                                                                                               ACCEPTED
                                                                                           04-14-00905-CV
                                                                               FOURTH COURT OF APPEALS
                                                                                    SAN ANTONIO, TEXAS
                                                                                      11/2/2015 3:16:56 PM
                                                                                            KEITH HOTTLE
                                                                                                    CLERK

                                No. 04-14-00905-CV

                                                                          FILED IN
                                                                   4th COURT OF APPEALS
                    In the Fourth District Court of Appeals         SAN ANTONIO, TEXAS
                              San Antonio, Texas                   11/2/2015 3:16:56 PM
                                                                     KEITH E. HOTTLE
                                                                           Clerk
                            Escondido Resources II, LLC,
                                     Appellant,

                                            v.

                        Justapor Ranch Company, L.C.,
                                   Appellee.


                   On Appeal from the 49th Judicial District Court
                               Webb County, Texas,
                        Cause No. 2013-CV7-001396-D1


                    ESCONDIDO’S ORAL ARGUMENT EXHIBITS


James P. Keenan               Robert Dubose                  Wallace B. Jefferson
State Bar No. 11167850        State Bar No. 00787396         State Bar No. 00000019
keenan@buckkeenan.com         rdubose@adjtlaw.com            wjefferson@adjtlaw.com
J. Robin Lindley              ALEXANDER DUBOSE               Rachel A. Ekery
State Bar No. 12366100        JEFFERSON & TOWNSEND LLP       State Bar No. 00787424
lindley@buckkeenan.com        1844 Harvard Street            rekery@adjtlaw.com
BUCK KEENAN, LLP              Houston, Texas 77008           ALEXANDER DUBOSE
700 Louisiana, Suite 5100     Telephone: (713) 523-2358      JEFFERSON &TOWNSEND LLP
Houston, Texas 77002          Facsimile: (713) 523-4553      515 Congress Avenue
Telephone: (713) 225-4500                                    Suite 2350
Facsimile: (713) 225-3719     Additional counsel listed on   Austin, Texas 78701
                              next page                      Telephone: (512) 482-9300
                                                             Facsimile: (512) 482-9303


               ATTORNEYS FOR ESCONDIDO RESOURCES II, LLC
                                         TABLE OF CONTENTS

                                                                                                                   Tab

The results of different conclusions about lease forfeiture.......................................1

III(b) - original lease provision – amount of monthly production royalties ............. 2

III(g) - accounting / adjustment payments ................................................................3
XIV – deadline for monthly production royalties / results of missing
     deadline ...........................................................................................................4
Lease Amendment – amended amount of monthly production royalties ................. 5
               The results of different conclusions about lease forfeiture



     Does lease language require termination for                        Result
        failure to reconcile underpayments?

    1 – Unambiguously “no” – Only Escondido’s           No termination (reverse and render)
    interpretation is reasonable

    2 - Ambiguous – Both interpretations are            No termination (reverse and render)
    reasonable

    3 – Unambiguously “yes”, but not clear and          No termination (reverse and render)
    unequivocal: (1) only Justapor’s interpretation
    is reasonable, but (2) language is not clear and
    unequivocal 1

    4 – Unambiguously “yes” and clear and               Termination (affirm)
    unequivocal: (1) only Justapor’s interpretation
    is reasonable, and (2) language is clear and
    unequivocal.




For authorities, see Brief of Appellant at 33-37.




1
 Outdoor Sys., Inc. v. BBE, L.L.C., 105 S.W.3d 66, 71 (Tex. App.—Eastland 2003, pet. denied).
For the application of a “clear and unequivocal” standard in another context, see Sparks v. Texas
S. Univ., 824 S.W.2d 328, 330 (Tex. App.—Houston [1st Dist.] 1992, no writ) (requiring “explicit”
waiver of state immunity to suit).
III(b) - original lease provision – amount of monthly production royalties 2

                                                “III.

         The royalties to be paid by Lessee to Lessor are as follows, to-wit: ...

       (b) On all gas production from this lease, ... Lessee shall calculate and pay royalties
to Lessor on One-Fourth (1/4th) of all gas produced from this lease and its constituents and
products sold or used therefrom, which royalties shall be calculated and paid to Lessor
based upon the highest of

         (i) the CURRENT MARKET VALUE of such gas production from this lease
         which is sold by, through or under Lessee or used by, through or under
         Lessee,

         (ii) the CURRENT HOUSTON SHIP CHANNEL PRICE for such gas
         production, as hereinafter defined, or

         (iii) the CURRENT PROCEEDS REALIZED BY LESSEE for such gas
         production, without deduction of any costs or expense except as hereinafter
         stipulated or,

         (iv) the highest sales price of any gas were gas produced from the property
         could be present when sold to a third party.”




2
    CR3:982 ¶III(b) (returns, indentation, emphasis added).


                                                 2
III(g) - accounting / adjustment payments 3


Paragraph III(g) discusses topics including:

Accounting

         “In accounting to Lessor for royalties payable hereunder, Lessee shall be
         required, on a monthly basis, if requested by Lessor, to account to Lessor for
         each well on leased premises based upon the volume of production....”

Overpayment

         “If it is agreed by Lessor or the royalty owner in question that a royalty owner
         was overpaid, then the overpaid royalty owner has the option of repaying
         such overpayment or allowing Lessee to recoup such overpayment out of
         future royalty payments on a schedule and in monthly amounts agreed to by
         such overpaid royalty owner and Lessee. Any overpaid royalty owner shall
         not be charged interest on overpaid sums....”

Underpayment

         “In the event the prices and/or volumes used by Lessee in calculating and
         payment of production royalties paid to Lessor was less than those required
         to be paid, Lessee shall issue its check to make up the difference on or before
         March 1st of each year.”




3
    CR3:987-88 ¶III(g).


                                                3
XIV – deadline for monthly production royalties / results of missing deadline4

“Royalties payable to Lessor in the manner hereinabove provided for are due and payable
to Lessor within a period of sixty (60) days following each month’s production of oil or
gas produced and sold from the premises. Thereafter, such payments shall be delinquent
and will bear interest at the rate of Ten (10%) percent per annum, compounded monthly,
until paid. In the event that such royalties are not paid and become delinquent, and there is
no title dispute or title defect, this lease shall terminate ipso facto on the date that such
royalties were due and not paid. In the event such royalties are not paid and become
delinquent, Lessor without other notice than this paragraph, shall be authorized to file suit
in the District Court of Webb County, Texas, for recovery of such delinquent royalties.…”




4
    CR3:996-97 ¶XIV (emphasis added).


                                             4
Lease Amendment – amended amount of monthly production royalties

                                                    “2.
         Paragraph III is amended to provide:

(a)      On all oil and other liquid hydrocarbons produced from this lease, Lessee shall be
         required to pay Lessor the higher of one-fourth (1/4th) of the posted price for similar
         type of oil produced in Texas Railroad District 4 (as said region now exists) or for
         similar type of oil produced from this lease or the current market value of that
         produced and saved from said land, subject only to deductions imposed by
         purchaser, if any, for transportation of product to the purchasers facility. All oil or
         other liquid hydrocarbons produced from this lease shall be treated and stored on
         this lease until purchased by Lessee.

(b) II The term “HOUSTON SHIP CHANNEL PRICE” shall be construed to mean the
       price or value which is equal to the highest reported on-shore spot purchase price
       being paid during the month of production by purchasers of gas produced in the
       Texas Gulf Area, to be determined on a monthly basis by reference to the index spot
       gas price (large packages only) for gas delivered to pipelines at Houston Ship
       Channel/Beaumont, Texas, as recorded in Inside F.E.R.C. vs. Gas Market Report
       published by McGraw-Hill, minus five (.05) cents per MMBtu, (an agreed upon
       reasonable transportation charge for this lease production) adjusted for MMBtu
       content, and without any other deduction by Lessee save unreimbursed severance
       taxes actually paid by the Lessee In behalf of Lessor to the taxing authority. In the
       event the above designated gas price Index publication ceases to exist, (or ceases to
       report such "Houston Ship Channel Price" hereinabove referred to), the lessor and
       Lessee shall agree on another publication generally acceptable as providing
       comparable accurate current data as to current on-shore spot prices for gas delivered
       Into pipelines by purchasers In said area, which substituted publication shall be used
       in lieu of the above-described publication as part of the foregoing standard, upon
       which Lessor's royalty shall be calculated and paid. In the event no price Index
       publication can be agreed upon as reliable, then a reliable governmental or other
       non-partisan publication evaluating the same Information. shall be used, with
       current payments to be made on the most current Information available and then
       adjusted, as necessary, within thirty (30) days following the availability of the
       governmental data or other nonpartisan publication, or if no such publication is
       available for purposes, hereof, this standard, as an element for calculation of
       Lessor’s royalties shall cease to exist. Provided however, Lessee shall have the right
       to enter into gas sales’ contracts that will determine the price upon which gas
       royalty is calculated if such contracts provide no less than a price redetermination
       every six months and provide the following minimum terms:

Price:


                                                5
         The price to be paid by Buyer to Seller for each MMBtu of Gas purchased hereunder
         shall be: (i) ninety-five percent (95%) of the “Houston Ship Channel Index Price”
         for monthly volumes averaging 8,000 Mcf per day or less; (ii) ninety-six percent
         (96%) of the “Houston Ship Channel Index Price” for monthly volumes averaging
         5001- 10,000 Mcf per day; (iii) ninety-seven percent (97%) of the “Houston Ship
         Channel Index Price” for monthly volumes averaging 10,001- 15,000 Mcf per day;
         and (iv) ninety-eight percent (98%) of the “Houston Ship Channel Index Price” for
         monthly volumes averaging over 15,000 Mcf per day....[additional minimum terms
         omitted].

         Provided further, Lessor shall provide copies of such contracts, and any
         amendments thereto, to Lessee upon execution along with a written statement that
         such contract indicates that all compensation received by Lessee for sale of the gas,
         and Lessor has at all times the right to take his gas in kind as provided herein.” 5




5
    CR3:1014-15 (emphasis added).


                                               6
                            Respectfully submitted,

                                      /s/Robert Dubose
James P. Keenan                       Robert Dubose
State Bar No. 11167850                State Bar No. 00787396
keenan@buckkeenan.com                 rdubose@adjtlaw.com
J. Robin Lindley                      ALEXANDER DUBOSE JEFFERSON
State Bar No. 12366100                  & TOWNSEND LLP
lindley@buckkeenan.com                1844 Harvard Street
BUCK KEENAN, LLP                      Houston, Texas 77008
700 Louisiana, Suite 5100             Telephone: (713) 523-2358
Houston, Texas 77002                  Facsimile: (713) 523-4553
Telephone: (713) 225-4500
Facsimile: (713) 225-3719             Wallace B. Jefferson
                                      State Bar No. 00000019
                                      wjefferson@adjtlaw.com
                                      Rachel Ekery
                                      State Bar No. 00787424
                                      rekery@adjtlaw.com
                                      ALEXANDER DUBOSE JEFFERSON
                                        &TOWNSEND LLP
                                      515 Congress Avenue, Suite 2350
                                      Austin, Texas 78701
                                      Telephone: (512) 482-9300
                                      Facsimile: (512) 482-9303

                                      Kirsten Castañeda
                                      ALEXANDER DUBOSE JEFFERSON
                                        &TOWNSEND LLP
                                      4925 Greenville Avenue, Suite 510
                                      Dallas, Texas 75206
                                      Telephone: (214) 369-2358
                                      Facsimile: (214) 369-2359

                       ATTORNEYS FOR APPELLANT




                                      7
                             CERTIFICATE OF SERVICE

      On November 2, 2015, I electronically filed the Oral Argument Exhibits with

the Clerk of Court using the eFile.TXCourts.gov electronic filing system which will

send notification of such filing to the following:

 Timothy Patton                               Jose M. Rubio, Jr.
 TIMOTHY PATTON, P.C.                         JOE RUBIO LAW FIRM
 14546 Brook Hollow #279                      1000 Washington Street, Suite 4
 San Antonio, Texas 78232                     Laredo, Texas 78040
 tpatton@tp-pc.com                            joerubio@joerubiolawfirm.com

 Patton G. Lochridge
 MCGINNIS LOCHRIDGE & KILGORE LLP
 600 Congress Avenue, Suite 2100
 Austin, Texas 78701
 plochridge@mcginnis1aw.com


                                                /s/Robert Dubose
                                                Robert Dubose




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