Apache Corporation v. Apollo Exploration, LLC Cogent Exploration, Ltd., Co. And Sellmoco, LLC ( 2023 )

Supreme Court of Texas
══════════
No. 21-0587
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Apache Corporation,
Petitioner,
v.
Apollo Exploration, LLC; Cogent Exploration, Ltd., Co.;
and SellmoCo, LLC,
Respondents
═══════════════════════════════════════
On Petition for Review from the
Court of Appeals for the Eleventh District of Texas
═══════════════════════════════════════
Argued October 27, 2022
JUSTICE YOUNG delivered the opinion of the Court.
Contracts regularly address time: when a contractual relationship
begins or ends; by when a party must perform; after when it has become
too late to do so. Such vital matters illustrate that contractual clarity is
often every bit as important when talking about time as about anything
else. Clarity comes from sound drafting, but sound drafting relies on
confidence in the courts’ ability and willingness to consistently interpret
similar provisions. Since this Court’s earliest days, we have confronted
contracts that use the words “from” or “after” a specified date to measure
a length of time. To enhance clarity, provide certainty, and prevent future
disputes, our cases have long followed a default common-law rule in that
circumstance, under which we must treat the time period as excluding
the specified date (which we can call the “measuring date” for calculations).
A period measured in years “from” or “after” a measuring date, therefore,
ends on the anniversary of the measuring date, not on the day before the
anniversary. See Home Ins. Co., N.Y. v. Rose, 255 S.W.2d 861, 862 (Tex.
1953). A year “from” or “after” June 30 ends on June 30 of the following
year, not June 29.
This default rule is just a default. It does not even apply if time
periods are not measured “from” or “after” a given date. Even when the
rule does apply, parties may freely depart from it by demonstrating a
clear contrary intent within their agreement, such as by expressly
providing a different method for calculating time. They also can simply
state the exact date on which a period ends. Texas courts will enforce
any lawful agreement about how to measure or compute time.
In this case, however, the parties’ agreement implicates the default
rule without displacing it. We must therefore apply the default rule to
the parties’ dispute. Because the court of appeals did not do so—and
because we also conclude that it incorrectly construed other contractual
provisions at issue—we reverse its judgment on the issues presented for
our review and remand the case to that court for further proceedings.
I
The facts and procedural history are complex, but at its core this
case concerns whether petitioner, Apache Corporation, breached its
2
purchase-and-sale agreements, or “PSAs,” with respondents (whom we
collectively call the “Sellers”).1 In those PSAs, Sellers sold 75% of their
working interests in 109 oil-and-gas leases to Apache. The parties ask
us to resolve key questions of contract construction.
A
In 2007, respondent Cogent Exploration entered into an oil-and-
gas lease for the Bivins Ranch in the Texas Panhandle. Respondents
Apollo Exploration and SellmoCo also owned an interest in the lease,
and so did Gunn Oil Company. Collectively, Sellers and Gunn owned
98% of the working interest in the Bivins Ranch lease and a number of
other leases within what Apache, Gunn, and Sellers called the “Bivins
Area,” with Gunn having the largest interest at 50.17%.2 The Bivins
Ranch lease originally included 101,287.35 acres, but in 2008 it was
amended to add another 14,731.72 acres.
The Bivins Ranch lease stated that its effective date was January
1, 2007, “from which date the anniversary dates of this Lease shall be
computed.” (Emphasis added.) The lease also provided that it would
“be in force for a Primary Term of three years from the effective date of
this Lease.” (Emphasis added.)
The parties simultaneously executed and recorded a memorandum
of lease. Parties often execute a memorandum of lease to provide record
1 Respondents are Apollo Exploration, LLC; Cogent Exploration, Ltd.,
Co.; and SellmoCo, LLC.
2 Gunn was followed by Cogent (31.17%), Apollo (15.67%), and SellmoCo
(1%). Other companies not involved in the transactions between Apache and
Sellers (and not in this lawsuit) owned the other 2%.
3
notice of the lease while keeping the lease details confidential. See, e.g.,
2 Eugene Kuntz, A Treatise on the Law of Oil and Gas § 19.16 (Supp.
2022); 5 Nancy Saint-Paul, Summers Oil and Gas § 56.2 (rev. 3d ed.
2018). For example, in this case, the lease stated that the memorandum
was executed “to give record notice of this Lease” and barred the parties
from recording the lease itself without the lessors’ consent.
The memorandum summarized the lease: it named the parties,
described the land, listed some of the lease’s provisions, and stated that
“Lessors do hereby demise, lease, and let unto Lessee the lands
described above upon the terms and conditions of the Lease.” However,
the memorandum also made clear that the lease, not the memorandum,
governed the parties’ relationship. The memorandum stated that the
lease was “upon the terms, for the consideration, and subject to the
conditions in the Lease specified.” Notably, the memorandum listed
December 31, 2009, as the primary term’s expiration date.
The end of the primary term did not necessarily mean the end of
the lease. The Bivins Ranch lease allowed the lease to continue after
the expiration of the primary term under certain conditions. Relevant
here is the lease’s continuous-drilling provision. To continue the lease
under this provision, the lease required a producing well3 to be located
on the land before the primary term expired. If this prerequisite was
met, the lessee then had to create three equally sized blocks and to
“conduct[] continuous drilling operations on each designated block” by
drilling 20,000 feet in each block each year.
A shut-in gas well or a “well for which drilling operations have
3
commenced” also satisfied this requirement.
4
Sellers and Gunn therefore could extend the lease. Before the
primary term expired, they drilled a well and divided the lease into the
required three blocks. (One of them—the North Block—turned out to be
especially significant for this case.) That division did not initially play
an important role because annual lease amendments for 2010 to 2014
permitted treating the three blocks as one. Specifically, the lease
could—and for each of those years did—continue by drilling 60,000 feet
in the aggregate.
During that period, in March 2011, Sellers and Gunn sold 75% of
their working interest in the Bivins Area leases to Apache. This gave
Apache a 73.5% working interest in those leases.4 The four companies
each executed substantively identical purchase-and-sale agreements
with Apache, and two PSA provisions are particularly significant here.
First, § 2.5 allowed each Seller to “back in” for up to one-third of
the interests it conveyed to Apache if the leases reached “Two Hundred
Percent (200%) of Project Payout.”
Second, § 4.1 required Apache to provide Sellers by November 1
of each year a “written budgeted drilling commitment” for the “upcoming
calendar year.” If this commitment contemplated or would result in the
loss or release of any of the leases in the next year, Apache was required
to offer “all of [its] interest in the affected Leases (or parts thereof) to
Seller at no cost to Seller.” If the seller company accepted, Apache was
required to “transfer and assign the affected Leases (or parts thereof) to
4 Gunn and Cogent also sold Apache 75% of their working interest in
certain leases in an area called the “Tascosa Dome,” giving Apache a 60.6%
interest in those leases. Together, the Bivins Area and Tascosa Dome leases
constitute the 109 leases at issue in this case.
5
Seller.” Apache had to make a good-faith effort to follow the commitment,
but Apache was not liable if it was unable to fulfill the commitment’s
objectives despite those efforts.
Also significant is the PSAs’ incorporation of a joint operating
agreement (JOA) between Apache as operator and the four seller
companies (Sellers and Gunn) as nonoperators for the Bivins Area
leases.5 In 2014, Apache bought out Gunn’s interest in the leases, as
well as Gunn’s PSA rights.
B
This brings us to 2015. Until then, the annual amendments had
allowed drilling 60,000 feet in the aggregate to extend the lease. But
the Bivins family declined to again amend the lease, so the original
20,000-foot-per-block requirement went into effect for 2015. That
requirement was not met for the North Block for that year. Apache and
Sellers agree that the North Block expired. But—in what is the central
question in this case—they disagree on the precise date it expired.
In Sellers’ view, the North Block expired or was released on
December 31, 2015 (or at some other unspecified time in 2015 when
Apache ceased to comply with the continuous-drilling provision). Apache
contends that the North Block expired one day later: January 1, 2016.
The unusual features of this case mean that this single-day
discrepancy could entail a full-year consequence. As noted above, § 4.1
required Apache to offer back leases that its annual written budgeted
drilling commitment anticipated losing or releasing in the next calendar
5 The PSAs also incorporated a separate JOA for the Tascosa Dome area.
6
year. For each calendar year, the deadline for submitting the written
commitment was November 1 of the year before. Therefore, written
commitments submitted November 1, 2014, covered leases anticipated
to be lost or released between January 1, 2015, and December 31, 2015.
Written commitments submitted November 1, 2015, covered leases
anticipated to be lost or released between January 1, 2016, and
December 31, 2016.
Sellers therefore argue that, if their expiration date of December
31, 2015, is correct, then § 4.1 of the PSAs required Apache to have
offered the North Block back to Sellers on November 1, 2014—the
deadline for Apache’s 2015 written commitment. Apache argues that if
its expiration date of January 1, 2016, is correct, then § 4.1 required
Apache to have offered back the North Block on November 1, 2015—the
deadline for Apache’s 2016 written commitment.6
What difference does all this really make? Oil prices and land
values plunged between 2014 and 2015, so the single-day dispute over
the expiration turns out to matter a great deal. According to Apache,
approximately $180 million of potential damages rides on the answer to
whether the North Block portion of the lease expired on New Year’s Eve
or New Year’s Day.
C
It is not as though the relationship among the parties was smooth
6 Apache does not necessarily agree that Sellers’ theory of calculating
damages is correct—it simply points out that if it is correct, then the one-day
difference in expiration dates would have a one-year difference regarding when
the relevant calculation would be made.
7
sailing up until they suddenly discovered that the North Block had
expired. To the contrary, Apollo and Cogent first sued Apache in April
2014 (about matters primarily related to § 2.5). SellmoCo joined them
ten months later. Over time, Sellers added additional claims.
Eventually, and most relevant here, Sellers alleged that Apache failed
to comply with its PSA obligations (1) related to the § 2.5 back-in trigger7
and also (2) under § 4.1.8
As for § 4.1, Sellers alleged that Apache failed to provide the
required annual written budget commitments, failed to offer its interests
in expiring leases back to Sellers, and allowed over a hundred leases to
terminate—including the North Block—without offering them back to
Sellers. According to Sellers, Apache reacquired some of these leases on
its own, “washing out” Sellers’ interest.9
Apache filed four partial summary-judgment motions regarding
the issues presented to this Court pertaining to the construction of the
PSAs and the Bivins Ranch lease:
(1) Back-in trigger. Apache asked the trial court to hold that
“Two Hundred Percent (200%) of Project Payout” in § 2.5 of the
PSAs meant that Apache had to reach a 2:1 return on
7Sellers alleged that Apache failed to provide required written payout
statements (required by § 4.2 of each PSA) for 2012 and 2013 showing the
progress toward Project Payout and the back-in trigger; overcalculated buyout
balances (the amount for each Seller to pay the difference necessary to exercise
the back-in trigger) once it did provide a payout statement; and failed to
respond in a timely manner to Sellers’ audit exceptions.
8 Claims regarding the North Block were added in March 2016.
9Sellers also alleged that Apache failed to provide them the opportunity
to acquire their proportionate share of after-acquired acreage as required by
the JOAs.
8
investment before Sellers could exercise the back-in trigger;
that, if a 2:1 return on investment was not required, the back-
in trigger was too indefinite to enforce; that the back-in trigger
must be based on costs and revenues attributable to the entire
interest Apache received from each Seller, not just one-third
of that interest; and that “Project Payout” includes all of
Apache’s actual costs. The trial court granted this motion “in
all of its particulars.”
(2) Construction of and Apache’s compliance with § 4.1 of
each PSA. Apache asked the trial court to hold that Apache
was not liable for any of the terminated leases. Specifically,
Apache argued that it provided the required annual
commitments; that it had no obligation to offer back any leases
until November 1, 2015, and that it complied with that
obligation once it arose; and that it was not otherwise liable
for any other terminated leases because of § 4.1’s exculpatory
clause. Alternatively, Apache asked for a holding that
(1) “Leases” in § 4.1 meant only the 109 leases listed in
Schedule 1.2(a) of each PSA and (2) “affected Leases” meant
only the leases that would be lost or released because of each
annual commitment. The trial court granted this motion as to
the meaning of “affected Leases.”
(3) North Block expiration date. In a traditional and no-
evidence summary-judgment motion, Apache asked the trial
court to hold that the North Block of the Bivins Ranch lease
expired on January 1, 2016, and that any damages must
9
therefore be calculated as of November 1, 2015 (the deadline
for Apache’s 2016 commitment); that there was no evidence
that Apache’s 2015 commitment (due November 1, 2014)
contemplated or would result in the North Block’s release
during 2015; and that there was no evidence of damages for
Sellers’ § 4.1 claims if the trial court excluded certain expert
testimony. The trial court granted the motion.
(4) Former Gunn interest. Apache asked the trial court to hold
that “all of Purchaser’s interest” in § 4.1 of each PSA referred
only to the respective interest Apache had acquired from each
individual Seller—i.e., that § 4.1 contemplated offering back to
a given Seller only what that Seller had sold, rather than
offering each Seller all the interests in the same lease that
Apache had purchased from all other sellers. Specifically,
Apache argued that it was not required to offer back the former
Gunn interest to Sellers. The trial court granted the motion.
Apache also filed two motions approximately a year apart to
exclude the testimony of Peter Huddleston, one of Sellers’ expert
witnesses on damages.10 The trial court granted the first to the extent
Huddleston’s testimony was based on a December 31, 2015 expiration
date for the North Block. The trial court granted the second in full.
Finally, Apache brought a no-evidence motion for partial summary
judgment on Sellers’ claims for breach of contract, negligence, gross
negligence, common-law fraud, promissory fraud, fraud by nondisclosure,
10 Sellers had also designated two other expert witnesses on damages,
but the trial court excluded both.
10
statutory fraud, and conversion. Apache argued that Sellers had no
evidence of damages and could not prevail on their claims. The trial
court granted the motion. It also rendered final judgment for Apache.
The court of appeals reversed in part and affirmed in part. 631
S.W.3d 502 (Tex. App.—Eastland 2021). Relevant here, the court of
appeals held that:
(1) a fact issue exists as to the date the North Block expired or
was released, id. at 531;
(2) § 4.1 of the PSAs required Apache to offer back all its interest
in any affected lease, including the former Gunn interest, to
Sellers, id. at 519–22;
(3) Apache failed to demonstrate that it was entitled to its
requested declarations on § 2.5 of the PSAs, id. at 524–26;
(4) the trial court should have allowed Huddleston’s testimony,
id. at 541; and
(5) except for Sellers’ conversion claim,11 the trial court should not
have granted Apache’s no-evidence summary-judgment
motion on damages, id. at 545.
D
This appeal requires us to answer three key questions. First, as
11 As presented to us, Sellers’ remaining claims are for breach of
contract, negligence and gross negligence, common-law fraud, promissory
fraud, fraud by nondisclosure, and statutory fraud. Sellers nonsuited their
claims for an accounting, declaratory judgment, and trespass to try title. The
court of appeals affirmed the summary-judgment orders on Sellers’ claims for
breach of express trust, breach of fiduciary duty, misapplication of fiduciary
property, and conversion. See 631 S.W.3d at 533, 544–45. Sellers do not ask
us to review these issues.
11
a matter of law, did the North Block expire on December 31, 2015, or
January 1, 2016?12 Second, does § 4.1 of the PSAs require Apache to
offer the former Gunn interest to Sellers? Third, what does “200% of
Project Payout” mean under § 2.5 of the PSAs? We must also determine
whether the trial court properly excluded Huddleston’s testimony and
properly granted Apache’s no-evidence summary-judgment motion on
Sellers’ remaining claims. We address each issue in turn.
II
We first turn to the North Block’s expiration date. During the
relevant time period, the primary term had expired and Apache was
operating under the continuous-drilling provision. Under the lease
language then in effect, continuing the lease rested on satisfying certain
requirements “each year after the expiration of the Primary Term.” The
North Block’s expiration date under the continuous-drilling provision,
therefore, turns on the primary term’s end date. Based on our precedent
and the language the parties used, we hold that the primary term
expired on January 1, 2010, and that the North Block therefore expired
on January 1, 2016.
A
Computing time periods has long been a source of confusion in a
variety of contexts. A difficult case in the first volume of the Texas
12 Under this case’s procedural posture, the parties have not asked us to
resolve whether Apache breached § 4.1 by not offering the North Block back to
Sellers. We accordingly take no position on that question. Instead, we address
only the date the North Block expired, which is relevant to determining damages
to the extent Apache did breach § 4.1.
12
Reports struggled with this question. See O’Connor v. Towns, 1 Tex.
107, 109–17 (1846). Each subsequent century has brought a host of new
cases. See, e.g., Hazlewood v. Rogan, 67 S.W. 80, 83–84 (Tex. 1902);
Nesbit v. State, 227 S.W.3d 64, 67–69 (Tex. Crim. App. 2007). The
particular context of today’s case—calculating a time period “from” or
“after” a particular date—has been especially recurring.
As we describe in some detail below, this Court has recognized a
common-law rule that operates to alleviate the apparent confusion and
to provide predictability to parties who choose to measure dates by using
language of that kind. The rule provides that the measuring date—the
date “from” or “after” a period is to be measured—is excluded in
calculating time periods. For periods of years, therefore, the period ends
on the anniversary of the measuring date, not the day before the
anniversary. See Home Ins., 255 S.W.2d at 862. Thus, under this
principle, a period measured in years “from” or “after” June 30 (the
measuring date) will end on a future June 30, not a future June 29.
Adopting this frequently used formulation, as the parties did in
this lease, must be taken as signaling their intent to embrace the
common-law rule. Significant benefits attend this choice because using
language for which the courts have recognized a definite meaning
bestows certainty regarding how courts will interpret and enforce that
language in the event of a dispute. But like other common-law rules
that provide for the construction of contractual text, this well-settled
default rule in no way prevents parties from choosing their own terms.
See, e.g., Perthuis v. Baylor Miraca Genetics Lab’ys, LLC, 645 S.W.3d
228, 234 (Tex. 2022).
13
Parties can displace the default rule by adopting text that
requires some other result. If they do, our courts will enforce any lawful
agreement regarding the calculation of time without requiring any
particular formulation or magic language. For example, the parties here
could have said in the lease, as they did in the memorandum, that the
primary term ended on a date certain. Parties can choose from a myriad
of other ways to clearly measure time; they may devise their own
bespoke methods, too.
The law has no real interest in which method parties select to
measure time periods. But it is of exceptional importance that the law
provide maximum interpretive clarity to those who enter into
agreements, to third parties who may later enter into a contractual
relationship governed by an existing contract, and to those who may make
important decisions in reliance on such a contract’s meaning. The clearer
the law is to parties when they draft legal instruments, the more likely
it is that their agreed text will reflect, and the courts in turn will enforce,
their actual intent. See id. at 236. Reliable rules of construction achieve
this result by eliminating—or at least greatly reducing—ambiguity. In
the aggregate, the clarity of legal rules like this one provides substantial
hidden savings by preventing wasteful and costly litigation.
The rule applicable to this case is a stable one that we have
articulated since the earliest years of Texas statehood. For example, in
addressing a statute imposing a deadline for perfecting an appeal to this
Court, we put it this way:
It is a well-settled rule respecting the computation of time
that where it is to be computed from or after a certain day
from an act done, the day on which the act is done is to be
14
excluded in the computation unless it appear[s] that a
different computation was intended.
Burr v. Lewis, 6 Tex. 76, 81 (1851). In other words, by 1851, it was
already clear that both parts of the rule—the default presumption and
the parties’ freedom to displace it—were “well-settled.”
We have since repeatedly observed that the “weight of authority”
is that “in construing a lease” or other legal text with a time period
“which is to run ‘from’ a day for a certain number of days, months, or
years, ordinarily the day from which it is to run is to be excluded.”
Hazlewood, 67 S.W. at 83. We have applied this principle in multiple
contexts, including determining a promissory note’s maturity date,
Young v. Van Benthuysen, 30 Tex. 762, 768 (1868); calculating time from
the rendition of a judgment, Lubbock v. Cook, 49 Tex. 96, 100–01 (1878);
establishing the time frame for filing suit after the rejection of a claim
against an estate, Hunter v. Lanius, 18 S.W. 201, 202–03 (Tex. 1892);
and in calculating a grace period for payment of a life insurance policy,
Aetna Life Ins. Co. v. Wimberly, 112 S.W. 1038, 1039 (Tex. 1908).13
13 It is usually clear when parties depart from the default rule, but we
have also had occasion to elaborate on the kind of circumstances that constitute
sufficient indicia of objective intent to do so. For example, McGee v. Corbin, 70
S.W. 79 (Tex. 1902), concerned the state’s distribution of land parcels to raise
money for the common-school fund. The commissioner of the general land
office had executed the two leases at issue “for a term of two years from the
26th day of August, 1899.” Id. The leases had to have expired before new
applications for those properties could be effective. Id. at 80. The parties
disputed whether the leases expired at midnight on August 25 or 26, 1901. We
repeated the default rule, id., but held that the leases departed from the rule
in that unique context. The commissioner had treated at least one of the leases
as expiring on August 25, and we applied a presumption that the land
commissioner, a government official, had acted properly and treated all parties
alike. See id. We further presumed that this was the customary practice of
the land commissioner that he applied uniformly to all such leases, therefore
15
We reiterated and added further clarity to the default rule in
Home Insurance. That case concerned a crop-insurance policy that took
effect to various degrees depending on the length of time “after the crop
was up and showed a stand.” 255 S.W.2d at 862. Echoing our decision
in Burr from almost exactly a century earlier, we noted that “when time
is to be computed from or after a certain day or date, the designated day
is to be excluded and the last day of the period is to be included unless a
contrary intent is clearly manifested by the contract.” Id. (emphasis
added). Nothing in the policy “manifest[ed] an intention to include the
first day in the computation of the period,” id. at 863, so the default rule
had not been displaced.
Since Home Insurance, Texas courts have continued to apply this
rule even in contexts that extend well beyond ordinary contracts.14
Indeed, the principle is sufficiently well embedded in our law that, even
without explicitly referencing the default rule, we have treated oil-and-
gas leases that measure their primary terms (or other time periods) in
terms of years “from” a certain date as expiring on their anniversary
resulting in an established meaning in that singular context. See id. at 80–81.
The fact that the exact same form was used for all affected leases, and the need
to ensure the stability of a vast number of land titles in the area (and perhaps
beyond), combined with the unusual governmental context, led us to deem the
default rule adequately displaced as a matter of law in this narrow and almost
sui generis context. See id.
14 See, e.g., Hinojosa v. Longoria, 381 S.W.2d 140, 140–41 (Tex. Civ.
App.—San Antonio 1964, writ dism’d) (per curiam) (time period for contesting
election); Villarreal v. Brooks County, 470 S.W.2d 60, 61–62 (Tex. Civ. App.—
San Antonio 1971, no writ) (county commissioners’ court redistricting orders);
In re Neutral Posture, Inc., 135 S.W.3d 725, 729 (Tex. App.—Houston [1st Dist.]
2003, no pet.) (expiration of arbitration clause in a settlement agreement). We
express no opinion about the correctness of any of these decisions but note
them only for illustration.
16
date. Such cases are both old and recent.15 And the underlying principle
is not merely part of the common law but has been adopted in at least
some statutes.16
B
The Bivins Ranch lease used the word “from” to calculate the
expiration date of the primary term, so the common-law rule applies.
An ending date of January 1 may initially generate some cognitive
dissonance. January 1 is New Year’s Day—the first day of the year and
rarely the last day of anything. But there is no special rule for New
Year’s Day. The selection of other dates—as in our June 30 example, or
in many of the cases cited above—do not seem particularly startling.
The rule is objective and easily applied, and if it applies here, the
conclusion is inescapable: the primary term of the lease ended on
January 1, 2010. The only question remaining—at least as to the
construction of the lease itself—is whether the Bivins Ranch lease
clearly manifests any intent to depart from that rule. We conclude that
it does not.
15 See Freeman v. Magnolia Petroleum Co., 171 S.W.2d 339, 340–42
(Tex. 1943) (primary term in oil-and-gas lease dated April 7, 1930, and which
stated that it would “remain in force for a term of ten years from this date”
ended April 7, 1940); Gulf Oil Corp. v. Southland Royalty Co., 496 S.W.2d 547,
548, 552 (Tex. 1973) (oil-and-gas lease executed on July 14, 1925, terminated
on July 14, 1975, when it stated that it “shall not remain in force longer than
fifty (50) years from this date”); cf. ConocoPhillips Co. v. Koopmann, 547
S.W.3d 858, 863, 865–66 (Tex. 2018) (non-participating royalty interest that
was “reserved for the limited term of 15 years from the date of” a December 27,
1996 deed had a default end date of December 27, 2011).
Notably, the legislature has adopted this principle for statutory
16
computations of days and months. See Tex. Gov’t Code § 311.014(a), (c).
17
Because it is so important, we again emphasize that the lease
could have manifested such an intent. Departing from the default rule
“requires no magic language.” Perthuis, 645 S.W.3d at 237. But the
lease’s text must include something that either expressly describes how
the date will be calculated or that, at minimum, is clearly incompatible
with the default rule, amounting to displacement by necessary
implication.17 See Home Ins., 255 S.W.2d at 862–63. Requiring such
clarity “precludes post hoc efforts to rewrite contracts . . . under the
guise of ambiguity.” Perthuis, 645 S.W.3d at 235.
This principle follows from our duty to determine a contract’s
meaning by looking to the parties’ intent as expressed within the text.
Endeavor Energy Res., L.P. v. Discovery Operating, Inc., 554 S.W.3d 586,
595 (Tex. 2018). “A contract’s plain language controls, not what one side
or the other alleges they intended to say but did not.” Great Am. Ins.
Co. v. Primo, 512 S.W.3d 890, 893 (Tex. 2017) (internal quotations
omitted). Otherwise, meaning could never be confidently predicted and
litigation could never be avoided, destroying all the benefits that flow
from having interpretive principles that apply neutrally and equally.
We start with the two lease provisions directly relevant to the expiration
of the primary term. The lease’s introduction states:
THIS AGREEMENT, effective the 1st day of January, 2007
(the “Effective Date”), from which date the anniversary
dates of this Lease shall be computed . . . .
17For example, we have noted that such clear intent is present when
necessary to ensure stability for land titles in unique governmental contexts,
see supra note 13 (discussing McGee, 70 S.W. at 80–81), or to “preserve rights,
prevent forfeitures and favor parties, where penal consequences are sought to
be enforced,” O’Connor, 1 Tex. at 116.
18
(Emphasis added.) The lease’s primary term provision, in turn, states:
Subject to the other provisions hereof, this Lease, which is
a “Paid-up” Lease requiring no rentals, shall be in force for
a Primary Term of three years from the effective date of this
Lease.
(Emphasis added.)
Nothing in these provisions clearly entails a departure from the
default rule. If anything, the reference to “anniversary dates” in the
introduction to the lease indicates that the parties intended to use the
default rule. We see no other role or purpose for the “anniversary dates”
language in the lease,18 and neither Sellers nor Apache has suggested
one. Regardless, at minimum, this language means there is no clear
intent to displace the rule, which is reason enough to reject Sellers’
position. Accordingly, the lease unambiguously imposes a January 1
expiration date for the primary term.
Sellers advance several forceful arguments for reading the Bivins
Ranch lease as departing from the default rule. The possibilities include:
(1) the effective date; (2) the 2010–2014 amendments; and (3) the
memorandum of lease. At minimum, Sellers argue that these features
18 In oil-and-gas leases, “anniversary date” language is often used to
denote “[t]he date on which payment of delay rental or shut-in gas well royalty
must be made in order to keep a lease effective” under a lease’s delay-rental
clause or shut-in gas well clause. 8 Patrick H. Martin & Bruce M. Kramer,
Williams & Meyers, Oil and Gas Law 51 (LexisNexis Matthew Bender 2022).
But the Bivins Ranch lease is a paid-up lease, which is a lease “under which
all delay rentals bargained for are paid in advance, and this single payment
maintains the lease during the primary term.” ConocoPhillips, 547 S.W.3d at
874. Delay-rental payments due on the lease’s anniversary date were therefore
unnecessary. And the lease’s shut-in royalty clause measures time based on
the anniversary of the date the well is shut in, not the anniversary date of the
lease itself.
19
generate sufficient ambiguity as to leave a fact question about the parties’
intent, thus foreclosing summary judgment on this point. We cannot
agree, however, because we are not prepared to undermine the stability
that comes from over 170 years of our case law. None of Sellers’
arguments—either individually or collectively—demonstrate the
requisite textual intent to depart from the default rule. We address each
of them in turn.
1
Sellers argue that the lease’s effective date indicates that the
parties to the lease intended a December 31 expiration date. According
to Sellers, because the lease was effective January 1, 2007, concluding
that the primary term expired on January 1, 2010, would result in a
primary term of three years and a day, not three years. For the
proposition that the use of an effective date negates the default common-
law rule, they point to Home Insurance and cases from other courts. We
think that this argument would subvert rather than apply the rule.
Sellers note that Home Insurance distinguished a court of appeals
case—Acme Life Insurance Co. v. White—that involved a two-year clause
limiting coverage for suicide in a life-insurance policy. In Acme, the
policy’s effective date was January 17, 1933, but the policyholder
committed suicide on January 17, 1935. 99 S.W.2d 1059, 1060–61 (Tex.
App.—Eastland 1936, writ dism’d). The Acme court held that this two-
year period ended on January 16, 1935, not January 17, 1935, and
therefore did not protect the insurance company. See id. at 1061. Acme,
however, is not a precedent of this Court, and it involved a confluence of
factors unique to the context of suicide-liability limitations that are
20
absent here.19 Home Insurance certainly did not endorse a broad
exception that would swallow the very rule that it was confirming. We
cannot do so either.20
Though perhaps technically accurate to say that ending the
period on the anniversary date creates a primary term of “three years
and a day,” we fail to see why that matters. Parties are not confined to
round numbers. Their contractual relationships generally can endure
however long—and for precisely as long—as the parties wish. If the
parties so desired, they easily could have drafted the lease using
language that clearly included the effective date in the calculation. They
could have said that the primary term was to last for three years and no
longer. They also, of course, could have expressly included a December
19 Sellers also cite another lower-court case as an example of reading a
period of years to end the day before the anniversary date. See Home Benefit
Ass’n v. Robbins, 34 S.W.2d 329, 331 (Tex. Civ. App.—Waco 1930, no writ). We
express no view about Robbins beyond observing that nothing in that case is
inconsistent with our conclusion today. The disability-benefits certificate at
issue had to have been “in force for a period of one (1) year prior to sustaining
said accident,” id. at 330 (emphasis added), not “in force for a period of one year
from the effective date.”
20 The proposition that an effective date should be included when
calculating a time period is far from a consensus principle of law. Compare,
e.g., Ratcliff v. La. Indus. Life Ins. Co., 169 So. 572, 573 (La. 1936) (including
the first day a life insurance policy was in force to compute time when the
relevant policy language was “if death occur one year thereafter” the relevant
date), with, e.g., Winn v. Nilsen, 670 P.2d 588, 589–91 (Okla. 1983) (holding
that a five-year primary term expired on its anniversary date and noting that,
though a lease (unless it states otherwise) takes effect on the day it is executed,
“[w]hen . . . the time is used in the context to effect a simple identification of a
particular time period, an anniversary-to-anniversary period is indicated,” id.
at 590), and E. Oil Co. v. Coulehan, 64 S.E. 836, 838–39 (W. Va. 1909) (holding
that a five-year term in an oil-and-gas lease ended on the anniversary date
notwithstanding the effective date).
21
31 end date. But the construction “from” an effective date, without
more, does not clearly communicate any such intent,21 especially since
parties do sometimes create time periods that both contain one extra
day and end on the day after the anniversary.22 Time periods add “and
a day” in all sorts of circumstances, legal and nonlegal. The old common-
law rule was that if a victim died more than a year and a day after the
alleged crime, it could not be homicide.23 “A year and a day” criminal
sentences remain common; in some systems, including under federal
law, punishments of a year as opposed to “a year and a day” demarcate
the line between a felony and a misdemeanor. See 18 U.S.C. § 3559(a);
United States v. Graham, 169 F.3d 787, 792 (3d Cir. 1999). Shahrazad
21 There is no indication of any settled meaning requiring an effective
date in the primary term of an oil-and-gas lease to be included in the calculation
of time. Compare Hardin–Simmons Univ. v. Hunt Cimmaron Ltd. P’ship, No.
07-15-00303-CV, 2017 WL 3197920, at *7 (Tex. App.—Amarillo 2017, pet.
denied) (noting that the parties did not dispute that a lease with a five-year
primary term starting August 1, 2006, had a default end date of July 31, 2011),
with Clayton Williams Energy, Inc. v. BMT O & G TX, L.P., 473 S.W.3d 341,
344–46 (Tex. App.—El Paso 2015, pet. denied) (noting that “[t]he Bass Lease’s
primary term began June 1, 2008 and was slated to end three years later on
June 1, 2011 per the habendum clause,” id. at 346, when the lease stated that
it would “remain in force for three (3) years from the Effective Date hereof,” id.
at 344). At least in practice, in other words, simply having an effective date
does not clearly communicate an intent to depart from the default rule.
22See, e.g., Silo Rest. Inc. v. Allied Prop. & Cas. Ins. Co., 420 F. Supp.
3d 562, 573, 577–80 (W.D. Tex. 2019) (applying Texas law to hold that an
insurance policy’s limitations period of “within 2 years and one day from the
date the cause of action first accrues” ended the day after the anniversary).
23Parliament did not abrogate that common-law rule until 1996. See
Law Reform (Year and a Day Rule) Act 1996, c. 19. The Tennessee Supreme
Court abolished that doctrine using its common-law authority, leading to a
U.S. Supreme Court case about the consequences of that abolition. See Rogers
v. Tennessee, 532 U.S. 451 (2001).
22
spent not one thousand nights telling her stories but, as the eponymous
title of Burton’s translation recounts, a “thousand nights and a night.”
All of this is to say that the courts typically have no interest in the
parties’ choice of a term’s length. Add a day, subtract a day—the parties
may do what they like. But courts do value having a predictable rule that
will provide certainty to contracting parties and treat all of them the
same. See Smith v. Dickey, 11 S.W. 1049, 1050 (Tex. 1889) (noting, in the
context of calculating time, the benefit of precedential “uniformity” and of
“establish[ing] a certain rule, by which parties may in future be guided”).
Sellers, however, also point to a Court of Criminal Appeals case
holding that a ten-year probation term that started on April 29, 1994,
ended on April 28, 2004, not April 29, 2004. See Nesbit v. State, 227
S.W.3d 64, 65 (Tex. Crim. App. 2007). That case distinguished time
periods during which “one must perform some act” from time periods
during which “one may exercise a particular right (or must suffer a
particular penalty).” Id. at 67. Sellers argue that the Bivins Ranch lease
falls into the latter category and the effective date must therefore be
included in the calculation. Whatever the merit of the Nesbit categories
in the criminal context, such a fine distinction is bound to generate
wasteful litigation in this context.24 That likelihood is heightened for
contracts like the Bivins Ranch lease, in which the primary term
functioned both as a period during which the lessee could exercise a
24 Notably, the conclusion in Nesbit is consistent with our observation
in O’Connor v. Towns that time should be computed to “favor parties, where
penal consequences are sought to be enforced.” 1 Tex. at 116 (emphasis added);
see also Smith, 11 S.W. at 1050. That thumb on the scale, of course, does not
exist with respect to freely and mutually agreed contracts among equals.
23
particular right (leasing the property) and during which the lessee had
to perform some act (meeting the requirements to perpetuate the lease).
In short, we reaffirm that the mere use of an effective date within
a contract is not enough to depart from the default rule.
2
Sellers also allude to the 2010–2014 amendments. To the extent
that Sellers read these amendments to inform the analysis,25 we
conclude that the amendments would support reading the lease to
adhere to the default rule.
As described earlier, the amendments allowed the lease to continue
under the continuous-drilling provision if 60,000 feet in the aggregate
were drilled each year as opposed to 20,000 feet on each block. More
important for our purposes, however, is how the amendments addressed
timing. Start with the following language from the original lease:
By “continuous drilling operations on each designated
block” is meant the commencement of a well on each block
and the actual drilling by Lessee of 20,000 feet in one or
more wells on each block each year after the expiration of
the Primary Term.
(Emphasis added.) Each amendment replaced the italicized language in
two important ways: (1) the amendments used “during” instead of “after”
and (2) the amendments either referred to the “calendar year” or to a
defined time period with a December 31 end date (although two were
later extended to April 1).
25 Sellers emphasize the amendments’ express December 31 end dates
in their briefing’s description of the record—that is, in their statement of
facts—rather than in their formal argument section regarding the end date of
the primary term. We address the amendments in the interest of completeness.
24
The amendments’ use of markedly different durational language
(“during” instead of “after” or “from”) and imposition of specific dates not
necessarily connected to the start and end dates of the primary term
show a textually demonstrable intent to differ from the primary term in
the method of measuring time. And, moreover, they show that the parties
were perfectly capable of using ordinary language to depart from the
default rule when they wished to do so. Indeed, the amendments confirm
the point we have made—that it is easy to accomplish such a departure.
The 2010 amendment—“executed to be effective as of January 1,
2010”—stated that “the Lease is currently in full force and effect beyond
its Primary Term.” (Emphasis added.) Arguably, this indicates an
understanding that the primary term had already expired as of January
1, 2010. Regardless of whether the lease and this statement should be
construed together, however,26 this statement does not amend the
primary-term provision (although the parties certainly could have done
so) or otherwise provide the clarity necessary to displace the default rule.
3
Having determined that the lease’s date provisions and the 2010–
2014 amendments do not clearly indicate a departure from the default
rule, we next address the memorandum of lease. The court of appeals
held that a fact issue existed regarding the primary term’s expiration
date largely because of its conclusion that the memorandum should be
construed together with the lease, not treated as extrinsic evidence. See
631 S.W.3d at 530–31. We must again respectfully disagree with the
26 This statement was within the parties’ agreement to amend the lease
but was not added to the text of the lease itself.
25
court of appeals’ conclusion.
The memorandum states that the primary term expires on
December 31, 2009:
Subject to other provisions of the Lease, the Primary Term
thereof expires on the 31st day of December, 2009. The
Lease contains other provisions with respect to lease
continuation, operations, royalties, notice by Lessee to
Lessors, assignments, and provisions relating to the
protection of the surface owners’ rights and estates.
And as noted above, the memorandum also stated that the transaction
was “upon the terms, for the consideration, and subject to the conditions
in the Lease specified.”
At least for argument’s sake, we can agree that this memorandum
indicates the parties’ actual intent that the primary term would end on
December 31, 2009. If such an explicit end date had been included in the
lease itself, of course, that would have sufficed to depart from the default
rule. The statement’s placement in the memorandum, however, presents
two potential issues. First, should the memorandum be construed
together with the lease? And second, regardless of the answer to that
first question, does the memorandum’s important caveat (i.e., that it is
“subject to the conditions in the Lease specified”) mean that the lease’s
date provision prevails over the memorandum’s December 31 date?
We need not resolve the first question. Again, at least for
argument’s sake, we can accept Sellers’ contention that we should read
the memorandum along with the lease. Indeed, we commonly read
“multiple separate contracts, documents, and agreements” together as
“part of a single, unified instrument.” Rieder v. Woods, 603 S.W.3d 86, 94
(Tex. 2020) (internal quotations omitted); see also Burlington Res. Oil &
26
Gas Co. LP v. Tex. Crude Energy, LLC, 573 S.W.3d 198, 208 (Tex. 2019).
Whether those principles apply here is immaterial, however, because the
second question—concerning the memorandum’s caveat—is dispositive.
The memorandum expressly subjugates itself to the lease, so it
does not matter whether we treat the memorandum as extrinsic
evidence or as a document to be read with the lease. Both routes lead to
the January 1, 2010 end date. If the memorandum is extrinsic evidence,
it may only be considered if the lease is ambiguous, but it cannot be used
to create ambiguity. See TRO–X, L.P. v. Anadarko Petroleum Corp., 548
S.W.3d 458, 466 (Tex. 2018). And if the two documents are construed
together, as we assume they should be, we must stop when the
memorandum’s own text prioritizes the lease’s terms, proclaiming that
the lease controls whenever the two are in conflict. See Antonin Scalia
& Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 126
(2012) (“Subordinating language (signaled by subject to) . . . merely
shows which provision prevails in the event of a clash[.]”).
As we have concluded above, the lease unambiguously imposes a
January 1 expiration date. The memorandum itself requires the lease’s
January 1 expiration date to prevail over the memorandum’s own
December 31 date.27
27 Scalia and Garner soundly advise drafters that “[s]ubject to should
never introduce a provision that completely contradicts the provision that the
subject to phrase modifies.” Scalia & Garner, supra, at 126. If a text insisted
on pointlessly doing so, of course, the superior authority would still prevail over
the subordinate one. A statute that “completely contradicts” a constitutional
provision, after all, would unquestionably remain “subject to,” and must yield
to, whatever the Constitution said. But, though we do read the lease to
institute a January 1 expiration date, we also do not read the memorandum to
violate this sound drafting principle. In any event, the “subject to” phrase does
27
Sellers also argue that, because the memorandum was recorded,
its December 31 end date binds Apache. They cite our statement that
“[i]t is well settled that a purchaser is bound by every recital, reference
and reservation contained in or fairly disclosed by any instrument which
forms an essential link in the chain of title under which he claims.”
Westland Oil Dev. Corp. v. Gulf Oil Corp., 637 S.W.2d 903, 908 (Tex. 1982)
(internal quotations omitted). Westland Oil, however, undermines
Sellers’ contention. In that case, we noted that purchasers are generally
responsible for following the paper trail of documents referenced in
recorded instruments. See id. at 907–08. The recorded memorandum
in this case took pains to make manifest that the terms of the unrecorded
full-length lease control over the memorandum, thus putting interested
parties on notice of the need to consult the lease before acting in reliance
on the memorandum. Apache therefore correctly relies on the lease itself.
C
Finally, Sellers argue that the North Block actually terminated
on December 31, 2015, or at some point during 2015 when Apache
ceased to comply with the continuous-drilling provision. In Sellers’
view, the time Apache ceased to comply (and the lease automatically
terminated), based on when Apache stopped continuous-drilling
operations, is a fact issue that Apache had to conclusively prove to be
not directly repudiate the lease, which does not bluntly say “January 1.” At
the same time, the lease can unambiguously compel that result despite not
expressly stating it—that is the whole point of the default rule discussed in
Part II.A, supra. The memorandum may well have expected December 31 to
be the final date, but its language clearly (and we must assume purposefully)
leaves the ultimate determination to the lease itself.
28
entitled to summary judgment.
We disagree. The lease states that the continuous-drilling
requirements must be met “each year after the expiration of the Primary
Term.” (Emphasis added.) Therefore, we agree with Apache that, under
the text of the lease, the lessees only ceased to comply after each January
1 passed without having satisfied the necessary drilling obligations. In
this case, it is undisputed that, as of January 1, 2016, the continuous-
drilling requirements had not been fulfilled for the North Block.
However, Sellers also point to a release Apache executed for the
North Block. The release was dated March 2016 and signed by Apache
in August 2016, but it stated that it was effective as of December 31, 2015.
Sellers correctly note that the release is extrinsic evidence that we may
not use to determine the lease’s meaning. See TRO–X, 548 S.W.3d at
466. However, Sellers argue that the release constitutes evidence of
when Apache ceased to comply with the continuous-drilling provision.
Since we have concluded that the primary term expired January 1,
2010—and therefore that the North Block expired January 1, 2016—the
question becomes whether Apache retroactively released the North Block
early. The continuous-drilling provision requires the lessee to release the
applicable block once the lessee ceases to comply with the requirements
to maintain the lease. The lease also contemplates early releases.
To determine whether a signed release could retroactively change
the termination date, we examine the lease’s terms. Cf. Tittizer v. Union
Gas Corp., 171 S.W.3d 857, 861 (Tex. 2005) (addressing whether the oil-
and-gas lease at issue authorized units to be pooled with a retroactive
effective date). Even assuming that the lease authorized retroactive
29
releases, however, the release itself does not purport to retroactively
change the date of a termination that had already occurred. Whatever
the release may have said, it did not change what matters here: the
historical fact that the North Block terminated on January 1, 2016.
* * *
To summarize: We conclude that the Bivins Ranch lease does not
depart from the default rule. The lease therefore unambiguously creates
a January 1 expiration date. See Pathfinder Oil & Gas, Inc. v. Great W.
Drilling, Ltd., 574 S.W.3d 882, 889 (Tex. 2019) (“A written instrument
that can be given a certain or definite legal meaning or interpretation is
not ambiguous and will therefore be construed as [a] matter of law.”).
Apache and Sellers agree that the requirements to continue the North
Block during the pertinent time period were not satisfied, and we have
concluded that Apache did not retroactively change the date the North
Block expired. No question of material fact regarding the North Block’s
expiration date remains. The North Block expired on January 1, 2016.
The duty of the courts is to accurately discern the intent expressed
in the lease. See, e.g., Matagorda Cnty. Hosp. Dist. v. Burwell, 189
S.W.3d 738, 740 (Tex. 2006). The duty of contracting parties is to ensure
that their actual intent is reflected in the legal documents they use to
memorialize their agreements. “[I]t is not the actual intent of the parties
that governs, but the actual intent of the parties as expressed in the
instrument as a whole[.]” Luckel v. White, 819 S.W.2d 459, 462 (Tex.
1991). Holding fast to legal principles is especially important in
contexts—like the computation of time—that are naturally susceptible
to confusion. The parties to the Bivins Ranch lease could have easily
30
departed from the default rule. They simply needed to say so clearly
within the four corners of the lease. Cf. Gilbert Tex. Constr., L.P. v.
Underwriters at Lloyd’s London, 327 S.W.3d 118, 127 (Tex. 2010)
(“[H]ad [the exclusion] been intended to be so narrow . . . it would have
been simple to have said so.”). They did not do so here.
III
We next address two arguments that arise under the PSAs.
A
Sellers argue that § 4.1 of each PSA required Apache to offer back
to each Seller all of Apache’s interest in the North Block. They contend
that this includes the interests Apache purchased from other sellers, and
specifically the former Gunn interest, not merely the respective interest
that Apache purchased from each individual Seller. Section 4.1 states
in relevant part:
Purchaser hereby covenants to make a good faith effort to
follow the Commitment in order to perpetuate the Leases,
but if any Commitment contemplates or will result in the
loss or release of one or more of the Leases (or parts
thereof), then Purchaser shall concurrently offer all of
Purchaser’s interest in the affected Leases (or parts thereof)
to Seller at no cost to Seller and upon Seller’s acceptance of
such Leases, Purchaser shall transfer and assign the
affected Leases (or parts thereof) to Seller.
(Emphasis added.) Sellers make three main points in support of their
position. We will sketch those points and then address them together.
First, Sellers note that § 4.1’s text refers to “all” of Apache’s interest in
the leases at issue. In Sellers’ view, “all” means just that—all—and
therefore encompasses the former Gunn interest.
Second, Sellers argue that § 4.1 should be read in light of § 2.5,
31
which—unlike § 4.1—specifically limits the “interest” involved to the
interest that each Seller conveyed to Apache. For example, § 2.5 states
that “Seller shall have the right, but not the obligation . . . to back-in for
up to one-third (1/3rd) of the interests conveyed to Purchaser in and to
the Assets hereunder at Closing[.]” (Emphasis added.) Section 2.5
repeatedly distinguishes between the interest purchased from that
particular Seller and interests purchased from others.
Third, Sellers point to § 4.1’s purpose statement. If § 4.1 were to
be triggered, no Seller had any obligation to accept the affected Leases,
but § 4.1 also explains that
[t]he purpose and intent of, and Purchaser’s agreement
pursuant to, this provision is to provide Seller the option
and ability to perpetuate all the Leases so offered to
Purchaser through a drilling program with one drilling rig,
and this provision shall be interpreted to afford Seller that
option and ability.
In Sellers’ view, unless offered interests purchased from other Sellers, a
minority Seller—such as SellmoCo, with only a 1% working interest in
the Bivins Area leases prior to the PSAs—would have difficulty
perpetuating the lease on its own, contravening that purpose clause.
Sellers argue that these textual indicators compel their reading
of § 4.1. But they cannot overcome one glaring problem. As Apache
notes, § 4.1 expressly refers to the singular “Seller,” not the plural
“Sellers.” And each Seller had its own PSA. Therefore, if Apache was
required under one PSA to offer back to each individual Seller the
interests it purchased from all others, it would owe the same interests
to each other individual Seller. The obvious difficulty is that if Sellers’
interpretation is correct, then multiple parties would each simultaneously
32
have the right to the exact same interests.
Two parties can own part of the same interest, but two parties
cannot each separately own 100% of it. Would the first party to accept
get everything? Would Apache have the right to prioritize the order in
which it approached each Seller, or to allocate the interests as it saw fit,
or to serve its own interests? Must the new allocation be tethered to the
old allocation? Could a consortium of the Sellers develop a new entity
to accept the interests jointly? What if some of them chose not to
participate? Would Apache be liable if it chose one of these methods and
some or all of the Sellers challenged it? Would Apache be liable if the
Sellers later fought over who was entitled to what share?
If § 4.1 expected Apache to make the offer that Sellers claim, it is
clear that the parties’ agreements would have explained how the process
of distributing these interests would work. Though § 4.1 provides no
such direction, both the Bivins Area and Tascosa Dome JOAs provide
guidance as to how to distribute interests in different situations. For
example, under the JOAs, when one party wants to surrender a lease,
that party is required to give notice to “all parties.” If “all parties” do
not consent, the surrendering party “shall assign . . . all of its interest in
such Lease, or portion thereof, . . . to the parties not consenting to such
surrender.” “If the assignment or lease is in favor of more than one
party, the interest shall be shared by such parties in the proportions
that the interest of each bears to the total interest of all such parties.”
A similar but not identical mechanism applies when a party
abandons an already-producing well. The JOAs also establish a
proportionate-allocation system when a party renews or replaces a lease
33
subject to the JOAs. In addition, the area-of-mutual-interest (AMI)
provision requires any party who acquires an interest in lands within
the AMI to offer each other party “the opportunity to acquire its
proportionate share of the AMI Acquired Interest[.]”
Particularly given the detailed distribution mechanisms in other
provisions, the lack of one in § 4.1 indicates that Apache only had to offer
each Seller the interest acquired from that particular Seller.28 If the
parties intended some other procedure to apply, it was their responsibility
to include it in the text.29
If any doubts remained, they would be dispelled by our obligation
to preserve rather than remake a contract’s text. Imposing the duty on
Apache that Sellers demand would amount to drafting language—like the
language in other provisions that described procedures for reallocating
interests—and adding it to § 4.1. Our interpretation, by contrast, is
consistent with the language as written; it requires us to neither add
28 Sellers argue that after-acquired title provisions in the JOAs—
specifically the AMI provision—required Apache to offer Sellers a
proportionate share of applicable lease interests, such as the former Gunn
interest, that Apache acquired after executing the PSAs. Sellers contend that
we should read § 4.1 in light of this requirement. However, as noted above, the
fact that the AMI provision—in contrast to § 4.1—includes a proportionate-
distribution mechanism undermines rather than helps Sellers’ argument. And
even if Sellers are correct that the AMI provision required Apache to offer
Sellers a proportionate share of the former Gunn interest—a question on which
we take no position—that speaks only to whether Apache violated the AMI
provision, not whether it violated § 4.1. The two are separate questions.
29 The parties used a model-form agreement for the JOAs. They went
line-by-line through the model form, crossing out provisions that they decided
not to apply, including certain provisions related to maintaining uniformity of
interests in the contract area. The parties’ use of the model form confirms that
they carefully addressed circumstances in which reallocation might be necessary.
34
nor subtract text in describing what Apache must do. Indeed, the word
“all” in § 4.1 is equally understandable if read in juxtaposition to § 2.5’s
back-in trigger: in contrast to § 2.5, in which each Seller receives only
one-third of the interest it sold to Apache, under § 4.1, each Seller receives
all the interest that it sold to Apache. Sellers argue that § 4.1’s purpose
provision supports their argument, but they have not explained why its
purpose could not be achieved through some other means, such as any
interested Sellers buying out the remaining interests. They could achieve
that goal together by each agreeing to accept its own interest and then
transferring or selling it to others at whatever rate was desirable. Placing
that burden on Apache, though, is impermissible absent a textual
warrant to do so.
Sellers contend that it was possible for Apache to perform under
the contract. They cite an October 29, 2015 letter from Apache as
evidence. This joint letter to Sellers included Apache’s 2016 commitment
and offered Sellers collectively all of Apache’s interest in leases that the
commitment anticipated losing or releasing. The letter requested that
Sellers inform Apache “whether each Seller accepts this offer, and, if so,
the interest in the affected Leases that each Seller accepts.” Apache
counters that (1) the letter clarifies that it is not intended to waive any
arguments for litigation and (2) the letter does not actually satisfy § 4.1
because it offered Apache’s interest to Sellers collectively instead of
individually.
We agree that this letter, though perhaps a workable and sensible
solution, does not actually conform to § 4.1’s text. Apache’s one-time
willingness to try only underscores that there was no way for Apache or
35
any party to really know how to do it. The parties may well have
intended a proportionate-allocation system similar to those in the JOAs.
Or perhaps they intended for Apache to take the approach in its letter.
But they did not say either, much less which, and we decline to import
such a mechanism into the text. We therefore conclude that Apache was
not required to offer the former Gunn interest back under § 4.1.30
B
We next turn to § 2.5 of each PSA, which provides “the right, but
not the obligation,” to “back-in for up to one-third (1/3rd) of the interests
conveyed to Purchaser in and to the Assets hereunder at Closing.” This
right is “exercisable at Two Hundred Percent (200%) of Project Payout
(the ‘Back-In Trigger’).” In turn, “Project Payout” is defined as follows:
“Project Payout” means the first day of the next calendar
month following that point in time when the sum of the
cumulative Production Income and/or Other Revenues,
equals the sum of the Preliminary Purchase Price . . . , the
Drilling Credit, the actual costs borne by Purchaser to
explore, drill and complete all the wells (whether
productive or dry hole) on the Leases (to the extent such
costs are attributable to interests which Purchaser
acquired in and to the Leases hereunder, but excluding any
and all costs associated with other interests which
Purchaser may acquire in the Leases), and the actual
Operating Costs borne by Purchaser for operation of the
Leases and all wells located thereon.
Section 2.5 also defines “Production Income,” “Other Revenues,” and
“Operating Costs.”
Apache argues that “Two Hundred Percent (200%) of Project
30 Because we conclude that § 4.1 did not require Apache to offer back
interests Apache purchased from other parties, we do not address whether such a
requirement would amount to a forfeiture or violate the rule against perpetuities.
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Payout” refers to the point when the specified revenues double specified
expenses. While Sellers’ argument is a bit unclear, Sellers seem to argue
that it refers to when specified revenues equal specified expenses.
We agree with Apache that § 2.5 requires a 2:1 ratio for specified
revenues versus specified expenses. True, Apache’s reading results in a
rather awkward linguistic construction in which the “Back-In Trigger”
would be literally read (if the definition is ported into the text) as “200%
of the first day of the next calendar month following that point in time
when” specified revenues equal specified expenses. Only Apache’s
reading, however, explains the presence of the 200% language.31
The court of appeals also held that there is a fact issue as to
whether Apache’s costs should all be included in the Project Payout
calculation. See 631 S.W.3d at 525. Sellers assert that the court of
appeals properly decided this issue, and Apache argues that it is
irrelevant. We therefore do not address it here.
IV
We next consider whether the trial court properly excluded the
testimony of Peter Huddleston, one of Sellers’ expert witnesses.
Huddleston opined on the fair market value of the leases at issue.
31 The court of appeals reversed the trial court’s judgment on this issue
because the court of appeals read Apache’s § 2.5 summary-judgment motion to
use the term “investment” to replace the contractually defined term “Project
Payout.” See 631 S.W.3d at 524. We agree with Apache, however, that its use
of “return on investment” was a shorthand way of referring to the more
detailed “Project Payout” definition. Nothing in our interpretation alters
“Project Payout” as a defined term. Because we conclude that the back-in
trigger is reached when the specified revenues double the specified expenses,
we need not reach Apache’s alternative argument that § 2.5 would otherwise
be too indefinite to enforce.
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Apache filed two motions to exclude his testimony. The first, filed in
February 2018, was based both on his methodology and the fact that his
damages calculations for the North Block rested on a December 31, 2015
expiration date. The trial court granted this motion in part, excluding
Huddleston’s testimony to the extent it was based on an expiration date
for the North Block other than January 1, 2016.
Just over a year later, Apache filed a second motion to exclude
Huddleston’s testimony, this time because Huddleston had not updated
his calculations to account for the trial court’s rulings regarding the
North Block’s expiration date and the former Gunn interest. The trial
court granted the motion in full.
Because the court of appeals reversed the trial court’s summary-
judgment orders regarding the expiration date of the North Block and
how to account for the former Gunn interest, it also reversed the trial
court’s exclusion of Huddleston. See id. at 541. However, as discussed
above, we conclude that the North Block expired on January 1, 2016, and
that Apache was not required to offer Sellers the former Gunn interest.
The trial court therefore properly excluded Huddleston’s testimony.32
32 Sellers also argue that the trial court abused its discretion in excluding
Huddleston’s testimony because, according to Sellers, no rule requires an expert
to change or modify his opinion after the trial court grants partial summary
judgments. It can hardly be an abuse of discretion to exclude expert testimony
that is based on legal conclusions already rejected by the trial court. However,
Sellers further contend that the trial court erred by excluding Huddleston’s
opinions in full because his opinions also contained information not based on
the North Block’s expiration date or on how to account for the former Gunn
interest. Apache, in contrast, argues that Sellers waived this issue. We
express no view on the merits of this dispute or whether it was preserved for
the court of appeals’ review; that court may address these matters in the first
instance on remand.
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V
Finally—finally—Apache argues that, if the trial court properly
excluded Huddleston’s testimony, we should affirm the trial court’s
order granting Apache’s no-evidence summary-judgment motion on the
remaining claims. Without Huddleston’s testimony, Apache argues,
Sellers have no evidence of damages, a necessary element of each of their
claims.
The court of appeals reversed the no-evidence summary-
judgment order on the basis that Huddleston’s opinions should have
been admitted. See id. at 544. This basis for reversing the order was
improper because of our holding that at least parts of Huddleston’s
testimony were properly excluded. However, given its disposition, the
court of appeals had no need to address whether Sellers otherwise
produced evidence sufficient to demonstrate damages for the claims still
at issue. We think it prudent to remand to the court of appeals to
address this issue in the first instance and then to render judgment or
remand to the trial court as appropriate.
VI
We reverse the judgment of the court of appeals as to those issues
that the parties presented for our review. We remand to that court for
further proceedings.
Evan A. Young
Justice
OPINION DELIVERED: April 28, 2023
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