Court of Appeals of Texas, Fourth District, San Antonio
[Copyrighted Material Omitted]
From the 81st Judicial District Court, La Salle County, Texas. Trial Court No. 11-08-00129-CVL. Honorable Stella Saxon, Judge Presiding.
Mark C. Harwell Cotham, Harwell & O'Conor, P.C., Houston, TX.
O. F. Jones Law Offices of O.F. Jones, III, Victoria, TX.
David E. Jackson Jackson, Sjoberg, McCarthy & Townsend, L.L.P., Austin, TX.
John Matthew Sjoberg Jackson, Sjoberg, McCarthy & Townsend, L.L.P., Austin, TX.
Sitting: Karen Angelini, Justice, Patricia O. Alvarez, Justice, Luz Elena D. Chapa, Justice.
Luz Elena D. Chapa, Justice.
In this appeal from a declaratory judgment, we must construe a 1993 contract to determine the allocation of royalties from a horizontal well that begins on the property of the appellant, Springer Ranch, Ltd., but ends under the property of Rosalie Matthews Sullivan, one of the appellees. Our construction will also govern the allocation of royalties to future horizontal wells covered by the contract. The trial court held the contract required royalties from the horizontal well in dispute, and any future horizontal wells crossing the parties' property lines, must be allocated based on the productive portions of the well underlying the parties' properties. We affirm.
Origin of the Parties' Interests
The parties to this appeal are the heirs or successors-in-interest to Alice Burkholder, who owned 8,545 acres of land in La Salle County, Texas, and Webb County, Texas. The property is centered around Encinal, Texas. Alice executed an oil and gas lease on the entire property in 1956 that is still in force today. Upon her death, Alice's will devised her property interest as a life estate in her husband, Joseph Burkholder. The will divided the remainder interest into three tracts and devised the tracts to the parties' predecessors-in-interest. Joseph passed away in 1990, and the land was divided in accordance with the will. Springer Ranch, successor-in-interest
to Barbara Welhausen Springer, holds the portion of the original Burkholder tract " lying North of the Krugerville Road and West of Highway 81 [now U.S. Interstate 35]." Rosalie Matthews Sullivan, successor-in-interest to Lawrence Matthews, holds the " land lying on the East side of Highway 81 [I-35]." The " land lying South of the Krugerville Road and West of Highway 81" is held by some combination of O.F. Jones III, Margaret Matthews, Ethel Matthews Rust, and Elizabeth Matthews, as successors-in-interest to Anthony Matthews. Springer Ranch and Sullivan own the entire undivided interests in their tracts of land and the lease benefits from their tracts. O.F. Jones and the remaining Matthews parties have entered into a partition agreement with respect to the third tract.
In 1993, the parties to this appeal or their predecessors-in-interest executed the contract at issue in this case. The contract recites in part:
WHEREAS, a question has arisen as to the ownership of royalties payable under the [Burkholder] lease to the owners of the various tracts of land above described; and
WHEREAS, the parties wish to settle such question by means of this instrument;
The operative language of the agreement provides:
[the parties] contract and agree with each of the other parties, that all royalties payable under the above described Oil and Gas Lease from any well or wells on said 8,545.02 acre tract, shall be paid to the owner of the surface estate on which such well or wells are situated, without reference to any production unit on which such well or wells are located . . . .
This agreement affected six vertical wells at the time it was made with two wells situated on each subdivided tract.
This 1993 contract operated for almost two decades prior to the drilling of the first horizontal well under the Burkholder lease. This well, the Springer Ranch No. 2 well (" the SR2 well" ), begins on Springer Ranch's property, crosses the boundary line between Springer Ranch's property and Rosalie Matthews Sullivan's property, and terminates under Sullivan's property. When Sullivan became aware of the nature of the SR2 well, she negotiated with Springer Ranch to receive a portion of the royalties from that well. After those negotiations failed, she made a demand for a portion of the royalties to the well's operator. The operator ceased paying royalties until the dispute was resolved between Springer Ranch and Sullivan. We have reproduced the following image from the record to illustrate the situation of the SR2 well.
With respect to the SR2 well, Springer Ranch is in the position of " Surface Owner A," and Sullivan is in the position of " Surface Owner B." The illustration does not purport to be to scale.
Springer Ranch then sued Sullivan and the other parties in a declaratory judgment action. It moved for summary judgment, seeking a declaration that it was entitled to receive all the royalties from the SR2 well under the 1993 contract, and that the same allocation applied to future horizontal wells covered by the contract. ...