 2 "' .... ... 55JO . ~ --Jl.>< ±::! · /1 3 '-../ [if ~){ii"~~ _ _ - I .,$ii J054' U) Unir P.0.B. w/ Fnd. Cone. Mon. pld1n brass di11c •{<(=

. · . - . - .... ~.,.~:J.t:>o~:tl!.'".i'>lt'--""'.M~~~

StJ6'04 "28"w ~ H !llf/ 1. l~ S85"0tJ"J4"W Bourtdary

"· ,.. ' "' ~ ~ r: ~;.._ 1]12.65' X•J,902,2)(1.05 585'05 '06 "w y.., 218,113.75 2889.74. .1. IJJ6 . 68" "" • "· ~J. l~B' I DAVID CHOAT '": o~ ~ \.,.• ....,\ry :~: AC1UAL f. .~" H 729 "' ~ $ THOS. D ~OCUM - I

S86'06 'SJ "w ,.,, I ..... • ""\ f. ),'

'"'. l BHL '® ,,,- .. - :i! -r...; '!>" A-12 (H) C.M. VOTAW ", 949.77' <'I~ A-ll (J) g ~!:;'1 "' 0

A-803 0 A-59 (H) BE:ARINGS ~ ® A-60 (J) , B t !' (!.

~~ >< :t; Be¢f;n9s one! coord!notes ore based on the c ;;°' i~ rliRff• I-·· _J 0 -· ",J 1 eiuu Slate. Plane: Coord\n<:1h! System, Cenlral 1-...;;>-. Zone (NAO 27). E r ~ ~,....

;i:;z c ~ l ~§ ! hereby certify lhol thi:t is a true and correct H I (\ !! s ,;z plol bo:seO on o grounCI survey mode under my J " I AMSON LONE STA LP. ~"' ,....o supl!ltvls

I,, 1D1~ IP ~. i"('v,

JOHN T. JAKUBIK & ASSOCIATES, INC. 4309GreenbriarDr. ·Stafford, ThX8Bn477 • 2B1/24C-0498 • F8)(281,240-2435

DESCRIPTION OF 704.00 ACRE UNIT WALKER PETTIT LEAGUE, A-43 ROBERT B. IRVINE SURVEY, A-33 DAVID CHOAT LEAGUE, A·12 HARDIN COUNTY, TEXAS DAVID CHOAT LEAGUE, A·11 WILLIAM C. DYCHES SURVEY, A-112 JEFFERSON COUNTY, TEXAS

Being a 704.00 acre unit for the Samson Lone Star, LP. BlacJc$lone- Minerals Well No. 1 in !he Walker Pettitt League, A-43, the Robert B. Irvine Survey, A-33 end the David Choat League, A-12, Hardin County, Texas and the David Choat league, A-11 and the Wilftam C. Dyches Survey, A-112, Jefferson County, Texas; said 704.00 acre uni! being more particularly described as follows:

BEGINNING at e concrete monument with a plain brass disc found on the east line of the T. & N. 0. RR Survey, A-475 for the northwest comer of the Thomas D. Yocum Survey, A-59 and the southwest comer of said Walker Pettitt League end !he southwest comer of a caned 766 acre tract described In that certain memorandum of Oil and Gas lease dated June 15, 1999 frorn Bleck Stone Minerals Company. L.P. to Samson lone Star Limited Partnership as recorded ln Volume 1191, Page 647 of the Official PUbl!c Records of Hardin County, Texas; said concrete monument having a Tex.as Slate Plane Coordinate of X=3,902,230.05 and Y=218, 113.75, Central Zone (NAD 27);

THENCE, N 03"" 43' 40· W, along the common llne between sald T. & N. 0. RR. Survey and said Walker Pettitt League and along the west line of said called 766 acre tract, a distance of 2516.56 feet to 8 concrete monument stamped ·H 735· found on the west line of said Wsiker Pettitt league and s.eid ca.lied 766 acre tract for the northeast comer of said T. & N. 0. RR Survey and the southeast comer of the W. Jordan Survey, A- 684;

THENCE, N 86" 15' oe· E, a distance of 1514.59 feet to a point for comer.

THENCE, N 03° 44' 54• W, paral!el wtth the common fine between said Wa\ll..er Pellitt League end said W. Jorden Survey and \he west line of said cafled 766 acre tracl, a distance of 661.06 feet to a point for comer;

THENCE, N 88° 15' oe· E, across said called 766 acre tract, a distance or 42n .88 reel to a poinl for comer.

TI-lENCE. S 03° 30' 29· E, continuing across said called 766 acre lrnc~ a distance of 2365.47 feet to a·poinl for comer,

THENCE, N 85° 33' 51~ E, across s8id called 766 acre tract and said Welker PetUtt League, et 1348.20 feet cross the common One between said Wetker Pettitt League end said Robert B.- Irvine Survey and the common line between said called 766 eae tract and a called 223.aG acre tract described as Tract NO. 1 in that certain Deed of Gift dated March 28, 1973 from Eva Du Jay to Joyce Du Jay Lee and tecorded In Volume 591, Page 102 of the Deed Records of Hardin County, Texas, continuing across &aid called 223.86 acre tract and said Robert B. lrvfna Survey, for a total distance of 2408.33 feet to a point on the northwest bank of Pine Island Bayou;

THENCE, Northeasterty with the mee.nder o! the northwest bank of Pine;

• lsland Bayou as follows: N 33°25'48. E, a distance of 94.71 feet ~-··

SAMSON-13932 .. • HARD TN COUNTY, KOUNIZE IX ·GLENDA ALSTON, COIJN!Y CLERK 01/23/2003 #2003·10169 11:43:35AM B-1352 P-262 704.00 Acre Unit Page2 Hardin & Jefferson Counties Texas

N 08°00'54* E, a distance of 30.19 feet; N 16°15'20" W, a distance of 157.68 feet: N 13"06'27"' E, a distance of 125.90 feet; N 41"'07'06" E, a dlslence of 196.56 feet; N 65'21'35" E. a distance of 217.74 feet N 83°50'53" E, a distance of 325.93 feet N 61°55'46* E. a distance of 210.53 feet S 60°31'11' E, a distance of 150.23 feet N 84°'35'49* E, a distance of 88.87 feet; N 49°56'18• E, a distance of 201.08 feet; N 80°50'13" E, a distance of 307.14 feet to a point on said bank;

THENCE, S 04" 51' 26* E, across said Pine Island Bayou and across aaid William C. Dyches Survey and across a celled 640 ecre tract described In that certain Memorandum of Oil. Gas and UquJd Hydrocarbon Lease and Flnanclng Statement dated November 10, 1998 from Louis M. Broussarn et af to Samson Lone Star Limited Partnership aa recorded under Jefferson County Clerk's File No. XX-XXXXXXX, for a dlstance of 1517.30 feet lo a polnt on the common line between sak! Dych&s Survey and said Dsvld Choat Survey end on the common fine between said called 640 acre tract end a called 135.14 acre tract described ln that certain Lease Amendment between Pica Investment Ventura end Lear Petroleum Corporation dated June 19; 1979;

THENCE, S 85°.08' 34• W, along said common Survey line end said common property line, a distance of 1312.65 feet to a point on said common Survey line and said common property Une;

THENCE, S 04° 51' 26R E, perpendicular to said common Survey line across said David Choat League and said caned 135.14 acre tract. a distance of 1172.77 feet to a point on the south Hne of said called 135.14 acre tree~

THENCE, S 85° 33' 22· W, along said soUth Una. a dhrtance of 711.71 feel to a point on said &outh line for the northeast comer of a called 1.00 acra tract described as Lot 1 in that certain Partition Decree In Cause No. 25466 or·lhe Dlstric! Court of Jefferson County, Texas styled Mrs. C. W.· McMurray et al v. B6rta Sievert and recorded in Volume 352; Page 170 of said Deed Records;

THENCE, S 05" 06' 38• E, along the east Une of Lots 1, 2, 3, 4 and 5 of said Partition Decree. a distance of 526.70 feet to a point for the southeast come< of said lot 5 and the northeast comer of Lot 6 of aaid Pertltlon Decree;

THENCE, S 85" 33' zz~ W, along the common fine between said Lots 5 and 6, a distance of 418.59 feet to e po'01t on lhe east line of Lot 11 of said Partition Decree for the southwest comer of said Lot 5 and the northwest comer of said Lot 6;

THENCE, N 04° 59' 45• W, along the east line of said Lot 11 and the west Une of said Lots 5, 4, 3, 2 end 1, a distance of 526.68 feet to a one inch Iron pipe found on the south line of said called 135.14 acre tract for the northwest comer of said Loi 1 and the northeast comer of said Lot 11;

IBENCE. S 85° 33' 2T W, along lhe south line of Seid called 135.14 acre tract and the north Una of said Lot 11. e distance of 283. 76 feel to a point ln the centerline of Pina Island Bayou;

• THENCE, along the centerline of Pine Island Bayou es folJows:

SAMSON-13933 .· 0 .HARDIN a:JUITTY, K!JUNTZE, TX 01/2.\12003 P2C03-10169 GLE~nA ALSTON, COU~1Y CLERK 11:43:35AM !'·1.'S:I P-253

704.00 Acre Unll Page 3 Herdln & Jefferson Counties T exes

S 40"'38'55'" E, a distance of 154.10 feet; S 20"19'54" E, a dlstanca of 134.50 fee~ S 03°03•49• W, a distance of 130.21 feet; S 15°13'19" W, e distance of 811.78 lee~ S 25°10'55" W. a distance of 172.99 feet to a point in said cen1erilne:

TiiENCE, S 05° 23' s2· E, along the common line between Lot 1O of said Partition Decree end a called 53.606 acre tract described In that. certain Deed dated October 07, 1969 from Gladyg Rendall Fletcher Briggs to Charles A Howell es recorded in Volume' 1614, Page 82 of said Deed Records, a distance cif 1532.91 feet toe point In said common fine;

THENCE. S 85° 15· 31- W. across said called 53.606 acre tract, a distance of 1694·, 16 feet toe point on the west line or a.aid called 53.506 tract and the common line betwefffi said David Choat League and BC:rl!I said Thomas 0. Yocum Survey;

lHENCE, N 04° 44' 29 .. W, along the common IJne between said Devfd Choat League Bnd seid TI1omas 0. Yocum Survey, at 757.67 feet cross the canterffne of Pine Island Bayou, for a total distance of 4002.13 feet to a o/.i Inch iron rod insfde e 1-1/2 inch Iron pipe found on the south line of said Welk.er Pettitt League for the northwest comer of said David Choat League and the northeast comer of said Thomas D. Yocum Survey;

THENCE, S 86° 06' 53• W, along !he common line between said Walker Pettitt League end said Thomes D. Yocum Survey, a distance of 949.77 feat to a 1 ~ Inch iron pipe found for an angle point on said oommon llne;

THENCE, S 86° 04' 2s· W, continuing eJong said common Survey lir.a, a distance of '1336.68 feet to a 2 Inch galvanized iron pipe with cap round for en angle point in &aid common Survey fine;

THENCE, S 86" 05· 06m W, continuing along said common Survey line, a distance of .2689.74 feet to the POINT OF BEGINNING and containing 704.00 acres.

Coordinates and bearings are based on the Texas Stele Plane Coordinate System, Central Zone (NAO 27).

This description is accompanied by e separate plat dated May 08, 2001 and last revised on October 10, 2001 prepared by John T. Jakubik & Associates. Inc.

File: 5867unitdoc Date: 05-23--01 Rev.: 06-04--01 10-15-01 11-12--01

~~~4aA? l ££~... ,,.,-,;. Jeffrey L. Fansler R.P.L.S. No. 4348

-' ~·.:,,: :,:·.

SAMSON-13934 '·~~" .-,,'"'117 llr.J II\") 1fr.ll'tll"<>'l1 ·~ ~-; ...i lie dml' l(i.:I ir"-.i ~."' b.> 1'.l;."

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• SAMSON-13935 OIL, GAS AND LIQUID HYPROCARBON LEASE

TIDS AGREEMENT, made effective the date hereinafter provided, by and between the undersigned, CHARLES G. HOOKS Ill and SUE ANN HOOKS as C<>-Trt1stees under the Will of Charles G. Hooks, Sr., Deceased, and CHARLES G. HOOKS III as Jndependen1 Executor of 1he Estate of Charles G. Hooks, Jr., Deceased, doing business jointly as CHAS. G. HOOKS & SO]\/, a Texas general pannersrup, hereinafter individua!Jy and collect_ivcly called •Lessor", whose address is 820 Gessner Road, Suite 1300, Houston, Texas 7'7024·4259, and SAMSON LONE STAR LIMJTED PARTNERSHIP, a Texas limited partnership, hereinafter called "Lessee". the address of which Is Two West Second Streel, Tulsa, OkJaboma 74103·3101.

WI TN ESSETB:

I. GRANTING CLAUSE:

A. Lessor, in c;onsideration of Ten and No/JOO DoUars {$10.00) and otbez good and valuable considerati~ns, of the royalties herein provided, and of 1he agreements of Lessee herein con1ained, hereby GRANTS, LEASES and LETS exclusively unto Les.c;ee for the purpose of investigating, exploring, prOspec1ing, drilling and mining for, and producing oil, gas and other liquid hydrocarbons, including sulphur produced in conjunction 1herewi1h, and layjng such pipelines, building such tanks and power stations as are necessary 10 produce, save, take care of, treat, transport~ 1emporarily s1ore current production, and own said products produced from 1he land covered by this Lease, said land being situated in JEFFERSON COUNTY TEXAS, and described on Exhibit "A" an ached hereto and made a pan hereof for an purposes.

B. Foi the puipose o( calculating any 1n;Oney payments to be made to Lessor by Lessee under the various provisions hereof, but subjee1 to the proponionate reduction of royalties and ren1aJs as hereinafter provided, the lands covered hereby shall be estimated to comprise 640.0 gross acres and 27.J.6 net m.ineraJ acres, whether it actually co_n1ains more ot Jess:.

C. If 1hc Lessor does no1 own 1he surface of the leased lands Lessor grants only such uses of rhe surface as Lessor owns by vi_nue of Lessor's mineral ownership.

D. This Lease shall not be cons1rued 10 irn::lude and Lessor expressly reserves hereby all of the sulphur, coal, f1grll1e, uranJum and other fissionable materials, geothermal energy, including entrained methane, hydrostatic pressure and 1hermal energy, base and precious metals and any and all 01her mineral subsiances, excepting onJy oil, gas and other liquid hydrocarbons and their respective constituent products expressly covered by this Lease, presently owned by Lessor in, under or upon leased premises, together with the rights of ingress and egress and use of the leased premises by Lessor and their mineral Lessees for purposes of exploration for and production of ihe minerals reserved herein lo Lessor. Further, without limiting the rights granted to Lessee herein to perform seismographic or other geological ieSEs on the leased premises, Lessor expressly reserves the right to perform or 10 grant the right to others to perform seismographic or other geological tests for minerals over and across 1he lands covered by rhis Lease provided said operations do not interfere with Lessee's drilling or production operations. Lessor and Less~ shaD each conduct their respec;ive operatioru; on the leased premises so as not unreasonably to interfere wi1h the operations or activities o(the other.

II. TERM:

A. Subject to the 01her provis.ions herein contained, 1his Lease shall remain in force for a term of 1Jvee (3) years from the effec1ive date hereof called "primary term~. and so long !hereafter as oil, gas or other liquid or gaseous hydrocarbons are produced in paying quantities from said land, or actual drilling or reworking operations are conducted or th.is Lease is olherwfse maintained as hereinafter provided, herein called "secondary 1erm".

• B. ANYTHING HEREIN TO ITIE CONTRARY NOTWJTilSTANDING, at any time before 1he expiration of the primary 1erm of this Lease, Lessee mus1 have commenced actual drilling operalions by spudding in a well on 1he leased premises wilh a sufficient size drilling rig and related Page I of 22 I PLAINTIFFS I EXHIBIT , ...__.2..... 5_ equipment to drill the same to the permitted depth filed with the RaiJroad Commission of1he State of Texas, and must prosecute the same with reasonable diligence, or else this Lease shall lerm.inate without .funher notice.

Ill. ROYALTIES:

Lessors reserve for themselves, and their heirs, successors and assigns, the fottowing royalties and Lessee, in consideration of the Lessors' granting of this Lease, covenants and agrees to deliver same to Lessors out of production as foliows:

A On oil, Twenty-Five percent {25%) of that produced and saved from the leased premises, free of expense to Lessor, to be, at Lessor's option (1) delivered into the pipelines, 1anks or other recep1ades to which Lessee niay connect Lessee's wells~ (2) delivered at the wel! or wells in tanks or other receptacles provided by Lessor, ~t Lessor's own expense (3) purchased by Lessee at the highest market price therefor being paid by a bona fide purchaser of oil in the county or counties where produced on the date of purchase, for oil of like quality and gravit.y; ( 4) sold by Lessee (for Lessor's account) to the purchaser of Lessee's oil, if sold by Lessee at the well, for the price received by Lessee or any affiliate of Lessee for Lessee's own oil

B. (I) On gas, including casing.head gas or other gaseous substances produced from said land, Twenty-Five percent {25o/11) of the market value at the wells of such gas, or Twen1y-Five percent {25%) of the price received therefor by Lessee, which ever is greater. It is expressly agreed tha1 for the purposes hereof, "market value~ of said gas, inC:luding casinghead gas, shall be defined as set fonh in Paragraph JJJ.H. hereof This royalty provision·shaJI app!y 10 aH gas sold al the weVs, all gas sold or·used off the premises and all gas otherwise sold, except as provided below.

(2) In lieu of the royalty on gas hereinafter provided, in case Lessee shall ilse!f. or through an affilialed company, use gas /Tom rhe premises in the extraction of gasoline or other products in a plant, Lessor shall be paid a royalty Twenty-Five percent f25o/o) of the 1hen current market value at the plan! of such gasoline or 01her by·produe1s so extracted. ~Market V aluc~ of such gasoline or other products extracted in a plant shaU be detennined by (1) ltigheSt price poS!ed for any product of comparable quality at common delivery point of Mt. Belvieu, Texas, or (2) the weighted average gross selling price for the respective grades of product, F.0.B. at the plan! in which said gas is processed, whichever is greater. All royalties due on plan! products under the terms of this Subparagraph lllB.(2) shall be based on that percent of total plant production of gasoline or other products representing the highest percent accruing to a third party processing gas thiough such plant under a processing agreement negotiated at arm's length (or if there is no such third party, the highest percent then being specified in processing agreemen1s or contrac1s in the industry). In addition 10 the royalties on the plant products, Lessor shall be paid as royalty the market value {as defined in Paragraph lll.H.) at the poim of delivery to the pipeJine purchaser, if sold, or if used, at the point of use, of Twenty· Five percenl Ulli) of all residue gas attributable lo the leased premises and sold or used. Jn no event shalJ the royalties payable under this subparagraph for any twelve (12) momh period be less than the royalties which would have been due had the gas not been processed.

(J) Should Lessee enter into a bona fide arm's length c.onrract or arrangement with a non· affiliated company for use of gas from the premises in the manufacture or extraction of gasoline or other products in a plant, Lessor shall have and be entitled ro a royalty ofTwenty·Five percent f25o/o) of all such products, proceeds, monies, benefits, and other things of vaJue, of every kind and character, re-ceived by Lessee or to which Lessee is entitled under such contract or arrangement attributable to gas produced from the leased premises_ All royalties due on plant products unde·r the terms of this Subparagraph JU.B.(3) shall be based on that percent of total plant production of gasoline or other products accruing 10 Lessee attributable to the gas produced from the leased premises. In addition to the royalties on plant products, Lessor shall be paid as royalty the marke1 vaJue (as that term is defined in Paragraph IU.H.) at the outlet of such plant or plan1s of Twemy.flve percent (25°6,) of all residue gas anributable to the leased premises and sold or used. In no event shall the royalties payable under th.is subparagraph for any twelve (12) month period be less than the royalties which would have been due had the gas no1 been processed,

• 0 (4) Jn the event reinjection operations are not conducted or if the gas is no1 taken G"l to a plant, if the gas from any well shall be sufficiently impregnated with condensate or other liquid :r 0 ~ Page 2 of22 "'"' '•

hydrocarbons that paying quantities Df condensate or other liquid hydrocarbons can be separated iherefrom and liquefied as a practical lease operation by the installation by Lessee of mechanical traps, conventional separators or other similar devices customarily used in the industry for such purposes on the premises, then in such event Lessee shall ins1a1J such devices upon said lease.

(5) If, al any time at or before 1he expiration date of the primary term, 1here is a well capable of producing gas on said land, but gas is not being produced, and this lease is not being maintained by production, operations or otherwise, Lessee, at Lessee's election, may pay as royalty to the parties entitled to royalty on or before the first day of the month after expira1ion of ninety (90) days after (a) the expiration of the primary term, or (b) the date this lease ceases to be maintained by production operations or otherwise, a sum equal to one· twelfth (l/J 2) of Sevenrv·five and NO/JOO Dollars ($75.0Q) pe1 net mineral acre for each such net mineral acre in a production unit (as defined herein) around such well or within a pooled unit then subject to this Lease, which payment shall main1ain tffis lease in force and effect for the acreage comprising said unit for a period of one (1) month from the date of payment and relieve Lessee of any further operation during such month, it being understood, however, that such payment shall in no manner affect nor alter the provisions of Article V. relating to the periodic driJJing of wells. "Net Mineral Acre" as used herein, shall be equivalent to the full mineral interest on one acre of land and, shall be determined by adding the respective products derived by multiplying the divided or undivided mineral inierest of Lessor in the leased premises times the surface acres subject to like undivided mineral interests of Lessor in the leased premises. In like manner, with like effect and upon like payments on or before the expiration of the last prececling month for which such payment has been made, this lease may be maintained in force and effect for successive periods of one (1) month each, until such time as the acreage comprising said unit is maintained by prod1Jction, operations or otherwise under the terms hereof; provided, howeveJ, such payments shall not operate to maintain tills Lease in force and effect for any period in excess of two (2) consecutive years for the first such occurrence; nor for any period in excess of twelve ( 12) months for any succeeding occurrence nor to exceed twenty-four (24) months cumulative. Any amounts so paid shall not be trealed nor considered as advance royalty payments on any gas produced from such well or weJls. Lessee may at any time and from time to time prepay such monthly shut·in royalty for such periods as Lessee may elect. Nothing herein shall relieve Lessee of Lessee's obligation at a!J limes to protect the leased premises from drainage as ser fonh in Article Vl.

C. An equal Twenty·Five percent (25o/o) pan of all other liquid hydrocarbons 1ha1 may be prodt1ced from said !and; or at Lessor's election, exercisable from time 10 1ime, an equal Twenty.Five percent (25°/o) pall of the full market value in the field of ail such other liquid hydrocarbons, provided that when such liquid hydrocarbons are sold, the market value shall not be less than_ the amounl realized by Lessee from the sale thereof in an arms length transaction, and, in any event, without any cost or e.."

D. Anythlng here.inabove to 1hc conlrary notwithstanding, it is expressly provided that Lessee, a:nd any subsidiary of Lessee, shall a1 aJJ times exercise due diligence as the fiduciary agent for Lessor in the marketing of all products produced under the terms of this Lease. Jn the event Lessor considers that the Lessee is not exercising due diligence as the fiduciary agent for Lessor in the marketing of any products produced under the terms of this Lease., then the provision of Article XJ. of this Lease shall apply.

E. For the purposes of this Article III., the following terms shall have the me~nings se1 fonh below:

(I) Affiliate· lhe term ~Affiliate• or ~Affiliated Company", when used in relation to Lessee, means another corporation or business entities of any type which;

(a) owns more than ten percent (10'VD) of Lessee's stock or equity;

(b) more than ten percent (100/o) of whose stock or equity is owned by Lessee·, or

• Page J of22 (c) more than ten percent ( l 00/o) of whose stock or equity is owned by any parent corporation, either directly or indirectly, which parent corporaµor:i also owns more than ten percen1 (lcf/o) ofLessee's stock or equity either directly or indirectly.

(2) As used herein, the term "Lessee• and ;,Affiliate of Lessee" shaJI also mean "Assignee or Assignees of Lessee~ and •Affiliate of Assignee or Assignees of Lessees•.

F. Upon request (and from lime to time) of any party Lessor, or any of their respective agen1s, Lessee shall promptly furnish copies of any and all contracts for the sale, transportation or processing of Lessor's royalty share of any gas or oil produced under the terns hereof

G. Lessee agrees that all royalties accruing under this Lease shall he without deduc1ion for 1he cos1 of producing, ga1herlng, separating, compressing. dehydrating, storing, treating, processing, transporting and olhernise making the oil, gas and other gaseous or liquid hydrocarbons produced hereunder ready for sale or use or for the marketing !hereof.

H. It is expressly agreed that for the purposes of this Lease the tenn "marke.t value" of gas, including c:asinghead gas, shall mean 1he gross amount realized under any contract or contracts for the safe of gas produced hereunder; provided that, "market value" shall be at leas! as high as the first posting during each momh per rrunbtu published in "NATURAL GAS WEEK, TEXAS GULF COAST, ONSHORE !NTERSTATE SPOT PRJCE DELIVERED TO PIPELINE" for gas sold ;nierstate and "NA TIJRAL GAS WEEK, TEXAS GULF COAST, ONSHORE INTRASTATE SPOT PRJCE DELNERED TO PIPELINE" for gas sold intrastate or, ;,, the event NA TIJRAL GAS WEEK ceases publicalion or ceases to post 1he Reference Price set forth above, Lessor and Lessee mutualJy agree to employ a substitute price derived from the publication ~INSIDE FERC GAS MARKET REPORT-SPOT INTERSTATE PRJCE DELIVERED TO PIPELINE". If Lessee sells Lessor's gas under contracts providing for a 1erm of one (1) year or more, the index for determining 1he floor value shatJ be that which references gas contracts having terms of one (l) year or longer. The substitute price shaJJ be 1he first posting during the month per mmbtu. In the event 1he latter publication ceases publication or ceases publishing Texas index gas prices, then Lessor and Lessee agree to select a mutually agreeable index to be utilized as a floor for valuing Lessor's royalty. If Lessor and Lessee are unable to locate an acceptable substitute publtcation or if such s.ubslilute publication or appropriate price index is not available, then the partie.s here10 agree 1ha1 "market value .. shall be as defined under the terms oflhe oil and gas lease form al !hat time being used by the General Land Office of 1he State of Texas for mineral classified lands.

In the event a contract signed by Lessee or an index price used as a floor for valuing Lessor's royalty shall include any deduction for the expense of producing, gathering, dehydrating, compressing, 1ransporting, manufacturing, processing, treating.or marketing of gas, then such deductions shall be added 10 the marke1 value of such gas so that Lessor's royalty shall no! be chargeable, direcdy or indirectly, with any of such o:penses or adjustments.

J. Notwithstanding anything herein to the contrary, in the event this Lease now, or in the future, covers and penains to separate trac1s., then each and every party Lessor to this Lease affirmatively states, as indica1ed by his signature below, that it is his intenl that ·there be no apporlionment of rentals, royalties, shut-in rentals, minimum royaJties or any other payment now payable or to be paid to Lessor under the terms of this Lease; funher more, thls Lease shall not be construed as consti1u1ing either a community lease or a pooling or ·unitization agreement. As used in this Article Ill., the words "separate tract" mean any tract with mineral or royalty ownership differing now or hereafter either as 10 panies or to percentage O\Vtlership from that applicable 10 any other pan of the !eased premises.

J. Jn the event this Lease covers and pertains as to separate tracts, either now or in the future, then in order to form the production units defined hereinbelow in Paragraph V,D., and subject

• 10 ihe provisions applicable to such production units, including without limira1ion those provisions as to size, shape, location, designation, re-designation and form as stated therein, Lessee is hereby (") given the right and power to pool or combine separate tracts subject to and covered by th.is Lease Cl with other separate tracts subject to and covered by this Lease. For the purpose of compu1ing 1he :c 0 Page4 of22 "' 0 0 .royaJties to which owners of royalties shall be en1it1ed on production from each production unit, there shall be allocated 10 the applicable sep~rate tract acreage included in such pr9iJuction unit a pro ra1a ponion of the produc1ion produced from suc~fproduction unit. Such allocation shall be on an acreage basis; 1ha1is10 say, ~here shall be allocared to the applicable separate tract acreage Mthln the unit that pro rat a ponion of the production produced from the production unit which 1hc number of surface acres covered by such separate uact and included in the production unit bears to the total number of surface acres included in the production unit commencing Witftthe date of first production from the production uni!.

K. For the purposes of calculating all royalties payable under Article Ill herein, it is _expressly provided that all such caJcula1ions shall be based on formation production as reported on Texas Railroad Commission forms P-1 and P-2.

JV. DELAY RENTAL:

A. If opera1ions for drilling are not conunenced on said land on or be fore one (I) year from the da1e hereof, th.is Lease shall then terminate as to both part'ies, unless on or before such anniversary dale Lessee shall pay 10 Lessor the sum of Seventv-Five and NO/JOO Dollars !S75.00) per net mineral acre for the number of net mineral acres then covered by this Lease (herein called · rentals), which shall cover the privilege of deferring commencement of drilling operations for a period of twelve (12) months. Thereafter, upon the payment in like manner annually ofSeyenty-Five and N0/100 Dollars ($75.00) per net mineral acre for the number of net mineral acres then covered by tffis Lease and not surrendered as hereinafter provided, the commencement of drilling operations may be funher deferred for successive periods of twelve {12) months each during 1he primary term. The paymem of ren!al under th.is Paragraph and of royally under Article Ill on any gas well fr6m which gas is not being sold or used, and of minimum royalties, may be made by check of Lessee delivered to the parties entitled thereto on or before the date of payment. The above provisions are subject 10 reduction of payments as expressed in Para&raph V.

B. Les.see may a1 any time or times execute and deliver to Lessor, or place of record, a release or releases covering any portion or portions of the above described premises or rights therein, and thereby surrender this Lease in whole or in part as to such ponion or portions and be relieved of all obligations as 10 the acreage surrendered, and thereafter the rentals payable hereunder shall be reduced fo the proponion that the acreage covered hereby is reduced by said release or releases; provided, however, anything hereinabove 10 the comrary notwithstanding, that prior to drilling operations on 1he !eased premises if Lessee elec1s to maintain this Lease as to any portion of 1he leased premises by payment of rental, such rental shall not be less 1han Seventy-Five and NOil 00 Dollars ($75.00) per year subject lo the proponionate reduction under Article XVlll. Th.is provision shall in no way deny the Lessee the right at any time to release all the leased premises and thereafter be relieved of the paymen1 of any rental. Notwithstanding any partial release or releases, Lessee shall retain such easement rights upon such released and surrendered lands as are then being used for Lessee's operations on other lands retained hereunder. For the purpose of release and assignment, the recited acreage of any tract shall be considered correct whether it contains more or less, unless subsequent survey or 01her accurate detennination reveals 1hat such recited acreage is incorrect, in which case, the actual acreage shall prevail.

V. CONTINUOUS DEVELOPMENT, POOLING, SECONDARY TERM. ANNUAL RENTALS AND MINIMUM ROYALTY:

A. If during the primary term and prior to discovery and production of oil, gas 01 other liquid hydrocarbons in paying quanti1ies on said !and, Lessee should drill a dry hole or holes thereon, or if after discovery and production of oil, gas or other liquid hydrocarbons, the production thereof in paying quantities should cease from any cause, 1his Lease shall not terminate if Lessee commences operations for drilling or rework.log wilhin sixty (60) days thereafter or if it be within the primary term, commences or resumes the paymenl of rentals or commences operations for drilling or reworking on or before lhe rentaJ paying date next ensuing after the expiratKJn of sixty (60) days from 1he dale of completion of a dry hole or cessation of production, however, if during the primary term Lessee is engaged in drilling opera1ions on a rental paying date and for 1ba1 reason the annual rental

• is not paid, and if the well is a dry hole, then on or be fore the expiration of sixty (60} days after 1he cessation of operations on such well Lessee will either corrunence additional operations for the drilling () of another well or pay a proponionate pan of the annual delay rental which would have been paid G> :i: Page S of22 0

"' 0 ~ except for such drilling operations, based on the number of days then remaining 10 the next ensuing rentaJ payment date, or to the expirat~on of the primary term, whichever is applicable, in order to maintain th.is Lease in force and effect ·

B. If at ihe expiration of the primary tenn, oil, gas or other liquid hydrocarbons are not being produced in paying quantities on said land, but Lessee is then engaged in drilling or reworking operations thereon or shaD have complete~ a dry hole thereon within.sixty (60) days prior to the end of1he primary term, the Lease shall remain in force so long as operations -on said well or for driUing or reworking of any additional well are prosecuted wlth no cessation of more than sixty (60) consea.itive days, and if they resuh in the production of oil, gas or other liquid hydrocarbons, so Jong _thereafter as oil, gas or such other liquid hydrocarbons are produced from said land in paying quantities.

C. Notwithstanding the foregoing, it is specifically provided lhat during the primary 1erm only, and after the discovery and production of oil, gas or other liquid hydrocarbons in paying quantities on the leased premises, Lessee shall either (1) develop the acreage retained hereunder by the drilling of addittonal wells at sixty {60) day intervals, as hereinafter provided for, (2) release those portions of 1he iand covered hereby not included in a production unit or ufflts., or f3) Lessee may in lieu of such drilling or release, maintain this Lease in force and effect during the primary term as to any land covered hereby w!Uch is no! included in a production unit (either oil or gas) by the payment of the proportionate part of the delay rentals provided herein as lo the acreage no11hen included in a production unit or units.

D. Subject to the other provisions of this Paragraph V.0. and upon and al any time during the secondary term of 1tus Lease, Lessee shaJJ reasonably develop the acreage retained hereunder but not included in a production unit {"'undeveloped acreage~), and in order to reasonably develop such undeveloped acreage, Lessee must drill additional wells on such undeveloped acreage at one hundred and twenty (120) day intervals, as hereinaf\er provided. It is agreed that in the even1 that during the secondary term of this Lease, more than one hundred twenty (120) consei:utive days elapse belween the completion of one well and the commencement of drilling operations on the next weJJ on such undeveJoped acreage, Lessee shall upon written demand of Lessor, forthwith execute and deliver to !he Lessor, or place of record in the County in which said land is located, a release of aJI the premises covered by rhis Lease, SA VE AND EXCEPT that Lessee shall retain, and this Lease shall remain in full force and effec1 as to. 1he production un.i1s as hereinafter defined.

E. There shall be no pooling or uniti.za1ion of royalty interests between the land covered by this Lease and any other tract.

ANYTHING HEREIN TO THE CONTRARY NOTWITHSTANDING, as used in trus Lease, the term "production uni1(s)" is defined as follows:

(1) As to each well situated on the leased premises producing oil in paying quantities or being reworked and classified as an oil well under the Rules and Regulations of the Railroad Commission ofTe:xas, not more than forty (40) acres around each sueh well, in-1he shape hereinafter provided

(2) As to each well p_roducing gas in paying quantities (or capable of producing gas in paying quantities with all shut-in gas well rental having been paid thereon) or being reworked and classified as a gas weIJ under the Rules and Regulations of the Railroad Commission of Texas from the surface down to a depth of 9,000 feet, not more 1han one hundred sixty (160) acres surrounding each such gas well, or such ponion of the land covered by this Lease which shall have been included in a gas pooled unit.

(3) As to each well producing gas in paying quantiries (or capable of producing gas in paying quantities with all shut-in gas well rental having been paid thereon) or being reworked and classified as a gas well under the Rules and Regulations of the Railroad Commission of Texas, no1

• more than three hundred and rwenty {320) acres surrounding each such gas wcll completed _at depths or horizons below 9,000 feet beneath the surface of the leased premises and above 12,000 feet beneath the surface of the leased premises; or such portion of the !and covered by this Lease which shall have been included in a gas pooled unit.

Pnge6 of22 (4.) As to each well producing gas in paying quantities (or capable of producing gas in paying quanti_!ies with a.O shut-in gas well rental having been paid thereon) or being reworked and classified as a gas we!J undef the Rules and Regulations of the Railroad Commission of Texas, not more than six hundred and forty (640) _acres surrounding each such gas well completed al depths or horizons of l 2, 000 feet beneath the surface of the leased premises and deeper; or such ponion of 1he land covered by this Lease which shall have been included in a gas pooled unit

Each productio!l unit (excepl the tracts in pooled gas units, if any) to be centered by said well, to be in a·s nearly a square fonn as is reasonably possible., unless otherwise agreed to by Lessor. Should the Railroad Com.mission of Texas or any governmental authority having and asserting jurisdiction over the subject mall er thereof prescribe for the dri.Ding or operation of a wel1 at a regular location, or permit for 1rye obtaining the maximum aUowable from any well to be drille.d, drilling, or already drilled, larger produttion unl1s than any of those herein permiued, then any such production unit may be established or enlarged to conform to the size either required of a well or permitted for the obtaining of the maximum a!Jowable.

Each such production unit shall be one comiguous area (excep1 the traas in pooled gas uniis). Within thirty (30) days of completion of any well drilled on the leased premises producing in paying quantities, or capable of producing in paying quantities, Lessee shall furnish to Lessor, and shall file of record in the Official Public Records of Real Property of1he coun1y in which 1he !and is located, a wrinen designation of the production unit for such well.

Notwithstanding the termination of this Lease as to a portion or portions of the acreage covered hereby and as to dep1h under the other provisions hereof, this Lease shall nevertheless remain in force and effect as to each production unit or units so long as oil, gas or other liquid hydrocarbons are produced therefrom in paying quantities or, as to gas production uni1s, capable of being produced therefrom in paying quantities wl1h all shut-In gas well rentals having been paid thereon, for 1hat period of time specified above in Subparagraph Ill.B.(SJ. and if production in paying quantities from any production unit shall cease, this Lease, insofar as it covers and affe<:t5 such particular produc1i.on unit which ceases producing in paying quantities, ~all terminate (ilot withstanding the fact thal there may be production in paying quantities from some other lease production unit) unless Lessee shall commence drilling or reworking operations on such partiCl.llar production unit within sixty (60) days thereafter if during rhe primary term and one hundred twenty ( 120) days if after the primary term (sometimes referred 10 herein as the secondary term) and shall pursue such driiling or reworking opera1ions on the same or successive wells at intervals nol to exceed sixty (60) days if during the primary term and one hundred twenry (120) days if after the primary term (sometimes referred to herein as the secondary term) between the date of compleiion of operations on one well and the date of commencement of operations on another and, if production in paying quantities is restored on such production unit, so long thereafter as production in paying quantities is produc:ed therefrom or, as to gas production units capable of being produced in paying quanlilies wfth all shut-in gas well rentals being paid thereon for that period of time specified above in Subparagraph IU.B.(5), or additional driliing or reworking opera1ions are had thereon as above provided. l! is further expressly provided that production or operations or payment of shut-in gas well rental on any production unit as so designated shall have no effect upon the con1inuance of this Lease as 10 any other production uni1 or units. If any production unit gas welt is converted !O or reclassified as an oil well; or if any production unit well (ei1her oil or gas) re-completed at a lesser depth; then Lessee shall re-designate the production unit for such well so as to reduce the acreage included in such production unl1 to comply with the applicable (with regard to type ofprOducrion and greatesi producing depth) acreage provisions staled hereinabove and shall release all lease acreage not included in such re-designated production unit or another production unit in the same manner as provided above in Paragraph V.C. of this Lease.

F. Any release required hereunder shall be filed for record in the Official Public Records of Real Property in the Office of the County Clerk of the county in which said land is located, and a copy of such ins1rument furnished to Lessor within a reasonable time; thereafter, Lessee shall lose all rights, ex.cep1 the easement and lease facilities rights as set forth and specified in Article l hereof, and

• be relieved of ail obligations as to the acreage so released. Effective as of the date that Lessee receives the demand for release specified above in Paragraph V.D., each production unit shall be (") treated the same as if it were covered by a separate lease. G) :i: 0 ?agc7of22 "' 0 w G" ANYTil!NG HEREIN TO TIIE CONTRARY NOTWIIBST ANDING, it is agreed rhat in any circums1ances where Lessee is required 10 secure from 1he United Slates Army Corps of Engineers or any orher State or Federal agency, depanment, or service having legal jurisdic!ion over Lessee's operations on the leased premises, perm.its for the drilling and/or operation of wells under the terms of this Lease, tbe si.Xly (60) day or one hundred and twenty day period of time, whichever is applicable, referred to in this Article V. between the completion of one weU and the commencement of drilling operations on the n~xt well after the primary term shall be and accordingly is hereby extended by another sixty (60) days after such permit is received. by Lessee, but in no event more than three hundred sixty·five (365) days between the completion of oiie well and the commencement of drilling operations on the next well. Jn such event, Lessee shall promptly furnish Lessor a true copy of such perm.it in recordable form.

H. On each anniversary date of the first sale of oil, gas or other liquid or gaseous hydrocarbons, or either, produced from said land and in 1he event Lessee is retaining all or any portion of the lands covered hereby by the production of oil, gas or other hydrocarbons, if the rentals and royalties (including shut~in payments) accrued hereunder, during the preceding twelve (12) months shall not have equaled ar least the amount of ONE HUNDRED and NO/JOO Dollars ($100.00) per acre for each net mineral acre as hereinafter defmed of1and subject to the terms hereof at the commencement of said twelve (12) months, Lessee covenants and agrees that, within thiny (30) days after the receipt from Lessor or Lessor's Agents of notice to such effect, Lessee will promptly pay lo Lessor as an additional royalty the amount of the difference between such accrued royalties and 1he sum of ONE HUNDRED aod N0/100 Dollars ($100.00) per acre for each net mineral acre subject 10 the terms hereof at the commencement of said twelve (l 2) months. This additionaJ royalty p1ovision, \vhen applicable, shall be in effect for and during the life of this Lease after the primary term.

l. Notwithstanding anything herein to the contrary, in the event the Texas Railroad Commission, 01 any governrnen1al authority having and asserting jurisdiction over the subject matter thereof, prescribes for a drilling or operation of a well at a regular location, or permits for 1he obtaining of the maximum allowable from any well drilled, drilling or already drilled, smaller productions uni1s 1han any of those herein permitted for such well under the provisions defining production units in Paragraph V.D. hereof, then any such production unit shall be established or reduced to conform ro 1he minimum size allowed for the obtaining of the maximum allowable.

J. For the purposes of this Lease, the !enns "commencement of a well~ and "cOmpletion of a well" are defined as follows:

(l) "Commencement ofa Well" shall mean only lhe actual drilling ofa we!! with rotary equipment and tools ofa suitable size ne<:essary lo reach an objective deplh fi"om which Lessee may, in good faith, anticipate the production of oil or gas,

(2) ~completion of a wcl!" shall mean the day Lessee releases the drilling rig used to drill such weU or a completion rig, if utilized, or the date the lauer of such rigs is moved off the location, Whichever date occurs first.

VI" OFFSET OBLIGATIONS:

A. Lessee covenants and agrees 10 operate the leased premises as a reasonable prudent operator would under the same or similar circumstances and to protect each of the leased premises from drainage by reason of any well .drilled o.n adjacent or nearby lands. The above covenant notwithstanding, in 1he event a welJ producing from a unit not comprised of acreage from the leased premises which has been classified •oil" by the appropriate governmental body is completed on adjacent or nearby lands not more than six hundred sixty feet .(660'} from the leased premises, or dralning 1he leased premises, or a wet! producing from a unit not comprised of acreage from the leased premises which has been classified as ~gas~ by 1he appropriate governmental body is completed on adjacen1 or nearby lands not more than one thousand three trundred and twenty feet (l,320') from the leased premises, or draining the leased prem.ises, Lessee covenants and agrees 10, within ninety (90) days from the date production is firs/ sold, removed or otherwise m.arke1ed from said adjaceni

• or nearby producing weJ.1, either (1) commence with due diligence operations for the actual drilling (') of an offset well on 1he leased premises to the base of the formation from which the adjacent or Cl nearby producing well is producing, (2) pay Lessors as compensatory royalty, in addition to any :x: 0 Pagt 8 of22 " ~ royalties currently due; a sum equal to the royalties Which would be payable under this Lease on the production from said adjacent or nearby producing well had same been producing on the leased premises, or (3) in lieu of drilling such offset well or paying such compensatory royally, release by recordable ·instrument the offset acreage, as hereinafter defined. "Offset Acreagen, as used hereinabove, shall be defined~ a unirwfuch would surround such a well if same were completed on rhe leased premises; provided, ho~ever, that if any portion of the offset acreage should be included in a producing uni! designated by LesSee hereunder, then if Lessee elects to SUrTender and release such offs.et acreage, it may retain and except from such release the producing stratum or strata included in such producing unit, but such offset acreage niust conform to the depth, size and shape limitations contained in Paragraph V. herein. The provisions hereof shall appty regardless of whether lands upon which offset wells may be located are owned by Lessor or any of !hem or not, and with regard 10 wells located within 1he hereinabove 1 prescribed distances from the leased premises, regardless of whether drainage is actually proved to be taking place or not Notwithstanding anything herein to the contrary, Lessee shall have no obligations under this Article VJ. in the event a producing well on nearby or adjacent land is already offset by a well on the leased premises or on acreage pooled therewith producing from the same producing horizon from which production has been secured from any well on nearby or adjacent lands.

B. lfLessee elec1s to pay the above authorized compensatory roya1ty, then such royalty shall be calculated and paid on a calendar month basis. The compensatory royahy for the calendar month in which production is first marketed from the offsetting well shall be paid on or before 1he first day of the calendar mon1h next follow1ng the expiration of ninety (90) days after the end of sIDd calendar month in which production if first marketed, and subsequent payments shall be made on or before the first day of each succeeding calendar month. Jf Lessee is neither the operator of, nor the owner of an imerest in the offseuing well, and if the operator of such well refuses to divulge to Lessee 1he actual mon1hJy volume and/or sales price of production from such wd~ then Lessee shall be authorized to pay the compensatory royalty for each month on estimates of volume and sales price based on such infonnarion as may be timely available to Lessee from other sources, such as the Texas Rail.road COmmission and/or the Texas Comptroller's Office, provided that each such payment which is made on an estimated basis shall be properly adjusted within 60 days after the date that Lessee directly obtains, or is furnished by Lessor, the actual volume and sales price for 1he month covered by the estimaied payment.

VJJ. SURFACE OBLIGATIONS AND ADDmONAL FEE:

Prior to the commencemen1 of any drilling and/or seismic operations, Lessee shall enter into a written contrac1 wi1h the then owner of the surface estale (the .. Surface Owner"), hereinafter referred to as the "Surface Use and Damage Agreementn, on whose property any drill site or seismic survey is located or ls to be localed (regardless of whether said Surface Owner is a Party to this l_ease), which Agreement shall set fonh Lessee's responsibilities and specify the amounts and payees of any permit fees and monetary damages which ar~ to be paid. Such Agreement shaJI provide for repair, replacement or reimbursemenf for any damages caused by Lessee's operations hereunder. The "Surface Use and Damage Agreement" shall include but shall not be limited to the following:

A. Lessee shaU pay Surface Owner, or those otherwise entitled to receive same, the amount of any and ail surface damages caused by any of Lessee's operations to plowed grounds, growing crops (including trees of any rype), livestock, wells, fresh water sands,. fences, improvem"'...nts or other property, or surface water drainage on any of the lands covered hereby, or in the vicinity thereof. If Lessee makes any use of the roads on the lands covered hereby, in connection with Lessee's opera1ions hereunder, Lessee agrees to maintain such roads in good condition and repair during the period of Lessee's operations, and when Le.ssee ceases all operations hereunder Lessee will leave such roads in good condition and repair. Lessee agrees to fence aH pits dug on said land in connection with driJ1ing or reworking operations, and, upon completion of any operations on said land, Lessee shaU dean out and fill all pits and restore 1he surface of the land to substantially the same condition it was in before commencement of such operations.

B. After operations on each well are complete, whether resulting in a dry hole or a producing well, in addition to and separate from the surface damage obligations of Lessee above

• () mentioned the area used by Lessee, including new roadways, storage tank areas and the actual well Gl site "and pits, shaJI be measured, and Lessee shall pay Surface Owner a fee of One Thousand and :x: No/I 00 Dollars ($1,000.00) per acre, and proportiona1eJy per fractional acre, so measured. 0

Page 9 of22 "' 0

"' C:In connection with any right given Lessee by this Lease to lay pipelines, build roads, bridges, telephone lines and other structures on or under said land, it is agreed by both parties herein that Lessee will procure written co~t .ij-om Surface Owner a.~ to the location and placement of such structures before such construction has commenced.

D. If any roads, pipelines or other structures are buih upon the above described lands by Lessee, Lessee agrees that: ·

( 1) Lessee shaH erect and mainrain a good and subsrantia! gate in good working order at each point where any such road or right-of-way enters the herein dc:scr.ibed Jand through an existing or hereafter erected fence, and that said gate sh.alt remain locked between sunset and sunrise except during such times as Lessee is engaged in actual drilling or reworking operations on the Leased Premises, and Lessee shall keep said gates closed at all other times. Said gates shall have placed on them, or in the near proximity,.a clearly legible and plainly visible sign notifying the public that such road or right-of-way is private and is nol to be traveled by said public. Upon abandonment of this Lease, Surface Owner may require Lessee at Lessee's sole expense to repair or replace such fences as have been altered by Lessee during 1he tenn of this Lease. Lessee further agrees that all gates and canle guards installed by Lessee shall become the propeny of Surface Owner.

(2) The tops of alf pipelines placed on the Leased Premises shall be buried at least three feel (3') below the surface of the land and at leas1 two feet (2') below the borrom of all ditches and canals.

(3) AJJ equipment placed on the land and all pits and surface containers will be concentrated in as small areas as are workable, and shall be so constructed and maintained as not to allow flow of any liquids or materials therefrom onto the adjoining land.

(4) All storage tanks and equipment shall be kept painted and neat in appearance, and the adjacent area shall be kept free of weeds and other vegetation,

(5) Before entering upon any land -with any equipment, Lessee agrees to consul! with Surface Owner as to the route of such emry. Any permanent roads shall provide sufficient culverts so as not to obstruct drainage or irrigation.

(6) All existing and future wells shall be plugged within ninety(90) days or within 1he period designated by the Texas Railroad Commission after they are detennined to be no1 capable of producing oil or gas in commercial quan1i1ies by drilling or reworking operations, such plugging operations to be perfonned in accordance with the state laws or regutations applicable. At the end of the primary term of this Lease all existing wells not capable of producing oil or gas in commercial quantities shall be so plugged within ninety (90) days thereafter, including any well 10 be used for disposal of sah water as set forth hereinbelow. Lessee's obligation to plug wells shall not be relieved by Lessee's assignment or transfer ofi1s rights under this Lease, or the designation of a third party as operator of the Lease, unless expressly agreed to in writing by Surface Owner.

(7) No injection or storage of salt water or brine obtained off the Leased Premises is authorii.ed or permitted. Injection of sah water produced on the Leased Premises wiU be penrdned for disposal purposes only, provided; however, such disposal is prohibited above the depth of three thousand feet (3,000') below the surface of the ground. Funher, no injection of salt water is authorized or permitted into any fresh water sands or zones. Lessee shall, in disposing of said salt water as provided herein, cement off the z.one at which the saJt water is to be injected, both above and below the zone, so as to prevent any contamination of fresh water sands or zones and shall, in addition, satisfy all requirements of appropriate goverrunental agencies concerned with such operations_

E. If at any time Lessee conducts opera!ions for the drilling of a well or weUs on any pan of the Leased Premises, Lessee will confine Lessee's use of 1he surface 10 a mIDUmum of four ( 4) acres in 1he form of a square around each such well. (") F. 1T is fun her agreed that when Lessee procures production of oil or gas on the herein G> described premises, Lessee wiJI !hereafter consult with Surface Owner as to the location of :r 0 Page IOof22 "' 0

"' subsequent drill sites, to the end that there will.be cooperatio'n between Surface Owner and Lessee, 10the extent reasonably practical, in the location of such drill sites.

G. This Lease is· not intended to and does not grant Lessee the right or privilege to erect and maintain refining facilities, or any oth~ extrac1ion or 1rea1ing facilities not directly related 10 the production, ueatment and recovery of oil and gas from this Lease on1y, and all such facilities shall be only those reasonably necessary for production, treatment and recoveiy of such substances under tffis Lease.

H. Lessee specifically agrees to assess and to compensate Surface Owner for damage to any merchantable timber (i.e., trees in excess of 4 inches in diameter), caused by Lessee's operailons on the Leased Premises. Damaged timber assessment will be conducted by a qualified forester mutually agreeable to Surface Owner and Lessee. Surface Owner and Lessee agree to value timber based on timber in place (I.e., value Surface Owner would receive if timber were sold in a competitive bid sale covering the Surface Owner's entire tract,ofpropeny). Jn no case shall the Surface Owner be burdened by any cos1 or expense of assessing timber damage.

l. Lessee agrees 1hat if any seismic activities are 10 be conduc1ed on the herein Leased Premises, Lessee will enter into a Geophysical Exploration/Seismic Permit Agreement with the Surface Owner. ·

J. Jn the everu of a conflict between the provisions of this Article VII. and provi$lons contained within any Surface Use and Damage Agreement Lessee enters inlo with the Surface Owner, 1hen the provisions of said Surface Use and Damage Agreement shall supersede the provisions of thls Article VU., insofar and onJy insofar as they relate to said conflicting language. Except as speCificaJly provided herein, nolhing contained within such Surface Use and Damage Agreement shall alter or amend the terms and conditions of this Lease.

VIll. GENERAL INDEMNITY AGREEMENT:

Lessee covenants and agrees to fully defend, pro1ec1, indemnify, hold harmless and render whole each party comprising Lessor, their representatives, agents and employees, and their respective heirs, successors, legal representatives and assigns, from and against each and every claim, demand or cause of action and any liability, cost, and/or expense {including but not limi1ed to reasonable attorneys' fees and expenses incurred in defense of Lessor, the.ir representatives, agents and/or employees) for damil!ge or loss in cormection 1herew11h, wtuch may be made or asserted by Lessee, Lessee's representatives, agents or employees, or which may be made or asserted by any con1ractor or subcontractors, conuactor's or subcontractor's representatives, employees and/or agen1s, or which may be made or assened by any other 1hird party (including, but not limi1ed 10, Lessor's represeniatives, employees and/or agents or Lessee' s invitees, licensees or any trespasser), on account of personal injury or death or propeny damage caused by, arising out of, or in any way incidenrnl to, or in connection with this agreement and ofLessee'S operations bolh on or about the premises, including, but not limited to, those si1uations where personal injury or death or propeny damage (or liability therefor) was caused by the sole negligence of Lessee. any contractor or subcontractors and/or ihird pany (and/or any of their respective representatives. employees and agents), by the concurrent negligence or any combination of Lessor, or any one or more of them, Lessee, any contractor or subcontractor and/or any third party (andfor any of rheir respective representatives, employees and/or agents), or where liability for such persona] injury or death or property damage with or without fault is imposed on any theory of strict liability by operation by law

Lessee must give notice to Lessor of any claim, action, adnUnistrative proceeding or other demand by any other governmental agency or other party of any such claims, actions, or demands made as a resuh of any action by Lessee.

Lessee shall assume, on behalf of Lessor, and conduct with due diligence and in good faith, the defense of all claims arising out of the exercise of the rights herein gran!ed to Lessee or in connection with or growing out of this agreement or the performance by Lessee of the obligations

• hereunder which may be brought against the Lessor, whether or not the Lessee is joined therein, even () if such claims be groundless, false or fraudulent, and shall bear the costs of aJI judgments and (;) settlements in connection tberev.ith, prov1ded, however, without relieving Lessee of any obligations :t: 0 PJge JI of22 "'..... 0 under this agreement, Lessor, at Lessor's election, may defend or participate in the defense of any or aJJ of the claims.

IX. ENVlRONMENTAL PROYJSIONS AND INDEMNITY:

A Lessee covenants and warrants that Lessee and Lessee's use of the !eased premises will at aJJ times comply with and conform to all laws, Slatutes, ordinances, rules and regulations of any governmental, quasi-governmental or regulatory authority ("Lawsn) wtllch relate to the exploration and production of oil and/or gas from the le.l.sed premises, ~r land pooled therewith, transportation, storage? placement, handUng, treatment, discharge, generation, production, di:S:posal or injection (collectively~Trea1ment") of oil, gas and other liquid hydrocarbon substances produced hereunder rProducts"); of sah waler, brine and other exempt waSle products produced in association with oil or gas ("E:xempl Waste"); or of any other waste (including, without limitation, non-exempt was1es), any of the petroleum product, was1e products, radioactive waste, poly-chlorinated biphenyl, asbestos, hazardous materials of any kind, and any other substance which is regulated by any Jaw, statute, 01dinance, rule or regulation (collec1ively nwaste"). Lessee further covenants that ii will not engage in. or permit any pany 10 engage in any Treatment of any Waste not associated with the exploration, development or production of oil or gas on or which affects the leased premises. Specifically, and without limiting the foregoing, Lessee agrees that (i) no toxic or hazardous wastes shall be generated, treated, stored, disposed of or otherwise deposited or released in or on the leased premises; (ii) Lessee w!U nol engage in and wl!J not permit any other party to engage in any activity not associated with the exploration, development or production of oil or gas with respect to the leased premises which would cause (a) the leased premises or the adjoining property 10 become a non-exempt or hazardous waste treatment, storage or disposal facility within the meaning of the Resource Conservation and Recovery Acf of 1975 (~RCRA~). as·now or hereafter amended, or any similar Staie law or Local ordinance or other environmental law, (b) a release or 1hreatened release of a hazardous substance from or to the teased premises or the adjoining property within the meaning of the Comprehensive Environmental Response •. Compensation and Liability Act of 1980 ("CERCLA ~), as now or hereafter amended or any similar State Jaw or LocaJ ordinance or any other environmental law, or (c) the discharge of pollutants or effluents into any water source or system, or !he discharge into the air of any emissions, which would require a permit under 1he Federal Water PolJution Control Act or the Clean Air Ac: or any similar State or Local ordinance or other environmental law; (iii) Lessee shall not pennit any substance or conditions in or on 1he leased premises or the adjoining property which might support a claim or cause of action under RCRA, CERCLA, or any other Federal, State or Local environmental statutes, regulations, ordinances or other envlronmen1al regulatory requiremenis~ and (iv) no underground storage 1anks will be located in or on the leased premises. In the event either CERCLA or RCRA is amended so as to narrow or broaden the meaning of any term defined thereby, ruch amendment shall apply to Lessee's covenants contained here1n. and provided funher, 10 the extent that the laws of the State of Texas establish a meaning for such 1enns wtUch is broader than .that specified in ei1her CERCLA or RCRA, the broader meaning or definition shall .apply.

B. lnunediately upon receipt of any Notice, as hereinafter defined, from any party, Lessee s.hall deliver to Lessor a true, correct and complete report of any written Notice or a true, correct, and complele repon of any non-written Notice. "Notice'" shall mean any note, notice, or report of any of the following:

(I) any sui1, proceeding, investigation, order, consent order, injunC1ion, writ, award, or action related to or a:ffec1ing or indicting the Trea1ment of any Product, Exempt Waste or Waste in or affecting the Je~sed premises;

(2) any spill, contamination, discharge, leakage, reJeaSe or escape of any Product, Exempt Waste or Waste in or affecting the leased premises, whether sudden or gradual, acciden1al or anticipated, or of any o1her nature (hereinafter "Spill");

(3) any dispu1e relating to Lessee's or any olher party's treatment of any Produc1, Exempt \Vaste or Waste or any Spill in or affecting the leased premises

• (4) any claims by or against any insurer related to or arising out of any Product, Exempt Waste or Waste or SpiJJ in or affecting the leased premises; n Cl :x: 0 Page 12 of22 "' 0 00 ) (5) any recommendations or requirements of any goverrunen1aJ or regulatory authority, or insurer reJatTng to any trea1ment of Product, Exempt Waste or Waste or a Spill in or affecting the leased premises~ (6) any legal_ requirement or deficiency related to the treatment of Product, Exempt Was1e or Waste or any Spill in- o_r affecting the leased premises~ or

C. In ihe event that (a) Lessee has caused, suffered or permitted, directly or indirectly, any Spill in or affecting 1he leased premises, or (b) any Spill of any Product, &emp1 Taste or Waste has ocrurred on the leased premises during the term of this.agreement, then Lessee shall inunediately take an of the following actions:

{l) notify Lessor, as provided herein;

(2) take all steps necessary or desirable, in Lessor's reasonable opinion, to clean up all such Spill and any contamination related to the Spill; and

(3) fully restore the leased premises to its condition prior to the Spill .

.D. Lessee hereby agrees that it will indemnify, defend, save and hold harmless Lessor and their respective heirs, executors, administrators, successors and assigns (co!Iectively "lndemnified Parties") against and from, and to reimburse the 1ndemnified Parties with respect to, any and all damages, claims, liabilities, loss, costs and expenses (including. wi1hout limi1a1ion, response costs, remediation, abatement costs, mitigation costs, harm to the envirorunent, property damage, reasonable anomeys' fees and expenses, coun costs, administrative costs and costs of appeals), incurred by or· assened against the lndemnified Panies by reason or arislng ou1 of: (a) the breach of any representation or undenaking of Lessee under this Article IX., or (b) arising ou1 of the treatmem of any Product, Exempt Waste or Waste by Lessee or any tenant, licensee, concessionaire, manager, or other pany occupying or using the !eased premises under the au1hority of Lessee, in or affecting · 1he leased premises, or (c) in the event of any SpiU governed by the terms of this Article IX.

E. Notwithstanding anything in this agreement 10 the contrary, the representa1ions and undenakJngs of Lessee in this Article JX. shall survive the expiration or 1ermination of1he Lease regardless of the means of such expiration or termination~ funhermore, in the event of the assignment, sublease, or other transfer of all or any of Lessee's rights under this Lease, the assignee or sub-lessee must aswme all of the Lessee's obligations under th!s Article IX_ and Lessee shall remain liable for every obligarion under this Anicle IX.

X. CHANGE OF OWNERSHIJ>,

A. The rights of either pany hereunder may be assigned in whole or in part, and the provisions hereof shall extend to !heir heirs, successors and assigns; but no change or division of ownership of land, rentals or royalties, however accomplished, shat! operate lo enlarge the obligalions or diminish the rights of Lessee; and no change or division in such ownership shall be binding on Lessee until th.irty (30) days after Lessee shall have been furnished by registered or certified United States Mail at Lessee's principal place of business with a certified copy of the recorded instrument or instruments evidencing same. ln the event of assignment hereof in whole or in part, liability for breach of any obligation hereunder shall, except as herein expressly provided, rest exclusively upon the owner of this Lease, or a portion thereof, who commits such breach. Jn the event of the death of any person entitled lo rentals and royalties hereunder, Lessee may pay such rentals and royalties to the credit of the deceased, or the estate of the deceased, until such time as Lessee is furnished with proper evidence ofihe appoin1men1 and qualification of an executor or administra1or of the estate, or if there be none, until Lessee is furnished with evidence satisfactory to Lessee as 10 the heirs and devisees of1be deceased.

B. Jn the event the Lessee herein, or any subsequent assignee of Lessee, at any 1ime during the effectiveness of this Lease transfers and/or assigns this Lease or any in1erest herein, Lessee shall contemporaneously with each such assignment and/or transfer give written notice thereof by

• mailing a true and full copy of each and every ins1rument evidencing any and all such assigrunents and/or transfers to Lessor . n G) :i: 0 N Pagt: 13 of22 0 XI. NOTICE OF DEFAULT,

A. The breach by Lessee of any obligation ex.isling hereunder shaJl ·not automatically work a forfeiture or termination of1his·Lease nor cause an automatic termination or reversion of the estate created hereby no1 be grounds for automatic cancellarion hereof in whole or in pan except as provided with regard to Lessee's obligatiOn to pay Lessor royalty payments in Paragraph XVIJ.D. of this Lease. In the event Lessor considers that Les.see is in breach of any provision of this Lease (except for those with regard to payment of royalties), Lessor shall notify Lessee in writing of the facts relied upon as constituting a breach hereof and Lessee shat! have sixty (60) days after receipt of such notice in which to comply with the obligations impo~d by virtue of this instrument or to provlde evidence.satisfactory to Lessor tha1 Lessee is no1 in breach of the tenns and conditions of th.is Lease. In the event Lessee fails 10 comply with such obligalions or to provide said evidence wi1hin sixty (60) days after receipt of such notice, the lessor shall have the right to declare th.is Lease forfeited, canceled and terminated.

XU. PRODUCING LIMITATION !STRATUM OR STRA TA\o

A. At the occurrence of a partial termination of this Lease in accordance with the provisions of Artjcle V. hereof ~nd respectively upon the subsequent partial 1ennination as provided herein, and in no event later than the expiration of the fourth year of the secondary tenn of this Lease, th.is Lease will lerminate automatically as to all the mineral estate of Lessor covered .hereby on or under each production unit, respectively, which is greater than one hundred feet (100') below the deepest total depth drilled or 1he stra1igraphic equivalent !hereof, whichever horizontal subsurface depth cons1itutes the deepest depth, for a well which Lessee has completed as commercial producer of oil and/or gas on 1he lands described in this Lease or on other lands, if any, pooled or uni1ized with the leased premises. Upon expiralion of the founh (4th) year of the secondary tenn of this Lease 1his Lease wlll further terminate as to all the mineral estate of Lessor covered on or under each production unit, respectively, which is (I) greater than one hundred fee1 {JOO') below the deepest depth from which production in paying quantities is then being had (or at which a well capable of producing gas in paying quantities is comple1ed), and (2) situated between the surface of1he land and one hundred feet (JOO') above the shallowe51 of the following: (I) the shallowest depth from which production in paying quantities is then being had, (2) the shallowes1 depth at which a well capable of producing gas in paying quantities is completed, 01 (3) the top of the shallowest identifiable Stratum or horizon determined by the mu1uaJ agreement of the parties hereto lo be capable if completion were had therein at tha1 time of production in paying quantities, IF AND ONLY IF, Lessee has furnished identification thereof together with the applicable geologicalfgeophysical data used to identify such stratum or horizon on or before the expiration of the fourth (4th) year of the secondary tenn of this Lease. Such de1ermination is 10 be based upon(!) the applicable geological/geophysical data acquired by or available to Lessee, copies of which are to be furnished to Lessor for review for such purpose, and (2) any applicable independent geologicaVgeophysical data acquired by Lessor, copies of which are 10 be furnished to Lessee for review for such purpose. For these purposes, the parties will consider both weUs located on the leased premises and those on other lands, if any, pooled or unitized Mth the leased premises. Furthermore, subsequent to any occurrence of a partial termination of1his Lease in accordance with Artide V. and respectively upon the subsequent partiaJ terminations as provided I.herein, and in any event, subsequent to the expiration of the founh year of the secondary term of this Lease, if any gas well on a production unit is re-completed at a shallower depth and classified as an oil well, then this Lease will further i:enninate as to all the mineral estate of Lessor covered hereby on or under such production urUt which is greater than one hundred feet below the deepest depth from which oil a~d/or gas is being produced from such oil well. Upon such partial termination Lessor and Lessor's successors, heirs or assigns shall thereafter have the right to reasonable use of the released acreage and dep1hs of the leased premises, but without unreasonable interference with Lessee's rights, for the purposes of investigating, exploring, Prospecting and drilling for, producing and owning oil, gas and other liquid hydrocarbons from the horizons (strata) as to which this Lease has terminated.

B. Upon the occurrence of an event of partial termination of this Lease as to subsurface depths, or at a rime thereafter upon requeS1 of Lessor, Lessee sbaU execute and deliver to Lessor

• recordable instrument{s) seuing forth the various producing horizon (slratum) or horizons (strata) stated above, as reflected by repons to the Texas Railroad Commission or other governmental (") authority having jurisdiction, so that the limit and extenl of Lessee's rights under this Lease may be G> fixed and reflected as a maner of record and, in addition 1here10, as requested by Lessor, Lessee shalJ :r Page !4 of22 0 ..."' 0 also execute and deliver 10 Lessor recordable releases or assigrunen1s of any and all interests hereunder not maintairied in force and effeci by Lessee by pfoduction, as above proyjded.

xm. FORCE MAJEURE:

Should Lessee be prevented from complying with any expressed or implied covenant of this Lease, from cbnducting dnlling or reworking operations thereof. or from producing oil or gas therefrom by reason of scarcity of or inability to obtain or to use equipment or material,_ or by operation of force majeure, any Federal or State law, or other order, rule or regulation of goverrunental authority, (SA VE AND EXCEPT where Lessee is required to secure from the United States Army Corps of Engineers or 01her State or Federal agency, depa:rtmenr, or service having jurlsdiction over Lessee's operations on the leased premises, perm.its for the drilling and/or operation of wells under the terms of this Lease in whicb case the provisions of Paragraph V.F. shall apply), then while so prevented, Lessee's obligation to comply with such covenant shall be suspended, and Lessee shall not be liable in damages for failure to comply therewith, and this Lease shall be exrended while an~ so long as Lessee is prevented by any such cause from conducting drilling or reworking operations on or from producing oil or gas from the !eased premises and the time while Lessee is so prevented shall not be counted against Lessee, anything in this Lease to the contrary notwithstanding, provided, however1 any period this Lease may be so extended shall not cumuJaUveJy exceed two (2) years, and provided further that during such period Lessee shall pay monthly 10 lessor a sum equal to one-twelfth (J/l21h) of Seventv-Five and N0/100 Dollars ($75.00) per acre for each mineral acre then subject to this Lease, 1he first of such payments to begin on or before the first day of1he.month after the expiration of thirty (30) days fi'om the date this Lease ceased lo be maintained by producrion, operations or otherwise. Nothing in th.is paragraph shall relieve 1he Lessee of Lessee's obligation to protect the leased premises from drainage.

XIV. COUNTERPARTS:

A. This Lease _may be executed in any number of counterpans found to be convenient. Each coumerpart shall be deemed an original and shall be binding·on all parties who execute such counterpart, or another counterpart, irrespective of whether or not such counter pan, or another counterpart, is executed by 1he 01her parties below named as parties Lessor .

B. Th.is Lease will not be recorded. However, Lessor and Lessee agree to execute, and Lessee agrees to record in the Official Public Records of Real Property in the Coumy in which said land is located, a "Memorandum~ giving nmice of this Lease, and promptly following such recording, Lessee shall furnish copies of such recorded Memorandum to Lessor.

XV. INFORMATJONo

As to any and all wells drilled on the herein described land, Lessee agrees to furnish Lessor, or Lessor's authorized representatives, access to said well or wells at his or their own risk at all reasonable hours. Lessee further agrees to furnish at no cost to Lessor, as set fonh herein, the following information: A. A copy of all daily operation reports received by Lessee during driUing, completion or reworking operations shall be sent to Lessor, via facsimile, concurren1 with Lessee's receipt of such repons.

B. A copy of all electric logs, formation surveys or any other test made in such well or wells within thirty (30) days of the completion of such log, survey or test

C. A copy of all applications and repons filed by Lessee with the Texas Railroad Conunission in connection with Lessee's operations hereunder shall aJso be mailed to Lessor simultaneously with Lessee's mailing of such applications and repons to the Texas Raiboad Commission.

0. Lessee also agrees to furnish to Lessor any and aH title opinions obtained by Lessee, whether rendered by Lessee's auomeys, by outside anomeys ret

• purchasers of production under this Lease .

Page J.Sof22 E. In addition, Lessee shaIJ furnish to Lessor the following seismic or other geophysical data obtained by Lessee during the term of this Lease on the leased premises: {I) access to for review and duplication of all basic data genera1ed (including tapes)~· (2) scaled, platted maps for aJl geophysi~a! surveys performed showing the location of all shot holes and station points used in each survey and (3) final stacked and rrUgrated seismic da1a al all depths across the leased premises. Lessor agrees to use Lessor's best ·efforts during the lenn of this Lease 10 maintain all such data so provided in confidence until otherwise released from this obllgation by Lessee or until Lessee releases such data to the gerieral oil and gas industry, whichever occurs earlier.

All such infonnation shaJl.be provided by Lessee irrespectiYe of the results of Lessee's operations on the herein described !and.

XVI. ASSJGNMENT:

Jn the evem 1his Lease is assigned or transferred by Lessee in whole or in pan, then, upon termination of this Lease, Lessee shall be responsible for ob1aining a proper ret:ordable release or releases of 1his Lease as to the ponion or portions of said land as 10 which this Lease has been assigned or transferred by Lessee and Lessee shaJI furnish such release or releases to Lessor, or file same for record in the Official Public Records of Real Propeny in the Co1.Jnty in which said land is located, promptly after termination of this Lease.

xvn. TIME, METHOD AND MANNER OF PAYMENT: ANYTI!JNG HEREIN TO THE CONTRARY NOTWITHSTANDING, and in lieu of the ienns and provisions contained in Sections 91.401through9L406 of the Texas Natural Resources Code, 1he parties hereto specificaJly agree that the following provisions shall apply to th.is Lease and all royally payments made hereunder or other rights as provided in the above listed sections, and that such provisions of the Texas Natural Resources Code shall no! be applicable; such panics funher, by 1heir signa1ures below, waive any and aJI rights which might be claimed or asser1ed under such Sections 91 .401 through 91.406 of the Texas Natural Resources Code; thus, it is specifically provided !hat:

A. All rentals and royalties which may become due hereunder shalJ be payable at Houston, Harris County, Texas or at such other place, if any, as may be specified by Vtlfitten directive ofa particular royalty ownei as to such owner's interest.

B. Royalties on production shall be paid on a calendar momh basis. The royahy for the cale-ndar month in which production is first marketed shall be paid on or before the first day of the calendar month nex1 following the expiration of sixty (60) days from the execution date of the completiqn repon or potential 1es1 for the well that is filed with 1he Railroad Com.mission of Texas, and the respective royalty payments for each subsequent calendar month of production shall be made an or before 1he first day of each successive calendar month following the calendar month in which the first payment is due.

C. All past due royalties (Including any compensatory royalties payable under Paragraph Vl.B.) shall be subject to a Late Charge based on the amouru due and calculated a! the maximum rate allowed by !aw corrunencing on ihe day after the last day on which such mon1hly royalty payment could have been timely made and for every calendar month and/or fraction thereof from the due date until paid, plus att.orney's fees, coun. costs, and other costs in connection with the collection of 1he unpaid amoun1s. Any Late Charge that may become applicable shall be due and payable on the last day of each momh when this provision be(:omes applicable.

D Notwithstanding anything herein to the contrary, upon the failure of Lessee to pay Lessor the royalty payments as provided herein, the Lessor may, a1 Lessor's option, elect to 1emUna1e said Lease by serving written no1ice on Lessee at 1he address shown herein, of Lessor's in1en1ion to 1erminate said lease with.in not less than thiny (30) lays of receipt, or any 1ime !hereafter. Should Lessee pay Lessor all royalty payments past due during saX! period, with interest as provided herein, this Lease shall not terminate. However, upon the failure of Lessee to pay Lessor said past due

• royally payments during said notice period, Lessor may elect to terminate this Lease, and litle to said land shall revert to Lessor. lessor may elect to terminate said Lease, after 1he expiration of said no1ice period, by serving notice of termination, filing a copy of said notice with the County Clerk of

Page 16 of22 the county in which said land is ioca1ed. The effective date of said termffiation shall be the date said termlnation is filed with the said County Clerk. In the even! of the termination of said Lease in this manner, Lessee shall not remove any of Lessee's equipment, fixtures, or personal property locared on said land, unless so instructed by LesSor, and if so instructed, such property shall be removed Within thirty (30) days of notice ro Lessee. In the event Lessor prohibi1s the removal of such propeny .from the leased premises. then ir shafl become the property of Lessor, at the option of Lessor.

E. Ne"ither Lessee nor its purchaser. of production shall be authorized to make any deductions or adjustments against present or future royalty payments for royalty amounts previously paid without first giving Lessor or royalty owner thirty (~O) days advan~ notice of same along wi1h a full explanation of such overpayment. In the event Lessor or royalty owner disputes 1he legitimacy of such deduction or adjustment, Lessee or purchaser shall not be entitled to r:nake such deductions or adjustments against Lessor's royalty (and Lessor's full royally payments shall not be in1errup1ed) un1jJ such dispu1e is resolved. If it is agreed between Less.or or royalty owner and Lessee that a royally owner was overpaid, then the overpaid royalry owner has the option of repaying such oveipayment or allowing Lessee or purchaser to recoup such overpayment out of fu1ure royalty payments on a schedule and in monthly amounts agreed 10 by such overpaid royalty owner and Lessee or purchaser. Any overpaid royalty owner shall not be charged interest on the overpaid sums.

F. Lessor expressly reserves the right and Lessee ex.'pressfy grants to Lessor and .iny royalty owner the right to audit production, revenue and the calculation and payment of revenues to Lessor and royalty owners, by such royalty owner giving Les$Ce notice of the exercise of this right and, within 30 days after receipt of such notice, Lessee shall make available 10 the requesting royalty owner all books and records (together wi1h copies thereof if requested by royalty owner) along with all 01her data necessary for royalty owner or his agent to audit such production, revenue and/or royalty payments. Lessor shall select the accounting procedure to be utilized in such audit and such procedure selected shall be binding on Lessee so long as such procedure is accepted under general accounting practice and standards. If it is determined that royalty owner has not been conect!y paid aJJ sums owed him, then Lessee shall reimburse the requesting royalty owner for all costs and expenses incurred by Lessor for such audit, together wlth all unpaid revenues, late charges, and interest thereon.

G. Without liml:1ing !he other provisions of this Article XVlI., it is further specifically acknowledged and agreed by the parties hereto that the tenn ~market value" as used herein shall be defined in accordance with the above Paragraph IU.H. and not in accordance wilh the provisions of Subsection 91 .402 {i) of the Texas Natural Resources Code.

H. The provisions of this Anicle XVlJ. shall not apply where Lessor has elected 10 take Lessor's royally in kind or market separately Lessor's royalty share of production under 1he I er ms of this Lease.

I. Notwithstanding anything. herein to the contrary, Lessor's exercise of Lessor's rig,•ns under this paragraph shall not be deemed as a waiver of Lessor's right to take all actions necessary to recover unpaid royalties, interest and other damages incurred.

J. In the event Lessee enters into a gas purchase contract which contains what is commonly referred 10 as a "take or pay provision" (such provision meaning that the gas purchaser agrees to take delivery of a specified rrurumum volume or quanti[y of gas over a specified term at a specified price or to make mirUmum periodic payments to the producer for gas not taken by 1he purchaser) and the purchaser under such gas purchase contract makes payments 10 Lessee by vinue of such purchaser's failure to take delivery of such minimum volume or quantity of gas, 1hen Lessor shaU be entitled to Twenty.five percent £25%) of aJJ such sums paid 10 Lessee or producer under the npay" provisions of such gas purchase contract. Such payment shall be due and owing to Lessor within sixty (60) days after the receipt of such paymen1s by Lessee. Any payments made to Lessor under 1he "pay" obligation of any "1ake or pay" gas contract shall be applied as a credit toward Lessee's minimum royalty obligation. If the gas purchaser Hmakes up" such gas within the period caJled for in the gas contract and Lessee is required to give such purchaser a credit for gas previously () paid for but not taken, then Lessor shall nor be entitled lo royalty on such "make up• gas. G)

• :r 0 Jf Lessee is not producing any quantities of gas from leased premises but is receiving payments under the "pay• portion of such "take or pay" gas purchase contract provision, such "' ~

w P~ge 17 of22 payments shall not rdieve Lessee of the duty 10 make shut~in royalty payments if Lessee desires to continue this Lease, but such "take or pay" payments shall be applied as a credit against any shu1-in royalty obligation of the Lessee.

Lessor shall be-a th.ird-pany beneficiary of any gas purchase contra".' and/or transportation agreefnent entered imo between Lessee and any purchaser and/or transporter or pipeline company of lessor's gas, irrespective of any provision of said contracts to the contrary. Further, Lessor shall be entitled to Twenty·Five percent l25o/o) of the value of any benefits obtained by or granted to Lessee from any gas purchaser and/or transporter for the amendment, modification, extension, alteration, consolidation, transfer, cancel1ation or settlement of any gas purchase contract and/or transportation agreement.

A. Lessor hereby warrants and agrees to defend the title to only Lessor's interest in said . lands, as shown by the Official Public Records ofReaJ Property of the county in which said land is located, againS1 the claims of all persons whomsoever claiming or to claim the same by, through, or under Lessor, but not otherwise, and agrees that Lessee, at Lessee's option, may discharge any tax, mortgage or other lien upon ~id land, either in whole or in part, and in the event Lessee does so, Lessee shall be subrogated to such lien with the right to enforce same and appJy royalties accruing hereunder toward sa1isfying the same.

B. \Vithout impairment of Lessee's rights under the warranty in event of failure of title, it is agreed that if Lessor owns an interest in all or any part of the land covered by this Lease, or part thereof, less than the entire fee simple estate, then the royalties, rentals and shut-in payments, or any other payments hereunder to be paid or delivered to Lessor shall be paid only in the proportion which Lessor's interest therein, if any, bears 10 the whole or undivided fee simple estate therein. A!I outstanding royalties chargeable 10 Lessor's mineral interest shall be deducted from those royalties herein provided.

XIX. TAXES'

All State occupation, severance, production and ad valorem taxes of every nature, kind and description levied upon 1he leasehold and royalty interest created by or reserved in this Lease by whatever taxing au1hority wldlin the State, shail be borne and paid by Lessee at Lessee's sole cost and expense wi1hout deduction fi-om or charge againSt Lessor's in1erest or against proceeds payable to Lessor hereunder. but this provision shall no! cover any la:Xes levied or assessed on the surface of said land or any mineral in1eres1, save and except the oil, gas and other liquid hydrocarbons interest, which is the subject maner of this Lease; nor shall this provision apply to any income, eslate, gift, inheritance, or Federal windfall profits taxes charged on or assessed against any Lessor of th.is Lease.

XX. ATTORNEY'S FEES'

It is further specifically provided tha1 in the event it becomes necessary for Lessor to employ an anorney, or anomeys, as a result of any activity conducted by Lessee on the herein leased premises, or land pooled therewith, or 10 enforce any of Lessee's obligations hereunder and Lessor is successful in any coun action to enforce same, Lessee agrees to pay all reasonable attorney's fees incurred by Lessor in connection 1herewith.

XXJ: BANKRUPTCY'

Notwithstanding any language contained herein to the contrary, the rights of Lessee. or Lessee's heirs, successors or assigns, in and to the leased premises, the equipment or fixtures thereon or the unsold oil and gas produced therefrom, shall automatically tenninate, ipso facto, and be of no further force and effect upon the voluntary or involuntary filing of same for reliefunder"lhe United Stales Bankruptcy Code.

XXD. PARAGRAPH CAPTIONS'

• The captions set forth opposite each paragraph nwnber are for convenience only and are no! to be used to interpret or have any legal effect on the terms and pro.visions of this Lease.

Page 18 of22 •

xxm. LESSOR FIDUCIARY CAPACITY: It is expressly igreed and understood that this irntrument is executed by Parties identified as fiduciaries, solely in the capacities staled and not otherwise, and 1hat they shall oever have any individual, personal or corpora1e liability 9r. responsibility by reason of the execution of this instrumenl, except in s\ich fiduc:lary capacities.

XXIV. LESSOR'S AGENT:

This paragraph does not apply to Lessor, and accordingly this space is intentionaUy left blank_

x.xy. SECURITY AGREEMENT:

Lessor hereby retains a securi1y interest in all of its propcirtionate part of (i) the oiL gas and other hydrocarbons produced and saved from the leased premises or lands pooled or unitized therewith or otherwise subject to this Lease as provided in Anicles 111. and XVlL herein regarding payment of royalties due under this Lease, and (ii) Lessor's respettive royalty part of any and all proceeds of sale of such oil, gas and other hydrocarbons and Lessor's respective royalty pan of any and all ace.cunts (including, without limi1ation, accounts arising from gas imbalances, or from the sale of oil, gas or other liquid hydrocarbons at the wen head), contract rights, inventory and generaJ intangibles relating thereto or arising therefrom, and Lessor's respective royalty pan of any and all proceeds and produc1s of the (oregoing (the "Collateral"), 10 secure Lessee's payment of royalties due under the terms and provisions of this Lease.

In addition to any 01her remedies provided in this Lease, Lessor, as Secured Party, may in event ofLessee's default hereunder proceed under V.T.C.A., BUSINESS AND CO"Mf..4ERCE CODE (the "Code") as to the Collateral, in any manner penni1ted by the Code. ln the event of default by Lessee. Lessor shall have the right to take possession and to rece.ive its proportionate part of the Coflateral and to hold same as payment for Lessee's obligations or to apply it on the amounts ow1ng .··~ to Lessor hereunder. The filing of a suit and rendition ofjudgmen1 in favor of Lessor for the secured indebtedness shall not be deemed an election of remedies or otherwise affect the security interesl as security for payment thereof. Jn addition, ar any time during·the term of this Lease, Lessor shall have 1he right, wi1hou1 prejudice 10 01her rights and remedies:, to collect, directly from any purchaser of production, 1he proceeds from the sale of its proportiona1e pan of the Collateral AJJ purchasers of the Colla1era1 may rely on a notification from Lessor stating its intent to collect such Collateral directly, and Lessee waives any recourse available against purchasers for releasing such Collateral as provided in 1his Paragraph.

The above reserva1ion by Lessor of the security inierest in 1he Collateral shall be a first and prior lien agains1 the Collateral, and Lessee hereby agrees to maintain the priority of said security interest againsr all persons. All .panies acquiring an interest in the Lease and/or the personal property covered by this Security Agreement, whether by assignment, merger, mortgage, operation of law, or otherwise, shall be deemed 10 have take such interest subject to the security interest in the Collateral as reserved hetein. _The address of Lessor, as Secured Pany, is 820 Gessner Road, Suite 1300, Houston, Tex.as 77024~4259 and the address of Lessee, as Debtor, is set ford1 on page 1 of th.is Lease.

The Colla1eral includes Lessor's royalty part of the oil, gas and other hydrocarbons 10 be financed at 1he well head of the wells and accounrs from the sale thereof. The parties hereto agree that the provisions of this Anic/e XXV. shaiJ be a pan of the Memorandum of this Lease, and when such Meffiorandum is recorded in the Official Public Records of Re.al Property in the county where the land covered here is located, this Article and the Memorandum thereof shall be effective as a filed financing s1.atement for the purposes of the Code_ In addition, Lessee agrees to execute and acknowledge financing statements and continuation statements thereto prepared and submined by Lessor in conjunction herewith or at any time following !he execution hereof, and Lessor is authorized to file such slatements in the appropriate UCC and/or official Public Records of Real Propeny with the Office of the Secretary of State of Texas and the county in which the leased

• premises are /cx:ared, respectively, 10 perfect the security interest granted hereunder .

Page J9of22 XXVI. FIELD RULES:

.Lessee shall not file any Application for Field Rules pertaining 10 the land covered by this Lease without first giving Lessor not less than thirty (3"0) days advance written notice ofimemion to do so, together with a copy of a draft of lhe AppJicatjon which Lessee contempla1es filing. Within three days after the date of the filing of the final form of sUch Application, Lessee shall mail Lessor written notice of the date of filing and a copy of the Application so filed.

XXVJJ. DIVlSION ORDERS:

Notwithstanding Subsection 91.402 {c) of the Tex.as Natural Resources Code, the exerution of Division Orders shall never be required as prerequisite for payment of royalty, and division orders., if signed for the convenience of the parties, shall no1 be construed as amending this Lease regardless of terminology contained therein. If requested by Lessee, Lessor will execute and deliver to Lessee or the pu.rchaser of production a written statement of Lessor's interest in such production and Lessor's current address and taxpayer's Federal lax identification number.

xxvm. LANGUAGE: Lessor and Lessee funher acknowledge and agree that each and every provision cOn1ained herein has been specificaJJy negotiated for valuable considera1ion and no provision of this Lease agreement shall be construed or interpreted as being "boiler plate" or ftsurplus" language.

XX!X. MOST FAVORED NATIONS CLAUSE:

If Lessee shall enter into an oil and gas lease(s) pan of which is located within 1hree (3) miles of any exterio~ bOundary of the subject lands covered by the subject Lease, hereinafter referred to as "Third Party Lease", Lessee shall notify Lessor of such fact. lfthc reserved royalty or the amount per acre payable for delay rentals, shut-in rentals or minimum royalty, at any time payable under such TlUrd Party Lease, is higher 1han the like royalty and amounts payable as provided in the subject ··~ Lease, the royalty or amount payable per acre in the subjec1 lease, which is less than that provided in the Third Party Lease shall be immediately increased so that it will equal ihe royalty or 01her amounts payable under the Third Party Lease. The subject Lease and the Third Party Lease must be calculated in subStantially the same manner, such that the comparison of the subject Lease and 1he Third Party Lease is based on the same effective net royalty or other payments, and that same shall include or deduct the same types of charges, taxes and other burdens from such interests.

IN WlTNESS WHEREOF, this instrument is executed effective as of the l 91h day of April, •)999.

Co-Trustee under the Will of Charles G. Hooks, Sr., Deceased (d/b/a CHAS. G. HOOKS & SON)

s G.

as lndependent Executor of the Estate of Charles G. Hooks, Jr., Deceased (")

• (dlb/a CHAS. G. HOOKS & SON) Gl :r 0

"' ~

Page 20 of22 "' ··--·---.

LESSEE:

SAMSON LONE STAR LIMITED PARTNERSHIP, by Samson Resoi[Jmp2ny, its gener artner

ThomasE.DF President

Til'.E STATE OF TEXAS

COUNTY OF HARRJS

This instrument was acknowledged before me on the-;1,J~day of APR.I l - , 1999, by CHARLES G. HOOKS JJJ and by SUE ANN HOOKS as Co-Tru~ees unde< the Will of Charles G. Hooks, Sr., Deceased.

Til'.E STA TE OF TEXAS

COUNTY OF HARRJS

This instrument was acknowledged before me on lhe.:2./~ay of /1-Ffl..1 L. • 1999, by CHARLES G. HOOKS 111 as Independent Executor of the Estate of Charles G Hooks, Jr., Deceased.

THE STA TE OF OKLAHOMA

COUNTY OF TULSA

The above and foregoing instrument was acknowledged before me ihis 20lh day of April, !999, by Thomas E. Dimelow, as President of SAMSON RESOURCES COMPANY, as general part.Iier of SAMSON LONE STAR LIMITED PARTNERSHIP, a Texas limited par1nership, on behalf of said~mhip. , _

My con1mission expires: 9125/01 AW 14..... ·CJ, l h~ · otary Public for the State ofliJahoma Notary's Printed Name Patricia A. Yelton

• Page 21 of22 EXHIBIT "A"

ATTACHED TO AND MADE A PART OF THAT ·CERTAJN OIL, GAS AND LJQUID HYDROCARBON LEASE DATED EFFECTIVE April 19th, 1999, BY AND BETIVEEN CHARLES G HOOKS Ill, CO-TR,USTEE, ET AL, DOING BUSINESS lOINTLY AS CHAS. G.. HOOKS & SON, A TEXAS GENERAL PARTNERSHIP, AS LESSOR, AND SAMSON LONE STAR LIMJTED PARTNERSHIP, A TEXAS LIMITED PARTNERSHIP, AS LESSEE, COVERJNG SIX HUNDRED AND FORTY (640) ACRES OF LAND, MORE OR LESS, IN THE WM C DYCHES SURVEY, ABSTRACT 112, JEFFERSON COUNTY, TEXAS.

640.0 acres of land, more or less, situated in the Wm. C. Dyches Survey, A·l 12, Jefferson County, Texas, more fully and particularly described in that certain deed dated January 2, 1901, from Hugh Jackson, et aJ to W.P.H. Mcfaddin, et al, recorded in Votume 46, Page 155, et seq., of the Deed Records of Jefferson County, Texas, reference to which deed and said records is here made for descriptive purposes only_

(')

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Page 22 of22 "' 1• ~ t.. '' · I '.

OIL. GAS AND LIQUID HYDROCARBON LEASE

nns AGREEMENTI made effective lhe Qate hereinafter provided, by and between the undersigned, CHARLES G. HOOKS III and SUE ANN HOOKS as Co· Trustees under the Wm of

I Charles G. Hooks, Sr., Deceased, arid CHARLES G. HOOKS llJ .S Independent. Execumr of the Estate of Charles G. Hooks, Jr., Deceased, doing_ business jointly as CHAS. G. HOOKS & SON, a Texas general pannership, hereinafter individually and eoilectively called "Lessor", whose address is SW Gessner Road, Suiio !300, Houston, Texas 77024-4259, and SAMSON LONE STAR LThflTED PAllTNERSHIP, a Texas limited partnership~ hereinafter called "Lessee", the address of . which is Two West Second Street, Tulsa. Ok:Jahoma 74103.3101,

WITN E SSE TH:

I. GRANTING CLAUSE:

A. Lessor, in consideration of Ten and No/100 Dollars ($10.00) and other good and valuable considerations, of the royalties herein provided, and of the agreements of Lessee herein contained, hereby GRANTS, LEASES and LETS exclusively unto Lessee for the purpose of investigating, exploring, prospecting, drilling and mining for, and producing oil, gas and other liquid hydrocarbons, including sulphur produced in conjunction !.herewith, and laying such pipelines, building such tanks and power siations as are necessary to produce, save, take care of, treat, transport, 1emporarily store cunent production, and own said products produced from the land covered by this Lease, s.aid land being situaled in HARDIN COUNTY TEXAS, and described oil Exhibit "A" attached hereto and made a part hereof for all purposes.

• B. For the. purpose of calculating any money paymenu to be made to Lessor by Lessee under the various provisions her co( bUI subject 10 the proportiona~e reduction of royalties and rentals as hereinafter provided, the lands covered hereby shall be es1ima1ed to comprise 22...Q gross acs:cs and 11....2§1 net mineral acres. whether ii actually coniains more or less.

C. If the Lessor does not own the surface of the leased lands Lessor grants only such uses of the surface as Lessor owns by vinue of Lessor's mJnetal ownership.

D. This Lease shaU no1 be construed to include and Lessor expressly reserves hereby all of the sulphur, coaJ, 1.igni1e, uranium and other fis.sionabJe materials, geothc:nnaJ energy, including entrained methane, hydrostatk pressure and thermal energy, base and precious metals and any and all other mineral substances,. excepting only oil, gas and other. liquid hydrocarbons and their respcaive constituent products expressly cov~~ by this Lease, presently owned by Lessor in,. under or upon leased premises, together with the rights of ingress and egress and use o.f the leased premises by Lessor and their mineral Lessees for pu.-poses of exploration for and produc1ion of the minerals reserved herein to Lessot. Funher. wi1hout limiting che rights granled to Lessee herein to perform seismographic Qr other geological 1ests on the leased premises, Lessor expressly reserves the right to perform or to gra.·n the righ; to others to perform seismogrzphic or other geological testJ for minerals over and .across !he lands covered by this Lease provided said operations do not interfere 'V¥ith Lessee's drilling or production operations. Lessor and Le'5ee shaU each conduct their respective operations on the leased premises so as not unreasonably to in1erfere with the operations or aaivities oftbe other.

-~ !J. IEBM: !· A. Subject to the other provisions herein contained, this Lease shall remain in force for a term of three (J) years from the effective dale hereof caUed "primary tenn•, and so Jong thereafter as oil, gas or.other liquid or gaseous hydrocarbons are produced in paying quantities from said land, or actual drilling or reworklng operations are conducted or this Lease is otherwise maintained as hereinafter provided, herein called "secondary term~,

• B. ANYTHING HEREIN TO IBE CONTRARY NOTWITHSTANDING, at any time before the expiration of the primary tenn of this Lease, Lessee must have commenced acrua! drilling operations by spudding in a well on the leased premises with a sufficient size drilling rig and related Pagelof21 PLAINTIFF'S EXHIBIT SAM.4616 26 Samson I Klorer Deoosition Exh. 26 ., ~ ,, ·• _.... ,

equipment to drill the same to the pemnned depth filed with the Railroad Commission of the State of Texas, and must prosecute the same with reasonable diligence, or else thls Lease shall'tenninate without funher notice.

ill. ROYALTIES'

Lessors reserve for themsdves, and their heirs, successors and .assigns, the following royalties and Lessee, in consideration of the Lessors' granting of th.ls· Lease, covenants and agrees to deliver same to Lessors out of production as follows:

A. On oil, Twenty~Five percent (?5o/D) of that produced and saved from the leased premises, free of expense to Lessor, to be, at Lessor's option ( 1) delivered into the pipelines, tanks or other receptacles to which Lessee may connect Lessee's wells; (2) delivered at the well or wells io tanks or other receptacles provided by Lessor, at Lessor's own expense (3) purchased by Lessee at the highest market price therefor being paid by a bona fide purchaser of oil in the county or counties where produced on the da1e of purchase, for oil of like quality and gravity; (4) sold by Lessee (for Lessor's account) to the purchaser of Lessee's oil, if"sold by Lessee at the well, for the price received by Lessee or any affiliate of Lessee for Lessee's own oil.

B. (1) On gas, including ca.singhead gas or other gaseous substances produced from said land, Twenty· Five percent (25%} of the market value at the wells of such gas, or Twenty.five percent f25o/o) of the price received therefor by Lessee, which ever is greater. It is expressly agreed that for the purposes hereof. ~market value~ of said gas, including casinghcad gas, sh.al! be definl"A as set forth in Paragraph IllH. hereof This royalty provision shall apply to a.II gas-sold at the wells, all gas soJd or used off rhe premises and aU gas otherwise sold, except as provided below.

• (2) Jn lieu of the royalty on gas hereinafter provided, in case Lessee shall itsei( or through an affiliated company, use gas from the premises in the extraction of gasoline or other products in a plant, Lessor shall be pa.id a royalty Twenty-Five percent (25%) of the then current market value al the plant ofsuCh gasoline or other by~products so extracted. "Market Value" of such gasoline or other products extracted in a plant shall be determined by (J) highest price posted for any product of comparable quality at common delivery point of Mt Belvieu, Texas, or (2) the weighted ayerage gross selling price for the respective grades of product, F.0.B. at the plant in which said gas is processed, whichever is greater. A.JI royalties due on plant products under the terms of th.is Subparagraph lll.B.(2) shall be based on that percent of total plant production of gasoline or other products representing the highe,$1 percent accruing to a third party processing gas through such plant under a processing agreemen1 negotiated al arm's length (or if there is no such third pany, the highest percent then being specified in processing agreements or contracts in the industry). In addition to the royalties on the plant products, Lessor shall be paid as royalty the market value (as defined in Paragraph 111.H.) at the point of delivery 10 the pipeline purchaser, if sold, or if used, at the point of use, ofTwentv~Five percent (25%) of all residue gas attributable to the leased premise;1 arnd sold or used. ln no event shall che royalties payable under this su.bparagraph for any twelve (12) month period be less than the royalties which would have been due had the gas not been processed.

(3) Should Lessee enter into a bona fide arm's length contract or arrangement with a non- affiliated company for use of gas from the premises in the manufacture or exuaction of gasoline or other products in a plant, Lessor shall have and be entitled to a royalty ofTwenty·Five percent {25%) of all such products, proceeds, monies, benefits, and other things of value, of every kind and character, received by Lessee or to which Lessee is entitled under such contract or arrangement anributable to gas produced from the leased premises. All royalties due on plam. products under the terms of this Subparagraph IJI. B.{3) shall be based on that percent of total plant production of gasoline or 01her products accruing to Lessee auributable to the gas produced from the leased premises. In addition to the royalties on plan! products, Lessor shall be paid as royalty the marke1 value (as that term is defined in Paragraph 111.H.) at the outlet of such plant or plants of Twenty-Five percent C25%) ofa.11 residue gas attributable to the leased premises and sold or used. ln no event shall the royalties payable under this subparagraph for any twelve {l2) month period be less than the royaJties whlch would have been due had the gas not been processed.

• (4) ln the event reinjection operations are not conducted or if the gas is not taken to a plant, if the gas from any well shall be sufficiently impregnated with condensate or other _liquid

P!ge 2 of2 I

SAM.4617 .,. . "•

hydrocarbons that paying quantities of condensa1e or other liquid hydrocarbons C:3Jl be separated therefrom and liquefied as a practical lease operation by the installation by Lessee ofmecllanicaJ traps. conventional separators or other similar devices customarily used in the industry for such purposes oo the premises., then in such event Lessee shall install such devices upon said lease.

(5) If, at any time al or before the expiration date of thJ? primary term. there is a well capable of producing gas on said land, but gas is not being produced, and this lease is not being ~ntained by production, operations or otherwise, Lessee, at Lessee's election., may pay as royalty to the parties entitled to royalty on or before the first day of the month after expiration ofninery (90) days after (a) the expiration of the primary term, or (b) the date this !ease ceases to be maintained by production operations or otherwise, a sum equal to one~1welfth {l/12) of Seventy· Five and NO!JOO Doliars ($75 00) per net mineral acre for each such net mineral acre in a production unit (as defined herein) around such well or w1thin a pooled unit then subject 10 this Lease, which payment shaH maintain this lease in force and effect for the acreage comprising said unit for a period of one (I) month from the date of payment and relieve Lessee of any further operaticin during such month. it being understood, however, that such paymerit shall in no manner affect nor alter the provisions of Article V. relating to the periodic drilling of wells. "Net tviineral AcreM as used herein. shall be equivalent to the full mineral interest on one acre of land and, shall be detennined by adding the respective products derived by multiplying the divided or undivided mineral interest of Lessor in the leased premises times the surface acres subject to like undivided mineral interests of Lessor in the leased premises. In like manner, with like effect and upon like payments on or before the expiration of the last preceding month for which such payment has been made, this lease may be maintained in force and effect for successive periods of one ( J) month each, until such time as the acreage comprising said unit is mruntained by production, operations or otherwise under the tenns hereof; provided, however, such payments shall not operate to maintain this Lease in force and effect for any period in excess of two (2) consecutive years for the first such occurrence; nor for any period in excess oftwelve (12) months for any succeeding occurrence not to exceed twenty-four (24) months cumulative. Any amounts so paid shall not be treated nor considered as advance royalty payments on any gas produced from such well or wells. Lessee may at any time and from time to time prepay such monthly shut-in royaJty for such periods as Lessee may elect. No1hing herein shall reUeve Lessee of Lessee's obligation at all times to protect the leased prerrJses from drainage as set fonh in Article VI.

C. An equal Twenty-Five percent (25%) pan of all other liquid hydrocarbons that may be produced from said land; or at Lessor's election, exercisable from time 10 time, an equal Twenty-Five percent !'25o/o) part of the full markel value in the field of al! such other liquid hydrocarbons, provided that when such liquid hydrocarbons are sold, the market value shall not be less than the amount realized by Lessee from the sale thereof in an arms length transaction, and, in any event, without any cost or expense to Lessor and without any deduction of any kind or character.·

D. Anything hcreinabove to the contrary notwithstanding, it is expressly provided that Less~ and any subsidiary ofLesSee, shall at all times exercise due diligence as the fiduciary agent for Lessor in the marketing of all products produced under the terms of this Lease. In the event Le.ss.or considers that the Lessee is not exercising due diligence as the fiduciary agent for Lessor in the marketing of any products produced under the terms of this Lease, then the provision of A.nicle XI. of this Lease shall ap'piy.

E. For the purposes of this Article lil., 1he following 1erms shall have the meanings set fonh below:

(1) Affiliate~ the term "Affili.a1e" or ~Affiliated Company", when used in relation to Lessee, means another corporation or business entities of any type which;

(a) owns more than ten percent (l O''Ai) of Lessee's stock or equity;

(b) more than ten percent (10'%) of whose stock or equity is owned by Lessee; or

(c) more than ten peicent (I 0%) of whose stock or equity is owned by

• any parent corpora;ion, either directly or indirectly, which parent

Page J of2 I

SAM.46iS .,, .. ,_

,,.,'""[·. "'-i

corporation also owns more than ten percent (100/o) of Lessee's stock or equity either directly or indirectly.

(2) As used hereip, the term uLessee" and •Affiliate of Lessee• shall also mean "Assignee or Assignees of Lessee" and• Affiliate of Assignee or Assignees of Lessees~

F. Upon request (and from time to time) of any party Lessor, or any of their respective agents, Lessee shall promptly furnish copies of any and all contracts for the sale, transponation or processing of Lessor's royalty. share of any gas or oil produced under the terns hereof.

G. Lessee agrees that all royalties accruing under this Lease shaJl be without deduction for the cost of producing, gathering. separating, compressing, dehydrating, Storing, treating, pr~ing, transporting and otherwise making the oil, gas and other gaseous or liquid hydrocarbons produced hereunder ready for sale or use or for the marketing thereof.

H. It is expressly agreed that for the purposes of th.is Lease the term ·marke1 value" of gas, including casinghead gas, shall mean the gross amount realized under any contract or contracts for the sale of gas produced hereunder; provided that, "marke~ value" shall be at least as high as the each month per mmbru published in "NATURAL GAS WEEK, TEXAS GULF fu:;t posting during COAST, ONSHORE INTERSTATE SPOT PRJCE DELIVERED TO PIPELINE" for gas sold interstate and "NATURAL GAS WEEK, TEXAS GULF COAST, ONSHORE INTRASTATE SPOT PRlCE DELIVERED TO PIPEI.JNE• for gas sold intrastate or, in the event NA TIJRAL GAS \.VEEK ceases publication or ceases to post the Reference Price set forth above, Lessor and Lessee mutually agree to employ a substitute price derived from the publication "INSIDE FERC GAS MARKET REPORT-SPOT INTERSTATE PRICE DELIVERED TO PIPELINE". IfLessee sells Lessor's gas under contracts providing for a term of one (1) year or more, the index for dete:rmining the floor value shall be that which references gas contracts having terms of one ( J) year or longer. The substitute price shall be the first posting during the month per rnmbtu. Jn the event the latter

• publication ceases publication or ceases publishing Texas index gas prices, then Lessor and Lessee agree to select a mutually agreeable index to be utilized as a floor for valuing Lessor's royalty. ·If Lessor and Lessee are unable to locate an acceptable substitute publication or if such substitute publication or appropriate price index is not available, then the parties hereto agree that ~market value" shall be as defined under the tenns of the oil and gas lease form at that time being used by the General Land Office of the State of Texas for mineral classified lands.

In the event a contract signed by Lessee or an index price used as a floor for valuing Lessor's royalty shall include any deduction for the expense of producing, gathering, dehydrating, compressing, transporting. manufacturing, processing, treating or marke1ing of gas, then such deductions shall be added to the market value of such gas so that Lessor's royalty shall not be chargeable, directly or indirectly, with any of such expenses or adjustments.

1. Notwithstanding anything herein to the contrary, in the event this Lease now, or in the future, covers and pertains to separate tracts, then each and every party Lessor to this Lease affinn.atively states, as indicated by Iris signature below, that it is his intent that there be no apponionment of rentals, roy,aities, shut-in rentals, minimum royalties or any other payment now payable or to be paid to Lessor under the terms of this Lease; further more, 1his Lease shaJJ not be construed as constituting either a community lease or a pooling or unitization agreement. As used in thls Article Ill, the words ~separate tract~ mean any tract with mineral or royalty ownership differing now or hereafter either as to parties or to percentage ovmersh.ip from tha1 applicable to any other part of the leased premises.

J. In the event this Lease covers and pertains as to separate tracts, either now or in the future, then in order to form the production units defined hereinbdow in Paragraph V.D., and subjeci to the provisions applicable to such production units, including without limitation those provisions as to size, shape, location, designation, re-designation and form as stated therein, Lessee is hereby given the right and power to pool or combine separate tracts subject to and covered by this Lease with other separate traci:s subject to and covered by th.is Lease. For the purpose of computing the royalties to which ownen of ro_yafries shall be entitled on production from each production unit, there

• shall be allocated to the applicable separate tract acreage included in such production uni! a pro rata portion of the production produced from such production unit. Such allocation shall be on an acreage

Ptgc 4 of21

SAM.4619 ... ""

basis; that is to say, there shall be allocated to the applicable separate tract acreage within the unit that pro rar.a ponion of the production produced from the production unit which the nUmber of surface acres covered by such separate tract and induded in the production unit bears to the total number of surface acres incJuded in the production unit commencing with the date of first production from the production unit .

K. For the pilrposes of calculating all royalties payable under Article JU. herein, it is expressly provided that all such calculations shall be based on formation production as reported on Texas Railroad Comm.ission forms P-1 and P-2.

IV. DELAY RENTAL:

A. If operations for drilling are not commenced on said land on or be fore one ( J) year ·from the date here0f, this Le.ase shall then terminate as 10 both parties, unJess on or before such anniversary dale Lessee shall pay to Lessor the sum of Seventy-Five and N0/100 Dollars ($75.00) per ne1 mineral acre for the number of net mineral acres then covered by this Lease (herein called rentals), which shall cover the privilege of deferring commencement of drilling operations for a period of twelve ( 12) months. Thereafter, upon the payment in like manner annually of Seventy·Five and N0/100 Dollars ($75 00) per net mineral acre for the number of net mineral acres then covered by this Lease and not surrend~ed as hereinafter provided, the commencement of drilling operations may be further deferred for successive periods of twelve (12) months each during the primary term. The payment of rental under this Paragraph and of royalty under Article JlI. on any gas well from which gas is not being sold or used, and of minimum royalties, may be made by check of Lessee delivered to the panies entitled thereto on or before the date of payment. The above provisions are subje-ct to reduction of paymenu as cxpre!!sed in Paragiaph V.

B. Lessee may at any time or times execute and deliver to Lessor, or place of record, a release or releases covering any portion or portions of the above described premises or rights therein. and thereby surrender this Lease in whole or in part as to such portion or portions and be relieved of all obligations as to the acreage surrendered, and thereafter the rentals payable hereunder shall be reduced in the proportion that the acreage covered hereby is reduced by said release or releases; provided, however, anything hereinabove to the contrary notv.rithstanding, that prior to drilling operations on the leased premises if Lessee elects 10 maintain this Lease as to any ponion of the leased premises by payment ofrentaJ, such rental shall not be less than Seyentv·Five and NO/tOO Dollars ($"75 00) per year subject to the proportionate reduction under Article XVJII. This provision shall in no way deny the Lessee· the right at any time to release all the leased premises and thereafter be relieved of the payment of any rental. Notwithstanding any partial release or releases, Lessee shall retain such easement fights upon such released and surrendered lands as are then being used for Lessee's operations on other lands retained hereunder. For the purpose of release and assignment, the recited acreage of any tract shall be considered correct whether it contains more or less, unless subsequent survey or other accurate detennination reveals that such recited acreage is incorrect, in which case, the actual acreage shall prevail.

Y. CONTINUOUS DEVELOPMENT. POOLING. SECONDARY TERM. ANNUAL RENTALS AND MINIMUM ROYALTY:

A. If during the primary term and prior to discovery and production of oil, gas or other liquid hydrocarbons in paying quantities on said land, Lessee should drill a dry bole or holes thereon, or if after discovery and production of oil, gas or other liquid hydrocafbon's, the production.thereof in paying quantitie! should cease from any cause, this Lease shall not terminate if Lessee commences operations for drilling or reworking within sixty (60) days thereafter or if it be within the primary. term, commences or resumes the payment of rentals or commences operations for drilling or reworking on or before the rental paying date next ensuing after the expiration of $;ixly (60) days from the dale of completion ofa dry hole or CC$Sation of production, however, if during the primary term Lessee is engaged in drilling operations on a rental paying date and for that reason the annual rental is not paid, and if the we.!! is a dry hole, then on or be fore the expiration of sixty (60) days after the cessation of operations on such well Lessee will either c.ommcnce 11-dditional operations for the drilling of another well or pay a proponionate part of the annual delay rental which would have been paid except for such drilling operations, based on the number of days then remaining to the next ensuing

• remal payment date, or to the expiration of the primary term, whichever is applicable, in order to maintain this Lease in force and effect. Page 5 of2!

SAM.4620

·--·-·------- ''·

) B. If at the expiration of the primary tenn, oil, gas or other liquid hydrocarboµs are not being produced in paying quantities on said land, but Lessee is then engaged in drilling or reworking operations thereon or shall have completed a dry hole thereon within sixty (60) days prior to the e.nd of the primary term, the Lease shall reniain in force so Jong as operations on said well or for driiling or re\l(orking of any additional wen are prosecuted ~th no cessation of more than sixty (60) conserutive days, and if they result in the production of oil. gas or other liquid hydrocarbons., so long thereafter as oil, gas or such other liquid hydrocarbons are produced from said land in paying quantities.

C. Nonvithstanding the foregoing, it is specifically provided that dwing the primary term only, and after the discovery and·production of ~il, gas or other liquid hydrocarbons in paying quantities on the leased premises, Lessee shall either (1) develop the acreage retained hereunder by the drilling of additional wells at sixty (60) day intervals, as hereinafter provided for, (2) release those portions of the land covered hereby not included in a production unit or units, or (3) Le!See may in lieu of such drilling or release, maintain this Lease in force and effect during the primary term as to any land covered hereby which is not included in a production unit (either oiJ or gas) by the payment of the proportionate pan of the delay rentals provided herein as to the acreage not then included in a production unit or units.

D. Subject to the other provisions of this Paragraph V.D. and upon and at any time during the secondary term of this Lease, Lessee shall reasonably develop the acreage retained hereunder but not included in a production unit ("undeveloped acreage"), and in order to reasonably develop such undeveloped acreage, Lessee must drill additional wells on such undeveloped acreage at one hundred and twenty (120) day intervals, as hereinafter provided. lt is agreed that in the event !hat during the secondary term of this Lease, more than one hun.dred cwenry ( 120) consecutive days elapse between the completion of one well and the commencement of drilling operations on the next

• well on such undeveloped acreage, Lessee shall upon written demand of Lessor, forthwith execute and deliver to the Lessor, or place of record in the County in which said land is located, a release of all the premises covered by this Lease,· SAVE AND EXCEPT that Lessee shall retain, and thls Lease sh.all remai.'l in fiJll force and effect as to, the production units as hereina."l.er defined.

E. Lessee, at its option, is hereby given the right and power in its discretion to poOI or cornbine, as to any one or more formations, the land covered by this Lease or any portion of said !and, insofar only as gas or gas condensate rights are concerned (it being understood that there shall be no pooling for oil hereunder), with other land, lease or leases in the immediate vicinity thereof, except to the extent and in the manner hereinafter stipulated. With respect to any such uni! so fanned, Lessee shall execute in writing an instrument or instruments identifying and describing.the pooled acreage, and file srune for recording in the office of the County Clerk in Hardin County, Tex.as; and the pooled unit shall become effective on the date such instrument or instruments are so filed for record. Notwithstanding anything hereof to the contrary, pooled units created hereunder and comprising aJI or pan of the herein leased premises shall not exceed the maximum acreage figures permitted far production units of oil or gas wells completed at cenain depths under Article V. hereof unless the Railroad Commission of Texas or any governmental authority having. and asserting jurisdiction over the subject matter thereof prescribes for the drilling or operation of a well at a regular location, or permits for !he obtaining of the maximum allowable from any well to be drilled, drilling, or already drilled, larger pooled uni1s than any of those herein permitted, then any such pooled unit may be established or enlarged to conform to the size either required of a well or permitted for the obtaining of the maximum aUowable. For any well drilled on and completed at depths beneath the suzfacc of a traC1 covered by this lease 1here shall be no pooling with other lands, unless such tract is insufficient, due to either its lack of size or prior unitization hereunder, to comprise the maximum acreage figures permiued hereunder in v.rhich case all of said tract (95 acres more or less) or the then un·unitized portion of same shall be so pooled; and Lessee may include in such pooled unit such other acreage as may be available 10 comprise the maximum acreage figures pennitted under the terms of this lease. For a well drilled on or completed at depths beneath the surface of lands other than the herein leased premises, not less than all (100"/i.) of the lands (95 acres more or less) or the then un-wUtiwi portion of same shall be so pooled; and Lessee may include in such pooled unit such other acreage as may be available to comprise the maximum acreage figures pennitted under the tenns of this lease .

• Operations for drilling on or production of gas from any pan of the pooled unit which includes all or a ponion oflhe Leased Premises, regardless of whether such operations for drilling were commenced Page6ofZJ

SAMA621 '•,. ···. ····. . ,,

or such production was secured before or after the date of this lease or the date of the instrument designating the pooled unit, shall be considered as operations for drilling on or production of gas from the Leased Premises, whether or not the well or wells be located on the Leased Piemises, and the entire acreage constituting such unit or units shall be treated for. all purposes, except the payment of royalties on production from the pooled unit, as if the same were induded in this Lease. The above right and power to pool may be exercised at any time and from time to time and before or after a well has been drilled, or while a weD is being drilled. Lessee may vacate any unit formed by it hereunder by instrument in writing filed for record in said county at any time when therC is no unitized substanc.e bcing produced from such unit. The pooling for gas hereunder by Lessee shall also pool and unitize all liquid gas, and the royalty interest payable to Lessor thereon shall be computed the same as on gas. For the purpose of computing the royalties to whlch o\Vl"lers of royalties shall be eutit!ed on production from each production unit, there shaiJ be allocated to the applicable separate tract acreage included in .such prodoction unit a pro rata portion of the production produced from :S.Uch production unit. Such alloca!ion shall be on an acre.age basis; that is to ·say, there shall be allocated to the appJjc.ab!c separate tract acreage within the unit that pro rata portion of the production produced froin the production unit wtUch the number of surface acres covered by ·such separate tract and included in the production unit bears to the total number of surface acres included in the production unh, commencing with the date of first production from the produc1ion unit.

Pooled units subject to this Article V. shall confonn in sii.e with the acreage set forth hereunder.

ANYTHING HEREIN TO TilE CONTRARY NOTWJTHSTANDING, as used h1 :his Lease, the tenn •production unit(s)" is defined as follows:

( l) As to each well situated on the leased premises producing oil in paying quantities or be~greworked and classified as an oil well under the Rules and Regulations of the Railroad Commission of Texas, nqt more than forty (40) a~res around each such weJI, in the shape. hereinafter provided

(2) .As to each we.JI producing gas in paying quantities (or capable of producing gas in paying quantities v.ith all shut-in gas well rental having been paid thereon) or being reworked and classified as a gas well under the Rules and Regulations of the Railroad Commission of Texas from the surface down to a depth of 9,000 feet, not more than one hundred sixty (160) acres surrounding each such gas well, or such portion of the land covered by dtis Lease which shall have been included in a gas pooled unit.

(3) As 10 each well producing gas in paying quantities (or capable of producing gas in paying quantities with all shut-in gas well rental having been paid thereon) or being reworked and classified as a gas well under the Rules and Regulations of the Railroad Commission of Texas, not more than three hundred and twenty (320) acres surrounding i;ach such gas well completed at depths or horiz.ons below 9,000 feet beneath !he surface of the !eased premises and above 12,000 feet beneath the surface of the leased premises; or such portion of the !and covered by this Lease which shall have been inciuded in a gas pooled unit

(4.) As to each well producing gas in paying quantities (or capable of producing gas in paying quantities v.idi all shut-in gas well rental having been paid ;hereon) or being reworked and classified as a gas well under the Rules and Regulations of the Railroad Commission of Texas, n6r more than~ hundred·and forty (640) acres surrounding each such gas well completed at depths or horizoru of 12,000 feet beneath the surface of 1he leased premises and deeper; or.such portion of the land covered by this Lease which shall have been included in a gas pooled uni1.

Each production uni1 (except the rrac1s in pooled gas units, if any) to be centered by said well, to be in as nearly a square form as is reasonably possible, unless otheni.rise agreed to by Lessor. Should the Railroad Commission of Texas or any governmental authority having and assening jurisdiction over the subject matter thereof prescribe for the drilling or operation of a well at a regular location, or permit for the obtaining the maximum allowable from any well to be drilled, drilling, or already drilled, larger production units thari any Of those herein penniued, then any such production

• unit may be established or enlarged to conform to the size either required of a well or pennined for the obtaining of the maximum a1Jowable,

Pa~ 1 of21

SAM.4622 ... •· ....

E.ac.h such production unit shall be one contiguous.area (except the tracts in pooled gas units). Within thirty (30) days of completion of any well drilled on the leased premises producing in paying quantities, or capable of producing in paying quantities, Lessee shall furnish 10 Lessor, and shall file .of record in the Official Public Records of Rea! Propeny of the county in which the land is located, a wrinen designation of the production unit for such well.

Notwithstanding the termination of this Lease _as to a ponion or portions of the acreage covered hereby and as to depth under the other provisions hereof, this Lease shall nevenhe.les.s remain in force and effect as 10 each production urllt or units so long as oil, gas or Other liqWd hydrocarbons are produced therefrom in paying quantities or, as to gas production units, capable of being produced therefrom in paying quantities with all shut~in gas well rentals having been paid thereon, for that period of time specified above in Subparagraph lli.B.(5); and if production in paying quantities from any production unit shaD cease., this Lease, insofar as it covers and affects such particular production unit whlch ceases producing in paying quantities, shall terminate (nor withstanding the fact that ther-e may be production in paying quantities: from some other !eas:e production- unit) unless Lessee !haJl commence drilling or reworking operations on such particular production unit within sixty (60) days !.hereafter if during the primary tenn and one hundred twenry ( 120) days if after the primary term (sometimes referred to herein as the secondary tenn) and shall pursue such drilling or reworking operations on the same or successive wells at intervals not to exceed sixty {60) days if during the primary term and one hundred twenty (120) days if after the primary term (sometimes referred 10 herein as the secondary term) between the date of completion of operations on one well and the date of commencement of operations on another and, if production in paying quantities is restored on such production unit, so long there.after as production in paying quantities is produced therefrom or, 8l to gas production units capable of being produced in paying quantities with aU shut-in gas we/! renrnJs being paid thereon for that period of time specified above in Subparagraph IlI.B.(5), or. additional drilling or reworking operations are had thereon as above provided. 1t is further expressly provided that production or operations or payment of shut-in gas well rental on any production unit as so

• designated shall have no effect upon the continuance of this Lease as to any other production unit or units. lf any production unit gas well is converted to or reclassified as an oil well; or if any production unit well (either oil or gas) re-completed at a lesser depth; then Lessee shall re-designate the production unit for such wen so as to reduce the acreage included in such production unit to comply with the applic.able (with regard to type of production and greatest producing depth) acreage provisions stated hereinabove and shall release all lease acreage not included in such re-designated production unit or another production unit in the same manner as provided above in Paragraph V.C. of this Lease.

F. Any release required hereunder shall be filed for record in the Officia1 Public Records of Real Property in the Office of the Counry Clerk of the county in which said !and is located, and a copy of such instrumenl furnished to Lessor within a reasonable time; thereafter, Lessee shall lose all rights, cxcepl the easement and lease facilities rights as set fonh and specified in Article I. hereo~ and be relieved of ail obligations as to the acreage so released. Effective as of the date that Us.sec re{;eives the demand for release specified above in Paragraph V.D., each production unit !I.hall be treated the same as if it were covered by a separate lease. ·'

G, ANY!HING HEREIN TO TifE CONTRARY NOTWITilST ANDING, it ;, agreed that in any circumstances where Lessee is required to secure from the United States Army Corps of Engineers or any otl:ier State or Federal agency, department, or service having legal jurisdiction over Lessee's operations on 1hc leased premises, permits for the drilling and/or operation of wells under the terms of this Lease, the sixty (60) day or one hundred and twenty day period of time, whichever is applicable, referred to in this Article V. between the completion of one well and the commencem~ of drilling operations on the next well after the primary ti:nn shall be and accordingly is hereby extended by anothtt sixty (60) days after such permit is received by Lessee, but in no event more than three hundred sixty-five (365) days between the completion of one well and the commencement of drilling operations on the next well. Jn such event, Lessee shall promptly furnish Lessor a true copy of such permit in recordable form.

H. On each anniversary da1e of the first saJe of oil, gas or other liquid or gaseous hydrocarbons, or either, produced from said land and in the event Lessee is retaining all or any

• portion of the lands covered hereby by the production of oil, gas or other hydrocarbons, if the rentals and royalties (including shut~in payments) accrued hereunder, during the preceding twelve (J 2) months shall not have equaled at least the amount of ONE HlJNDRED and N0/100 Dollars PBge S of 21

SAM.4623 ($100.00) per acre for each net mineral acre as hereinafter defined of land subject to the tezms hereof al the commencement of said twelve (12) months, Lessee covenants and agrees that, within thirty (30) days after the recejpt from Lessor or Lessor's Agents of notice to such effect, Lessee will promptly pay to Lessor as an additional royalty the amount of the difference between such accrued rOyalties and the sum of ONE ffi.JNDRED and N0/100 Dollars ($100 00) per acre foi each net mineral acre subject_to the terms hereof at the commencement of said twelve (12) months. This additionaJ royalty provislon, when applicable, shall be in effect for and during the life of this Lease after the primary term.

L Notwithstanding anything herein to the contrary, in the event the Texas Railroad Commission, or any government~ authority having and asserting jurisdiction over the subject matter thereof, presm.bes for a drilling or operation of a well' at a regular loca~on,. or permits for the · obtaining of the maximum allo-wable from any weU drilled, drilling or already drilled, snwller productions units than any of those herein permitted for such well under the provisions defining production units in Paragraph VD. hereof: then any such production unit shall be established or reduced to conform to the minimum size allowed for the obtaining of the maximum allowable.

J. For the purposes of this Lease, the terms ~commencement of a weUft and ''completion of a well" arc defined as follows:

(l) "Commencement of a W e.!I" shall mean only the actual drilling of a well with rotary equipment and tools of a suitable size necessary to reach an objective depth from which Lessee may. in good faith, anticipate the production of oil or gas_

(2) "Completion of a well• shall mean the day Lessee releases the drilling rig used to drill such well or a completion rig, if utilized, or the date the latter of such rigs is moved off the location, whichever date occurs first.

• VI. OFFSET OBLIGATIONS:

A. Lessee covenants and agrees to operate the leased premises as a reasonable prudent operator would under the same or similar circumstances and to protect each of the leased premises from drainage by reason of any well drilled on adjacent or nearby lands, The above covenant notwithstanding, in the event a weU producing from a unit no! comprised of acreage from the !eased premises which has been classified "oil" by the appropria1e governmental body is completed on adjacent or nearby lands not more than six hundred sixty feet (660') from the leased premises, or draining the leased premises, or a well producing from a unit no1 comprised of acreage from the leased premises which has been classified as bgas" by rhe appropriate goverrunemal body is completed on adjacent or nearby lands not more th311 one thousand three hundred and twenty feet (l,320') from the leased premises, or draining the leased premises, Lessee covenant.<: and agrees to, within ninety (90) days from the date production is first sold, removed or olherwise marketed from said adjacent or nearby producing well, either (I) commence with due diligence operations for the actual drilling of an offset well on the leased premlses to the base of the formation from which the adjacent or nearby producing weJl is producing, (2)' pay Lessors as compensatory royalty, in addiUon to any royalties currently due, a sum equal to the royalties which would be payable under this Lease on the production from said adjacent or nearby producing well had same been producing on the leased premises, or (3) in lieu of drilling such offset well or paying ruch comper..satory royalty, release by recordable instrument the offset acreage, as hereinafter defined. MOffset Acreagen, as used hereinabove, shall be defined as a unit which would surround ruch a well if same were completed on the leased premises; provided, however, that if any ponion of the offset acreage should be induded in a producing unit designated by Lessee hereunder, then if Lessee elects to surrender and release such offset acreage, it may retain and except from such release the producing stratum or wata included in such producing unit, but such offset acreage must confonn to the depth, size and shape limitations contained in Paragraph V. herein. The provisions hereof shall apply regardless of whether lands upon which offset wells may be located are owned by Lessor or any of them or not, and with regard to wells located within the hereinabove prescribed distances from the leased premises, regardless of whether drainage is actually proved 10 be taking place or not. Notwithstaniling anjthing he:rein to the contrary, Lessee sh.all have no obligations under this Article VI. in the event a producing

• well on nearby or adjacent land is already offset by a well on the leased premises or on acreage pOoled therei.vith producing from the same producing horizon from which production has been secured from any well on nearby or adjacent lands. Page9of21 SAM.4624 B. If Lessee elects to-pay the above authorized compensatory royalty, then such royalty shaJl be calculated and paid on a calendar month basis. The compensatory royaJ1y for the calendar month in which production is first marketed from the offsetting well shall be paid on or before the first day of the ca!endar month next following the expiration of ~netY (90) days aft et the end of said calendar month in which production if first marketed, and subsequenl payments shall be made on or before the first day of each succeeding calendar month. If Lessee is neither the operator of, nor the owner of an interest in the offsetting well, and if the qperator of such well refuses to divulge to Lessee the acrual monthly volume and/or sales price of. production from such we!~ then Lessee shall be authorized to pay the c:ompcnsatory royalty for each month on estimates Of volume and sales price based on such information as may be timely available to Lessee from other source:>, S\J:Ch as the T~UlS Railroad Commission and/or the Texas Comptroller's Offi_cc, provided that ea.ch such payment which is made on an esrimated basis shall be properly adjusted within 60 days after thr. date 1.h.at Ussee directly obtains. or is f)Jrnished by Lessor, the actual volume and sales price for the month covered by the estimated payment.

VU. SURFACE OBLIGATIONS AND ADDITIONAL FEE:

Lessor owns no surface in the acreage described herein and this space is intentionally left blank.

VID. GENERAL INDEMNITY AGREEMENT:

Lessee covenants and agrees to fully defend, protect, indemnify, hold harm.less and render whole each party comprising Lessor, their representatives, agents and employees, and their !'<''5pective heirs, successors, legaJ representatives and assign.s, from and against each and every daim, demand or cause of action and any liability, cost, and/or expense (including but not limited 10· reasonable attorneys1 fees and expenses incurred in defense of Lessor, their representatives, agents and/or employees) for damage or loss in connection therewith, which may be made or asserted by Lessee, Lessee's representatives, agents or employees, or which may be made or assened by any contractor or subcontractors, contractor's or subcontractor's representatives, employees and/or agentS, or which may be made or asserted by any other third party (i.11duding, but not limited lo, Lessor's representatives, employees and/or agents or Lessee' s invitees, licensees or any 1respasser), on ac.count of personal injury or death or property damage caused by, arising out of, or in any way incidental to, or in connection with this agreement and of Lessee's operations both on or about the premises, including. but oot fimjted to, those situations where personal injury or death or property damage (or liability therefor) was caused by the sole negligence of Lessee, any contractor or subcontractors and/or third pany (and/or any of their respective representatives, employees and agents). by the concurr~t negligence or any combination of Lessor, or any one or more of them, Ussee, any contractor or subcontractor and/or any third party (and/o.r any of thcir respective representatives, employees and/or agents), or where liability for such personal injury or death or properry damage with or without fault is imposed on any theory of strict liability by operation by law.

Lessee must give notice to Lessor of any claim, action, administrative proceeding or other demand by any other governmental agency or other party of any such claims, actions, or demands made as a result of any action by Lessee.

Lessee shall assume, on behalfOfLessor, atJd conduct with due diiigence and in good faith, the defense of aU claims arising .out of the exercise of the rights herein granted to Lessee or in connection vvith or growing out of th.is agreement or the perfonnance by Lessee of the obligations hereunder which may be brought against the Lessor, whether or not lhe Lessee is joined therein, even if such elaims be groundless, false or fraudulent, and shall bear the costs of aJJ judgments and settlements in connection therewith, provided, however, without relieving Lessee of any obligations under this agreement, Lessor, a1 Lessor's election. may defend or partlcip.ate in the defense of any or all of the claims .

• ·-·----·-··---·-····-------·---·-··-----·-·-.·· Page !Oof21

. ·~·-·-----···--·-·------ SAM.4625 .......

) IX.. ENVIRONMENTAL PROVISIONS AND INDEMNITY:

A Lessee covenants and warrant5 that Lessee and Lessee's use of the Jeased premises will at all times comply with and conform to all la!\'s. statutes, ordinances, rules and regulations of any governmental,. quasi-governmental or regulatory authority (NLaws•) which relate to the exploration and production of oil and/or gas from the leased premises, or land pooled therewith, transportation, storage, placement, handling, treatment, discharge, generation, production. disposaJ or injection (collectively lr'freatment") of oil, gas and.other liquid hydrocarbon subst.anres produced hereunder eProducts"); of salt ..,,"ater, brine and other eXempt v.aste products produced in association with oil or gas ("Exempt Waste"); or of any other waste (including, without limitation., non-exempt wastes), any of the petrolwm ~ct. waste products, raclioactive .waste, poly-

• the discharge into the air of any emissions, which would require a permit under the Federal Waler Pollution Control Act or the Clean Air Act or any similar State or Local ordinance or other environmental Jaw; (iii) Lessee shall not permit any substance or conditions in or on the leased premises or the adjoining property which might support a claim or cause of action under RCRA., CERCLA, or any other FederaJ, State or LocaJ environmenial statutes, regulations, ordinances or other environmental regulatory requirements; and (iv) no underground storage tanks will be located in or on the leased premises. In the event either CERCLA or RCR.A. is amended so as to narrow or broaden the meaning of any term defined thereby, such amendment shall apply 10 Lessee's covenants contained herein, and provided further, to the extent that the laws of the State of Texas eStablish a meaning for such temts which is broader than that specified in ehher CERCLA or RCR.A, the broader meaning or definition shall apply.

B. Immediately upon receipt of any Notice, as hereinafter defined, from any party, Lc.ssee shall deliver to Lessor a true, correct and complete report of any written Notice or a true, correct, and complete report of any non~wrinen Notice. ~Notice" shall mean any.note, notice, or report of any of the following:

(l) any suit, proceeding, investigation, order, consent order, injunction, writ, award, or action related to or affecting or indicting the Treatment of any Product, Exempt Waste or WaSte in or affecting the leased premises;

(2) any spill contamination, discharge, leakage, release or escape of any Product, Exempt Waste or Waste in or affecting the leased premises, whether sudden or gradual, accidental or anticipated, or of any other nature (here.inafter •spill~);

(3) any dispute relating 10 Lessee' s or any other party's treatment of any Product, Exempt Waste or Waste or any Spill in or affecting the leased premises

(4) any claims by or against any insurer related to or arising om of any Product, Exempt Waste or Waste or Spill in or affecting the leased premises;

• (5) any recommendations or requirements of any goyerrunen1al or regulatory authority, or insurer relating· to any treatment of Product, Exempt Waste or Waste or a Spill in or affecting the leased premises;

Page! l of21

SAM.4626 .. ,

(6) any legal requirement or deficiency related to the treatment of Product, Exempt \Vaste or Waste or any Spill in or affecting the leased premises; or

C. In the event that (a) Lessee has caused, suffered or pennitted, direc;µy or indirectly, any Spill in or affecting the leased premises, or (bY any-Spill of any Product, Exempt Taste or Waste has occurred on the leased premises during the term of this agreement, then Lessee shall immediately take all of the following actions:

(1) notify Lessor, as prOvided herein;

(2) take all steps necessary or desirable, in Lessor's reasonable opinion, to clean up alJ such Spill and any contamiil.ation related to the Spill; and

(3) fully restore the leased premises to its condition prior to the Spill.

D. Lessee hereby agrees that n will indemnify, defend, save and hold harmless Lessor and their respective heirs, executors, administrators, successors and assigns (coUectively Mlndemnified Panies~) againSt and frOm, and to reimburse the Indemnified Parties with respect to, any and all damages, claims, liabilities, loss, coSts and expenses (including, without limitation. response costs, remediation, abatement costs, mitigation costs, harm to the environment, property damage, reasonable auomeys' fees and expenses, court costs, administrative costs and costs of appeals), incurred by or asserted against the Indemnified Parties by rell$on or arising out of: (a) the breach of any representation or undertaking of Lessee under this Article IX., or (b) arising out of the treatment of any Product, Exempt \Vaste or Waste by Lessee or any tenant, licensee, concessionaire, manager, or other party occupying or using the leased premiSes under the authority of Lessee, in or ;ffecting the leased premises, or (c) in the event of any Spill governed by the terms Of this Article IX.

E. Notwithstanding an)rthing in this agreement to the contrary, the representations and undertaklngs of Lessee in this Article IX. shall swvive the expiration or tcnnination of the Lease regardless of the means of such expiration or termination; funhennore, in the event of the assignment, sublease, or other transfer of ail or any ofL~see's rights under this Lease, the assignee or sub-lessee must assume all of the Lessee's obligations under this Article IX. and Lessee shall remain liable for eveiy obligation under this Article IX.

X. CHANGE OF OWNERSHIP:

A. The righ1s of either party hereunder may be assigned in whole or in part, and the provisions hereof shall extend to their heirs, successors and assigns; but no change or division of O'Wllersh.ip ofland, rentals or royalties, however accomplished, shall operate to enlarge the obligatioru or diminish the rights of Lessee; and no change or division in such ovmership shall be binding on Lessee until thirty (30) days after Lessee shall have been furnished by registered or cenified United States Mail at Lessee's principa1 place of business with a cenified copy of the recorded instrument or instruments evidencing same. In the event of assignment hereof in whole or in part1 liability for breach of any obligation hereunder shall, except as herein expressly provided, rest exclusivcly upon ihe owner of this Lease, or a portion thereof, who conunits such breach. In the event of the death of any person entitled to rentals and royalties hereunder, Lessee may pay such rentals and royalties to the credit of the deceased, or the estate of the deceased, until such time as Lessee is furnished \\-'ith proper evidence of the appointment and·qualification of an executor or administrator of the estate, or if there be none, until Lessee is furnished with evidence satisfactory to Lessee as to the heirs and devisees of the deceased.

B. In the event the Lessee herein, or any subsequent assignee of Lessee, at any time during the effectiveness of this Lease transfers and/or assigns this Lease or any interest herein. Lessee shall contemporaneously with each such assignment and/or transfer give written notice thereofby mailing a true and full copy of each and every instrument evidencing any and all such assignments and/or transfers to Lessor.

Page !2of21 SAM.4027 XJ. NOTICE OF DEFAULT:

A. The breach by Lessee of ariy obligation existin·g hereunder shall not automatically work a forfeirure or termination of this Lease nor cause an automatic termination or reversion of the estate created hereby nor be grounds for automatic cancellation hereof in whole or in pan except as · provided with regard to Lessee's obligation to pay Lessor royalty pa~ents in P;:i.ragraph XVU.D. of ibis Lease. ln the event Lessor considers that Lessee is in breach of any provision of this Lease (except for those with regard 10 payment of royalties), Lessor shall notify Lessee in 'Writing of the facts relied upon as constituting a breach hereof and Lessee shall have sixty (60) days after receipt of such notice in which to comply with the obligations imposed by virtue of this instrument ct to· provide evidence satisfactory to Lessor 1ha:1 Lessee is not ln breach of the terms and conditions of this Lease. ln the event Lessee fails 10 comply with such obligations or to provide said evidence within sixty (60) days after receip1 of such notice, the LessOr shall have the right to declare this Lease forfeited, canceled and tenninated,

Xll. PRODUCING LIMITATION (STRATUM OR STRATA\:

A. At the occurrence of a partial termination of this Lease in accordance with th.e provisions of Article V. hereof and respectively upon the subsequent partial termination as provided herein, and in no event later than the expiration of the founh year of the secondary term of thls Lease, this Lease 'Will tenninate automatically as 10 all the mineral estate of Lessor covered hereby on or under each production unit, respectively, which is greater than one hundred feet (100') below the deepest tOtal dep1h drilled or the stratigraphic equivalent thereof, whichever horizontal subsurface depth constitutes the deepest depth, for a well which Lessee has completed as comme;-ciaJ producer of oil and/or gas on the lands descnbed in this Lease or on other lands, if any, pooled or wlltized wlth the leased premises. Upon expiration of the founh {4th) year of the secondary term of this Lease this Lease v.ill further terminate as to all the mineral estate of Lessor covered on or under each production

• unit, respectively, which is (1) greater than one hundred feet (100') belciw the deepest depth from which production in paying quantities is then being had (or at which a well capable of producing gas in paying quantities is completed), and (2) situated between the surface of the land and one hundred feet (100') above the shallowest of the following:(!) the shallowest depth from which production in paying quantities is then being had, (2) the shallowest depth at which a well capable of producing gas in paying quantities is completed. or (J) the top of the shallowest identifiable stratum or horizon determined by the mutual agreement of the parties hereto to be capable if completion were had therein at that time of production in paying quantities, IF AND ONLY IF, Lessee has furnished identification thereof together with the applicable geologica!lgeophysica1 data used 10 identify such stratum or horizon on or before the expiration of the fourth (4th) year of the secondary tenn of this Lease. Such determination is to be based upon (1) the applicable geological/geophysical data acquired by or available to Lessee, copies of which are to be furnished to Lessor for review for such purpose, and (2) any applicable independent geologicaVgeophysicaJ data acquired by Lessor, copies of which are to be furnished to Lessee for review for such purpose. For these purposes, the parties will consider bo1h wells located on the leased premises and those on other lands, if any, )X)Oled or unitized with the leased premises. Furthermore, sub~uent to any occurrence of a panial termination of this Lease in accordaru:::e with Article V. and respectively upon the subsequent partial terminations as provided therein, and in any event, subsequent to the e.xpiration of the fourth yeM of the secondary term of this Lease, if any gas well on a production unit is re·compleled at a shallower depth and classified as an oil wcl~ then thi,s Lease \IJill further terminate as to all the mineral estate of Lessor covered hereby on or under such production unit which is greater than one hundred feet below- the deepest depth from which oil and/or gas is being produced from such oil well. Upon such partial termination Lessor and Lessor's successors, heirs or assigns shall thereafter have the right to reasonable use of the released acreage and depths of the leased premises, but without unreasonable interference with Lessee's rights, for the purposes of investigating, exploring, prospecting and drilling for, producing and owning oil, gas and other liquid hydrocarbons from the horizons (strata) as to which this Lease has terminated.

B. Upon the occurrence of an evenr of pania! termination of this Lease as to subsurface depths, or at a time thereafter upon request of Lessor, Lessee shall execute and deliver to Lessor recordable instrumeni(s) setting forth the various producing horizon (stratum) or horizons (strata)

• stated above, as reflected by reports to the Texas Railroad Commission or other governmental authority.having jurisdiction, so that the limit and extem of Lessee's rights under this Lease may be fued and reflected as a man er of record and, in addition thereto, as requested by Lessor, Lessee shall Page i3of2!

SAM.4628 ' I ' '

also execute and deliver to Lessor recordable releases or assignments Of any 3.!ld all interests hereunder not maintained in force and effect by Lessee by produ¢on, as above provided.

xm FORCE MAJEURE:

Should Lessee be pr~entcd from complying w:itb any expresSed or implied cov~t of this Lease, from conducting drilling or re:working operations thereof, or from producing oil or gas · therefrom by reason of scarcity of or inability to obtain or to use equipment or material, or by operation of force majeure, any Federal or State law, or other order, rule or regulation of govemment.a! authority, (SA VE AND EXCEPT where icssee is re.quired tO secure from the United Slates Anny Corps of Engineers or other State or Federal agency, department, or service having jurisdiction over Lessee's operations on the lease.d premises, permits for the drilling and/or operation of wells under the terms of this Lease in which case the provisions of Paragraph V.F. shall apply), then while so prevented, Lessee's obligation 10 comply with such covenant shall be suspended, and Lessee shall not be liable in damages for failure to comply therewith, and this Lease shall be eXtended while and so long as Lessee is prevented by any such cause from conducting drilling or reworking operations on or ffom producing oil or gas from the leased premises and the time while Lessee is so . prevented shall not be counted against Lessee, aJ'ljthing in this Lease to the contrary notwithstanding, provided, however, any period th.is Lease may be so extended shall not cumulatively exceed two (2) years, and provided further that during such period Lessee shall pay monthly to Lessor a rum equal to one-twelfth (I/12th) of Seventy-five and N0/100 Dollars

XIV. COUNTERPARTS:

A. TPis Lease may be executed In a!!Y number of counterparts found to be convenient. Each counterpart shall be deemed an original and shall be binding on all parties who execute Such counterpart, or another counterpart, irrespective of whether or not such counterpart, or a.iiother counterpart, is e.xecuted by the other parties below named as panies Lessor .

B. This Lease will not be recorded. However, Lessor and Lessee agree to CXC(:.Ute, and Lessee agrees to record in the Official Public Records of Real Propeny in the County in which said land is located, a ·Memorandum~ giving notice of this Lease, and prompUy follo'Wing such recording, Lessee shall furnish copies of such recorded Memorandum 10 Lessor.

XV. INFORMATION:

As to any and all wells drilled on the herein described land, Lessee agrees to furnish Lessor, or Less.or's authorized representatives, access to said well or wells at his or their own risk at aU reasonable hours. Lessee further agrees to furnish at no cost to Lessor, as set forth herein, the following information: A. A copy of all daily operation reports received by Lessee during drilling, completion or reworking operations shall be sent to Lessor, via facsimile, concurrent with Lessee's receipt of such repons

B. A copy of all electric logs, formation surveys or any other test made in such well or wells within thiny (30) days of the completion of such log, survey or test.

C. A copy of all applications and repons filed by Lessee with the Texas Railroad Commission in connection v.ith Lessee's operations hereunder shall also be mailed to Lessor simultaneously with Lessee's mailing of such applications and reports to the Texas Railroad Commission.

D. Lessee also agrees to furnish to Lessor any and all tirle opinions obtained by Lessee, whether rendered by Lessee's attorneys, by outside attorneys retained by Lessee, or by attorneys for

• purchasers of production under this Lease.

Page 14 of21

SAM.4629 '•.'/. "·

E. In addition, Lessee shall furnish to Lessor the following scismlc or other geophysical data obtained by Lessee during the term of this Lease on the leased premises: (1) access to for review and duplication of all basic data generated {including tapes); (2) scaled, planed maps for all geophysical. surveys performed showing the location of all shot holes and station points used in each suriey and (3) final stacked·and migrated seismic data at all depths across the leased premises. Lessor agrees to use Lessor's best efforts ·during the term of this Lease to maintain· all such data so provided in confi9ence untii otherwise released from this obligation by Lessee or until Lessee releases such data to the general oil and gas ind.ustry, whichever occurs earlier.

All such information shall be provided by Lessee irrespeCtive of the results Of Lessee's operations on the herein described land.

XVI. ASSIGNMENT:

In the event this Lease is assigned or transferred by Lessee in whole or in part, then, upon termination of this Lease, Lessee shall be responsible for obtaining a proper recordable release or releases of this Lease as to tbe portion or ponions of said land as to which this Lease has been assigned or transferre6 by Lessee and Lessee shall furnish such release or releases to Lessor, or file same for record in the Official Public Records ofReal Propeny in the County in which said land is located, promptly after termination of this Lease.

XVII. TIME, METHOD AND MANNER OF PAYMENT:

ANYTHING HEREIN TO THE CONTRARY NOTWJTHSTANDfNG, and in lieu of the tentlS and provisions contained in Sections 91.401 through 9 J .406 of the Tex.as Natural Resources Code, the parties hereto speci£caJly agree that the following provisions shall apply to this Lease and all royally paymenis made hereunder or other rights as provided in the above Jjsred se.ctions, al'Jd that

• such provisions of the Texas Narural Resources Code shall not be applicable; such parties funher, by their signatures below, waive any and all rights which might be claimed or asserted under such Sections 91.401 through 91.406 of the Texas Natural Resources Code; thus, it is specifically provided that:

A. All rentals and royalties which may become due hereunder shall be payable at Houston, Harris County, Texas or at such other place, if any, as may be specified by written directive of a panicular royalty owner as to such owner's interest.

B. Royalties on production shall be paid on a calendar month basis. The royalty for the calendar month in which production is first marketed shall be paid on or before the first day of the calendar month next following the expiration of sixty (60) days from the execution date of the completion repon or potential test for the well that is filed with the Railroad Commission of Texas, and the re~ectivc royalty payments for each subsequent calendar month of production shall be made an or before the first day of each successive calendar month following the calendar month in which the first payment is due.

C. All past due royalties (including any compensatory royalties payable under Paragraph Vl.B.) shall be subject 10 a Late Charge based on the amount due and calculated at the maximum rate allowed by law corr.mencing on the day· after the last day on which such monthly royalty payment could have been timely made and for every calendar month andJor fraction thereoffrom the due date until paid, plus attorney's fees, coun costs, and other costs in connection with the collection of the unpaid amounts. Any Late Charge that may become applicable shall be due and payable on the last day of each month when this provision becomes applicable.

D. No1withstanding anything herein to the contrary, upon the failure of Lessee to pay Lessor the royalty payments as provided herein, the Lessor may, at Lessor's option, elect to terminate said Lease by serving written notice on Lessee at the address shown herein, of Lessor's intention to terminate said Lease within not less than thirty (30) lays of receipt, or any time thereafter. Should Lessee pay Lessor all royally payments past due during said period, with interest as provided herein, this Lease shall no! terminate. However, upon the failure of Lessee to pay Lessor said past due

• royahy payments during said notice period, Lessor may elect to terminate this Lease, and title 10 said land shall revert to Lessor. Lessor may elect to terminate said Lease, after the expiration of said notice period, by serving notice of termination, filing a_copy of said notice with the County Clerk of Page 15 of21

SAM.4630 ·.·;, '·

the county in which said land is located. The effective ·date of said termination shall be the date sald tmnination i.s filed with the said County Clerk. In the event of the termination of said Lease in thls manner, Lessee shall not remove any of Lessee's equipment, fixtures, or personal propeny located on said land, unless so instructed by Lessor, and if so instructed, such property shall be removed Within thirty (30) days of notice to Ussee. In the event Lessor prohi.bits the removal of such property from the !eased premises,·':hen it shall become the property of Lessor, at the option of Lessor.

E. Neither Lessee nor its purchaser of production shall be authorized to make any deductions or adjustments again.st present or future royalty payments for royalty amounts previously paid without first giving Lessor or royalty owner thirty (30) days advanced notice of same along with a full explanation of such OVCipayment. In the event LCssor or royalty owner disputes i:he legitimacy of such deduction or adjustment, Lessee or purchaser shall not be entitled to make such deductions Or adjustments against Lessor's royalty (and Lessor's full royaJty payments shall not be iriterrup1ed) until such dispute is resolved. If it is agreed between Lessor or royalty owner and Lessee that a royalty owner w:u overpaid, then the overpaid royalty owner has the option of repaying such overpayment or allowing Lessee or purchaser to recoup such overpayment out of futw-c royalty payments on a schedule and in monthly amounts agreed to hy such overpaid royalty owner and Lessee or purchaser. Any overpaid royalty owner shall not be charged interest on the overpaid sums.

F. Lessor expressly reserves t:he right and Lessee expressly grants to Lessor and any royalty O\\lfler the right to audit production, revenue and the calculation and payment of revenues to Lessor and ;oyaJty owners, by such royalty owner giving Lessee notice of the e;.cercise of this right and, within 30 days. after receipt of such notice, Lessee shall make available to the requesting royalty owner all books and records (together with copies thereof if requested by royalty owner) along wi.th all other data riecessary for royahy owner or his agent to audit such production, revenue and/or royalty payments. Lessor shall select the accounting procedure 10 be utilized in such audit and such procedure selected shall be binding on Lessee so long as sUch procedure is accepted under general

• accounting practice and standards. Ifit is determined that royalty owner has not been correctly paid all sums owed him, then Lessee shall reimburse the requesting royalty ov.ner for all costs and expenses incurred by Lessor for such audit, together with all unpaid revenues, late charges, and interest !hereon.

G. Without limiting the other provisions of this Anide XVU., it is further specifically acknowledged and agreed by the panics hereto that the 1erm "marker value" as used herein shall be defined in accordance with the above Paragraph IIl.H. and no1 in accordance with the provisions of Subsection 91 .402 (i) of the Texas Natural Resources Code.

H. The provisions of this .Article XVlJ. shall not apply where Lessor has elected to take Lessor's royalty in kind or market separately Lessor's royalty share of production under the terms of this Lease.

I. Notwithstanding anything herein to the contrary. Lessor's exercise of Lessor's rights under this paragraph shaIJ not be deemed as a waiver of Lessor's right 10 take all actions necessary to recover unpaid royalties, interest and other damages incurred.

J. Jn the event Lessee enters into a gas purchase contract which contains what is commonly referred to as a ~take or pay provision• (such provision meaning that the gas purchaser agrees to take delivery of a specified minimum volume or quantity of gas over a specified term at a specified price or to make minimum periodic payments to the producer for gas no! taken by the purchaser) and the purchaser under such gas purchase contract makes payments co Lessee by vinue of such purchaser's failure to take delivery of such minimum volume or quantity of gas, then Le.ssor shaD be entitled to TwenN~Five percent (25%) of all such sums paid to Ussee or producer under the "pay" provisions of such gas purchase contract. Such payment shall be due and owing to Lessor within sixty (60) days after the receipt of such payments by Lessee. Any payments made to Lessor under the Mpay" obligation of any •take or pay• gas contract shall be applied as a credit toward Lessee's minimum royalty obligation. If the gas purchaser "makes up~ such gas w:ithin the period called for in the gas contract and Lessee is required to give such purchaser a credit for gas previously paid for but not taken, then Lessor shall not be entitled to royalty on such "make up~ gas.

• If Lessee is not producing any quantities of gas from leased premises but is receiving payments under the npay~ ponion of such "take or pay" gas purchase contract provision, such

Pege !6o!2l SAM.4631 . ·.•., ·· . . ..

payrnt;nts shall not relieve Lessee of the duty to make ·shut-in royalty payments if'Lessee desires to continue this Lease, but such •take or pay~ payments shall be applied as a credit against any shut~in royalty obligation of the Lessee,

Lessor shall be a third-party beneficiary of any gas purchase contraC1 and/or transponation agreement entered into between Lessee and any purchaser and/or transporter or pipeline company .of Lessor's gas, irrespective of any provision of said contracts to the contrary. Further, Lessor shall be entitled to TWenty-Five percent (2lli.} of the vaJue of any benefits obtained by or granted to Lessee from any gas purchaser and/or transporter for the amendment, modification, cxtcms:ion, alteration, consolidation, transfer, cancellation or settlement of any gas purchase contract and/or transponation agreement.

xvrn. IJI1E: A Lessor hereby warrants and agrees to defend the tille to only Lessor's interest in said lands, as shown by the Official Public Records of Real Property of the county in which said land is located, against the claims of all persons whomsoever c.laiming or to claim the same by, through, or under Lessor, but not otherwise, and agrees that Lessee, at Lessee's option, may discharge any tax, mortgage or other lien upon said land, either in whole or in pan, and in the event Lessee does so, Lessee shall be subrogated to such lien with the right to enforce same and apply royalties accruing hereunder roward satisfying the same.

B. Without impairment of Lessee's rights under the warranty in event of failure of tirle, it is agreed that if Lessor owns an interest in all or any part of the land covered by this Lease, or part thereof, !ess lhan the entire fee simple estate, then the royalties, rentals and shut·in payments, or any other paymems hereunder to be paid or delivered to Lessor shall be paid only in the proportion which Lessor's interest therein, if any, bears to the whole or undivided fee simple estate therein. A11

• outstanding royalties chargeable to Lessor's mineral interest shall be deducted from those royalties herein provided.

XIX. TAXES:

All State occupation, severance, production and ad valorem taxes of every nature, kind and description levied upon the leasehold and royalty interest cr~ted by or reserved in this Lease by whatever taxing authority within the State, shall be borne and paid by Lessee at Lessee's sole cost and expense without' deduction from or charge against Lessor's interest or against proceeds payable to Lessor hereunder, but this provision shall not cover any taxes levied or assessed on the swfa~ of said land or any mineral interest, save and except the oil, gas and other liquid hydrocarbons interest, which is the subject matter of this Lease; nor shaJl this provision apply 10 any income, estate, gift, inherita,nce, or Federal windfall profits taxes charged on or assessed against any Lessor of this Lease.

XX. ATTORNEY'S FEES'

Jt is funher specifically provided that in the event it becomes necessary for Lessor to employ an attorney, or attorneys, as a result of any activity conducted by Lessee on the herein !cased premises, or land pooled therewith, or to enforce any of Lessee's obligations hereunder and Lessor is successful in any court action to enforce same, Lessee agrees to pay all reasonable attorney's fees incurred by Lessor in connection therewith.

XX!. BANKRUPTCY:

NotwithStanding any 13.llguage contained herein to the contrary, the rights of Lessee, or Lessee's heirs., succ.essors or assigns, in and to the leased premises, the equipment or fixtures thereon or the unsold oil and gas produced therefrom, shall automatically terminate, ipso facto, and be of no further force and effect upon the voluntary or involuntary filing of same for relief under the United States Bankruptcy Code.

XXII. PARAGRAPH CAPTIONS:

• 10 The captions set forth opposite each paragraph numl:>er are for convenience only and are not be used to interpret or have any legal effect on the terms and provisions of th.is Lease. P11ge 17 of21

SAM.4632 ' " ;'T.:

xxm. LESSOR FIDUCIARY CAPACITY: It is expressly agreed and understood that th.is instrument is executed by Parties identified as fiduciaries, solely in the capacities- stated and not otherwise, and that they shall never have any individU.al, personal 9r corporate liability or responsibility by reason of the execution of this instrUment, except in such fiduciary capacities.

XXIV, LESSOR'S AGENT:

This paragraph does not apply to Lessor, and accordingly this space is intentiona!}y left blank.

XXV. SECURITY AGREEMENT:

Lessor heteby retains a security interesfin aJJ of its proportionate part of(i) the oil, gas and other hydrocarbons produced and saved from the leased premises or lands pooled or unitized therewith or otherwise subject to this Lease as provided in Articles Ill. and XVII. herein regarding payment of royalties due under this Lease, and (ii) Lessor's respective royalty part of any and all proceeds of sale of such oi~ gas and other hydrocarbons and Lessor's respective royalty part of any and all accountS (including. without limitation, accounts arising from gas imbalances, or from the sale of oil, gas or other liquid hydrocarbons at the well head), contract rights, inventory and general intangibles relating thereto or arising therefrom, and Lessors respective royalty part of any and all proceeds and products of the foregoing (the "Collateral'"), to secure Lessee's payment of royalties due under the terms and provisiqns of this Lease.

In addition to any other remedies provided in this Lease, Lessor, as Secured Parry, may in event of Lessee's default hereunder proceed under V.T.CA, BUSINESS AND COMMERCE CODE (the ~code•) as to the Collateral, in any manner permitted by the Code. In the event of default by

• Lessee, Lessor' shall have the right to take possession and 10 receive iu proportionate pan of the Collateral and to hold same as payment for Lessee's obligations or to apply it on the amounts owing to Lessor hereunder. The filing of a suit and rendition of judgment in favor of Lessor for the secured indebledness shall not be deerned an election of remedies or otherwise aJfeCi the s~-urity interest as security for payment thereof ln addition, at any time during the term of this Lease, Lessor shall have the right, without prejudice to other rights and remedies, to collect, directly from any purchaser of production, the proceeds from the sale of its proportionate part of the Collateral. Al! purchasers of the Collateral may rely on a notification from Lessor stating its intent to collect such Collateral directly, and Lessee waives any recourse available against purchasers for releasing such Collateral as provided in this Paragraph.

The above reservalion by Le!>Sor of the security interest in the CollateraJ shall be a fu-s1 and prior lien against the Collateral, and Lessee hereby agrees to maintain the priority of said security interest against all persons. All parties acquiring an interest in the Lease and/or the personal property covered by 1his Security Agreement, whether by assignment, merger, mongage, operation of!aw, or otherv.iise, shall be deemed 10 have take such interest subject to the security interest in the Collateral as reserved herein. The address of Lessor, as Se'cured Party, is 820 Gessner Road, Suite l 300, Houston, Texas 77024-4259 and the address of Lessee, as Debtor, is set forth on page I of tl'>js Lease.

The Collateral includes Lessor's royalty part of the oil, gas and other hydrocarbons to be financed a1 the well head of the wells and accounts from the sale thereo( The parties hereto agree that the provisions of this Article XXV. shall be a pan of the Memorandum of this Lease, and when such Memorandum is recorded in the Official Public Records of Real Property in the county where the land covered here is located, this Article and the Memorandum thereof shall be effective as a filed financing statement for the purpo~ of the Code. In addition, Lessee agrees to execute and acknowledge financing statements and continuation statements thereto prepared and submiued by Lessor in conjunction herev.ith or at any time following the execution hereof, and Lessor is authorized to file such statements in the appropriate UCC and/or official Public Records of Real Property with the Office of the Secretary of State of Texas and the county in vrhich the leased premises are located, respectively, to perfect the se<:urity interest granted hereunder.

• Pege l8of21 SAM.463.3 '.

XXVI. FIELD RULES:

Lessee shall not file any Application for Field Rules penaining to the land covered by this Lease without first giving Lessor not less than thirty (30) days a~anc~ written notice of intention to do so, together with a copy of a draft of the Application which Lessee contemplates filing. · Within three days.after the date of the filing of the final form of such Application,. Lessee shall mail Lessor wrinen notice of the date of filing and a copy of the Application ·so filed.

XXV!l. DIVJS!ON ORDERS:

Notwithstanding Subsection 91.4_02 (c) of the Texas Natwal Resources Code, the execution ofDi-.ision Orders shall never be required as prerequisite for payment of royalty, and divis:ion orders, if signed for 1he convenience of the panies, shall not be construed as amending this l..ea.se regardless of terminology contained therein. If requested by Lessee, Lessor will execute and deliver 10 J~ee or the purchaser of production a written statement of Lessor's interest in such production and Lessor's current address and taxpayer's Federal tax identifii::ation number.

X.XVID. LANGUAGE:

Lessor and Lessee further acknowledge 'an.d agree thal each and every pro\'ision contained herein has been specificaJly negotiated for valuable consideration and no provision of this ~e agreement shall be construed or interpreted as being ~boiler plate" or ~surplus• language.

XXIX. MOST FA VO RED NA TIO NS CLAUSE:

If Lessee shall enter into an oil and gas Jease(s) part of which is located within three (3) miles of any exterior boundary of the subject lands covered by the subject Lease, hereinafter referred to as

• "Third Party Lease", Lessee shall notify Lessor of such fact. If the reserved royalty or the amount per acre payable for delay rentals, shut~in rentals or minimum royalty, at any time payable under such Third Party Lease, is higher than the like royalty and amounts payable as provided in the subject Lease, the royalty or amount payable per acre in the StJbject !ease. which is less than that provided in the Third Party Lease shall be immediately increased so that it will equal the royalty or other amounts payable under the Third Party Lease. The subject Lease and the Third Party Lease must be calculated in substantially the same manner, such that the comparison of the subject Lease and !he Third Party Lease is based on the same effective net royalty or other payments, and that same shall include or deduct the same types of charges, taxes and other burdens from such interests.

IN WITNESS WHEREOF, this instrumen1 is executed effective as of the 24th day of March, 1999,

as Co-Trustee under the Will of Charles G. Hooks, Sr., Deceased (dlb/a CHAS. G. HOOKS & SON)

S ANN HOOKS as Co-Trustee under the Will of Charlos G. G. HOOK

CHARLES G. H OK Ill as Independent Executor of the Estate of (harles G. Hooks, Jr., Deceased

• (dlbla CHAS. G. HOOKS & SON)

Page 19of21 SAM.4634 • ' .. ,' l • ••

., .

LESSEE:

SAMSON LONE STAR LIMITED PARTNERSHJP

~ca ~TEVEN E. AREA. Senior Vice President·Land On behalf of said Partnership

THE STATE OF TEXAS

COUNTY OF HARRIS Ji..J! This instrument was acknowledged before me on the .ifi;;day o~1999, by CHARLES G. BOOKS ill and by SUE ANN HOOKS as Co--Trustees under the Will of Charles G. Hooks, Sr., Deceased.

THE STATE OF TEXAS

COUNTY OF HARRIS . J/..;/J

• e This instrumenl was acknowledged before me on the i.:ff;day of~ 1999, by CHARLES G. HOOKS lII as lndependent Executor of the Estate of Charles G. Hooks, Jr., Deceased,

NORMA K. BALOR'Y Notmy Pvbllc, Slnte of To:Q!I MyCommisalClfl~ DECEMBER 05, 2000

THE STATE OF OKLAHOMA

COUNTY OF TULSA

The above and foregoing instrument w~ acknowledged before me on this the 3~day of March, 1999, by STEVEN E. AREA, as Seruor Vice President -Land of SA,\1:SON LONE STAR LIMITED PARTNERSHIP, a Texas limited partnership, on behalf of said pannership.

J:lrur;·,. () ~ .,,,·11w11 ... My, .~~'llXplreo . C1' Id.S \ ,,, Notary Public in and for tllStateofOklahoma

• Pagc20of21 SAM.4635 ' •} ,' f' •w

EXHIBIT "A"

ATTACHED ro· AND MADE A PART OF THAT CERTAIN OIL, GAS AND LIQUID HYDROCARBON LEASE DATED EFFECTIVE MARCH 2'f.1999, BY AND BETWEEN~ CHARLES G. HOOKS Ill. CO-TRUSTEE, ET AL, DOING BUSINESS JOJNTLY AS CHAS. G. c;, J- . HOOKS & SON, A TEXAS GENERAL PARTNERSHJP, AS LESSOJl., AND SAMSON LONE tJ'-'c I STAR LIMITED PARTNERSHJP, A TEXAS L!MJTED PARTNERSHJP, AS LESSEE, COVERING NINETY-FIVE (95) ACRES OF LAND, MORE OR LESS, IN THE ROBERT B. IRVINE SURVEY, ABSTRACT 33, HARDIN COUNTY, TEXAS.

Ninety·five (95) acres of land, more or less, in the Roben B. Irvine Survey, Abstract 33, Hardin County, Texas, more fully and particularly described in .that ccnain deed da1ed January 3, 1925, from M. J. Jorgensen to Chas. G. Hooks, recorded in Volume 98, Page 346, ct seq., of the Deed Records of Hardin County, Texas, reference to which deed and said records is here made for all purposes.

•

• Pag<:21of2l SAM.4636 . '

Oil. GAS AND LIO!!I!' HYDROCAR80N LEASE

TIUS AGREEMENT, made effective the date hereinafter provided, by and betw~. lhe und.,,;gned, CHARLES G. HQOKS.ID and SUE ANN HOOKS as Co-Trustees under the Will of Charles G. Hooks, Sr:, .DecW.d, and CllARLES G. HOO!CS ill a5 tadependenl Executor oflhe . Esu1.e of Chules G. !looks, Jr., De«as

WITNESS ETH'.· ..' L GRANTING CLAUSE,

A. lMsor, in consideration of Ten and No/lOO Dolta.rs ($10.00) and other good and valuable considerations., of the royalties herein provided. and of the il.greemMts of l.es$eo herein contained, hereby GRANTS, LEASES and LETS exclusively unto Lessee for the purpose of invCStigating. exploring, prospc¢ng, drilling and mining for, and producing oil, gas and other liquid hydrocarbons, including sulphur produced in conjunction therewith, an.d laying such pipeline3, building such ill.1tks llJld power stations as are neeessary to produce, save, 1ake care qf, treat, transpon, temporarily store cummi production, and own said products produced from the land C:OV«ed by thi; Lease,. said land being situated in HARDIN COUNTY TEXAS ·and described on Exhibit• A" ilrtaclied hereto and made a pan hereof for all purposes.

.; B. For the purpose of calculating any money payments to be made to Lessor by Lessee ''i under the various provisions bereo~ but subj ea to the propOrtionate reduction of royalties and rentals as hereinafter provided, the ~covered hereby shall be estimated to comprise 1Q.J} gross acres and I lQ...2 net mineral acres. whether it actually contains more or less. !; if C. If the Lessor does noc ovim the surface of the leased laJtds Lessor grants only such uses or the surface as Lessor owns by virtue of Lessor's mineraJ ownership.

I D. This Lease sha.IJ oot be construed to incfude and Lessor expressly reserves hereby all of the sulphur, coal, lignite, W1lnium and other 6ssionabfe materials, geothermal energy, including entrained mcdla.ne, hydrostatic pressure and thermal cn~gy. b~e and prcc:ioUJ met.ab and any and all other mineral substan«S. =

n. Ifil!M: A. Subject ro the other provisions herein contained. this Lease shall remain in foru for a term of three (3) yeat$ from the d"eetive date hereof call(.(! •primary term", and so Jong thereafter u oil, gas or o1'ier liquid or gaseous hydrocarbon.s are produced in paying quantities from said land, or actU41 drilling or reworking opt:rations ate conducied or this Lease is otherwise maintained as hereinafter provid~, herein called •secondasy term•.

B. ANYn:ONG HEREIN TO lliE CONTRARY NOTWITiiST ANOCNG, iu any time before the expiration of the prim.esy term of this Lease, Le.ssec must have conumt1c.ed actual drilling operations by spudding in a well on the I~ p_rcmises wir.h a sufficient size drilling rig aod related

• I PLAINTIFF'S EXHIBIT 27 Samson I Klorer P1gt I of21

:i

I Deoosition Exh. 27 !".'

equipment to drill the same to the permitted depth filed with the Railroad Co~on of.the State ofTCXl1$. lUld must pr.osCrute the same with reasonable diligence, or else this Lease sh.all terminate · without further notiu.

lll. ROYALTJllS:

Lessors fC$CfVC for themsdves, and their bein, $Uccessot'S and assigns. the f~llowins royalties and Lessee, in consideration of the Lessors' granting of this Lease, covenants and agrees to deliv~ wne. t.o Lessors out. of production as follows:

A. On oil TWenrv~Eivc percent G.lli) of that produced and saved from the leased · premises, free of expense to Lessor, to be, at Lessor's option (l} delivered into the pipelines, tanks or other receptades to whleh Lessee may connect Lessee's we!Js; "(2) delivered at the well or welb in tanb or other receptacles provided by Lessor, at Lessor's own expense (3) purchase

B. (I) On gas, including casinghcad gas or other gaseous 5ubstance5 produced from said land, Twenty-Frvc percent~ of the market value at the wells of such gas, or Twenry-Fjye percent~ ofi.he price received therefor by Lessee, wh.ich ever is greater. It is expressly agreed that for the purposes hereof, ·market value• of said gas., inc.ludina casinghcad gas, &MU be defined as set forth in Paragraph ill.H. hereof This royalty provision shall apply 10 all gas sold at the wells!, all gas sold or used off'the premise$ and all gas otherwise sold, except as provided below.

(2) In lieu of the royalty oo ga.s hereinafter provided, in case Lessee shall itself, or through an affiliated company, use gas from the premises in the cXtrac:tion of gasoline or other products in a plant, Lessor shall be paid a royalty Twenty-five percent £1..lliJ of the then current market value at the plant of such gasoline or other by-products so extracted. "Market Value• of such gasoline or other products extracted in a plant shall be determined frt (I) highest f;ric.e posted for any product of comparable quality at conunon delivery point of Mt BelviC!l, Texas, or (2) the weighted average gross selling 'price for the respective grades of product, F.0,B. at the plan! in which said gas is processed, whichever is greater. All royalties due on plant products Wl~er the tmru.ofthis Subpanigraph m.B.(2) .shall be based on that percent of total plant production of gasoline or other products representing the highest percent accruing to a third party processing gas t.brot1gh such plant under a processing agroement ncgoti.eled at arm's length (or if there is no such third party, the highest percent thet) being specified in processing agreements or contracts in the industry). In addition to the royalties on the plant products, Lessor shall be paid as royaJry the market value (as defined in Paragraph Ill.H.} at the point of delivery to the pipeline purchaser, if sold, or if used, at the poi.ru of use, ofiwenrv-five percent !llli.) of all residue gas attributable to the leased premises and sold or used. In no event shall the royalties payable under this subpa.ragrepb for any twelve (12) m:_oath period be less than the royaJties which would have been due had the: gas not been processed.

(3) Should Lessee enter into a bona fide arm's length contract or arrangement with · a non· affiliated company for use of gas from lhe premises in the manufacture or extraction of gasoline or other produeu in a plant, Lessor sball have and be entitled to a royalty of Twenty-frve percent ~ of all ~ch product!, proeeeds, nlonies, benefits, and other things of value, of every kind and character, received by Lessee or to which Lessee is entitled under sueh contract or arrangement attributable to gas produced from the leased premises. All royalties due on plant product.J under the ternu of this Subparagraph m.B.(3) shall be ·based on thai J)Creent oftotaJ plant production of gasoline or other products accruing 10 Lessee attributable 10 the gas produced from the lea.sect premise:1. In addition tq the royalties on plant products., Lessor shall be paid aS royalry the market value. (as that term is defined in Paragraph ffi.H.) at dle outlet of such plant or pfants of Twenry-Frve percent _OJlil of ail residue gas attributable co the leased prcmisc1 and sold or used. In rio event shall the royalties payable under this subparagraph for any twelve (12) month period be less than the royalties which would have been due had the P3 no! been processed.

(4) In the event reinjection operatiom are not conducted or if the ga.s is not taken t9 a plant, if the gas from any well shall be suffic:ient.ly impregnated with condensate or other liquid

• Pege2of2J

SAM.4205 r---------·-·-·-· ' I ·.'"' ! j

I 1 hydrocarbons that paying quantities of condensate or other liquid hydrocarbons can be separated . therefrom and liquefied as a practical lease operation by the inslJIJ!ation by L

(5) u; at any tim~ at or before the expiration date of the primary term. there is a well c.apablc of producing gas on said !Md, but gas is not being produced, and this lease is nol being maintained by production, operations or otherwise, LeSsee. at Lessee's election. may pay 113 royalty to the parties mtitled to royalty on or before the first day of the month after expiration of ninety (90) days after {a) ·the expitatiOn of the primary term, or (b) the date this lease ceases to be maintained by production operations or .otherwise, a sum equal to one-twelfth ( 1/l2} of Seventt~Five and N0/100 Dollars ($75 OOl per net mineral: acre for each sueh net mineral acre in a production unit (as defined herein) around sucb well or within a pooled unit then subject to this Lease, which payment shall maintain this lease 1n forc.e and effcd for lhe wcage comprising said unit for a period of one ( l} month from the date of payment and relieve Lessee of any funher operation during such month. it being understood, h9wcver, that such paymen1 sbaJl in no manner affeet nor Wter the provisions of Artie.le" V. relating to ;he periodic drilling of wells. "Net MinCral Ac.re" u used herein, shall be equivaleDt to the fuU mineral interest on one acre of land and, shall be detamined by adding the respeCtive products derived by multiplying the divided or undivided mineral interest of Lessor in the leased premises times the surface aaes subject to like undivided mineral interests of Lessor in the

l leased premises. In like manner, with like cffea and upon like p.a}'ments on or before the expiration of the last preccdilig; moath for wh.icb S1Jclt payment tw: been made, this le.a.sc may be maintained in force and effect for succe3.Sive paicxh of one (I} month each, until such time .u the.acreage compri:Jing said unit is maintained by production, operations or otherwise under the temu hereof; I provided, howeyer, such payments shall not operate to maintain this. Lease in force and effect for any ! period in excess of two (2) consecutive years for the first such occurrence; nor for any period in

I ex~ of twelve ( 12) mon1.hs for any succeeding occurrmee not to cxc.ecd !wenty-four (24) months cumulative. Any amountS so paid &hall not be treated nor considered as advance royalty payments on any gas produced from such well or wells. Lessee may at MY time and from time to time prepay such monthly shut-in royalty for .such periods as Lessee may elect. Nothing herein shalt relieve Lessee of Lessee's obligation at all times to protect the leased premises from drainage as set forth in

I ~ l .A,-tide VI.

C. .

An equal Twentv~frve percent !2.lli) part of all other liquid hydrocarbons that may be produced from said land; or at W:oor's election; exercisable from time to time. an equal rwmrv~Fiye percent (25%) pan ,of the full. marke: value in the field of all such other liquid l hydrocarbons, provided tha1 when such liquid hydrocarbons are sold, the market value shalJ not be less dwi the amount realiud by Lessee from the sale thereof in an amu lettgth transaction, and, in · any event. without any cOst or c:tpeme to Lessor and Without any deduction of any kind or character.

D. Anything hereinabove to the contruy notwithstanding, it is expressly provided that ·. · ·Lessee, and any subsidiary of Lessee. shall at aU times exercise due diligence ~ the fiduciary agent for Lessor in the marketing of all products produced under the terms of thi3 ~- ln the event Lessor considers th.al the Lessee is not exercising due ditigcnce as the 6duciary agent for Lc$sor in the marketing of any producu produced under the term.3 ofthU Lease. then the provision of Article· XI. of this Lease shall apply.

E. For the purposes of this Article ID., the following terms shall have the meanifl83 set forth bdow:

{I) Affiliate. the 1erm Affiliate• or "Affifiared Company", when used in relacfon 0

to Les.see, means another corporation or business entities of any type which:

(a) owru: more than ten percem (100/o) of lessee's stock or equity;

(b) more l.han ten percent (10"/ii) of whose stock or equity is owned by Lessee; or

(~) more !h.an ten percent (100/c) of whose stock or equity is owned by any parent corporation, either directly or indirect:Jy, which parent

• _] Ptgc3af2! j ~ SAM.4206 corpor.ltion also oums more than tCn percent ( l

(2) As used herein, the term nLesse~" and ~Affiliate of Lessee· shall also mean ~Assigrlee or Alsignces of Lessee• an~ •AffiJiate of Assignee or Assignee$ of Lessees·

· F. Upon request (and from ti.me to time} or' any pany Lessor, or any of their respective agents, Lessee shall promptly furnish copies of any and all contracts for the sa!e, transportation or processing of Lessor's royalty share Of any gll.ll o·r oil produced under the terns hereof.

G. Lessee Bgnt.$ that aD ioyalties accruing Wlder this Lease shall be without deduction for the cost of producing. gathering, separaWlg, cqmpres!i.ng, dehydrating, storing, treating, processing, transporti.%18 and otherwise making the' oil, ga.s and other gaseous or liquid hydrocarbons produced hereunder ready for sale or use or for the maiketing thereof.

H. I~ is expressly agreed that for the purposes of this Lease the term "market value~ of gas. including casinghead ga.s, shall mean the gross amount realized under any contraet or contracts for the We of gas produced hereunder; provided that, "market valueb shall be at lea.st as hl&h as the first porung during each month per nunbtu published in 'NATURAL GAS WEEK, TEXAS GULF COAST, ONSHORE INTERSTATE SPOT PRJCE DELrvE!tED TO PIPELINE" fo, gos sold intentate and 'NATURAL GAS WEEK, TEXAS GULF COAST, ONSHORE INTRASTATE SPOT PRICE DEL~ TO PIPELil'ffi• for gas sold intrastate or, in the event NA TIIRAL GAS WEEK ceases Publication or ceases to post the Reference Price set forth above, Lessor and Lessee mutuaUy agree to employ a substitute price derived from the publication MINSIDE FERC GAS MARKET REPORT-SPOT INTEl\STATE PRJCE DELIVERED TO PIPELINE". lflesse< sells Lessor's gas under cootr8ru providing for a term of one (l) year or more, the index for determining the floor vatuc shall be that which riferences gas contracts having tenn:i of one (I) year or IOnger. The substitute price s.ha1l be the first posting during the month per mmbtu. In the even! the !all.er ptiblicetio.n CCMe$ publication or ceasct publishing Texas index gas prices, then Lessor and Le.1see agree to select a mutually agreeable index to be utilized as a floor for valuing Lessor's royalty. If Lessor e:nd Lessee are unable to locate an acceptable. substitute publication or if such substitute publication or appropriate price index: is not available, then the parties hereto agree that •market value" shaU be as defined under the terms of the oil and gas lease form at that time being used by the · General Land Office of I.he Sta~ of Tc:xas for mineral classified lands.

In the event a contract signed by Lessee or an index price used as a floor for valuing leuo(s . royalty shall include any deduction for the expense of producing, gathering, dehydrating, compressing, transporting, m.anllmcturing, processing, treating or marketing of gas, then such d~ctions sh.all be added to the market value of such gas so that Lessor's royalty shall not be chargeable, directly or indirectly, with any of such expenses or adjustmenis.

I. Notwithstanding anything herein to the contrary, in the event this Lcale now, or in the future., covers and pertains to separate tracts. then each and tNCfY party Lessor to this Lease affinnativc!y st.ates, u i.adic.a!od by hi! signature below, tha! it Cs his intent that there be no 6.pportionment of rentals, royalties, shut-in rentals, minimum royalties or any other payment now payable or to be paid to Lessor under the terms of this Lease; further mere, this Lease shall not be col'lSUlled as constituting either a community lease or a pooling or unitization agreement. As used in this Article UI,, the words "separate tract~ mean any tract with mineral or royalty ownership differing now or hcrca.fter either as to parties or to percentngc ownership from t.h8t applic.abk: 10 any other part of the leased premises.

J. In the event this Lease covers and pertains as to separate tracts, either now or in the future, then in order to fonn the Production units defined herei.nbdow in .Paragraph V.D., and subject to the provisioru applicable to 51.lch production units. induding without limitation those provisions as to size, shape, location., designation, re.-dcsign.a.tion and fonn ·as stated therein, Lessee is hereby given the right and power to pOol or combine separale tracts subject to and covered by. this Lease with other separate tracts subject to and covered by this Lease. for the purpose of computing the royalties to which owners of royalties shall be entitled on production from each production unit, there shall be allocated to the applicable scpuate tract acreage included in such production unit a pro rata portion of the production produced from suclt produaion unit. Such allOGO.Uon slutll be on an acreage

• P~ge4af2I

SAM.4207 ---------·--·-- ·--- ·-· -. '" .' ... ,

sar. basis; that is to. there shall be allocated to the appliaible separate traa acreage wiihi.n the unit tlw j pro rata portion of the productioo produced from the productioo unit which the number of surface { acres covered by such sepam:e tract arl$i included in the produGtion unit bears to the total number of surfuce aaes includ~ in the production unit commencing with the date of first production from the j production ~· j K. For the purposes of calculating all royalties payable under Article Ul herein.. it is i expressly provided tbal aD such calculations shall be based on formation production as reported on i "' Texas Railroad Commission forms P·I and P-2.

i IV. DELAY RENTAL: I A If operations for drilling are not c.ommcnc.ed on said land on or bC fore one (l) year

I from the date bereot: I.hi$ Lease shaU then tcmtinate a.s to both parties, unle.ss on or before such anniversary dare Lessee shall pay to Lessor the sum of Seyentv·five and NQ/I 00 Do!Jar:1 ($75 QQ) per net mineral acre for the number of ne1 mintta.I iu.:res then covered by this Lease (herein ealled rentals), which shall cover.. the privilege of deferring commencement of drillins operation.s for a period of twelve (12) months. Thereafter, upon the payment in like manner annually ofSeyenry-fiyr; and

I N0/100 pol!w ($15 00) per net minera! aere for the number of net mineral acres then covered by this Lease and not surrendered as hereinafter provided, the commencement of drilling operations may be further deferred for suce.essNe periods of twelve (12) months each during the primary tenn. The payment of rental under this Paragraph and of royalty under Article Ill. on any gas well from which gas is not being sold or used. and of minimum royalties, may be made by check of Lessee de.live.red tc;> the parties entitled thetdo on or before the daie of payment The above provisions are subject to reduction of payments as expressed in Paragraph V.

B. Lcs$CC may at any time or times CJi:ecute and deliver to Lessor, or place of record, a rdt2lSC or releases covering any portion or portioru of the above described premises or rights ~erein, and thcn:by surrendt:r thU Lea.sein wbo!e or in part as to such portion or portions and be relieved of all obligations as to the am:agc surrendered, and thereafter the rentals paY'l;ble hereunder shall be reduced in the proportion that the ~ge covered hereby is reduced by .said release or releases; provided, however, anything hcreinabove to the contrary no;v.ith:standing, that prior to drilling operations on the lcastd premises if Lessee c!CCls to maintain this Lease 11.s to any portion of the leased premises by payment o( tent.al, such rcn1al shall not be less than Seyenty-Five and NO/lOO Pollan ($75 OOl per year subject to the proportionate reduction under Article XVIII. This provision shall in no way deny.the Lessee the right at any time to release all the leased premises and thl.1"cafter be relieved of the payment of any rental. Notwithstanding any partial release or releases, Lessee sh.all retain such easement rights upon such released and surrendered lands as are then being used for Lessee's operations on other lands retained hereunder. For the purpose of release and assignment, I. the recited aaeage of any tract shall be considered correct whether it contains more or less, unless i subsequent survey or other accurate determination reveals that such reci1ed acreage is incorrect, in wlUch ~e. the actuaJ acreage shall prevail.

V. CONTINUOUS D!ffELOPMENT. POOLING. SECONDARY JERM. ANNUM. RENTALS AND MINIMUM ROYALTY'

A. If during the primary term and prior to discovery and production of oil, gas or 01her liquid bydroaubon.s in paying quantities on said land, Lessee should drill a dry hole or holes thereon, or if after discovery and production of oi~ gas or other liqu.id hydrocarbons, the production thereof in paying quantities should cease from any cause, this Lease shall no! terminate ifl.;;sse:c commences operations for drilling or ravorlrins within sixty (60) days thereafter or if it be within !he primary term, commcncc.s or rC$lllnes the payment of rentals or commences operations for drilling or reworking on or before the rental paying date next ensuing aft et the ccpinnion or sbay (60) days from the.date of completion of a dry hole or cessation of production, bowCvcr, if' during the primary 1e:rm Lessee is ~ed in drilling operations on a rental paying date and for that reason the annual rental is not paid. and if the weU is a dry bole, then on or be fore the apira1ion of sixty (60) days after the cessation of operatioru: on :such well Les.see will e:ither c.ommcnce additional opcratioru for the drilling of another weU or pay a proportionate part of the annual delay rental which would have been paid acept for such drilling operations, base.d on the number of days rhen remaining 10 the next c:nsuing: rental payment dale, or to the expiration of the primary term. whichever is appli~le, in order to

• maintain this.Lease in force and effect. Pese5of2!

SAM.4208 ·~· .--.

B. lf at the expiration of the primary term. oil, gas or other liquid hydrocarbons are not being produced in pa)illg qwuitities on smd land, ""' Wsee ~then "1gaged in. drilling or reworldng operations thereon or shall have eompJeted a dry hole theroon within sixty (60) days prior to the end of the primary ~mn, the Lease d!aO remain in force so Jong as operations on said well or for drilling or rC""WOrlcing of any additional well Are proseicuted with no cessation of more than sixty (60) <0nsecu1iVo days. and if they =.it in the ptodue1ioo ofoil, gas or other fuiuid hydrocaibons, so long thCreafter as oil, g_a, or such other liquid hydrocarbons ~e produced from said land in paying quantities.

C. No~ the foregoin;s_ it is specifically provided that during the primary term only, apd after the diseovery and production of oil, gas or other liquid hydrocarbom in paying quantities on the leued premises. U:ssee shall either (1) develop the acreage mained hcrcunder by the drilling of additional wdls at sbay (60) day interval~ as hereinafter provided fur, (2) release tho.sc portions of the land covered hetd:>y not included in a production unit or unit$, or (3) Lessee may in lieu of such drilling or release, maintain this Le

D. SubjeCt to the other provisions of thi! Paragraph V.D. and upon and at any .time during the sccondsry term of th.is Lease, Lessee shall reason.ably develop the acreage retained hereunder but not included in a production unit ("unde"Vdoped acreage"), and in order to reasonably develop such undeveloped acreage, Le$.$CC must drill additional wells on such undeveloped aaeage at one hundred and twenty (120) day intervals, a,, hC'.f'einafter provided. ft is agreed that in the event that during the secondary tmn of this Leue, more than one hundred twenty (120) coruccUtivo days elap$e between the completion of one well and the commcnccmcnt of drilling operation$ on the next .,; well on such undeveloped acreage, Lessee shall upon written demand of Lessor, forthwith execute an.d deliver to the Lessor, or place of record ~ the County in which said land i.s located, a release of aU the premis" covered by this Lease, SA VE AND EXCEPT that Lessee shsll retain, and this Lease. s.\lill remain in full force a.-id effect as to, the production units as hereinafter defined.

'' · ~ E. Lessee, at iu option, is hereby given the right and power in its d.iserction to pool or combine, at to any one or more formations, the land covered by this Lease or any portion of said J~, with other land, lease or leases in the inunediaic vicinity theteo~ except to the extent and in the manner hereinafter stipulated. With rt$pect to any such unit so formed, Lessee :LhaJ.l execute in writing an instrument or instruments identifying and de3Cribing the pooled acreage, and file same for recording in the offii:e of the County Clerk in Hardin County, Taa.s; and the pooled Wlit sha.l.I become · effective on the date such instrument or instruments are so filed for record. NotWithst.anding anything hereof 10 the contrary, pooled wllu cceated hereunder and comprising all or part of the herein leased premises shall not exceed the maximum acreage tigure.$ permitted for production u.rUts of oil or gas wells completed at cert.aia depths under Article V. hcrrofwlless the Railroad Commissioo of Texas or any governmental authority having and assen:ing jurisdiction over the subject matter thereof prescn"'bcs for the drilling or operation of a well at a regular location, or permits for the obtaining of the maximum allowable from any well to be drilled, drilling, or already drilled, larger pooled units than any of those herein per:miued, then any such pooled onic m2y be established or enlarged to conform to the six.o either required of a wcl.I or penn.ittcd fur the obtain.ins of the maximum allowable. For any well drilled on and completed at depths beneath the sur&ce of a tract covered by this lease there shall be no pooling with other lands, unless such trace is insufficient, due to either its lack of me or prior unitixation hereunder, to comprise the maximum acreage figures permitted hC:reunder in which case all of said ttaet (10 aere3 more or less) or the then un-unitized portion of same shall be so poo_led; and Lessee may include in such pooled unit such other aaeagc as may be available to comprise the maximum aa-eagc figures pennined under the terms of this lease. For a well drilled on or completed at depths beneath the: surface of lands ·other than the herein leased premises, not less than all (I 00°4) of the lands (I 0 aae:s more or less) or the then un-unitized portion of same sh.all be So pooled; ·and Lessee may include in such pooled unit such other acreage as may be aVailable to comprise the maximum acreage figures permit.t~ under the terms of this lease.

Operations for drilling on or produc:tion from any pan: of the pooled unit which ineludes all or a portion 9f the_ Lca.scd Premises, regardless of whether suc;h operations for drilling were c.ommenced

• Pegc6of21

SAM.4209 1 r -···----·--

or such production was secured before or after the date oft.his lease or the date of the inSuument designating the pooled wUt, shall be considered as operations for drilling on or production from the Leased Premises, wheth~ or not the well or wells be located on the Leased Premises, and the entire acreage constituting such unit or units shall be treated for all purposes, except the payment of royahies on production from the pooled unit. as if the same were included in this Lease. The above right and power to pool may be exercised at any time and from iime to time and before or after a well hil.s been drilled, or while a well is being drilled. Lessee may vacate any writ formod by it hereunder by imtrwnent in writing filed for record in said county at any time when there l3 no unitized rubstance b(ing produced from such unit. The pooling for gas hereunder by Lessee sbaD also pool and wUtize all liquid gu, and the royalty interest payable to Le$.$Or thereon shall be computed the same as on gas. For the purpose of computing the royalties to whlch owners of royaJties shall be en.titled on production from each production unit, there shall be allocated to the applicable separate tract aaeage included in such produaion unit a pro rau portion of the pr9

Pooled units subject to this Article Y. sh.ail conform in siz.e with thi;; acr.:agc set forth hereunder.

ANYTillNG HEREIN TO TilE CONTRARY NOTWITHSTANDING, as wed in this Lease, the term •production unit(s)" is de~ed as foUows:

(I) Ju to each well situated oo the leased premises producin·g oil in paying quantities or being reworked and classified as en oil well under the Rules and Regulations of the Railroad Commission of Texas, not more than forty (40) acres around each such well. in the shape hereinafter provided

(2) Ju to each well producing gft.5 in paying quantities (or capable of producing gas in paying quantities with all shut-in gas well renta.i having btci paid thereon) or being reworked and classified as a gas well uru;1er the Rules and Regulations of the Railroad Commission ofTrxas from the surface down to a depth of 9,000 feet, not more than one hundred sixty (160) acres surrounding each such gas well, or ·such portion of the land covered by this Lease which shall have been included in a gas pooled unit.

(3) As to ea.ch well produ<:ing gas in paying quantities (or capable of producing gas in paying quantities Vr'ith all shut-in gas well rental having been paid thereon) or beiJlg reworked and classified as a gas well under ·the Rules and Regulations of the Railroad Commission of Texas, pot more than three hundred and twenty (320) acr~ surrounding each such gas well completed: at depths or horizons below·9,000 feet beneath the surface of the teased premises and above 12,000 feet bene4th the SJ.fface of the leased premises; or sudi portion of the land covered by this Lease which shall have been included in a gas pooled unit.

(4.) AJ to ead"i well producing gas in paying quantities (or capable of producing gas in paying quantities with .aU shut-in gas well renLal having been paid thereon} or being reworked "and clasmied a.ta gas well undu the Rules.and Regulations of the· Railroad Commissio!l of 1(:.1(83, not more than six hundred and forty (640) acres surrounding each such gas well completed at depths or. horizons of 12,000 feet bCleath the surface of the leased premises and deeper; or such portion of the land covered by this Lease which shall have been included in a gas pooled unit.

Each production unit (except the traa' in pooled gas units, if any) to be cattcred by said well, to be in u nearly a square fonn as is reasonably possible, unleu otherwise agreed to by Lessor. Should the Railroad Commission of T~ or any govcmmentaJ authority having 1111d a.ssening jurisdiction over the subject matter thereof prescribe for the drilling or operation of a well at a regular location, or pennjt for the obtaining: the rruOOmum allowable &om any we1J to be drilled, drilling. or already drilled, larger production uniu than any of those herein pemtirtcd, then any such production unit may be established or enlarged to conform to the size either require9 of a well or permitted for the obtaining of the maximum allowable.

• Page7of21 \,: '··.

Each such production unit shall be one c.ontiguous area (except rhe tracts in pooled gas units). Withili thirty (JO) days of completion of "'Y well drilled on the leased premises producing in paying quantities, or capable of producing in paying quantities, Lessee shall furnish to Lessor, and shall file of record in the Official Public Recordl of Re.al Property of the counry in which the land is located, a written designation of the production unit for such Well,

NotwithstandUtg the termination of this LeAse as to a portion or.port.ions of the acreage covered hertby and as to dqxh under the other provisions herco( thil Lease shaD neverthe!css remain in force and effect u 10 each production unit or units so long as oil, gas or other liquid hydroearlxim are produced therefrom in paying quantities or, as to 83.5 production units, capable of being produced therefrom in paying quantities with all shut·in gas well rentals having bet.n paid thereon. for th.at period of time specified above in Subparagraph ill.B.(S); BJJd ifproduction in paying quantities !rom any production unit shall c.ease., thiJ Lease, insofar 8.$ ii wvers and affecu such particular production unit' which ccas~ producing in paying quarnitle3, shall terminate (not withstanding the fact that the::re may be production in paying quantities from rome other lease production unit) unless Lessee shall Commence drilling or rmvorking operations on such partiru!ar production unir within sixty (60) days thereafter if during the primary term and one hundred rwco1y ( 120) days if after the primary term (sometimes referred to htn:in as the seco;idary tCl'Tll) and shall pw--sue such drilling or reworking operations on the same or succe3Sivc wells at intervals not to exceed sixty (60) days if during the primary term and one hundred twenty (l 20) days if after the primary term (sometimes referred to herein as the serondnry term) between the date of completion of operations on one well and the date ofcommencement of operations on another and, if production in paying quantities is restored on ruch production unit, so iong thereafter as production in paying quantities is produced therefr(lm or, as to gaJ production units capable of being produced in paying quantities with all shut~in ga5 well rentnb being paid thereon for that period of time specified above in Subparagraph ill.B.(5), or additioruiJ drilling or reworltina operations are had thereon as above provided. It is further expressly provided that production or operations or payment of shut-in gas well rental on any production unit 83 so designated shall have no effect upon the continuance of this Lease as to 11.nY other production unit or

• units. ff any production unit gas well is convened to or reclassified as an oil wdl; or if any ·production unit wcU (either o~ or gas) re--wmpletcd at a lesser depth; then Lessee shall rc--dcsignatc the production unit for such well so as to reduce: the acreage included in such production unit to comply w:ith the applicable (with regard to type of production and greatest producing depth) a.crease· provisions stated heceinabove and shall release all lease acreage not included in such re-designated production wUt or anotha production unit in the same ma.Mer as provided above in Paragraph V.C. of this L«se.

F. Any release required hereunder shall be filed for record in the Official Public Records ofReal Property in the Office of the County Clerk of the county in which said land is located, and a COPY o( such instrument furnished to Lessor within a reasonable drne; th~er, ~ shall lose all rights, except the cas.ement and lease fucilities rights as set forth and specified in AnkJe 1 hereof. and be relieved of aU obligatioN a,, to the acrc:age so released. Effective as of the date that Lessee receives the demand for release specified above in Paragraph V.D., each production unit shall be treated the same a,: if it wete covered by a separate lease.

G. ANYTillNG HEREIN TO THE CONTRARY NOTWITHSTANDING, it is '8fOed tha1 in any circumstances where Lessee is required to secun: from the United St.11tes Anny Corps of Engineers 01 any other State or Federal agency, department, or se:rvice :-.av.rig legal jwisdiction over ~·, operation.s on the leased premises., permits for the drilling and/or operation of wells under the terms of this Lease, the sixty (60) day or one bwidred and twenty day period of time, whichever is applicable, referred to in this Article V. between the completion of one weJJ and the. commencement of drilling opcratioru on tm next we!l after the primary term shall be and accordingly is hereby extended by another sixty (60) days after such permit is received by Lessee, but in no event more than three hundred sixty-5ve (36S) days between I.he completion of one well and the commenument of drilling operations on the acct weil. In such event, Lessee shall promptly furnish Lessor a true copy of such pennlt in recordable form.

H. On each anniversary date of the first sale of oil, gas or other liquid or gaseous hydrocarbons, or either, produced from said !and and in the event Lessee is retaining all or any portion of the lands covered.~ by the production of oil, gas or other hydrocarbons, if the rentals

. and royalties (including shui-W pilymcnts) accrued hereunder, during the preceding twelve (12) months shall not have equaled at least tj\e amount of ONE HUNDRED and NOl!QQ Do!!Ms

• . Page 8 of11

SAM.4211 r· ~~:-----------

($100.00l pa aae for eaeb net mineral aa-e a.s hereinafter defined of land subje<:t to the ~crms hereof at the commencement of said twelve (12) months, Lessee covenants and agrees t.Qat., within thirty (30) days after the receipt from Lessor or Lessor's Agents of notice. to such effect, Lessee will prompdy pay to Lessor as an additionaJ royalty the amount of the difference befo/Cen such aOO'Ued royaJties and the sum of· ONE HlJNDRED and N0/100 Do!Jw !S!OO QQ) per acre for each net m.irletal acre subject lo the terms hereof at the commencement of said twelve ( 12} months. This addition.a! royalty provision, when applicable, shall be in effect for and during the life of ttUs Lease after the primary term.

I. Norwitbstanding anything herein to the contrary, in the even! the Texas Railroad Commission, or any governmental au~ority having and a.s.sening jurisdiction over the subject matter thereof: prescribe! for a drilling or operation of a weil at a regular location., or permits for tho obtaining of the maximum allowable from any well drilled, drilling or aJrady drilled, ,mallet produ~ons wUts than any of those herein permitted for such well under the provisions defining production units in Psrasraph V.O. her.eof, then any such production unit shall be established or reduced to conform to the minimum siz.e allowed for the obtaining of the maximum allowable.

J, For the purposes of this Lease, the terms "commencement of a well" and "completion of a .well" are defined as follows: ·

(I) •eommencement ofa wen• sh.all mean on!y the acruaJ drilling ofa well with rotary cquipmec:t and tools ofa suitable size necessary 10 reach an objective depth from which Lessee may, in good faith, a.ntieipl!te the production of oil or gas.

(2) "Completion of a well~ shall mean the day Lessee rele.8.SC3 che dri1J1ns rig wed to drill such well or a completioa rig, if utilized, or the date the latter of such rigs is moved off the location. ·whichever date occurs first.

YL OFFSET OBLIGATIONS:

A. Lessee covenants· and agrees to operate the !eased premises as a reasonable prudent operator would under the $.UXIC or similar circumstances and to protect each of the lezed premises from drainage by reason of any wdl drilled on adjacenr or nearby lands. The above covenant notwithnanding. in the event a well producing from a uni! not compri.s.ed of acreage from the leased premises which has been classified •oir by the appropriue governmental body is completed on adjacent or nearby lands not more JJwi six hundred sixty feet (660') from the leased premise~. or draining the leased premise!i, or a well producing from a unit no1 comprised of acreage from the leased premises which has been classified as 'gas• by the appropriate governmerJtal body is completed on adjacent or nearby lands not more than one thousand three hundred and twenty feet (l,320') from the leased premise,,, or draining the leased premises, Lessee covenants and agrees to, 'J.ithin ninety (90) days from the date produ(:tion is um sold, removed or otherwise mariceted from said adjacent or nearby producing well, either (I) commence with due diligence operations for the actual drilling of 'an offset weU On the leased premises to the base of the formation from whicll the adjacent or nearby producing well is producing, (2) pay Lessors 8.1 compensatory royalty, in addition to any royalties currently due, a sum equal to the royalties which would be payable under th.is Lease on the production from said adjacent or neafty producing well bad sanle been producing on the leased ·premises, or (3) in lieu of drilling such offset well or paying such compensatory royalty, release by recordable instrument the offsd acrCago, aS hereinafter defined. •Offset Acreage", as used hereinabov~ shall be defined as B uni! which \ltOuld surround such a well if same were completed on the leased premises: provided, however, that if any portion of the offset acreage should be incJuded in a producing unit d~gnated by Lessee hereunder, then if Lessee eleas 10 surrender and release ruch ofilet acre.age, it may retain and except from such release the producing stratum or strata included.in such producing unit, but such offset acreage muS1 conform 10 the depth. size and ah.ape funitatioos contained in Paragraph V. herem. The provisions haeof shall apply regardless of whether lands upon which o.ffset wells may be located are owned by Lessor or any of them or not, and with regard to wells located within the hacinabovc prescribed distances from the leased premises, regardl~ of~ drainage is aaualJy proved to be taking plac.e or not Notwithstanding anything herein t0 the contrary, Lessee shall have no· obligations ~er th.is Article Vl in the event a producing well On nearby or Sdjact:n:t land is already offset by a well OD the leased premises Of oti acte.age pooled therewith producing from the same producing hori.1.on from which production has been serured from any weU on nearby or adjacent lands.

• ?age9of21

\0 . . ... '~ ' '

B. ! f l = el

VII. SURFACE OBLIGA11.0NS /,ND ADDITTONAL FEE:

· Lessor owns no surf~ in the acreage descnOed herein and this space is intentionalty left blank.

VII!. GENERAL INDEMN!D! AGREEMENI:

Lessee covenanu and agrees to fully defend, protect, indemnify, hold harmless and r~det whole each party comprising Lessor, their represcrua.tiv¢Si agents and employees. and their respeaive heirs, :SUCCe$SOU, legal representatives and assigns, from and against each and every claim, d~d or ca.use of action and any liability, cost, and/or e.xpenso (including but not limited to reasonable attorneys' fees and expenses incurred in defense of Lessor, their representatives, agents and/or employees) for damage or fo53 in coMection therewith. which may be made or asserted by LesSet, Lessee's representatives, agents or cmployee3, or wtUch may !)(l made or asserted by any contractor or subcontractors, cOntractor'~ or subcontractor's reprcsenwives, employ~ and/or. agetits, or which may be made or asserted by any other third party (mcluding, but not limited to, Lessor's representatives. employees and/or agent$ or Lessee' s invitees, licensees or any t.Iespasw), on account of personal injury or death or property damage caused by, arising out of, or in any way incidental to, or in connection with this agreement and of Lessee's operations both on or about the premises, including, but not limited to, those situation! where persona.J injury or death or property damage (or liability therefor) was caused by the sole negligence of Lessee, any contractor or subcontractors and/or third party (and/or any of their respecttve represencatives, employees and agents), by the concurrent negligence or any combination of~sor, or any one or more of them, Lessee, any conlraClor or subcontractor and/or any third party (and/or any of their respective representatives, employees aodlor agents), or where liability for such personal injury or death or property damage with or without fiw.lt is imposed on any the

WsCe mu.st give notice 10 Lessor of any claim, action, administrative proceeding or Otha demand by any other governmmteJ agency or other party of any such clairru, actions, or demand.I: made as a t"e$U.l_t of any action py Lessee.

Lessee shall as.sumc, on behalf of Lessor, and conduct ....;tlt due diligence and in good faith, the defense cf all claims arising out of the exercise of the rights herein granted to IMn:e or in connection with or growing out of this agreement o~ the pcrfonnancc by Lessee of the obligations hereunder whicll may be brought ·againSt the Lcs.sor, whether or not the Lessee is joined therein. eVen if such claims be groundless, false or fraudulent, and shall bear the cost.s of all judgments and settlemcnls in connection therC'With. provided, however, without relieving Lessee of any obligations under this agreement, Lessor, at Lessor's election. may defend or panjcipate in the defense of any or all of the claims.

:: .

• Po.~ 10of21

SAM.4213 -----·-------···-- ----------·--··--···

!,.·'" .r-.

IX. ENY!RONMENTAL PROVISIONS AND INDEMNITI':

A · Lessee covenants and warrants that Lessee and Lessee's use of the ·leased premises will at ail times comply with and confonn to all laws, Statutes, ordinances, rules and regulations of any govern.mental, quasi.governmental or regulatory authority (~Laws•) wtiich relatC to ·the exploration and production of oil and/or gas from the teased premises, or land pooled therewith, transportation., storage, placement,. handling, treatment, discharge, generation, production., disposal or injcc:tion (collectivdy '"Trealment•) of oil, gas and other liquid hydrocarbon substant:e5 produced hereunder rProducts1; of salt water, brine and other exempt waste produas produced in associa!ion with oil or gas ("Uempt Waste•); or of any other waste Oncluding. \¥it.bout limitation, non-exempt wast,.~ any oftbe pdrOlcum product, waste produru, rad;oaaive wastC, poly

B. lmmediatdy upon receipt of any Notice, as hereinafter defined, from any party. Lessee shall deliver to Lessor a true, c.orrect and complete report of any wrinen Notice or a true, corr~, and complete report of any non-'>Vrittcn Notice. •Notice~ .shall mean any note, notice, or report of any of the foUowi.ng:

(i) any suit, proceeding, inve5ciga1iop, order, consent order, injunction. writ., award, or action related to or affecting or indicting the Treatment of any Product, Exempt Waste or Waste in or affecting the leased prcmi~;

(2) any spill, contaminaiion, discharge, leakage, relea.s.e or C$CapC of any Product, Exempt Waste or W~e in or affecting the leased premises, whether sudden or gradual, accidental or anticipated, or of any other nature {hereinafter ~spill~);

(3) any dispute relating to Lessee' s or any other party's treatment of any Produa., Exempt Waste or W!Utc or any Spill in or affecting the leased premises

(4) any claims by or against any insurer related to or arising out of any Product, Exempt \V!Ste or Waste or Spill in or affecting the leased premises;

(5) any recommendations or requirements of any govemmWtai or regulatory authority, or insurer relating to any treatment of Product, Exempt Waste or Waste or a Spill in or aff~g the leased premises;

• SAM.4214 16f- •., r, '.· .~ ·.

(6) any legaJ requirement or deficiency related 10 the tr~t of Product, Exempt Waste or Waste.or 8ny Spill in or affecting the leased premises; or ·

C. In the event th.al (a) l.e$$ce bas caused, suffered or permitted, directly or indirec:tly, any Spill in or affecting the leascr1f premi$es, or (b) any Spill of any Product,. Exempt Tiute or Waste ·.ms occurred on the leased premises during the term of this agreement, then Lessee shall immedial:ely ake aU of the following actions:

( l) . oOtify Lessor, as provided herein~

{2) take all steps ntee5$al')' or desirable, in Les$0r's reasonable opinion, to clean up all such Spill and any contamination related to lhe Spill; and ·

·. (3) fully restore the leased premises to its condition prior to the Spill.

D. Lessee hereby agrees that it will indemnify, defend. save and hold hancless Lessor and their respective heirs. ~ecutors, administrators, suc:cessors and assigns (collectively ·indemnified Partie!!•) against and from, and to rc:imburse the Indemnified Partiel: with respect to, any Alld' aU damages, claims, liahilitie;s, loss, costs and expenses (including, without limitation. response costs, remediation., abatement costs, mitigation costs, hann to the cnvironmen1, property ·dam.age, reasonable attorneys' fcc:i and exp~. court COSl:s, administrative costs and c.osu of appeals), incurred by or as.strted against the Indemnified Parties by reason or arising out of: (a) the breach of any representation or undertaking of Lessee under lhis: Article IX. or (b) arising out of the treatment of any Product, Exempt Waste or Waste by Lessee or any tenant, ti~ concessionaire. manager, or other party occupying or using the leased premises under rhe authority of Lessee. in or affecting ·the leased p~ or (e) in the event of any Spill governed by the terms of th.is Article IX.

E. Norwith.staru:fing anything in this agreement co Che contrary, the repre:scntations an.d undertalcings of Lessee in this Article IX. shall survive the expiration or termination of the Lease regardless of the meam of such =qrira:tion or termination; furthermore, in the event of the asSgnment., sub.lease, or other transfer of all or any of Lessee's rights under this Lease, the assignee or sub.lessee must assume a1l of the Lessee's obligations under this A..rticle IX and LC$see shall terl".a.in liable for every obligation under this Article IX.

X. CHANGE OF OWffER$HIP:

A. The rights of either party hereunder may be assigned in whole or in part, and the provisions hereof shall c:nend to their heirs, sueeessors and assigns; but no change or division of ownership of land, rentals or foyattie!, however accomplished, sh.all operate ,to enlarge the obligations or dhrWUsh the rights of Le$s.ee; and no change or clivisjon in such ownership s.hal.I be binding on Lessee until thirty (30) days after Les.;cc:i shall have been furnished by registered or certified United Stat~ Mail at Lessee's principal plac:e of business ""1th a certified copy of the recorded instrument or instruments ·evidencing same. lo the evtflt of assignment hereof in whole or in part. liability for breacll of any obligation hereunder mall, c:

B. tn the event the Lessee herein, or any subsequent assignee: of Less.ee. at any time during the effectiveness oftbis Lease transfers and/or assigns th.is Lease or aey intercu herein, Lessee shall contemporaneously with each such assignment and/or transfer give written notice thereof by mailing a true and full copy of eaclt and every instrumeo1 evidencing any and all such assigrunents and/or transfeni to Lessor.

• Pigt 12of21

SAM.4215 \3 .. , . ........., . '

XL NOTICE OF DEFAULT,

A. The breach by Les.see of any obligation existing hereunder shall not automatically work a forfeiture or termination of lhis Lease nor cause an automatic termination or revet"Sion of the estate created hereby nor be grounds ror automatic cancdbuion hereof' in whole or in part except' as · provided with regard 10 Lessee's obligation to pay Lessor royalty payments in Paragraph XVIlD. of this Lease. ln the event Lessot considers that Le3see U in ·breach Or any provision of this Lease (except for those with regard to payment Of royalties), Lessor sh.a.ti notify Les.sec in writing of the 6tcts relied upon as c.onstituting a breach hereof and Lcs:i:ce shaU have ~brty (60) days after reeefpi Of $Ueh notice in wltic.h to comply with the obligations imposed' by virtue of this insuurncnt or. to 'provide evidence sati.sfa.ctory to Lessor that Lessee is not in breach of the tenns and conditions of this. Lease. In the eveot Lessee fails lo comply with such obligations or to provide said evidene.e v.oithin sixty (60) days after rec.eiPt of such notice, the Lessor shall h!lve the right to declare this Lease forfeited, canceled and tenninated. !' XIL PRODUCING LIMITATION IS'fRATUM OR STRATA),

A. Al the occurrence of a prutiaJ termination of this Lease in accordance with the provisioru: of Article V. hereof and respectively upon the subsequent .Partial termination as. provided herein, and in no event later than the expiration of the fourth year of the: s.econdary tenn of this.Lease.. thi$ Lease will terminate 111.1tomatically as to all the mineral est.ate of Lessor eoVt:red hereby on or under each production unit, respectively, which is greater than one hundred feet (100') below tbe deepest total depth drilled or the rtnuigraphlc equivalent thereof, whkhever horizontal subsurface depth constitutes the deepest depili, for a ..yell which Lessee h.as complet:ed as commen:ial producer of oil and/or gas on the lands described in this Lease or on other lands, if any, pooled or unitized v.itl1 the lcas.ed premises. Upon ex;pinuion of the fourth (4th) year of the secondary term of this Lease this Lease will furthC" tcnninate as to all the mincta! e.ste.te of Lessor c.overed on or under each production unit, respectively, which is (l) greater than one hundred feet (100') below the deepest depth from

• whlch production in paying quantities is then being had (or at which a well capable of producing gas in paying quantities is completed), and (2) situated between the $Urfacc: of the land and one hundred feet (IOO") above the shallow~ of the following: (l) the shallowest depth from which production in payjng quantities is then being had, (2) the Wllowest depth at which a well capable of producina: g83 in paying quantities is completed, or (3} the top of the shallowest identifiable nrawm or horizon determined by the mutual agreement of the parties hereto to be cap-able if completion were had thercin at that time of production in paying quantities, IF AND ONLY lF, Lessee has furnished idehtifi.carion thereof together with the applicable geological/geophysical data used 10 identify such stratum or h.oriron on or before the expiration of the fourth (4th) year of the secondary tcnn oft.his Lease. Such determination is to be based upon ( ! ) the applicable geologica1.lgeophysica.I data acqulred by or available to Lessee, copies of which e.re to be furnished to Lessor fot review for such purpose. and (2) any applicable indepernfent gcologic.aJ/gCophysica! data acquired by Ussor, copies of which arc: to be furnished 10 ~for review for such purpose. For these pwpose.s, the: parties will consider both wells located oti the leased premi~ and those on other lands. if any, pooled or unitiz.ed with the leased premises. Furthermore, subsequent to any occurrence: of a partial temlination oflhis Lease in acci:irdance with Article V, and respeetively upon the subsequent pattiaJ u:nnimtions as provided therein, and in any event, subsequent to the expiration of the fourth year of the secondary term of thi:s Lease, if any gas well on a production unit is re-rompleted ar a shallower depth and classified as an oil wclJ, then this Lease will further terminate a:i to all the mineral C$!att ofl...eMor covered hereby on or under such production unit which is greater than one hundred feet bdow lM de'!pesr depth from which oil and/or gas is being produced from such oil well. Upon such partiaJ 1enninarion Lessor and Leswr's sucoesson, heirs or assigns shall thereafter have the right to reasonable U$e of the rel.eased acreage and depth! of the leased premises, but without unreasonable interfCTCOCe with ~s righu., for the purposes of investigating, exploring., prospc:cting and drilling for, producing and OWDing oil. gas and other liquid hydra<:e.:ri;lon.s from the horiz.ons (strata) a.s to which this Lease has te:rmil:uued ..

9, ~pon the ocrurrenu of an event of partiaJ termination of this Lease as to subsurfuce depths, or at a time thereafter upon r~uest of Lessor, Lessee shall execute and deliver to Lessor record.able i.nstrument(s) setting forth the various producing horizon (stratum} or borizorui (nrata) stated above., as reBeacd by reports to the Texas Railroad Commission or other governmental authority having jurisdiction., so Wt the funit and extent of Lessee's rights under this Lease may be fixed and reflected as a matter of record and, in addition thereto, as reiquestcd by Lessor, Lessee shall

• Page 1Jo(2!

SAM.4216 '•,.I,.'' ' ' , ' I .. ·

also execute and deliver to Lessor recordable releases or assignments of any O.Dd all· interests hereunder not maintained in force and effect by Lessee by production, as above provided.

XIll. FORCE MAJEURE'

Should Lessee be prevented from complying with any expressed or implied covenant ofthls Lease, from conducting ·drilling or reworking operations thereof, or from producing oil or gas therefrom by reason of S<:atcity of or inability to obtain or to use equipment or material, or by opei"ation of force majeure, any FederaJ or State law, or other order, rule or regulation of governmental authority, (SAVE AND EXCEPT where ~see is required to SCCUTe from the United States Anny Corps ofEngioeen or other State or Federal agency, department, or service having jurisdiction over Lessee's operations on !he leased premises, permits for the drill!ng and/or operation of wells under the terms of thi$ Lease in which case the prr>visioru of Paragraph V.F. shall apply}, then while so prevented, Lessee's obligation to comply with such covenan1 shall be S\Jspended, And Lessee shall not be liable in damases for failure to comply therewith, and this Lease shall be extended while and so long as Lessee is prevented by any such cause ftom conducting drilling or reworking operations on or from producing oil or gas from the leased premises and the time while LM.seic: is so prevented shall not be <:OUnted against Us.see, anything in this Lease to the contrary notwitlutanding, provided, however, any period this Lease may be so extended shaJ.l not cumulatively exceed two-(2) yean., and provided further that during such period Lessee shall pay monthly to Lessor a sum equal to one-twelfth (I/12th) of Seyenty-Fjve and N0/100 Dollars fS75 OOl per aae for each mineral acre then subject to this Lease, the first of such payments to begin on or before the first day of the month after the expiration of rhirty (JO) days from the date this Luse ceased to be maintained by production, operations or otherwise. Nothing in this paragraph shall relieve the Lessee of Lessee's obligation to protect the leased premises.from drainage.

XlV. COUNTERPARTS:

A. Tttis Lea.st may be executed in any number of counterparts found to be convenient. Each counterpart shall be deemed an original and shall be binding on all parties who execute such counterpart, or another counterpart, irrespective of whether or not such countCipart, or anolhei- oounterpart, is executed by !he other parties below named as parties Lessor .

B. This Lease will not be recorded. However, Lessor and Lessee agree to c;icecu1e; and Lessee agrees to record in the Official Public Records of Real Property io the County in which. said land is located, a "Memorandum~ giving ootice of this Lease. and prompdy following such recording, Lessee shall furnish copies cif such recorded Memorandum to Lessor.

XV. INFORAfATION,

A:!, !o any and all wells drilled on the herein described land, Lessee agrees 10 furnish Lessor, or Lessor's authorized representatives, auess to said well or wells at his or their own risk at all reasonable hours. Lessee funher.agrees to furnish at no cost 10 Lessor, as set forth herein. the following information: A A copy of all daily operation reporU received by Lessee during drilling. completion or reworking operations shall be sen1 10 Lessor, via facsimile., concurrent with Lessee's receipt of such repons.

B. A copy of ail electric logs, formation surveys or any other test made in such well or wells within thirty (30) days of the completion of such log. survey or test.

C. A copy of aU applications and reports filed by Lessee with the Texas Railroad Commission in COMec:tion with Lessee's operations hereunder shall also be mailed 10 I...cssor simultaneously with Lessee's mailing of such applications and reporu !O the Texas Railroad Commission.

D. Lessee also agrees to furnish co Lessor any and all title opinions obtained by Lessee, whether rendered by Les$eC'S attorneys; by outside attorneys retained by Ussce, or by attorney' for purchasers of production under this Lease.

• P~gc 14of21

SAM.4217 1:S ) E. In addition, Lessee shall furnish to Lessor the following seismic or other geophysical data obtained by Lessee during the tttm of this Lease on the leased premises: (J) access to for review and .duplication of a.IJ basle data generated (including tapes); (2) scaled. platted mnps for alJ geophysical 5WVey5 performed showing the location of all shot holes and station point.11 used in each survey a.od (3) final st.a.eked and mignued· seismic data at all depths across the leased premises. Lessor agrees to use Lessor's best effons during the term of ttilii Lease to maintain all such data so provided in coafidcnce until othe-wisc released from this obligation by Lessee or wuil Lessee releases such data to the genera! oil and 82' industry, wh.icheve~ occurs earlier.

All su~ information shall be provided by Lessee lrrt$pective of the results of Lessee's opcratioru: on the herein described land.

XVL ASSIGN))fENT:

ln the event thi.s Lease is a.ssigcied or transferred by Lessee in whole or in part, then, upon temllnation of this ~ Lessee shall be respons.ible for obtaining a proper recordable reJ.eaJe or releases of th.is Lease as to the portion or portion.s of' said land as to which this Lease has ~ assigned or transferred by Lessee and Lessee shall furnish such release or releases to Wsor, or 6.le same for record in fhe Official PubUc Records of Real Propeny in the Counry in which said land is localed, promptly after.termination of this Lease.

xvn. TIME· MEmOD AND MANNER OF PAYMENT: ~G HEREIN TO THE CONTRARY NOT\VITHSTANDrNG, and in lieu of the terms and provisions containe.d in Sections 91 AOl through 9 J .406 of the Texas Natural Rcso~ Code, the parties hereto specific.ally agree I.hat the following provisiortl shaJI apply to this Lease and all royalty payments made hereunder or other rights as provided in the above listed sections., and that such provisions of the Texas Natural Resources Ox.le shall not be applicable; such parties further, by thti! signarures below, waive any and all rights "Which might be claimed or asserted under such Sections 91.401 through 9L406ofthe Tc:W Narural Resource<> Code; thus, rt is spccificslly provided that:

A. All rentals and royalties which may beromc due hereunder shall be payable at Houston, Harris CoWlty, °Texas or at such other place, if any, as may be specifled by written directive ofa particular royalty owner as to such owner's interest.

B. Royalties on production shall be paid on a calendar month basis. The royalty for the calendar moath in which production is firsi matketed shall be paid on or before the first day of the calendar month next following the expiration of sixty (60) days from the execution date of the completion teport or potential ten for the "WCU tba1 is filed with the Railroad Commission ofTex:as, and the respc:ctivc royalty payrnems for each subsequent ca.lend.at month of production shall be made an or before the first day of each successive calendar month following the calendar month in which the first paym.ent is due.

C. All pa.St due royalties (mduding any compensatory royalties payable under Paragraph VlB.) shall be subje<::t to a Late Charge based on the amount due and calculated at the maximum rate allowed by law commencing on the day after the la.st day on which such monthly royalty payment could have been timdy made and for every calendar month and/or fraction thereof from die due date until paid, plus attorney's fees, court costs, and orher costs in connce1ion wi1h the collec::tion of the unpaid amounts. Any Late Charge that may become applicable shall be due and payable on the last day of each month when this provision becomes applicable.

D. Nonvithstanding anything herein to the rontrary, upon the failure of Lessee 10 pey Lessor the royalty payments as provided herein, the Lessor may, 81 Lessor's option. elect to tcnninare sa,id Lease by serving written notice on Lessee at the address shown herein. of Lessor's intenlion lo terminat~ $8id Lease within not less than thirty (30) lays ofreceipL, or any time thereafter. Should Lessee pay Lessor an royalty payments past due during said period, v.rith interest as provided herein, this Lease shall not terminate. However. upon the failure of Lessee to pay Lessor said p:1:s1 due royalty paymcnls during said notice period, Lessor may elect 10 terminate this Lease, and titJe to said land shall revert to Lessor. L.esscir may elect to terminate said lease, after the expiration of said

• notice period, by serving notice of termination, filing a copy of said notice with the County Clerk of Page 15of21

SAM.4218 .. ~. : .. ~

the county in which said land is located. The cffoc:tivc date of said termination sha.1.1 be the date said termination is filed with the said County Clerk. In che event of the termination ofsaidJ...ease in th.is manner, Lessee shaJ1 not remove any of Lessee's equipment, fixtures, or persci{W property located on ~d land, unless so illSlructed by Lessor, a.nd if so instructed, such property shall be removed 'Nit.hln thirty (30) days of notice to I...cssec.. In the event Lessor protu'bits the removal of suclt property from the leased premises, then it shall become che property of Lessor, at the option of lessor.

E. Neither L¢ssee nor its purcfwer of production shall be authorized to make any deductions or adjustments against pre:scn1 or future royalry payments for royalty srnounu·previously paid without first giving Lessor or royalty owntr thirty (JO) days advanced notice of same along 'With a full explanation of such overpayment. In the event Lessor or royalty owner disputes the legitimacy of such deduction or adjustment. Lessee or purchaser shall not be entitled to make such deductions or adjusunentS against Les.sots royalty (and Lessor's full royalty payments ·shat! not be interrupted) until such djspute is resolved. If it is agreed between Lessor or royalty owner and Les.sec that a royalty owner was overpaid, then the overpaid royalty owner bas the option of repa)ing such overpayment or allowing Lessee or purchaser to recoup such overpayment out of future royalty paymenu on a schedule and in monthly amounts agtted to by suc.h overpaid roy.i!ty owner and Lessee . or purchaser. Any o~aid royaJty owner shall not be charged interest on the overpaid sums.

F. Lessor expmsly reserve$ the right and Lessee expressly grants co Le.uor and any royulty owner the right to audic production. revenue and the calculation and payment of rcvemJes to Lessor and royalty owners, by such royalty owner giving Lessee notice of the exercise of this right and, within JO days aftu r=ipt of such ooti«, Less<. shall make available to the requesting royalty o\\lllCI all books and records (togdher with oopies thereof if requested by royalty owner) along with all other data necessary for royalty owner or his agent to audit such production, revemie and/or royalty payments. Lessor sha.D select the accounting: procedure to be utilized in such audit aw:! sueb procedure selected shall be binding on Lessee so long as such proccdun: is accepted under genc:ral acoourtting praa.ice and standards. [fit is determined that royalty owner has not been com:ctl:Y paid all sums owed him, then Lessee shall reimbune the requesting royalty owner for all costs and expenses incurred by l.e$sor for such audit, together with all unpaid revenues, late charges, and interest thereon..

G. W~~ lim.iting"thc other proVision.s ofthls Article XVIl, it is further spccifical.ly acknowledged and agreed by the parties beceto that the term •market value" as used herein shall be defined i.n accordaru:e with the above Paragraph m.H. and not in accordance with the provisions of· Subsection 91.402 (i) of the Te:u.s Natural Resources Code.

H. The provisions ofthls Article XVII. shaU not apply where Lessor has dected lo take Lessor's royalty in kind or market lleparalely Lessor's royahy share of production under the terms of this Lease. ,. I. Notwithstanding anything herein to the conuvy, Le»or's exercise of Lessor' ll rights under this paragraph shall not be Ueaned as a waiver of Lessor's right to take all actions nccess.a.ry to recover unpaid royajties, interest and other damages incurred.

J. In !he event Lessee enters in[o a. gas purchase contract which oontains what iJ c;ommorily refared 10 iu a •take or pay provi~on" (such provision meaning th.at the gas purchaser ag:rte.S to take delivery of a specified minimum volume or quantity of gas.over a specified 1erm at a specified price or to make minimum periodic payments to the producer for gas not taken by the purchaser} and the purchaser under such gas purchase contra.ct makes payments to Lessee by virtue of such purchasc(s milure 10 take delivery of such ntirtlmum volume or quantity of gas, then Lessor shall be entitled to Twenty~Fm pcrccm ruID of all such sums paid to ·Lessee or producet under the ·pay• provisioas of such ga_, purch.a3e contract. Such payment shall be due and owing to Lessor within sixty (60) days after the receipt of such payments by Lessee. Any payments made to Lessor under the "pay" obligation of any •take or pay" gas contract shall be applied as a credit toward Lessee's minimum royaJty obligation. If che gas purch.aser "makes up• such gll.9 within the period called for in the gas contract and Lessee is required to give such purcha.ser a credit for gas j>reviously paid for but not taken. then Lessor shall not be entitled to royalty on such "make up" gas.

If Lessee is not producing any quantities of gas from leased premises but i$ rcceivi.ng payments under the •pay• portion of such "take or pay• gas purchase eontracc provision, such

• Pe.gi:: J6of:2!

SAM.4219 ..-'?· ~

payments shall nol relieve Lessee of the duty to make shut·in royalty payments if Lessee desires 10 continue thi!i Lease, but sueh ~take or pay" payments shall be applied .u a credit against any shut-in royalty obligation or the l.e$see.

Lessor shall be a.thiri:J-party beneficiary of any gas purchase contract ~d/or traruporiarion agreement.entered into between Lessee and any purchaser and/or transporter or pipeline company of Lessots gas. irrespective of any provi_s.ioo of said contracts to the c.ontrary. Furthu, Lessor shalJ be entitled to Twmty-Fiye percent ~ of the value of any bencfiu obtained by or granted to · Lessee from any gas purcllaser and/or transporter for the amendment, modification, extension. alteratioo,. consolidation, transfer, cancellation or ~lement of any gas purchase contract and/or transportation agreement.

A. Lessor her!hY warrants- and agrees to defend the title to only Lessor's imercst in said lands, ~ shown by the Official Public Rec.ords of ReaJ Property of the county in which said land is located. against the ciaims of all persot1$ whomsoever claiming or to claim the same by, through. or under Les.sor, but not otherwise, and agree$ that Lessee, al l.dsu's option, may disdw"ge any tax, mortgage or other lien upon said land.. either in whole or in part, and in the event Lessee does so, Lessee shaU be subrogated to such lien with the right to enforce same and apply royalties.accruing hereunder toward satisfying the same.

B. Without impairment of Lessee's rights under the warranty in event offaiture of title, it. i:s agreed that if Lessor owns an interest in all or any part of the tand <:-0vered by this Lease. or part thereof, I~ than the entire foe simple estate, then the royalties, renta!s and shut-in payments, or any other payments hereunder to be paid or delivered to Lessor iliaU be pa.id only in the proportion which Lcs.sor's interest therein, if any, bears to the whole or undivided fee :simple estate therein. AJJ outstanding royaltle5 chargeable to Lessor'$ mineral interest sh.aJI be deducted from those royahies herein provided.

XIX. TAXES:

AU State oceupation, severance,. production and ad valorem taxes of every nature, kind and description levied upon the leasehold and royalty interest created by or reserved in this Lease by whateVer wring &!thority within the State, WJ.l be borne and paid by ~ at Lessee'! role oost and expense without deduction from or charge against Lessor's interest or against proceeds payable to Lessor hem.u:ider, but this provision shall not cover any taxes leviod or. assessed on the swfac.c of sa.id land or any mineraJ intere:St, save and except the oil, gas and other liquid hydrocarbons in1crc.rt, which is the subject matter of this Lease; nor shall this provision apply to any income., estate, gift, inheritance, or Federal windfall profits taxes dtarged on or 3..5$CS.Sed against My Leuor of this ~ .

XX. AUORNEY'S FEES:

It is further specifically provided that in the event it bcromes neces.wy for Lessor to employ an attorney, or anomeys, as a result of any activity c;onducted by Lessee on the herein leased premises, or land pooled therewith, or to eofoice any of lessee's obligations hereunder and Lessor ls suec:es.s:fid in any court action to enforce same, Les.see agrees to pay all reasonable attorney's fees incurred by Leuor in c:onnection rhere:.vitb.

XXL !!ANKR!Jl'TCX:

Notwithstanding any language contained herein to the contrary, the rights of Lessee, or Lessee's heirs, $UCC-e$.SOfS or assigns, in and to tbe leased premises, the equipment or fixtures thereon or the Wuold oil and gas produced therefrom, shall automatically terminate, ipso facto, and be of no further force and effect upon the voluntary or involuntary filing of same for relief under the United Stat~ Bankruptcy Code.

XXIL PARAGRAPH CAPTIONS:

The captions set fonh opposite each. paragraph number are for <:-0nven.icnee only and are not to be uS:Cd to µitcrprei or bave ll1lY legaJ effect on the temu and prO'-..i.sions O'f this Lease.

• Pa.gcJ7of2!

SM1.4220 ',. ·~ ~ ' ~ ... "\

·. XXIll. LESSOR FIDUCIARY CAPACITY:

It is expressly agreed and understood that this instrument is executed by Parties identified as fiduciaries, solely in the capacities stated and not otherwise, and that they sha.U cever have any · individual, personal or corporate liability or responsibility by reason of the exeOJtion of this instrUment, except in such fiduciary capacities.

XXIV. LESSOR'S AGENT:

This paragraph does not apply to Lessor, and accordingly this space is intentionally left blank.

XXV. SECtJRITY AGREEMENT:

Lessor hereby retains a sccurity interest in all of its proportio!lllte part of(i) the oil, gas and other hydrocarbons produced and saved from I.he leased premises or lands pooled or unitized therewith or othcr.tjse subject to this Lease u provided in Articles m. and XVII. herein regarding payment of royalties due under this ~ and (U) Lessor's respec:civc royalty part of any and all p~ of sa!c of such oil, gas and other bydroearbons and Lessor's respective royalty part of any and all accounts (mcluding, without limitation, aeunts arising from 8" imbalaoe<:o, or from the ..ie of oil, gu or other liquid hydrocarbons at the well head). eonttaet rights, inventory and general intangib!e:i relating thereto or arising therefrom, end Lessor's re9pCCtive royalty part of any and ail proceeds and produou of the foregoing (the "Collateral"). to secure Lessee's payment of royalties due under the tc:rnµ and provisions of this Lea.$C.

In addition to 8!rJ other remedies provided in this Lease, Lessor, as Secured Party, may in event of Lessee's defwlt bemmdef proiocd uod" V.T.C.A, BUSINESS AND COMMERCE CODE (the •cooe•) as to the Collateral, in any manner permitted by the Code. In the event of default by ~ Lessor shall have the right to tAke possession and co receive its proportionate part of the Collateral and to hold..same a.s payment for Lessee's obligations or to apply it on the amounts owing to Lessor hereunder. The filing of a sWt and rendition of judgment in favor of Lessor for the secured indebtedness shall not be deemed lltl election of remedies or otherwise affect the security interest as serurity for paymetit thereo( In addition, at any time during the term of this Lease, Lessor shall have the right, without prejudice to 01hcr rights and remedies, to collect, directly from any purchaser of production, the proeceds from the sate of its proportionate pan of the Collateral. All purclwers of the Collateral may rely on a cotification from Lessor stating its intent to coiled such CoUateraJ directly, and Lessee waives any recourse available against purchasen for rdeasing ruch Collateral aJ provided in this Panigraph.

The above reservation by Lessor of the se.curiJy interest in the Collateral shall be a first and prior lien against ·the Collateral, and Lessee hereby agrees to maintain the priority of said $eCUrily interest against all pciwm, All parties w::quiring an interest in the Least: and/or the pem>naJ propeny cOvered by this Security Agreement. whether by assignment, mager, mongage. operation of law, or otherwi~ shall be deemed to have W:e such interest subject to the· security inttt'CSl in the Collateral as reserved herein. The address. of Lessor, as Secured Party, is 820 Gessner Road, Suite 1300, Houston, Texas n024-4259 and the address of Les~ as Debtor, is set forth on page l of this Lease.

The Collatend includes Lessor'! royalty part of the oil, ga.s and other hydro<"...arbons. 10 be futanccd at the"we!J head-of the wells and aceounts from the sale thereof The parties here10 agree that the provisions of th.is Article X:XV. shall be a part of the Memorandum ofthi3 Lease, and when such Memorandwn is recorded in the Official Public Records of Real Propetty in the county where the land covered here is located, this Article and the Memoran.dum thereof shall be effective as a filed financing statement for the purposes of the Code. In addition, Lelsee agree.i to cxe-c:u1e and aclcnowle

• Ptrtc 18of21

SAM.4221 ---------------·--·-···--

. =·

XXVL FIELD RULES; . "'i 1 li Lessee shall not file any' Application for Field RuJes pcnaining to the land covered by tM Lease without first giving Less.or nor less than thirty (30) days adva.nee written ootice ofim:ention io ~ do so, togethe( with a copy of a draft oftbe Application which Lessee contemplates filing. Wrt.hin three days aft.er the da.Ie of the filing of the final form of such Application, Lessee shall mail. Lessor written notice of the date of filing and a copy of the Application so filed.

XXVIL DIVISION ORDER$:

NotwithsWJ.ding Subsection 91.402 (c) of the Texas Natural Resources Code, the execution of Division Orders shall never be required as prerequisite for payment of royalty, and division orders, if signed for the convenience of the parties, shalt not be construed as a.mending this Lease regardless of terminology contained therein. If requested by Lessee, Lessor will ci;:ec:utc and deliver to Lesi¢e or the purchaser of production a written statement of Lcs.sor's interest in sucb production and Lessor's current addres! and taxpayer's Federal tax idCntification number.

XXVIII. LANGUAGE:

Lessor and Lessee further acknowledge and agree that each and t:Nety provision contained herein has been specifically negotiated for' valuable consideration and no provision of this Lease agreement shall be construed or interpreted as being "boiler plate• or •surplus• language,

XXJX. MOST FAVORED NATIONS CLAUSE· If Lessee shall enter into an oil and gas lease(s) pan of which is located within three (3) miles of any exterior bound~ of the subjca lands covered by the subject Lease, hereinafter referred to u •Third Parry Lease•, Lessee shall notify Lessor of such fact. If the reserved royalty or the amoun1 per a.ere payable for delay rentals, shu1..in rentals or minimum royally, at any time payable under such Third Party Lease, is higher than the like royalty and amounts payable as provided in the subjcei Lease, the royalty or ainoun1 payable per acre in the subject lease, which is less-than that provided in the Third Pan:y Lease shall be immedia1e!y increased so Wt it will equal the royalty or other amounts payable under the Third Party Lease. The subject Lease and the Third Party Lease muSl be calcu.lat~ in substantially the same mann.er, such that the comparison of the subject Lease and the Titird Party Lease is based on the same effective net royaltY or other payment3, and that same shall include or deduct the same types of charges, taxes and other burdens from such interests.

IN WITNESS WHEREOF, this instrument is executed effective as of the 24th day of.Match,_ 1999.

rn:n~:a~ Will of CbMles G. Hooks, Sr., Deceased (dlb/a · CHAS. G. HOOKS & SON)

g,,R ~1ao ~ SUE ANN H0J

Chari" G. Hooks, Sr:, Deoeased (dlb/a O!AS. G.

H~ ~.fr-"' : Independeni Ex:CQJtOr of the Estate of Charles G. Hooks, Jr .. D~ .(d/b/a CHAS. G. HOOKS & SON)

• Psge 19af21

SAM.4222 . • . . ' '• • .11 .'' .

LESSEE:

SAMSON LONE ST AR LIMITED PARTNERSHIP

·~ z-- c: STEVEN E. AREA. Senior Vice President-Lind ',. ~· On behalf of said Partnet>hip

TilE STATE OF TEXAS

COUNTY OF HARRIS A~'J This instrumellt WB.$ acknowtedgcd before me on the~day o~999, by CHARLES G, HOOKS m and by SUE ANN HOOKS as Co-Trustees under the Will of Charles G. Hooks, Sr., Dc=ised.

~ ' ;

! IBE STATE OF TEXAS

I co~o= th~ II was acknowledged before me on day of1':!4 1999, by CHARLES G. HOOKS ll1 as. Independent Executor of the Estate of Charles G. Hooks,. Jr., Deceased. I ' Notary Public in and for the State ofT

IBE STATE OF OKLAHOMA

COUNTY OF TULSA

The above and foregoing instrument was acknowledged before me on this thc.?>1"2-day of March, 1999, by STEVEN E. AREA, as Senior Vice President - Land of SAMSON LONE ST.4.R LIMITED PARTNERSHIP, a Texas limltod partnership, on behalf of said partnership.

MY.'.·.~~~~~:~ ..~fll C\IJ.sio1

• Page 20of21

SAJJ!.4223 2- \ ~ .' . ; '' : '·

EXHIBIT "A"

ATTACHED TO AND MADE A PART OF THAT CERTAIN OIL, GAS AND LIQUID HYDROCARBON LEASE DATED EFFECTIVE MARCH 1lf, 1999,. BY AND BETWEEN CHARLES G. HOOKS ID, CO-TRUSTEE, ET AL., DOING BUSINESS JOlNTLY AS CHAS. G. HOOKS & SON, A TEXAS GENERAL PARTNERSHIP, AS LESSOR, AND SAMSON LONE STAR LIMITED PARTNERSHIP, A TEXAS LlMITED PARTNERSHIP, AS LESSEE, COVElllNG TEN (10.0) ACRES OF LAND, MORE OR LESS, IN THE ROBERT B. IRVINE SURVEY, ABSTRACT ll, HARDIN COUNTY, TEXAS.

Ten (10.0) acres of\and. more or less. in the Robert B. Irvine Survey, Abstract 33, Hardin County. Tc.iw, more fully and particularly described in th.at certain deed dated March 25, 1922, from N.E. Laidacker to Chas. G. Hook3, recorded in Volume 93, Page S33, et seq., of the Deed Records of Hardin County, Texas. and being the same iraet of land more fuJ!y and particularly descnbed in that certain Special Wam.nty Deed dated March 23, 1995, from Charles G. Hooks lI1. Co-Trustee, e1 at. i i to William H. Munro and wife, Kelly B. Munro, rcoorded in Volume t04J, Page 405, et seq., of the " OfficiaJ Public Rocords (Deed Records)-ofHan::lin County, Texas, reference to which dectb and said records is here made for aU purposes.

• i. \ Page21o/2l

SAM.4224 POLLARD, GORE & HARRISON PETROLEUM & ENVlRONMENT AL ENGINEERS REGtSTEIW> IN )23 CoNt;RfSS A VENUE, SUITE 200 OFFICES IN ColORAOO, !.olJtslANA AUSTIN, TEXAS 78701 AUSTIN, DllU..AS OK!AHOMA & TEl

R.ECEP.tD O.ecember 7, 2000 D'E;:; ~· . Zf]DiJ SAMSON LAND DEPT.

Ms. Jackie Kelm Railroad Commission ofTexas Yia Hand Delivery 1701 N. Congress Avenue Austin, Texas 78701

Re: Samson Lone Star Ltd. Partnership's Black Stone Minerals #I Lease

Dear Ms. Kelm:

l!nclosed is a revised P-12 and plat for the above referenced well in the Constitution (Y egua) Field in Hardin County. Please note this is a different 704 acres than the 704 acres previously filed for this pooled unit. A portion of the original 704 acres will be put in a separate 308.41 acre unit for the operator's Black Stone Minerals "A" well. Please contact the undersigned if you require

• additional information to support this request.

Sincerely,

~ IAM eJ...JJ James M. Clark For Samson Lone Star LP

Enclosures

Pl.AINTIFF'S EXHIBIT

• 56

SAMSON-14637 RAILROAD COMMISSION OF TEXAS ......, Form P - 12 (I/ 16 114)

OIL AND GAS DIVISION

CERTIFICATE OF POOLING AUTHORITY

being of lawful age, being fiunilier

with the matter, and lmving full knowledge of the facts sel out, do stllle:

(l) That the acreage claimed for the purpose of establishing a pooled drilling

or proration unit under applicable orders of the Railroad Commission of Texas, for the

NAME OF OPERATOR: Samson Lone Star Limited Partnership

NAME OF POOLED UNIT: Black Stone lllnerals WELl.. NO.~---- flEl..D: Coostitut1gn cyeaua)

TEXAS, conta.ins,___Z.,0"4'-'.,.0cxO__ acres; 1ha1 with respect to such pooled unit, as it is hereafter

described, parties now owning a mineral interest or mineral interests (including royalty interests.

working lnicrests, or other mineral interests) therein either (l) acquired such interest as they now

have subject to the provisions of an instrument or instruments now in effect and which pennil

the pooHng of said interests or (2) have, by virtue of the execution of an instrument or instnnnents

the provisions of which are now in effet:t, pooled such of said lnteresls as they now own thc:rcin,

in such manner that all of such pooled un\t shall be considered by !he Commission as one base

tract as if all rights with respect thereto has been acquired under a single contract.

(2) lbat the pooled unit described in the preceding paragnph is made up of and contllins

the hereafter described individual tracts of land no part of which is embraced within any othCT

pooled unit in the same field and which, by virtue of the pooling agreements referred to in the

ptt«ding paragraph, arc now conuiined within the pooled uni! herein described.

(3) That where a non~pooled undivided interest ex.ists in any of the: individual tracts

pooled, that certain non~poo1ed interest is noted in the margin of this instrument beside the tract

description to identify lhc existence of the non-pooled interests in that tract:

(OVER)

• SAMSON-14638 DESCRIPTION OF INDIVIDUAL TRACTS OR LEASES CONTAINED WITHIN POOLED UNIT REFERRED TO IN l'ARAGRAPH (I) A.BOVE

NAME OF HOLDER Of LEASE LEASE NAME NO.OF ACRES MARGIN !>Samson Lone Star Limitea Ptsp. Black Stone Hinerals 422.400 2>Samson Lone Star Limited Ptsp. Joyce Ou Jay Lee. et at 10.000 3)Samson lone Star Limited Ptsp. State of Texas 5.000 4JSamson Lone Star Limited Ptsp. Broussard. et al 50.000 5)Samson Lone Star Limited Ptsp. Pica Investment. et al 25. 000 6JSamson lone Star limited Ptsp. Joyce Du Jay Lee. et al 144.400 7)Samson Lone Star Limited Ptsp. Charles A. Howell 13 .401 8)Samson Lone Star Limited Ptsp. Gertrude Day Baker 1.000 9)Samson lone Star Limited Ptsp. Mary Day 1.000 lOJSamson lone Star Limited Ptsp Gesiena C. Oay l.000 !!)Samson Lone Star Limited Ptsp Julia Day l.000 lZJSamson Lone Star Limited Ptsp E112abeth L. Schoonover l.000 13)Samson tone Star t im1.ted Ptsp Va star. et al 28.799

TOTAL 704.000

CERTIFICATE: I declare aDdft' peaaJUes pn:saibcd ID Sec. 91.143, Tezu Namnl R.aoarc:a Code,. tbal I ain authortud to make tbb repo~ ebb report 1'l'1lS pn:pand by or undtr my 1uptn'bloa aod dlnttlop.. and that data and f•c:b a:taf"' tb u compldf. e best of 1ny lu:iowledg~

Sen1ot Landman 1214100 Datt Tdcphone 918 591-1846 A/C Number

INSTRUCDONS

Where twO or more tracts are pooled to fonn either a drilling unit or a proration unit as pennittcd by Commission regulation, the operator !hereof must furnish a certificote of pooling authority al the time action by the Commission is sought either for a permit to driH on a pooled drilling unit or for establishment of an allowable for a well on a pooled proration unit.

• SAMSON-14639 )""" T. JAXV8llt I< APmttAm Im:. . - ........, • ...,_., 1 - nm "'*""" :11~• rec at~ WALKER PETH 11 A-43 SURr.rct lOCATt:ON ScmRn Lone Slor L.P. Skx;J. SIOllll ~11 No, I x... J,907, 706.l7 y ... 219,\22.73 0.-..... 21'

- - - _{.."t_ .lQ:i ---- -- --===r =' --'F::;;;::;!lYJ.LL--~

5740':t: WM. C. DYCHES ScolM A-1=12=----

~ D.CHOAT ~ {,O· I----'! A-12 (H) THOS. D. YOCUM A-11 (J) A-59 (H) A-60 (J)

All l:OOrdlMtft' OM !)eori~ 1llhC!•n Cll'Q> b.oe11i:I <11'1 lh• luon Stoto Plcne Co<;111;linol.1; S,.,tom. C1;nlrol lono (NAO 27). The SWfoea location ie: 630' rSP.. ,. tf!OO' ru Sul"¥tl)< Thci omit bot.IM

I ho•11b1 tar\i!y U.ol \hie i$ o \Ne C1n

• SAMSON-14640 Jmiil T. i - & ~~·~t-1'7•17 Asooa4m. 111<. I. ...... 291~. , _ U.lfJ ...lU&

WALKER PEl"IIIT A-43

,. Um( Bourw:lo'""- ' . . C.DYCHES A-1=12=-.-~-1

@

Tract le:;.sor Ac1es Percent

] ' •' •'' m!XA $ ' - IA11\e1'Qhl Ce., t..P., -cit

25.00 144,40 "'·"' 1.42

,·"... 7.10

........" 20.)l

. IJ,401 C.rt11"'9 Do, Bl;ile1

ii~ .... 1.llO 1.00 .

13* I? - .... v.;iribc Doy L ~noo-1 1.00 1.00 .,. ·" qorola.I 28.719 T I I

NI coordiAotn olld booringa 1ho.n oro booed on U'I• lo•n St.Ille Ptot1• Coonfinoht Sytt.m, C111ntrat ZOM (HAD 27). TM Swfoctt t.ocotlon ia: e.30• f'Sl • 1600' ftl. Sll'My n... ufitt bolilnctoMa cM ~ 111 1~ lfl 2•10'.t Scotocf f'M... 11. 3634' Fl4. Uni'.\ th• unit • - tcot.cf from mope or cttllJMd from tllC!Ord int'onnoUon l111T1l11htid 10 ve. Th• Bottom ~ LM;utlon IS: JM We!I Loc:otion 111 oppnudtnGtefy 2to' f'Sl 11 740' Ft\. Su!"'9J 7.4 mllo1 tcnrt of Sout loJr.1. lncn. '00' Sc.olod tNL • t-400':1 Sc:.olod' rtl Un>l SAMSON LONE STAR LP. l h•ntb)' cot\il)' that lhi•· i11 o true otld corToct plot bosod t:tn the l>nt of my lr.noorhtd99 PROPOSED WEU. LOCATION Oec.embu' ta, 1000 BLACK STONE MINERALS NO. 1 WAI.KER PETTTIT LEAGUE. A-43 HARDIN COUNTY, TEXAS C.P.t,. ..........

• PLAINTIFF'S SAMSON-14633 EXHIBIT 57 p ,4

• ;;-.. Samson Samson Pla.z.a Two Wesl Seoontl S1100 Tutsa. Oklahoma 74103 '.'103 USA

fa• 9181591·1796 RECEIVED MAR 0 9 £001 SAMSON SOU1llERH LANO DEPT.

February IS, 2001

VIA FEDERAL EXPRESS

!lonal

Mary Patricia Carlisi sh3Mon brace C:a.i1isi 4511 Park Serena 625 Fairhill Court Calabasas, CA 91302 Oceanside, CA 92057

Wayne Charles Carlisi Stephanie Rae Carlisi 3860 Broadlawn Drive 45 I I Park Serena

• Hollywood, CA 90068 Calabasas, CA 91302

Bany Hathorne Cartisi Donald Thomas Carli.si 19 Maverick Lane 15 Morgan Lane Bell Canyon, CA 91607 Bell Canyon, CA 91607

RE: Black Stone Minerals No. I Well Hardin County, Texas

Dear Ladies and Gentlemen:

Samson Lone Star Limited Partnership ("Samson'1 hereby requests the above parties agree to amend Paragraph V.E. of the Oil, Gas and Liquid Hydrocarbon Lease dated April 5, 1999, to allow Silmson to pool your lease with other tracts and to grant 640 acre pooling plus a 10% tolerance for the Black Stone Miner4ls No. I We.II.

Please be advised that Jimmy Broussard has already given approval for the 640 acre pooling plus a I0% tolerance and we would like to have your approval as well .

• SAMSON-13656 February 15, 2001 Page 2 of3

Please indicate your approval for the 640 acre pooling and 10% tolerance by signing in the space provided below and returning same lo Samson. Should you have any questions, please call me at (918) 591-1 846.

Sincerely,

~M 1!-::_"'"" dif~.,cec sAMsoN

Senior Landman

ACCEPTED AND AGREED TO THIS---- DAY O F - - - - - - • 2001.

DONALD WY AlT HEISIG

ACCEPTED AND AGREED TO THIS _ _ _ _ DAY O F - - - - - - · 2001.

MARY PATRICIA CARLIS!

ACCEPTED AND AGREED TO THIS _ _ _ _ DAY O F - - - - - - • 2001.

WAYNE CHARLES CARLIS!

ACCEPTED AND AGREED TO THIS _ _ _ _ DAY O F - - - - - - · 2001.

BARRY HATHORNE CARLIS!

• SAMSON-13657 February 15, 2001 Page 2 of3

Please indicate your approval for the 640 acre pooling and 10% tolerance by signing in lhc space provided below and returning same lo Samson. Should you have any questions, please call me at (918) 591-1846.

Sincerely,

ACCl!PTEDANDAGREEDTOTHIS It./~ DAYOF /VJ,trtc.rt '2001.

~

ACCEPTED AND AGREED TO THIS _ _ _ DAY 01' - - - - - - • 2001.

SCOTT ALAN BOROAGES

ACCEPTED AND AGREED TO THIS _ _ _ DAY OF _ _ _ _ _ _, 2001.

JOANNA M. PASTORE

ACCEPTED AND AGREED TO THIS _ _ _ _ DAY OF _ _ _ _ _ _ , 2001.

STEPHANIE BORDAGES KNOBEL

SAMSON-13658 February 15, 2001 Page 2 ofJ

Please indicate your approval for the 640 acre pooling and I 0% tolerance by signing in the space provided below and returning same to Samson. Should you have any questions, please call me al (918) 591-1846.

Sincerely,

SA1N LONE STAR,,LIMITED PARTNERSHIP

•/ ~ '• 1\• • .._: />..·- I\,~'-"f\---.,. \\.' : \ . - Glenn W. Lanoue, CPI) Senior Landman

ACCEPTED AND AGREED TO THIS---- DAY O F - - - - - - · 2001.

JOE A. BORDAGES

ACCEPTED AND AGREED TO THIS _ _ _ _ DAY 01' _ _ _ _ _ _ . 2001.

SCOIT ALAN BORDAGES

ACCEPTED AND AGREED TO TfllS , ( "' DAY OF :;.~ "'<.M.• •·':J-· 2001. .1

ACCEPTED AND AGREED TO THIS _ _ _ _ DAY O F - - - - - - · · 2001.

STEPHANIE BORDAGES KNOBEL

SAMSON-13659 ( • February 15, 200 I Page 2 ofJ

Please indicate your approval for the 640 acre pooling and l 0% tolerance by signing in the space provided below and returning same to Samson. Should you have any questions, please call me at (918) 591-1846.

Sincerely,

SA~SON LONE2T LIMITED PARTNERSHIP

llhi/:J0' Glenn W. Lanoue, · L Senior Landman J'..-9-

ACCEPTED AND AGREED TO THIS---- DAY O F - - - - - - · 2001.

JOE A. BORDAGES

• · ACCEPTED AND AGREED TO THIS _ _ _ _ DAY O F - - - - - - - · 2001.

SCOTT ALAN BORDAGES

ACCEPTED AND AGREED TO THIS _ _ _ _ DAY O F - - - - - - • 2001.

JOANNA M. PASTORE

~'~1_DAY OF _,_ff~/b~,__,2001.

SAMSON-13660 ' l ..

February 15, 2001 Page 3 of3

ACCEPTED AND AGREED TO THIS---- DAY O F - - - - - - • 2001.

ALLISON BORDAGES KOSKELLA

ACCEPTED AND AGREED TO THIS _ _ _ _ DAY O F - - - - - - • 2001.

JOSEPH A. BORDAGES III

2{). DAY OF @~,2001.

)

SAMSON-13661 ;1 ( February 15, 2001 Page 3 of3

ACCEPTED AND AGREED TO THIS _ _ _ _ DAY O F - - - - - - • 2001.

ALLISON BORDAGES KOSKELLA

ACCEPTED AND AGREED TO THIS---- DAY O F - - - - - - • 2001.

JOSEPH A. BORDAGES Ill

_w_···_DAYOF ftfliNj ,2001..

I

• SAMSON-13662 ( February IS, 2001 Page 3 of3

ACCEPTED AND AGRE) TO THIS _ _ 3__ DAY OF YDtin::n , 2001.

_4M--~ SHARON CARLIS!

ACCEPTED AND AGREED TO THIS _ _ _ DAY OF _ _ _ _ _ _ , 2001.

SHANNON GRACE CARLIS!

ACCEPTED AND AGREED TO THIS _ _ _ DAY O F - - - - - - · 2001.

STEPHANIE RAE CARLISI

ACCEPTED AND AGREED TO THIS _ _ _ DAY O F - - - - - - ' ' 2001.

DONALD THOMAS CARLIS[

• SAMSON-13663 • February IS, 200 I Page 3 of3

ACCEPTED AND AGREED TO THIS _ _ _ _ DAY O F - - - - - - · 2001.

SHARON CARLISI

A~CEPTED AND AP)ED TO THIS---- DA y O F - - - - - - · 2001.

~-(Ju~ .L sH~Ni£cE LL<-- CARLIS!

ACCEPTED AND AGREED TO THIS _ _ _ _ DAY O F - - - - - - • 2001.

STEPHANIE RAE CARLIS!

• ACCEPTED AND AGREED TO THIS _ _ _ _ DAY O F - - - - - - • 2001.

DONALD THOMAS CARLISI

• SAMSON-13664 February 15, 200 I Page 3 ofJ

ACCEPTED AND AGREED TO THIS _ _ _ DAY O F - - - - - - • 2001.

SHARON CARLIS!

ACCEPTED AND AGREED TO THIS _ _ _ DAY OF _ _ _ _ _ _ , 2001.

ACCEPTED AND AGREED TO THIS ~--DAY OF _ _ _ _ _ _ , 2001.

STEPHANIE RAE CARLIS!

ACCEPTED AND AGREED TO THIS _ _ _ DAY Of _ _ _ _ _ _ , 2001. ) DONALD THOMAS CARLIS!

SAMSON-13665 RECEIVED FEB 2 6 2001 February 15, 2001 SAMSON SOU1'l!Ellll LA11D llfPt Page 3 of3

ACCEPTED AND AGREED TO THIS - - - DAY O F - - - - - - · 2001.

SHARON CARLIS!

ACCEPTED AND AGREED TO THIS _ _ _ DAY O F - - - - - - · • 2001.

SHANNON GRACE CARLIS!

ACCEPTED AND AGREED TO THIS ·i-1 ·.S( : ,. .- DAY OF ~ ~ ~. 2o01. C' .~/I ,'xf~~(cis!!~,. STEPHANIE RAE CARLIS!

ACCEPTED AND AGREED TO THIS _ _ _ DAY O F - - - - - - • 2001.

DONALD THOMAS CARLIS!

• SAMSON-13666 t..,4 :;-;;. Samson Samson Pia.ta fllllQW9$1~ Stiat.1 Ti.Ba. O!Jat10f'T'lll 7'1U:J :ua:i VSA RECEIVED 9U\t~ltl· I 1'3t FAr9f8/S91·l796 JUN 0 11001 SAYSOO SOU1ll£RN tAHll OE!'I'. February IS, 2001

VIA FEDERAL EXPRESS

Charles G. Hooks Ill and Sue Ann Hooks, as Co-Trustees under the Will of Charles G. Hooks, Sr.• Deceased and Charles G. Hooks Ill as Independent Executor of the Estate of Charles G. Hooks, Jr., Dc:eeased, doing business joinlly as Chas. G. Hooks & Son 820 Gessner Road, Suite 1300 Houston. Texas 77024-4259

Rll: Black Stone Minerals No. I Well Hardin County. Texas

Dear ladies and Gentlemen:

• Samson Lone Star Limited Partnenhip ("Sam!!On'1 hereby requests the above panics agree to,amend Paragraph V.E. of the Oil, Gas and Liqujd Hydrocarbon Lease dated April 19. I 999, ro allow Samson to pool your lease with orher tracts and 10 grant 640 acre pooling plus a 10% py of a plat of the pi:oposed Black Sterne Minerals No. 1 Unit att:acheade a part hereof. Please be advised that Jimmy Broussard has already given approval for the 640 acre pooling plus a 10"/o tolerance and we would like to have your approval as well.

Please indicate your approval for the 640 acre pooling and I0% tolerance by signing in the space provided below and returning same lo Samson. Should you have any questions, please call me at (918) 591-1846.

Sincerely,

SAMSON LONE STAR LIMITED PARTNERSHIP

j){L:no~1pk Senior Landman

f PLAINTIFF'S I • EXHIBIT l_....,65...__

SAMSON-13667 February 15, 2001 Page 2 of2

25th DAY OF ___ M_a~y~--· 2001. as Co-Trustee Under ibe Will of Chutes G. Hooks, Sr., Deceased (

**ACCEPTED AND AGREED TO THIS 25th DAY OF ___M_a__ Y _ _ _ , 2001.

Under the Win of Chari.es G. Hooks, Sr., Deceased (cl/b/a CHAS. G. HOOKS & SON)

25th DAY OF ___ M_a~y~--· 2001. CHARLES G. HOOKS I I as lndependeot Executor oftbe Estate of Charles G. Hooks, Jr., Deceased (dlb/a CHAS. G. HOOKS & SON)

~·:::::::~n::c::::n::ea::b::::~:n:K:::::::e:yh:::::::o::di:essee ~t of a formal lease amendment document to be prepared by Lessors

and submitted to Lessee .

• SAMSON-13668 u:i11 ~-~. , _ n ..n ........ ____ .,._ -·. - -~

,,_... 2111/%~ ~ fell 2St/:t40-%.t. A-33 WALKER PE'l lfl'l' A-43 """'""" """""" ~ l.aM Stet LP. Sid SbJe ~ No. I X•J,907.706.37 r- 21v.1n.13 a ...... 27'

74 'r . C.DYCHES A-1=12,,,,_--,--....,

~ D.CHOAT ..J'f~

I (.O· A-12 (H)

• rnos. D. YOCUM

Tract ' A-59 (H) A-60 (J) loJssor ~~~ ~1-tMl~rcl!t ';:·· t.P., •t cl Mi· es ~~t·.~ P.:t-((:.enl fi0.00 A-ll(J)

~ 2 1.4;1: T•~a• J • Sttrt. al 8tOil•IM2l"d et <:! '"" 00.00 ·" 7.10

',' PICA Ith•. tt Ill ~.11tN,l._JfrU.:~r tt cl "'·°" 144.4() 20.~1 :l.3~

...... ll.401 9o1..,,, '·"' t o..rt.. '4e Dl.(lin..::t 2•'10";t: S<;>ol04 fWl 11 3834" fl.IL \hlit from record infotn\Cticn lurnief'I~ 10 111. The Bottom ttck! Locotlon Is: Tt,. Wet! LOOQtlon la opproximately 290" f'Sl. x 7 .W' Fa Sur-y 7.4 rnllM I0&1 ot Sew Lok•. T••ot. 500' Seoktd fNl. 11 1400' .t Seded" FD. Unit -- ,,N LONE STAR I ..,._. c p I l'loreby eortlfy tho! Ws · I• o tn.ie and corree\ cm tho bht of my knowlct49e PROPOSED WELL LOCATION Ooeomb•r 2&. 2000 BLACK STONE MINERALS NO. 1 WALKER PETTITT LEAGUE, A-43

GieM lollOdJe C.P.L -- --···- --- ~ HARDIN COUNlY, TEXAS

Jarv Q-1IMlf-... l4oC _ , _ - -.: - -

• TQTO;L P.'J"?

SAMSON-13669 .!k/or - ~· 111~ J.ar-fl(f: c-~ ,J____)erJ_of I i Cow)-ey.Jlrlt_. - k# ~)hOb / wA:- f. l1l.1W.J ¥ ~ ~L4- .;JQ_ tWt(J 1- ~""'- - ~ ~ j~ so II<.>. ~ rf 6°UJv ~!ff) ~I ,,_L_ 102f--.it• ~q-l-_it_~~~SJo~.-

Jj ~:111 ~ ~ M}~ (?) ~ tf.k~~. ! - r- • ff 1 ·rAQ_ ~ k~ iJ.:;c.. ~/{) ..Q., . _4-~~-wWr57J4a .~ c~;Js~ 03 ~ 7~c. ~ 4t1.so, 6f) fA,,_ /i1 do_, -

;M ~ ~ )l{.J_ 21) - Y4 wJ.t ~ ~ :;;~ ~ ~ ~ :rr ~s:fD.bQT ··~)~~.sfD·P<-t~ ~·,fl1r- n

Gl :i:: g ~

I PLAINTIFF'S !ii 160 ~ Summary of Lost Compensatory Royalty with Incremental Formation Production - Charles G. Hooks, !!!, et a!. Lost Royalty (Oct-DO to Mar-04) Less Actua! Payments and Late Charges IIi PLAINTIFF'S EXHIBIT Samson Lone Star, LLC Black Stone Minerals No. 1 Gas Unit, Well No. 1 (RAC ID 179535) and Joyce Du Jay No. 1 Gas Unit, Well No. 1 (RAC ID 187477) Constitution (Yegua) Field - Hardin County, Texas . (Ros> Plaintiffs' Plaintiffs' Tota! Total Plaintiffs' Plaintiffs' Net Net Actual Total Tota! Value Value Royalty Lost Net Net Black Stone Du Jay Plaintiffs' Paid Late Royalty Value Value GU No. 1 GU No. 1 Total Black Stone Amount Months Charge Plus Black Stone Du Jay Incremental Incremental Net GU No.'s Due Royalty in to Late Production GU No. 1 GU No. 1 Formation Formation Value 1, 2 & 3 Plaintiffs Due Overdue 1-Aug-08 Charge Month $ $ $ $ $ $ $ Date Period $ $ ---- ·- --- Oct-00 34,451.97 0.00 5,392.67 0.00 39,844.64 2,447.72 37,396.92 1-Feb-01 90 105,419.99 142,816.91 Nov-00 137,703.63 0.00 19,603.77 0.00 157,307.40 9,779.21 147,528.19 1-Mar-Oi 89 407,548.22 555,076.41 Dec-00 177,403.88 0.00 33,439.85 0.00 210,843.73 12,599.38 198,244.35 1-Apr-01 88 536,629.07 734,873.42 Jan-01 233,265.08 0.00 48,417.93 0.00 281,683.01 16,569.93 265,113.08 1-May-01 87 703,113.12 968,226.20 Feb-01 125,793.78 0.00 15,408.04 0.00 141,201.82 8,933.09 132,268.73 1-Jun-01 86 343,654.41 475,923.14 Mar-01 127,013.46 0.00 14,364.90 0.00 141,378.36 9,017.62 132,360.74 1-Jul-01 85 336,855.22 469,215.96 Apr-01 156,883.46 0.00 26,360.09 0.00 183,243.55 11, 139.97 172, 103.58 1-Aug-01 84 428,983.58 601,087.16 May-01 154,257.46 0.00 24,084.04 0.00 178,341.50 10,957.49 167,384.01 1-Sep-01 83 408,580.17 575,964.18 Jun-01 129,982.34 0.00 17,263.90 0.00 147,246.24 9,229.95 138,016.29 1-0ct-01 82 329,875.92 467,892.21 Jul-01 116,705.34 0.00 14,597.19 0.00 131,302.53 8,289.99 123,012.54 1-Nov-01 81 287,852.14 410,864.68 Aug-01 113,012.96 0.00 13,275.49 0.00 126,288.45 8,028.67 118,259.78 1-Dec-01 80 270,893.28 389, 153.06 Sep-01 97,516.53 0.00 9,711.54 0.00 107,228.07 6,927.28 100,300.79 1-Jan-02 79 224,877.61 325,178.40 Oct-01 82,891. 13 0.00 8,296.98 0.00 91,188.11 5,884.46 85,303.65 1-Feb-02 78 187, 166.49 272,470.14 Nov-01 90,941.66 0.00 12,559.53 0.00 103,501.19 5,710.63 97,790.56 1-Mar-02 77 209,948.19 307,738.75 Oec-01 80,267.22 0.00 9,663.11 0.00 89,930.33 5,038.92 84,891.41 1-Apr-02 76 178,306.82 263, 198.23 Jan-02 55,474.94 67,938.86 7,239.80 8,957.88 139,611.48 3,482.05 136,129.43 1-May-02 75 279,690.40 415,819.83 Feb-02 46,688.55 85,321.63 5,121.39 9,254.81 146,386.38 3, 123.43 143,262.95 1-Jun-02 74 287,879.73 431, 142.68 Mar-02 62,400. 13 127,550.15 6,847.20 13,925.90 210,723.38 8,418.43 202,304.95 1-Jul-02 73 397,524.24 599,829.19 Apr¥02 75,237.62 165,323.79 9,722.99 21,205.83 271,490.23 10,307.45 261, 182.78 1*Aug-02 72 501,773.38 762,956.16 May-02 72,629.78 155,841.42 9,024.84 19,074.58 256,570.62 9,612.89 246,957.73 1-Sep-02 71 463,783.69 710,741.42 Jun*02 62,507.44 139,620.07 8,076.43 17,849.05 228,052.99 9,941.98 218,111.01 1-0ct-02 70 400,333.23 618,444.24 Jul-02 62,714.04 140,893.64 7,540.27 17, 184.35 228,332.30 12,082.83 216,249.47 1·Nov*02 69 387,854.89 604, 104.36 Aug-02 54,991.98 134,102.17 6, 157.70 15,039.51 210,291.36 10,310.09 199,981.27 1-Dec-02 68 350,420.97 550,402.24 Sep-02 51,706.11 133,267.85 6,044.92 15,609.58 206,628.46 9,876.88 196,751.58 1-Jan-03 67 336,759.03 533,510.61 Oct-02 51,711.23 128,749.14 6,413.20 16,202.91 203,076.48 9,508.09 193,568.39 1-Feb-03 66 323,553.86 517, 122.25 Nov-02 36,805.32 120, 146.49 5,273.55 17,220.92 179,446.28 7,953.90 171,492.38 1-Mar-03 65 279,882.70 451,375.08 Dec¥02 41,345.11 130,873.64 5,442.88 17,440.05 195, 101.68 8,447.52 186,654. 16 1-Apr-03 64 297,367.03 484,021. 19 Jan-03 46,789.91 139,668.25 6,357.02 19,300.87 212,116.05 9,547.49 202,568.56 1-May-03 63 314,958.07 517,526.63 Feb*03 32,751.56 135,801.11 4,564.41 18,880.79 191,997.87 8,500.95 183,496.92 1-Jun-03 62 278,376.96 461,873.88 Mar-03 47,802.56 166,721.94 8,696.10 30,090.65 253,311.25 11,7t3.27 241,597.98 1-Jul-03 61 357,533. 14 599,131.12 Apr-03 17,681.53 111,825.28 2,529.22 16,778.63 148,814.66 5,725. 15 143,089.51 1-Aug-03 60 206,509.61 349,599. 12 May-03 129, 164.99 110,820.99 19,313.47 16,854.02 276, 153.47 12,537.89 263,615.58 1-Sep-03 59 370,936.93 634,552.51 Jun-03 152,609.88 118,011.82 23,759.21 19,080.91 313,461.82 14,009.78 299,452.04 1-0ct-03 58 410,710.44 710,162.48 Jul-03 129,851.34 112,563.68 19,075.92 17,036.74 278,527.68 12, 110.33 266,417.35 1-Nov-03 57 356,064.81 622,482.16 Aug-03 101, 134.84 104,150.65 13,337.37 14,401. 15 233,024.01 9,603.87 223,420.14 1-Dec*03 56 290,884.79 514,304.93 Sep-03 75,354.42 89,693. 17 9,874.47 13,396.08 188,318.14 7,586.46 180,731.68 1-Jan*04 55 229,157.65 409,889.33 Oct-03 61,268. 15 65,073.94 7,848.20 9,024.57 143,214.86 6,574.46 136,640.40 1-Feb-04 54 168,672.68 305,313.08 Nov-03 41,104.82 80,968.99 5,994.52 11 ,331.43 139,399.76 5,093.23 134,306.53 1-Mar-04 53 161,356.73 295,663.26 Dec-03 49,333. 15 86,086.48 7,504.23 12,751.37 155,675.23 5,781.55 149,893.68 1-Apr-04 52 175,206,73 325,100.41

Page 1 Summary of Lost Compensatory Royalty with Incremental Formation Production - Charles G. Hooks, !11, et at Lost Royalty (Oct-00 to Mar-04) Less Actual Payments and Late Charges Samson Lone Star, LLC Black Stone Minerals No. 1 Gas Unit, Well No. 1 (ARC ID 179535) and Joyce Ou Jay No. 1 Gas Unit, Well No. 1 (RRC ID 187477) Constitution (Yegua) Field - Hardin County, Texas Plaintiffs' Plaintiffs' Total Total Plaintiffs' Plaintiffs' Net Net Actual Total Total Value Value Royalty Lost Net Net Black Stone Du Jay Plaintiffs' Paid Late Royalty Value Va!ue GU No. 1 GU No. 1 Total Black Stone Amount Months Charge P!us Black Stone Du Jay Incremental Incremental Net GU No.'s Due Royalty in to Late Production GU No. 1 GU No. 1 Formation Formation Value 1, 2 & 3 Plaintiffs Due Overdue 1-Aug-08 Charge Month $ $ $ $ $ $ $ Date Period $ $ ---- ---- Jan-04 53,471.96 94,166.11 8,656.64 15, 102.40 171,397.11 6,412.60 164,984.51 1-May-04 51 187,557.87 352,542.38 Feb-04 44,850.78 80,941.52 6,509.95 11,990.76 144,293.01 5,391.53 138,901.48 1-Jun-04 50 153,519.81 292,421.29 Mar-04 37,728.11 85,892.44 5,003.71 11,564.28 140,188.54 4,886.15 135,302.39 1-Jul-04 49 145,332.42 280,634.81 Apr-04 0.00 0.00 0.00 0.00 0.00 4,447.63 -4,447.63 1-Aug-04 48 -4,641.01 -9,088.64 May-04 0.00 0.00 0.00 0.00 0.00 4,632.08 -4,632.08 1-Sep-04 47 -4,693.59 -9,325.67 Jun-04 0.00 0.00 0.00 0.00 0.00 4,364.55 -4,364.55 1-0ct-04 46 -4,292.65 -8,657.20 Jul-04 0.00 0.00 0.00 0.00 0.00 4,557.84 -4,557.84 1-Nov-04 45 -4,349.15 -8,906.99 Aug-04 0.00 0.00 0.00 0.00 0.00 4,651.02 -4,651.02 1-Dec-04 44 -4,303.74 -8,954.76 Sep-04 0.00 0.00 0.00 0.00 0.00 3, 159.47 -3, 159.47 1-Jan-05 43 -2,833.66 -5,993.13 Oct-04 0.00 0.00 0.00 0.00 0.00 4,333.79 -4,333.79 1-Feb-05 42 -3,765.40 -8,099.19 Nov-04 0.00 0.00 0.00 0.00 0.00 4,033.46 -4,033.46 1-Mar-05 41 -3,393.06 -7,426.52 Dec-04 0.00 0.00 0.00 0.00 0.00 3,902.84 -3,902.84 1-Apr-05 40 -3, 176.98 -7,079.82 Jan-05 0.00 0.00 0.00 0.00 0.00 3,314.02 -3,314.02 1-May-05 39 -2,608.83 -5,922.85 Feb-05 0.00 0.00 0.00 0.00 0.00 3,451.20 -3,451.20 1-Jun-05 38 -2,625.67 -6,076.87 Mar-05 0.00 0.00 0.00 0.00 0.00 4, 185.65 -4,185.65 1-Jul-05 37 -3,075.52 -7,261.17 Apr-05 0.00 0.00 0.00 0.00 0.00 3,750.55 -3,750.55 1-Aug-05 36 -2,659.66 -6,410.21 May-05 0.00 0.00 0.00 0.00 0.00 3,262.78 -3,262.78 1-Sep-05 35 -2,231.35 -5,494.13 Jun-05 0.00 0.00 0.00 0.00 0.00 3,318.21 -3,318.21 1-0ct-05 34 -2,186.69 -5,504.90 Jul-05 0.00 0.00 0.00 0.00 0.00 3,315.23 -3,315.23 1-Nov-05 33 -2,103.44 -5,418.67 Aug-05 0.00 0.00 0.00 0.00 0.00 3,593.90 -3,593.90 1-Dec-05 32 -2, 193.44 -5,787.34 Sep-05 0.00 0.00 0.00 0.00 0.00 2,964.83 -2,964.83 1-Jan-06 31 -1,738.95 -4,703.78 Oct-05 0.00 0.00 0.00 0.00 0.00 3,058.91 -3,058.91 1-Feb-06 30 -1,722.41 -4,781.32 Nov-05 0.00 0.00 0.00 0.00 0.00 2,781.31 -2,781.31 1-Mar-06 29 -1,501.85 -4,283.16 Dec·05 0.00 0.00 0.00 0.00 0.00 1,808.12 -1,808.12 1-Apr-06 28 -935.20 -2,743.32 Jan-06 0.00 0.00 0.00 0.00 0.00 1,967.64 -1,967.64 1-May-06 27 -973.59 -2,941.23 Feb-06 0.00 0.00 0.00 0.00 0.00 2,889.02 -2,889.02 1-Jun-06 26 -1,365.67 -4,254.69 Mar-06 0.00 0.00 0.00 0.00 0.00 3,622.87 -3,622.87 1-Jul-06 25 -1,633.72 -5,256.59 Apr-06 0.00 0.00 0.00 0.00 0.00 3,414.12 -3,414.12 1-Au9-06 24 -1,466.37 -4,880.49 May-06 0.00 0.00 0.00 0.00 0.00 3,331.61 -3,331.61 1-Sep-06 23 -1,360.55 -4,692.16 Jun-06 0.00 0.00 0.00 0.00 0.00 2,704.48 -2,704.48 1-0ct-06 22 -1,048. 16 -3,752.64 Jul-06 0.00 0.00 0.00 0.00 0.00 2,842.23 -2,842.23 1-Nov-06 21 -1,043.26 -3,885.49 Aug-06 0.00 0.00 0.00 0.00 0.00 2,852.92 -2,852.92 1-Dec-06 20 -989.55 -3,842.47 Sep-06 0.00 0.00 0.00 0.00 0.00 2,437.63 -2,437.63 1-Jan-07 19 -796.98 -3,234.61 Oct-06 0.00 0.00 0.00 0.00 0.00 1,962.66 -1,962.66 1-Feb-07 18 -603.21 -2,565.87 Nov-06 0.00 0.00 0.00 0.00 0.00 2,209,17 -2,209. 17 1-Mar-07 17 -636.29 -2,845.46 Dec-06 0.00 0.00 0.00 0.00 0.00 2,307.45 ·2,307.45 1-Apr-07 16 -620.67 ·2,928.12 Jan-07 0.00 0.00 0.00 0.00 0.00 1,801.36 -1,801.36 1-May-07 15 -450.76 -2,252. 12 Feb-07 0.00 0.00 0.00 0.00 0.00 1,701.03 -1,701.03 1-Jun-07 14 -394.22 -2,095.25 Mar-07 0.00 0.00 0.00 0.00 0.00 2,016.09 -2,016.09 1-Jul-07 13 -430.54 -2,446.63

Page 2 Summary of Lost Compensatory Royalty with Incremental Formation Production - Charles G. Hooks, I!!, et al. Lost Royalty (Oct-00 to Mar-04) Less Actual Payments and Late Charges Samson Lone Star, LLC Black Stone Minerals No. 1 Gas Unit, Welt No. 1 {RRC ID 179535) and Joyce Du Jay No. 1 Gas Unit, Well No. 1 {ARC ID 187477) Constitution {Yegua) Field - Hardin County, Texas Plaintiffs' Plaintiffs' Total Total Plaintiffs' Plaintiffs' Net Net Actual Total Total Value Value Royalty Lost Net Net Black Stone Du Jay Plaintiffs' Paid Late Royalty Value Value GU No. 1 GU No. 1 Total Black Stone Amount Months Charge Plus B!ack Stone Du Jay Incremental Incremental Net GU No.'s Due Royalty in to Late Production GU No. 1 GU No. 1 Formation Formation Value 1, 2 & 3 Plaintiffs Due Overdue 1-Aug-08 Charge Month $ $ $ $ $ $ $ Date Period $ $ ---- ----- Apr-07 0.00 0.00 0.00 0.00 0.00 2,074.02 -2,074.02 1-Aug-07 12 -405.72 -2,479.74 May-07 0.00 0.00 0.00 0.00 0.00 2, 138.60 -2, 138.60 1-Sep-07 11 -380.56 -2,519.16 Jun-07 0.00 0.00 0.00 0.00 0.00 2,073.89 -2,073.89 1-0ct-07 10 -332.94 -2,406.83 Jul-07 0.00 0.00 0.00 0.00 0.00 1,306.27 -1,306.27 1-Nov-07 9 -187.31 -1,493.58 Aug-07 0.00 0.00 0.00 0.00 0.00 1,616.40 -1,616.40 1-Dec-07 8 -204.46 -1,820.86 Sep-07 0.00 0.00 0.00 0.00 0.00 1,396.02 -1,396.02 1-Jan-08 7 -153.35 -1,549.37 Oct-07 0.00 0.00 0.00 0.00 0.00 2,977.66 -2,977.66 1-Feb-08 6 -278.24 -3,255.90 Nov-07 0.00 0.00 0.00 0.00 0.00 3,172.19 -3,172.19 1-Mar-08 5 -245.16 -3,417.35 Dec-07 0.00 0.00 0.00 0.00 0.00 2,888.86 -2,888.86 1-Apr-08 4 -177.27 -3,066.13 Jan-08 0.00 0.00 0.00 0.00 0.00 3,034.48 -3,034.48 1-May-08 3 -138.61 -3, 173.09 Feb-08 0.00 0.00 0.00 0.00 0.00 2,531.90 -2,531.90 1-Jun-08 2 -76.53 -2,608.43 Mar-08 0.00 0.00 0.00 0.00 0.00 3,201.90 -3,201.90 1-Jul-08 1 -48.03 -3,249.93 Apr-08 0.00 0.00 0.00 0.00 0.00 3,427.16 -3,427.16 1-Aug-08 0 0.00 -3,427. 16 May-08 0.00 0.00 0.00 0.00 0.00 4,446.43 -4,446.43 1-Sep-08 0 0.00 -4,446.43

Totals: 3,553,200.15 3, 112,015.22 504,368.64 426,550.02 7,596, 134.03 510,328.01 7,085,806.02 12,995,832,05 20,081,638.07

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SPEPPY ~:;o;cv @ 12745 FT ~~-~·-~·· ··~ ··~ ~--*~***************~***************************************** * TRUE • COORDINATES * DOG-LEG DEV 1'·' 1:·:-:· ' n :MUTH * VERTICAL '******************** couRsE ** SEVERITY ** D:>:,q~r; • DEGREES * DEPTH * + NORTH * + EAST * LENGTH * * * FT * - SOUTH * - WEST * FT * DEG/100FT * "ft:"ft"! * ._.. ,_ ~ , , ' ~- t<,\ ""~"'* "'********************************************************* ') ~' -) ' :~ 144 * 12394.6 • -374.4 * 1257.0 * 1311.6 * 24.3 * 3.1 * 138 * 12395.6 • -374.4 * 1257.1 * 1311.6 * 24.3 * ''? Q ', , __ • 160 * 12449.5 * -376.8 * 1258.8 * 1314.0 * 6.3 * ;:,s ! • 154 * 12549.4 • -380.i * 1261.1 * 1317.3 * 4.0 * 144 * 12649.4 • -383.6 * 1263.0 * 1320.0 * o.o -~

*,, ~- 1 ') ' -' 129 * 12749.4 • -385 '9 * 1265.0 * 1322.6 * 5.6 . * ri -": 114 .. 12849.4 • -387.0 * 1267.1 .. 1324.9 * l -, 0.0 .* ~ 65 .. 12949.4 • -386.6 ..1269.2 * 1326.8 * 6.3 1. -1 60 * 13049.4 • ;.-385.4 * 1271.5 * 1328.6 * 0.0 * 1"/ :~ 72 * 1314q.4 ,, -.:~R4 .1 * 1?7~-~ * ,,,n ~ * ,., " * A. I. '"'I .u;. 0'1 "3 • '1 -.)Of .U .. 1£::0/.l 0 Ul4. ~ " v.u L 65 .. 12949.4 • -386.6 * 1269.2 • 1326.8 * L 60 * 13049.4 •;.-385.4. 1271.5 * 1328.6 * 6.3 0.0 ..* L ' 72 * 13149.4 • -384.1 • 1273.9 * 1330.6. 0.0 * I. ,' 52 * 13249.4 • -382.3 • 1276.4 * 1332.4 * 4.8 * 1 ' !' J ., 45 * 13349.4 • -380.1 * 1278.8. 1334.1. o.o * ' 50 * 13442.4 * -378.2 • 0.0 * 1281.0 • 1335.7 • ~~~~·' oL~~·ft~***************************************~******************** t•' ' ·~•A -~~****h**********************************************~**********

COTTOM HOLE LOCATION * • COURSE LENGTH 1335 .I FT • rr'\l•f'H'f"' ~~"''UIJ-" ...... ,. .., "" ... ...._""' ,.,.~ * + 'L.,V~Jf\..>L f\L.J.I"IU i(l .liJVo'+ ULUI\LL...>

~.r.AC:URED DEPTH 13793.0 FT .* TRUE VERTICAL DEPTH 13442.4 FT * * ~ I I

nrsTANCE SOUTH 378.2 FT * '\ * DISTANCE EAST 1281.0 FT * • * U ~CT RADIUS OF CURVATURE METHOD • +*·~·~~4 ··~·~************************************************************ *

·. )\'t··.~ '. •J

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~ "~:~_

·2~ ~b._ -:r"""'.:>:\ ~!:: ~ CAUSE NO. B 173008-B "';-: .. :-::;;: f<"', '

CHARLES G. HOOKS III, et al., § Plaintiffs, §

VS. § § JEFFERSON COUNTY, TEX/Ii - Vi

§ SAMSON LONE STAR, L.P., § Defendant. § 60TH JUDICIAL DISTRICT

PLAINTIFFS' MOTION FOR ,JUDGMENT

TO THE HONORABLE JUDGE OF THIS COURT:

Plaintiffs Charles G. Hooks III, et al., without waiving any rights to contest or appeal

prior orders of the Court, move that the Court enter judgment in favor of Plaintiffs against

Defendant Samson Lone Star Limited Partnership, n/k/a Samson Lone Star, L.L.C. ("Samson"),

as follows:

Plaintiffs submit herewith a proposed Final Judgment for entry by the Court, pursuant to

the verdict of the jury, certain Orders on Motions for Partial Summary Judgment, and

Stipulations of the parties entered of record,. and request entry of that proposed Final Judgment.

Background

On November 3, 2008, this cause proceeded to trial and was subsequently submitted to a

jury on November 12, 2008. On November 13, 2008, the jury's verdict was read in open court

with all of the jury questions answered. Attached to this Motion as Exhibit A and incorporated

herein by reference as if fully set out is a true and correct copy of the Charge of the Court and the

jury verdict form with the jury's answers to the questions submitted, as follows:

> In response to Question No. 1, the jury found by a vote of eleven (11) to one that Samson committed fraud against the Hooks; > In response to Question No. 2, the jury found by a vote of eleven (11) to one that Samson committed statutory fraud against the Hooks; > In response to Question No. 3, the jury found by a vote of eleven (11) to one that the sum of money if paid now in cash that would fairly and reasonable compensate the Hooks for their damages proximately caused by such fraud is $20,081,638.07; J;> The jury did not answer Questions Nos. 4, 5, 6, or 7; );> In response to Question No. 8, the jury found by a vote of eleven (11) to one that Samson's failure to pay royalty based on formation production resulted in underpayment of royalty under the three Hooks oil and gas leases entered as Exhibits 25, 26, and 27; and );> In response to Question No. 9, the jury found by a unanimous vote that the Hooks, in the exercise of reasonable diligence, should have discovered the fraud of Samson by April 2007.

In addition, before trial, the Court had entered Orders on motions for partial summary judgment

with regard to certain claims at issue in this case. The following Orders on motions for partial

summary judgment, attached to this Motion and incorporated herein by reference, adjudicated

liability- but not damages - as to some of Plaintiffs' claims, as indicated:

);> Exhibit B: Order on Plaintiffs' First Amended Motion for Partial Summary Judgment (Tract 4/14 Leases), recommended by Special Master W. Frank Newton on July 29, 2008, and adopted by the Court on July 30, 2008, held that the royalty rate under the Hooks oil and gas leases at issue in this case (admitted as Exhibits 25, 26, and 27 at trial) has been equal to 28.28896% since November 2001 and );> Exhibit C: Order Granting Plaintiffs' First Amended Motion for Partial Summary Judgment (Unpooling), recommended by Special Master W. Frank Newton on July 29, 2008, and adopted by the Court on July 30, 2008, held that Defendant Samson pay Plaintiffs royalty on production from Samson's Black Stone Minerals A-1 well based on the royalty revenue interest Plaintiffs are due pursuant to the Black Stone Minerals "A" No. 1 Gas Unit as described in Samson's Designation of Gas Unit for the Black Stone Minerals "A" No. 1 Gas Unit filed of record at Volume 1259, Page 237 of the Official Public Records of Hardin County, Texas.

Damages related to the foregoing Orders were left to be determined at trial.

Plaintiffs and Defendant Samson thereafter entered into certain stipulations entered into

the Court's record. Accordingly, the following stipulations are attached to this Motion and

incorporated herein by reference:

);> Exhibit D: Stipulation (regarding damages) signed by counsel for the parties and filed November 7, 2008; and );> Exhibit E: Stipulation Regarding Attorneys' Fees signed by counsel for the parties and filed October 31, 2008.

-2 - Damages

As noted above, the jury found that the damages to the Hooks proximately caused by

Samson's fraud equals $20,081,638.07. In addition, in Exhibit D, the parties stipulated amounts

of damages for the claims adjudicated by the Orders on partial summary judgment listed above

for production through May 2008, with various alternatives depending on (among other things)

whether Plaintiffs prevailed in their claims that Samson had underpaid royalty by not paying it

based on "formation production" as specified in Plaintiffs' leases. Because the jury found that

Samson's failure to pay on "formation production" resulted in underpayment of royalty,

Plaintiffs prevailed on that claim. In addition, Samson stipulated its liability for and the amount

of reimbursement it owes Plaintiffs for ad valorem taxes paid through November 2007.

Therefore, the actual damages to be awarded Plaintiffs, based on the jury's verdict, the

Court's Orders identified above, and the parties' Stipulations, are as follows:

Damages proximately caused by fraud: $20,081,638.07 Damages for breach of Most Favored Nations Clause: $ 848,854.01 Damages for "Unpooling" claim related to Black Stone Minerals A-1 well: $ 766,626.85 Damages Related to Ad Valorem Taxes: $ 52,257.22 Total Damages: $21,749,376.15

The proposed Final Judgment submitted with this Motion includes the foregoing amounts for

actual damages.

Attorneys' Fees

Plaintiffs are entitled to recover attorneys' fees pursuant to statute, the leases at issue, and

the parties' Stipulations. In Exhibit E, the parties stipulated as to the amounts of reasonable and

necessary attorneys' fees incurred in the prosecution of Plaintiffs' claims in this case for which

attorneys' fees are recoverable (net of segregation of fees for claims for which attorneys' fees are

not recoverable), and that all such fees are owed Plaintiffs if they prevailed on any claim other

-3- than certain claims specified in the Stipulation. At least because Plaintiffs prevailed on various

other contract claims in this case, and Samson stipulated liability for ad valorem taxes in Exhibit

D, Plaintiffs are entitled to recover fees pursuant to the Stipulation Regarding Attorneys' Fees.

The proposed Final Judgment submitted herewith includes such amounts for attorneys' fees.

Costs and Witness Fees

In addition, Plaintiffs are entitled to recover various other costs incurred in connection

with this case. As the successful party, Plaintiffs are entitled to recover from Samson all taxable

costs of court. TEX. R. C1v P. 131. In addition, Plaintiffs' leases provide for recovery of "court

costs, and other costs" incurred in collecting unpaid amounts. Trial Exhibits 25, 26, and 27,

Article XVIJC ("Time, Method and Manner of Payment"). Plaintiffs are also entitled to recover

other costs based on the jury's finding that Samson committed statutory fraud as defined in

Section 27.01 of the Texas Business and Commerce Code. Pursuant to that Section, a person

who violates its provisions is liable to the person defrauded for "reasonable and necessary

attorney's fees, expert witness fees, costs for copies of depositions, and costs of court." TEX.

Bus. & COM. CODE§ 27.01 (e).

Therefore, in addition to the usual taxable costs of court, Plaintiffs are entitled to recover

at least expert witness fees and costs for copies of depositions. Plaintiffs entered evidence at trial

of the fees invoiced as of the time of trial for the expert witnesses Plaintiffs called to testify -

Nedra Foster and Charles Graham (Exhibits 553 and 554, respectively) - and those witnesses

then estimated their additional fees through trial. In addition, evidence of such witness fees can

be submitted post-verdict by affidavit. Durish v. Panan Int'!, N.V, 808 S.W.2d 175, 179-80.

Before the hearing on this Motion, Plaintiffs will submit affidavit proof with supporting detail of

the additional expert witness fees invoiced post-trial, and of the costs of copies of depositions

incurred by Plaintiffs. Plaintiffs anticipate those total amounts will be as follows: fees for Nedra

-4 - Foster, $47 351.79 ($40,926.94 in Exhibit 553, plus an additional $6,424.85 in post-trial billings;

fees for Charles E. Graham, $58.689.07 ($50,244.99 in Exhibit 554 plus an additional $8,444.08

in post-trial billings); and $5 493.51 for costs for copies of depositions. The proposed Final

Judgment submitted with this Motion includes such amounts for costs and expert witness fees.

Postjudgment Interest

The judgment to be entered is based on contract, i.e., Plaintiffs' oil and gas leases with

Samson. Plaintiffs' damages for both fraud and breach of contract (other than unpaid taxes) are

measured on the basis of unpaid royalty and include Late Charges computed in accordance with

those leases.

The leases specify that all royalty payments, including (unpaid) compensatory royalties -

by which the damages awarded to Plaintiffs' for Samson's fraud were measured - shall be

subject to Late Charges based on the amount due, calculated at the maximum rate allowed by

law commencing on the day after the last day on which such monthly royalty payment could

have been timely paid and for every calendar month or fraction thereof from the due date until

paid. See Trial Exhibits 25, 26, and 27, Article XVII ("Time, Method and Manner of Payment'').

Therefore, per the Texas Finance Code, the judgment is "on a contract that provides for interest

or time price differential" and thus should earn postjudgment interest at a rate equal to the lesser

of the rate specified in the leases or eighteen (18) percent per year. TEXAS FIN. CODE §304.002.

The Court has previously determined that, under this provision, Late Charges are to be

computed each month based on the amount due, including any previously accrued Late Charges,

calculated at eighteen percent (18%) per annum. See Exhibit F to this Motion: the "Order

Granting Plaintiffs' First Amended Motion for Partial Summary Judgment (Accrued Unpaid

Royalties)" recommended by Special Master W. Frank Newton on July 29, 2008, and adopted by

the Court on July 30, 2008, in the Bordages case from which this case was severed in 2007 (Joe

-5- A. Bordages, Jr., et al. v. Samson Lone Star, L.P., No. Bl 73008-A in the 60th Judicial District

Court, Jefferson County, Texas). (Plaintiffs incorporate herein by reference that Order and the

bases for computing Late Charges as stated in the Bordages Plaintiffs' First Amended Motion for

Partial Summary Judgment (Accrued Unpaid Royalties), and request that the Court take judicial

notice of same.) For the foregoing reasons, the proposed Final Judgment submitted herewith

includes postjudgment interest at eighteen percent (18%) per annum, compounded aru;iually.

Declaratory Judgment and Injunctive Relief

Moreover, pursuant to the Orders cited above and attached to this Motion, the jury's

finding as to payment of royalty on formation production, the parties' stipulations as to damages

with regard to ad valorem taxes, and the terms of Plaintiffs' oil and gas leases, Plaintiffs are

entitled to declaratory judgment and permanent injunctive relief as follows:

> Defendant Samson shall pay Plaintiffs royalty on production from Samson's Black Stone Minerals A-1 well, commencing with production after May 2008, based on the royalty revenue interest Plaintiffs are due pursuant to the Black Stone Minerals "A" No. 1 Gas Unit as described in Samson's Designation of Gas Unit for the Black Stone Minerals "A" No. 1 Gas Unit filed of record at Volume 1259, Page 237 of the Official Public Records of Hardin County, Texas; > Any royalty owed on production after May 2008 under Plaintiffs' oil and gas leases at issue in this case (admitted as Exhibits 25, 26, and 27 at trial) shall be based on a royalty rate of 28.28896%; > Any royalty owed on gas production after May 2008 under the oil and gas leases at issue in this case (admitted as Exhibits 25, 26, and 27 at trial) shall be based on formation production gas volumes as reported on Texas Railroad Commission records; > Defendant Samson shall be liable for all ad valorem taxes levied upon Plaintiffs' interest in the oil and gas leases at issue (admitted as Exhibits 25, 26, and 27 at trial) after November 2007, as long as those leases remain in effect; > Defendant Samson shall provide Plaintiffs with all notices and information required by the oil and gas leases at issue in this case (admitted as Exhibits 25, 26, and 27 at trial) while those leases are in effect, including the following: • Copies of all electric logs, formation surveys, or any other test made in a well or wells on the land described in the leases or units into which they were pooled;

-6- • Copies of written designations of production units; • Copies of all applications and reports filed with the Texas Railroad Commission in connection with Samson's operations under Plaintiffs' Leases; • Advanced notice of any deductions or adjustments against present or future royalty payments for royalty payments previously paid, with full explanation of such overpayment; • Title opinions; • Daily operation reports during drilling, completion, or reworking operations; • Seismic or other geophysical data obtained by Samson on the leased premises or units into which the leased premises are pooled, including basic data, scaled and platted maps, and final stacked and migrated seismic data at all depths across such acreage; and • Notice of any oil and gas lease Samson enters into covering any land within three miles of the exterior boundary of the leased premises or units into which the leased premises are pooled.

The proposed Final Judgment submitted herewith includes declaratory and injunctive relief as

described above.

Conclusion

For the foregoing reasons, and without waiving any rights to contest or appeal prior

orders of the Court, Plaintiffs respectfully request the Court enter judgment as set out above and

submitted herewith, and grant Plaintiffs such other and further relief to which they are entitled.

Respectfully submitted,

'L.L.P.

e ston C 1221 McKinney Street Houston, Texas 77010 713-615-8500 Telephone 713-615-8585 Facsimile

-7- Patton G. Lochridge State Bar No. 12458500 DonH.Magee State Bar No. 12811800 J. Derrick Price State Bar No. 24041726 600 Congress Avenue, Suite 2100 Austin, Texas 78701 (512) 495-6000 Telephone (512) 495-6093 Facsimile

RIENSTRA, DOWELL & FLATTEN Gerald R. Flatten State Bar No. 07112500 595 Orleans, Suite 1007 Beaumont, Texas 77701 (409) 833-6317 Telephone (409) 833-9560 FAX

MOORE LANDREY, L.L.P. Jon B. Burmeister State Bar No. 03425500 390 Park Street, Suite 500 Beaumont, Texas 77701 (409) 835-3891 Telephone (409) 835-2707

ATTORNEYS FOR PLAINTIFFS, CHARLES G. HOOKS III, ET AL.

CERTIFICATE OF SERVICE

This is to certify that a true and correct copy of the foregoing Motion and the proposed Final Judgment referenced therein are being served on the following by telephonic document transfer (fax) on November 21, 2008:

M. C. Carrington Dick Watt Mehaffy Weber 1800 Penzoil Place, South Tower P.O. Box 16 711 Louisiana Street Beaumont, TX 77704 Houston, Texas 77002 __.--;;~--

-8- 183

1 where it was. It was drilled. It was -- they were just

2 simply reporting inaccurately, and now this is correct.

3 The bottom one is the correct placement of the bottom

4 hole.

5 Q. Did Samson eventually file a second amendment

6 to the designation of the Black Stone 1 unit?

7 A. Yes.

8 Q. Is that Exhibit 19?

9 A. Yes, that's right.

10 MR. SIMPSON: Plaintiffs offer Exhibit 19. 16:30:22

11 MR. CARRINGTON: No objection.

12 THE COURT: It's admitted.

13 (Plaintiff's Exhibit No. 19 received)

14 Q. (BY MR. SIMPSON) Now, before we get into this,

15 I'm going to want to look at one other letter in a

16 second; but I want to make clear that on this second

17 amendment, the designation, was there a plat attached?

18 A. Yes.

19 Q. Is this it right here (indicating)?

20 A. Yes, it is. 16:31:09

21 Q. This was -- how does this plat compare with the

22 corrected one that Samson got from the surveyors in

23 November, 2001?

24 A. This is a correct plat that shows the correct

25 bottom hole, and it -- it is signed and sealed by the 184

1 surveyor.

2 Q. Okay. You've seen the records from Samson's

3 files indicating when Samson got this designation with

4 the correct plat?

5 A. November 21st of --

6 Q. I'm sorry.

7 A. -- 2000 -- I'm sorry.

8 Q. I asked you a bad question.

9 Have you seen from Samson's files what

10 Samson -- when Samson got the second amended designation 16:31:55

11 in its -- with the new plat?

12 A. Yes.

13 Q. And what is Exhibit 71?

14 A. This is a letter from Williams & Lindahl,

15 Attorneys At Law. It's signed by Eric Lindahl,

16 addressed to Samson Lone Star Limited Partnership,

17 attention to Mr. Glenn Lanoue, and it's dated

18 November 21, 2001.

19 MR. SIMPSON: Okay. Your Honor, we offer

20 Exhibit 71. 16:32:27

21 MR. CARRINGTON: No objection.

22 THE COURT: It's admitted.

23 (Plaintiff's Exhibit No. 71 received)

24 THE COURT: We're going to stop here.

25 Ladies and gentlemen, you're excused. Please be back in 6

2 THE COURT: Bring them in.

3 (Jury enters courtroom).

4 THE COURT: Good morning, ladies and

5 gentlemen. Y'all have a seat.

6 MS. SAMUELS: May I proceed?

7 THE COURT: Yeah.

9 having been previously duly sworn, testified further as

10 follows:

12 BY MR. SIMPSON:

13 Q. Good morning, Ms. Foster.

14 A. Good morning.

15 Q. I'd just like to recap where we were at the end

16 of the day yesterday.

17 MR. SIMPSON: Would you put Exhibit 19 up,

18 please.

19 THE TECHNICIAN: (Complying)

20 Q. (BY MR. SIMPSON) And do you remember we were 09:22:10

21 looking at this Exhibit 19? You may have it there.

22 A. Yes.

23 Q. And do you remember what Exhibit 19 was?

24 A. It's the -- a second amendment to the

25 designation of the gas unit on the Black Stone Minerals 7

1 No. 1.

2 Q. And there's a plat attached to this second

3 amended designation?

4 A. That's correct.

5 Q. And which plat was this?

6 A. This is one that is signed and sealed by

7 Jeffrey Fansler out of the John Jakubik & Associates

8 survey office. This one actually shows the correct

9 bottom hole as drilled with the 356 feet off the east

10 line of the Walker Pettitt and 148 feet off of the south 09:23:01

11 line. The -- from the surface down to the bottom hole,

12 the distance is 1327.47; and the bearing is south 73

13 degrees 09 minutes, 14 seconds east.

14 Q. And then I think we had just taken a look -- or

15 just seen Exhibit 71 at the end of the day yesterday.

16 Do you recall that exhibit?

17 A. I don't remember the numbers. So...

18 Q. It's --

19 A. Oh. Okay, yes.

20 Q. What -- what is Exhibit 71? 09:23:41

21 A. That's a letter from Eric Lindahl of Williams &

22 Lindahl. It's addressed to Samson Lone Star to

23 attention of Glenn Lanoue, and it's dated November 21st,

24 2001. What he's telling Mr. Lanoue is that he's

25 enclosing the second amendment for this designation we 49

1 the -- in apparently Mr. Lanoue's grand plan. They

2 screwed up and told the truth at the Railroad

3 Commission, right?

4 A. Well, I don't know about that.

5 Q. Okay.

6 A. Their proposed plat showed the initial unit

7 line was over here to the bayou, and they did show the

8 distance as being 1,080 feet to the bayou to the unit

9 line.

10 Q. Okay. So, if they were really -- if they were 10:16:41

11 really going to try to pull off a real good fraud, they

12 would have not disclosed 1,080 feet to the Railroad

13 Commission right off the bat, correct?

14 A. I think the plat speaks for itself.

15 Q. It sure does.

16 A. That was their proposal.

17 Q. It does. Okay.

18 Now, we know that this plat and this 740

19 feet from the section line there, we know that was --

20 that was changed and put in at the request of Mr. Lanoue 10:17:11

21 in August, correct?

22 A. That's correct.

23 Q. Excuse me. August of 2000, six months before

24 this plat was sent to Mr. Hooks, right?

25 A. That's correct. 50

1 Q. Okay. And, again, we don't know why he made

2 the mistake or how he made the error in his

3 calculations; but, nonetheless, that was what went

4 forward from August on through, correct, was the 740

5 feet?

6 A. Up until October of '01.

7 Q. All right. Now, do you have any reason --

8 strike that.

9 Okay. So, six months after Mr. --

10 Mr. Lanoue messes up with his scaling and has an 10:17:49

11 erroneous number there, this plat goes to Mr. Hooks; and

12 Mr. Hooks is concerned about 1320 feet, right?

13 A. Among other things, I'm sure.

14 Q. So, he gets this -- and Mr. Lanoue -- you

15 understand that Mr. Lanoue, according to Mr. Hooks, told

16 him on the 20th, which is the day before he got this,

17 that that well's about 1500 feet from your property.

18 You understand that?

19 A. Yes.

20 Q. All right. Which is outside of 1320, correct? 10:18:17

21 A. True.

22 Q. But Mr. Hooks is concerned about 1320?

23 A. Yes.

24 Q. So, he has been told the well is going to be

25 about 180 feet away from his protective zone, right? 53

1 doesn't it?

2 A. Yes, plus or minus.

3 Q. All right. Two things come to mind right

4 there. 1400 feet is not 1500 feet, is it?

5 A. Well, he says plus or minus. So, he's been

6 given those two numbers.

7 Q. Okay. All right. But the numbers are

8 obviously different, aren't they?

9 A. Yes.

10 Q. Okay. If I'm Mr. Hooks and I'm worried about 10:20:31

11 1320 and I'm told 1500 one day and I'm told 1400 plus or

12 minus the next day, we're getting closer to that 1320,

13 aren't we?

14 A. That's true.

15 Q. I'm concerned. Wouldn't you be?

16 A. I as a surveyor might be. I don't know about

17 Mr. Hooks as a landowner being given a plat.

18 Q. Okay. So, now we're within 80 feet of this

19 protective zone, aren't we, at 1400?

20 A. By perpendicular measure, yes. 10:21:04

21 Q. Right.

22 Now, plus or minus -- 1400 feet plus or

23 minus -- how much -- how much do you think -- that plus

24 or minus, what do you -- when you see that, what do you

25 think of that when you say plus or minus? 54

1 A minute ago you said 1400 feet, 1500 feet.

2 So, it was a hundred feet plus or minus, within the

3 ballpark?

4 A. If we -- if we look at what Mr. Lanoue did --

5 if we think about the original proposed plat, which was

6 what Mr. Lanoue had, 330 feet off of the east line, this

7 one shows 740.

8 What this has done, it means that it's

9 moved it off of this very solid survey line some 410

10 feet back over to the west. If you then add 410 to that 10:21:49

11 1080 that they had initially, you're at 1490.

12 I -- I don't know that that's what

13 Mr. Lanoue did; but I -- as I say, I've tried to back in

14 his numbers many ways to find some basis for it and...

15 Q. Okay. That really wasn't my question. Listen

16 carefully to my question.

17 When you see 1400 feet plus or minus, what

18 does the plus or minus mean to you? How much is plus,

19 how much is minus, 50 feet, 75 feet?

20 A. I don't know. 10:22:24

21 Q. As a surveyor you have no opinion on that?

22 A. No.

23 Q. Okay.

24 A. It -- it introduces an element of it could be a

25 little more, it could be a little less. The day before 67

1 A. I -- I don't know.

2 Q. All right. So, your testimony, then, is

3 Mr. Hooks, given what we know about Mr. Hooks, should

4 have been able to -- when he received this plat,

5 concerned about 1,320 feet, he should have been able to

6 ignore whatever inconsistencies there are, not even

7 noticed them, just relied on that and gone on down the

8 road?

9 A. I think it's entirely reasonable --

10 Q. Okay. 10:50:40

11 A. -- for Mr. Hooks to receive this plat and rely

12 upon it.

13 Q. That -- that is what a reasonable and prudent

14 mineral interest owner would have done?

15 A. As -- as a landowner in response to his

16 request, having been told it was 1500, this shows plus

17 or minus 1400, certainly he should be able to rely on

18 what Samson is telling him.

19 Q. All right. So, it's 1500 and 1400. That's

20 close enough that that shouldn't raise a red flag; is 10:51:06

21 that true?

22 A. They're both outside of the 1320.

23 Q. Okay. But --

24 A. And he has every reason to rely upon Samson.

25 Q. So, a hundred feet difference like that, 1500 68

1 feet, 1400 feet, that shouldn't make any difference, the

2 inconsistency -- that's -- that's consistent in your

3 mind?

4 A. Both of those are outside of the 1320.

5 Q. Okay.

6 A. So, I -- I think he should have been able to

7 rely on it.

8 Q. Is it your testimony that 1500 and 1400 are

9 essentially the same?

10 A. Well, there's a hundred between them and then 10:51:37

11 plus or minus on the 1400.

12 Q. Okay.

13 A. It is outside of the 1320.

14 Q. Okay. Now -- and to make sure I'm perfectly

15 sure I understand, too, that we're in agreement, the

16 directional survey that would allow you or any other

17 surveyor to locate the bottom hole location was on file

18 with the Railroad Commission in July of 2000, right?

19 A. That's correct.

20 MR. CARRINGTON: We'll pass the witness, 10:52:33

21 your Honor.

23 BY MR. SIMPSON:

24 Q. Ms. Foster, let me ask you about some of the

25 supposed inconsistencies that Mr. Carrington's brought 92

1 you met before this deposition with Samson personnel?

2 A. A portion of a lease.

3 Q. Who read this?

4 A. Rob Human.

5 Q. Portion of which lease?

6 A. It was one -- it might have been the Hooks'.

7 Q. And what portion of the lease was read?

8 A. It was referring to the different spacing

9 units, I believe. I'm trying to recall. It's missing

10 me right now, but I'm sure it will come to me. 11:22:48

11 Q. Did it relate to pooling?

12 A. Yes, and protecting their -- it's coming to me.

13 Maybe it's the water. I don't know.

14 Q. Go ahead.

15 A. In regard to pro -- protecting their

16 correlative rights.

17 Q. Did it relate to something called offset

18 obligations?

19 A. Yes.

20 Q. Do you have any idea why Mr. Human read you 11:23:22

21 that paragraph -- or that section?

22 A. I guess he felt it was necessary.

23 Q. Well, did you have -- then discuss that offset

24 obligations section?

25 A. Yes. 93

1 Q. What was -- what did you discuss about it?

2 A. He had asked if it was ever a topic of

3 conversation when we were forming the units and whenever

4 I'd sent a plat to the Hooks.

5 Q. And what was your answer?

6 A. No. The plat I'd sent to the Hooks wasn't

7 intended to be a plat showing where the -- how far away

8 the well was located. It was purely an informational

9 plat to show where their tract was to be located within

10 the unit. 11:24:29

11 Q. But the plat did show the well location, didn't

12 it?

13 A. Yes, sir.

14 Q. And --

15 A. It showed a well location.

16 Q. For the Black Stone Minerals No. 1?

17 A. I believe that's right. I didn't read -- look

18 at the plat.

19 Q. Is Samson compensating you in any way for being

20 here today? 11:24:54

21 A. No, sir. It would be nice, but it's not

22 happening.

23 Q. Has -- has anyone at Samson or on Samson's

24 behalf talked to you about attending trial in this case?

25 A. No, sir. 110

1 in some small handwriting it says 740 feet from the east

2 line and 290 feet from the south line?

3 A. Yes, sir.

4 Q. All right. Do you recall where you got those

5 locations, information that you gave Mr. Fansler?

6 A. Where I got them?

7 Q. Yes, sir.

8 A. I got them from myself.

9 Q. I'm sorry?

10 A. I got them from myself. 13:40:55

11 Q. Well, then, there had been a plat for the unit

12 prepared back at least in March of 2000, hadn't there?

13 A. Well, probably.

14 Q. Well, take a look at an exhibit we've already

15 seen, right? Exhibit 44?

16 A. Well, evidently that one wasn't going to work.

17 Q. Why do you say that?

18 A. I don't know. Because I'm doing a new one.

19 Q. So, the numbers you gave Mr. Fansler, 740 from

20 the east line and 290 from the south line, they were 13:41:27

21 measurements from a map?

22 A. Yes, sir.

23 Q. In your view were they supposed to be accurate?

24 A. As accurate as a land guy is using a ruler on a

25 scaled piece of paper that might not even be to scale, 111

1 sure.

2 Q. So, did you think that should be the actual

3 location of the bottom hole?

4 A. I was probably assuming that or hoping that.

5 Q. In fact, that's what you told the -- y'all told

6 the surveyor?

7 A. Yes.

8 Q. And, now, in Exhibit 52 Mr. Fansler has done as

9 instructed and just indicated the bottom hole location,

10 right? 13:42:15

11 A. Yes, sir.

12 Q. And, again, 740 feet from the east line and 290

13 feet from the south line?

14 A. Yes, sir.

15 Q. And a total distance from the surface of the

16 bottom hole of a little under 920 feet?

17 A. Yes, sir.

18 Q. Do you note -- see the note there on Exhibit 52

19 says -- it's been added -- position of the bottom hole

20 location was provided by Samson Lone Star, LP, right?

21 A. Yes, sir.

22 Q. And that was accurate, an accurate statement?

23 A. Well, it appears to be that way, yes, sir.

24 Q. So, the bottom hole location was not Mr.

25 Fansler's but what Samson had told him it was? 122

1 some of the lessors?

2 A. Yes, sir.

3 Q. Mr. Lanoue?

4 A. Yes, sir.

5 Q. Is Exhibit 63 a copy of a letter you sent some

6 of the lessors in that Jefferson County Tract 4?

7 A. It appears to be.

8 Q. And you sent this letter on February 15th,

9 2001?

10 A. Yes, sir. 13:55:47

11 Q. And is this -- you sent the same letter or a

12 similar letter to a number of lessors?

13 A. Yes, sir, all the ones that required it.

14 Q. And you asked them in the letter to amend their

15 lease to allow Samson to pool their lease with other

16 tracts and to grant 640-acre pooling plus a 10 percent

17 tolerance for the Black Stone Minerals No. 1 well,

18 right?

19 A. Yes, sir.

20 Q. And in your understanding that's 640 plus 10 13:56:19

21 percent, allows you to have a 704 acre unit?

22 A. Yes, sir.

23 Q. And then you noted that -- in the second

24 sentence of Exhibit 63 or the second paragraph: Please

25 be advised that Jimmy Broussard has already given 123

1 approval for the 640-acre pooling plus a 10 percent

2 tolerance, and we would like to have your approval as

3 well.

4 Did I read that right?

5 A. Where -- I'm -- yes -- yes, sir.

6 Q. So, you had talked to Mr. Broussard of the

7 Broussard lessors?

8 A. Jimmy Broussard was the -- there's -- there's a

9 lot of owners that are in that family, and he was the

10 spokesman for them. 13:57:01

11 Q. So, your position -- did you understand that

12 Mr. Broussard was speaking for the Heisigs in

13 California?

14 A. I just knew he was speaking for some of them.

15 I'm not absolutely sure of the exact list today. I knew

16 it was quite a long list whenever I visited with them

17 and I was surprised but I knew he represented a number

18 of people.

19 Q. And there were other lessors that he did not

20 represent in that who were -- also had interest in that 13:57:39

21 tract, right?

22 A. I'm sure there would be because they didn't

23 have a hundred percent of that tract.

24 Q. The Broussards did not have a hundred percent

25 of the Jefferson County Tract 4, right? 124

1 A. No, sir.

2 Q. So, you had to -- your understanding was that

3 you had to get consent to pool from the other lessors

4 that he did not represent?

5 A. Yes.

6 Q. Were the Hooks' interests one of those lessors

7 you had to go contact?

8 A. They were one of the owners, yes.

9 Q. Have you ever met Mr. Hooks?

10 A. No, sir. 13:58:13

11 Q. Okay.

12 A. I just talked to him on the phone; Charles,

13 that is.

14 Q. And you sent Mr. Hooks a letter similar to the

15 one you sent the -- to the Heisigs and the Carlisis in

16 Exhibit 63?

17 A. Yes, sir, I sure did.

18 Q. And, then, did you then send Mr. Hooks some

19 additional information about the Black Stone Minerals

20 well and unit? 13:58:44

21 A. He had called and was not sure -- was not sure

22 where their land was laying. He wanted to know where

23 their tract was going to be located within the unit and

24 requested a plat. So, I sent him one. I faxed him one.

25 And then, again, I talked to him in May 165

1 sorts of things associated with that, you know, oil and

2 gas business.

3 Q. Okay. Now, we've heard -- and you've sat here

4 through the testimony here for a couple of days -- about

5 the pooling of your tract in 2001 and the faulty

6 information that was given to you at that time.

7 I want to move past that time for just a

8 minute, and I want to move up until the time you met my

9 partner Paul Simpson in 2006. At that point in time did

10 you have any reason to suspect that you'd been supplied 15:07:34

11 false information in order to get you to join that unit?

12 A. No, I didn't.

13 Q. How did you run into Paul?

14 A. I'm a member of the Oil Gas and Mineral Law

15 Section of the Houston Bar Association and every month

16 they have a monthly luncheon meeting at the Houston Club

17 and -- with a speaker and, so, I normally attend those

18 and I -- this one particular month, day, I attended the

19 meeting and that's when I -- that's when I met him.

20 Q. Okay. And you had lunch with him there and 15:08:14

21 listening to the exciting speech, I'm sure, that was

22 given about oil and gas law?

23 A. Yes, we had lunch. I don't know how exciting

24 it was. I think it was on ethics, as I recall, but...

25 Q. Okay. The -- I remember Mr. Burmeister saying 166

1 that you had celebrated your 60th birthday going to a

2 legal seminar.

3 A. That was just coincidental, but that's true

4 actually.

5 Q. Now, at that point -- in that conversation did

6 you -- when you just met him casually did you suddenly

7 discover that you'd been defrauded?

8 A. No, that's -- no, not at all.

9 Q. How did the conversation go that you became

10 interested in looking into seeing whether or not Samson 15:09:08

11 had done something wrong to your family?

12 A. Well, when I sat down next to Paul at this

13 table, he was sitting there by himself initially and I

14 went over to join him and I thought I'd be friendly,

15 it'd be a nice thing to sit down next to him. So, I did

16 that. We introduced each other and he recognized my

17 name from some litigation that he had been involved in

18 already and started asking me some questions and said,

19 "Yes, I'm that Charles Hooks," et cetera, and, so, we

20 got into a little bit of discussion about some of the 15:09:44

21 things that are involved here.

22 Q. And I don't want to get into all that, but did

23 you eventually go down to his office and see some of the

24 materials that he had accumulated in this existing

25 lawsuit against Samson for some other people? 167

1 A. Yes, yes, I did.

2 Q. Okay. And, again, at that point in time was

3 the nature of the claim failure to pay royalties,

4 something like that?

5 A. Things of that nature, right.

6 Q. It wasn't -- you hadn't discovered the fraud

7 yet?

8 A. No, that wasn't involved at that time.

9 Q. Well, at what point in time just generally did

10 you-all, through the discovery process, uncover what had 15:10:23

11 happened to you?

12 A. Oh, I think it was in the spring, the following

13 spring that information came out.

14 Q. And it was at that point in time that you

15 actually amended your lawsuit that -- you were already

16 part of another lawsuit against Samson. You amended

17 that and brought the fraud allegation as part of this

18 case here today?

19 A. Yes, once we became aware of the situation.

20 Q. Now, now I want to rewind back -- okay? -- to 15:10:52

21 how you got into any kind of business arrangement with

22 Samson.

23 Let me show you Exhibit 501 (tendering).

24 Can you identify Exhibit 501?

25 A. This -- yes, I can identify it. 175

1 beginning of all that, it says that that's to be done

2 within 90 days from the date production is first sold.

3 A. Right.

4 Q. Okay. Now, you've seen leases -- provisions

5 like this in other leases, I assume?

6 A. I've seen variations of that, yes.

7 Q. Okay. Now, this was in '99 when you entered

8 into this lease. Do you recall getting a letter from a

9 Mr. Glenn Lanoue in February of 2001?

10 A. Yes. Yes, I did. 15:22:24

11 Q. Okay.

12 MR. LOCHRIDGE: Can we throw Exhibit 65 up

13 on the screen, please.

14 THE TECHNICIAN: (Complying).

15 Q. (BY MR. LOCHRIDGE) Okay. And is this similar

16 to the letter that he sent to you? And I say "similar,"

17 because you've added some things here, right?

18 A. Yes. That's my -- my annotated version of the

19 letter, right.

20 Q. So, this actually is the letter as you sent it 15:22:49

21 back to him a couple of days later, correct?

22 A. Yes.

23 Q. Okay. So, let's -- let's go to Exhibit 63,

24 which just shows the letter as it was sent to most of

25 the other royalty owners. And it just is basically 176

1 saying --

2 MR. CARRINGTON: Judge, can we get

3 Mr. Lochridge to quit leading the witness? He's just

4 testifying for Mr. Hooks.

5 MR. LOCHRIDGE: I realize I'm leading, your

6 Honor; but we've heard a lot of this. I'm trying to

7 move quicker.

8 MR. CARRINGTON: Well, then, if we've heard

9 it, we don't need to repeat it.

10 THE COURT: All right. Try not to lead. 15:23:27

11 MR. LOCHRIDGE: All right. Yes, sir.

12 Q. (BY MR. LOCHRIDGE) Did you get a letter with

13 the similar language from Mr. Lanoue?

14 A. Yes.

15 Q. In February, 2001?

16 A. Yes, I did.

17 Q. Now, in that letter they were -- he was

18 requesting you to give permission to agree to a unit,

19 right?

20 A. Yes, to pool at least a portion of the 640-acre 15:23:54

21 tract.

22 Q. Okay. And what did you do when you got this

23 request from the people at Samson?

24 A. I called Mr. Lanoue on the telephone.

25 Q. You just took the -- got the number here from 177

1 the letter?

2 A. Yeah.

3 Q. You just gave him a call; is that right?

4 A. Yes. I had some questions for him.

5 Q. While you were -- when you were making this

6 telephone call, did it so happen that you took some

7 notes of the telephone conversation while you were

8 talking to him or just after?

9 A. Yes, I did.

10 Q. And is Plaintiff's Exhibit 160 the notes that 15:24:31

11 you took at the time of the telephone conversation

12 (tendering)?

13 A. Yes, those are my notes.

14 MR. LOCHRIDGE: Your Honor, we offer

15 Plaintiff's Exhibit 160.

16 MR. CARRINGTON: No objection.

17 THE COURT: Admitted.

18 (Plaintiff's Exhibit No. 160 received)

19 Q. (BY MR. LOCHRIDGE) Now, let's -- let's just

20 make sure we're reading your handwriting here. We've 15:25:01

21 got the date of 2-20-01, correct?

22 A. Yes.

23 Q. All right. And you've got your first note.

24 Would you just read that out loud to the jury to make

25 sure that there's no mistake about what you've written. 178

1 A. (Reading) 13,700-foot deep gas well with good

2 deal of condensate located about 1500 feet west of

3 Pine Island Bayou on Black Stone lease. Well drilled by

4 Samson. Want to include 50 acres out of our 640 acres

5 in 704-acre gas unit. Haven't decided about remaining

6 590 acres.

7 Q. Now, what you've written here, is this what

8 you're telling him or what he's telling you?

9 A. That's what he was telling me.

10 Q. All right. And generally what were you asking 15:25:50

11 him about?

12 A. I was asking him about the location of our

13 property in relation to the rest of the unit; and, also,

14 I was concerned about the location of the well because I

15 knew about the offset obligation that could be involved

16 here.

17 Q. Okay. And in response to your inquiry he

18 indicated that it was located about 1500 feet west of

19 Pine Island Bayou?

20 A. Yes. 15:26:23

21 Q. And what did you understand that to mean?

22 A. I understood that to mean that the well was

23 located or completed outside of that 1320-foot zone that

24 we've talked about.

25 Q. Is that what you were trying to find out? 181

1 been admitted.

2 THE TECHNICIAN: (Complying).

3 Q. (BY MR. LOCHRIDGE) Is this the -- the fax he

4 sent to you that -- I think the same day or the next

5 day?

6 A. It looks like it's the next day, and it looks

7 like the transmittal sheet.

8 Q. All right.

9 MR. LOCHRIDGE: And let's flip to the -- I

10 believe it's the last page of this exhibit. 15:29:36

11 THE TECHNICIAN: (Complying).

12 Q. (BY MR. LOCHRIDGE) The jury's seen this

13 before.

14 First of all, is that the plat he sent to

15 you, the last page of this Exhibit 64?

16 A. Yes, as far as I can tell.

17 Q. And what did you do to verify that the -- what

18 he told you was true about the well being located 1500

19 feet away from Pine Bayou -- Pine Bayou?

20 A. Well, I looked at the -- what was indicated on 15:30:06

21 the plat; and it shows me that it was approximately --

22 the bottom hole location was approximately 1400 feet

23 west of Pine Island Bayou.

24 Q. Now, that's a little bit different than the

25 1500 feet that he told you over the telephone, right? 182

1 A. A little bit. I assumed that he was talking in

2 generalities in that case and that once he got the plat

3 it was more specific on the plat.

4 Q. Well, did that spark any concern that he might

5 be lying to you if he told you 1500 on the telephone and

6 then gave you a plat that was 1400?

7 A. No. I -- the plat speaks for itself.

8 Q. Okay.

9 A. And I had no reason to be concerned that it

10 wasn't accurate. 15:31:02

11 Q. Well, did you go and hire a surveyor or anyone

12 to check it out?

13 A. No. I didn't see any reason to do that. It

14 seems -- I mean, I assumed that he was going to send me

15 accurate information; and that's what I got.

16 Q. Now, earlier there was some argument made about

17 this arrow going -- the leader, I think they call it,

18 from this box that says B.H.L. going over in the

19 direction.

20 From looking at this plat where did you 15:31:43

21 believe the bottom hole to be?

22 A. Well, it looks like the bottom hole is there at

23 that sort of black dot area where the -- right about --

24 Q. (Indicating)?

25 A. -- right there about where the red is, right. 183

1 That would be about where it would be, that

2 intersection.

3 Q. Now, I want to -- well, first of all, after you

4 got this plat and checked it out and confirmed what

5 Mr. Lanoue had told you over the telephone, what did you

6 then do? Did you agree to -- to accept the pooling?

7 A. Well, once I had satisfied myself that

8 everything was in order, was appropriate, then I decided

9 I would send back the letter that he had requested me to

10 sign agreeing to this but with some changes on it. 15:32:49

11 Q. Okay. Let's turn back to Exhibit 65. Now, is

12 that the -- did you just take his letter dated February

13 15th and edit it with your changes?

14 A. Yes, that's what I did.

15 Q. And does your change begin here: ...as per a

16 photocopy of a plat?

17 A. Yes, the -- after the comma.

18 Q. Okay. And you just typed that in yourself?

19 A. I personally typed that on there.

20 Q. And, then, is that yours and your wife's 15:33:26

21 initials to the left?

22 A. Yes, they are.

23 Q. Now, why did you want to tie them down to the

24 plat that he had sent to you?

25 A. Well, that's the basis on which I made the 184

1 decision that everything was okay; and I wanted to be

2 sure there was no confusion later as to what was what.

3 I mean, that's the basis on which it was all done.

4 Q. Let's turn to the third page of this. The

5 jury's seen this plat.

6 Now, is this the same plat that he sent to

7 you, only now it has your and your wife's signatures?

8 A. Yes. Right. We initialed it.

9 Q. Or I'm sorry. Initialed it.

10 And what was the purpose of initialling the 15:34:16

11 plat?

12 A. To be sure that that was, in fact, the plat and

13 that if it ever came up later, that this was the plat we

14 were using to establish this information.

15 Q. And what are the two things that were of

16 importance to you on this plat?

17 A. Well, first and foremost, the location of the

18 well and then, of course, how our 50 acres would fit

19 into this proposed unit that they were -- would do.

20 Q. And the plat shows both the area here is your 15:34:50

21 50 acres?

22 A. Yes. I think it's Tract 4, that they have it

23 designated as Tract 4.

24 Q. And, then, the 1400 plus or minus scale line?

25 A. The 1400 feet, yes. 203

1 Mr. Carrington).

2 Q. (BY MR. LOCHRIDGE) Is Exhibit 5 -- what is

3 Exhibit 552?

4 A. Exhibit 552 appears to be a copy of all of the

5 various royalty checks we've received from Samson over a

6 period of time.

7 Q. Okay. And does Samson send -- how does Samson

8 send the checks, a different check for each well; or how

9 do they do this?

10 A. No. They send one check each month which 16:24:27

11 covers all of the royalty from each of the -- the wells

12 or units --

13 Q. Okay.

14 A. -- involved.

15 Q. And then you re -- what, do you generally just

16 routinely put those in the bank, you or Norma?

17 A. Well, yes, we deposit those each time.

18 Q. Okay. Now, you've heard the counsel for Samson

19 talk about you just accepting this money all along

20 and -- despite the fact that you feel like you were not 16:24:54

21 shot straight with regard to this unit. You've heard

22 that argument, right?

23 A. Yes, I have.

24 Q. Well, when you've cashed these checks, has it

25 been your intent to ratify or acquiesce in any way with 204

1 what they have done here with regard to this unit?

2 A. Not at all.

3 Q. Well, why have you cashed the checks, then?

4 A. I've cashed the checks because I see that as

5 just being a part of what they actually owe me. I saw

6 no reason not to go ahead and accept them.

7 Q. Now, you have not calculated yourself what you

8 think you're owed, have you?

9 A. No.

10 Q. Again, is that -- have you left that up to 16:25:44

11 Mr. Graham?

12 A. Yes. That's his job.

13 Q. Now, do you know if Mr. Graham has been

14 instructed one way or the other about giving Samson

15 credit for the -- the funds that they have paid you?

16 A. Well, yes. If -- whatever that may be that I'm

17 owed -- I mean, anything I've already received, I would

18 certainly give him credit for that.

19 MR. LOCHRIDGE: Your Honor, we offer

20 Plaintiff's 552. 16:26:21

21 MR. CARRINGTON: No objection.

22 THE COURT: Admitted.

23 (Plaintiff's Exhibit No. 552 received)

24 MR. LOCHRIDGE: Could you put Exhibit 71 up

25 on the board, please. 9

1 oil and gas law.

2 A. I wouldn't classify myself as an expert. I'd say I

3 was somewhat knowledgeable but not an expert.

4 Q. Well, you -- you've described yourself as having

5 expertise in oil and gas law and real estate law on previous

6 occasions, have you not?

7 A. Yes, in that I had -- that's the areas I do most of

8 my work in.

9 Q. Right. Most of your knowledge is in real estate law

10 and oil and gas law.

11 A. Yes, that's fair to say.

12 Q. And you're active, as you mentioned yesterday, in

13 the oil and gas section of the Houston Bar Association?

14 A. I'm a member, and I attend the meetings. I'm not

15 otherwise active as such.

16 Q. You keep up with -- try to keep up with current

17 events and keep your legal education in that field updated,

18 correct?

19 A. I do. I do that, yes.

20 Q. You're certainly not a novice in this area?

21 A. No, I wouldn't say I'm a novice, no.

22 Q. And you've been involved in this for 30-some-odd

23 years, right, ever since you got out of school?

24 A. Yes, a little over 33 years now.

25 Q. And since you got out of school -- and I'm not --

ANITA L. BECKER, CSR, RPR, CRR 10

1 I'm not demeaning what you do 'cause I wish I could do the same

2 thing; but this is all you've done, is manage your family's

3 investments since you got out of law school, right?

4 A. That's been my primary job, yes, although it's --

5 it's pretty challenging and certainly very time-consuming, yes.

6 Q. But you've never had a job where you worked for

7 someone else or anything like that, right?

8 A. Well, I have.

9 Q. Since you got out of law school.

10 A. Since law school?

11 Q. Right.

12 A. No, not since I've been involved in this.

13 Q. I understand back in high school and so forth,

14 between there and the Navy, that you had a job.

15 All right. So, for the last 30-plus years you

16 have been involved in negotiating oil and gas leases?

17 A. Yes.

18 Q. Talking to landmen?

19 A. Yes.

20 Q. Dealing with landmen, correct?

21 A. Right, right.

22 Q. And that's who you normally deal with when you're

23 negotiating leases, isn't it?

24 A. Yes, usually.

25 Q. All right. And you've been involved in numerous gas

ANITA L. BECKER, CSR, RPR, CRR 11

1 units, I assume, over the years?

2 A. Yes, we've had properties and various gas units.

3 Q. How many states did you say you had properties in,

4 30-some-odd?

5 A. No. We have -- our property's basically in Texas

6 and Louisiana.

7 Q. I'm sorry. Maybe I misstated. I said "states." I

8 meant counties. How many counties?

9 A. There are 36 counties that we have some interests in

10 of some description or another.

11 Q. How many leases do you think you negotiate a year?

12 A. Well, that varies. It's hard to say. In a year's

13 time -- I don't know -- maybe a half a dozen --

14 Q. Okay.

15 A. -- over the course of a year.

16 Q. And I think you told us in your deposition you've

17 negotiated over a hundred oil and gas leases in your -- in your

18 life.

19 A. I don't recall saying that but I -- over 33 years,

20 that's probably true.

21 Q. Well, you said it would be purely a guess; but you

22 said it would be right around a hundred -- over or a hundred,

23 you said.

24 A. Well, that's probably right, yeah.

25 Q. All right. The point is you have a lot of

ANITA L. BECKER, CSR, RPR, CRR 25

1 Q. Yes, sir.

2 A. Yes.

3 Q. All right. Now, your position is you told

4 Mr. Lanoue that you wanted to get a plat to see where this --

5 where this well was going to be?

6 A. To see the location of the well and the property and

7 that sort of thing.

8 Q. Did you mention to Mr. Lanoue anything about offset

9 obligations in that phone call?

10 A. I don't know if we specifically talked about offset

11 obligations. We talked about the location of the well; and I

12 believe that was clear, that that was a potential issue.

13 Q. Well, you did not tell Mr. Lanoue that you were

14 concerned about whether the well was going to be within 1,320

15 feet. You never said that specifically, did you?

16 A. I may not have. I was concerned with the location

17 of the well; and once I could determine that, then I'd see if

18 there was a concern.

19 Q. All right. You asked him for a plat?

20 A. Yes.

21 Q. And he sent you one by fax the next day?

22 A. Yes.

23 Q. And we've all seen the plat; and we're going to look

24 at it again here in a minute, as well.

25 You wanted that plat for -- am I hearing you

ANITA L. BECKER, CSR, RPR, CRR 26

1 say two reasons? No. 1, just to see what the unit was going to

2 look like and, then, No. 2, to see where itself well was going

3 to be in proximity to your tract?

4 A. Yes. Those were the two things I was basically

5 interested in.

6 Q. Okay. You know Jimmy Broussard, don't you?

7 A. I've talked with Jimmy on the phone a few times.

8 I've never met him personally face to face.

9 Q. You guys are cotenants, joint tenants, whatever, on

10 a number of pieces of property or mineral interests; is that --

11 is that correct?

12 A. Yes. Our families have interests in various

13 properties.

14 Q. Right. I think you said in your deposition there

15 was some relationship back up the food chain with your

16 grandfather and one of the Broussards. They did business

17 together, something like that, right?

18 A. Right. They all knew each other.

19 Q. And that's how you and the Broussards have come to

20 own property together?

21 A. As I understand it, yes.

22 Q. And you understand that Jimmy Broussard is -- is, I

23 guess, kind of like you. He's the person that runs the

24 Broussard oil and gas interests and things of that nature.

25 A. That's my impression.

ANITA L. BECKER, CSR, RPR, CRR 32

1 doesn't go to that intersection.

2 A. Well, frankly I'm not so sure that you can't -- that

3 it doesn't go to that intersection because the way those lines

4 were drawn and what I had to look at, it looked very much like

5 it could have.

6 Q. Mr. Hooks, look at this. This arrow for the surface

7 location goes to right there (indicating). Okay? You with me

8 there?

9 A. Uh-huh, yes.

10 Q. This box for the bottom hole location, the arrow

11 goes right here (indicating), right underneath that "4". You

12 see that?

13 A. Well, now I can see that.

14 Q. All right. How did you know where the bottom hole

15 was when you got this?

16 A. I knew it was approximately in that location based

17 on that information and --

18 Q. Well, Mr. Hooks "approximately" doesn't cut it when

19 you're talking 180 feet. If that bottom hole location's right

20 there (indicating), you've got a problem. If it's over here

21 (indicating), you don't have a problem.

22 Didn't you want to know exactly where it was if

23 you were really concerned about 1320?

24 A. Well, as far as I could tell on what he had faxed

25 me, that was -- that area was where the -- was the bottom hole

ANITA L. BECKER, CSR, RPR, CRR 33

1 location; and that 1400 feet was the distance to it.

2 Q. But this is what he faxed you, Mr. Hooks; and from

3 looking at this, you can't tell where the bottom hole is.

4 But, yet, you didn't call him, did you, and ask

5 him for some clarification?

6 A. Well, I didn't think I needed any clarification. It

7 seemed clear to me that it was -- it was 1400 feet away from

8 the bayou.

9 Q. Well, there's a line over here that's 1400 feet

10 away; but you can't tell where the well is, Mr. Hooks. That's

11 what's important, isn't it?

12 A. To me, where that line went to and where that arrow

13 appeared to go to were very close and it -- it -- I didn't

14 have -- there was no confusion as far as I was concerned.

15 Q. All right. So, your testimony is that where this

16 arrow is going, which is right here (indicating) underneath

17 this "4", and where the bottom hole location actually was, at

18 least for purposes of this map, are all in the same area and it

19 was okay, it was ballpark, and it was close enough for

20 government work, huh?

21 A. From the fax that I got, which was not the size of

22 this -- it was a small piece of paper -- it looked very much

23 like that arrow was at that intersection where the bottom hole

24 location supposedly is.

25 Q. All right, Mr. Hooks. Here's one just the same size

ANITA L. BECKER, CSR, RPR, CRR 34

1 you got (tendering). You see the arrow going right under the

2 "4" just like it is on the big one? It's even harder to see on

3 that one, isn't it, Mr. Hooks?

4 A. Actually this is clearer to me because that line

5 appears to continue across there and there's a little circle

6 where that intersection is and that looks like that's where the

7 bottom hole location would be and that's exactly what -- the

8 way I interpret it.

9 Q. So, you don't think that arrow goes to the bottom of

10 the "4"? You think it kicks over here (indicating)?

11 A. I think it's entirely -- that's the case.

12 Q. All right. I'm going to mark this --

13 A. That's the way I interpreted it.

14 Q. Is this (indicating) the map that you received?

15 A. What's the date on it? February 21.

16 I assume that it is, based on the dates.

17 Q. It sure looks like it, doesn't it? And the dates

18 are the same.

19 A. February 21, 2001, that would be appear to be.

20 Q. All right. Thank you.

21 MR. CARRINGTON: I'm going to mark this

22 Defendant's Exhibit 1. Judge, we offer this into evidence,

23 Defendant's Exhibit 1.

24 MR. LOCHRIDGE: May I see it, please?

25 MR. CARRINGTON: Oh, I'm sorry (tendering).

ANITA L. BECKER, CSR, RPR, CRR 35

1 MR. LOCHRIDGE: Might I ask the witness a

2 question about this, your Honor?

3 THE COURT: Yes.

4 MR. CARRINGTON: And it did not have the red

5 dot on it when you got it.

6 MR. LOCHRIDGE: That was my question.

7 MR. CARRINGTON: The red dot's me.

8 THE WITNESS: No, there was no red dot on it.

9 MR. LOCHRIDGE: Okay. So, this has got a red

10 dot that wasn't on there when you got this map?

11 THE WITNESS: Correct.

12 MR. LOCHRIDGE: Well, your Honor, we don't --

13 we object to the red dot and any representation that that might

14 be part of the map; but with that explanation we have no

15 objection to this exhibit.

16 THE COURT: The jury will disregard the red

17 dot. It's admitted.

18 MR. CARRINGTON: Disregard the red dot.

19 (Defendant's Exhibit No. 1 received)

20 Q. (BY MR. CARRINGTON) All right, Mr. Hooks. So,

21 anyway, you concluded that wherever in there the bottom hole

22 was that it was in a satisfactory location, right?

23 A. Yes. I -- I concluded that it was fourteen --

24 approximately 1400 feet west of Pine Island Bayou.

25 Q. Now, did it give you any concern that, even by this

ANITA L. BECKER, CSR, RPR, CRR 36

1 map, it was a hundred feet different than what Mr. Lanoue had

2 supposedly told you the day before?

3 A. Not really.

4 Q. So, now that we're within 80 feet, given that he's

5 already missed it by a hundred feet, it didn't send off a -- a

6 red light in your head, thinking, "Wow, this guy told me 1500

7 feet yesterday, which was close enough, and now he's missed it

8 by a hundred feet. Now we're within 80 feet. What if he's

9 missed it any more"?

10 That didn't trigger a question like that in

11 your mind?

12 A. No. His comment was that he was approximately 1500

13 feet; and when I saw a surveyor's plat that shows 1400 feet, I

14 assume that's more accurate than what his -- his verbal

15 estimation was.

16 Q. What about the fact that it was 1400 feet plus or

17 minus? What if 80 feet is the minus?

18 A. To me plus or minus means just a few feet, not a

19 huge substantial amount.

20 Q. Well, you heard Ms. -- Ms. Foster's testimony and

21 I -- and she was a little ambivalent but she seemed to think,

22 ah, 1500 feet, 1400 feet, you know, it's not much difference,

23 kind of like the plus or minus might go as far as a hundred

24 feet.

25 A. That's not my -- that's not my assumption.

ANITA L. BECKER, CSR, RPR, CRR 37

1 Q. So, you weren't worried about that, huh?

2 A. It didn't bother me particularly, no. I assumed it

3 was fairly close --

4 Q. Okay.

5 A. -- to 1400 feet.

6 Q. All right. Now, the final thing, I guess, that's

7 curious on this map -- or this plat --

8 MR. CARRINGTON: And if you guys would, do the

9 same thing you did last time with the twin screens and blowing

10 up the bottom.

11 THE TECHNICIAN: (Complying).

12 MR. CARRINGTON: There you go.

13 Q. (BY MR. CARRINGTON) Now, Mr. Hooks, on -- on this

14 plat down at the bottom where it's in writing, whereas it's

15 1400 feet from your lease line up here, 1400 feet from the

16 bayou, down here it says the bottom hole location is 14

17 heat [sic] -- 1400 feet from the east line of the unit, which

18 is over there (indicating).

19 You understand that?

20 A. I understand what it says.

21 Q. Okay.

22 A. Yes.

23 Q. That would be a problem for that 1320 issue,

24 wouldn't it?

25 A. Not if it's -- not if it's the east line of the unit

ANITA L. BECKER, CSR, RPR, CRR 38

1 before this acreage is added in. It's clear that it's

2 1400 feet from Pine Island Bayou.

3 Q. Did you have any other plats to look at from -- that

4 would indicate previous unit designations?

5 A. I hadn't seen anything --

6 Q. No.

7 A. -- no.

8 Q. So, when you get this (indicating), this is all

9 you're operating from, right?

10 A. Yes.

11 Q. And you've got -- aside from the ambiguities about

12 where the -- where the well actually is, you've got something

13 that's saying it's 1400 feet from your lease line, your

14 property over here (indicating); and, then, you've got it

15 written down here that it's 1400 feet from over here

16 (indicating).

17 Doesn't that inconsistency give you at least

18 enough pause, if you're really concerned about the 1320, to

19 pick up the phone and call Mr. Lanoue and say, "I don't

20 understand this. Why is it -- why is it different?"

21 A. Well, I didn't have any confusion about it. To me,

22 it would indicate -- I knew our tract was not in any other unit

23 and the east line of whatever unit there was couldn't have been

24 any further east than Pine Island Bayou and, since the line ran

25 from Pine Island Bayou west, it seemed to me that that was not

ANITA L. BECKER, CSR, RPR, CRR 39

1 a problem.

2 Q. Mr. Hooks, you've got a map that says two different

3 things, one going over here (indicating), one going over there

4 (indicating). You're concerned about 1320 and, so, you're just

5 going -- you just assume that somehow it's all right with the

6 world and that this is from some previous map that they just

7 didn't change? Is that what you're telling us?

8 A. I'm telling you that there was no confusion in my

9 mind. I assumed this was a proposed unit and that the

10 reference, if I even saw that down there, was from the other

11 unit, not from what they were proposing, because it was

12 consistent with the arrow -- with the 1400 feet.

13 Q. Well, there's no way -- just to be absolutely sure,

14 Mr. -- Mr. Hooks, there is no way that 1400 feet to this line

15 (indicating) and 1400 feet to this line (indicating) are

16 consistent. You'll give me that, won't you?

17 A. No.

18 Q. You think they're the same?

19 A. I didn't have any confusion about it. It's clear to

20 me.

21 Q. Crystal clear?

22 A. Yes, or I would have inquired.

23 Q. And you never did, did you?

24 A. I had no reason to.

25 Q. You were very, very concerned about the 1320,

ANITA L. BECKER, CSR, RPR, CRR 43

1 for you to get in on the unit?

2 A. Well, the way it was presented to me, it was the

3 only way we'd have any economic benefit out of the situation.

4 Q. Right. And that's because the well was not drilled

5 on -- on your property, correct?

6 A. Correct.

7 Q. And you were told that if you didn't join the unit

8 that you wouldn't participate in the production, right?

9 A. Right.

10 Q. Now, your position is that -- that that was the case

11 because it was outside of 1320 and no well on your property.

12 So, if I don't join the unit, I don't get anything, right?

13 A. That's -- that's correct, yes.

14 Q. In reality -- in reality, Mr. Hooks, the reason you

15 would have gotten nothing is because Samson would have released

16 your property, isn't it?

17 A. I don't know that. They never talked about

18 releasing it.

19 Q. Why in the world would they ever pay you

20 compensatory royalties, Mr. Hooks, instead of just releasing

21 your lease?

22 A. I don't know. That would be for Samson to decide.

23 Q. Exactly. Exactly. They had 60 percent already of

24 the property, aside from yours, under lease in the unit,

25 correct?

ANITA L. BECKER, CSR, RPR, CRR 44

1 A. If they had all the rest of it leased, yes,

2 approximately 60 percent.

3 Q. And if you did not join the unit and your property

4 was released, your interest in the property was released, the

5 portion that would have gone to you would have just stayed with

6 Samson, wouldn't it?

7 A. I believe that's correct.

8 Q. And that's perfectly legal, isn't it?

9 A. Yes.

10 Q. They would not have been doing anything improper,

11 illegal, or wrong by doing that, would they?

12 A. I suppose not.

13 Q. So, they had zero incentive, didn't they, Mr. Hooks,

14 to feel compelled to do whatever it took to get you into the

15 unit?

16 A. I don't know what their incentive is.

17 Q. Given that they had more money in their pocket

18 without you going into the unit, would you agree with me that

19 certainly is a counterincentive?

20 A. I -- if that were the case, it would appear to be.

21 Q. Now, since you have -- and setting aside the

22 question of whether you're really even in the unit or not due

23 to lack of complying with your own specific terms, you have

24 been receiving the checks as you have been all along, right?

25 A. Yes.

ANITA L. BECKER, CSR, RPR, CRR 45

1 Q. And you said that you've been cashing them because

2 you think, well, Samson owes me money anyway. So, this will

3 just be kind of a down payment or something like that. Do you

4 recall that?

5 A. Well, yes, that would be -- I'd consider that part

6 of what I was owed.

7 Q. How long have you been cashing the checks under that

8 pretense? What did -- how long have you been cashing the

9 checks thinking, well, Samson owes me money anyway so I'm going

10 to keep cashing them?

11 A. Well, once I became aware that there were some

12 issues here associated with this situation that I didn't know

13 about.

14 Q. Once you realized that you shouldn't have been so

15 happy with that $2 1/2 million you'd been paid, then you

16 decided that in the future it was going to be payments against

17 what they really owed you?

18 A. I just saw no reason not to continue to take the

19 checks, that whatever they may owe me in the future, that would

20 certainly apply to that.

21 Q. Now, Mr. Hooks, there are two other wells in this

22 unit, aren't there?

23 A. I believe so.

24 Q. I'll just hold this up briefly (complying). Here's

25 the BSM-1 that we've been talking about; and here's 2 and 3,

ANITA L. BECKER, CSR, RPR, CRR 50

1 it, you know. I wasn't even -- I was just addressing why I

2 hadn't done it, you know, in a timely fashion. That's what

3 that was about.

4 Q. It was a condition you put into the letter

5 agreement, and then you were going to be able to be the one

6 that decided whether you really had to do it or not?

7 A. No. I intended to do it.

8 Q. But then you decided you just weren't going to do

9 it, right?

10 A. Only after the conversation with Ms. McGhee that

11 that wasn't necessary to do it. So, we agreed that we'd just

12 not do it.

13 Q. Which, of course, we both know -- although you say

14 it's only possible -- really has no effect on a written

15 agreement involving oil and gas.

16 A. I did agree in writing to join the unit, but it was

17 subject to further documentation.

18 Q. And that documentation, of course, never occurred,

19 right?

20 A. Yes, that's correct.

21 Q. All right. You...

22 Now, once -- I guess it was in the fall of 2006

23 when you and Mr. Simpson ran into each other up at the

24 Houston Club, right?

25 A. Yes.

ANITA L. BECKER, CSR, RPR, CRR 51

1 Q. And that's the first time that you -- or sometime

2 thereafter -- and I don't know if it was that day or when --

3 but at some point then you became, you know, unhappy and felt

4 like you had been defrauded, right?

5 A. After some further information came to light that

6 that was apparently the situation.

7 Q. After that happened, did you pick up the phone and

8 call your acquaintance, if not a friend, Jimmy Broussard and

9 say, "Jimmy, man, look what I found out. I got snookered on

10 this thing. What about you? Did you get tricked? You're in

11 the same situation"?

12 Did you do that to see whether the other folks

13 on the property had gotten hoodwinked?

14 A. I don't recall that.

15 Q. Why do you think that Samson picked on you? Why do

16 you think you're the only one that got tricked?

17 A. I don't know. I may not be the only one.

18 Q. Well, has anyone else ever told you they got

19 tricked?

20 A. No.

21 Q. Now, there was a little bit of testimony -- there's

22 been some talk about this DuJay 1 well. You know where that

23 is, don't you, Mr. Hooks?

24 A. I think I do.

25 Q. Let's just put this up here just long enough for

ANITA L. BECKER, CSR, RPR, CRR 53

1 Q. All right. Because there is another unit up

2 there -- and here it is on this board (indicating).

3 There is a DuJay unit of which you are a

4 participant, correct?

5 A. Yes.

6 Q. Now, we don't -- here's the DuJay 1 (indicating).

7 And you're in this unit up here (indicating),

8 right? You're receiving money on the DuJay 1, aren't you?

9 A. Yes.

10 Q. All right. Now, nobody tricked you into -- or

11 nobody did anything to deceive you or defraud you with respect

12 to the DuJay 1 well, did they?

13 A. Not that I'm aware of.

14 Q. Well, you never talked to Mr. Lanoue about it.

15 Nobody ever sent you anything that you say is fraudulent. With

16 respect to the DuJay 1 nobody did anything -- or from Samson,

17 anyway, nobody did anything to trick you or hoodwink you or

18 defraud you or something with respect to the DuJay 1, right?

19 A. Not that I'm aware of, no.

20 Q. Okay.

21 MR. CARRINGTON: Your Honor, we'll pass the

22 witness.

23 THE COURT: Let's take about a ten-minute

24 break.

25 (Recess)

ANITA L. BECKER, CSR, RPR, CRR 68

1 Q. It'd be a well just of your own on your property?

2 A. It would be a well on our property.

3 Q. You said several times that you weren't the least

4 bit confused about this map when it was sent to you by

5 Mr. Lanoue. Now, tell us again why that map didn't confuse you

6 in light of the conversation you had with Mr. Lanoue.

7 A. He commented that the well was located about

8 1500 feet west of Pine Island Bayou, that being west of our

9 property. The plat indicates that the -- that the bottom hole

10 location, which is what we were talking about, is about

11 1400 feet west, which was, I considered, consistent with what

12 he was saying. I assumed that he was just estimating and --

13 verbally, but the plat would be more accurate.

14 Q. Fair enough.

15 Did you have any reason whatsoever to suspect

16 that Mr. Lanoue, calling you on behalf of Samson, was

17 attempting to mislead you?

18 A. No, not at all.

19 Q. And --

20 MR. LOCHRIDGE: I just have one thing further,

21 your Honor, as a matter of clean-up.

22 Q. (BY MR. LOCHRIDGE) We had talked yesterday about

23 the provision in the lease where they are to pay your ad

24 valorem taxes.

25 A. Yes.

ANITA L. BECKER, CSR, RPR, CRR 70

1 enable us to know that that's what Mr. Lanoue was trying to do,

2 to deceive you, as opposed to give you a map that had some

3 mistakes?

4 A. I -- no, I have no knowledge of -- of that, no.

5 Q. Okay. Now, Mr. Lochridge brings up an excellent

6 point. If this number down here (indicating) is correct,

7 1400 feet from the east line of the unit, that well -- I think

8 Ms. Foster said it wouldn't be on your property. It would be

9 close; but, as he said, if you're just eyeballing it, it could

10 be -- it could be on your property.

11 Isn't that -- doesn't that make it even more

12 important that you'd want to get that clarified just in case

13 Samson had made a mistake and it's actually on your property?

14 Wouldn't you want that clarified?

15 A. Well, it was clear to me from what Mr. Lanoue said

16 that the well was not on the property, it was 1500 feet west of

17 our property, and that this was not inconsistent with what he

18 said.

19 Q. But when you get a plat that potentially says

20 something completely different, that didn't bother you?

21 A. I don't find that problem in it.

22 Q. Do you know the difference between a scaled map and

23 a surveyed map?

24 A. I'm not sure I could give you a technical

25 definition.

ANITA L. BECKER, CSR, RPR, CRR 71

1 Q. But you know that when a distance indicates that

2 it's scaled, that that means it's not surveyed. It's been done

3 with a scale. It's been mapped off on a plot -- on a plat with

4 a scale and a ruler, correct?

5 A. That would make sense.

6 Q. Which, of course, leaves room for inaccuracies

7 anytime you're using a ruler and trying to do something by

8 scale based on the scale of the map, correct?

9 A. There would probably be some room for some error.

10 Q. And those numbers, as they indicate on that plat,

11 are scaled, aren't they?

12 A. Yes.

13 Q. Now, I never implied -- or never said that you never

14 talked to Ms. McGhee or told you talked to Ms. McGhee; but is

15 there anywhere in your deposition, Mr. Hooks, where you said

16 that, when you talked to Ms. McGhee, "I told her that we didn't

17 need that lease agreement after all"?

18 A. I don't recall that.

19 Q. But you were asked on multiple occasions, at least

20 two or three occasions in your deposition, "Why didn't you ever

21 complete the amended lease agreement?" You were asked those

22 questions, weren't you?

23 A. Yes.

24 Q. And never once in response to that question did you

25 say, "Well, when I talked to Ms. McGhee, we agreed we didn't

ANITA L. BECKER, CSR, RPR, CRR 62

1 Q. Did Mr. Lanoue report to the team periodically

2 about his progress with getting the unit formed and

3 getting consents and things of that nature?

4 A. I imagine he did. That was eight years ago.

5 That would have been standard operating procedure. I

6 can't remember exactly from eight years ago.

7 Q. Would you remember if during the discussion of

8 those team meetings that Mr. Lanoue mentioned to you

9 that, "Hey, we need to trick this guy because we need to

10 get him into the unit"? Would you remember that? 10:40:47

11 A. That would have been one of those "fall out of

12 the seat" moments that, yeah, you wouldn't forget that

13 'cause you've got to know Glenn. Glenn's as honest as

14 the day is long. That wouldn't have happened; and I

15 would have remembered it, yeah.

16 Q. What -- if Mr. Hooks had declined to

17 participate in the unit, what would Samson have done --

18 A. Well --

19 Q. -- with his tract, with his lease?

20 A. Sure. Obviously we would have released that 50 10:41:15

21 acres.

22 Q. But why is that? Why would you have done that?

23 A. Well, that's kind of why it's so flabbergasting

24 to hear Mr. Hooks claim that, you know, he would have

25 opted out of the unit. If we'd have released it or he'd 63

1 have opted out of the unit, then all that money that we

2 paid him, we would have got. It makes no sense.

3 Q. Was there any motive whatsoever to trick

4 Mr. Hooks or defraud Mr. Hooks into staying in the unit

5 or joining the unit?

6 A. No. As Mr. Hooks himself said, there was kind

7 of a counter motive, you know. It makes the opposite

8 sense. If anything, if he'd have claimed that we tried

9 to trick him out of joining unit so we could have kept

10 his money. Now, that makes sense because we would have 10:42:06

11 gotten more money. To claim that we tried to trick him

12 into the unit makes zero sense.

13 Q. Did you need to keep his lease in order to

14 recover the gas that was underneath his tract?

15 A. No. We had the Broussard interest lease. The

16 Broussards had agreed to the unit. That's all we

17 needed.

18 Q. Well, frankly, Mr. Beale, did you even need the

19 Broussard's lease to drain or to extract the minerals

20 that might have been captured from coming under their 10:42:45

21 land?

22 A. No. I mean we could have just excluded that

23 acreage entirely and just drilled the well and formed

24 the unit differently. Then he didn't have to be in the

25 unit at all. 65

1 and so forth. My question to you is: Was there ever a

2 big secret that this well was intended to be within

3 1,320 feet of Mr. Hooks' tract?

4 A. I don't see how it could be a big secret when

5 you're turning in a plat that says that to the Railroad

6 Commission.

7 Q. Now, you have seen introduced into evidence a

8 lease renewal and extension for 590 acres. You recall

9 that?

10 A. Sure. 10:44:38

11 Q. Mr. Hooks' tract is 640 and then the 50 had

12 been participated in the unit?

13 A. Right.

14 Q. Samson took out a lease extension and renewal

15 on the remaining 590 acres?

16 A. Sure.

17 Q. Why did you do that?

18 A. Well, we had a active exploration program going

19 in the area. It's just standard policy to keep your

20 lease position intact while you're still active in the 10:45:03

21 area. There's no reason not to. It's small dollars.

22 That's what we're in the business for.

23 Q. Did that -- does that other 590-acre tract and

24 the renewal and extension you got on it have anything to

25 do with the BSM-1 well or the DuJay 1 well? 66

1 A. Absolutely nothing.

2 Q. Why is that?

3 A. Well, it's across a fault. We included in the

4 unit the acreage that we felt was part of the -- you

5 know, what we were producing out of and then there's a

6 fault and then there's the other 590 acres which was

7 just completely different, had nothing to do with it.

8 Q. So, could -- had you released Mr. Hooks' 50

9 acres, if he didn't want to join the unit, could you

10 have kept the 590 acres, extended that and renewed that? 10:45:54

11 A. Yeah, could have, would have -- we did --

12 whether he joined the unit or not.

13 Q. Did Simpson -- excuse me -- Samson have any

14 incentive to agree to pay compensatory royalties to

15 Mr. Hooks? Would there have been any -- any scenario

16 that under the conditions that we know existed that

17 would have caused Samson to pay him compensatory

18 royalties rather than release?

19 A. Well, let me think. If we release it, we get a

20 bunch of money. If we pay compensatory royalties, we've 10:46:26

21 got to pay out a bunch of money. No, there's no reason

22 to do that, absolutely none. We'd have just released

23 it. We'd have made more money. End of story.

24 Q. Now, Mr. Beale, at the outset of this -- this

25 examination, we talked about how you felt about being Cecilia Gower, CSR - 60th District Court, Beaumont, TX

1 A. Yes.

2 Q. Now, we also know from what we've seen that in

3 November of 2001 -- which we'll go to Exhibit 71 -- the

4 lawyer -- this is November of 2001 -- the lawyer sends to

5 Mr. Lanoue another amended plat. And this one -- or

6 amended designation.

7 And this one has an accurate plat on it. Do

8 you recall that?

9 A. I recall that I think the final amendment had the

10 right plat.

11 Q. Right. And that Mr. Lanoue had that in November

12 of 2001, correct?

13 A. Makes sense.

14 Q. And we also know --

15 MR. LOCHRIDGE: -- if you would put

16 Plaintiffs' 19 up there --

17 Q. (By Mr. Lochridge) -- that it doesn't get filed

18 until some 14 months later in early 2003, correct?

19 A. Right.

20 Q. So, it's not until then that if Mr. Hooks had any

21 reason to suspect he had been misled that he could

22 actually find some accurate information, correct?

23 A. No, I don't think that is correct. I think there

24 was a correct plat out there at the Railroad Commission,

25 wasn't there? Cecilia Gower, CSR - 60th District Court, Beaumont, TX

1 here. Yet, I heard testimony today that the bottom hole

2 location is supposed to be 1400 feet, which is over here

3 (indicating). So, those two things don't go around. I

4 mean, just by looking at the plat those two things don't

5 match. And then if you go to the Railroad Commission

6 records that were available at this time, the actual

7 bottom hole location is way over here.

8 Then, in addition, the plat says the bottom

9 hole location is 1400 feet from the east unit line. Well,

10 the east unit line is this point right here, which would

11 be 1400 feet this way. So, if you just simply look at

12 this plat in any detail you just see that it has severe

13 problems.

14 Q. Let's talk about -- you can sit back down --

15 well, keep standing because you're probably gonna point at

16 the map.

17 What is the significance of the distance

18 being marked as 1400 feet plus or minus scale? And could

19 you point to that over there?

20 A. Right here (indicating).

21 Q. Yes, sir. What does 1400 plus or minus scale

22 mean?

23 A. Well, scale means that somebody used a ruler to

24 do it, as opposed to surveying it.

25 Q. Okay. So, a surveyor didn't go survey 1400 feet. Cecilia Gower, CSR - 60th District Court, Beaumont, TX

1 Somebody took out a ruler on a map with a scale and

2 measured 1400 feet?

3 A. That's my interpretation.

4 Q. Okay. How would that possibly affect the

5 accuracy of this plat?

6 A. Well, it's -- the 1400 feet doesn't go to any

7 known point that I'm aware of that's relevant or material

8 here, because it doesn't go to the bottom hole location

9 even shown on this map. It doesn't go to the bottom hole

10 location that's in the commission records at this time,

11 been in the records about six months at this time. So, it

12 just sort of goes to an irrelevant point.

13 Q.. Okay. Well, how much faith would you put in on

14 a -- you've got a copy of it in your hand, don't you?

15 A. Yes, sir.

16 Q. How -- is it difficult to accurately scale on a

17 map like that?

18 A. Well, I mean, it's -- if you look at this scale,

19 sure, it's subject to some error.

20 Q. What is the scale on that map, the one in your

21 hand?

22 A. The one in my hand says an inch to 2000 feet.

23 Q. Okay. So, on that plat 1 inch is supposed to

24 equal 2000 feet, correct?

25 A. Right. So, every single nick on this is about