                    Revised November 9, 1998

                 UNITED STATES COURT OF APPEALS

                      FOR THE FIFTH CIRCUIT



                             No. 97-41023


      MARY DRUCILLA McGILL BURNS; KATHLEEN McGILL ENYART;
             ALICE ANN McGILL ERCK; FREDERICK ERCK;
      ALICE ADAMS McGILL; ESTHER D. McGILL; SCOTT McGILL;
                 FRANCIS CLAUDIA McGILL STEWART;
                  and LINDA JANE McGILL WEAKLEY,

                                            Plaintiffs-Appellants,

             FIRST CITY BANK-GULFGATE; MBANK ALAMO;
                  and INTERFIRST BANK HOUSTON,

                                            Intervenor
                                            Plaintiffs-Appellants


                                VERSUS


                       EXXON CORPORATION,

                                            Defendant-Appellee.




          Appeal from the United States District Court
               for the Southern District of Texas
                        November 4, 1998
Before KING, SMITH, and PARKER, Circuit Judges.

ROBERT M. PARKER, Circuit Judge:

     Plaintiffs-appellants    and   intervenor   plaintiffs-appellants

(“the McGills”) appeal from the district court’s grant of two


                                    1
partial summary judgments and a subsequent, final take-nothing

judgment      thereon     in        favor    of   appellee,       Exxon    Corporation.

Additionally, the McGills contend that the district court abused

its discretion in refusing to compel Exxon to produce certain

documents     and    also      in    denying      the   McGills    leave    to    file   a

supplemental complaint.              For the following reasons, we affirm.

                    I.   Background and Procedural History

       The McGills are royalty interest owners under two oil and gas

leases executed with Exxon (formerly Humble Oil).                     The oil and gas

leases include a 1935 lease and a 1941 lease covering more than

30,000 acres of land in Brooks, Hidalgo, Jim Hogg, and Starr

Counties, Texas (hereinafter “the McGill leases”). Until 1960, the

McGill leases unquestionably governed the royalties paid to the

McGills.      On June 20, 1960, however, the McGills and Exxon amended

the royalty provisions of the McGill leases to require payment of

specified royalties on residue gas and plant products extracted

from    gas    processed       at     a     gas   processing      plant    then    under

construction, the King Ranch Gas Plant (hereinafter “the King Ranch

Processing Agreement”).

       The royalty provisions of the two McGill leases are identical

and provide in pertinent part:

              The royalties paid by the lessee are . . . (b) on
              gas, including casinghead gas or other gaseous
              substance, produced from said land and sold or used
              off the premises or in the manufacture of gasoline
              or other product therefrom, the market value at the
              well of one eighth of the gas so sold or used,
              provided that on gas sold at the wells the royalty

                                                  2
              shall be one-eighth of the amount realized from
              such sale; . . .

Under   the    McGill   lease   royalty    provisions,   the    McGills   were

entitled to receive royalties: (1) on residue gas based upon 1/8 of

the market value of the residue gas at the wells; and (2) on

volumes of gas used in the manufacture of gasoline or other plant

products based upon 1/8 of the market value of the gas at the well

before processing.         The McGills were not entitled to receive

royalties based upon the value of the processed plant products.

     The royalty provisions of the King Ranch Processing Agreement

supersede the royalty provisions of the McGill leases to the extent

that the two are in conflict.             The agreement provides separate

royalty terms for plant products and residue gas.              In determining

the royalty paid on residue gas, the agreement provides:

     The price per Mcf at which the gas shall be valued in
     each instance shall be the price per Mcf received during
     the applicable accounting period for gas sold at the
     discharge side of the plant. In the event the gas is not
     sold at the discharge side of the plant but instead is
     taken into Humble’s gas transmission facilities for
     marketing in an area removed from the plant side, the gas
     shall be valued at the fair market value. . . .
     (emphasis added).

Fair market value is defined as the greater of Exxon’s field price

for gas, the price at which Exxon sells gas to major purchasers,

and the weighted average price paid in Texas Railroad Commission

District 4.

     The   King    Ranch   Processing     Agreement   amended    the   royalty

provisions of the McGill leases for a period of at least a twenty

                                      3
year term and gave the plaintiffs the right to receive royalties

based on part of the value of the processed plant products.    The

term of the agreement began on the date the King Ranch Plant was

placed in operation and continued thereafter until termination as

provided in the agreement.   Termination could be triggered by any

party after the end of the nineteenth year by giving written notice

to the other party of the intent to terminate.     The termination

became effective as to the terminating party one year after notice.

Furthermore, Exxon had the right to “limit or curtail, cease

entirely, or recommence its gas processing operations (or any

portion of such operations).”

      From 1960 until 1965, Exxon processed the gas, fractionated

the liquid plant products, and sold the residue gas and liquid

plant products at the King Ranch Gas Plant.   For these five years,

the residue gas from the McGill leases was sold in the higher

priced unregulated intrastate gas market.     On January 29, 1965,

however, Exxon entered into an interstate gas sales contract with

Trunkline Gas Company (“Trunkline”).1   The contract with Trunkline

obligated Exxon to deliver all gas produced from the McGill’s

property for a period of twenty years.     In order to prevent the

commingling of gas sold in the intrastate and interstate markets,

  1
    After the contract between Exxon and Trunkline in 1965, the gas
from the McGill leases became dedicated to interstate commerce and
subject to federal price limitations under the Natural Gas Act.
The gas remained dedicated to interstate commerce until the Federal
Energy Regulatory Commission granted permanent abandonment as of
December 1, 1987.

                                 4
which would subject all gas produced at the King Ranch Plant to

federal    pricing   controls,   Exxon    constructed   a   separate   gas

processing facility, the Kelsey Plant, to process gas from the

McGill properties.    The Kelsey Plant was constructed on the McGill

lease after the McGills granted Exxon a surface lease and Trunkline

a right-of-way for a pipeline.          From September 1966 until April

1988, the McGill’s residue gas was sold at the Kelsey Plant for

distribution in interstate commerce, and the extracted liquids were

transported by pipeline to the King Ranch Plant where the liquids

were fractionated into plant products.        At all relevant times, the

liquid plant products were fractionated and sold only at the

tailgate of the King Ranch Plant or were taken and used by Exxon.

Since the Kelsey Plant closed in 1988, the gas produced on the

McGill leases has been transported to the King Ranch Plant for

processing and disposition of both the residue gas and plant

liquids.

     The McGills filed suit against Exxon in 1985 for underpayment

of royalties.    The suit was originally filed in state court, but

was removed to federal court based on diversity of citizenship. In

December, 1986, the McGills filed a motion to compel production of

documents reviewed by R.C. Granberry, a former Exxon employee, in

preparation for his deposition.         In May 1995, the district court

denied the motion to compel.       In the interim, Mr. Granberry had

died.

          In January 1991, the parties filed a Joint Pretrial Order

                                    5
containing the parties agreements, admissions and stipulations. In

November,   1991,    Exxon     filed   two   motions   for    partial     summary

judgment on the two main issues in the case urging the court to

hold: (1) that under the market value clauses of the McGill leases,

the market value of the residue gas was limited to the regulated

interstate market in which the gas was sold; and (2) that the King

Ranch Processing Agreement was applicable to and controlled royalty

payments on the liquid plant products manufactured from the gas

produced on the McGill leases as to plaintiffs Weakley and Enyart

from January 1977 to December 1981 and as to all other plaintiffs

for all times relevant to this action. In September 1992, the

McGills filed cross-motions for summary judgment “on identical

issues.”

     On March 10, 1994, the district court granted Exxon’s motion

for partial summary judgment, ruling that the “market value at the

well” under the McGill leases was limited to interstate prices when

calculating royalties on residue gas.              On April 11, 1995, the

district court granted Exxon’s second motion for summary judgment,

ruling that the King Ranch Processing Agreement, and not the McGill

leases, governed the payment of royalties on liquid plant products.

     On    June   27,   1995,    the   McGills   sought      leave   to   file    a

supplemental      complaint.     The    district   court     denied     leave    on

December 29, 1995.      After finding that no other issues remained,

the district court rendered final judgment in favor of Exxon on

July 6, 1997.      This appeal followed.

                                        6
          II.   The March 10, 1994 Partial Summary Judgment

     The McGills’ first point on appeal is that the district court

erred in granting Exxon’s first motion for partial summary judgment

and holding that the King Ranch Processing Agreement governed the

payment of royalties on liquid plant products.           We review a trial

court’s order granting partial summary judgment de novo.                  See

Landry v. Air Line Pilots Ass’n Int’l, 901 F.2d 404, 424 (5th Cir.

1990).    Summary judgment is only appropriate where there is no

genuine issue as to any material fact and the moving party is

entitled to judgment as a matter of law.        See FED. R. CIV. P. 56(c).

     The McGills argue that the royalty provisions of the McGill

leases, and not King Ranch Processing Agreement, should have been

used to calculate royalties on gas produced from McGill land.             The

King Ranch Agreement states it is applicable “to any gas produced

[from the McGill leases] which may be processed in the [King Ranch]

plant.”    The plaintiffs contend that during the relevant period,

gas from the McGill leaseholds was being processed only at the

Kelsey Plant and that the fractionation of liquids, and not the

processing of gas, was occurring at the King Ranch Plant.             Once

Exxon stopped shipping any of the three types of gas listed in

Article III of the King Ranch Processing Agreement from the McGill

leases to the King Ranch Plant, the McGills argue that the King

Ranch    Processing   Agreement   ceased   to   govern    the   payment   of

royalties, and thus, the royalty terms reverted to those in the


                                    7
McGill leases.2        Exxon, however, argues that “gas processing”

continued at the King Ranch Plant because fractionation is only a

part of the gas processing procedure, and under Texas law, “gas”

includes all constituent elements, including liquid hydrocarbons

recovered therefrom.       See Sowell v. Natural Gas Pipeline Co., 789

F.2d 1151, 1157 (5th Cir. 1986) (citing Lone Star Gas Co. v. Stein,

41 S.W.2d 48, 49 (Tex. Comm’n App. 1931)).               Therefore, Exxon

contends    the   King    Ranch     Processing    Agreement   controls   the

calculation of royalties on liquid plant products.            We agree with

Exxon’s contentions, and thus hold that the fractionation of

liquids is part of “gas processing operations” within the meaning

of this agreement.

      The    dispute     may   be    simplified    as   one   of   contract

interpretation--does the agreement permit the sale of residue gas

at the Kelsey Plant and the fractionation of plant products at the

King Ranch Plant.        “Whether a written agreement is ambiguous or

whether it clearly demonstrates the intent of the parties is a

question of law.”      Shelton v. Exxon Corp., 921 F.2d 595, 602 (5th


  2
    Article III of the King Ranch Processing Agreement provides,
in pertinent part:

            It is understood that there will or may be three
            types of gas entering the plant: (1) non-associated
            gas or associated gas, the full well stream of which
            will be taken into the plant without separation; (2)
            non-associated gas or associated gas taken into the
            plant after lease separation; and (3) casinghead gas
            or gas produced with oil.


                                       8
Cir. 1991).    This agreement is unambiguous--it applies to any gas

produced from the McGill leases which may be processed at the King

Ranch Plant.       If a contract is unambiguous, construction of the

contract is a question of law for the court to decide.                   See

Browning v. Navarro, 743 F.2d 1069, 1080 (5th Cir. 1984); Brown v.

Payne, 176 S.W.2d 306, 308 (Tex. 1943).           Our primary concern is to

give effect to the true intentions of the parties as expressed in

the written agreement. See Deauville Corp. v. Federated Department

Stores,    Inc.,   756   F.2d   1183,   1193    (5th   Cir.   1985);   Lenape

Resources Corp. v. Tennessee Gas Pipeline Co., 925 S.W.2d 565, 574

(Tex. 1996). Absent ambiguity, the writing alone will be deemed to

express the intention of the parties, and objective intent rather

than subjective intent controls.               See Sun Oil Co. (Del.) v.

Madeley, 626 S.W.2d 726, 728 (Tex. 1981).              The McGills point to a

1965, so-called “smoking gun” memorandum written by B.D. O’Neal, an

Exxon engineer, to H.B. Barton, the head of Exxon gas operations,

as evidence that Exxon knew the King Ranch Agreement was void.            In

the memorandum, O’Neal opines that when Exxon ceased processing

McGill gas at the King Ranch Plant, the King Ranch agreement became

void.     While the memorandum may evidence an understanding on the

part of Exxon senior management of the status of the King Ranch

Agreement after the construction of the Kelsey Plant, the memo does

not assist the court with construction of the 1960 agreement.            The

memorandum would only be helpful in construing the agreement if


                                        9
there was ambiguity on the face of the document.    We must therefore

enforce this agreement as written.

     Because the express terms of the King Ranch Agreement state

that its royalty provisions will supersede earlier leases, the

agreement governs the royalties on all residue gas and liquid plant

products processed at the King Ranch Plant.     In Article II, the

agreement states that the King Ranch Plant was built to gather gas

from the McGill leases and other leases in the Railroad Commission

District 4, and to process and market residue gas and the liquid

and liquefiable products recovered therefrom.      Article II further

provides that Exxon “in its discretion may limit or curtail, cease

entirely, or recommence its gas processing operations (or any

portion of such operations).”   This agreement unambiguously grants

Exxon the flexibility to cease, limit or recommence any portion of

its gas processing operations at the King Ranch Plant.     This would

necessarily include the ability to cease the processing of residue

gas at the King Ranch Plant.      Therefore, when Exxon made the

decision to process the residue gas at the Kelsey Plant, rather

than at the King Ranch Plant with the other gas components, it was

merely taking advantage of an express provision in the agreement.

Likewise, because Exxon maintained at all times at least a portion

of production at the King Ranch Plant, we do not agree with the

McGills’ contention that royalty payment terms had reverted back to

the McGill leases.   Consequently, the district court did not err

by granting summary judgment and holding that the King Ranch

                                 10
Agreement governed royalties on liquid plant products processed at

the King Ranch Plant.

         III.   The April 11, 1995 Partial Summary Judgment

      The McGills’ next point on appeal is whether the district

court erred by granting Exxon’s motion for partial summary judgment

and holding that the royalties on residue gas should be determined

by the fair market value of gas sold on the interstate market.

Again, we review the order of a district court granting partial

summary judgment de novo.      See Landry, 901 F.2d at 424.

      Under   the   King   Ranch   Processing   Agreement,   royalties   on

residue gas processed at the King Ranch Plant would be “valued at

the fair market value,” determined by three different formulas in

the agreement.3     The McGills argue that if the agreement applies,

then Exxon should have used the agreement to calculate royalties

for their residue gas.      While Exxon paid the McGills royalties on

liquid plant products under the King Ranch Processing Agreement,

Exxon paid the McGills royalties on residue gas under the “market

value at the well” terms of the McGill leases based on the

interstate prices of gas. The plaintiffs contend that if Exxon had

uniformly applied the King Ranch Processing Agreement to both

liquids and residue gas, then Exxon would have been required to pay



  3
   Article III provides that fair market value would be defined as
the greater of Exxon’s field price for gas, Exxon’s sales price to
major purchasers, or the weighted average price paid in the Texas
Railroad Commission District 4.

                                     11
the McGills the higher intrastate price for their residue gas.

Exxon counters that the royalty provisions of the McGill leases

govern the payment of royalties on the residue gas based on the

fact that the gas was neither processed nor sold at the King Ranch

Plant.

     Article V of the King Ranch Processing Agreement provides that

the agreement “shall supersede the [McGill leases] . . . only to

the extent, that the provisions of [the leases] are in conflict

with the provisions of this agreement.”     Therefore, matters not

covered by the agreement will revert to being governed by the

McGill leases.   The agreement’s royalty provisions expressly apply

only to products that are processed or sold at the King Ranch

Plant.   Because the McGill’s residue gas was processed and sold at

the Kelsey Plant and never even entered the King Ranch Plant, it

would fall outside the terms of the agreement and would be governed

instead by the original McGill leases.

     By virtue of the gas royalty provisions in the governing

McGill leases, the residue gas royalties will be determined by the

market value at the well.    The McGills contend that if Exxon is

obligated to pay royalties under the market value provision of the

McGill leases, then the intrastate market value of the gas should

have been used because an intrastate market was always available in

which to sell the gas.   Because it was dedicated to the interstate

market, Exxon argues that the fair market value of the gas cannot


                                 12
exceed its federally regulated price. The district court held that

the gas became dedicated to interstate commerce and subject to

federal    price     ceilings   because    the    gas   which    Exxon   sold   to

Trunkline was sold in interstate commerce.              In our review, we must

address the McGills’ contention that the fair market value of

intrastate, and not interstate, gas should be used because an

intrastate market in which to sell the residue gas was always

available to Exxon.

     We agree with the district court’s analysis of this issue.

Under Texas law, to determine the market value of gas, the gas

should be valued as though it is free and available for sale.                   See

Exxon Corp. v. Middleton, 613 S.W.2d 240, 246 (Tex. 1981).                Market

value may be calculated using comparable sales, which are those

sales of gas which are comparable in time, quality, quantity, and

availability of marketing outlets.          See id.      Comparable in quality

includes both physical and legal characteristics.                  See id.       To

determine legal quality, the court must consider whether the gas is

sold in a regulated or unregulated market, or in one particular

category    of   a   regulated   market.         See    id.     “Intrastate     and

interstate gas prices are not comparable in [legal] quality.”                   Id.

at 248;    see also First Nat’l. Bank in Weatherford v. Exxon Corp.,

622 S.W.2d 80, 81-82 (Tex. 1981); Kingery v. Continental Oil Co.,

626 F.2d 1261, 1264 (5th Cir. 1980).             As this court held in Bowers

v. Phillips Petroleum Co., market value for royalty purposes cannot


                                      13
exceed the maximum ceiling price imposed on the gas within that

particular federally regulated category.   692 F.2d 1015, 1021 (5th

Cir. 1982). Consequently, the “market value at the well” provision

in the McGill leases would be determined by comparable interstate

sales because the gas that Exxon sold to Trunkline became dedicated

to the federally regulated interstate market.

      The McGills attempt to distinguish Weatherford and Middleton

by arguing that alternative markets were available at the time

Exxon dedicated the gas to the interstate market.       Nothing in

Weatherford or Middleton, nor any of the other cases suggest that

the results would have been any different had an alternative

intrastate market been available to the producer at the time the

gas was committed to an interstate contract.    The availability of

an intrastate market in which to sell the plaintiffs’ gas relates

to whether Exxon imprudently marketed the gas, and does not affect

the McGills’ claim of improper determination of market value.4

Therefore, because the existence of an alternative intrastate

market does not change the result that interstate sales are not

comparable to intrastate sales when determining market value, we

hold that the trial court was correct in granting Exxon’s second



  4
   The McGills have made no claim that by committing the gas to the
interstate market, Exxon breached its implied duty to prudently
market the gas. See Shelton v. Exxon Corp., 921 F.2d 595, 602 (5th
Cir. 1991); Powell v. Dancigar Oil & Refining Co., 134 S.W.2d 493,
499 (Tex. Civ. App.--Fort Worth, 1939), rev’d, 154 S.W.2d 632 (Tex
1941).

                                14
partial summary judgment.

                   IV.    Plaintiff’s Motion to Compel

      The McGills next assert that the district court erred in

failing to order production of documents that a former Exxon

employee used to refresh his recollection in preparation for his

deposition. We review a district court’s order overruling a motion

to compel for abuse of discretion.           See Scott v. Monsanto Co., 868

F.2d 786, 793 (5th Cir. 1989).

      The McGills contend that R.C. Granberry, a witness for Exxon,

used certain documents to refresh his recollection in preparation

for his 1985 deposition.       The plaintiffs requested the documents

for the purpose of questioning the witness, but Exxon refused,

claiming   the    documents   were    protected    by   the   attorney-client

privilege and the attorney work product doctrine.               The McGills,

however,   contend that Exxon waived immunity from discovery under

the attorney-client privilege and the work product doctrine by

making the documents available to the witness.            In December 1985,

the McGills filed a motion to compel.           After an in camera review,

the   district    court   denied     the    plaintiffs’   motion   to   compel

production   of    the    “Granberry       documents”   after   reaching   the

following conclusions:        (1) the documents “have absolutely no

bearing on the court’s [partial summary judgment] on the ‘market

value’ issue”; (2) only a few of the documents appeared “to have

even an arguable relation to the ‘Processing Agreement’ issue”; and


                                       15
(3) withholding of the documents was harmless and moot, based on

the information already available to the plaintiffs in the open

record and the court’s interpretation of the Processing Agreement.

     Under Rule 612 of the Federal Rules of Evidence, if a witness

uses a writing to refresh his memory before testifying, the trial

court is authorized to compel the production of that writing “if

the court determines it is necessary in the interests of justice.”

FED. R. EVID. 612.    As in most discovery matters, the district court

has broad discretion and should only be reversed in an unusual and

exceptional case.        See O’Malley v. United States Fidelity & Guar.

Co., 776 F.2d 494, 499 (5th Cir. 1985).          The plaintiffs have failed

to show that they have a substantial need for the documents or that

production was necessary in the interests of justice.                 If a party

claims that the documents contain matters not related to the

subject matter of the testimony, Rule 612 authorizes the court to

make an in camera inspection and refuse to order production of

documents not so related.          See FED. R. EVID. 612.    Consequently, the

district   was    well    within    its    discretion   to   refuse    to   order

production of the documents after making an in camera inspection

and determining that the documents had little or no relation to the

subject matter of Granberry’s testimony.

                 V.   Plaintiff’s Supplemental Complaint

     Next, the McGills claim the district court erred in denying

them leave to file a supplemental complaint.                   We review the


                                          16
district court’s denial of leave to file a supplemental complaint

for abuse of discretion.   See Lowery v. Texas A&M Univ. Sys., 117

F.3d 242, 245 (5th Cir. 1997).

      On June 27, 1995, after the district court had granted both of

Exxon’s motions for partial summary judgment, the McGills filed

their motion for leave to file a supplemental complaint under Rule

15(d) of the Federal Rules of Civil Procedure.    The district court

denied the motion for leave without comment.

      Under Rule 15(d), the court may permit a party to file a

supplemental pleading setting forth transactions or occurrences or

events which have happened since the date of the pleading sought to

be supplemented.     See FED. R. CIV. P. 15(d).    The McGills have

failed to show, either in its motion to compel filed with the

district court or in its briefs filed with this court, that any

transaction or occurrence or event has transpired in the ten years

since they filed their original complaint.       The McGills cite to

several cases holding that leave to amend should be freely granted

under Rule 15(a).5    While the text of Rule 15(a) provides that

leave should be freely granted, the text of Rule 15(d) does not

similarly provide.   Rule 15(d) is clear that the court may permit

a supplemental pleading setting forth changed circumstances. Here,



  5
    Rule 15(a) provides in pertinent part: “[A] party may amend the
party’s pleading only by leave of court or by written consent of
the adverse party; and leave shall be freely give when justice so
requires.” FED. R. CIV. P. 15(a).

                                 17
as nothing has changed except for the granting of Exxon’s motions

for partial summary judgment, the court was within its discretion

to deny leave to supplement.

                        VI.   The Final Judgment

     Finally, the McGills argue that the district court erred by

rendering final judgment on the entire case when additional issues

allegedly remained unresolved.

      The McGills contend that the two motions for partial summary

judgment did not resolve all the issues in the case, and therefore,

should not have served as a basis for final judgment.          The McGills

argue that the following three claims remain unresolved:             (1) that

after 1985, when the McGill’s gas was no longer legally required to

be   dedicated   to   the   interstate   markets,   Exxon   failed    to   pay

royalties based on the best price available for the gas; (2) that

even if the King Ranch Processing Agreement applies, Exxon breached

its duty to market the gas and liquids processed at the King Ranch

prudently and in good faith; and (3) that the King Ranch Processing

Agreement terminated when the McGills filed this lawsuit.              After

the plaintiffs filed a supplemental brief in the district court

describing the issues which they believe remain unresolved, the

court ruled that the first two “unresolved issues” were foreclosed

by the March 10, 1994 or April 11, 1995 orders granting partial

summary judgment, and the third “unresolved issue” was not raised

until after the district court granted Exxon’s second partial

motion for summary judgment.

                                    18
      We agree.     The first two claims are indeed foreclosed by the

orders granting summary judgment. The third issue--the termination

of the King Ranch Processing Agreement upon the filing of this suit

was never raised by the McGills either in the Consolidated Amended

Appeal, the joint pretrial order, or in response to Exxon’s motions

for summary judgment.        The first time the McGills pleaded this

theory   was   in   their   Motion       for   Leave   to   File   Supplemental

Complaint. Because the district court did not abuse its discretion

in   denying   leave   to   file   the    supplemental      complaint,   it   was

therefore not error for the court to decline to address the merits

of this argument.

      Therefore, for the foregoing reasons, we AFFIRM.




                                         19
JERRY E. SMITH, Circuit Judge, concurring in part and dissenting in

part:



     I respectfully dissent from part II of the majority opinion.

That part affirms the holding that the King Ranch Processing

Agreement   (the   “Agreement”),   rather   than   the   McGill   leases,

governed royalties on liquid plant products.

     The original McGill leases provided more favorable royalty

treatment of liquid gas products than did the Agreement.              The

McGills argue that those leases, and not the Agreement, should

govern the liquids that are separated from the residue gas at the

Kelsey plant but fractionated at the King Ranch plant.        I agree.

     The Agreement applies by its terms to “any gas produced [from

the McGill leases] which may be processed in the [King Ranch]

plant.” The McGills' argument is twofold:       (1) None of their “gas”

was processed at the King Ranch plant; all that was processed at

King Ranch was liquids; and (2) what was done at King Ranch was not

“processing,” but “fractionating.”     I find compelling a variant on

the “gas” argument:   An examination of the Agreement shows that it

did not provide for the treatment of liquids sent to the King Ranch

plant only for fractionation.

     The McGills point to language in the Agreement stating that

“there will or may be three types of gas entering the plant:” (1)

full well stream gas, (2) gas that has been run through a separator

on the lease, and (3) casing head gas.      In a footnote, the majority
quotes this passage but does not deal with it in any way.      To the

contrary, I believe the passage is dispositive on this issue, for,

obviously, the liquids from the McGill leases that entered the

plant were not any of the three types of gas contemplated under the

lease.

     Exxon, in turn, points to caselaw that holds “gas” to include

all the component parts of that which comes out of the well.      See

Sowell v. Natural Gas Pipeline Co., 789 F.2d 1151, 1157 (5th Cir.

1986). Neither Sowell nor the case upon which it is based, Lone

Star Gas Co. v. Stine, 41 S.W.2d 48, 49 (Tex. Comm'n App. 1931,

judgment adopted), provides the unmitigated support that Exxon

seems to assign to it.

     The leases at issue in Sowell specifically provided for

royalties on “sulfur-free gas produced in its natural state.”     See

Sowell, 789 F.2d at 1157 (emphasis added).     Therefore, the royalty

owners could not claim royalties based upon the separate value of

liquid hydrocarbons that condensed downstream from meters located

on the lease.    Under that agreement, “it is production that

triggers the royalty obligation.”    Id.   The gas as producedSSin its

“natural state”SSincluded those hydrocarbons in gaseous form, so

the royalty owners were compensated only on the basis of their

gaseous form.   The Sowell court did not hold that “gas” always

includes all gas products; rather it was limited by the provisions

of the lease at issue stating that royalties would be based on gas


                                21
“in its natural state.”

      Here, the Agreement specifically contemplated the various

manifestations of hydrocarbon molecules and set compensation levels

accordingly.     It provided royalties on plant productsSSbutane,

propane, and other value-added products.             Those royalties were

explicitly based on the state in which the gas arrived at the King

Ranch plant. Thus, products that are “extracted from gas delivered

to the plant without prior separation of liquids from the gas shall

be based on 100% of the value at the plant of the plant products

allocated to such gas.”      On the other hand, for gas that arrived at

the King Ranch plant that “prior to delivery to the plant has been

run through a separator6 on the lease,” the royalty would be based

upon only a third or less of the plant products actually produced

from that gas.

      Thus, the Agreement specifically contemplated that the full

well stream, containing all the liquids, was much more valuable

than gas that arrived at the plant with some liquids missing.

Unlike the agreement in Sowell, the agreement here did not treat

“gas” as including all the component parts of the full well stream.

      Furthermore,    and   perhaps   more   importantly,    there   is   the

specific and unambiguous language of the Agreement to which we must

give effect.    The Agreement purports to cover three specific types


  6
     A separator removes some liquids from the well head stream but does so
incompletely. The Kelsey plant was not merely a separator, but was a bona fide
processing plant that completely removed the liquids from the gas, so that all
that was left was residue gas.

                                      22
of gas, types that do not include the product at issue here.

Moreover, the Agreement establishes a two-tier system for treating

the different sorts of gas, and that system does not address this

product.    Finally,   based   upon     the   overall   scheme   of   the

AgreementSSwhich gives better treatment to products that contain

more liquid hydrocarbonsSSit is difficult to say that this product,

which consists purely of liquid hydrocarbons, should be treated

unfavorably in the way Exxon has done.

     Exxon tries to shoehorn the treatment of liquid hydrocarbons

into an agreement that by its terms does not, and by its structure

cannot, cover those substances.       The Agreement cannot govern the

fractionation of these liquid hydrocarbons. While the majority has

fashioned a fair and logical case for ruling as it has, I believe

it has given insufficient attention to the contract provisions I

have discussed.   Concluding that, on this specific issue, the

result should be otherwise, I respectfully dissent on that issue

but concur in the remainder of the opinion.




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