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Cabot Oil & Gas Corp. v. Newfield Exploration Mid-Continent, Inc.

Court of Appeals of Texas, Seventh District, Amarillo

June 13, 2016

CABOT OIL & GAS CORPORATION, APPELLANT
v.
NEWFIELD EXPLORATION MID-CONTINENT, INC., APPELLEE

         On Appeal from the 31st District Court Wheeler County, Texas Trial Court No. 12, 769, Honorable Steven R. Emmert, Presiding

          MEMORANDUM OPINION

          Before QUINN, C.J., and CAMPBELL and PIRTLE, JJ. [1]

          Brian Quinn Chief Justice.

         This case involves the reservation of an interest in various mineral leases by Cabot Oil and Gas Corporation and whether the affirmative defense of the statute of frauds effectively vitiated a portion of that reservation. Newfield Exploration Mid-Continent, Inc. argued that it did, filed both a traditional and no-evidence motion for summary judgment upon the affirmative defense, and obtained a final summary judgment denying Cabot recovery. Two of the three issues before us pertain to the statute of frauds and the satisfaction of its requirements. The third issue concerns various forms of estoppel and whether they barred Newfield from invoking the statute of frauds. We affirm.

         Background

         Newfield was the operator of the mineral lease in which Cabot purportedly reserved the interest. The reservation appeared in the "Assignment of Oil, Gas and Mineral Leases" (assignment) Cabot executed in favor of Samson Lone Star Limited Partnership. Through the document, Cabot assigned to Samson

all of its right, title and interest in and to the Oil, Gas and Mineral Leases described on Exhibit "A" attached hereto, hereinafter referred to as said Leases, less and except the EEX McCoy #27 -1 wellbore located 791' FSL and 21 07' FWL of Sec. 27 Camp School Lands, Wheeler County, Texas and the 160 acre proration unit surrounding said well from the surface down to 15, 500'.

(Emphasis added). Newfield did not question the legitimacy of that part of the reservation describing the wellbore and its location.

         The language in play here is reference to "the 160 acre proration unit surrounding said well from the surface down to 15, 500'." No "160 acre proration unit" had ever been designated. That circumstance, coupled with the lack of any further description of the property, prevented one from identifying the encompassed acreage with any reasonable certainty, said Newfield. Due to the inability to identify the acreage, Newfield believed that the statute of frauds voided the portion of the reservation pertaining to the 160 acre proration unit. Cabot disagreed, arguing that the proration unit actually referred to the entire southwest quarter of section 27, Camp School Lands.

         Cabot's argument was derived from language appearing in a participation agreement it executed with Newfield's predecessor-in-interest. A portion of that agreement addressed Cabot's option to participate in the drilling of the initial well, that is, the aforementioned McCoy #27-1 well. In paragraph 5.2 of the document, the parties wrote:

EEX shall propose the drilling of the Initial Test Well within the Prospect Area. In the event Cabot does not participate in the drilling of the Initial Test Well proposed and drilled within the Prospect Area, Cabot shall assign to EEX all of its interest in a 640 acre proration unit and all of its interest in two (2) adjoining 640 acre proration units, such proration units to be selected by EEX.

(Emphasis added). Apparently, Cabot combined the phrase "640 acre proration unit" in paragraph 5.2 with the fact that a section of land consists of 640 acres. The combination apparently led it to infer that the parties intended reference to a "640 acre proration unit" to mean a particular section of land within the "prospect area" encompassed by the participation agreement.[2] For instance, a 640 acre proration unit in the Camp County School Lands survey apparently would be the entirety of section 16, or 21 or 22, or 23 or 27 or the like.[3] And, because allusion to a "640 acre proration unit" equated a particular section of land as demarcated in a survey within the "area of mutual interest, " then a "160 acre proration unit" necessarily equaled a specific quarter section of that particular section, or so Cabot would argue. That, in turn, meant the reservation of the "160 acre proration unit" surrounding the "wellbore" of the McCoy #27-1 well encompassed the entire southwestern quarter section of section 27 since the well was located in that quarter section.

         The trial court rejected Cabot's interpretation of the phrase "160 acre proration unit" when it granted Newfield's motion for summary judgment. It also rejected Cabot's effort to use the theory of estoppel as a means of preventing Newfield from invoking the statute of frauds. As previously mentioned, we have been asked to revisit those decisions.

         Issues One and Three - ...


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