Co-author Carolina Cuppetilli*
Today we will skip our usual routine of explaining how court rulings on the question of the day might affect your interests. Instead we will discuss the fallout from abysmal document drafting. In Rosetta Resources Operating v. Martin, the Supreme Court of Texas cautioned that an express covenant to protect against drainage suffered from both lack of clarity and lack of accuracy. Although the Court attempted to harmonize the conflicting provisions in an effort to give effect to the intent of the parties as expressed in the contract, “Addendum 18” was so riddled with grammatical and typographical errors that its interpretation should not be relied upon as a useful guide for determining how covenants to protect against drainage typically function. (We’ve discussed Addendum 18 before.)
Addendum 18 of a mineral lease between the Martins as lessor and Rosetta Resources as lessee was an express covenant to protect the premises from drainage:
… [It] is further agreed that [(1)(a)] in the event a well is drilled on or in a unit containing part of this acreage or is drilled on acreage adjoining this Lease, [(b)] the Lessor [read “Lessee”], or its agent(s) shall protect the Lessee’s [read “Lessor’s”] undrilled acreage from drainage and [(2)] in the opinions of reasonable and prudent operations [read “operators”2], [(a)] drainage is occurring on the un-drilled acreage, even though the draining well is located over three hundred-thirty (330) feet from the un-drilled acreage, [(b)] the Lessee shall spud an offset well on said un-drilled acreage or on a unit containing said acreage within twelve (12) months from the date the drainage began or release the acreage which is un-drilled or is not a part of a unit which is held by production.
(Emphasis added by the Court to aid its analysis)
Rosetta, Newfield and others created the Martin Unit, pooling portions of the Martin Lease. Rosetta assigned an ORRI in the Martin pooled acreage to Newfield. Newfield drilled the Martin well on the Martin pooled acreage and then created the Simmons Unit that is not adjacent to the Martin Lease, and drilled the Simmons well.
The Martins sued Rosetta and Newfield for breach of Addendum 18, alleging an obligation to protect the undrilled Martin lease acreage from drainage caused by the Simmons well. Lessees countered that their obligation to protect had not been triggered because the Simmons well was not drilled on land adjacent to the Martin Lease.
The trial court granted summary judgment for Rosetta. The court of appeals reversed and remanded, instructing the trial court to grant partial summary judgment for the Martins. At the Supreme Court the parties argued over whether Addendum 18 allowed for separate triggering and draining wells.
The Court’s analysis
Could Addendum 18 be reasonably read to stand for the proposition that drainage that part (1)(b) obligates Rosetta to protect against is limited to drainage from a well listed in part (1)(a)? There were two reasonable interpretations regarding this question. If the meaning of the lease is uncertain and doubtful, or it is reasonably susceptible to more than one interpretation, then a fact issue arises regarding the parties’ intent.
Because both interpretations were reasonable there was an issue of material fact, rendering summary judgment improper. The Court punted the case back to the trial court for further consideration (likely a trial on the merits where a jury will sort it out).
Your musical interlude.
* Carolina has recently survived her second year at SMU Law School and is a Gray Reed summer associate.