Yates Energy Corporation, Jalapeno Corporation, Gary B. Laughlin, and Mosbacher USA, Inc. v. Enerquest Oil & Gas, L.L.C., Havenyield Energy, L.L.C. and Justin O'connor

• Court: Court of Appeals of Texas
• Decided: June 30, 2005
• Docket: 13-03-00118-CV
• Status: Published

Opinion

                                    NUMBER 13-03-118-CV

                                 COURT OF APPEALS

                     THIRTEENTH DISTRICT OF TEXAS

                         CORPUS CHRISTI B EDINBURG

YATES ENERGY CORPORATION, JALAPENO

CORPORATION, GARY B. LAUGHLIN,

AND MOSBACHER USA, INC.,                                                      Appellants,

                                                             v.

ENERQUEST OIL AND GAS,L.L.C., HAVENYIELD

ENERGY, L.L.C., AND JUSTIN O=CONNOR,                                 Appellees.

                      On appeal from the 25^th District Court

                                       of Gonzales County, Texas.

                                M E M O R A N D U M   O P I N I O N

     Before Chief Justice Valdez and Justices Rodriguez and Garza

      Opinion by Chief Justice Valdez

Appellants, Yates Energy Corporation, Jalapeno Corporation, Gary B. Laughlin, and Mosbacher USA, Inc. (collectively AYates@), appeal the trial court=s granting of a motion for summary judgment in favor of appellees, Enerquest Oil & Gas, L.L.C., Havenyield Energy, L.L.C., and Justin O=Connor (collectively AEnerquest@).  Because we conclude there are material issues of fact still in dispute, we reverse and remand.

Background

This dispute involves the Baker Gas Unit, an area of approximately 631 acres located in Gonzales County, Texas.  Both Yates and Enerquest are working interest owners of the Baker Unit, which currently has one operating gas well, the Baker No. 1 Well.  Yates is also the operator of the unit.  The rights and obligations of all working interest owners are controlled by a Joint Operating Agreement (JOA). 

The Baker No. 1 Well began experiencing production problems in early 2000, and after some discussion among the working interest owners, it was agreed that Yates would abandon its interest in the well in favor of Enerquest.  This transfer of interests was to be accomplished in accordance with the JOA, which provided that in instances where some but not all of the parties wished to abandon a well on the property, Athose wishing to continue its operation shall tender to each of the other parties its proportionate share of the value of the [well].@  Furthermore, each abandoning party Ashall then assign to the non-abandoning parties . . . all of its interest in the well and its equipment, together with its interest in the leasehold estate. . . . The assignments so limited shall encompass the >drilling unit= upon which the well is located.@

The term Adrilling unit@ is described in the definitions section of the JOA as Athe area fixed for the drilling of one well by order or rule of any state or federal body having authority.@  The parties agree that such a rule was promulgated by the Texas Railroad Commission in 1991:  AThe standard drilling and proration units are established hereby to be six hundred forty (640) acres . . . .  An operator, at his option, shall be permitted to form optional drilling units of three hundred twenty (320) acres.@ 

During Yates=s abandonment of the Baker No. 1 Well, a dispute arose as to what constituted the well=s applicable Adrilling unit.@  Yates argued that as operator of the well, it could set the drilling unit at 320 acres.   Enerquest asserted that because there had always only been one well on the property, the drilling unit was clearly the entire acreage of the property.  The two parties entered an agreement as to the transfer of 320 acres in which they reserved their rights to pursue legal remedies with regard to the remaining acres in dispute.  Enerquest then sued Yates for breach of contract, requesting specific performance by Yates and the conveyance of the remaining 311 acres in the Baker Unit.  Both parties moved for summary judgment, and the trial court denied Yates=s motion and granted Enerquest=s motion, directing Yates to abandon its interests in the remaining 311 acres. 

On appeal, Yates argues that the trial court erred in (1) failing to rule that disputed issues of material fact prevented the granting of Enerquest=s summary judgment motion, (2) failing to rule that Enerquest had already received all the acreage to which it was entitled, and (3) failing to grant Yates=s motion for summary judgment. 

Analysis

The movant for summary judgment has the burden of showing that there is no genuine issue of material fact, and that it is entitled to judgment as a matter of law.  See Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548 (Tex. 1985).  In deciding whether there is a disputed material fact issue precluding summary judgment, evidence favorable to the nonmovant will be taken as true. See id. at 548‑49.  When both sides move for summary judgment and the trial court grants one motion and denies the other, we must consider both motions, their evidence, and their issues and may render the judgment that the trial court should have rendered.  See CU Lloyd's of Tex. v. Feldman, 977 S.W.2d 568, 569 (Tex. 1998).

In construing a contract, we must ascertain and give effect to the parties= intentions as expressed in the document.  J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003). To achieve this objective, we must examine and consider the entire writing in an effort to harmonize and give effect to all the provisions of the contract so that none will be rendered meaningless.  Id.  No single provision taken alone will be given controlling effect; rather, all the provisions must be considered with reference to the whole instrument.  Id. If, after the pertinent 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.  Id.

Both parties focus the majority of their arguments on whether the JOA provision regarding drilling units, and hence the Railroad Commission rule referenced by the JOA, establish 320 acres as an allowable drilling unit size in the Baker Unit.   We have reviewed the relevant documents and conclude that the Railroad Commission rule, as quoted above, expressly provides for the possibility of a 320-acre drilling unit, and that this rule was intended by the authors of the JOA to be incorporated into the agreement.  Thus, the JOA may be properly interpreted as allowing for drilling unit to potentially be either 640 acres or 320 acres.

Enerquest argues that because the JOA uses the language Athe area fixed for the drilling of one well by order or rule of any state or federal body having authority,@ there can only be a single established size for drilling units.  AFixed@ is defined as Aestablished@ or Asettled.@ See Webster=s New World Dictionary, 3rd College ed. (1988).  With this definition in mind, we conclude it is reasonable to interpret the JOA as allowing for the establishment of two alternative drilling unit sizes as set by the Railroad Commission.

Given that the drilling unit could have properly been either 640 acres or 320 acres under the JOA, we turn now to the question of which of the two drilling unit sizes had been established in the Baker Unit.  As mentioned above, the 640-acre unit was considered the Astandard@ drilling unit size, and the 320-acre drilling unit could only be established by Aan operator, at his option.@   Yates, the operator of the well, insists that in its communications with Enerquest regarding the abandonment of Baker No. 1 Well, it had exercised this option and thereby established the drilling unit at 320 acres.   Enerquest, however, insists that because Yates had operated only one well on the entire property, it had never established a smaller drilling unit, and therefore never availed itself of the opportunity to establish a 320-acre drilling unit. 

The railroad commission order fails to specify how an operator is to exercise his option of forming the optional 320 acre drilling unit, and both parties dispute how or whether this was done.  This raises an as-yet unresolved issue of material fact that would be properly determined by a jury or fact-finder.  See Nixon, 690 S.W.2d at 548.   Accordingly, we conclude that the trial court erred in granting summary judgment in favor of Enerquest.  and we affirm Yates=s first issue on appeal.^[1]

Conclusion

We reverse the judgment of the trial court and remand the cause for trial on the merits.                      

Rogelio Valdez,

Chief Justice

Memorandum Opinion delivered and filed

this 30^th day of June, 2005.

---

^[1]For the same reasons, it would also be improper for the trial court to grant Yates=s cross-motion for summary judgment or rule that Enerquest had already received all the land to which it was entitled.  Therefore, we do not need to further address Yates=s remaining issues on appeal.  See Tex. R. App. P. 47.1.