                                                                                     ACCEPTED
                                                                                 06-15-00044-CV
                                                                      SIXTH COURT OF APPEALS
                                                                            TEXARKANA, TEXAS
                                                                           10/20/2015 7:43:29 PM
                                                                                DEBBIE AUTREY
                                                                                          CLERK
                            No. 06-15-00044-CV


            IN THE SIXTH DISTRICT COURT OF APPEALSFILED IN
                                                        6th COURT OF APPEALS
                                                          TEXARKANA, TEXAS
                                                        10/21/2015 8:59:00 AM
               Burlington Resources Oil & Gas Company   LP,
                                                             DEBBIE AUTREY
                                                                 Clerk
                                                     Appellant,

                                    v.

        PetroMax Operating Co., Inc., Woodbine Acquisition, LLC,
              Petro Texas, LLC, Ch4 Energy II, LLC, and
                   TexCal Energy South Texas L.P.,

                                                     Appellees.


               On Appeal from the 12th Judicial District Court
             Madison County, Texas, Cause No. 12-13130-012-10


                           BRIEF FOR APPELLANT


Fred Hagans                         Kirsten M. Castañeda
Kendall C. Montgomery               Roger D. Townsend
HAGANS BURDINE MONTGOMERY           ALEXANDER DUBOSE JEFFERSON
 & RUSTAY, P.C.                      & TOWNSEND LLP
3200 Travis, Fourth Floor           1844 Harvard Street
Houston, Texas 77006                Houston, Texas 77008

Vincent L. Marable III              John R. Mercy
PAUL WEBB, P.C.                     Mercy Carter Tidwell, L.L.P.
221 N. Houston Street               1724 Galleria Oaks Drive
Wharton, Texas 77488                Texarkana, Texas 75503


                         ATTORNEYS FOR APPELLANT

                         Oral Argument Requested
                    IDENTITY OF PARTIES AND COUNSEL

Appellant:                    Kirsten M. Castañeda
                               State Bar No. 00792401
Burlington Resources Oil &     kcastaneda@adjtlaw.com
Gas Company LP                ALEXANDER DUBOSE JEFFERSON
                               & TOWNSEND LLP
                              4925 Greenville Avenue, Suite 510
                              Dallas, Texas 75206

                              Roger D. Townsend
                               State Bar No. 20167600
                               rtownsend@adjtlaw.com
                              ALEXANDER DUBOSE JEFFERSON
                               & TOWNSEND LLP
                              1844 Harvard Street
                              Houston, Texas 77008

                              John R. Mercy
                               State Bar No. 13947200
                               jmercy@texarkanalawyers.com
                              MERCY CARTER TIDWELL, L.L.P.
                              1724 Galleria Oaks Drive
                              Texarkana, Texas 75503
                                                        Appellate counsel

                              Fred Hagans
                               State Bar No. 08685500
                               fhagans@hagans-law.com
                              Kendall C. Montgomery
                               State Bar No. 14293900
                               kmontgomery@hagans-law.com
                              HAGANS BURDINE MONTGOMERY
                               & RUSTAY, P.C.
                              3200 Travis, Fourth Floor
                              Houston, Texas 77006




                                   ii
                               Vincent L. Marable III
                                State Bar No. 12961600
                                trippmarable@sbcglobal.net
                               PAUL WEBB, P.C.
                               221 N. Houston Street
                               Wharton, Texas 77488
                                                 Trial and appellate counsel

                               Bennie D. Rush
                                State Bar No. 17400425
                               1300 11th Street, Suite 300
                               Huntsville, Texas 77340-3857
                                                               Trial counsel


Appellee                       Brad D’Amico
PetroMax Operating Co., Inc.    State Bar No. 00783923
                                bd@canteyhanger.com
                               CANTEY HANGER LLP
                               1999 Bryan Street, Suite 3300
                               Dallas, Texas 75201

                               David J. Beck
                                State Bar No. 00000070
                                dbeck@beckredden.com
                               Thomas E. Ganucheau
                                State Bar No. 00784104
                                tganucheau@beckredden.com
                               BECK REDDEN LLP
                               1221 McKinney Street, Suite 4500
                               Houston, Texas 77010-2010
                                                 Trial and appellate counsel

                               David Hammit
                                State Bar No. 08857660
                               DAVID HAMMIT, LLC
                               109 South Madison Street
                               Madisonville, Texas 77864
                                                               Trial counsel



                                    iii
Appellees                   David J. Beck
Petro Texas, LLC,            State Bar No. 00000070
Ch4 Energy II, LLC           dbeck@beckredden.com
                            Thomas E. Ganucheau
                             State Bar No. 00784104
                             tganucheau@beckredden.com
                            BECK REDDEN LLP
                            1221 McKinney Street, Suite 4500
                            Houston, Texas 77010-2010
                                              Trial and appellate counsel

                            John R. Bankhead
                             State Bar No. 01676600
                            Attorney at Law
                            110 W. Cottonwood
                            Madisonville, Texas 77864
                                                             Trial counsel
Appellee                    Greg W. Curry
Woodbine Acquisition, LLC    State Bar No. 05270300
                             greg.curry@tklaw.com
                            Gregory D. Binns
                             State Bar No. 24027148
                             greg.binns@tklaw.com
                            Richard B. Phillips, Jr.
                             State Bar No. 24032833
                             rich.phillips@tklaw.com
                            THOMPSON & KNIGHT LLP
                            1722 Routh Street, Suite 1500
                            Dallas, Texas 75201
                                                Trial and appellate counsel

                            Kevin R. Knight
                             State Bar No. 11601400
                            LAW OFFICE OF ROGER KNIGHT, JR.
                            P.O. Box 925
                            Madisonville, Texas 77864
                                                         Trial counsel




                                 iv
Appellee                    Jesse R. Pierce
TexCal Energy South Texas    State Bar No. 15995400
L.P.                         jpierce@pierceoneill.com
                            Brian K. Tully
                             State Bar No. 24039217
                             btully@pierceoneill.com
                            PIERCE & O’NEILL, LLP
                            4203 Montrose Blvd.
                            Houston, Texas 77006
                                              Trial and appellate counsel




                                 v
                                              TABLE OF CONTENTS

                                                                                                                      Page
Identity of Parties and Counsel ................................................................................ ii
Table of Contents .....................................................................................................vi
Index of Authorities .................................................................................................ix
Statement of the Case...............................................................................................xi
Issues Presented ..................................................................................................... xii
         1.        Burlington and the PetroMax Defendants disagree about
                   the proper interpretation of an oil and gas assignment,
                   which (in turn) determines whether certain leases are
                   jointly owned and continue in effect an area of mutual
                   interest (“AMI”) under an earlier letter agreement.
                   a.        Did the trial court err in rejecting Burlington’s
                             interpretation as a matter of law, rather than holding
                             the assignment to be ambiguous?
                   b.        Alternatively, did the trial court err in concluding
                             that the PetroMax Defendants’ interpretation is
                             reasonable, rather than enforcing Burlington’s
                             interpretation as a matter of law?
         2.        Burlington also moved for summary judgment on its right
                   to acquire 25% of oil and gas leases or mineral rights
                   acquired by the PetroMax Defendants in the AMI, without
                   any reduction or limitation based on the scope of
                   Burlington’s joint ownership of leases/rights within the
                   AMI. Did the trial court err in denying Burlington
                   summary judgment on this issue?
         3.        Did the trial court err in granting the PetroMax
                   Defendants’ summary judgment motion and denying
                   Burlington’s summary judgment motion?
Introduction ...............................................................................................................1
Summary of the Dispute ...........................................................................................2
Statement of Facts .....................................................................................................4




                                                             vi
                                      TABLE OF CONTENTS (CONT’D)
                                                                                                                      Page

         I.        The 1975 Letter Agreement created an Area of Mutual Interest
                   intended to endure as long as any lease in the AMI was jointly
                   owned. ..................................................................................................4
         II.       Upon succeeding Buttes as a party to the 1975 Letter
                   Agreement, the PetroMax Defendants performed those
                   obligations until 2012. ..........................................................................6
         III.      The PetroMax Defendants performed under the 1975 Letter
                   Agreement with knowledge of a subsequent 1994 assignment. .......10
                   A.       Southland listed four wells for sale at an auction, as
                            reflected in the resulting assignment. ......................................10
                   B.       The PetroMax Defendants obtained two title opinions,
                            both of which interpreted the 1994 Assignment as
                            conveying only Southland’s interest in the four wells.............12
         IV.       Regardless of its own experts’ title opinions, in 2012, the
                   PetroMax Defendants abruptly disavowed their obligations. ............15
         V.        The trial court concluded the 1994 Assignment unambiguously
                   conveyed not just the listed wells, but all of Southland’s
                   ownership interest in the four leases. .................................................16
Summary of Argument ...........................................................................................17
Argument.................................................................................................................19
         I.        The interpretation of the 1994 Assignment as conveying only
                   Southland’s interest in four wells—and not all of its interest in
                   four entire leases—is reasonable. .......................................................19
                   A.       As reflected in the 1994 Assignment, Southland
                            auctioned its interest in four wells and expressly reserved
                            other interests. ..........................................................................20
                   B.       Burlington’s interpretation comports with the 1994
                            Assignment’s language and harmonizes its provisions. ..........23
                   C.       Burlington’s interpretation also is consistent with the
                            circumstances surrounding the 1994 Assignment. ..................26



                                                            vii
                                    TABLE OF CONTENTS (CONT’D)
                                                                                                                Page

         II.      If the PetroMax Defendants’ interpretation also were
                  reasonable, the resulting ambiguity would preclude summary
                  judgment, requiring remand. ..............................................................28
         III.     However, Burlington offered the only reasonable interpretation
                  of the applicable agreements, requiring rendition in
                  Burlington’s favor. .............................................................................30
                  A.       The 1994 Assignment conveys only Southland’s interest
                           in the four enumerated wells. ...................................................30
                  B.       In addition, the 1975 Letter Agreement does not provide
                           for reduction of Burlington’s rights proportionate to the
                           scope of its joint ownership. ....................................................34
Conclusion and Prayer ............................................................................................36
Certificate of Compliance .......................................................................................38
Certificate of Service ..............................................................................................39
Appendix
         1975 Letter Agreement (CR:589-625) .......................................... Tab 1
         1994 Assignment and Bill of Sale (CR:1029-34) ......................... Tab 2
         Order Granting Defendants’ Motion for Summary Judgment on
           Title Issues (CR:1617).............................................................. Tab 3
         Order Denying Burlington’s Motion for Partial Summary
           Judgment Seeking Various Declarations (CR:1618-19) .......... Tab 4
         Order on Joint Motion to Sever and Abate (CR:1640-45) ............ Tab 5




                                                         viii
                                      INDEX OF AUTHORITIES

                                                                                                    Page(s)
                                                  Cases
Coker v. Coker,
  650 S.W.2d 391 (Tex. 1983) ............................................................19, 28, 30, 32

Columbia Gas Transmission v. New Ulm Gas, Ltd.,
  940 S.W.2d 587 (Tex. 1996) ..............................................................................30
DeSantis v. Wackenhut Corp.,
  793 S.W.2d 670 (Tex. 1990) ..............................................................................36
Entergy Gulf States, Inc. v. Summers,
   282 S.W.3d 433 (Tex. 2009) ..............................................................................29
Freeman v. Stephens Production Co.,
   171 S.W.3d 651 (Tex. App.—Corpus Christi 2005, pet. denied) ......................25
Houchins v. Devon Energy Prod. Co., L.P.,
  No. 01-08-00273-CV, 2009 WL 3321406 (Tex. App.—Houston
  [1st Dist.] Oct. 15, 2009, pet. denied) (mem. op.) ..............................................30
Hous. Expl. Co. v. Wellington Underwriting Ags., Ltd.,
  352 S.W.3d 462 (Tex. 2011) ........................................................................20, 26
J.M. Davidson, Inc. v. Webster,
   128 S.W.3d 223 (Tex. 2003) ..............................................................................19

Luckel v. White,
   819 S.W.2d 459 (Tex. 1991) ..............................................................................32

Neece v. A.A.A. Realty Co.,
  322 S.W.2d 597 (Tex. 1959) ..............................................................................35

Philipello v. Taylor,
   No. 10-11-00014-CV, 2012 WL 1435171 (Tex. App.—Waco Apr.
   25, 2012, pet. denied) (mem. op.) .................................................................20, 27

R&P Enters. v. LaGuarta, Gavrel & Kirk, Inc.,
  596 S.W.2d 517 (Tex. 1980) ..............................................................................32


                                                     ix
                                INDEX OF AUTHORITIES (CONT’D)
                                                                                                    Page(s)

Sun Oil Co. v. Madeley,
   626 S.W.2d 726 (Tex. 1981) ..................................................................20, 27, 29

                                                Treatises
Patrick H. Martin & Bruce M. Kramer, 2 WILLIAMS & MEYERS OIL &
   GAS LAW § 432 (4th ed. 2010) .............................................................................6




                                                      x
                          STATEMENT OF THE CASE

Nature of the Case:   This is an oil and gas dispute. The parties disagree about
                      whether Burlington jointly owns an interest in some leases
                      in an area of mutual interest (“AMI”), as required to
                      continue that AMI in effect. CR:445, 593, 1384. This
                      question, in turn, is controlled by whether a 1994
                      Assignment: (1) conveyed an interest in four denominated
                      wells while reserving other interests in four leases; or (2)
                      conveyed all interests in four entire leases. CR:484-85;
                      1SCR:21-22.

Course of             Appellant (Plaintiff Burlington) filed suit against
Proceedings:          Appellees (collectively, the “PetroMax Defendants”),
                      asserting claims such as breach of contract and declaratory
                      judgment regarding its ownership rights and the AMI’s
                      continuing effect. CR:443-48. The PetroMax Defendants
                      denied these claims, Appellee PetroMax asserted a
                      counterclaim for suit to quiet title, and Appellee Woodbine
                      asserted counterclaims for suit to try title, trespass-to-try
                      title, and declaratory judgment. CR:365, 1378-87.
                      Burlington and the PetroMax Defendants filed competing
                      summary-judgment motions on Burlington’s ownership
                      rights relating to the AMI. CR:484-85; 1SCR:21-22.

Trial Court           The trial court denied Burlington’s summary-judgment
Disposition:          motion. CR:1618-19 (Apdx. Tab 4). The trial court granted
                      the PetroMax Defendants’ summary judgment on title
                      issues, ruling that:
                            (1) Burlington owns no interest in the AMI; and
                            (2) the AMI provision has terminated.
                      CR:1617 (Apdx. Tab 3).
                      On the parties’ joint motion, the trial court severed the
                      remaining claims in order to render its summary judgment
                      rulings final and abated the severed action pending this
                      appeal. CR:1640-45 (Apdx. Tab 5).




                                       xi
                                ISSUES PRESENTED

      1.    Burlington and the PetroMax Defendants disagree about the proper

interpretation of an oil and gas assignment, which (in turn) determines whether

certain leases are jointly owned and continue in effect an area of mutual interest

(“AMI”) under an earlier letter agreement.

            a.     Did the trial court err in rejecting Burlington’s interpretation as

      a matter of law, rather than holding the assignment to be ambiguous?

            b.     Alternatively, did the trial court err in concluding that the

      PetroMax Defendants’ interpretation is reasonable, rather than enforcing

      Burlington’s interpretation as a matter of law?

      2.    Burlington also moved for summary judgment on its right to acquire

25% of oil and gas leases or mineral rights acquired by the PetroMax Defendants in

the AMI, without any reduction or limitation based on the scope of Burlington’s

joint ownership of leases/rights within the AMI. Did the trial court err in denying

Burlington summary judgment on this issue?

      3.    Did the trial court err in granting the PetroMax Defendants’ summary

judgment motion and denying Burlington’s summary judgment motion?




                                         xii
                                   INTRODUCTION

      When parties disagree about the proper interpretation of a contract, a trial

court cannot reject a reasonable interpretation through summary judgment. If only

one interpretation is reasonable, the trial court may grant summary judgment

consistent with that interpretation. If more than one reasonable interpretation exists,

no summary judgment may be granted. There is not a third option by which a trial

court may choose between two reasonable contract interpretations—discarding one

and embracing another—as a matter of law.

      Burlington and the PetroMax Defendants disagree on the proper interpretation

of an oil and gas assignment. Burlington’s interpretation is reasonable. It comports

with the circumstances surrounding the assignment, honors the assignment’s

language, and harmonizes all the assignment's provisions. Indeed, two noted oil and

gas lawyers hired by the PetroMax Defendants to offer title opinions---years before

this lawsuit was filed---reached the same interpretation.

      Yet, when each side moved for summary judgment on its interpretation of the

Assignment, the trial court not only denied Burlington’s motion, but also granted the

PetroMax Defendants summary judgment consistent with their interpretation.

      The claims on appeal should be remanded (if the competing interpretation is

reasonable) or judgment rendered in Burlington’s favor (if the competing

interpretation is not reasonable). Either way, the summary judgment cannot stand.


                                          1
                            SUMMARY OF THE DISPUTE

      The proper interpretation of the oil and gas assignment at issue will determine

whether Burlington currently has rights in an area of mutual interest (the “AMI”).

The AMI was created by agreement in 1975 (the “1975 Letter Agreement”), and it

continues in effect as long as the 1975 Letter Agreement’s parties jointly own any

leases within the AMI. It is undisputed that a lease called the Wilson Lease is located

in the AMI. Whether the AMI continues in effect turns on whether Burlington’s

ownership interest in the Wilson Lease was conveyed by a later assignment (the

“1994 Assignment”).

      Burlington contends that it currently owns part of the Wilson Lease, which

means the AMI continues in effect. If the AMI continues in effect, the 1975 Letter

Agreement requires the PetroMax Defendants to offer Burlington a 25% working

interest in all leases and mineral rights they have acquired in the AMI.

      The PetroMax Defendants contend that the ownership interests claimed by

Burlington were conveyed away by the 1994 Assignment, which would mean the

AMI terminated years ago. If the AMI no longer exists, Burlington has no right under

the 1975 Letter Agreement to acquire a 25% working interest in the leases/rights the

PetroMax Defendants have obtained in the AMI.

      None of the parties in this case was an original party to the 1975 Letter

Agreement or the 1994 Assignment. Therefore, before delving into the relevant



                                          2
facts, it is helpful to understand how everyone came to be involved in this dispute:

      •      The 1975 Letter Agreement creating the AMI, and its attached Joint

             Operating Agreement, was between Aztec Oil & Gas Company and

             Buttes Resources Company. CR:589-625 (Apdx. Tab 1).

      •      Aztec’s rights and obligations under the 1975 Letter Agreement passed

             through company mergers to Southland Royalty and ultimately to

             Burlington. CR:485 n.1, 626-30, 631-34, 635-36, 637.

                  The 1994 Assignment, which was signed during the period that

                   Southland had succeeded to Aztec’s rights, is between Southland

                   and Samson Resources Company (which is not a party to this

                   lawsuit). CR:1029-34 (Apdx. Tab 2).

      •      Through a variety of agreements signed at various points in time, the

             PetroMax Defendants acquired part of Buttes’ interests in the AMI,

             subject to Buttes’ rights and obligations under the 1975 Letter

             Agreement and 1975 JOA. CR:489-90, 638-46, 647-58, 659-60, 661-

             62, 663-785.

                  Most of the communications between the parties relevant to this

                   dispute occurred between Burlington and three of the PetroMax

                   Defendants:    PetroMax     Operating    Co.,   Inc.,   Woodbine

                   Acquisition LLC, and TexCal Energy South Texas L.P.


                                         3
                                STATEMENT OF FACTS

      To understand the 1994 Assignment, one must first understand the interests to

which it applied. Hence, we present our Statement of Facts chronologically.

I.    The 1975 Letter Agreement created an Area of Mutual Interest intended
      to endure as long as any lease in the AMI was jointly owned.

      Forty years ago, Aztec and Buttes agreed to explore and develop oil and gas

leases together. See CR:589. Back in 1975, Buttes owned an undivided one-half

working interest in nine oil and gas leases. CR:589, 596. Through the 1975 Letter

Agreement, Buttes conveyed to Aztec an undivided 25% interest in the leases.

CR:589, 591-92. For future leases they might acquire, the parties established an Area

of Mutual Interest (“AMI”). CR:593.

      If either party acquires a lease or mineral rights within the AMI, the 1975

Letter Agreement requires the acquiring party to offer the other party the same

proportionate interest as in the original nine leases. Id. Accordingly, if Aztec (now

Burlington) acquires leases in the AMI, Buttes (whose interests are now partially

held by the PetroMax Defendants) must be offered a 75% interest; likewise, if the

PetroMax Defendants acquire leases in the AMI, then Burlington must be offered a

25% interest. Id. To accept, the offeree must elect participation within 15 days and

reimburse the other for its share of the acquisition costs. Id.

      A Joint Operating Agreement (the “1975 JOA”) governs operation and

participation in wells drilled on jointly-held leases within the AMI. To drill a well


                                           4
on the jointly-held leases without all parties’ consent, the 1975 JOA requires the

party wishing to drill to notify the other parties in advance and give them a chance

to participate. CR:602-03 (§§11, 12).

      The 1975 Letter Agreement provides that the AMI continues in effect as long

as jointly owned leases exist in the AMI. CR:593. After the first three years, the AMI

shrank to a boundary two miles outside the jointly-owned leases in the area at that

time. CR:593-94. As it turned out, at the end of three years, all nine original leases

remained jointly owned. CR:487; see also CR:74-75. So, the AMI continued in

effect with a boundary of two miles outside those leases. CR:594.

      It is undisputed that five of the original leases no longer exist and that a sixth

lease is no longer jointly owned by Aztec’s successor-in-interest, Burlington.1 Three

of the original leases remain in the AMI: (1) the Wilson Lease; (2) the Gibbs Lease;

and (3) the Buchanan Lease. RR:7, 33. Burlington claims an ownership interest in

each of these leases, but for purposes of summary judgment, focused its attention on

the Wilson Lease. CR:436, 490-99; RR:7.




1
 Four of the original leases terminated in 1979 at the end of their primary terms.
CR:74. With regard to a fifth lease, all but one well was assigned to a third party in
1981, and the remaining well was assigned to another third party in 1997. CR:74,
77. A sixth lease expired upon cessation of production in 1999. CR:74.


                                          5
II.   Upon succeeding Buttes as a party to the 1975 Letter Agreement, the
      PetroMax Defendants performed those obligations until 2012.

      The PetroMax Defendants succeeded to Buttes’ rights and obligations under

the 1975 Letter Agreement, and they initially acknowledged and performed those

obligations. In doing so, they repeatedly recognized Burlington’s continuing

ownership rights in the Wilson Lease.

      For example, when defendant TexCal conveyed to defendant PetroMax

certain rights in the Wilson Lease in a 2009 farmout agreement, 2 they both

acknowledged Burlington’s rights to notice and participation in wells governed by

the 1975 JOA. CR:647, 651, 658-59. Indeed, TexCal limited PetroMax’s right to

earn under the farmout agreement to wells in which “Third Parties” did not

participate. CR:656. “Third Parties” included Burlington (denoted by the name of

its parent, ConocoPhillips). CR:656. And, in proposing the initial test well and

subsequent wells contemplated by the farmout agreement, PetroMax would be

required to give notices under the 1975 JOA. Id. 3


2
 A “farmout agreement” is a contract to assign oil and gas lease rights in certain
acreage upon the completion of drilling obligations and the performance of any other
covenants and conditions set forth in the agreement. Patrick H. Martin & Bruce M.
Kramer, 2 WILLIAMS & MEYERS OIL & GAS LAW § 432 (4th ed. 2010).
3
  See also CR:659 (amending Farmout Agreement to remove from excepted lands—
i.e., to add to the acreage subject to Farmout Agreement—the 160-acre drilling unit
for the Wilson #5 Well), 661-62 (amending the DeFacto Termination provision and
again including provisions regarding continuing rights to notice and participation
under 1975 JOA).


                                         6
      Similarly, in 2011, defendants Woodbine, PetroMax, Petro Texas, and CH4

Energy expressly acknowledged in a Purchase and Sale Agreement that “Burlington

Oil & Gas Company owns an undivided 25% interest in and to 1537.83 acres out of

that certain Oil and Gas Lease dated August 29, 1974, between James D. Wilson, as

Lessor, and Curran R. Campbell, Inc., as Lessee . . . ,” i.e., the Wilson Lease.

CR:663, 781. The defendants further acknowledged that “[t]his is an outstanding

interest that has been non-consented in both the Wilson #1H and Wilson #2H wells.”

Id. They also “anticipated that Burlington (now Conoco-Phillips) will continue to go

non-consent on future wells.” Id.

      In addition to these acknowledgments and agreements among themselves, the

PetroMax Defendants asserted the AMI’s continuing force and effect—and

Burlington’s continued joint ownership of the Wilson Lease—in communications

with Burlington. For instance, in 2009, TexCal and PetroMax sent Burlington

Authorities for Expenditure (“AFEs”) regarding participation in drilling the Wilson

#1H and #2H wells (i.e., the same wells referenced two years later in the

Woodbine/PetroMax Purchase Agreement discussed above). CR:786-87, 793-94.

The cover letters identify TexCal “as the current Operator of the Contract Area

covered by” the 1975 JOA. CR:786, 793. In proposing that PetroMax drill these two

wells on the Wilson Lease, both letters also notify Burlington that, “[i]n accordance

with the provisions of Article 12 of the JOA, you have 30 days after receipt of this


                                         7
notice in which to indicate your election to participate in the proposed drilling of the

above referenced well and to pay the cost thereof.” CR:787, 794. The enclosures

(i.e., ballots and accompanying AFEs) reflect that, upon an election to participate,

Burlington would have a 25% working interest in the proposed wells. CR:789, 792,

796.

        PetroMax also sent Burlington an AFE proposing to drill another well4 on the

Wilson Lease. CR:804-09. In the cover letter, PetroMax stated that, under the terms

of the 1975 JOA, Burlington had 30 days after receipt to return its election to

participate. CR:804. And, after Woodbine acquired interests from PetroMax,

Woodbine sent AFEs to Burlington for drilling five additional wells5 on the Wilson

and Gibbs Leases. CR:810-12, 814-17, 820-21, 825-26, 832-33, 837-38, 849-50.

        As anticipated, Burlington went “non-consent” on several of the proposed

wells.6 CR:496-97. For each of these wells, Burlington wrote to Woodbine in 2012

and requested that Woodbine provide payout statements, regulatory information, and

plats. CR:497. Woodbine provided payout statements dated May 30, 2012, reflecting




4
    This AFE concerned the Dunman/Wilson No. 1-H Well. CR:804.
5
  These AFEs concerned the Wilson #3H, Wilson #6H, Wilson #5H, Gibbs #1H
(later drilled as the Gibbs #2H Well), and Dunman Wilson A #2H wells. CR:810-
12, 814-17, 820-21, 825-26, 832-33, 837-38, 849-50.
6
 These non-consent wells were the Dunman/Wilson No. 1-H, Wilson #1H, Wilson
#2H, Wilson #3H, and Wilson #6H wells. CR:496-97.

                                           8
Burlington’s working interest in the non-consent wells on the Wilson Lease as

follows (CR:497-98):

                       Non-Consent Well                       Burlington
                                                               Interest
        Wilson #1H Well                                                    .25
        Wilson #2H Well (a/k/a Wilson Unit “A” # 2H)              .24531250
        Wilson #3H Well                                           .24531250
        Wilson #6H Well                                                    .25
        Dunman/Wilson No. 1-H Well                                .10535714

        Burlington did elect to participate in other wells on the Wilson and Gibbs

Leases, including the Wilson #5H Well.7 CR:820, 1136-37. Woodbine accepted

Burlington’s election to participate in the Wilson #5H Well. CR:498, 1137.

Woodbine also availed itself of the benefits of the 1975 Letter Agreement, accepting

Burlington’s payments of its share of the required costs. CR:498; see also CR:1137.

In accordance with its obligations under the 1975 Letter Agreement, Woodbine paid

Burlington proceeds from the Wilson #5H Well totaling $1,335,253.59. CR:498,

1137.




7
 The wells in which Burlington elected to participate were the Wilson #5H, Gibbs
#1H, and Dunman Wilson A #2H wells. CR:820, 1136-37.


                                         9
III.   The PetroMax Defendants performed under the 1975 Letter Agreement
       with knowledge of a subsequent 1994 assignment.

       During the years that the PetroMax Defendants performed their obligations

under the 1975 Letter Agreement and recognized Burlington’s ownership rights in

the Wilson Lease, they did so with knowledge of a 1994 Assignment of certain

interests by a previous Aztec successor-in-interest, Southland Royalty.

       A.    Southland listed four wells for sale at an auction, as reflected in the
             resulting assignment.

       In 1994, Southland listed for sale in an auction its interests in four wells in the

AMI: (1) the Wilson James D. Unit 2; (2) the Wilson James D. #3 (misspelled as the

“Wilson James D.O.” well); (3) the Buchanan 1; and (4) the Gibbs Bros. 1. CR:1497.

We will refer to the first two wells, both offered for auction from the Wilson Lease,

as Wilson #2 and Wilson #3. These two wells were located on one of the two separate

tracts of land that comprise the Wilson lease. Id.

       As shown by the map on the following page, the Wilson Lease consists of two

non-contiguous tracts.




                                           10
      •      Tract 1 is the larger tract and contains the Wilson #1, Wilson #4, and
             Wilson #5 wells.

      •      Tract 2 is the separate, smaller tract and contains the Wilson #2 and
             Wilson #3 wells.




      At the auction, Samson Resources Company purchased the interests sold by

Southland. CR:1029. Southland and Samson signed the 1994 Assignment. CR:1031.

The assignment provides for an Exhibit A that will both: (1) particularly describe

the Interests—including “oil and gas leases, leasehold interests, rights, and interests

attributable or allocable to the oil and gas leases or leasehold interests by virtue of

                                          11
pooling, unitization, communitization, and operating agreements” being conveyed;

and (2) specifically note and reflect the “certain lands, leases, properties, interests,

leasehold rights, depths or formations” that Southland “reserves and retains unto

itself from the Interests . . . .” CR:1029. Thus, the Assignment provided that Exhibit

“A” would set forth both the interests being conveyed away and the interests being

reserved by Southland.

      Indeed, Exhibit “A” contains two separate lists:

             (1)    a list of four leases owned by Southland, with an exception for

                    lands attributable to wells Southland previously had farmed out;

                    and

             (2)    a list of “Associated Wells.”

CR:1033. Unfortunately, Exhibit “A” does not specify which list sets forth the

conveyed interests and which list sets forth the reserved interests. Id. However,

consistent with the listing of only four wells in the auction catalog, the very first

words in the 1994 Assignment are: “Well Name: BUCHANAN 1, GIBBS BROS 1,

WILSON JAMES 2 AND WILSON JAMES 3”. Id.

      B.     The PetroMax Defendants obtained two title opinions, both of
             which interpreted the 1994 Assignment as conveying only
             Southland’s interest in the four wells.

      The two lists in Exhibit A to the 1994 Assignment led to confusion for both

the PetroMax Defendants and Burlington. Consequently, before sending the 2009



                                          12
AFEs to Burlington in connection with drilling on the Wilson Lease, TexCal and

PetroMax obtained two title opinions about whether Burlington still owned any

working interest in that lease.

      In 2007, TexCal retained J. Jan Jircik, a Texas lawyer who is Board Certified

in Oil, Gas and Mineral Law by the Texas Board of Legal Specialization, to perform

a title opinion. CR:860. Jircik did not interpret the 1994 Assignment as conveying

all of Southland’s interest in the Wilson Lease, but instead interpreted the 1994

Assignment as if it included only Southland’s interest in the Wilson #2 and Wilson

#3 wells and the associated production units, i.e., Southland’s interest in Tract 2.

CR:896. Jircik opined that the interest Southland had reserved in the Wilson Lease

“was eventually acquired by Burlington Resources Oil & Gas Company, L.P.” Id.

Accordingly, as to the two Wilson wells listed for auction, expressly identified at the

top of the 1994 Assignment, and included as “Associated Wells” on its Exhibit “A,”

Jircik concluded that Burlington did not own any gross working interest. CR:863-

64. But as to wells located on Tract 1 of the Wilson Lease,8 Jircik opined that

Burlington owned a gross working interest of .2500000. CR:862, 865-66.

      In 2009, PetroMax retained Ronald Moore, another Texas lawyer Board

Certified in Oil, Gas and Mineral Law by the Texas Board of Legal Specialization,


8
 At the time, these wells were the Wilson #1, Wilson #4, and Wilson #5 Wells.
CR:862, 865-66.


                                          13
to provide a title opinion on acreage in the Wilson lease. CR:1035. Moore likewise

concluded that Burlington owned a working interest in several portions of the Wilson

lease. CR:1035-37.

      Jircik’s opinion was provided to PetroMax and Woodbine. CR:501. There is

no evidence, however, that either of the title opinions was provided to Burlington.

Upon receiving the 2009 AFEs from PetroMax proposing wells to be drilled on the

Wilson Lease, Burlington initially informed PetroMax that it “has completed a

diligent review of files internal and external and determined Burlington has no

working interest. The files show that all interest has been conveyed out to other

parties.” 3SCR:2075; RR:51-52.

      In response to Burlington’s contention, Moore supplemented his opinion.

CR:1079. He set forth “Jircik’s and our interpretation” that Burlington did own a

“25% WI in Wilson Lease less 160 acre Production Units for Wilson No. 2 and 3

wells”. CR:1080 (emphasis added). He also opined that, in the 1994 Assignment,

“Southland Royalty Company assigned what appears to be only its interest in the

Wilson Well Nos. 2 and 3 Production Units to Samson Resources Company, leaving

the balance of its interest still owned by Southland (2210/34).” CR:1079.

      Burlington later reached the same conclusion. As described above in Section

II, Burlington elected to participate in certain wells and paid its share of the costs.




                                          14
Burlington also asserted its right to payout statements and other information

regarding non-consent wells in which it did not elect to participate.

        In sum, for 18 years, Burlington and the PetroMax Defendants operated

consistently with the interpretation of the 1994 Assignment as conveying only the

interests offered at auction: the four wells and associated production units.

IV.     Regardless of its own experts’ title opinions, in 2012, the PetroMax
        Defendants abruptly disavowed their obligations.

        In 2012, the PetroMax Defendants abruptly changed position. Woodbine

asserted that, contrary to the Jircik opinion, Burlington had “divested the last of its

interest in the Wilson Lease as of September 9, 1994” and “does not own an interest

in . . . the Wilson Lease . . . .” CR:1130. Woodbine attempted to return to Burlington

$190,692.84, purported to be the costs Burlington had paid in association with the

Wilson #5H well minus the well proceeds Woodbine had already paid Burlington.

CR:1130-31. Woodbine also stopped work on another proposed well in which

Burlington had elected to participate. 9 See CR:1131. Only after repudiating

Burlington’s right to participate did Woodbine drill that well. Id.

        Burlington’s demands for the PetroMax Defendants to comply with the

ongoing requirements of the 1975 Letter Agreement have been met consistently with

refusal. CR:1130-31, 1138-40. Woodbine has obtained permits for at least 11 wells


9
    This was the Dunman Wilson A #2H well. CR:1130-31.


                                          15
associated with the Wilson lease, without providing Burlington notice or an

opportunity to participate. CR:1138-39. Woodbine and PetroMax also have acquired

leases within the AMI without offering the requisite 25% working interest to

Burlington. CR:1139.

V.    The trial court concluded the 1994 Assignment unambiguously conveyed
      not just the listed wells, but all of Southland’s ownership interest in the
      four leases.
      Burlington filed the underlying lawsuit in order to enforce its rights under the

1975 Letter Agreement and 1975 JOA. CR:433-49. Besides requesting declaratory

relief, Burlington brought separate claims for, inter alia, breach of contract, specific

performance, conversion, and breach of duty to pay proceeds. CR:443-48. In

addition to the PetroMax Defendants’ denials of these claims (CR:322, 364-65,

1390-91, 1397-98), PetroMax asserted a counterclaim for suit to quiet title, and

Woodbine asserted counterclaims for suit to try title, trespass-to-try title, and

declaratory judgment. CR:365, 1378-87. Burlington and the PetroMax Defendants

filed competing summary-judgment motions on the questions regarding

Burlington’s ownership rights relating to the AMI. CR:484-85; 1SCR:21-22.

      Each side moved for summary judgment regarding Burlington’s ownership

interest in any leases within the AMI to continue the AMI in effect. CR:484-85;

1SCR:21-22. The trial court denied Burlington’s summary-judgment motion, but




                                          16
granted the PetroMax Defendants’ competing motion on title issues. CR:1617-19.

The trial court ruled that:

      1.     Burlington does not own any interest in the AMI described in the 1975

             Letter Agreement made the basis of this suit; and

      2.     The AMI provision in the 1975 Letter Agreement has terminated.

CR:1617.

      On joint motion by all parties, the trial court severed the remaining claims into

a separate lawsuit in order to render its partial summary judgment final. CR:1632,

1635, 1640-43. The trial court then abated the severed case pending this appeal.

CR:1643. Thus, the severed issues remain pending and are not presented for review

in this appeal.


                              SUMMARY OF ARGUMENT

      Burlington’s interpretation of the 1994 Assignment is reasonable.

Burlington’s interpretation comports with the very first words of the assignment,

setting forth only interests in four wells to be conveyed. Burlington’s interpretation

also honors the assignment’s reservation provision. Unless Exhibit A is interpreted

so that the list of wells sets forth the interests being conveyed and the list of leases

sets forth the interests being reserved, the reservation provision would be rendered

meaningless.




                                          17
       Moreover, Burlington’s interpretation is consistent with the circumstances

surrounding the assignment. Only Southland’s interests in four wells were offered

for sale at auction. And the interpretation’s reasonableness is confirmed by two title

opinions from board certified lawyers who were hired long before suit was filed, not

by Burlington, but by the PetroMax Defendants.

       Because Burlington’s interpretation is reasonable, the trial court’s summary

judgment rejecting that interpretation cannot stand. What happens next—remand or

rendition—depends on whether the PetroMax Defendants’ competing interpretation

also is reasonable.

       If the competing interpretation were reasonable, the 1994 Assignment would

be ambiguous. On that basis, the matter should be remanded for trial. But if, as

shown below, the PetroMax Defendants’ interpretation is unreasonable, then as a

matter of law, Burlington is entitled to rendition of judgment that the AMI continues

in effect.

       Burlington also moved for summary judgment that its right to obtain a 25%

working interest in leases and mineral rights is not proportionately reduced based on

any decrease in the scope of Burlington’s joint ownership interests generally in the

AMI. The 1975 Letter Agreement provides for proportionate reduction of the 25%

requirement under other circumstances, but not based on diminution of the number




                                         18
or size of leases/rights held jointly by Burlington in the AMI. Accordingly,

Burlington also is entitled to summary judgment on this point.

                                     ARGUMENT

I.    The interpretation of the 1994 Assignment as conveying only Southland’s
      interest in four wells—and not all of its interest in four entire leases—is
      reasonable.

      The 1994 Assignment expressly provides that its Exhibit A lists both the

interests being conveyed and the interests being reserved. CR:1029. The problem is

that, in setting forth the two lists, Exhibit A does not expressly identify which list

sets forth the interests being conveyed and which sets forth the interests being

reserved. See CR:1033. But the language and circumstances surrounding the creation

of the 1994 Assignment demonstrate that it is reasonable to interpret the 1994

Assignment to convey only Southland’s interest in the enumerated wells.

      Whether a contract is ambiguous is a question of law. E.g., Coker v. Coker,

650 S.W.2d 391, 394 (Tex. 1983). A contract is ambiguous whenever it is reasonably

susceptible to more than one meaning. Id. at 393. When a contract is ambiguous, its

interpretation presents a question of fact precluding summary judgment. Id. at 394.

      In determining whether a contract is ambiguous, courts examine and consider

the entire writing, striving to harmonize and give effect to all provisions so that none

is rendered meaningless. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex.

2003); Coker, 650 S.W.2d at 393. Courts also consider the facts and circumstances



                                          19
surrounding the contract’s execution. E.g., Hous. Expl. Co. v. Wellington

Underwriting Ags., Ltd., 352 S.W.3d 462, 469 (Tex. 2011); Sun Oil Co. v. Madeley,

626 S.W.2d 726, 731-32 (Tex. 1981); Philipello v. Taylor, No. 10-11-00014-CV,

2012 WL 1435171, at *7 (Tex. App.—Waco Apr. 25, 2012, pet. denied) (mem. op.).

In this case, the 1994 Assignment’s text and surrounding circumstances establish

that Burlington’s interpretation is reasonable.

      A.     As reflected in the 1994 Assignment, Southland auctioned its
             interest in four wells and expressly reserved other interests.

      The 1994 Assignment exists because Southland decided to auction off its

interest in four wells. CR:1497. Consistent with Southland’s auction listing, the first

words in the 1994 Assignment are: “Well Name: BUCHANAN 1, GIBBS BROS 1,

WILSON JAMES 2 AND WILSON JAMES 3”. Compare CR:1029 (emphasis in

original) with CR:1497 (auction listing). The 1994 Assignment expressly provides

that Southland is conveying some interests, but reserving others. CR:1029. The

assignment discusses both conveyance and reservation in general terms, expressly

leaving the particulars and specifics to be set forth in Exhibit A. Id.

      In describing the conveyance and reservation generally, the 1994 Assignment

speaks in broad, generic terms. For instance, the assignment describes the interests

being conveyed (defined collectively as the “Interests”) to include:

      The oil and gas leases, leasehold interests, rights and interests
      attributable or allocable to the oil and gas leases or leasehold interests
      by virtue of pooling, unitization, communitization, and operating

                                          20
         agreements, licenses, permits, and other agreements, all more
         particularly described on Exhibit “A” hereto, limited as to the lands and
         depths indicated on Exhibit “A” (collectively the “Leases”), together
         with identical undivided interests in and to all the property and rights
         incident thereto . . . .
CR:1029. And, the assignment describes the interests being reserved equally broadly

(id.):

         [Southland] reserves and retains unto itself from the Interests those
         certain lands, leases, properties, interests, leasehold rights, depths or
         formations as specifically noted and reflected on Exhibit “A” . . . .
         As provided in the 1994 Assignment, Exhibit A sets forth two lists in the

following format: (1) a list of all the interests Southland owned in four leases; and

(2) a list of the same four wells on the assignment’s first page:




                                            21
      The top list is untitled. CR:1033. It names the Odom, Gibbs, Wilson, and

Buchanan Leases:




The right side of the top list sets forth the legal description of each lease. Id. Under

the legal descriptions appears an exception for acreage Southland had farmed out

and retained only an overriding royalty interest:




                                          22
Thus, the top list specifically notes and reflects all of Southland’s ownership interest

in the entirety of the four, denominated leases.10

      On the other hand, the bottom list names only the wells that appear at the top

of the 1994 Assignment and in the auction catalogue:




      B.     Burlington’s interpretation comports with the 1994 Assignment’s
             language and harmonizes its provisions.

      Interpreting Exhibit A so that the top list describes the interests Southland is

reserving from the 1994 Assignment and the bottom list describes the interests

Southland is conveying is consistent with: (1) the list of four wells at the top of the

assignment; (2) the language providing that Exhibit A describes both interests being

conveyed and interests being reserved to Southland; and (3) the entire reservation

provision, which expressly provides that Southland reserves and retains to itself the


10
  After the 1994 Assignment was signed, the Odom Lease expired upon cessation
of production in 1999. CR:74.


                                          23
certain lands, leases, properties, interests, leasehold rights, depths or formations as

specifically noted and reflected on Exhibit A. Compare CR:1029 (setting forth

language in 1994 Assignment) with CR:1033 (Exhibit A). If both lists in Exhibit A

described the interests conveyed, then contrary to the reservation provision, no part

of Exhibit A would note or reflect any interest being reserved.

      The exception, in the top list of leases, of acreage Southland had previously

farmed out from the four leases does not constitute a “reservation.” The exception

describes an interest Southland did not own. By definition, Southland could not

“reserve and retain unto itself” an interest it did not own. Rather than constituting

the reservation, the exception describes what is not included in the reservation: the

portions of the leases that Southland had farmed out under a previous agreement.

See CR:74-75, 82-85, 501-05, 1380-81. Without this exception, the top list would

not have accurately described all of the interest Southland owned in the four leases.

By accurately describing the interest Southland did own in the four leases, the top

list identifies with reasonable certainty the interest Southland reserved and retained

unto itself from its conveyance of the four wells.

      The PetroMax Defendants suggest instead that use of the term “leases” in the

description of the interests being conveyed must mean that the 1994 Assignment

conveys the leases set forth in Exhibit A. Yet, the term “leases” appears in both the

provision describing the interests being conveyed and the provision describing the


                                          24
interests being reserved. CR:1029. Because it is used to describe generally both types

of interests, the term does not aid in determining whether the list of leases on Exhibit

A describes the interests being conveyed or the interests being reserved. Moreover,

in describing both conveyed and reserved interests, the assignment speaks not only

of “leases,” but also of “interests” less than an entire lease. Id. So, just as it is possible

that an entire lease could fall into either category, it is possible for interests less than

an entire lease (i.e., four wells and their associated production units) to fall into either

the category of interests being conveyed or the category of interests being reserved.

       The general use of the term “leases” must be read in conjunction with the list

of specific wells set forth at the top of the same page. For example, in Freeman v.

Stephens Production Co., 171 S.W.3d 651, 653 (Tex. App.—Corpus Christi 2005,

pet. denied), a deed purported to convey “that certain lot, tract or piece or parcel of

land . . . .” Despite this general description of the interests conveyed as a single lot,

the deed later specifically described the interests conveyed as “All of Lot 1, Block

15; Lot 2, Block 15; The West 17.51 acres of Lot 3, Block 15; All of Lot 10, Block

15,” etc. Id. Reading the entire deed as a whole, it was reasonable to interpret the

singular phrase “lot, tract or piece or parcel of land” to mean multiple lots. Id. at 654.

In this case, it is equally reasonable to interpret the interests collectively defined as

the “Leases” to mean only the wells and related production units specifically

identified at the top of the first page. Compare id. at 653-54 with CR:1029.


                                             25
      Unless Southland’s interest in the four wells was the only interest being

conveyed, there was no reason to list those four wells at the top of the first page or

in Exhibit A. If the 1994 Assignment conveyed all of Southland’s interest in the four

leases, there was no reason to highlight four of the wells on those leases. Southland’s

interest in the four wells already would be part of the conveyance of all its interest

in the leases. Nor can the list of “Associated Wells” be explained as an inventory of

all the wells on the four leases. For example, the “Associated Wells” list does not

identify the Wilson #1 well. See CR:1033.

      The plain language of the 1994 Assignment establishes the reasonableness of

Burlington’s interpretation. Southland assigned only its interest in the enumerated

wells (i.e., the wellbores and related production units), while reserving the remainder

of its interest in the Wilson, Gibbs, Buchanan, and Odom leases.

      C.     Burlington’s interpretation also is consistent                with    the
             circumstances surrounding the 1994 Assignment.

      Even without considering the surrounding circumstances, Burlington’s

interpretation comports with the language in, and harmonizes the provisions of, the

1994 Assignment. See Argument §I(A), supra. Nonetheless, it is appropriate also to

consider the circumstances surrounding the assignment. Circumstances that existed

prior to and contemporaneous with the execution of the 1994 Assignment are

properly examined in determining whether the assignment is ambiguous. See Hous.




                                          26
Expl., 352 S.W.3d at 469; Madeley, 626 S.W.2d at 731-32; Philipello, 2012 WL

1435171, at *7.

      Southland offered for auction only its interest in four wells. CR:1497.

Southland did not list for auction only the wellbore, nor did it offer the entire

leasehold. Instead, Southland’s auction listings encompassed:

      (1)   its interest in the Wilson #3, Buchanan 1, and Gibbs Bros 1 wells; and

      (2)   an “after payout only” interest (“APO”) only with regard to the Wilson

            James D. Unit 2 Well.




Compare id. (reproduced above, listing interests offered by Southland) with

CR:1459 (listing another seller’s wellbore interest with the notation “WELLBORE

                                        27
ONLY”) and CR:1475 (listing another seller’s entire leasehold interest with the

notation “LEASEHOLD”).

      The limited scope of interests submitted by Southland to the auction house is

echoed by: (1) the discrete list of four wells at the top of the 1994 Assignment; and

(2) the discrete list of four wells on Exhibit A. It is entirely reasonable to read the

1994 Assignment, including Exhibit A, as conveying only those particular interests

Southland actually offered for auction and reserving to Southland all other interests

it owned.

      Because Burlington’s interpretation of the 1994 Assignment is reasonable, the

trial court erred in granting summary judgment in the PetroMax Defendants’ favor.

See Coker, 650 S.W.2d at 393-94. The only question remaining is whether reversal

of the summary judgment should be accompanied by: (1) remand for further

proceedings in the trial court consistent with this Court’s opinion and judgment; or

(2) rendition of summary judgment in Burlington’s favor. This remaining question

turns on whether the PetroMax Defendants’ competing interpretation of the 1994

Assignment also is reasonable.

II.   If the PetroMax Defendants’ interpretation also were reasonable, the
      resulting ambiguity would preclude summary judgment, requiring
      remand.

      Despite the logic and consistency with Texas law demonstrated by

Burlington’s interpretation, the PetroMax Defendants contend that the 1994



                                          28
Assignment should be interpreted to convey all of Southland’s interest in the Wilson,

Gibbs, Buchanan, and Odom leases, except for the lands attributable to the H.K.

Odom Wells, James D. Wilson #4 Well and the Buchanan #2 Well. Even if this

interpretation were reasonable (see Argument §III(A), infra), it would not support

summary judgment against Burlington’s own reasonable interpretation. Faced with

two, competing reasonable interpretations, a court cannot conclude that, given all

the language, the 1994 Assignment “plainly and clearly discloses the intention of the

parties.” See Madeley, 626 S.W.2d at 731-32.

      The inherent reasonableness of Burlington’s interpretation is confirmed not

only by the 1994 Assignment and its surrounding circumstances, but also by the fact

that not one, but two, accomplished oil and gas lawyers hired by the opposing parties

reached the same interpretation before any litigation arose. The PetroMax

Defendants’ repeated invocation of “plain language” to support their now-contrary

position does not diminish the reasonableness of the earlier title opinions they

themselves obtained. “[R]easonable people ‘will sometimes disagree about what

reasonable people can disagree about,’ but even so, it is difficult to maintain that

language is plain in the face of a substantial, legitimate dispute over its meaning.”

Entergy Gulf States, Inc. v. Summers, 282 S.W.3d 433, 446 (Tex. 2009) (Hecht, J.,

concurring).




                                         29
       To the extent that the Court finds PetroMax Defendants’ competing

interpretation of the 1994 Assignment reasonable, the resulting ambiguity would

preclude summary judgment. See Coker, 650 S.W.2d at 394. That ambiguity would

require reversal of the trial court’s summary judgment rulings and remand for further

proceedings consistent with this Court’s opinion and judgment. Id.

III.   However, Burlington offered the only reasonable interpretation of the
       applicable agreements, requiring rendition in Burlington’s favor.

       A.    The 1994 Assignment conveys only Southland’s interest in the four
             enumerated wells.

       In truth, however, the PetroMax Defendants’ interpretation is unreasonable.

Competing interpretations of a contract do not create an ambiguity unless both are

reasonable. Columbia Gas Transmission v. New Ulm Gas, Ltd., 940 S.W.2d 587,

589 (Tex. 1996). Because the PetroMax Defendants’ interpretation is unreasonable,

this Court should render judgment in Burlington’s favor, ruling as a matter of law

that the AMI continues in effect.

       To interpret the 1994 Assignment as conveying all of Southland’s interest in

entire leases fails to harmonize all provisions of the contract and renders some of the

contractual language meaningless. For example, reading both lists as collectively

describing the conveyed interests would render meaningless the 1994 Assignment’s

reservation provision. See Houchins v. Devon Energy Prod. Co., L.P., No. 01-08-

00273-CV, 2009 WL 3321406, at *4-5 (Tex. App.—Houston [1st Dist.] Oct. 15,



                                          30
2009, pet. denied) (mem. op.) (stating principle that an interpretation that fails to

harmonize the provisions is not reasonable). This provision expressly “reserves and

retains” to Southland the “certain lands, leases, properties, interests, leasehold rights,

depths or formations as specifically noted and reflected on Exhibit ‘A’ . . . .”

CR:1029. What lands, leases, properties, interest, leasehold rights, depths or

formations are specifically noted and reflected on Exhibit A? Exhibit A gives us two

options: (1) the set of four leases; and (2) the set of four wells. CR:1033. No one

contends that the set of four wells was reserved and retained. Such a contention

would be unreasonable given that these were the same wells submitted for auction

and listed at the top of the Assignment’s first page. CR:1029, 1497.

      That leaves only the set of leases at the top of Exhibit A to describe the

reserved interests. Yet, the PetroMax Defendants contend that the reservation is

limited to the narrow “exception” from the listed leases. As discussed above in

Section I(B), the exception describes acreage Southland had already farmed out. See

CR:74-75, 82-85, 501-05, 1380-81; see also 2SCR:14. Southland could not reserve

to itself an interest it did not hold at the time of the Assignment, i.e., “the lands

attributable to the H.K. Odom Wells, James D. Wilson #4 Well and the Buchanan

#2 Well.” CR:1033 (emphasis added). On the other hand, it was logical for

Southland to (1) convey its interest in the four listed wells, and (2) reserve the




                                           31
remainder of its interest in the four listed leases, which it owned with the exception

of the lands attributable to the farmed-out wells.

      Reading both lists on Exhibit A as describing the interests being conveyed

also would render impermissibly meaningless the list of four wells in the Assignment

and on Exhibit A. See Luckel v. White, 819 S.W.2d 459, 462 (Tex. 1991); Coker,

650 S.W.2d at 393; R&P Enters. v. LaGuarta, Gavrel & Kirk, Inc., 596 S.W.2d 517,

518-19 (Tex. 1980). If the Assignment conveyed all of Southland’s interest in the

four listed leases, including interests in any wells drilled on them, there was no

reason to list four of the wells included in that transfer.

      It is illogical to read the title of the list of wells—i.e., “Associated Wells”—

to mean “the wells associated with the four above leases.” For instance, the Wilson

#1 well, which also was located on the Wilson Lease, is not included in the list of

“Associated Wells.” CR:1033. Thus, the list does not set forth the wells “associated”

with the four leases, but instead identifies the wells “associated” with the sale at

auction, i.e., the only interests being assigned.

      That the 1994 Assignment and Exhibit A afford different treatment to

different wells on the Wilson Lease is entirely consistent with the surrounding

circumstances. Recall that the Wilson Lease consists of two, non-contiguous tracts.

The Wilson #2 and #3 wells—whose wellbores and associated production units

formed the entirety of Tract 2—were included in the list of four wells being


                                           32
conveyed. Because Southland had farmed out its interest in the Wilson #4 well,

Exhibit A excepted the lands attributable to that well from the Wilson Lease interest

that Southland reserved to itself. But, the Wilson #1 well was not conveyed (through

the list of four wells) or carved out from the reservation (through an exception to the

list of four leases).

       Southland did not offer its interest in that well at auction, so it was not

included in the auction catalogue, the list of wells at the top of the 1994 Assignment,

or the list of “Associated Wells” in Exhibit A. Unlike the Wilson #4 well, Southland

still owned its working interest in the Wilson #1, though the interest was subjected

to an after-payout penalty when Southland went non-consent. Therefore, unlike the

Wilson #4 well, the Wilson #1 was not included in the exception from the list of

leases. As a result, Southland reserved and retained unto itself its interest in the

Wilson #1 well, which it holds to this day. 11

       The PetroMax Defendants’ interpretation ignores these distinctions. It would

render meaningless the list of wells in the 1994 Assignment, the assignment’s

reservation provision, and the list of “Associated Wells” on Exhibit A.




11
  In addition, although the Wilson #5 well has quit producing, Burlington still owns
an interest in the leasehold acreage pursuant to Humble Resources Company’s re-
assignment of all interest in the Wilson #5 and associated acreage after termination
of its farmout agreement. CR:922-1028, 1037.


                                          33
Consequently, the PetroMax Defendants’ interpretation does not comply with

contract construction principles and is unreasonable.

      Burlington’s interpretation is the only reasonable interpretation. It compels

the conclusion that, as a matter of law, Burlington still jointly owns an interest in (at

the very least) the Wilson #1 well, which continues the AMI in effect. Consequently,

in the alternative to the remand requested above, Burlington is entitled to rendition

of judgment that, pursuant to the 1975 Letter Agreement and 1994 Assignment, its

ownership interest continues the AMI in effect.

      B.     In addition, the 1975 Letter Agreement does not provide for
             reduction of Burlington’s rights proportionate to the scope of its
             joint ownership.

      Finally, in its summary-judgment motion, Burlington sought a ruling that the

1975 Letter Agreement does not provide for a reduction of the undivided 25%

interest to be offered to Burlington in leases and mineral rights within the AMI if

Burlington’s joint ownership in the nine original leases diminishes over time.

CR:523-26. The 1975 Letter Agreement provides that the AMI continues in effect

“as long as leases are jointly owned within such area . . . .” CR:593. Upon acquiring

any oil and gas leases or mineral rights within the AMI, Buttes agreed to offer to

Aztec an undivided 25% interest in those leases/rights. Id. No provision was made

for a reduction in that percentage if Aztec’s (or later, Burlington’s) ownership share

of leases/rights within the AMI diminished over time. Id.



                                           34
      Had the parties wanted to provide for that reduction, they knew how to do so.

The 1975 Letter Agreement does provide for a proportionate reduction in the interest

required to be offered to Aztec if Buttes acquires less than the full 100% interest in

an oil and gas lease or mineral rights in the AMI. CR:593. But the parties chose not

to make a similar provision for any reduction in proportion to Aztec’s joint

ownership of leases within the AMI. Texas courts are not allowed to rewrite the

agreement to add such a provision. See, e.g., Neece v. A.A.A. Realty Co., 322 S.W.2d

597, 600 n.3 (Tex. 1959).

      As shown above, Burlington is entitled to reversal of the trial court’s holding

that the AMI provision terminated. Because Burlington offered the only reasonable

interpretation regarding its undiminished right to a 25% interest in leases/rights

acquired within the AMI, this Court should reverse the trial court’s denial of

summary judgment on that issue, as well. Further, the Court should render judgment

that Burlington’s rights under the 1975 Letter Agreement and AMI to the offer of a

25% interest in leases or mineral interests acquired in the AMI by Buttes’ successors-

in-interest are not subject to reduction or limitation based on Burlington’s ownership

share of leases and rights within the AMI.




                                         35
                              CONCLUSION AND PRAYER

      In determining whether ambiguities exist in oil and gas assignments, it is

critical to analyze and apply consistently the principles that govern all contracts. The

most basic policy of contract law is to protect the parties’ justified expectations.

DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 677 (Tex. 1990). The ability to form

justifiable expectations about contractual rights and obligations depends, in turn,

upon the certainty with which parties may predict how the law will interpret and

enforce their agreement. Id. This essential legal framework is weakened by summary

judgments that stray from fundamental principles governing contract construction,

particularly in an area of widespread importance such as oil and gas assignments.

      Appellant Burlington Resources Oil & Gas, L.P. asks this Court to reverse the

trial court’s summary-judgment rulings and (1) either remand the issues to the trial

court for further proceedings consistent with this Court’s opinion and judgment, or

render judgment that the AMI continues in effect; and (2) render judgment that

Burlington’s rights to acquire a 25% interest in leases or mineral interests acquired

by Buttes’ successors-in-interest in the AMI are not subject to reduction or limitation

based on the scope of Burlington’s joint ownership of leases and rights within the

AMI. Burlington also asks for all other relief to which it is entitled at law or in equity.




                                            36
                                    Respectfully submitted,

                                           /s/ Kirsten M. Castañeda
John R. Mercy                       Kirsten M. Castañeda
 State Bar No. 13947200             State Bar No. 00792401
 jmercy@texarkanalawyers.com        kcastaneda@adjtlaw.com
MERCY CARTER TIDWELL,             ALEXANDER DUBOSE
   L.L.P.                             JEFFERSON & TOWNSEND LLP
1724 Galleria Oaks Drive            4925 Greenville Avenue, Suite 510
Texarkana, Texas 75503              Dallas, Texas 75206
Tel: (903) 794-9419                 Tel: (214) 369-2358
Fax: (903) 794-1268                 Fax: (214) 369-2359

Vincent L. Marable III              Roger D. Townsend
State Bar No. 12961600              State Bar No. 20167600
trippmarable@sbcglobal.net          rtownsend@adjtlaw.com
PAUL WEBB, P.C.                     ALEXANDER DUBOSE
221 N. Houston Street                 JEFFERSON & TOWNSEND LLP
Wharton, Texas 77488                1844 Harvard Street
Tel: (979) 532-5331                 Houston, Texas 77008
Fax: (979) 532-2902                 Tel: (713) 523-2358
                                    Fax: (713) 523-4553

                                    Fred Hagans
                                    State Bar No. 08685500
                                    fhagans@hagans-law.com
                                    Kendall C. Montgomery
                                    State Bar No. 14293900
                                    kmontgomery@hagans-law.com
                                    HAGANS BURDINE
                                      MONTGOMERY & RUSTAY, P.C.
                                    3200 Travis, Fourth Floor
                                    Houston, Texas 77006
                                    Tel: (713) 222-2700
                                    Fax: (713) 547-4950

                          Attorneys for Appellant
               Burlington Resources Oil & Gas Company LP




                                  37
                          CERTIFICATE OF COMPLIANCE
      I certify pursuant to TEX. R. APP. P. 9.4(i)(3) 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 identified by Rule 9.4(i)(1) and inclusive of all
textboxes, footnotes, and endnotes, this Brief contains 7,543 words as counted
by the Word Count function of Microsoft Word 2010.

      2.     This Brief has been prepared in proportionally spaced typeface using:

             Software Name and Version: Microsoft Word 2010
             Typeface Name: Times New Roman
             Font Size: 14 point


                                                     /s/ Kirsten M. Castañeda
                                               Kirsten M. Castañeda




                                          38
                             CERTIFICATE OF SERVICE

       I hereby certify that on the 20th day of October, 2015, a true and correct copy
of the foregoing Brief, including Appendix and hyperlinked materials, is served on
Appellee by e-mail and e-service via efile.txcourts.gov to counsel of record as
described below:

 Mr. Brad D’Amico                              Mr. David J. Beck
 bd@canteyhanger.com                           dbeck@beckredden.com
 CANTEY HANGER LLP                             Mr. Thomas E. Ganucheau
 1999 Bryan Street, Suite 3300                 tganucheau@beckredden.com
 Dallas, Texas 75201                           BECK REDDEN LLP
 Counsel for Appellee          PetroMax        1221 McKinney Street, Suite 4500
 Operating Co., Inc.                           Houston, Texas 77010-2010
                                               Counsel for Appellees PetroMax
 Mr. Greg W. Curry                             Operating Co., Inc., Petro Texas
 Greg.Curry@tklaw.com                          LLC, and CH4 Energy II, LLC
 Mr. Gregory D. Binns
 Gregory.Binns@tklaw.com                       Mr. Jesse R. Pierce
 Mr. Richard B. Phillips, Jr.                  JPierce@pierceoneill.com
 Rich.Phillips@tklaw.com                       Mr. Brian K. Tully
 THOMPSON & KNIGHT LLP                         BTully@pierceoneill.com
 1722 Routh Street, Suite 1500                 PIERCE & O’NEILL, LLP
 Dallas, Texas 75201                           4203 Montrose Blvd.
 Counsel for Appellee Woodbine                 Houston, Texas 77006
 Acquisition, LLC n/k/a MD America             Counsel for Appellee        TexCal
 Energy LLC                                    Energy South Texas, LP



                                                     /s/ Kirsten M. Castañeda
                                               Kirsten M. Castañeda




                                          39
                                             No. 06-15-00044-CV


                    IN THE SIXTH DISTRICT COURT OF APPEALS


                Burlington Resources Oil & Gas Company LP, Appellant,

                                                           v.

              PetroMax Operating Co., Inc., Woodbine Acquisition, LLC,
                    Petro Texas, LLC, Ch4 Energy II, LLC, and
                     Texcal Energy South Texas L.P., Appellees.


                       On Appeal from the 12th Judicial District Court
                     Madison County, Texas, Cause No. 12-13130-012-10


                                 APPENDIX TO BRIEF FOR APPELLANT


                                                                                                                    Tab

1975 Letter Agreement (CR:589-625) ..................................................................... 1
1994 Assignment and Bill of Sale (CR:1029-34) .................................................... 2
Order Granting Defendants’ Motion for Summary Judgment on Title
Issues (CR:1617) ...................................................................................................... 3

Order Denying Burlington’s Motion for Partial Summary Judgment
Seeking Various Declarations (CR:1618-19) .......................................................... 4

Order on Joint Motion to Sever and Abate (CR:1640-45) ...................................... 5




                                                           40
Tab 1




  Tab 1
'
    ,_ .. :
                                  BUTTES RESOUHCES COMPANY
                                                   SOUTHWEST DlVlSJbN
      TELEX:                                          1100 MILAM                              MAIL] NG ADDR£55
     '71!12:.?.:97                                                                            P. 0. BOX 20&7
                                                      SUITE 733
                                                                                           HOUSTON, TEX,t.S 7700 I
                                               HOUSTON, TEXAS 77002
                                                     (713)   2Z~.i414




                                                   January 7, 1975


                     Mr. 'lhomas E. Scott
                     Aztec Oil & Gas Company
                     2000 First National Bank Building
                     Dallas, Texas     75202


                                                                   Re:   Drilling and Joint Operating
                                                                            Agreement - Aztec Oil &
                                                                            Gas Gompwy
                                                                         00-660 - So. Zulch Prospect
                                                                         Madison, Brazos and Grirhes
                                                                            Cos., Texas


                     Dear Mr. Scott:

                          Buttes Resources Company (hereinafter referred to as "BRC") owns
                     an undivided one-half (1/2) working interest in and to the oil and
                     gas lea.ses. described. and 'r.eferred. to in. Exl;jib;Lt "A" attached hereto
                     and made a part hereof, which leases and the lands covered thereby
                     are referred to herein as "said leases". You have expressed' a desire
                     to participate with BRC in the drilling of a test well in search of oil
                     or gas subject to the terms and conditions hereinafter contained, and
                     this letter, when accepted by you in the space hereinbelow provided,
                     shall set forth the terms of our agreement concerning the drilling of
                     such test well and the operation and development of said leases.



                                                                                                                     -
                                                                   I.
                           Prior to comnencing drilling operations of the test well, BRC shall
                     ·cause title to the tract of land upon which such test well is to be drill-
                     ed to be examined by an attorney of its choice.

                                                              II.
                          BRC agrees to furnish you the following information:

                          A.   A plat on which said leases and the proposed location of
                               the test well are noted.




                                                             589
                 . ·1.·
                              Mr. Scott                                     -2-                    January 7, 1975

                                      B.   The estimated cost of drilling the test well to 9,200 feet,
                                           including the cost of all open hole logging Which will be
                                           condUcted. Such estimated costs are set forth on the
                                           author:ization for expenditure (ARE;); attached hereto ,<il?'Exl'ii~it
                                           "B" and by this reference rrade a: part hereof.         · :·       '·

                                      C.    Copies of said leases ar.~d all other pertinent legal documents.
                                            Aztec shall have a period of ten d<iYS after receipt of said
                                            title material within which to accept or reject the said
                                            leases. If Aztec rejects title to said leases, it shall point
                                            out to BRC the deficiencies upon which such rejection is based
                                            and BRC, at its option, shall have a period of sixty days after
                                           receipt of such advice :from Aztec within which to cure such
                                           defects in title to Aztec's satisfaction. In the event such
                                           defects are not so cured within said sixty-day period, Aztec
                                           ID<>Y withdraw from this agreement and all obligations hereunder
                                           be.tween Aztec and BRC shall be terminated.

                                  D.       A copy of the title._opinion covering the lease or tract upon
                                           which the test well is to be drilled setting forth the fee
                                           ownership of the minerals and the ownership of the oil and gas
                                           lease covering such mineral interests, based upon abstracts o;f
                                           title or a search of the county records and q.pproving title
                                           into BRC for drilling and production. No well shall be comnenced
                                           under this agreement Jfuwever, until Aztec has approved title
                                           to the drillsite lease or tract.

                                                                        III.

                                  Subject to all other terms and provisions hereof, BRC agrees to
                             comnence or cause to be corrmenced, at the earliest possible date,
                             operations for the drilling of a test well in search of on or gas at
                             a mutually agreeable location on said l12ases. such test well shall be
                             drilled with due diligence and in a good and workmanlike manner to a
                             depth of 9,200 feet beneath the surface of the earth, whichever is the
                             lesser depth, herein called the "objective depth,'', unless some "impene-
                             trable", as that term is defined below·, j_s encountered prior to reaching
                             the objective depth. The term "irl]penetrablE'l" as used in this agreeroont
                             shall mean formations or conditions which would render fwther drilling
                             operations by a prudent operator' impracticable or which cannot be pene-
                             trated by the use of customary drilling procedure or techniques.
                                  If an impenetrable is encountered prior to reaching the objective
                             depth, the provis,tons of Section 3~ Ci (?f .the Join~:CJPe!'at:lrig Ai!i~etrent:
                             attached )lereof· as .EXhil'lit. "C" shalll;lt?Come effectiVe. ·       ·

                                  Upon reaching the objective depth for the test well, BRC shall
                             cause such logs and tests to be made which are mutually agreed upon.




--   - --·   -    -       --.-.·- --- - - - - -
                                 ~.                  --. -·-                      ----       ---------,----
                                                                      590
Mr>. Scott                             -3-                  January 7, 1975.


                                        N.
     Your representative shall be allowed free access to the derrick
fioor and to any and all information, {l;eological or otherwise, pertain-
ing to the drilling of the test well. Prior to running any logging
device, coring or taking any fonnation tests, or other similar type test,
BRG shall first give you notice in sufficient time to allow your
representative to be present to witness such test. BRC agrees to
furnish you two (2) copies of each field print and two (2) Cbpies of
each final print of electric logs and shall telephone daily reports to
your representative. Any notice required hereunder to be given to BRC
shall be furnished to;

                          Buttes Resources Company
                          Attention: Mr. V. K. Kr'aus
                          llOO Milam Building, Suite 733
                          P. 0. Box 2067
                          Houston, Texas 77001
                          Office Phone: (713) 223-1414
                          Heme Phone: (713) 682-7327

Any notice required hereunder to be given by BRC to you shall be furnished
to:

                          Aztec Oil & Gas Company
                          2000 First. National Bar1k Bldg.
                          Dallas, Texas 75202
                          DRILLING REPORTS & GEOIDGICAL NOTICES:
                          Attention: Mr. Kenneth A. Wood
                          Office Phone: (214) 741-1272
                          Home Phone: (214) 254-8090
                            or
                          Mr. R. K. Taylor
                          Office (214) 741-1272
                                  v.
     In consideration of BRC's agreement to drill the test well described
above you agree to bear and pay the costs, risk:;; and expenses incurt'ed in
drilling and testing prior to the running of production casing. for a
completion    attempt and plugging and abandoning if no completion
is attempted on such test well as set out below. Except as ptherwise in
this agreement provided, such payment shall be due and payable on or
b~fore thirty days after you receive invoices for the same.

     A.   33-1/3% of all of BRC's costs, risks and expenses incurred in
          drilling and testing for the test well and jn plugging the well
          if no completion attempt is made.




                                   591
ll!r:'. Scott                           -4-                 January 7, 1975

       B.   .$46,331. 50 as your share of the acquisition costs paid by BRC
            for said leases, including broke:r-age and recording costs incur-
            red in conne.ct.ion With the acquisition of the same as of the
            date hereof.

       C.   Subject to the tenns of the Joint Operating Agreenent Exh:i.bit
            "C" hereto, 25% of all costs incurred after the date hereof,
            including, without lim1tation, :r-entals, curative wor'k, out-
            side legal costs and costs of governmental regulatory
            applications and hearings in connection with said leases.

      All of the costs, risks and exPenses incurred in drilling, testing,
completing, etc. shall be supported by invoice or s.tateo-ents of charges,
copies of which BRC agrees to make available upon request . Such costs,
risks and expenses shall be invoiced to you when BRC receives invoices
fo!' the same.

                                       VI.
      Subject to the provisions of Paragraph VII, Upon receipt of payment
of your share of the costs and expenses set out inParagraph V-B, which
you have agreed to pay herein, BRC agrees to assign to you, with warranty
of title, by, through and under BRC but not otherwise, an undivided 25%
interest in said leases. Such assignment Shall be subject to the terms
of this agreement, the Joint Operating Agreement attached hereto as
Exhibit "C", (by this reference made a part hereof), and your proportion-
ate part of the lessors' royalty provided for in said leases and the
over-riding royalty provided for in Exhibit "E" hereto. It is understood
and agreed that all operations conducted after the test well nas been
drilled to the objective depth or plugged and abandoned as a dry hOle
i f no cornpletior1 is attelllpted shall be conducted under the terms of the
Operating Jlgl"eement attached hereto  as   Exhibit; '.'C'', with your interest
therein being an undivided one-fourth (1/4).

                                      VII.
     If any rental shall become due after the date hereof and prior to
the Joint Operating Agreement attached hereto as Exhibit "C" becom'ing
effective under any of said leases, then BRC shall pay the same and you
agree to reimburse BRC for 25% of such rental paynent Within thirty days
after rece:ipt of BRC' s invoice; provided, BRC shall not be liable for
erroneous payment or inadvertent failure to pay ·a:f!Y such rental.




                                     592
 Mr. Scott                                   -5-                    January 7, 1975

                                        VIII.
      It is. not the purpose or intention of this agr'eeirent to create,
 nor shall the same b.e construed as creating .any pdning pqrl;nership,
 conmercial partnership or other pqrtnership relation nor (>hall the
 operations of the parties hereunder be construed to be considered as a
 joint venture. 'Ihe liability of the pqrties hereto shall be several and
 not joint or collective.

      Each of the parties hereto elects, under the authority of Section
 761 (a) of the Internal Revenue Code of 1954, to be excluded from
 the application of all of the provisions of Subchapter K of Chapter 1
 of SubtitJ.e A of t!:le InternaJ. Revenue Code of 1954. I f the· :Income tax
 laws of the states in which the property covered hereby is 1ocated contain,
 or may hereafter contaJn, provisions s:i.rnilar to those contained :in the
 SUbchapter of the Interna], Revenue Code of 1954 above referred to under
 which a Similar election is permitted, each. of the pqrties agt>ees that
 such election shlUl be exercised. If applicable, BRC is hereby author- .
 ized to execute and file on behalf of both parties hereto such elections
 with t!:le appropriate governmental agencies.

                                            IX.
        Exhibit "I)P denotes an Area of J)lutu;ll Int¢rest , outlined in red.
  Tf you acquire any oil and gas leases or mineral rights within the Area
  of Mutual Interest after the <)ate hereof; then you agree to offer to BRC
  an undivided three-fourths (3/4) interest in saJd leases or mineral
  interest so acqlllred;. and i f BRC accepts said interest, then BRC will
  immediately re:lnlburse you far its proportionate part of the acquisition
  costs. If.BRC acquires any oil and gas leases or mineral rights within
  the Area of Mutual Interest after the date hereof:, then BRC agt>i;'es to ·
  offer to you an undivided one-fourth (1/4) interest in said leases or
  mineral interest so ~quired; and if .AZTEC accepts said interest, then
   AZTEC will immediately reimburse BRC for it.s proportionate j>!'rt of th.e
  acquisition costs.* Such ot'fer or offers .arE: to. be made in wr'iting and
  offeree shall have fifteen (15) days in Which to. accept or reject
  such offer. If either so acquires·an oil or gas lease or mineral interest
  and the other party does not desire to pqrticipate in such acquisition,
  then the acquirihg party shall own said oil and gas lease or mineral ·
  interest free and clear of all terms and conditions of this agr>eement.
  If both parties participate in such acquisition, th.<'n the oil .aJ14 gas
  .lease or mineral. interest Shall be subject to the terms and condition$
  of the Joint operating Agreement attached hereto as Exhibit "C". If
  the interest in oil and gas li;'ases or mine.ral rigl1ts acquired represents
  less than the full 100% interest     w such interest, then the rigbts of the
. parties hereunder to acquire such interest shall be proportionately re- .
  duced. 'l'he Area of IYlutual :mterest as outlined in Exhibit "D" shall
  last as long as leases are joint}y owned within 13uch area, ·hOWever,

 *In the event an interest in oil. and/or mineral rights is acquired by llRC
 pursuant to that certain Letter Agreement d!lted October 16, 1974, bat~een
 Buttes Resources Company and Curran R. Campbell, then BRC agrees to of~er
 to AZTEC one-half (1/Z) of the interest so acquired by llRC and i f AZTEC
 accapts said intel:est, then AZTEC shall i11Unedfately rein1burse BRC for its.
 proportionate part o:J;- J3RC 1 s aCtual   acquisi,~ion   cOsts.
                                            593
                                                      ''""

Mi:'. Scott                           -6-                    January 7, 1975


three years 1'rcm the date of this agreement;._if &<~,td area is still :In
effect, it shall be contracted to an area/~~·~lhe two miles outside
the then remaining jo:lntly owned leases.

                                       x.
   The terms, covenants and conditions hereof sball extend to and be
binding upon the parties hereto, the:i:r successors and assigns. 'Ihis
instrument shall not be assigned bY you either in whole or :In part
unless you have first obtained written consent frelrn BRC. In the event
that you are acquiring this .undivided working interest for the account
of more than one (1) person or entity, then you represent that you
have sole investment discretion to purchase such interest for such
accounts.

                                      XI.
       It is mutually understood that there is no obligation Ufion BRC
to carmence a well under the terms of this agreerent. and .there shall
be rio penalty for failure to conmence such well; however, BRC shall
make its best effort to commence the drilling of the ·well at the
earliest possible date. However, :In the event BRC does not corrmence
the test well here:ln provided for within one. year from the date of this
Ei:greement:

     l.   Then this Agreement, at Aztec's option (which shall be exercised
          within 30 days after the end of one year from the date hereof),
          shall terminate and be of no further force and effect. In the
          event Aztec elects to so tenninate this agl'eement, then BRC
          shall refund to Aztec the amount of money which Aztec has
          paid to BRc as of the date of such termination plus $2,500,00,
          being the finders fee which Aztec has paid to Mi:'. Bill Richardson,
          and Aztec, upon receipt of such pa~nt, shall reassign to BRC
          its interest in this agreement and :In the said leases.

                                     XII.
      TI'lis agreement and the Operating Agl'eement attached hereto are
both subject to the terms and conditions of the Letter Agreement dated
Septemer 4, 1974, between Curran R. Campbell, Inc. and W. A. Nowotny
and the Assignment of Oil, Gas and Mineral Leases dated October 18,
19711, from Curran R. Campbell, Inc. to Buttes Resources Company, both
attahced hereto as Exhibits "E" and "F", respectively··

     'Ihe foregoing sets forth the entire agreement between the par1;ies,
and there are no verbal or oral agl'eernents between the parties not set
out herein in ~II'iting. If either party desires to anEnd this agreeli'Ent,
then such amen~nt shall be accomplished by an instrument in writing
executed by both parties hereto,




                                     594
Mr. Scott                                         -7-                          January 7, 1975

     If the terms and conditions herein set forth meet with your approval,
please indicate your approval and acceptance by signing this agreement
in the space provided below and returning one (1) fUlly executed original
of this agreement to Buttes Resources Company, P.o. Box 2067, Houston,
Texas, 77001 - Attention: Mr. John D. FuJ.ton.
     If this agreement is not signed and returned within fifteen (15)
days form your receipt hereof, then this agreement, at BRC's option,
shall terminate and be of no force and effect.
    This agreement has been executed in duplicate, each of which shall
constitute an origianl.

                                                      Very truly your$,
                                                      BUTl'E3 RESOURCES COMPANY


                                                       BY:ROG~'f.~oo/'' ~
                                                             VICE PRESIDENI'

JDF/RCC/mjw
Attachments
AGREED TO AND ACCEPI'ED THIS          6ti._                 DAY OF
  .J ,. N.t,ll\.~.8            -,..:::;.19,--:')c:c'S";;.

AZTEC OIL & GAS CaviPANY




                                               595
                      Exhibit "A" to Letter Agreement dated 12-1-74
           . batwee!] Buttes Resources Company and Aztec Oil & Gas Company


                                                                RECORDED
        LESSOR                     LESSEE                    VOLUME - PAGE

A.Y. Benge et ux          Curran R. Campbell, Inc.    203 - 4,59 - Madison County

J. Philip Gibbs, Jr.,     Curran R. Campbell, Inc.    203 - 414   ~   Madison County
Attorney

Faye Andrews              Curran R. Campbell, Inc.    203 - 411 - Madison County

T.L. Hurry et ux          Curran R. Campbell, Inc.    203 - 409 - !1adison County

James D. Wilson, Ind.     Curran R. Campbell, Inc.     21 - 667 - Brazos County
& Ind. Ex.

Henry K. Odom et ux       Curran R. Campbell, Inc.     21- 661 - Brazos County

George W. Boswell et al   C:urran R. Campbell, Inc.   203 - 858 - Madison County

B.J. Cooley et ux         curran R. Cam'pbell, Inc.   203 - 856 - Madison County

Raymond B. Buchanan       Curran R. Campbell, Inc.     21- 679 - Brazos County
et ux




                                            596
                                        A.A.P.L. FORM 610
          MODEL FORM OPERATING AGREEMENT-1956
                                         Non-Federal Lands




                                 OPERATING AGREEMENT

                                                   DATED
                                    J ........... .,J I
                                   fiecemtrnr 1·


FOR UNIT AREA IN TOWNSHIP .. - - - - - - , RANGE---···
                                      Counties
    Madis=.,-]lu=s..&..GJ;imes_       ~                 STATE OF...__1:.~xa£.. - - - ' - - -




                                          South Zulch Area




                               A.MERlCAN .-.SsOCJ,.TION OF P.ETROLEUM LANDMEN
                               APPROVED FORM.                   A.A.I>.L. NO. 6\0
                               MAY Bl ORDERED DIRECTLY FROM THE PUBLiSHER
                               ROSS- M"'RTIN COMPANY,     BOX 800, TULSA   7~1()\



Exhibit "C" r:o Agreement between Buttes Resources Company and Aztec Oil & Gas Company,
_dated~
  JPr-'..j~ ~,._, \, \'i.l.r




                                                         597
~·   '
                                                                                            ;_.:
         A-4.P.L. FORM 61 o




                                                  TAaLE OF CONTENTS



                                                                   Tltlo                                            ......
                     1.     Definitions

                     l.     Xitlo i'nllliiRatiAI-1, Loss of Leases and Oil and Gas Interests ·····-····

                                                                                                                       •
                     4.     Inte.tes-U; of Par-ties                                                                     2

                            Operator of Unit
                    5.
                                                                                                                       '
                     6.     Employees                                                                                   3
                     7.     'f'esl Well
                                                                                                                        '
                     8.     Costs and Ex.penses                                                                         3

                     9.     O~rator's-    Lien                                                                          4

                    10.     Term of    A~l'eemE:nt     ...                                                              4

                    11.     Limitation. on Expenditures .....                                                           •
                    12.     Operations by Less Than All Pa!'ties ..... -~-·.                                            5

                    13.     Right to Talt-e Production in Kind                                                          6

                    14.     Access to Unit Area                                                                         7

                    15.     Drilling Contracts                                                                          7

                    16.     Abandonment o£ Wells                                                                        7

                    17.     Delay Rentals and Shut-in Well Payments --------                                            8

                            Pa£e:wtial Rilhllo Puoel•a:lC ............... .                                             B

                    19.     Selection of New Ope:rato1·                                                                 B

                    20.     Maintenance of Unit Ownership                                                               9

                    21.     Resignation- o! Operatol" ········--                                                        9

                    22.     Liability of Ptu·ties ....                                                                   9

                    23.     Renewal or Extension of Leases ·-·                                                           9

                    24.     Surren-der of l.A:ases ..                                              --·····-·· ········• 10

                    25.     Acreag-e or Cash Contributions                           .. ······ ........................ 10

                    26.     P1·ovlsion Concerning Taxation                                     ---·--···---···-··· 10
                                                                                                                  .... 11
                    27.     Insut·an-ce -···········
                                                                                                                       11
                    28.      Claims and Lawsuil:s

                             Force Majeure                                                                             11
                     29.

                     3-G.    Notices                                                                  ··-··············· 11

                     31.     Other Condi-tions                                                 ........... ----···--- 12




                                                                      598
  A.AY.L. FORM 61c                                                                     •.
                                                                                       ·




                                           OPERATING AGREEMENT
         TliiS AGREEMENT, entered into this~-- day of December                                         , 19E-., between
 Buttes Resources           C~pany

hereafter designated as "Operator'', and the signatory parties other than Operator.
         WITNESSETH, THAT,
         WHEREAS, the parties to this agreement are owners of oil and gas leases covering and, if so lndicated,
-unleased mineral interests in the tracts of land described in Exhibit "A", and all partie$ have reached an
agreement to explore and develOp these ieases and interests for oil and ga,s to ttle extent and a!l hereinafter
provided;
         NOW, THEREFORE, it is agreed as follows:
                                                     l. DEFINITIONS
         As used in this agreement 1 the foJlowing words and terms shall haye th~ meaningS here tlSet·ibed to
thetn.
  ( l) The words "party" and- "pa-rties" shall alt'fays mean a party, or parties, t-o this agre,ement.
  (2) The parties to this agreement shall always be referred to as 1'it" or "they'', whether the parties be cor-
         porate bodies, partnerships, associations, or persons real.
  (3) '!'he term 1'-oil and gas" shall include oil, gas, casinghead gas1 gas condensate, Jand all other liqJ..1,id or gase~
         ous hydrocarbons, unless an intent to limit the .inclusiveness of this term is specifically stated.
  (4) The term "oil and gas intciesls" shall mean unleased fee and mineral interests in tracts of land lying
         within the Unit A-,:ea which are owned by parties to this agreement.
  (5) The term "lTnit Area" shall       ref~r   to and Include allot the lands, oil and gas leasehold inler-esb and oil
         and gas interests intended t-o be developed and operated for oil and gas pu·rposell undeL· this agreement.
         ·such lan!ls1 oil and gas leaSehold interests and oil   an~   gas interests are described in ;Exhibit ''A".
  ( 6) The term "drilling unit" shall mean the area fixed for the drilling bf on_e. well by OTI;k7: or rule o! any
         state or federal Qody having authority. If a drilling WJit is not fixed _by any such rule or order, a drilling
         unit shall be the dn1ling unit as established by the pattern of drilling iil the Unit Area or as fi_xed by ex,.
         press agreement oi the parties.
  (7) All exhibits attached to this agreem<:>nt are made a part of the contract as fully as though copied in ful'l
         m· the contract.
  (B) The w<lrds "equipment" and "materla:Is" as used hel"e ate synonymous and shall mean and include all
         oil field supplies and personal property acquired for use in the Unit Area.
                 2. TITLE EXAMINATION} LOSS OF LEASES AND ·OIL AND GAS INTERESTS




                Prior to the commencQment of auy well, operator shall cause title
                to be examined on the drilling unit and a title opinion prepared by
                a competent· attorney of .his choice. Operator shall submit copies of
                the title opinion to all parties who are to participa~e in the drilling
                of such Mell aOd such well shall not be commenced until all such parties
                have approved title to the drilling unit.




                                                          _,_
                                                       "Joint Loss"




                                                               599
''
     ·A ..11;.P.L FORM 61C




      HlieeliePs al'!d fli er:eess reyalt), sit J'l&)mef!ts, aRti stiu1r &peeial \wrliea 6, A ee
     of each supplemental opinion, and of all final opinions, shall be sent promptly               to each party.
     the examining ati01·ney c:on(:E!~ng the validity of the title to each oil and gas in~rest and e~
     amount of interest covered thereby shall be binding and conclusive on the parties, but
     leases as to primary term, royalty provisions,_ dr'iUing obligations,_ and special b                ens.- shall be a tnatt.er for
     apptoval and acceptance by an authorired- represent_ative of each party.

               All title examinations shaU be made, and title reports sub ·             , within a period oL___,days after the
     submiSSion ot abstracts a,nd title papers. Each party sha , n good faith, try to satisfy the requirements of. the
     examining attorneys concerning its        leas~   and inte      , and each &:hall have a period       >L__ _ _ _      days from
     receipt of tiUe report for this purpose. If t          ttle to any lease, or oil and gas interest, is finally rejected by
     the examining attorney, all parties- s            then be asked to state in writing whether they will waive the title
     defects and    ac~t    the leases o · ter'ests, or ':"hether they will     ~tand   on the attorney's opinion. If one or more
     parties refuse to waive t'        detects. this agreement shall, in      t~at   case, be_ terminated and abandoned, and all
     abstracts and title      pers shall be returned to their senders. If all title.s are         approv~   .by    t~   enmining   at~

     torneys., or        accepted by all partieS, and if' all leases are accepted as to primary terms, royalty provisions,
     drilli.    obligations and s-pecial burdens, all subsequent :provisions ot this agreement shall become operative




     B. Failure of Title:

               A«or aP ti\les aFe ap~'£9" e~ SF a:ae'O'p•o;! 1 Any defects   ot title that   may develOp shall be the joint re-
     sponsibility of aU parties and, if a title loJi$ occurs, it shall be the lo~ of all parties, with eaeh bearing its pro-
     portionate part of the loss and 0! any liabilities incurre~ in the loss. If such a loss occurs, there· shall be no
      change in, or adjustment of, the interests of the patties in the remaining portion of the Unit Area.


      C. Loss o[ Leases For Other Than Title Failure:

               If any lease or interest subject to this agreeme11t be lost through failure to develop or because express
      or implied covenants have not been performed, or if any lease be permitted to expire at the end of its primuy
      tenn and not be renewed or extended, the loss shall not be C<lnsidered a fa,Uu.re ~;>f title and all such losses shall
      be joint losses. and shall be borne by all parties in proportion to their interests and there shaU be no readjust-
      ment of interests in the remaining portl.on of the Unit Area.



                                            3. lRJLEt...SBB BIL     .um      GA:S IH'f'EBES'J!S




      the purpose of this agreement as if it were a leased interest under the !ann of a·                           s ease attached as
      Exhibit "B" and for the primary term therein stated. As to                         ests,. the owner shall receive roya1ty on
                                           to,~.sJ'-'"hal1lrgwasu!l.e;a;s;e attached   hcr.eto as Erl\ibtt ''B".    Such party shall,
      however, be                                          of this agreement relating to lessees, to the extent that it ow~s




                                                     4. INTERESTS OF PARTIES

               Exhibit "A" lists all of (he parties, and their :respective petcentagtf! or fx:actional interests undel thiii
      agreement.      Unless cllanged by, other provisions, all costs and liabilities lnc~d in operations under this con-
      tract shall be borne and paid, and all equipment a,nd material acquired in operations on the Unit Area shall be
       owned, by the parties as their interests are given in Exhibit "A".               All productlon of oil and gas from the
       Unit Area, subject to the payment of lessor's royalties, shall a:J.so be owned by ihe parties in the samt- manner.


                                                                  -·-
                                                                "Joint Los&"




                                                                    600
 A.A,P.J.:. FORM 610
     '     "         .




         U the_ futeres:t of any party in any ·.oil   and gas lease covered Qy this agreement is subject to    an overriding
royalty, production _payment, Or other charge over and above the usual one .. eigthh ( Ml) royalty, Such party shall
assume an(i alone bear all such excess obligations and shall account for them t_o th~ oWners: tbeteof out of. its
share of the working interest production of the Unit. Area.

                                                     5. OPERATOR OF UNIT
               Buttes Resources Company _______________ shall
         ---::C.:..:C:..:C:::::.::.::::_c::.::r::::e:..._                                                be tl\e Operator of
the Unit .Area, and Shall ~ontlucr and direct and haVe full control ot all operations on the Unit Area as per-
mitted and required by; and within the limits_ of, this agreement. It shall conduct all such operations in a good .
and workmanlike manner, but it shaH have no liability as Oper.ator to the other parti~s for losses sustained,
or liabUities _Incurred, except such as may result froril gross negligence Or from breach of the provi~ions of
tbis agxeetnent.
                                               6. EMPLOtEl:.S
      The number of employees and their sel~ction, and the hou-rs of labor and the compensation for ~ervices
performed, shall ~ determined b:f Operator. All emplOyees shall be the- employees et Operator.


         On or before the'"·---- day of _ _ _ _ _ _ _ _ _ _ 19 _ _! Operator .shall corornence t                           1-
ing of a well for oil and gas in the following location:




and shall thereafter continue the drilling of the well with due diligen




unless granite or other practically impenetrab             substance .is encountet·ed at a lesser depth or unless all parties
agree to complete the well at a lesser -d
         Operator shall make reason            e tests ol all formations encountered during drilling which give indica-
tion of containing oil and g             n quantities sufficient to test, unless thi4 agreement shall be limited in its ap-
plication to     ~   specific       maWm or formations, in which event Op-eratur shall be required to test only the
formation or to          co.tions to which- this agreenJent may apply.
                     perator's judgment the- wen wlll not pr.oduee oil or gas in paying quantities, and it wishes to
               abandon the tetit as a dry hole, it shall firSt secure the consent   ot all parties to the plugging, and the
                                •
                                                  8, COSTS AND EXPENSES
         EXcept as herein otherwise specifically provided, Operator shall promptly pay and discharge aU costs
and expenses_ incurred in the developmetlt and operation of the Unit Area pursuant to this agreement and shall
charge each of the parties hereto with their respective proportionate shares upon the -coSt and expense basis
provided in the Acco\lnting Pr~cedure attached hereto and marked Exhibit ''C". If any provision o( E~­
hibit "C'• should be inconsistent with any provision contained in the body of this agreement, the provisiOns in.
the body of this agreement shall prevail.

         Operator, .at its election, shall have the right from t,ime to time to demand and reCeive from the other
parties payment in ad'Vance of their respective shar.es of the estimated amount of the costs to be incurred in
a:perations hereunder during the next SUC(Ieeding month, which right may be exercised only by submission to
each such party of an itemized statement of sud). e$Umated costs,            togetb~T   with an invoiCe for its S}lare there-
of. Each such statement and invoice for the            paym~nt   in advand! of .estimated costs shall be submitted on or
before the 20th day of the next preceding mont-h. Each: party shall pay to Operator ifs proportionate share of.
such estimate within fifteen (15) days after such esthna~ and invoice is received.. If any par_ty fails t~r its
                                                                                                         0
share of said es-timate within said time, the amount due shall beaT interest at the rate of.:N. percent(   per
annum until paid. Proper adjustment shall be made rno»thly between advances and actual cost, to the end
that each party shall bear and pa'y its. proportiOnate shate· of actl.ltl1 cost$ incurred, and no more.
                                                             _,_
                                                          Revjsed 1967



                                                                   601
                                                   9. OPERA':\'OR'S LIEN
            Operator is given a first and pref-erred lien on the interest ot each party covered by this contract, and
 In each party's interest ln oi1 and gas produced and the proceeds thereof, and upon each party's interest in ma-
 terial and equipment, to secure the payment Of a:ll sums due from each such party to Operator,
            In the event any party fails to pay any amount owing by it to Ope•ator as its share of such costs and
 ex'pense or such advance estimate within the time J.irnited for payment thereof, Operator,                    w~thout    prejudice to
. other elj:isting remedies, is authorized, at iU election, to collect from the: purchaser or Pu•chasers Of oU or gas,
 the proceeds accruing to the working interest or interests in the Unit Area of the delinquent party up to the
 amount owing by such party, and each purchaser of oil or gas is authori~ed to rely upoh Operator's statement·
 as   to   the amount O'W'ing by such party.
            In the event of the neglect or failure of any non-operating party to promptly pay its proportionate part
 of the cost and expense o! development and operation when due-, lhe other non-operating parties and Operator;
 within thirty (30) days after the rend.ition of s_!:atements therefor by Operatot", shall proportionately contribute
 to the payment of such delinquent indebteCiness"'and the non~operatin&: parties so contributing shall be entitled
 to the same lien rights as are granted to Operator in· this section. 'Upon the payment· by such delinquent or
. defaulting party to Operator of any amount or amounts on such delinqu.entindebt~dneSs,                      Or upon .any recovery
 on behalf of the non-operating parties \lnder the lien conferred aboVe, the amount or amounts- so paid or rep
 covered shall be· distributed and. paid by Operator to the other non-op.erating parties .and Oper~tor propor-
 tionately in accordance with the contributions theretofore made by them.

                                               10. TERM OF AGREEMENT
           This agreement shall remain in full force and effect for as long as any of the oil and gas leases subjected
 to this agl'eement remain or are continued in force as to any part of the Unit Area, whether by production, ex-
 tension, renewal or otherwise. ,....    ;,.o&,_..,...,..,,....,._.,.........,....,,._y,,_.;.,..,¥<'1l-<MHe&;,.,..,..,..,...,...,,..>jo,....
 a dry hole and no other well is producing oil or gas in paying quantities from the Up.it A•.-...""'__,_ ..
of ninety {90} days after abandonment of the first test well, this                                           inate


                                                         "''""'~"     agree-ment, in which event this agreement shall con-
                                         '"..,='" have       been drilled and completed.            If production r-esults there-
                          "'""~annnue    in force thereafter as if said first test well had been J?roductive in paying
                                                                         "result therefrom this agreement shalt tenninate
                                                                                          It is agreed,, however, that the term-
ination of this agreement shall riot.:relieve any party hereto from any liability which has accrued or attached
prior to the. date of such tennination.
                                        ll. LlMITATIO:N" ON EXPENDITURES
           Without the consent of all parties; (a) No well shall be drilled on the Unit               Ar~a e1·ee}lt It"')     "eU eK
pnsslJ ptodded Evt h• this &gteetuw4; .ani except any well drilled pursuant to the provi'sions of Section 12
ot    this agreement, it being understood that the consent to the drilling of a well shall include Consent to all
n~s.o;aty      expenditu•es in the drilling, testing, completing, and equipping of the well, including necessary
tankage; (b) No well shall be reworked, plueged back or deepened except a well reworked., plugged back or
deepehed pursuant to the provisions of Section 12 of this agreement, it being understood that !he consent to.
the reworking, plugging back OI' <;leepening of a well shall include consent to all nee~ expenditures in
conducting such operations and completing and equipping of said well to produce, including neceSsary tank-
age; (c) Operator shall not undertake any single pro]ect reasonably estimated to require an ·expenditure in
excess o_t Ten Thousand and no/1,00-----------------------.---- Dollars ($ 10,000.00
except in connection with a w,ell the driBing, reworking, deepening, -or plugging back of which has been pr_e-
viously authorized by or pursuant to this agreement; provided, howeve;r, that in case of explosion, fire, flood,
or other sudden emergency, whether of the same or different nature, Operator may lake 6Uch s_leps and incur
such expenses as in its opinion are required to deal with the emergenc_y and to safeguard life and property,
but Qpetator shall, as promptly as possible, report the emergency to the other parties. Operator shall, upoh
request,      furnish   copies of its- "Authority for Expenditures" for any single project costing in ex~
cess o1 $ 5sOOO.OO

                                                            -4..-




                                                                  602
A..f\,P.L, FORM 61
                                                                                                     -
                                         12. OPER~TIONS BY L£55 THAN ALL l"ARTIES

               If all the parties cannot mUtually agree upon the drilling of any well on the Unit Area ether ll.&a t1
tesf, e-Jl prr ·hhll In it~ .iulis~ ~, or upon the rew.or-king, deepening or plUgging baCk of a dry hole dtilled
at the joint expense of all pat1ies or a well jointly owned by all the parties and not then producing in paying
quantiUes on the Unit Area. any party or parties wishing to d1iill, rework, deepen or p1uC back such a well
n'lay give the other parties written notice of the proposed operation, specifyin& the work to be performed,
the location, proposed depth, objective formation and the estimateQ cost of the operation, The parties receiv~
ing such a notice shall ha-ve thirty (30) days (except as           to reworking, plugging back or drilling deeper', where.
a drilling rig is on location, the period shall be liinited to (orty-eight (48) "hours enehtsi e af Sat 1:1 !Ia) er s~e
.Qa.rl- after reei!ipt of the ·notice within which to notify thi! parties wishing to do the work whethet they eled
to patticipate in the- cost of ~he proposed operation.          Failure of a p;;tty receiving such a notice to so reply to
it within the period above fixed shall eonstitu.te an election by that party not. to participate in the cost of the
proposed operation.

           If any party receiving such a no.tice elects not to· participate in the proposed oPet:ation (such party or
parties. beintt hereafter referred to as '"Non-Consenting Party''), th~n in order to be entitled to the benefits
of this section, the party or parties giving the notice and such other parties as shall elect to participate in t e
           .                   .     .                                                                                   ninety    90)
operation (all sueh parbes· bemg hereafter referred to a·s the "ConSenting Pa"rlies"} shall, withirt                      ll>o·w-'t~
days after the expiration of the notice period of thirty {3(,) days (or as promptly as possible after the expir-
ation of ·the -t8-hour period where the drilling rlg is on location., as the case tnay be} actually commence work
on the proposed operation ami complete it with due diligence.

           The entire cost and risk of conducling such operations shall be borne by the Consenting Parties in the
proportions that their respective interests as shOwn in Exhibit "A" bear lo               thf:!   total interests of all Consenti.ng
Parties.         Consenting' Parties sball ke!!p the leasehpld estates involved in such operations free and clear o! all
liens and en<:umbrances or every kind created by or arising from the operations of the· Consenting Patties.                        I!
such an operation results in a dry hole, the Consenting Parties shall plug and abandon the well at tbelr sole
cost, risk and expense. It any well drilled, reworked,           dee~ned      or plugged back under the provisions of this
section results in a producer -of bil andlor gas in paying quantities, the Consenting Parties shall complete and
e~uip      the well to produce at their sole cost and risk, and lhe well shall then be· turned over to Operator and
shall be operated by "it at the expeme and for the account of the Consenting Parties. Upon commencll'!ment                        ot
operations for the drillil'lg, reworking, deepening or plugging back of any such well by Consenting Parties
in   :<~ccordance     with the provisions of this section, each Non-Consenting Piarty shall be· deemed to have relin-
qulshed to- Consentin&: Parties, and lhe Consenting Parties shall own and. be entitled to teceive,                   in   proportion
to their respective interests, ·all of such        Non-Consentin~   Party's   inter~st   in the well, its leasehold operating
rights, and share of production therefrom until th~ proceeds or market value thereof (after deducting pro-
duction taxes, royalty, overriding royally and other interests payable out of or meas"Ured by th;e product!Qn
from such well acc:ruing w.ith respect to such interest until it reverts) shall equal the total of the following.:

     {A)~ of            each such Non-Consenting Party's Share of the cost of any newly acquiJ"ed surf'ace equipment
           .beyond the wellhead connections (including, but         J).Ot   limited to, stock tanks, separaiors,            treaten,
           pumping     cquipm~nt and     pipl.ng), p]U!;   ~of each   such "Non-<;:oMent!ng Parly's share of the cost of
           operation of the well commencing with first production and continuing until each such Non-Consenting
           Party's relinquished interest shall revert to it under other provisions of this section, it being agreed that
           each Non-Consenting Party's share of such cost$ and equlement wjll be that interest which would have
           been chargeable to e:~eh Non-Consenting Party had it participated in the well !rom the beginning oi
           the operation; and

     (B)   ~of that portion         of the costs and expenses· of drilling, reworking, deepening or plugging                ba~,
           testing and completing, after deducting any cash         contrib~.tt~ons   re<!eived under Section 25,         and~
           of that portlori of the cos't of newly acquired equipment in the well (to and including the wellhead
           connections), which would have been chargeable to such }'fon-Gonsent~ng Pa:rty if                   .st had   participated
           therein.

                                                              -5-




                                                                603
 A.'A;l'.L. FORM 610



         In the case ot any reworklng-, plugging back· or deeper drilling. operation, the Consentin& Parties shall
be permitted to    ~se,   free of cost, all casing; tubing ancl other equipment in the wen, but the ownership of all
such equipment shall remain unchanged; and upon abandonment of a well after such reworking, plugging
~ack    or deeper drilling, the   Co~nting    Parties shall account tor nil such equipment to the owners thereof,
with each partY receiVing its proportionate part in kind or in value.

        Within sixty (60) days after the completion of any operation under this           ~;ecU.on,   the p;arty conducting
the operations for the Con$e_nting Parties shall furnish each Non-Consenting Party with an inventory of
the equipment in and connected to the well, and an. itembed statement of the CO!it of drilling, deepening,
plugging back, testing, completing, and equipping the well for production; or, at its option, the operating
party, in lieu of an itemi1.ed statement of such costs· Of operation, may ,;ubmit a 9eta1led statement of Inonthl:y
billings. Each month thereafter, during the time the Consenting Parties. are being rei_mbursed as provided
above, the Consenting i?.arties shali furnish the Non·Con.s~nting Parties with an itemi:red statement of all
costs: ar\d liabilities incurred in t,he operation.flf the well, together with a statement of the quantity bf oil
and gas produced from it and the amount of proceeds realized from the saie Of the we-ll's working interest
production during the preceding month.              Any amount realized trom the sale or other disposition o! eqUip-
ment newly acquired in connection with any such operation which would have been owned by a Non-Con-
senting Party had it participated therein shall be Credited against the total unreturned costs of the work done
and of the equipment purchased, in determining when the.          inter~t   of such Non-Consenting Party        sh~l    reve;rt
to it as Bboye provided; if there is a credit balance it shall be paid to such Non-Consenting Party.

        It and when the Consenting Parties recover from a           Non~Consenting     Party's relinquished interest the
amounts provided for above, the relinquished interests of such Non-Consenting Party shall automatically
revert to it and from and after such reversion such         NOn~Consenting Party    shall own. the same interest in Sl.l.Ch
well, the operating rights and working interest ·therein, the material and equipmertt i.n·or ·pertaining thereto,
and the production therefrom as such Non-Consenting· Party would have owned had it participated in the
drilling, reworking, deepening or plUgging back of said well. Thereafter, such Non-Consenting Party shall be
charged wlth and shalt pay its proportionate part of the t:urther costs ·of the operation of said well in              accord~

ance with the terms of this agreement and the accounting procedure schedule, Exhibit "C", attached hereto.

        Notwithstanding the pr-ovisions of this Section 12, it is agreed that without the mutual consent of all
partie·s, no wells shall be Completed in or produced from a sourc.e of supply f:rom which a well located else-
where on the Unit Area is producing, unless such well conforJru!: to the then-existing well spacing pattern
for such .source of supply.

        The provisions o1 this section sh_all have no application whatsoever to the drilling oi the initial test
well on the Unit Mea, but shall apply        to   the reworking, deepening, or plugging back of the initial test well
after it bas been- drilled to the depth specified Jn Section '7, if it is, ot: therea[ter shall prove to be, a dry
hole ot non-commerci;ll well, and to all other wells. drilled, reworked, deepened, or plug-ged ·back; or pro-
PQS!!d t,o be drille4, reworked, deepened, -or      plt,~gged baCk, upOn the Unit Area subsequent to the drilling of

the in'itial test well

                                   13. RIGHT TO TAK'E PRODUCTION IN IOND

        Eaeh party shall take in kind or separately dispose of its proportionate share of all oil and gas Pre-
duced from the Unit A.rea, exClusive of production which may be used in development and producing oper-
ation$ and in preparing and treating oil for marketing purposes and production unavoidably lost. Each party
shall pay or deliver, Or cause to be paid ot delivered, all royalties, oVerriding royalties, or other payments
due on its share of such production, and shall hold the other parties free trpm, any liability therefqr.                  Any
extra   expenditur~   incUrred in the taking in kind or separate disposition by any pat-.ty of its ptopm-tiona.te
share of the production shall be borne· by such- party.

        Each party shall    ~ecute   all division orders and contracts of sale pertaining to its interest in produc-
tion from the Unit .Area, and shall be entitled to rece\ve        paym~t     diJ:'(!ct from the   pur:~haser   or Purchasers
thereof for its shB.l'e of ali production,
                                                           _,_

                                                            604
••   r   •   .
 ·/)..A.P.L. FORM 6




         In the event- ahy party shall fail to make· the arrangements n_ece£sary to· take in k\nd or separate1y
 dispose of its proportionate share or the oil and gas produc~d from the Unit. Area, Operator shall have the
 right, subject to r~ocation at Vfl-11 by the party owning it, but oot tOe. obligaUoo, to purchase such oil and
 gas or sell it to others for the· time being, at not les~ than the market. price prevailing in the area, which
 shall in na event be less than the price which OperatQr receives tor iis portion of tile oil aild gas ptodu.ced
 from the Unit Area.        Any such purchase or sale by Operator· shall be subject always to the ri,ght of the
 owrun- or the production to e:<:ercise at li:ny time its right to take in kind 1_ or separately dispose of, its share of
 _all oil and gas not previously delivered to a purchaser.            Notwithstanding t.he foregoing, Operator shall not
 make a sale into ·interstate commerce of any other party's. share of gas production without firSt iiving such
other party ·sixty (60) p;.ys notice of :ilUCh intended sale.



                                                    H. ACCESS TO UNIT AREA

         Each party shaH have access to the Unif Area at all reasonable ti~es, at its sole risk, to fnspnct or
observe operations, and shall have access at reasonable times to lnformation pertaining to the development
or operation thereof, including ·operator's books. and records relating thereto.            Operator shall, upon request,
furnish each of the other parties with copies of all drilling reports, well logs, tank tables, daily gauge and
 run tickets and reports of stock on hand at the first ot each month,: and shall make available samples of any
cores or cuttings taken from any well dr!Ued on the Unit Areav



                                                    15. DRILLING CONTRACTS

         All wells drilled on the Unlt Area shall be drflled on a Competitive contract basis at the usual rates
prevailine: in the area.      Operator, if it so deSires, may employ its own tools- and equipment in the drilling
of wells, but its charges there~or shall not exceed the prevailing rates in 'the field, and the rate of such
charges- shall be agreed upori by the parties in writiog before drilling operations are commenced, and such
work shall be performed by Operator under the same te.rms- and conditions as shall be customary and usual
irt the field in contracts of independent contractors who are doing work of a s.imilar nat1.1re..



                                               16. ABANDONMENT OF Wl!LLs

         No well, other than any well which has been drilled or reworKed p\ll"5,Uant to Section 12. hereof for
which the Consenting Parties have not been fully reimbursed as therein provided, which has been com-
pleted as a producer shall be plugged an.d abandoned without the consent of aU part,ies; provided. however,
if all parties do not agree to the abandonment of an)' well, those wiShing to continue its ot~era:tion shaU tender
to each of the other parti-e!! its proportionate share of the· value of the well's salvable material and equip-
ment, determined in accordance with the provisionl!i of Exhibit "C", less fhe estimated' cost of salvaging and
the estimated cost of plugging' and abandon41g.               Eilch abandoning Party shall then assign to. the non-
abandoning patties, without warranty, exvress or implied, as l.o t'itlc or as to quantity, quality, or fitness for use
of the equipment and material, all of its inter-est in the well and its equlpmen:t, to~ether with its interest i~
the lea!iehold estate as to, but only as to, the interval or intervals of the formation or formations lben open
to production.       The assignments so limited shall eticompa.ss the "d.rilling' unit~• upon whicli the well iS located.
The payments by, and the assignments to, the assignees -shall be in a ratio based upon- the relationship of
their respective percer:rtages     ot   participation in the Unit Area to the aggregate or the     pet~ntages   of partici-
pation in the. Unit Area of all     a~s_lg'n·ees.    There- shalt be no readjustment- of· interest in the remaining portion
of the Unit Areav

         After the   as~ignn1.ent, lh~,   assignors shall have no further responsibility, liability, ox- interest in the
operation of or production from the well in the interval or interVal~ then oPen. Upon request of the assi'gnees.,
Operator' shall continue to operate the assigned ~ell for the account of the non-ab8l;ldoning parties at the
rateS and charges -c:ontemplli.ted by this agreement, plus any additiQn-al cost and ·charges: which may arise- as
the result of the separate- ownership of the assigned well.




                                                                 605
                         1-    """'ry··-·:w    RENTALS ANI' Sl!UT- IN GAt;_,- •               ""' ..,\'NEN'J:S

    ·.·ope1:citor shaJ. .... pay all delay rentals and shut-1. .. well payments ·Hhich
fl'\~ybe required unde).· the terms of all leases covered by this agreeroent
a:nd submit evi.dence of each payment to the other parties. Each party
.shall notify the other, in writing, at icast thirty (30) days prior to the
date any rental payment is due, as to t\+wther. or not it elects to partic-
 ipate in the ·payment thereof. Iri the event either party elects not to
 participate in a rental payme11t, and the other po.rty elects to part.icipate
 there-in. then the p.arty desiring not to- participate s·hall promptly cxecut~
 and deliver to the party desil"'ing to participate in such rental payment
 an as~ignment of st1ch non-part_;_cii)ating patty's right, title and interest
 in and t-o such le_ase, or leases-. and such lease, or leases-; shall no long.er
 be subject to this agreement. The amount of such payments·, when made for
 the account of both parties, shall be c.haq;.ed by Operator to the joint
 account of the parties. Operator shall not be liable to the other party
 in damages for the loss of any l_ease or interest therein if, through mis-
 t:ake or oversight, any rental or shut-in ~-te-ll payment is not paid, or. is
erroneously paid .. There shall be no readjustment of interests of the
 parties in the remaining portion of the Unit Area in the event of a failure
 to pay, or erroneous payment of~, rental or shut.:.. in well payments. If any
 party secures a new lease covering the terminat-ed interest, such acquisi-
 tion shall be subject ·to the proviS-i011S of paragraph 22 of this agreement.
         Operator shall promptly notify each other party hereto of the da·te. on
\o-'1hich any gas well located on the Unit Ar:ea is shut in and the reason
 therefor and the date on which said well is restored ·to production.


         Should any party desire to sell all cir aqy part of its interests under this contr.act, or i
  terest& in the Unit Area, it shall promptly give written notice to the other parties, w"
  cerning its pt"Oposed sale, which shall include the name and address of the              pectlve purchaser (who must
  be ready, willing and able to purchase), the purchase pt·ite 1 and all
  shall then have an optional prior right, for a period of te             days a:fter receipt of the notice, to purchase
  on the same terms and conditions the interest whi            e other party proposes to sell; and, if this optional Tight
  is exercised, the purchasing parties shall          e the -putchased interest in the propoxtions that the interest of
  each bears to the total interest o          purchasing parties. However, there shall be no preferent-ial right to pur-
  ctlase in those cases: whe      ny party wishes to mortgage its interests, or   ~o   dio;pose of its int-erests by merger,
  reorgani,tation,    olidation, or sale of all of its assets, or a sale or transfer of Its interests to a subsidiary or
              pany, or subsidiary of a parent company, or to any company in which any one patty owns a ma-




                                         19. SELECTION OF NEW OPERATOR

         Should a sale be made by Operator of its tight.'! and interest~ the other patties shall have the right
  within sixty (60) days after the date of such sale, b:y majority vote in interef;t, to select a new Operata!. If
  a new Operator is -not so selected, the transferee of the present Operator shall assume the duties 'of a)'Ld act as
  Operator. In_ ejther case, the retiring Operator shall contin\.le to SQJ.·ve as Operato'r, and discharge its duties
  in that capacity under this agreement, unt-il its successor Operator is selected an_d begins to functioh, but the
  present Operator shall t~ot. be obligated to continue the perfox:manc-e of its duties for more than .12.0 days after
  the sale of its rights and interests has been cotrtpleted,




                                                            _,_
                                                         "Joint   Lo~"




                                                               606
A.A.I'.L. FORM 61 o




                                      20. MAINTENANCE OF UNIT OWNEltSHIP

        For the put:po&e of maintaining uniformity of owner!lhip in the oil and gas leasehold interests covered by
this contract, and no~Withstanding any other provisions t-o the contrary, no party shall sell, encumber, transfer
or make other disposition of its interest in the leases embraced within the Unit Area and in well$, equjpment
and production unless such dispOsition covers either:

   ( 1) the entire 'interest of the party in all leases and equiptrrent and prodUction; or

   (2) an equal undivided interest in all leases and equip;ment a,n<J pre:duction in the: Unit Area.
        E.very such sale, encumbrance, transfer or other disposition made by any party shall be made expressl:r
subject to this agreement, apd shall be made without prejudice to the ri&"hts of the other parties.

        If at any time the interest of any party is divided among and owned by four- or more co-owners, Opera-
tor may, at its diScretion, iequlre such co-owners 1.o appoint a single trustee or agent with f-ull authority !o re-
ceive notices, approve expenditures,-·re'ceive       billlva:s for a,nd approve and pay such party's share of the joint
expenses, and to deal generally with, and with power to bind, the co-owners of such PiJ;'rty's intet-ests within
the scOpe of the operations embraCed irr t.his contract; however, all such co-o'Vners shall ent~r into and execute
all contracts or agreements for the disposition o! their respective shares o[ the oil ani! gas produced from the
Unit Area and lQey shall have the right to receive, separatelf, payment of the sale proceeds thereof.

                                              Zl. RESIGNATION OF OPERATOR

        Operator may resign from .its duties :a.nd obligations as Operator at any time upon written notice of not
less than ninety (9ft) days given to aU other parties. In this case, all parties to this contract shall select by
majority vote in h1terest, not in numbers, a new Operator. wh~ shall aSS\l:me the ·responsibiliti~ and duties, and
have the rights, prescribed ·for Operator by this agreement. The retiring Operator shall deliver to its succeDO-r
all records and   in~Qnnation   necessary to the discbl!.rge by        ~e   new Oper11tor of its duties and oblige.tions.

                                               ~2.   LIABILITY OF -PARTIES

        The liability o! the parties shall be several, not joint or collective.              Each party sba\1 be responsible
only   tor its obllgafions, and shall be It-able only for its proportionate share of the costs of developing and
operating the Unit Area. Accordingly,. Ule lien gx'atlted by each p:uty to Operator in Section 9 is given to se-
cUre only the debts of each severally. It ·is not the intention of the parties to c1·eate, nor shall this agnement
be construed as creating, a mining or othet partnership or association, or to render them liable as pntners.

                                     23. RENEWAL OR EXTENSION OF LEASES
        If any party secures a renewal of any oil and _gas lease subject to this .contract, each and all of the other
parties shall be notified promptly, and shall have the right to partici'?ate in the ownership of the renewal lease
by paying to the party who acquired it their several proper propoi.1ionate shares of the ·acquisition cost. Which
shall be in proportion to the interests held at that           ~e      by the parties in the Unit Area.

        If some, but less than all, of the parties elect to participate: in the purchase of a renewal lease, it Shall
be owned by ijle parties who elecJ to participate therein, i.n a ra«o based upon the _relati.onship of ti).eir respec-
tive percentage of particiP.ation in the unit area to the aggr~gate of the percentages· of participation in the unit
area: of aU parties put.icip;iting in the purchase of          sut:~   renewal lease. Any     ren.ewa.Jl~se-   in which less than
all the partie:;. elect to participate shall not be :subject to this agt·eement.

        Each party who participates in the purchase of a renewal lease shlill be given an .assignment of i'l:s pro-
portionate interest therein by the acquiring party.
        The p1·ovisions uf this section shall apply to renewal leases whether theY are "fOr the entire interest
covered by the expiring    lea$~!   or cover only a portion ·of- its area or an intereSt therein,           Aily renewal lease
taken before _the expirtttion of its predecessor lease, or iaken or conu·acled for within six (6) months after
the expiration of the existing      le~se   shall be subject tp thi.s provision; but- any lease taken or contracted fm·
more than six (6) months after the expiration of an existing lease shall not be deemed a rentwal lease and
shall not be subject to the   provi~ions    of this section.
        The provisions in this section s"hnll apply also- and. in like manner to extensions of oil and gas ieases.
                                                               _,_

                                                                   607
                                              24. SURRENDER OF LEASES

        The leases t?v~ed by this- agreement, in so far as they embrace acreage in the Unit Area, shall not be
 surrend~r~     in whole o.r in part. Unless all pcu:ties consent.

          However, should any party desire to surrender its interest in any lease or in any portion theteof, and
 other parties not agree or consent, the party desiring to suiret)der sh•U assign, Without express or implied
. wartanty of tine, all of its interest in such lease, or portion thereof, and any well, ma~a:I and equipment
 which. may be located thereon ~nd any rignts in production thereafter secured, to the parties not desiring to
 surrender it. Upon such assignment, the assigning_ party shall be relieved from an obligations th.en:after ac-,
 cruing, but- not theretotore accrued, with respect to tM acreage assigned and the operation of any well there-
 on, and tl'!E' assigning party shall have no further interest in the lease assigned and its equipment and p:roduction.
 The parties assignee shall pay to the party ~signor the reasonable salvage value of the lal..ter's intereSt in any
 wells artd equipm~t on ~the assigned acreage, determined in aocordan.ce with the provisions of Exhibit "C'',
 less the estimated cost of salvaging and the estimated cost of plugging and abal)doning,         n: the assignment is in
 favot of more than one party, \he assigned interest shaD be shared by the parties assi~ee in the proportions
 that. the interest of each bears to the interelit of all paTties as5i&nee.

        Any assignment or surrender made under this provision shall not' reduce or change the assignors' or sur-
 rendering parties' inte:rest, as itv was Immediately before. .the assignment, in the balance of the Unit Area; and
 the acreage assigned or surrendered, and subsequent Operations thereon, shall not thereafter be subject to the
 tenns and provisions ·of this agreement


                                     2:5. ACREAGE OR CASH CONTRIBUTIONS

       If any party receives while this agreement is in force a cOntribution. of cash toward the drilling of a
 well ·or anY other operation on the Unit Ar:eaj such contributh;m shall be paid to the party who conducted_ the
 drilling or other operation and shall be applied -by it against the c.ost of such Q.rllling Qr other operation. If
 the contribution be in the form of acreage, the paj:ty to whom the contribution is made &hall promptly execute
 an assignment of the acreage, without warranty of        titi~,   to all parties to this agreement in proportion to their
 interests in the Unit Area at that time, and such act"e'-ge shall become a part of the Unit Area and be governed
by all the provisions of this contract       Each party shall promptly notify all Qther parties of all acreage or
 money contributions it may obtain in support of any well or any other operation on the Unit Area.

                                     26. PROi'ISION CONCERNING TAXATION

        Eaeh of the parties hereto elects,_ Wlder the authority pf Section 761(a) of the Internal Revenue Code o.f
 1954, to be exclucl.ed frOm the application of ali of the provisions !>f SubchapWr K of Chapter 1 of Subtitle A of
the Internal Revenue Code of 1954. If the income tax laws of tbe state. or states J.n which the property covered
 hereby is located contain, <lr mal' hereafter contain, provisions similar to those contained in the:      ~ubchapter   of
 the Interfial Revenue Code ot    1~54   above referred to under whieh a similar election 1s permitted, each of the
parties agrees that such election shall be exercised.       Each party authorizes and directs the Operator to execute
such an election or elections oO~_ its behalf and to file the election with the proper governmental ofti~ or
agency.     If requested QY th'e Operator so to do, each party ·agrees to execute and join in .such an eleclion.

       Operator shall ;render for ad valorem taxation. an properlf subject to \his agreement Which by laW
should be rendered for s·uck taxesi and it shall pay all such tax-es- assessed thereon before they becotne          delin~

 quent. OperatOr shall l;llll all other parties for their proportio;nate shafe of all tax payment$ io the manner
provided in Exhibit    uc".
     If any tax as!essment is co~i9-ered unreasonable by Operator, it may at its ~scretion protest such valua-
 tion wit.hin the thrle-and manner prescribed by law,       .am~    prosecute the protest to a final determination, unless
 all parties agree to abandon the protest ~;~rior to flna1 determination, When any such protested valuation shall
have been finally determined, Operator shall pay the -asse!sment for the joint acCount, together with interest .and
penalty accrued, and the total cost shall then be assessed against the parties, and be paid by them, as provided
in Exhibit "C".      The above two paragraphs are subject,                    however~    to paragraph 3L-B.

                                                         -10-




                                                            608
 'J\.li,.P.l,,. FORM 611




                                                      27. INSURANCE!

      • Al all times whHe operations are conducted hereunder, Operator shall comply with the Workmen's
 Compensation Law of the Slate -where the operations are being conducted.                       Operator shall also carry or pro-
 vide insurance for the benefit of the joint account of the parties as may be outlined in :tx"hibit "0" attached
 to and made a part- hereof.      Operator shall requiTe all contradors engaged i'n work on or for the Unit Area
to comply with the Workrnen'!i CotnpensatiQn Law of the Slate Where the operations ue bel.ng conducted and
· to maintain such other insurance as Operator may require.
       In the event Automobile Public LiaPifity Insur~nce is specified in sa.ld Exhibit "D", or subsequently re-
ceives the approval of the parties, no dire(t charge shall be made by Operator for premium~ p~J~.id for such in-·
surance for operator 1s tully owned automotive .equipment.

                                              2$, CLAIMS AND LAWSUITS

       If any party to this contract is sued on an alleged c;i.us~ of action arising out of operations on the Unit
Arr:a, or on an allered cause of action involving title to any lease or oil and gas interest subjected to this con-
tract, it shall give prompt written notice of the. suit to the Operator and all other parties.
       The defense of lawsuits shalt be under the general direction of a commltt~e of lawyers representing the
parties, with Operator's attorney as Chairman. Suits .may be settled during litigation only with the joint con-
sent of all parties. No charge shall be made for services performed by the staff attorneys for any of the
parties, but otherwise all expenses incurred in the defense of suits, together with the amount paid to discharge
any final judgment, shall be     co~sidered     costs of 6peration and shall be charged to and pa.ld by all parties in
proportion to their then interests in thf;!. Unit Area. Attorney!, other than staff attorneys for the parties, shaH
be employed in lawsuits involvfug Unit Area operations -only with the consent of all parlies; if outside: counsel
is employed., their fees and expe<nses shall be considered Unit Area expense· and shall be paid by Opera-tor and
charged to all of the parties in proportion to their then interests in the ·unit Area.                   The provisions of this
paragta:ph shall not be applied in any instance where the lOss which may result from the suit is treated as an
indivi-dual loss rather than a joint loss under prior provisions of this agreement. and all such suits shall _be
handled by and be the sole responsibility of the party or parties concerned.
       Damage claims c-aused by and arising out of operations on the Unit Area, conducted for the joint ac~
count of all parties, shall be handled. by Operator and its attorneys, the settlement of ~lahns- of this kind Shall
be within the- discretion of Operator so long as the amount pa1d m setuement ot any one cloum does not exceed.
one lhousand ($!000.00) dollarS and, if settled, the sums paid in settlement shall be chaJ:ged as expense to
and be paid. by l!ill parties in proportion to their then intel'ests in the Unit At·ea.

                                                   29. FORCE MAJEURE
      lf any party is render-ed unable1 wholly or in part, by fon:e- majeure to carry out its obligations under
this agteeinent, other· than the obligatiOn t_o make money payments, that party shall give to all other parties
prompt written notice of the fOrce majeure with reasonably full particulars concerning_ it; thereupon, the
obligations of the party giving' the notice, so far as they are affected by the -{or«' majeure, shall be ws'pended
during, but no l"onger than, the continuance of the foree majeure. The affected party shall us-e all possible
diligenee to remoVe the force majeure as- quickly as posSible..
      'l'be requirement that any force majeure sball be remedied with all reasonable dispatch shall not require·
the settlement of strikes, lockouts., or other labor difficulty by the party invoh:ed, conttacy to its wishesi how
all such difficulties sh;ill be handled shall be entirely within the discretion of the party              concern-e.~.

      The term "force maleure" as here employed shall mean an act of God, strike, lockout, or other indUstrial
disturbance, act of the public enemy, war,        blo~kade,     public riot, Jightni.ng, fire, storm, flood, explosion, gov-
ernmental restraint, unavailability of equipment, and any other cause, ·whether or- the kind specifically enum-
erated above or   otherwis~.   which is not reasonably within         th~   control   {Jf,   the 'Party claiming suSpension,

                                                       3U. NOTICES

      All notices   a.uthori~d   or requ,ired   betwe~n   the   p~rtie~.   _and required by any of the provisions of this
agreement, sh-all, unless· otherwise specifically provided, be given in wtiting by United States mail or Western
Union Telegram, postage or charges prepaid, and addressed to the party to whQm the notic:e is given at the

                                                          -11-




                                                                  609
A.A'.P.L. FORM 6.10




aildr~~seF   listed on Exhibit "A''. Tha originating notice to be given. und~r any provision hereof shall be de.med
given only when     rec~iv~d   by the party to whom such n::ltice is d.treckd and the time tOr such party to give any
notice in response thereto shaH run from the date the originating notice js received          The second or apy re-
·sponsive notice t!hall be deemed giV'efl when deposited in the United States. mall or with the Western Union
Teleeraph Company, with postage or charges· prepaid. Eat:h party shall have· the right to· change its address
at any time, and from time       to   time, by giving written notice thereof to all other. parties.

                                        31. 01'HER CONDITIONS, IF ANY, ARE:

(a) If any party herer.o hereafter s9Quld create any overriding royalty, pro-
duction paymerit~ or other burden against its working interest production and
if any other party or parties should conduct nonconsent operations pursu-ant to
any provisions of this agre~nt and, as a re·sult, become entitled to rece;i.ve
the ~rking interes& production otherwise belonging tQ the non-participating
party, the party or parties entitled to receive the working interest prodUc-
tion of tbe non-participating party shall receive such production free and
clear of burdens against such production which may have been created subsequent
to this agreement and the non-participating party creating such subsequent
burdens shall save the participating party or parties ha:tmless with respect to
the recei.pt of such working int-erest production.

(b) At and during such time, or times, as non-operator is ~ercising the right
to take in kind or separately dispose of its proportionate part of the production
as set forth in Section 13 hereof, non-operator shall pay or arr·ange for the
payment of all prodUction, severance, gathering, sales or similar· taxes imposed
upon such part. At and during such time, or times, as Operator is purchasing
or selling non-Operator 1 s proportionate part of the production as set forth in
said Section 13, Operator shall pay or arrange for the payment of all production,
severance, gathering, sa+es or similar ta~es imposed upon sucP part.

 (c) No-twithstanding any provision to the contrary appearing elsewhere herein,
 consent to the driLling of a well shall not be deemed ~ consent to -the setting
 of casing and a completion attempt. After any well drilled pursuant to this
 agreement has reached its authorized depth, or an impenetra·ble is encountered
 as set out in Paragraph III of the letter agreement dated December 1, 1974, to
:which this Operating Agree:m.ent is attached, Oper.ator shall giv-e imm-ediate notice
 to non-Operators together with all information and data obtained in the drilling
of such well up to- such time. Cbncurrent therewith Opera~or shall also advise
non-Operators of his recommendation, 9ecisiop or intent respecting further operations.
The parties rece~ving such notice, information~ data and advice shall h~ve forty-
eight (48) hours in which to elect whether' or not they desire to set casing and to
participate in the completion attempt. Failur'e of a party re_ceiving such notice
so to reply withi~ the period above fixed shall constitute an election by- that J'arty
not to participat-e in the cost of a completion attempt. If all of, t:he parties e-lect
to plug and S.bandon the well. Operator shall plug and -abandon same at the elCpense of
all of the parties. If one or more, but less than all of the parties elect .to set
_pipe and attelit.pt- a completion, the provisions of Section 12. shall apply to the operations
thereafter conducted by less than all parties,




                                                                610
. A.A.P.L FOl~M· "




       This agreement may be signed in counterpart, ond shall be binding upon the parties and uppn their heirs,
successors, represeritaLive:; and assigns.




                                                 OPERATOR

                                                               Buttes Resources         Comp~y

~:

                                                               By    Q~PM    C . d)" f=">
                                                                        Chapman
                                                                    Roger·C~
                                                                    V:i.c.e-President




                                               NON-OPE:AATOR
                                               ~



                                                               Aztec Oil & Gas Company


                                                                      lli.CS hes1dent




                                                     -13-




                                                      611
  THE. STATE OF TI:..

   COUNTY OF !lARJUS
                           -        -·x
                                       1
                                       1


                 BEFORE ME 1. the titl.deraigned authority, on this day personally appeared
  ROGEa C. OiAPMAN, k~own to me to be the person ~hose. name is subscribed to the
  foregoing instrument as Vice President of BUTtES RESOURCES COMPANY, a corporation~
  and acknowledged to me that he executed- the same as the act and deed of said
  corporation for the purposes and consideration thete~n expressed, and in the.
  capacity therein stated.

      !1         GIVEN UNDER MY !LIND AND                SEPfj<fF         OFFICE,. this the        ,1#           dey of
      CU£.i"~                                          ,19           •

                 SHARON S, SIMMONS
       Notar}' PubliC In and for Harris County, Te~
        M,¥ c:tJmml$&ion fxP.lr:es June l, 19o_;Z;£.
                                                                                                              Texas




THE STATE OF TEXAS                 1
                                   I
COUNTY OF ll_IL!.AS                1


          BEFORE ME~ the undersigned.• a Notary Publ.i-E;:, in and for said 'County-.
and State, on this· day personally appeared   J(~ q. ,,:C 9 fu                              J                             ,
known to me to be the person and officer whose name is s~bscribed to the foregoing
~nstrument an~ acknowledged to me that the same was the act of- the said AZTEC OIL
& GAS COMPAh'Y~ a corporation, and that he executed the same as the act of "such
corporation ·far the purposes and consideration therein expressed~ and i.o. the
c~pacity therein stated.


          !1 GIVEN  UNDER MY HAND Ah'll SEAL OF OFFICE, this the                                -'-8'-":!-
                                                                                                        __   day of
              4-r«n ,,....           , 19?5 •
         (/                                             ---


                                                                                   Notary   P~blic-     in and for
                                                                                     Dallas.Coun~y~        Texas

                                                                              SUB ELLEN PER!t.Yj I•!crr.ry Fulllit·
                                                                               lit and WI' Ohl.ltts <;uur.ty, 'te...,w.
                                                                             lft   .~log Bxpke.! J'WIC         z_ J91S,




                                                                                                                              l
                                                                                                                              l
                                                              . _,   ,.
                                                                                                                              l
                                                              612                                                             '
                                                                                                                              '
                -                   EXHIBIT "A11

                     Attached to and made a part of Operating
                     Agreement with Buttes Resources Company
                     as Operator.




          When this Operating Agreement becomes effect.ive, as to a particUlar
Well, Exhibit "A" shall be. prepared, listing all wo1:king interest owner$?
their percent of interest and the spec:t.fic lands desigh.ate.d for suclt well.




                                         613
              EXHIBIT "B"



Attached to and made a part of Operating
Agre~ment with Buttes Resources COmpany
as Operator,




                             11
       There is no Exhibit        1\ 11 •




                   614
                                                                                                                     COPAS- 15161
                                                                                                                            by the
                                                                                                              R•c.,.,.,...n.;~.c~_
                                                                                                              Coundl  o1 f'atroleuril
                                                                                                              A~ntonts Socialin o1
                                                                                                              No11h Amerlcd

-------------------.------ -----------uUin>rl
                                          rn'iiW'
                                                    EXHIBIT           .. c ,.                                                           I


                       Attached to and made a part     ot .. .21?:..£~.~-~~e~me.nt - - - - - -                                          I
                       -----------------------·----------·----

                                   ACCOUNTING PROCEbURE
                                      JOINT OPERATIONS
                                                  L GENERAL PROVISIONS
 1. Definitions
      "J"oint Account" shall mean the account showing the charges and credits accruing because ot the Joint Operations
      and whi<:h are to be shared by the Parties,
      "Joint Property" shall titean the real and personal property subject to the agreement to wblch this. Accounting
      Procedure is attached.                         -
      t•Joint Ope-rations" shall mean ,aU operation's ·necessary or proper-for the development, operation protection and
      ma-intenance of the Joint Property.                                                                '
      "Operator" shall mean the party designated to conduct the Joint Operations.
      "Non-Operator_s" shall mean the parti~ to this agreement other than the Oper!ltor.
      ''Parties" shall mean Operator and Non-Operators,
      "Material" shall m·~an personal property, equipment or supplies acquired or held tor use on the J.oin.t Property.
      "Controllable· Material" shall be defined as set forth uhder the subparagraph selected below:
      A. [ ] Material which at the time is so classified ID the Material Classification Manual as most recently rec-
                or.nmended by the Council of Petroleum Accountants Societies· ot. North. America.
      B. [X] Matetial which is ordiJlarlly so <:lassified _and controlled by Operator in the conduct of its operaticsns.
               List shall be funrlshed Non-Op~ators upo.n request.
 2. Statements and Billings
      Ope~tor  shall bill Non-Operators on or be1ore the last day of eaeh month --for their proportionate share ot costs
      and expenses for the preceding month. Such bills will be accompanied -by statem~nts reflecting the total charges
      and credits as set forth under the subpar!lil""aph selected below:
      A. [ ] Statement in detail of all charges and credits to the Joint Account.
      B. [X] Statement of all charges and credits to the Joint Account, summarized by appropriate- classifications
              indleative of the nature. th-ereof.
      C. [ ) Statement of all charges and credits to the Joint AccoUnt, swnrnarized by appropriate dassification
              indicative of the. nature thereof·, except that items of ControllAble Material md unusual charges ·and
              credits shall be detailed.
 S. Advances and "Payments b;y "Non-Opcntors
    Unleu otherwise provided tor in the agreement,_ the Opetator may require the ]ion-Operators to advance their
    share of estimated cash outlay for the succeeding .month's operation, Operator shall adjust each monthly billing to
      reflect advances received from the Non-Operators.
      Each Non-Operator shall pay its proportion of aU bills within fifteen (l~) days after receipt If payment is not
      made witlUn sueh time, the unpaid balance shall bear interest monthly at the rate of ten per cent ~lO'f'0 ) per annum
      or the maximum contract rate ~ermitted by the applicable usury laws in the state in which the Joint Property is
      located, whichever is the lesser.
 4. Adjustments
      Payment of any such -bills shall not prej.udice the right of any Non-Operator to protest or q'Uestion the correctness
      thereof; provided however, all bills and statements 'rendered to Non-Operators by Operator during any calendar
      year shall conclusivey be presumed to be true and co·rrect af~r twenty-four (_2.4) months following the end of
      any such calendar year, unless wi~ the said. twenty-four ~2.4) month period a Non-Operator takes written
      exception thereto and J?B-kes claim on Operator ~or ~djustment. No adjustment favcir~ble to Operator shall be
      made- unle$ it is made within the same prescri~d period. The. provisions of this paragrap)t shall not prevent
      adjustments. resulting from a physical in-ventory of the Join,{;- Property as provideQ. for in Section vn.
 5. Audits
      A Non.-Opet:ator, upon notice in wtiting to "Operator and aU other' N"on-Operatot:s, sb~l have the ri·ght 'o audit
      Operator's accoup.t.s and recor&J relating to the acco1-1nting hereunder for any calendar year within the twenty-fOllr
      (2.4) JllOnth period following tl"le _end of- such calendar yea"T; provided howev-er, the making: of an audit shall not
      extend the time for the taking of written exception to arid the adjustments of aCCounts as provided for ln Paragraph
      4 o1 this Section I. Where there ate two or more .lilon-'OPerators, the N-on-Operatori!l Sl"!-all make eyery reasonable
      effort to conduct joint .or s4n~ltaneous audits, in a manner which Will result in a minimum ot inconvenience to the
      Operator. Operator shall bear no portion of the Non-Operators' audit oost iDeurred under this paragraph unless
      agreed to by the Operator.
 6.   Appr~valby   Non-Operaton
      Where an approval or other agreement of Non-Operators is expressly required under Paragraphs 5A.. 5B, 6A and
      a of Section Il:, Section III, Section V, Section VI, and Pa'ragr.al?h 4 of Section Vll,. of this Accounting Procedure and
      if the weement to which this· AccoUnting Procedure. is attache_d cQntains no contrary provisions: in reJ!:ard thereto,
      the Operator shall notify all Non-Operators and the agreement or approv;tl of a majority in interest of the Non-
      Operators shall be controlling' on· all Non-Operators,

                                                             -1-




                                                               615
                                                                                                                                 'F· . . .

                                                                                                                                I'•Ii'''
                                                                                                                                    ' ··'
                                                                                                                                 ).,, .q(J
                                                     H. DIRE.CT CHARGES
Operator shall cJ::iarge. the Joint Accouht with the following items:
 1. Rentals and Royalties
      Lease rentals and. x:oyalties paid by Operator for the Joint Operations.
 2. Labor
     A. (1) Salaries and wages of Opetator's employees directly employed on the Joint Property in the conduct of
                Joint Operations.
            (Z) Salaries of Arst-level supervisors in the field if such charges are excluded !rom overhead rates in Option
                A of Section m.
            (3) Salaries and wages of technical employees temporarily assisned to and directly employed on the Joint
                Property if such charges are excluded from overhead rates in Option :B of Section          m
            (4) Salaries and wage!; .ot technical employees either teml)orarily or perm~ently as.slgned to an.d directly
                employed in the opeJ11.tion of the Joint Property if such cilarges -are excluded from overhead rates in
                Option C ot. Section Ill.
     B. Oper~t.O".f's cost of holiday,. vacation, sickness and diSability bene!its and other customary allowances paid to
           the employees whost! salaries and wages are chargeable to the Joint Account under Paragraph .2A of this
           Section II and Paragraph rA of Section Ill; except that in the case of those employees only a pi'o rata portion
           of whosfl! salaries and wages are chargeable to -the Joint Account under Paragrat:~h lA of Section 10 1 not more
           than the same pro rata portion oi the benefits and allowances he1·ein provided for shall be charged· to the Joint
           Account. Cost under this Paragraph 2)3_ 11\ay be charged on a "when and as paid basis'' or by ''percentage
           asse:smeht" Qn the amount of salaries and wages chargeable to the J()lnt Account. under Paragraph 2A of this
           Se;cbon II and Paragraph IA of Section m. lf percentage as&eSsment is used, tbe rate shall be b~d on the
           Operator's cost ex~rience.
     C. Expenditures or. contributions made pursuant to assessments imposed by governmental authority. whi.ch are
           applicable to. Operator's labor cost of sal~ies ami wages chargeable to the Joint Account under Paragraphs
           2A and 2:S of this Section n and Paragraph 1A of. Section III.
     D. Reasonable personal expenses of those employees whose salaries and wages are chargeable to the Joint Ac-
           ~unt under Paragraph 2A of this Section U and fot which expenses the enipl~ees are teiJI~bursed under
           Operator's usual practice.
·3. Employee Benefits
     dperator;s current cost of established plans for emplOyees' group life insUrance, hospitalization, pension, retire.,.
     ment, stock purchase, "Utrift, bonus, and other bene;fit Pians of a like nature, applicable to Operator's labor cost
     chargeable to the· Joint Account under Paragraphs 2A and 2B of this SE!ction II and Paragraph IA of Section III
     shall be chargeable as indicated in the subparagraph selected below-:
     A. ( ] 0perator1s actual cost.
     B. (XI" Operator's actual cost not to ~:xceed fifteen per cent (15%).
 4. Material
     Material purchased or furnished by Operator for use on the Joint Property as provided under Section IV. So· far
     as it is reasonably practical and consistent with efficient and economical operation, only such Material shall be
     purchased for or transferred to the Joint Property as may be required for· irrunediate use; and the accumula~on of
     surplus stocks shall be avoided.
 5.. Transportation
     Transportation of ~ployees and Materia~ necessary for the Joint Operations hut subject to the following limita-
     tions:
     A. If Material is moved tO the Joint Property from: the Operator's warehoUse or other properties, no charge shall
           be made to the Joint Acaojmt_ for a distance greater than the distance from the .nearest reliable supply store,
           recognized barge terminal, or railway receiving point where like material is normally available, unless
           agreed to by Operator and Non-O~erators.
     B. If surplUS Materi•l.is moved. to Operator's. warehoU're or other storage point, no charge shall be made to the
           Joint Account for a distance g"eater t.hal1 the distance to the neatest relia\;lle supply store, recognized "barg~
           terminal, or railway Tll!:ceiv.ing point unless agreed to by Operators and Non-Operators. No charge shall be made
           to the Joint Account for moving Material to oth~r propt!rties belongblg to O:Perator, unless agreed to by Operator
           and Non-Operators.
     c. In the appllcation of Subparagraphs A and B above, there sh•ll be nJJ equalizatian of ac~al ~oss trucking
           costs of $100 or less.
 6. Services
     A. The cost of contract services and utilities procured. from outside ~oUrces Qther than services covered by Para-
           Jraph 8 of this Section II and Paragraph lB of Section UI. The cost of professiopal consultant -services shall
           not be charged to the Joint Account unless agreed to by Operat-or and Non-Operators:.
     B. Use and service of equipment and facilities ·furniShed by Operator as provided in ParagraPh 5 of Section IV.
 7. Darrragt;S and Lo~s to Joint Pro11erty
      All costs or expenses necessary for the repair or replacement of Joint Propert:y made necessary because of damages
      or losses incurred by ftr.e, flood, stb"rm, theft; accident; or o_tber ca';lse, except to the extent that the damag!!" or Joss
      could have been avoid-ed through the exerc~se of reasonable dihgence. on th~ part of Operator,· Operator· shall
     f!ll"nish Non-OperatorS written notice of damages or lossef iJ:~.C\.!.rred as soon as pra"ticable after a report the1·eof
     has been received by Operator.
 8. Legal Bx,pense
      Ait cQsts and expens.es of handling investigating, and set~b)g Ittiga,tion ·or claims ansmg by reason of tl:te. Joint
      Operations or neceSsa-ry to proted or recove_r the Joint Property, inclu~g, .but not limited. ta, !ttorney's fees,
      court cos.ts, cost of inve~tigation or procuring evidence and amounts. p~1d m setUemen~•.or satisfachon of anys;u~h
      litigation or claims; provided, (a) no t:barge sh.Ul be n1ade for tl!.e serv1ces. of Operators legal staff or ot~er reg-
      ularly .employed pen~onnel (such services- being considcted. to be Ad,mUnstntive Ov~htad under Section Ill),
      unless agreed t-o by Opetator and Non-Operators, and {b) ~o ch~rge shall_ be_ made for the fees and expenses of
      oUtside attoljleys unless the en'lployni.ent of such attotneys lS agreed to by Operator and Noh-Op~ators.
  9. Taxes
      All taxes of every kind and nature assessed or l~vied upon or fu co.nnection wlth the Joint Property, the ~peration
      thereof, ot the production therefrom:, and which taxes have been paid by the Operator for the benefit of the
      PartieS.

                                                               -2-



                                                                616
,-'-----;'----------------------~~~~~I
                                                                                                                 -
 Ia~--                                                                                                                                                         I
       Net premiums pt~id for insure.nce req.uir:ed to be carried on the Joint PropertY fot the protection of the Parties.
       In the event Joint Operations 11-re conducted                in a state   in which Opera_tor may act m self-insurer for Workmen'$
                                                                                                                                                               I
       Compensation andjo:r Employers Lla.bility unde~ the respective stnte's l.a:wS' Operator may at its election include                                     '
       the risk under- its self-insurance prcrgram ·and in that event, Operator shall i~cJude a charg~ therefor on th~ follow-
       ingbasis:
       ---·--·---------~e£_~-~---~~---~~E-~-~~p~~---~~_,l;.?~_f::~--~~~-~::.~~E:.~~~~L~~:.~.?!.~---·-------------------·----------
       -------·--·-·········· ····-·-----···-····---·-------------- -----·-····-··-- .... ··--------~-- ······-··---------------·--------·-----·----
       ··-----··--··········-----·· ······---··--··-······--·-·-·-----·····--········-··-············ --·-------···- ·-···-···-···········---··-···---·----·
 11.   Oth~tr Expenditures
       Any other eXpenditure not covered or dealt with In the foregoing provisions of this Section II, or in Section Ill,
       and which is incurred by the Operator for the nece:sl)ary and proper conduct ot the Joint Operations.

                                                              lll. INDIRECT         CHA~ES

Operator may charge the Joint Account. for indirect costs either by use of an allo~ation of district expenSe items plu$
the rate for administrative overhead, and phu the warehousing charges·, all as ptovided klr in Paragraph 1 of this Sec-
tion lll or by combining all three ?f said items under the r:a~es provided for in Paragraph 2 or 3 o% thb Section ill,
.u indicated next below:
           OPERATOR SHALl. C"6ARGE INDUlEC:r COSTS TO THE JOINT ACCOUNT· UNDER THE TERMS OF:
                 [ ] Paragraph 1. (District Expense, Admini$trative Overhead and Warehousing")
                 [X] Paragraph 2. (Combined ltates - Well Basis)
                 [ ] Paragraph 3. (Combined Rates - Percentage Basis)
The cost and eXpense ot services from outside sources in C()nnection with matters of taxation,. traffic, accounting or
matters before or involving governmental agencies shall be considered as included in the overhead rates provided for
In the above selected Pa1:agraph oi this Section m unless such caSt and expense are agreed to by Oper.atol' and Non-
Operators as a direct charge to the Joint A-ccount.
              THE OVERHEAD RATES PROVIDED FOR IN ANY OF TBE PARAGitAPRS SELEOTE·o AB.OVE
    A. [ ] shall [XJ shall not include salaries and personal expenses of first-level s~pervisors in the field.
    B. [ J shall [J(] shall not include salaries, wages and personal expenses -of teehni<;al employees temporarily as-
                                  signed to and directly em{)loyed on the Joint Property.
    C. [ Xl shall ( ] :shaU not include salaries, wages and personal exp.enS!Os e>t techni~l employe:e;s ~ithe~; tempo-
                                 rarily or permanently assigned tel and dil'ectly em.i?loyed in the ope;ation of the .::roint
                                 Propert;Yo
 1. District Expense, Administrative Overhead and Wareltousing
    A. District Expense
         Operator sh<~ll charge the Joint Account with a. pro rata portion of the salaries, wages and expem;es of
        Operator's production superintendent and other employees serving the Joint Property and ather properties
        of the Operator in the same operating area, whose time. is not allocate<! dire~tly to t;he prop$'ties, and a pro
        rata portion of the cost· of maintaining and QJ?erating a production offiae known as Operator's.. _.......... .
            -------.. ·····-·----· .. ·-·-··------------- office located at .or near ···-···--···-·-··-·-·-· .. ········-···----··----··------
            (or a comparable office jf location changed); and necessary sub-offices (if any), maintained for the conven-
            jence of the above.¥described offjce,. lilnd all necessary camps, including housing fa,cilities for employees if
            required, used .in connec!ion with th~ operati~ns of the. Joint Property and other properties in the same
            operating_ area. The expel"lse of, less any revenue from, such facilities may, at the option o1 O_perator, include
            depreciation of investment or a fair monthlY rental hi lieu of depr.e:Ciation. SUch charges shall be apportiOhed
            to all pro:perties served. on sQme equitable basis consiStent With Oper.at9r'-s accounting practice.


       B.   Adnilnistr.ative Overhead
            Operator shall charge administrative overhead to the Joint Aec.ount at the following rates, which charge shall
            be in lieu of the cost and t_xpense of all offices of the Operator not <:ovel'ed by Paragraph lA of this Se~on
            III, including salaries, wages ailod expenses of _personnel.~SSigo~d 'to such officers. s~e.l:l c:harge_ s.hall be in· a~di­
            tion t.o the sa~aries wages an4 e)('penses of· employees_ of Operator_ authorlze;d to be chars:ed duect as provided
            in Paragraphs 2 a~d .8 pf sectiOn U. SUCh charge shall be rnade on the basis indicated befOW~ either {1) Well
            basis or {.2) pe'rc!!nt"age ]:lasls, at the rates. shOWn theteundet.
            (1) [ ] Well Basis
                                                     RA'l'E P'ER WElL. PElt MONTH
                                           D$1'/LLJI-IG WELL RATE                                      l'li.ODliClt"G W(LL RATE
                                             (Ute TGtal O..p1h)                                     (U$10 Clln.M Prod.,c;l>fl Do!plh"}
                                                "Eoch"W411                                                     Ht11-l fM                 All Wolh; 0T¥!" Tu




             (2) [ ] Percentage Basis
                                                         PERCENTAGE BA;.SIS
             Development:
             ···--··-··-----·· Percent· (     ·%) ot·the cost .Of development ot the JOint Property exclusive of cost.~ pn,-
             vided under Paragrapb 8 of. Section .n and. all salvage .credits.
             Operating:
             -----··--··---······· Per:cent (  %) of the cost of operating the Joint Pro~~ty e.:11:du~ve of Costs _-provided
             under: Paragnphs 1 and ·8 of Section II, all sal:va~e credits:; the v~Iue of ll1.]ected subs~ces purchase_d for
              seconda:ry recovery and all taxes and assessments which are lev1ed, .assessed .and ;pa1d upon the Itnrtt>ral



                                                                             -·-
             interest in and to the: Joint Property.


                                                                                                                                                               ''
                                                                                  ------·----·                                                                 J

                                                                             617
r-'-··
      C.   Operator's Warehouse Operaling an.d Maintenance Expense
           [ ] Indude_d in district :expense
           [ ] No chnrge either dlfect or indirect
           (   ]   Perc~tage           basis (describe full)')                          ..   ····-··+>••••·······-------·········-·······-~------···----~--------·······-·--·------

                   ---------····------········-----,.------·   ··-------·····-····-·

   2. Combine(l Rates- Well Basis
      Oper-atOr shall charge the Joint A-cCount for the seJ.·vices covered by Paragraph 1 of this Section III on the basis
      indicated below:




   3. Combined. Rates- Perctmtag-eBnsis
      Operator· shall charge the Joint Account for Jhe services covered by Paragraph 1 of this Section III ·on the b<~sili
      indieated below:
      A.   Pevelopment:
                                 .. Percent (  %) ot the cost of development <l! the Joint Property exclusive of costs pro-
           vided under Pa"Cagraph 8 of Section II and all salvage credits.
      B. Operating:
                   ................ l?ercent (  %) of the cost of operating the Joint Property exclusi..,.e of costs \)rov1dNl
           Wlder Parag.r;:1phs. 1 and 8 -of SectiDn II, oll salvage credits, the value of injected sub.c;tance$ pu1·.chascd (fll"
           secondary recovery and all taxes ;md ;tssessrilellts which are levied, assessed and paid upon the mine•·ol
           interest in and to the Joint Property.
  4. Application of Adminis-trative OVerhead or Combined lta.tes - \Veil Basi:;
      The following limitations, instructions and charges shall apply in the application of the rates as provided under
           either P1.1ragnp1"1 IB (1) o1· Paragraph 2 of this -$ection III,
      A. Charges for <h:illing wells shall begin 011 the dale each well is spudded and terminate on the date the dr"illin~ or
           cQmpletion r-ig is released, whichever is iatet, except that ·no charge shall be m~e. dUring the suspension of
           drilllt1g operaHons !or flftcen (15) or more consecutive days.
      B. The status of wellS shall.be as. follows:
           (1) Producing gas wells, -'lnjectlon wens· for recovery operations, wt~ter supply: wells utUUed for waterflood-
                 ing operatjons and salt water disposal wells shall be considered the same as producing oil wells.
           {2.) Wells. permanently shut down but on which plugging opet·ations are deterred shall be dropped from the
                 well s~hedule at the time. the shuido:wn is eifected. Aily well being plugged -or produced dudng any
                 portion or the month shall be considered as a producing well for the enhre month.
           (3) Wells being plug-ged baCk, drilled deeper, converted to a source or input w,ell, or which are undergoing
                 any type of w.orkover that requiJ:es the use of a drilling rig or workover rig capable of drilling shall
                 be considered the same as drilling wens.
           (4.) Temporarily shut~down wells, which 11re not.p1·oduced or worked upon for a period of a full calencl;~r
                 mClnth, shall not be included in the well sche!iule, provided however, wells shut in by governmental
                 regulatory body sha11 be included" i'n the Well schedule only in the event the ailowable production i$
                 transferred to s:o1ne other weil or we).ls on the Joint Property.· In ·the even.t of a unit allowable, shut-in
                 wells shall be cot,~nted .i:n determining the charge here~nP.er for su~h month if said wells contribute allow-
                 able production that is actually produced during s.uch month from one. or more unit well!\ as a result of
                 allowable transfer, inclusion in the unit aUO\\-<Ible Or other ch'cttmst.atie!!S1 bUt the total :;hut-in well cp.unt
                 shall be limited to tbe· minimum number of shut-in wells ne~ to provide the· contrlbu.ted allowable
                 act.ually produced dUJ"ipg the month.
            (5) Gas welts shall be included ip th.e well schedule it di:re'"tJy connected to a permanent sale.-; outlet even
                 though temporarilY shut in due to overp:rodudlon or failure of purchaser .to take the allow-ed production ..
            (B) W-eUs ·comple~q. in mu.ltiple horizons, shall be ·cOnsidered as a producing well for each separately pro-
                 ducing horizon, providinj"!: each cotnple.tion is considet·ed a separate well by· governmental or other state-
                 wide regulatory authority.
      C. The well rates. for producing Wells shall be applied to the individual leases; "Pl:Ovided that, whenever leases
           covered by this agreement are operated as a unitized project, the well rat;es shall be applied to the total
           number Of prpduclng wells, irre"st>ective of individual leases.                                                     ·
      D. The well rates shall be adjusted as of tbe first day of April eaCh y-ear following the effeCtive dat-e of the
           agreE~rtlent to whieh this Aecounting Procedure. is attaehed,· 'l'he adju.stment shall be computed by multiplying
           the rate currently in use. by tlle percentage· increase or decrease in the average weekly c.arh)n.g~ of Crude
           Petroleum and Gas ProduCtion Workers fOr the las~ calendar year compared to the preceding ~alendnr year
           as shown by ''The Inde:x of Average Weekly Earnings of CruQe. Petroleum and G-<!ii Production Worken;"
           as puhlished by the United.Sttltes Department of Labor, Bureau of Labor Statistics~ or the equivalent Canadian
            IO.dex as published by the Dominion Bureau o( Statistics, as. applicable. The adjusted rates shall be the
           rates currently in use, plus Or rnin.us the Computed aqjU.stJ:nent.
  5. Applil:athm of Administrative~ OvcJ;hcail or Combin"Cd R;ttes             Per.cen~gc Basis     p.    .                        .
      For the purpose or determining charges: on a Percentage Bal>is ':luder .P~r_agraph. 1_~ (2) or ~a.-a.gtll!'h 3 of t~•s
      Section III. Development. shall include all costs in ~qnnectipn w1th dn1Ung, redt:Jlhng, deepemng or any ren:~llal
      operations on.. any or al1 we~ Is j~vt;lvi"g the use o! drilli~g Cl'ew _and equil?~el}.t; also, prel~minary · expcndl1iU:fCS
      necessary In preparation tor dnllmg a-nd exponditut:es tllcurred m abandomng when. well ·15. not comp1eted as a
      pr<Jducerj and otlginal cost ·of. cons.truction or ins:tallatioil Qf f~ed aSsetS:, t?e eltpans~on ·O~ f1xed assets .and M_Y
      other project clearly disc;er~-ible as a fixed asset, excep:t MaJor Construction as det'med m Paragraph 0 of th1s
      Section III. All other costs $hall be considered as Operating.
   6. Major Construction Overhead                                                                      .
      For the construction of ~ompressor plants, water stations, secondary recovery systems, drilling and production
       platforms, salt water dispOsal facilities, and other such projects, as distinguished from the mo:re usual drilling

                                                                                       -4-


                                                                                       618
                                                                                   -------
    and producing operations,_ Operator in a~dition to the Adm_inistrative Overhead or: Combined Rates p1·ovided for in
                                                                                                                             ml1il~
    Paragr_aph 1, 2 or 3 o_f thiS Sect~~ III shall either n£!gotiate ·a rate prior to l?eginnlng of construction or shall charge
    the Jo1nt Account Wlth an a::fdihqnal overhead charge as follows:
    A. Total cost less than $25,000, no charge.
    B. 'rotal _co:st more than $25,lroo. but less than $100.000, ....... .J....·----····1'0 of total cost.
    C. 'I'otal cost of $100,000 or more, ----~--------.-- % of the first $100,000 plus -------~-~---·· % of all oVer $100 000
        of total cost.                                                                                                      '
    'l"otal_cost shal~ mean the total gro.ss L'6st of any one project For the purpose of this paragraph the component parts
    of a smgle pto)ect shall not be treated separately and ~he cost of drilling wells shall be excluded.
 7. Amendment of Rates
    The speC!~fie raiies p;o~ided fo~ in this Section III may be! amended frotn time to time by mutual agreement between
    the Parties hereto tf, ~n practice, the rates are found to be insufficient· or- excessive.


                                   IV. BASIS OF CHARGES TO JOINT ACCOUNT

Subject to the further provls!ons of this Section IV, Operator wiU procure all Materi:U and services for the Joint
Properly. At the Operator!s option, Non-Operators may supply Material or services for the Joint Property.
 1. Purchases
    Material purchased and .servh:e procUl·ed shall ~e charged at the price paid by Operator after deduction of all
    discounts actually received.
 2. Material furnished fr:om Ope't'atol"'s. Warehouse or Other Properties
     A. New Material (.Condition "A")
           (1) Tubular goods, except line pipe, shall be _priced on a mnxim.um carload andjor barge load weight basis
                regardless of quantity tran"Sferred and equalized to the lowest prevaUi:ng _price t.o.b. railwny receiving
                point or r-ecognized barge terminal nearest the Joint Property where such Material is normally av&il-
                 able effective ~t date of transfer.
           (2) Line pipe shall be priced at the current replacement cost etfective at da~ of transfer !tom a reliable
                supply store nearest the Joint Property where such Material is normally i\lV'&ilable if the movement is
                less than 30,00Q PO\lllds. If. the movement is 30,000 poi.mds- or- more; it shall be priced on the saxM
                basis as· casing and tubing under Subparagraph ( 1) o! this p_aragrapb.
           (3) When the Operatot has. equalil:ed actual hauling costs as provided for in :Paragraph 5 of Section n
                Operator is permitted to include ten cents (10~) per hundred-weight on all tubular goods furnished
                from his stocks in lieu of loading and unlOading .cos~ sustained.
           ( 4) Other Material shall .be priced at the current replacement cost of the. same kind of Mat~rial, ef!ective
                at date of movement and f.o.b. the supply store or railw;r.y receiving point nearest the Joint Property
                where Material of the same kind iS normally availab~e.
           (5) The Joint Account shall not be credited with cash discounts applicable to priceS _provided for in tbis
                Paragraph .2 of Section IV.
    B. Used Material (Condition "B" and "C")
          (1) Material in sound. and S!!lrviceable c;:ondition and suitabl~ for reuse without reconditioning, sh~Il be
                classitled as Condition ''B" and priced at seventy-five per cent {76%) of the current price of new
                Material
          (2) Material which is not siP-table for its original function until after reconditioning shal1 be furnished to
                the Joint Account under one of the two methods defined below:
                 (a) ·Classified as Condition "B" and priced at seventy-five per cent {75%) of the curtent price of new
                      MateriaL The cost of reconditioning shall be absorbed by the Operator of the ttansferring property.
                {b) Classified as Condition "C" and prlr:ed at fifty per cent {59%) o! cunent pril!e of new Material.
                      The cost of reconditioning also shall be charged to the receiving property, provided Condition
                      "C'' vallle, plus cost o"f reconditioni:ng, doe: not exce-ed Condition "B" value.
          (3) Obsolete Material trr Material which cannot be classified aS' Con4ition "B" or Condit.ion "C" shall be
                priced at a value comme11$ura*e. with its use. Material n:o long'er suil;o;ble for its origfual purpose but
                usable for some other purpose, shall be priced on a Pasis comparable with that of items nonnally used
                for suCh oiher purpo$;e.
          (4) Material ii'lvolVing ~ection cOsts shall be ch;ug&i. at a.PPlicable.percentage of th~ curr~nt knocked-down
                price o_f new Material.
3. Premiunt Prices
    Whenever :M'ah!rlal i$ not readily obtainable at prlees specified in P;n:agraplls 1 a~ ·2 of. th~s-.Section IV because
    of national ~ergenclE!:s, strikes pr other unusual causes over which the OperaOOT has no control, ~he Operator
    may charge- the Joint Account for the required. Material at the Operator's actual cost incurred in procuring Sl.lch
    Material, in malting it suitable for use, a:nd irt- moving it to the Joint Property, provided, that notice in writing
    is- furnishe.;i to Non-Operatqrs 9f the propo~d charge prior to billing. Nop.. Operators for such Material. Each
    Non-Operator shall have the ri.ght.., by so electing and notifying Operator within 10 days_ after: re-ceiving notice
    from Operator, to furnish in. kind all or part of his share of such Material suitable for use aml acceptable to
    Operator.
4.. Warranty of Material Furnished by Operator
    Operator does not warrant U1e. Material furniE"hed. In case of defe~tive Material, credit shall not be pan..-<ed
    to the Joint Account until adjustment' has been received by Operator from the manufacturer& or their agents..
5. Equipment and Facilities Furnished by Operator
    A. Operator shall ch$1'l}e the J_oint Aeeount for use_ of equJpmertt and !a~1ities at rates comm~~l'a1.e wilh
          cost of o-wnership and operation. Such rates shall include cGJst of maintenanc_e, repairs, ot.Mt Operating
          expense, insurance, taxes; depreciatiOn, and int-erest on investment not to e~eed six Per ~eX'It (6%) per
          annum, provided such rates shvll not exceed Uwse currenUy pr.evailing. in the imme~iate area _within which
          the Joint Property is located. In lieu of r.ates based on costs o:f oWners_htp ahd openrt1on of. eqU'Lj)ment, other
          than automotiv_e, Operator .may elect to use comme.rc1a1 r.a·teS prevailtng ih the area of the JQint Pt·o_pcrly
          less 20%; for autonloti'1"e equipment, rates as published by the J?etroleum l\tiofor Transport Assocwtion
          may be used. ~tes for laboratory services shall not exceed those currently prevailing iJ: performed by

                                                           -5-

                                     ----------619----- ----------·
I             outside service laboratories. Rates for trucks, tractors ana well service units m.ay include wages and ex-
              penses of operator.
          B. Whenever requested~ Operator Shall inform Non-Opentors in advance of the rates it propQSes to charge.
          C. 'Rates shall be revised a.g,,d adjusted from time to time when found to be either· excessi""~ or insufficient,

                                                  V. DISPOSAL OF MATERIAL

I    The ?perator may purchase, but shall be under no obligation to putehase, interest. of Non-Operators in surplus

I.   CQndH;Ion "A" or "B" Material. The disposition of surplus Controllable M~terial nut purchased by Qpel'!ltcil' shall
     be agr~d i~ by Operator and 'N'on-Dper!ltor~, provided Operator shall dispose of' normal accumulations of ju~k and

I
     scrap- Material either by transfer or sale from Joint Property.
      1. Material Purchasc;d by the Oper:ator or Non-Operatou.
I         Material purchased by either t:he Opetator or N~;~n-Operatots shall be credited.by thll!: Operator to the Joint AcCount
          !:ot- the month. in which the Material is remov~ by t:he purchaser.
      2. Division in Kind
          DiviSion ?f Material in kind, H made between Opet·atm• and NOn-Operators, shall be _-in proportion to the res;ective
          interests m such Material. The Parties· Will thereupon be charg-ed individually with the value of the M.a.terial
          receivcil or receivabl!!;~ ·Proper credits· sl1all be made by the Operator to the Joint Account.
      3. Sales to: Outsiders
          Sales to outslders of Material. from the Joint- Property !:hall be. credited by Operator to the Joint Accow1 t at the
          net amount collected by O;>erator from vendee. Any claim by vendee related to such sale shall be charged back
          to- the Joint Account if and when paid by Operator.

                    VJ.   BASIS OF PRICING lUATERIAL TRANSFERRED FROM                      JOINT     ACCOUNT

     Material ~urchased by either Operator or Non-Operators or divided. ii)_ kind,. unless agreed to ~Y OPerator and Non-
     Operators shall be priced on the following l;:!asis:
      L New Prico Defined
         New pr-ice as used in this- Section VI shall be the price specified fot new Material in Section IV.
      2. New MatCI'iat
         New Material {Condition "A"), being new Material procured for the JOint Property but never used1 at one
         hundred per .cent (100%) oLcurrent new price (plus sales tax if any),
      3. Good Used Material
         Good used Material (Condition "B"), being qsed M3te.Tial in sound and serviceable condition, suitable for- reuse
         without reconditioning:                                           '
         A. At seventy-five per cent (7S%) of current new price ii Material was charged to Joint Attount as nC!w, or
         B. At sixty-five per cent (65o/c) at current new price if Material was originally charged to the Joint Account
              as secondhand at seventy-five per cent (75%) of new price.
      4. Other Used Matel'ial
         Used Material (Condition "C"), at fifty per cent (SO%) of cummt new price, belD.g used Material which:
         A. Is not in sound and· serviceable condition but suitable for reus¢ after reconditioning, or
         B. Is serviceable for original function but not suit~ble for reconditioning.
      5. Bad-Order Material
         Material (Condition "D"), no longer suitable for its original purpose without excessive repair c-ost but Usable fut·
         :rome other pUrpose at a price Comparab-le with that of It-ems normally used :or su<!h other Pllrpose.
      6. Junk Material
         Junk Material (Condition "E"), being obsolete and scrap Material. at prevailing prices.
      7. Temporarily Used 1\-hterial
         When U~e use of Material Is temporary and its servlce tq the Joint Pro';)erty does not justify the reduction in
         price~ provided tor in Paralinph 3B of t-his Section VI, such. Material shall be priced on a basis that will l~3n~·
         a net charge to the Joint Account consistent with the value of the servit!e :rendered.

                                                        VII. INVENTORIES

     The Operator shall maintain detailed records of Controllable l\IJaterial.
      1. Periodi<: Inventories, Notice a'nd Representation
          At reasonable inter\-·als, inventori<!$ shalt be taken by Operator of 1he Joint Account Controllable Material.
          Written notice of intention to tak!! inventory shall be. given by Opera,tor at. least thirty (30) days before any
          inventory is to begin so that N-on-Operators may be repte."ented when .any inventot·y iS ta·ke'11. Failu1'e oi
          Non-OpC'I'ators to be 'represented at an inventory shall bind N:on-Opetators to a<;cept t-P.~· )nv~nt~ry -taken by
          Operator.
      2.. Recoriciliatio'n and Adjustntent of Inventories
          Recon~iliation of inveutory with the Joint Accoun-l s-hall be made, and n list qf o'lerag~s and sho~'tag!!s sh<~-ll be
          furnished to the Non-Operat-ors. Inventory adjwtmcnts shaH btc! made by Operator vnth the .Tomt Accou.nt for
          overages and shor~ages, but Operator shall be held accountable to Non-Operators only iox- shortages due tQ lack
          of reMonable diligence.
      3. Special Inventories
          S~ial Inventories may be taken whenever there is <:~nY sale or change of interest in the Joint Property. It shaH
          be the duty of the party selling tG notify all other Parties as quickly u possible atter the transfer of interest
          takes place. In such cases, both th~ seller <~nd the purchaser ·shall be governed b:y such invent-ory.
      4.. E~pcnse of Conducting Periodic Inventories
          The expense of conducting periodic inventories shall not be charged to the Joint Account unless agreed to by
          Operator and Non-Operators.
I                                                              -6-


I---···--·--                                                      620
                          EXHIBIT 11 D 11


           Attached to and made a part of that certain
           OpeJf..~£t~~~~~~~~~n£'0dated lJecember 1      1974,
           between ~~B ffa~ £;;   ana.,       Operator, and
           Aztec Oil 6 Gas Company          , Non-Operators.




As to all operations hereunder, Operator shall carry insurance
.for the Q~nefit and protection of the· pa·rties hereto as .follows:


    (a)      Workmen's Compensation Insurance as contemplated
           - b-y the laws o£ th,e State oi Texas ~'Qd ~ncluding
             an Employer's Li~abilit_y- limit of- $100, 000 each
             accident.


     (b)     ComprehensiV'~ General Liability Policy 'With
             Bodily Injury limits of $100, 000 each. persc;n
             and $300,000 each occurrence, and a Property
             Damage limit of $100, 000 each occuTrence and
             subject to an ag-gregate limit of $100, 000.


     {c)     CompreP,.ensive Automobile Policy covering all
             owned, non-owned and hired automobiles for
             Bodily Injury limits o! $100, 000 each person
             and $300, 000 each occurrence, and a Property
             Damage limit o£ $190, 000 each occurrence.


     (d)    Umbrella Liability providing a $1, 00-0,000
            Combined Single limit as excess of the Bodily
            Injury and/or Property Damage and/or Employers 1
            liability limit set forth in (a), (b) and {c) above.




AU damage or injury to the joint prope·rty not cove red by
insuranc~ required by this agreement shall be bo.t•ne by the
partiea. hereto in proportion t:o their interest. thetein, The
liabillty, if any, o£the parties he.reto .in damages fot claJ:rns
growing out o! bodily injury to or death o! third partie·s, or
injury to or destruction of property o! third parties, re.sulting
!rom the. ope-rations, conducted- hereunder not covered by insur-
ance required by this agreement shall be born,e in proportion
to their interest in the Unit A't'ea and each party individually
may acquire ·such additional insurance a.s it deems proper to
protect itself against such claims.




                                     621
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                                                       622
                                                                           CUR\<.AN R. CAMPBELL, INC.
                                                                       l!tll\ tti\f'll\. Ol"   ·r Ht~   SOl• I tiWl";:-;T tH;II DI~G llO\'.:noN. TliXAS 1100~
                                                                                                                \"Till ~~.(.J).l.II'J




                             S:O.:...rt11-
                             ·N91\.""'fti ZULCU PROSPECT

                                                                 lMES COUNTIES.                TEY~S



                             l1r. W. A. NotWtl\Y
                             8106 Mulli.ns
                             Houston, Texas , 77036

                                       This letter is tO evidence and confirm an agreemen~ between
                             you (Novotny) and the undersigned (CaQpbell) as !allows:

                              l.     (a)      As used herein, the term "Existing Burdens" means all royalties
                             and overriding royalties burdening any lease re.fcrred to he·rei.n at the..
                              time it is acquired by Campbell or its s\lcces.S·ors o:r assigns.

                                  (b)   As u!>c.d herein, the t.erm u~.rea of Hutual lnterest 11 moans the
                              area outlined in blue on thc plat attached h·ercto and made .a part hereof
                              and signed by the. President of Campbell for purposes of id"entificar.ion.

                              2.         As t.o all leases acqui;red by C:a-rupbell, its s\lcc-essor.s or assigns,
                              on actea.ge loc.a~ed '-'!thin the Area of Mutual Interes·t. 1 N.owotny shall be
                              assignad the following overrid-ing royalties:

                                        (i) lf the ~ist.in& Burdens are 1/Sth or less • then the over-
                              riding royalty shall be l/24th of 8/8ths.

                                       (ii) If the Existing Durdcns are g;r·eate:r than ~/8th. but. not
                              greater than l/Gt.h, t.hen the ovcrridin~ royalty shall be l/48th of 8/8ths.

                                      (iii)  H k~x.istinr, Burdens a-re .greater than 1/6th, then Nowotny.
                              shall not be entitled t.o s.ny ovex(iding royalty .

                              .3.          All assignments of ove:rridj:t\& toyaltiC!s to be made under t:.\\e
                              p1·ovied.on.s hereof Shall be made·without: warranty; either expressed Or
                              iutplied, and (·ach ctsstsnoient shall rorovide, as to each lease. that should
                              the Lessor, tli"erein own less than the entire fee simple estar.e in the oil,
                              ~as and other r:li.nerals in <Jnd under the land covered by the lease. t.hen
                               the overriding r.oyalties therein assit.~led shall he reduc.cd 1)roportionately
                              and shall be p;)ya.ble in Lhe proportions· wh ic·h. the Lcs$ors int·erest in t.hf'!
                              oil, gas and otl1cr iitinetnls bears to the entire iee simple estate thc.r-e.ill-•




..   ···----·. --..........···~·-~ .... ··-----~··-··· ·-···-· .··~ .. -   ~---··-·-----··-··--         --·----------··-' .....

                               Exhibit "E 11 t,o Lett·er Agreement between Buttes Resources Company
                               and Aztec Oil. & Gas Comp·any, dated ,~eE' J..F 1!»4-•
                                                                                               ..!.\-~<1/ol\.'i"\,     l~"1(""




                                                                                    623
         ''              \

.,




                             :~orth   Zulch Prospect.
   ,.t                       ~!.ldison - Brazos ...:: Gri.uies Counties. T-exas
 '.·

                             .tt.    It i-s further expressly provided and ~greed that ch~ Area
                         of Hutual In1:e-rcst and the: 'tight a(_ NO'i."'tny to receive. assignments
                         of ovenidi.n.g roy.a:lt.:I.es in Accor:dance -with the provisions cf this
                          l-etter agtee.mcnt shc.ll rctc..'\in in effect for the .same pQ·riod of til'lle
                         -that the Area of Nutual Interest sp-ecified in Operating Agree111ent
                             remains in effect.

                             5.           Campbel~    to pay NoWotny .$5,000.00 vhen well is drilled and
                             losged ~

                             6.        This agreement shnll be binding upon and shall inure to
                             the benefit of Nowotny and Campbell and their respective heirs,
                             successors and assigns.

                                       If the for~going i~ your understanding o"f our c.gree1nen"t,
                             please indicate your approval and aCceptanct,>; by si-gning t.he .attached
                             copy hereof at the place pr:ovided and returning sallle to. Campbell.

                                                                                    Yours ve1-y truly,

                                                                                    C:UP.RAN R. CA.'iP.BELL, INC.


                                                                                      /JJ           ' /[•      . ' ·i
                                                                                     Cd~!1r1 (J~L''cl!<£(
                                                                                      Curran R. Gamp.bell,   ~resi-d-ent
                              APPROVED A."iD ACCEPTED:
                              this_;.._day of~,~i-~-' 1914.



                                        W. A. )1owotny....-




                                                         ......... - ....   ·~-~   .. ·-·-··-- ·---.-----~....,--~~-·---....·-----·-~···




          '   ........

                                                                                   624
                                                                                                                                               ,· f
                                                                                                                                        T II: MA11:51Qt".-l


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                                                                                                               625                                       -- .·
Tab 2




  Tab 2
,.'\o ··; ...   _..



                                                                                                       VOL   417 ""' 709
                                       Well Name: BUCHANAN 1, GIBBS BROS. 1, WILSON JAMES 2 AND WILSON JAMES 3


                                                                                                             1.2235
                                                           ASSIGNMENT AND BILL OF SALE

                      STATEOFTEXAS                       §
                                                         §                 KNOW ALL MEN BY THESE PRESENTS THAT:
                      COUNTY OF MADISON                  §

                      SOUTMl.AND ROYALTY COMPANY, a Delaware Corporation, whose address i& 400 N.
                      Sam. H<>uston Parkway Eas~ Suite 1200, flouston, Texas noso C'Asslgnor"), for and in
                      conoiderallon of ONE flUNDRED DOLLARS ($100.00) and other good and valuable
                      conskieration, receipt of which is here acknowledged, does hereby assign, transfer, grant
                 ~              convey         unto                                                  whose      address     is

                      ("Auignee"), an of Assignor's right, tiDe and interest in and to the following:

                             0)             The oil and gas leases, leasshold interesls, righ!a and interests a1bibutable or
                                            aBocable to the oil and gas leases or leasehold in.terests by virtue of poo6ng,
                                            unitization, communitiUtion, and operating agreementS, Hcenses, pennits, and
                                            other agreements, all more particularly described on ExhiM "A' hereto, Hmfted
                                            as to the lands and depths indicated on Exhibft "A" (collectively the 'Leasss"),
                                            together with identical undivided interests in and to all the property and rights
                                            incident thereto, including, but not limited to, a!\ rights tn, to and under all
                                            agreements, product purchase and sale contracts, leases, permits,
                                            rights..of-way, easements, licenses, farmouts, options, orders, and other
                                            contracts or agreements of a similar nature to the extent same relate to the
                                            Leases;

                             (ii)           The wells, equipment, materials and other personal property, fiXtures and
                                            improvements on the Leases as of the EffecUve Date (as hereinafter def~ned),
                                            app1.:.1rtenant thereto or used or obtained in connection with the Leases or with
                                            the production, treatment, sale or disposal of hydrocarbons or waste produced
                                            therefrom or attributable thereto, and all other appurtenances thereunto
                                            belonging (the "Equipment"); provided, however, Equipment shall not include
                                            vehicles, communications equipment, tools, warehouse stock, compressors or
                                            leased equipment located on the Leases;

                             (iiij          All unitization, communltization, pooJing, and operating agreements, and the
                                            units created thereby which relate to the Leases or interests therein described
                                            on Exhibit "A" or which relate to any units or wens located on the Leases,
                                            including any and all units formed under orders, regulations, rules, and other
                                            offiCial acts of the governmental authority having jurisdiction, together with any
                                            right, title and Interest created thereby in the Leases; and

                             (iv)           All of Assignor's rights to claim revenues or gas resulting from any
                                            underproduction attributable to Assignor's interest in the Leases.

                      Al·of Assignor's interest in the above-mentioned assets is herein collectively mferred to as the
                      "Interests" .
                  .Assignpr reserves and retains unto itself from the Interests those certain lands, leases.
                  ;properties, interests, leaSehold rights, depths or formations as .specifically noted and reflected
                   on:~ibit ~'A" ,and the right of joint use of any agreements ass1gned hereunder where needed
                   f_or tAe exp~n, d~Welopment, and operation of any rights or acreage (either horizontally or
                   \fel'ti.e:a&ly) retaine(i by Assignor or where needed in order to exercise ancillary rights in, or for
                  . - to, adjoinlng or nearby properties .owned by Assignor.
                       TO HAVE AND TO HOLD the Interests unto Assignee, its successors and assigns, forever,
                      :s.u_bject to  -the
                                    follow!~ terms and conCrtions:



                      SM:ASSIGNR.DOC
                      ~~8130194



                                                                                                                11-~\§0rract
                                                                                   EXHIBIT                      Copy of OrigineJ
                                                                                                                Rled in Madison
                                                                                                                County Clerk's Office
                                                                                     z~
                                                                           1029
                            -                      .. .... ,.
                                                     ,
                                                                                            -
          •.,




                1.    This Assignment is a~pted subject to, and Assignee agrees to assume and perform
                     any and all of the iabl6ties and obUgations. or allegad or thraatonad liabilities and
                      obligations, of Assignor under the Interests and existing on and gas teases
                      assignments, operating agreements, product purchase and sale contracts leases'
                     permits, rights--of-way, ficenses, easements, options, orders, and a~y                  oth.,;
                     agreements or contracts ~utable to and affecting tha Interests, Including but not
                     1111'11ted to, any and aD obligations (I) to pay and deiver royalties, overr1dlng royelties,
                     non-participating royalties, and other burdens on production, (ii) In connection with or
                     arising out of balancing of overproduction or underproduction from the Interests and
                      (~i) in compliance with aU laws and governmental regulations wtth respect ~ the
                      Interests including, but not llmltad to, the lawful plugging and abandonment of oil and
                     gaa wells and the restoration of the surface of the land as nearly as possible to its
                     prelease condition, whether or not such liabilities and obligations, or aUeged or
                     threatened liabirlties and obligations, are caused by Assignor's negligence and 'Mlether
                     or not such liabilities and oblgatlons, or alleged or threatened liabiUUes and
                      obligations, arise .during the period of, or from, or In connection With Assignor's
                     ovmership or operation of the Interests. Without limltatlon of the foregoing, Assignee
                     agrees to assume and perform any and aD of the UabilitieA and obligations, or aUeged
                     or threatened liabilities and obligations, of Assignor for claims, losses, damages, costs,
                     expenses, diminutions In vatue, suits, and causes of action of any ldnd or character,
                     with respect to the environmental condition of the Interests, regardless of when the
                     events occurred that caused such condition to exist and whether or not caused by or
                     attributable to Assignors negligence. Assignee shall, to the fullest extent permitted by
                     law, protect, defend, indemnify and hold Assignor and its directors, officers,
                     employees, agents and representatives of each of them, harmless from and against
                     any and all claims, losses, damages, casts. expenses, diminutions in value, suits,
                     causes of action or judgments of any kind or character with respect to any and all
                     liabilities and obligations or alleged or threatened liabilities and obligations, including,
                     but not limited to, any interest, penalty and any attorneys' fees and other costs and
                     expenses incurred in coMection with Investigating or defending any claims or actions,
                     whether or not resulting in .any liability, attributable to or arising out of (I) ownership or
                     operation of the Interests subsequent to the Eff.ectlve Date, and (ii} Assignee's
                     assumption of any !iabfiity or obligation In accordance with this paragraph.

                     THE INDEMNIFICATION, RELEASE AND ASSUMPTION PROVISIONS PROVIDED
                     FOR IN THIS ASSIGNMENT SHALL BE APPLICABLE WHETHER OR NOT THE
                     LOSSES, COSTS, EXPENSES AND DAMAGES IN QUESTION AROSE SOLELY OR
                     IN PART FROM THE GROSS, ACTIVE, PASSIVE OR CONCURRENT
                     NEGLIGENCE, OR OTHER FAULT OF ASSIGNOR.

                2.   THIS ASSIGNMENT AND BILL OF SALE IS EXECUTED, DELIVERED, AND
                     ACCEPTED WITHOUT ANY REPRESENTATION, WARRANTY OR COVENANT OF
                     TmE OF ANY KIND OR NATURE, EITHER EXPRESS, IMPLIED OR STATUTORY.
                     THE INTERESTS ARE BEING CONVEYED AND ASSIGNED TO AND ACCEPTED
                     BY THE ASSIGNEE IN THEIR "AS IS, WHERE IS" CONDillON AND STATE OF
                     REPAIR, AND WITH ALL FAULTS AND DEFECTS, WITHOUT NN
                     REPRESENTATION, WARRANTY OR COVENANT OF ANY KIND OR NATURE,
                     EXPRESS, IMPLIED OR STATUTORY, INCLUDING, BUT NOT LIMITED TO,
                     WARRANTIES OF MARKETABILITY, QUALITY, CONDITION, MERCHANTABILITY,
                     ANDIOR FITNESS FOR A PARTICULAR PURPOSE, ALL OF WHICH ARE
                     EXPRESSLY DISCLAIMED. IT IS UNDERSTOOD AND AGREED THAT ASSIGNEE
                     SHALL ACCEPT ALL OF THE SAME IN THEIR "AS IS, WHERE IS" CONDITION
                     AND STATE OF REPAIR AND WITH ALL FAULTS AND DEFECTS, INCLUDING,
                     BUT NOT LIMITED TO, THE PRESENCE OF NATURALLY OCCURRING
                     RADIOACTIVE MATERIAL (NORM).     IN ADDITION, ASSIGNOR MAKES NO
                     REPRESENTATION, COVENANT OR WARRANTY, EXPRESS, IMPLIED OR
                     STATUTORY, AS TO THE ACCURACY OR COMPLETENESS OF NN DATA
                     DELIVERED TO ASSIGNEE WITH RESPECT TO THE INTERESTS, OR
                     CONCERNING THE QUALITY OR QUANTITY OF HYDROCARBON RESERVES, IF
                     AtfY, ATTRIBUTABLE TO THE INTERESTS, OR THE ABILITY OF THE INTERESTS
                     TO PRODUCE HYDROCARBONS, OR THE PRICES WHICH ASSIGNEE IS OR
                     WILL BE ENTITLED TO RECEIVE FOR ANY SUCH HYDROCARBONS.

                3.   TO THE EXTENT APPLICABLE TO THE INTERESTS OR NN PORTION THEREOF,


                                                                  2
'I                                                                                                ATrue and Correct



(---~------~--~~-----------------------~--yct~O-ri~-M-1----­
                                                                                                  Filad in Madison
                                                                                                  County Clerl<'s Office

     ~·

                                                                1030
                                                                                                   , .•.>.:..,:


                                                                                               '   ...



                                                                          vo:   417 "" 711
            ASSIGNEE HEREBY WAIVES THE PROVISIONS OF THE TEXAS DECEPTIVE
            TRADE PRACTICES ACT, CHAPTER 17, SUBCHAPTER E, SECTIONS 17.41
            THROUGH 17.63, INCLUSIVE (OTHER THAN SECTION 17.555, WHICH IS NOT
            WAIVED), TEXAS BUSINESS & COMMERCIAL CODE.

     -4.    This Assignment and Blll of Sale shall inure to the benefit of and be binding upon the
            parties hereto, their heirs, successors and assigns.

     5.     This Assignment end Bill of Sale may. be executed by Assignor and Assignee in ony
            number of counterparts, each of which shan be deemed an original instrument, but all
            of which together shaJI e;onstitute one and the same instrument.
                                                                   4"'-
     IN WITNESS WHEREOF, this instrument is executed       the-.:!_        d&y of September, 1994,
     but shall be etrecthle as of lhe 1st day of September, 1994 (the "Effective Datej.
                                                       ASSIGNOR
                                                       SOUTHLAND ROYALTY COMPANY
     ATTEST:
                                                       By~
     ~---------------                                  Name: Kent Beers
                                                       Title; Attomey-jn-fact

                                                       ASSIC¥NEE

                                                        ~S>s> ~"'L~pu.'-,t'j <) c'S>~~~. . ~.
     ATTEST:


     ~---------------




·i
 i




                                                                                                                  I




                                                                                     A True and Correm
                                                                                     Copy of OriginaJ
                                                                                     Aled in MadisOn
                                                                                     County Clerk's Office


                                               1031
     ·------~-
                                     -
        1
                         'IOL    4.17 t"'b 712
        I            STATE OF TEXAS                      §
                                                         §
                     COUNTY OF HARRIS                    §

                            BEFORE ME, the undersigned au1hority, on this day personally appeared Kent Beers,
                     Attorney-in-Fact for Southland Royalty Company, a Delaware Corporation, known to me to be
                     the person whose name is Subscribed to the foregoing Instrument, and acknowtedged to me
                     that he executed the same for the purposes ancl consideration therein expressed and in the
                     capacity therein &tilted.                                             /7/J
                     GIVEN UNDER MY HAND AND OFFICIAL SEAL OF OFFICE on this~ day of September,
                     1994.




                                                 CORPORATION ACKNOWJ EOGMENT

                     STATE OF TEXAS                      §
                                                         §
                     COUNTY OF HARRIS                    §
                                BEFORE ME,    the undersigned authority,    on this day     personally appeared

                     ~==;;;==;;=~;;=;,;;;:;;;=;=~;;;;~;:;;~~~~~~~~
                     ~                                                              known to me to be
                                                                                                   of
                     the person and officer whoSe name Is subscribed to the foregoing instrument. and
                     acknowladged 1o me that he/she executed the same for the purposes and consideration
                     therein expressed and in the capacity therein stated as the act and deed of said corporation.

                           GIVEN UNDER MY HAND AND OFFICIAL SEAL OF OFFICE on this _ _ day of
                     September, 1994.

                     MY COMMISSION EXPIRES:
                                                                Notary Public in and for the S1ate of Texas


                                                         ATTORNEY-IN..fACT

                     STATEOFTEXAS                 §
                                                  §
                     COUNTY OF HARRIS             §

                     BEEOR~     ME, the undersigned authority, on this ~}"'rsonally,JI!'~ed~~
                     ~1( I l     )')t,          , Attomey·<r>-Fact for ~ ~I                       llalll!ln/J
                     known to me to be the person whose name is subscribed to the foregoing Instrument~ :1
                     acknowledged to me that sheJhe executed the same for the purposes and consideration
                     therein expressed and In the capacity therein stated.

                     GIVEN UNDER MY HAND AND OFFICIAL SEAL OF OFFICE on this              &    day of September,
                     1994.




                                                                   4                                 ATrue and Gorrec\
                                                                                                     Copy at Original
                                                                                                     Filed in MadisOn
-~                                                                                                   Gountv Clerl<'s Office
     . J.

            ---,------~-____.....,.-.,~I
            '.. \·                                            1032
                '
                                                                                              ·---------

                                                                                                                          EXHIBIT A
             Page 1   or E:dl1bit
             CO filE IlL ..•..• lYPE lNSTitlKNT .•... IMST DAlE. GRAifltfllESSO!t•..•.•••...••          ............ GRNITEE lESSEE ............................... RECilmlNB DATA. LEGN. DESCRlPTlOII .............. ,, ......... .
             OZ1187QO               Oll NIO Gt!S LEASE   10/08114    HENRY K.. llOOK, ET UX                          CURRAII R. CAMPBELL. INC,                        2:11661 BRAZOS   943 IGES, IIH IR LESS. t£SCRIBEO IIIIDSE.
                                                                                                                                                                      COONTY
(
    I        021186110

             02.118900
                                    OIL NIO GAS l.EASl

                                    OIL NO GAS LEASE
                                                         08/lA./74

                                                         08/29/74
                                                                     GIBBS BI!OD£iiS Alii CCI4PAHY

                                                                     JAI£5 D. WILSON, IND. & IND. EX.
                                                                                                                     CUJIAAH R. CAMPBEll. lltC.

                                                                                                                     CURRAH R. CAMPBEll. INC.
                                                                                                                                                                      203/414 tMnlSO. 184.1 ACRES, lfliE OR lESS, DESCRIBED IN
                                                                                                                                                                      crutnY


                                                                                                                                                                      ~·~LEASE.
                                                                                                                                                                                      l£ASE.
                                                                                                                                                                      203/-464 HNJISON 20n.33 ACREs. NlRE OR USS, DESCRIBED IN


             02119500               Oll NtD &AS -LU.SE   10111174    RA'OOND B.   B~.         ET UX                  COORAN R. CAMPBELL. IN.C.                        211679 BRAZOS
                                                                                                                                                                      COUHTY
                                                                                                                                                                                       222.06 ACA!S, tO\E OR LESS, DESCRIBED IN
                                                                                                                                                                                       \.EASE.
                                                                                                                                                                                                                                                              1
                                                                                                                                                                                       LESS H«J EXCEPTED FROH 11£ AIIOVE ME TilE
                                                                                                                                                                                       lA.1m ATlRIBliTABLE 'Rl 1liE tl. K. 0004:1/EU.S.J..
                                                                                                                                                                                       JAMES D. Wll.SOH #4 ~!ELL MD ll!E. BUCIIAIWI w:
                                                                                                                                                                                       wru..
                                                                                                                                                                                                                                                          J
                                                                                                                                                                                                                                                          ,j


                                                                                                                                                                                                                                                          'I  I
                                                                                                                                                                                                                                                              j
             ASSOCtmP WEl!.S •
             PROPERlY MJIIBER ••• DP WELL HUMBER WELL NI\ML .................. , , ••••..•••••••..••. • LOCATION .........              ·························
             21188                                  GIBBS BROS 1                                         A. NIJNLEV SvY., A·l76
             21189
             21189                  ""'
                                    1409,81464
                                    85900
                                                    WILSOM JN£5 0 13
                                                    Wll.SOM JAHES 0 12
                                                                                                         JESSE K. OAVIS SVY. A·103
                                                                                                         J£SSE K. DAVIS SVY., A-103
                                                                                                         twUllN NEVELL£ SVY .. A-185
             21195                  6900            BOOW!AIIl                                                                                                                                                                                ~

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                                                                                                                                                                                                                                             -.l
        g:ng»
        c     8:~
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                                                                                                                               1033
      ~·----~---·   _ .. --· ....
                     _;..,          '
                                        -
                                        ...
                                                          -·~·-·'"'"···~.~----.       -
                                                                                                                             .!< .•




                                                                        FILED
                                                             IJ~'                 a/      •

                                                                   . $£P 2 I 1994




          ~ :,~:~~Fo;•;:,SON }G 'i•,;~if.:~\lq,LEMAN, O«k of                                              th•   CouniY c.,.,'"'"'     I
             for said County do hervbv certify that the ab(We   \n~~L;~~~~:i:~ ~~d ihe ~-
                                                                                     ,day o f ¥ - - . 19 9. ¥.'.
             "" fllodfoc """din mv offi" tho        -::~-
                                                      "'v        of~ 19. :·'~'· .. " . . /1,·: ". 'i'. .... o'dock
              .. ,(J.....m.anddiJiyrecordedthe, ....~ayof. - - -   •· ... 19 .. f. ... at ...~P.6...... o'dock
                    /J
               ... "'1:               A~(:;A.•I! •.I.Jl acordsohaidCountv,inVol..,
                             .m.in . •W};:                             ~- .,-,-~7                                "Q"
                                                                                   • . , .. , .. , ofPatp!S ,ll ./.
                WITNESS my hand and seal of said office,    this~~-~- .dtH of. ~;(j;A 4!4"""".... .,,19 .?f. ... ,
                                                                              f)!k:_ln.~
                                                                                              County aerk., Madison County, Texil$




,_.                                                                1034
Tab 3




  Tab 3
                                                    No. 12-13130-012-10

       BURLINGTON RESOURCES OIL & GAS                          §        IN THE DISTRICT COURT OF
       COMPANYLP,                                              §
                                                               §
                             Plaintiff,                        §
                                                               §
       V.                                                      §
                                                               §
      PETROMAX OPERATING Co., INC., MD                         §       MADISON COUNTY, TEXAS
      AMERICA ENERGY LLC                                       §
      f/k/ a/WOODBINE ACQUISITION LLC,                         §
      PETRO TEXAS LLC, CH4 ENERGY II,                          §
      LLC, and TEXCAL ENERGY SOUTH                             §
      TEXAS, LP,                                               §
                                                               §
                             Defendants                        §       12TH JUDICIAL DISTRICT

                                     ORDER GRANTING DEFENDANTS'
                             MOTION FOR SUMMARY JUDGMENT ON TITLE ISSUES

            On this day came on for consideration Defendants Motion for Summary Judgment

 on Title Issues (the "Motion"). This Court having considered the Motion, all responses

 and replies, together with any exhibits, and the arguments of counsel, has determined

 that the Motion should be, and hereby is, GRANTED.

            It is therefore, ORDERED, ADJUDGED, and DECREED that:

 1.         Burlington does not own any interest in the AMI described in the 1975 Letter
            Agreement made the basis of this suit; and

 2.         The AMI provision in the 1975 Letter Agreement has terminated.




            Signed this         /0     day   of--+'~""------'--'-'-'----'----~·   2014



                                                              ~
                                ...1
           Filect~his        ' "- Day
       of      i
               ,r_-~•'iL            • I
                               ,20/C,·
, ' \e at~··'·         ~
        . · 1• 0<. ~O'clock                                 Judge Presiding
      -l       t{_. /.5 ,_ - . Cieri<
            L<_ c      · -
 t2fh 1278th Judicial District c 0 ,, .
   MADISON COUNTY' r",:            c
                             C.\.. ..._.

  - - - - - - D·s•·· ·                                          1617
Tab 4




  Tab 4
                                No.12-13130-012-10

  BURLINGTON RESOURCES OIL & GAS            §       IN THE DISTRICT COURT OF
  COMPANYLP,                                §
                                            §
               Plaintiff,                   §
                                            §
  v.                                        §
                                            §
  PETROMAX OPERATING Co., INC., MD          §       MADISON COUNTY, TEXAS
  AMERICA ENERGY LLC                        §
  f/k/ a/WOODBINE ACQUISITION LLC,          §
  PETRO TEXAS LLC, CH4 ENERGY II,           §
  LLC, and TEXCAL ENERGY SOUTH              §
  TEXAS, LP,                                §
                                            §
               Defendants                   §       12TH JUDICIAL DISTRICT

        ORDER DENYING BURLINGTON'S MOTION FOR PARTIAL SUMMARY
                JUDGMENT SEEKING VARIOUS DECLARATIONS

       On this day came on for consideration Burlington Resources Oil & Gas Company

LP's ("Burlington") Motion for Partial Summary Judgment Directed to Defendants

Woodbine and PetroMax and Seeking Declarations that: 1) the Area of Mutual Interest

of the January 7, 1975, Letter Agreement Remains in Force and Effect, 2) Burlington

Jointly Owns a Leasehold Interest Within the Area of Mutual Interest and 3)

Burlington's Rights Under the 1975 Letter Agreement and AMI Are Not Subject to

Reduction or Limitation Based on the Amount of Burlington's Leasehold Ownership

(the "Motion"). This Court having considered the Motion, all responses and replies,

together with any exhibits, and the arguments of counsel, has determined that the

Motion should be, and hereby is, DENIED.                                                ,_!._
                                                                                 ) i ',......_
                                                                    Filed Tpis   1         Day
                                                                -~ of    (~ -e      , 20 I~·
                                                              ·.. \ at£. ~l~:L m O'clock
                                                                 '//..:1 oc.J · ~ ·        . Clerk
                                                               12th /278th Judicial District Court
                                             1618
                                           -1-                 MADISON COUNTY, TEXAS
                                                               _ _ _ _ _ _ Deputy
Judge Presiding




  1619
  -2-
Tab 5




  Tab 5
Mar131512:48p
                                                                                            p.4




                               CAUSE NO. 12-13130-012-10


          BURLINGTON RESOURCES OIL &         §        IN THE DISTRICT COURT OF
          GAS COMPANY LP                     §
                                             §
         v.                             §
                                        §
          PETROMAX OPERATING CO., INC., §             MADISON COUNTY, TEXAS
         WOODBINE ACQUISITION, LLC, n/k/a§
         MD AMERICA ENERGY, LLC,         §
         PETRO TEXAS, LLC, CH4 ENERGY II,§
         LLC, and TEXCAL ENERGY SOUTH §
         TEXAS L.P.                      §            12TH JUDlCIAL DISTRICT


                    ORDER ON JOINT MOTION TO SEVER AND ABATE


                The Court, having considered the Joint Motion To Sever And Abate,

         has concluded that the motion should be granted and hereby renders the

         following order:

                It is hereby ORDERED, ADJUDGED and DECREED that the

         following claims asserted in this case by the following parties are hereby

         severed and made the subject of a separate action styled Burlington

         Resources Oil & Gas Company LP v. PetroMax Operating Co. Inc.

         Woodbine Acauisition. LLC n/kla MD America Energy, LLC, Petro Texas,

         LLC. CH4 Energy II, LLC, and TexCal Energy South Texas L.P., in the 12th

         Judicial District Court of Madison County, Texas, and having docket

         number 12-13130-012-10-A:
                                                       Filed This      /   q     Day
                                                      ot 7)~ ,20 IS
                                                         at.~mf'clock
                                                                    ~          .•• Clerk
                                                   12th I 270th Judlcl~;~l District Court
                                            1640
                                                     MAOISON COUNjf. TEXAS •                      . "'
                                                      -·-      ~ s~ANNED
Mar 13151248p                                                                     p.5




                a)   Counts 1, 2, 4 and 5 of Defendant MD America Energy, LLC
                     f/k/a Woodbine Acquisition LLC's First Amended Counterclaim,
                     filed on September 26, 2014;

                b)   The following portions of Count 3 of Defendant MD America
                     Energy, LLC f/kla Woodbine Acquisition LLC's First Amended
                     Counterclaim filed on September 26, 2014:

                     (1)   the request for a declaratory judgment related to record
                           ownership in the Wilson #4 Well and the Buchanan #2
                           Well;

                     (2)   the request for a declaratory judgment that the notices of
                           lis pendens related to this matter filed by BROG be
                           dissolved;

                     (3)   the request for relief under Texas Property Code section
                           12.008 and Texas Civil Practice and Remedies Code
                           section 12.002 arising from the wrongful nature of the
                           notices of lis pendens;

                c)   Defendant TexCal Energy South Texas, L.P.'s request for
                     attorneys' fees contained in its Plea to the Jurisdiction, First
                     Amended Answer and Special Exceptions to Plaintiffs' Second
                     Amended Petition, filed on September 26, 2014, and

                d)   Defendant PetroMax Operating Co., Inc.'s counterclaims for
                     equitable suit to quiet title and attorneys' fees in its First
                     Amended Plea to the Jurisdiction, Answer and Counterclaim
                     and Special Exceptions to Plaintiffs First Amended Petition,
                     filed on June 27, 2013.

         The district clerk is directed to file in Cause No. 12-13130-012-1 0-A the

         following pleadings previously filed in this case and orders previously

          rendered in this case:

                     Plaintiff Burlington Resources Oil & Gas Company LP's Second
                     Amended Petition, filed on July 3, 2013.




                                             1641
Mar131512:48p                                                                            p.6




                v2.        PetroMax Operating's First Amended Answer to Plaintiff's First
                           Amended Petition, filed on June 27, 2013.

                >3.        Defendants Petro Texas, LLC's and CH4 Energy II, LLC's Plea
                           to the Jurisdiction, Answer and Special Exceptions, filed on
                           June 26, 20"13.

                           MD America Energy's Plea to the Jurisdiction, Answer, and
                {/
                           Special Exceptions to Plaintiff's Second Amended Petition, filed
                           on September 26, 2014

                '; 5.      TexCal Energy South Texas' Plea to the Jurisdiction, First
                           Amended Answer, and Special Exceptions to Plaintiff's Second
                           Amended Petition, filed September 26, 2014

                ' 6.       Defendant MD America Energy, LLC f/k/a Woodbine
                           Acquisition LLC's First Amended Counterclaim, filed on
                           September 26, 2014.

                           Plaintiff's Original Answer to Woodbine's Counterclaim and
                           Special Exceptions filed on August 26, 20'19.

                 '8.       Defendant TexCal Energy South Texas, L.P.'s Plea to the
                           Jurisdiction, First Amended Answer and Special Exceptions to
                           Plaintiffs' Second Amended Petition, filed on September 26,
                           2014.

                ., 9.      Defendant PetroMax Operating Co., Inc.'s First Amended Plea
                           to the Jurisdiction, Answer and Counterclaim and Special
                           Exceptions to Plaintiffs First Amended Petition, filed on June
                           27, 2013.

                           The two summary judgment orders signed by this Court on
                           December 10, 2014
                     .·
                     11.   This Order on Joint Motion to Sever and Abate.




                                                  1642
                                                                                SCANNED
Mar131512:48p                                                                                p.7




                   The effect of this order is to render final for appeal the summary

          judgment orders signed by this Court on December 10, 2014.

                   It is ORDERED, ADJUDGED and DECREED that the severed case,

          Cause No. 12-13130-012-1 0-A, is hereby abated during the pendency of

          the appeal by Burlington Resources Oil & Gas Company LP of this Court's

          December 10, 2014, orders.



          Dated:            ___,_I_,_7-..L~--=.:..::.:.__ _ _ _ , 201s




                                                                  DISTRICT JUDGE PRESIDING



          APPROVED AS TO FORM:


          HAGANS BURDINE MONTGOMERY                          &
              RUSTAY, P.C.
                   2 /-    '
                                       l/
          By:   -F...:.~:..!.e~~H~a-g_a.,t.ftr-;;,-r,
                                              ;:·'S,.:z:--c.......::=-------
                   State Bar No. 08685500
                   fhagans@hagans-law.com
                   Kendall C. Montgomery
                   State Bar No. 14293900
                   kmontgomery@hagans-law.com

          3200 Travis, Fourth Floor
          Houston, Texas 77006
          Telephone:       (713) 222-2700




                                                                   1643
                                                                                     SCANNED
 Mar 131512:49p
                                                          p.8




         Telecopier:         (713) 547-4950

         ATTORNEYS FOR PLAINTIFF BURLINGTON
         RESOURCES OIL & GAS COMPANY LP


         THOMPSON      & KNIGHT LLP


         By~~     State Bar No. 05270300
                  greg.curry@tklaw.com
                  Richard B. phillips, Jr.
                  State Bar No. 24032833
                  rich.phillips@tklaw.com

         1722 Routh Street, Suite 1500
         Dallas, Texas 75201
         Telephone: (214) 969-1700
         Telecopier (214) 969-1751

         ATTORNEYS FOR DEFENDANT WOODBINE
         ACQUISITION, LLC, n/k/a MD AMERICA
         ENERGY,LLC


         BEcK REDDEN      LLP


         ~·~f
IJ!M, pr-~~ t/David J. Beck
                  State Bar No. 0 000070
                  dbeck@beckredden. com
                  Thomas E. Ganucheau
                  State Bar No. 00784104
                  tganucheau@ beckredden. com

         1221 McKinney Street, Suite 4500
         Houston, Texas 77010
         Telephone: (713) 951-3700
         Telecopier: (713) 951-3720




                                                1644   SCANNED
Mar 131512:49p                                         p.9




          ATTORNEYS FOR DEFENDANTS PETROMAX
          OPERATING CO., INC., PETRO TEXAS LLC
          and CH4 ENERGY II, LLC


          PIERCE & O'NEILL, LLP


 ,.~[ r--~il~~~  State Bar No. 15995400
                 jpierce@pierceoneill.com
                 Brian K. Tully
                 State Bar No. 24039217
                 btully@pierceoneill.com

          4203 Montrose Boulevard
          Hou~on,Texas77006
          Telephone: (713) 634-3600
          Te!ecopier: (713) 634-3601

          COUNSEL FOR DEFENDANT TEXCAL
          ENERGY SOUTH TEXAS, LP




                                            1645   SCANNED
HYPERLINKED MATERIALS
   [Not included in paper copy]
Freeman v. Stephens Production Co., 171 S.W.3d 651 (2005)
162 Oil & Gas Rep. 563



                                                       171 S.W.3d 651
                                                  Court of Appeals of Texas,
                                                  Corpus Christi–Edinburg.

                                  Paul FREEMAN, Appellant,
                                             v.
            STEPHENS PRODUCTION COMPANY, A Division of Stephen Group, Inc., et al., Appellees.

                 No. 13–04–208–CV.          |    Aug. 18, 2005.     |   Rehearing Overruled Sept. 29, 2005.

Synopsis
Background: Production company alleging it was lessee of all oil, gas and other minerals under certain land brought action
against grandson of grantor who conveyed land to lessors' predecessors in interest, seeking declaration that grantor did not
reserve a one-half interest in the mineral estate. Grandson counterclaimed, and lessors filed plea in intervention. The 389th
District Court, Hidalgo County, Leticia Lopez, J., granted production company summary judgment, and grandson appealed.



Holdings: The Court of Appeals, Dori Contreras Garza, J., held that:

[1] genuine issue of material fact as to whether reservation clause in grantor's deed applied to all land conveyed by deed or just
one lot precluded summary judgment on production company's declaratory judgment claim;

[2] genuine issue of material fact precluded summary judgment on estoppel by deed defense raised by grandson; and

[3] evidence submitted by grandson on his adverse possession claim was insufficient to establish that grantor and his successors
in interest actually possessed the mineral estate for the requisite period of time.


Reversed and remanded.



 West Headnotes (10)


 [1]    Judgment         Particular Cases
        Genuine issue of material fact as to whether reservation clause in grantor's deed to lessors' predecessors in interest
        applied to all land conveyed by deed or just one lot precluded summary judgment, in declaratory judgment action
        brought by production company seeking declaration that grandson of grantor did not own a one-third of the one-half
        interest in the mineral estate allegedly reserved by grantor in all of land conveyed by deed.

        Cases that cite this headnote


 [2]    Deeds       Language of Instrument
        If the language of a deed is unambiguous, the court's primary duty is to ascertain the intent of the parties from the
        language of the deed by using the four corners rule.

        Cases that cite this headnote




                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                            1
Freeman v. Stephens Production Co., 171 S.W.3d 651 (2005)
162 Oil & Gas Rep. 563


 [3]   Contracts         Ambiguity in General
       Whether a written instrument is ambiguous is a question of law for the court.

       Cases that cite this headnote


 [4]   Contracts         Existence of Ambiguity
       A written instrument is ambiguous if its meaning is uncertain and doubtful or it is reasonably susceptible to more
       than one meaning.

       Cases that cite this headnote


 [5]   Estoppel       Nature and Elements in General
       “Estoppel by deed” stands for the general proposition that all parties to a deed are bound by the recitals therein, which
       operate as an estoppel, working on the interest in the land if it be a deed of conveyance, and binding both parties and
       privies; privies in blood, privies in estate, and privies in law.

       4 Cases that cite this headnote


 [6]   Estoppel       Persons Estopped in General
       Estoppel by deed can be applied against grantors and grantees alike, along with their privies.

       2 Cases that cite this headnote


 [7]   Estoppel       Persons to Whom Estoppel Is Available
       Although the party against whom estoppel by deed is sought must be a party or a privy, there is no corresponding
       requirement for the party invoking estoppel.

       3 Cases that cite this headnote


 [8]   Judgment          Particular Cases
       Judgment          Landlord and Tenant Cases
       Genuine issue of material fact as to whether acknowledgements in subsequent conveyances and mineral lease
       regarding mineral reservation in grantor's deed to mineral lessors' predecessors in interest acknowledged that all of
       property conveyed by deed or just one lot was subject to the reservation, precluded summary judgment on estoppel by
       deed defense raised by grantor's grandson, in declaratory judgment action brought by lessee of mineral estate seeking
       declaration that grandson of grantor did not own a one-third of the one-half interest in the mineral estate allegedly
       reserved by grantor in all of land conveyed by deed.

       Cases that cite this headnote


 [9]   Judgment          Evidence and Affidavits in Particular Cases
       Inventory of grantor's estate and affidavit of grantor's grandson regarding grandson's knowledge regarding the estate's
       inventory was insufficient to establish, in grandson's motion for summary judgment on his adverse possession claim,
       that grantor and his successors in interest owned a one-half interest in mineral estate allegedly reserved by grantor in
       all of land conveyed by grantor's deed, where such evidence did not prove or purport to prove that either grandson,




              © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                             2
Freeman v. Stephens Production Co., 171 S.W.3d 651 (2005)
162 Oil & Gas Rep. 563

         grantor, or any of grandson's predecessors in interest actually possessed the mineral estate for the requisite statutory
         period of time.

         Cases that cite this headnote


 [10]    Mines and Minerals           Adverse Possession
         Actual possession of the minerals must occur in order for a person to obtain ownership of a mineral interest by adverse
         possession.

         Cases that cite this headnote




Attorneys and Law Firms

*652 Carlos H. Ochoa, McAllen, Gary E. Ellison, Houston, Mickey Olmstead, Austin, for Appellant.

Steven W. Ellis, Corpus Christi, Charles C. Murray, Atlas & Hall, J.W. Dyer, Dyer & Associates, McAllen, for Appellees.

Donald G. Sinex, Houston, Peter A. Vermillion, Austin, for intervenors.

Before Justices YA#NEZ, CASTILLO, and GARZA.



                                                              OPINION

Opinion by Justice GARZA.

In this appeal from the trial court's final summary judgment, the parties dispute the terms of a 1946 deed by which Paul Freeman
conveyed title to certain property to Kenneth R. Hixon and Mary Katherine Hixon (the “Freeman–Hixon Deed”). Freeman's
grandson, also named Paul Freeman (“Paul”), claims that the Freeman–Hixon Deed reserved to his grandfather a one-half
participating interest in and to all oil, gas, and other minerals in or under the land conveyed by the deed. Paul contends that he
owns a one-third interest in this reservation. His claim is opposed by Stephens Production Company, which asserts rights to
certain portions of the mineral estate through a mineral lease executed by the Hixons' successors in interest, some of who are
intervenors in this matter and also oppose Paul's claim.

Stephens filed suit for declaratory judgment against Paul and four other defendants, asking the trial court to declare that the
disputed reservation in the Freeman–Hixon Deed only affected a portion of the *653 conveyed land known as Lot 288. 1 Paul
counterclaimed, seeking a declaration that the reservation was not limited to Lot 288 but affected the entire property conveyed
by the deed. Subsequently, the lessors of Stephens' mineral lease filed a plea in intervention, seeking a declaration that the
Freeman–Hixon Deed did not reserve any mineral interest in the land covered by their mineral lease with Stephens (“the Closner
Lots”) and to establish their ownership of the mineral estate of the Closner Lots. 2

1       The other defendants are Hemus, Ltd., which was non-suited; Paula Kendall Taylor, individually and as independent executrix of the
        Estate of Byrd Freeman Kendall, deceased; Clemmie Dora Freeman; and Charles Macon Freeman.
2       The intervenors are Charlie A. Hudson; Gregory T. Smith; Bruce Ihrig; Charlie Hudson, Jr.; David Drinkard; Meredith Land &
        Minerals Company; Winne Land & Minerals, Inc.; and M.G. and B.B. Smith Partners, Ltd.
Stephens, Paul, and the intervenors each filed traditional motions for summary judgment, arguing that the Freeman–Hixon
Deed was unambiguous and supported their respective positions. In addition, Stephens and the intervenors argued that Paul's



                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                    3
Freeman v. Stephens Production Co., 171 S.W.3d 651 (2005)
162 Oil & Gas Rep. 563

claim for declaratory relief was barred by res judicata. In response, Paul argued that the claims asserted by Stephens and the
intervenors were barred by estoppel by deed and limitations. Before the trial court ruled on their motion, the intervenors settled
their claims with all defendants other than Paul, and all claims between these defendants, the intervenors, and Stephens were
dismissed with prejudice. The trial court then entered a final summary judgment for Stephens and the intervenors against Paul,
who now appeals by four issues. Because genuine issues of material fact remain unresolved, we reverse the judgment of the
trial court and remand for further proceedings consistent with this opinion. 3

3        The well-settled standard of review for summary judgments is concisely stated in Fiallos v. Pagan–Lewis Motors, Inc., 147 S.W.3d
         578, 582 (Tex.App.-Corpus Christi 2004, pet. denied).



                                                                    I.

 [1] In his first issue, Paul contends that the trial court erred as a matter of law by interpreting the reservation clause to apply
only to Lot 288. Paul contends that the following language from the deed unambiguously reserves an undivided one-half interest
in the mineral estate of all lots conveyed by the deed:

    I, Paul Freeman, ... do Grant, Sell and Convey, unto the said Kenneth R. Hixon and Mary Katherine Hixon of the County of
    Hidalgo of Texas all that certain lot, tract or piece or parcel of land lying and being situated in Hidalgo County, Texas, to-wit:

    All of Lot 1, Block 15; Lot 2, Block 15; The West 17.51 acres of Lot 3, Block 15; All of Lot 10, Block 15; All of Lot 9, Block
    15; All of Lot 11, Block 15; All of Lot 12, Block 15; out of the Closner Subdivision of Porciones 71 and 72, also known as
    the San Juan Tract, Hidalgo County, Texas; EXCEPT such minerals as Grantor does not own; AND ALL of Lot No. 288 of
    the Kelly–Pharr Subdivision of Porciones 69 and 70, Hidalgo County, Texas; EXCEPT that there is reserved in Grantor an
    undivided one-half participating interest in and to all of the oil, gas or other minerals in or under said tract of land....

 [2] [3] [4] If the language of a deed is unambiguous, the court's primary duty is to ascertain the intent of the parties from
the language of the deed by using the “four corners” rule. *654 French v. Chevron U.S.A., 896 S.W.2d 795, 796 (Tex.1995).
Whether a written instrument is ambiguous is a question of law for the court. Lopez v. Munoz, Hockema & Reed, 22 S.W.3d
857, 861 (Tex.2000). A written instrument is ambiguous if its meaning is uncertain and doubtful or it is reasonably susceptible
to more than one meaning. Towers of Tex., Inc. v. J & J Systems, Inc., 834 S.W.2d 1, 2 (Tex.1992). Such is the case here.

No single reasonable meaning clearly emerges from the language of the instrument. To the contrary, we are equally uncertain
and doubtful of the opposite interpretations advanced by the parties. The reservation speaks of its subject as a “tract.” Use of
this singular noun indicates that the reservation applies only to Lot 288 and not to the other lots. Nevertheless, the first clause
of the grant also speaks of a “lot, tract or piece or parcel of land,” even though the deed conveys eight different lots. Thus, the
reservation's use of the singular noun “tract” to describe its subject is consistent with the deed's use of the singular noun “tract”
to describe multiple lots and, in fact, the entire conveyance. This indicates that the reservation applies to all lots. Still, the deed
refers to the Closner Lots collectively as the “San Juan Tract” and then proceeds to list Lot 288 separately, indicating that the
Closner Lots and Lot 288 are treated as two different tracts. The reservation would then apply only to the second tract, Lot 288.
Further complicating matters is the reservation's location in a clause rather than a separate sentence. It thus appears to modify
only the noun immediately preceding it, Lot 288. Given the foregoing considerations, this Court can only speculate as to the
effect of reservation. We are uncertain and doubtful of both interpretations advanced by the parties.

Because the deed is ambiguous, the trial court erred by granting summary judgment based on its interpretation of the deed.
A jury should hear evidence and determine the parties' intent. See Columbia Gas Transmission Corp. v. New Ulm Gas, 940
S.W.2d 587, 589 (Tex.1996); see also J. Hiram Moore, Ltd. v. Greer, 172 S.W.3d 609, ––––, No. 02–0455, 2005 WL 1186334,
*4, 2005 Tex. LEXIS 428, *10 (May 20, 2005) (publication pending). Paul's first issue is sustained in part and overruled in part.




                 © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                  4
Freeman v. Stephens Production Co., 171 S.W.3d 651 (2005)
162 Oil & Gas Rep. 563



                                                                    II.

 [5] In his second issue, Paul contends that the trial court erred by denying his motion for summary judgment based on estoppel
by deed. As this Court recently noted in Sauceda v. Kerlin, “Estoppel by deed stands for the general proposition that ‘all parties
to a deed are bound by the recitals therein, which operate as an estoppel, working on the interest in the land if it be a deed of
conveyance, and binding both parties and privies; privies in blood, privies in estate, and privies in law.’ ” Sauceda v. Kerlin,
164 S.W.3d 892, 915 (Corpus Christi, 2005, no pet. h.) (quoting Wallace v. Pruitt, 1 Tex.Civ.App. 231, 20 S.W. 728, 728–
29 (Tex.Civ.App.-Houston 1892, no writ)).

In support of his motion for summary judgment, Paul produced evidence that Kenneth R. Hixon and other subsequent interest
holders executed multiple conveyances, as well as an oil, gas, and mineral lease, acknowledging that the mineral reservation
covered all land conveyed by the Freeman–Hixon Deed, including the Closner Lots. Based on this evidence, Paul argues that
the doctrine of estoppel by deed prevents Stephens and the intervenors from taking a position contrary to that of Hixon and
their other predecessors in interest.

Stephens and the intervenors, in turn, argue that estoppel by deed cannot be *655 applied against grantees but only against
grantors. They further contend that Paul cannot use estoppel by deed because he was not a party to the instruments upon which
he relies. Finally, they maintain that the instruments produced as evidence by Paul conveyed interests in Lot 288, as well as the
Closner Lots, and thus their references to the prior mineral reservation simply placed later grantees on notice of the reservation's
existence as to certain acreage out of the land conveyed (i.e., Lot 288).

 [6] [7] We disagree with two of these contentions. First, estoppel by deed can be applied against grantors and grantees alike,
along with their privies. See id. at 915–916. Second, this Court is aware of no requirement that the litigant invoking estoppel
by deed be a party to the deed. Although the party against whom estoppel is sought must be a party or a privy, to this Court's
knowledge, there is no corresponding requirement for the party invoking estoppel. No cases imposing such a requirement have
been cited by Stephens or the intervenors.

 [8] We turn to the evidence produced in support of Paul's motion. As argued by Stephens and the intervenors, the instruments
relied upon by Paul convey interests in both the Closner Lots and Lot 288. Because there is no dispute that Lot 288 is subject to
the reservation of the Freeman–Hixon Deed, the acknowledgment of the reservation in these instruments is not necessarily an
acknowledgment that the reservation applies to the Closner Lots. In fact, two of the instruments use the same murky language
and format as the Freeman–Hixon Deed, making this Court no more certain of their meaning than that of the Freeman–Hixon
Deed. 4

4         These instruments are (1) a warranty deed from Kenneth Hixon and Katherine Hixon to Morris Granville Smith recorded on December
          10, 1947 and (2) a special warranty deed from Morris Granville Smith and his wife, Barbara Smith, to intervenor M.G. and B.B.
          Partners, Ltd., which is dated August 29, 1997.
However, one of the instruments uses a different format and provides some evidence that the reservation applies to the Closner
Lots. This document, a special warranty deed, was executed on September 18, 2001 between intervenor M.G. and B.B. Smith
Partners, Ltd. and Keller Real Estate Investments, Inc. (the “Smith–Keller Deed”). It specifically conveys 66.23 acres out of
Lots 1, 2, 3, and 10, Block 15 of the Closner Subdivision, which it refers to as “Tract 1.” The Smith–Keller Deed states that
Tract 1 is subject to the undivided one-half reservation provided for by the Freeman–Hixon Deed. Although the Smith–Keller
Deed thus appears to be conclusive proof that the reservation applies to the Closner Lots, its evidentiary value is belied by a
second conveyance made within the same deed. Along with Tract 1, the Smith–Keller Deed also conveys land referred to as
“Tract 2,” which is comprised of 239.01 acres out of Lots 2, 3, 8, 9, 10, 11, 12, and 13, Block 15 of the Closner Subdivision
and Lots 287, 288, 289, and 290 of the Kelly–Pharr Subdivision. Notably, the deed does not list the reservation provided for
by the Freeman–Hixon Deed as one of the 47 reservations applicable to Tract 2. This is especially noteworthy because Tract



                  © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                 5
Freeman v. Stephens Production Co., 171 S.W.3d 651 (2005)
162 Oil & Gas Rep. 563

2 includes not only portions of the Closner Lots but also Lot 288. Tract 2 also includes Lots 2, 3, and 10, portions of which
are included in Tract 1 and expressly made subject to the reservation of the Freeman–Hixon Deed. Further diminishing the
evidentiary value of the Smith–Keller Deed is the exclusion of Lots 9, 11, and 12 of the Closner Subdivision from Tract 1.
These lots are included in Tract 2, which is not expressly subject to the reservation *656 of the Freeman–Hixon Deed. In sum,
the Smith–Keller Deed is some evidence that the reservation extends to the Closner Lots, but it is inconsistent and therefore
insufficient to eliminate all genuine issues of material fact. See Tex.R. Civ. P. 166a(c).

The final instrument submitted by Paul is a November 19, 1975 oil, gas, and mineral lease executed by Morris Granville Smith
and Barbara Smith in favor of Paul S. Freeman, Paul's grandfather. The lease grants

            All our mineral interest in Lots One (1), Two (2), Three (3), Eight (8), Nine (9), Ten (10), Eleven (11),
            Twelve (12) and Thirteen (13) ... in Block Fifteen (15), John H. Closner, et al Subdivision, Hidalgo
            County, Texas; and Lot Two Hundred Eighty–Eight (288), out of the Kelly–Pharr Subdivision, Hidalgo
            County, Texas.


The lease provides a “pooling” area of 320 acres and then states that “for purposes of calculating the rental payments hereinafter
provided for, said land is estimated to comprise 160 acres, whether it actually comprises more or less.” According to Paul, the
difference between the 320–acre pooling area and 160–acre estimation of the land proves that the Smiths only owned one-half
of the mineral interest in the land, which is the same land conveyed by the Freeman–Hixon Deed. Paul argues that the Smiths
thus acknowledged that the reservation of the Freeman–Hixon Deed extends to the Closner Lots.

Although the mineral lease is some evidence to support Paul's contention, it fails to eliminate all genuine issues of material
fact. See id. The exact acreage of the land covered by the mineral lease is not stated anywhere in the lease. Paul assumes that
the acreage is 320, but this amount is derived from the pooling provision, not from any statement regarding the exact acreage
of the land. If the correct acreage of the land were 160 acres, Paul's theory would fail because the mineral interest conveyed
would be 100% of what the Smiths owned. Without parol evidence, it is impossible to know with any certainty whether the
actual acreage is 160, 320, or some other amount. Accordingly, Paul did not establish his entitlement to judgment as a matter
of law on his defense of estoppel by deed. Paul's second issue is therefore overruled.



                                                               III.

In his third issue, Paul contends that the trial court erred by granting intervenors' motion for summary judgment based on res
judicata. The trial court's judgment specifies that its decision was based on its interpretation of the Freeman–Hixon Deed, not
on res judicata. The judgment states that the Freeman–Hixon Deed did not reserve any mineral interest in the Closner Lots to
Paul Freeman Senior. Accordingly, this Court need not consider whether the judgment could be upheld based on res judicata.
See Tex.R.App. P. 47.1; State Farm Fire & Cas. Co. v. S.S., 858 S.W.2d 374, 380 (Tex.1993). Paul's third issue is overruled.



                                                               IV.

 [9] [10] In his fourth issue, Paul contends that the trial court erred by failing to grant his motion for summary judgment
against the intervenors based on limitations. According to Paul, the intervenors or their predecessors-in-title have been on notice
of his grandfather's claim of ownership of the minerals since at least 1949 and are therefore barred by the statute of limitations
from disputing ownership. We construe this as a claim of adverse possession, as the only authority relied upon by Paul is Natural
Gas Pipeline Co. of America v. Pool, 124 S.W.3d 188, 192–93 (Tex.2003), a case involving a claim of adverse possession
of a mineral estate. Paul's motion *657 for summary judgment alleges that his grandfather “long continued possession and
exercise of dominion as an owner of one-half of the mineral in the subject lands”; however, the evidence attached to the motion




               © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                             6
Freeman v. Stephens Production Co., 171 S.W.3d 651 (2005)
162 Oil & Gas Rep. 563

is insufficient evidence to prove this assertion. 5 Because actual possession of the minerals must occur, see id., the trial court
did not err by denying Paul's motion for summary judgment based on adverse possession. Paul's fourth issue is overruled.

5      Attached to the motion are an inventory of the estate of Pat Freeman and an affidavit by Paul, which discusses Paul's knowledge
       regarding the inventory. The evidence does not prove or purport to prove that either Paul, his grandfather, or any of Paul's other
       predecessors-in-interest actually possessed the mineral estate for the requisite statutory period of time.



                                                                  V.

As it relates to the claims between Stephens, Paul, and the intervenors, the judgment of the trial court is reversed and the case
is remanded for further proceedings consistent with this opinion. The remainder of the judgment, specifically, the dismissal
with prejudice of the claims between Stephens, the other defendants, and intervenors, has not been challenged in this appeal
and is therefore affirmed. See Tex.R.App. P. 44.1(b).


All Citations

171 S.W.3d 651, 162 Oil & Gas Rep. 563

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.                                                     7
                                        The Oil&Gas Asset                                                                                   I
                                        CLEARINGHOUSE                                                                                       I
                                         P.O. Box 67l787 Houston, Texas 77267-l787
                                         7ll/87J.4600             Fax 7ll/87l-IJOS5

  Lot#                                  Description                                                  Buyer            Total                 I
164.13      FI.SXEN F-44 1
            BPO W1     .135877    I-PO WI
                                                    TX
                                                    .136817
                                                                         ANDREWS
                                                                        BOPD
                                                                                                                                            I
            BPO NRI    .110400    APO NRI           .110400             MCFD
            BPO ORRI .000000      APO ORR\
            OPER'-TOR: M W PETROLEUM CORP
            DEPTH UMITI.TION
                                                    .000000             MIDLAND FARMS
                                                    SEllER: EL PI-SO PRODUcnON                                                              I
164.14      FI.SKfN N 1
            8PO W1
            BPO NRI
                       .136817
                       .110400
                                   APO WI
                                   I-PO NRI
                                                    TX
                                                    .1 35877
                                                    .110400
                                                                        I-N DREWS
                                                                        BOPD
                                                                        MCFD
                                                                                                                                            I
            BPO ORR! .000000       APO ORRI         .000000           MIDLAND FARMS
            OPERI.TOR: M W PETIIOLaJM CORP
            DEI'TH LMITI.TION
                                                    SEU.ER: EL PASO PROOUCTlON
                                                                                                                                            I
165.1       UNIVERSm' E
            lll'O WI
            BPO NRI
                      .062732
                      .043257
                                   APO Wl
                                   APO NRI
                                                    TX
                                                    .062732
                                                    .043267
                                                                         ANDREWS
                                                                        BOPD
                                                                        MCFO
                                                                                       15.00
                                                                                      4.00
                                                                                                                                            I
            BPO ORRI .000000       APO ORR\         .000000              HUTEX
            OPERI.TOR: AA1ERICAN EXPt
            WEll80RE ONLY
                                                    SELLER: SAMSON RESOURCES COMPANY
                                                                                                                                            I
166.1       NEWTON 1·'-
            BPO W1
            BPO NRI
                    .000000
                     .000000
                                      I-PO WI
                                      APO NRI
                                                     TX
                                                    .000000
                                                    .000000
                                                                        BORDEN
                                                                        BOPD
                                                                        MCFD
                                                                                       12.00
                                                                                       .00
                                                                                                                                            I
            BPO ORRI .094492          APO ORRI      .094492             DUNIGAN
            OPeRATOR: PERMIAN RESOURCES
            ROYALTY IH'TEREST
                                                    SELLER: ARCO
                                                                                                                                            I
157.1       BUCHANAN 1
            BPO W1
            BPO NRI
                       .250000
                       .203333
                                      APOWI
                                      MONRI
                                                     TX
                                                    .250000
                                                    .203333
                                                                     BRAZOS
                                                                     BOPD
                                                                     MCFO
                                                                               14.00
                                                                               28.00
                                                                                                                                            I
            BPO ORRI   .000000   APO ORR\           .000000          KURTEN WOODBINE


157.2
            OPERATOR: BUTTES RESOURCES CO

            GIBBS BROS 1
                                                    sa.L!R: SOUTHLAND ROY1-LTV

                                                    TX                  BRAZOS
                                                                                                                                            I
            BPO WI
            BPO NRI
            8PO ORRI
                       .250000
                       .188125
                       .000000
                                      APOWI
                                      APO NRI
                                      I-PO ORRI
                                                    .250000
                                                    .198125
                                                    .000000
                                                                        BOPD
                                                                        MCFD
                                                                                      4.00
                                                                                      9.00
                                                                         KURTEN WOODBINE
                                                                                                      ~                      §              I
            OPERATOR: BUTTES RESOURCES CO           SEL.LER: SOUTiiLAND ROYALTY
                                                                                                      ""'-                /<]'
                                                                                                                                            I
157.3       WILSON JAMES C 0                        TX                  BRI-ZOS
            BPO WI
            BPO NRI
            Bp0 ORAl
                       .250000
                       .203333
                       .000000
                                      APO WI
                                      APO NRI
                                      I-PO ORRI
                                                    .250000
                                                    .203333
                                                    .000000
                                                                        BOPD
                                                                        MCFO
                                                                                       3.00
                                                                                       SHUT-IN
                                                                         KURTEN WOODBINE
                                                                                                                     ~fY]
                                                                                                                                            I
            OPERATOR: BUTTES RESOUflCES CO          SELLER: SOUTHLAND ROYALTY

151.4       WILSON JAMES 0 UNIT 2                   TX                   BRAZOS
            BPO WI   .000000      APO wt            .250000             BOPD           11.00


                                                                                                                                            I
            BPO NRI  .000000      Ap0 NRI           .2.03333            MCFD           12.00
            BPO ORRI .000000      APO ORRI          .000000          KURTEN WOODBINE
            OP£RATOR: 8UTTES RESOURCES CO           SELlER: SOUTHLAND ROYALTY
            APO ONLY


 1lQ cllt8lag hi PfO'Iided for oonvenlence purpos• only. AU Information Is providod wfthout warranty a to ecouracy or completenass.
                                                                                                                                            I
 Bidders shouk:l verify llllinform.tlon and the condition of proper1fe• being aold prior to biddtng.

                                                                1401                                                                        I
                                                                       1497                                                           BURCOP00001606
I                                                  The OiJ&Gas Asset
I                                                  CLEARINGHOUSE
                                                    P.O. Box67!787 Houston, TcXlLI77267-1787
                                                    71l/87H600              Fax 713/873-0055
I          Lot#                                 Description                                               Buyer            Total

I   t. t          POR'TER-MA Y-FOWLER                        AL              FAYETTE

                                                                                                                                ~
                  BPOwt     .112271    APO wt               .097427          BOPO       .oo
                  8PO NRI   .098103    APO NRI              .083783          MCfD       100.00

I                 8PO ORR! .000000     APO ORAl
                  OPERATOR: SAMSON RESOURCES
                                                            .000000          t2 t4S-t3W
                                                            SEU£11: SAMSON RESOURCES COMPANY
                                                                                                                          "Q\


I   2.1           AUS'TlN W AIt ·9 •
                  BPO wt
                  8PO NRI
                            .103847
                            .087848
                                         APO wt
                                         APO NRI
                                                             AL
                                                            .103647
                                                            .087848
                                                                             LAMAR
                                                                             BOPO
                                                                             MCFD
                                                                                        .oo
                                                                                        SHUT-IN
                  BPO ORR! .000000       APO ORAl           .000000          9 135-tfiW

I                 OPERATOR: MERIDIAN OIL SERVICES
                  WELLBORE ONLY
                                                            SEU.!R: SAMSON RESOURCES COMPANY


    2.2           AUSTIN W Al&-1 3                           AL    LAMAR

I                 BPO wt
                  8PO NRI
                           .051508
                           .042611
                  BPO ORRI .000000
                                         APO wt
                                         APO NRI
                                         APO ORRI .000000
                                                            .051608
                                                            .04251,
                                                                   BOPD
                                                                   MCFD
                                                                   9 t4S-t5W
                                                                             .oo
                                                                             SHUT·IN

                  OPERATOR: BRIDGE OIL COMPANY    SELLER: SAMSON RESOURCES COMPANY

I   2.3
                  OVERPRODUCED BY 1,502 MCF AS OF 10/93

                  BONZELL MCGEE t:l-8                        AL                   LAMAR
                  BPO wt   ,C>4t 887   APO Wl               .041667               BOPD           .oo
I                 BPO NRI  .036319
                  BPO ORRI .000000
                                       APO NRI
                                       APO ORRI
                  OPERATOR: PRUET PRODUCTION
                                                            .036319
                                                            .000000
                                                                                  MCFD
                                                                            13 68-16W
                                                                                      190.00

                                                            SEUER: SAMSON RESOURCES COMPANY
                  OVERPRODUCED BY 3,076 MCF AS OF           4194


I   3. t          BROWN 11-9                                 AL   LAMAR
                  BPO wt   .637214            APOWI               BOPD
                                                            .363641         .oo
I                 BPO NRI  .481217
                  BPO ORRI .000000
                                       APO NRI
                                       APO ORAl .000000
                  OPERATOR: SAMSON RESOURCES
                                                                  MCFD
                                                            .313128
                                                                  1 15S.14W
                                                                            95.00

                                                  SEUER: SAMSON RESOURCES COMPANY
                  OPERATED PROPERTY, WELLBORE ONLY

I   4.1           cu C.03-09                                 AL               MOBILE
                  BPO wt   .060000      APO wt              .060000          BOPD       5.80
                                                                                        .oo
I                 BPO NRI  .037600      APO NRI             .037500          MCFD
                  BPO ORRJ .000000      APO ORRI            .000000           3 1N-3W
                  OPERATOR: CITRONELLE UNIT MGR             SELLER: ADVENT TRADING COMPANY



I   •• t          TALLEY UNIT 18-1
                  BPO wt    .044384    APO WI
                                                             AR
                                                            .044384
                                                            ,03883tl
                                                                             COLUMBIA
                                                                             BOPD      20.00
                                                                                       .oo
                  BPO NRI   .038836    APO NRI                               MCFD
                                                            ,000000
I
                  BPO ORRI .000000     A.PO ORRI                             1 20S-22W
                  OPERATOR: PHIWPS PETROLEUM                SEllER: SAMSON RESOURCES COMPANY




I
I     TttJs catalog I• provided for convenience purpone only, Alllnfonnation le provided without wamtnty .. to .ocuracy or completeness.
      Bidder- skould verify •II lnfon'Mtion and the condttlon of properdee be(ng eold prior to bidding.


I                                                                         ill




                                                                  1459                                                        BURCOP00001567
I                                              The Oil&Gas Asset
I                                              CLEARINGHOUSE
                                                P.O. Box 67\787 Houston, Texas 77267-1787
                                                713/873-4600             Fax 713/873-0055
I     Lot#                                  Description                                                 Buyer             Total

I   63.1       GEl& 11
               BPO WI    1.000000    APOWI
                                                OK
                                               1.000000
                                                                 BlAINE
                                                                 BOPO      3.30
               BPO NRI   .805736     APO NRI   .006736           MCfD      18.00

I              BPO ORRI .802002
               OPERATOR: MARATHON OIL
                                     APO ORRI  .802002           3318N-10W
                                               SELLER: MARATHON OIL COMPANY
               GAS NRI•.802081 DISBURSEMENT RESPONSIBIUTY, WEL1.BORE ONLY



I   84.1       GOULD 2~1
               BPO WI     .600000     APO WI
                                                        OK
                                                       .484375
                                                                         BLAINE
                                                                         BOPD       .90
               BPO NRI    .393760     APO NRI          .381387           MCFD       16.00

I              BPO ORRI .000000       APO ORRI
               OPERATOR: WARD PETROLEUM
               WB.J..BORE ONLY, OVERPRODUCED BY
                                                       .000000           20 17N-13W
                                                       SELLER: MAR4THON OIL COMPANY
                                                       10,423 MCF AS OF 1194



I   66.1       HELMER 1211-1
               BPO WI    .045747      APO WI
                                                        OK
                                                       .045747
                                                                            BLAINE
                                                                            SCPO          .00
               BPO NRI   .038684      APO NRI          .038664              MCFD          119.00

I              BPO ORRI .000000       APO ORRI
               OPERATOR: LOUIS DREYFUS NAT GAS
               LEASEHOLD, POSSIBlE BEHIND PIPE
                                                       .000000              26 18N-11W
                                                       SELLER: MARATHON OIL COMPANY




I   65.2       AUDREY 11-28
               BPOWI
               BPO NRI
                        .000000
                        .000000
               BPO ORRI .oo55n
                                     APO WI
                                     APO NRI
                                     APO ORRI
                                                        OK
                                                       .000000
                                                       .000000
                                                       .0056n
                                                                        BOPO
                                                                        MCFD
                                                                            BLAINE


                                                                        26 18N-11W
                                                                                   3.10
                                                                                   79.00



I              OPERATOR: LOUIS DREYFUS NAT GAS
               LEASEHOLD
                                                       SELLER: MARATHON OIL COMPANY




I   66.1       JANTZEN 34-1
               BPO WI
               BPO NRI
                        .260000
                        .206078
               BPO ORRS .000000
                                           APOWI
                                           APO NRI
                                    APO ORRI
                                                        OK
                                                       .260000
                                                       .206078
                                                       .000000
                                                                        BLAINE
                                                                        BOPO
                                                                        MCFD
                                                                        34 19N-10W
                                                                                   .00
                                                                                   96.00



I
               OPERATOR: PETROLEUM RESERVE             SELLER: MARATHON OIL COMPANY
               WB.J..BORE ONLY

    86.2       JAI>lTZEN 34-2                           OK                  BLAINE
                          .408273   APO WI             .263908          BOPO       ,00
I
               BPOWI
               BPO NRI  .341820     APO NRI            .208252         MCFD        1.00
               BPO ORRI .000000     APO ORRI           .000000          34 19N-10W
               OPERATOR: PETROLEUM RESERVE             SELLER: MARATHON OIL COMPANY
               WB.LBORE ONLY

I   67.1       KARBER FARMS It                  OK              BLAINE
               BPO WI   .988760     APO WI     .87181li         BOPO       .so
I              BPO NRI  .maoo
               8PC ORRJ .000000
                                    APO NRI
                                    APO ORRI
               OPERATOR: MARATHON OIL
                                               .696363
                                               .000000
                                                                MCFD
                                                                28 19N-12W
                                               SELLER: MARATHON OIL COMPANY
                                                                           51.00


               DISBURSEMENT RESPONSIBIUTY, WEUBORE ONLY, OVERPRODUCED BY 1,708

I              MCF ASOF 4~




I    This catliog ill provided for oonvenlence purpo1" only. Alllnfonnadon 11 provided without watnlnty a to 1oouraoy or completenet~•.
     Biddetl 1hould verify all Information and th1 conclhion of propertie• being •old prior ta bidding.


I                                                                   1171




                                                                 1475                                                        BURCOP00001 583
