Goodrich Petroleum Company, LLC v. Columbine II, Limited Partnership, Atlantic Richfield Company, and BP America Production Company

Judgment rendered April 14, 2021.
Application for rehearing may be filed
within the delay allowed by Art. 2166,
La. C.C.P.

No. 53,820-CA

COURT OF APPEAL
SECOND CIRCUIT
STATE OF LOUISIANA

*****

GOODRICH PETROLEUM Plaintiff-Appellee
COMPANY, LLC

versus

COLUMBINE II, LIMITED Defendants-Appellants
PARTNERSHIP, ATLANTIC
RICHFIELD COMPANY, AND
BP AMERICA PRODUCTION
COMPANY

*****

Appealed from the
Forty-Second Judicial District Court for the
Parish of DeSoto, Louisiana
Trial Court No. 74242

Honorable Amy B. McCartney, Judge

*****

BLANCHARD, WALKER, O’QUIN, & Counsel for Defendants-
ROBERTS, PLC Appellants, Atlantic
By: W. Michael Adams Richfield Co. and BP
William T. Allen America Production Co.
Stacey D. Williams
Timothy R. Wynn

CROWE & DUNLEVY PC PRO HAC VICE Counsel
By: Harvey D. Ellis for Defendants-
Andrew E. Henry Appellants, Atlantic
Richfield Co. and BP
America Production Co.

GORDON, ARATA, MONTGOMERY, Counsel for Plaintiff-
BARNETT, MCCOLLAM, DUPLANTIS, Appellee, Goodrich
& EAGAN, LLC. Petroleum Company, LLC
By: Gregory G. Duplantis
Samuel E. Masur

BRADLEY MURCHISON KELLY Counsel for Defendant-
& SHEA, LLC Appellee, Columbine II,
By: Malcolm S. Murchison Limited Partnership
Stephen C. Fortson
Joshua S. Chevallier

BREAZEALE, SACHSE & WILSON, L.L.P.
By: Alan H. Goodman
Thomas M. Benjamin

*****

Before STEPHENS, ROBINSON, and BLEICH (Pro Tempore), JJ.

BLEICH, J. (Pro Tempore).

In this concursus proceeding, the defendants, Atlantic Richfield

Company and BP America Production Company (“BP/ARCO”), appeal the

trial court’s judgment rendered in favor of Columbine II Limited Partnership

(“Columbine”). The trial court concluded, inter alia, that Columbine is

entitled to all overriding royalties attributable to the disputed royalty interest.

For the following reasons, we affirm.

FACTS

Prior to and during the 1980’s, ARCO1 began acquiring numerous

properties and royalty interests in multiple states, counties, and parishes in

the United States. The interests obtained by ARCO were acquired in various

ways, e.g., farmout agreements, assignments, and overriding royalties from

predecessor companies. However, some of the information and property

descriptions regarding those interests was either incomplete or obsolete, and

ARCO chose not to invest the time or money to obtain complete and

accurate title searches and property descriptions. At that time, the areas

known as the Pettit Formation and the Hosston Formation had been unitized

in Northwest Louisiana and were in production; the area now known as the

Haynesville Formation had not been unitized and was not in production.

Between 1987 and 1988, ARCO assembled a “royalty package” to

advertise, sell, and convey hundreds of royalty/net profit interests in 22

states, counties, and parishes, including Caddo and DeSoto Parishes. ARCO

prepared a Royalty Property Sales Brochure (“Brochure”) to advertise the

properties to potential buyers. The Brochure highlighted the zones and

1
BP is ARCO’s successor in interest.

formations that were in production, and it also encouraged potential bidders

to consider the “upside potential” from non-producing zones and formations

in evaluating the bid prices on the properties.

In 1988, Aviva, Inc. (“Aviva”), a limited partner of Columbine,

placed a bid on the royalty package; the bid was rejected. Thereafter, ARCO

removed certain properties from the package and revised its Brochure. In

1992, ARCO solicited bids for the approximately 1,500 properties included

in the package. Aviva’s bid, in the amount of $27.18 million, was accepted.

The “Talbert Property” on which the interests in dispute are located, was

included in the 1,500 properties conveyed in the sale. On August 11, 1992,

ARCO and Aviva/Columbine (hereinafter “Columbine”) entered into a

Purchase and Sale Agreement (“PSA”) for the royalty package.

On the date of the sale, ARCO and Columbine also entered into an

Assignment and Conveyance Agreement (“Assignment”), which was made

effective July 1, 1992. The “Granting and Habendum Clauses” of the

Assignment provided, in pertinent part:

[ARCO] hereby transfers, grants, bargains, sells, conveys, and
Assigns to [Columbine], and the successors and Assigns of
[Columbine] all of [ARCO]’s right, title, and interest in and to
the following:

(a) [ARCO]’s right, title, and interest in and to or derived under
(i) the royalty interest reserved in favor of [ARCO] or its
predecessor(s) in title, as lessor, in any oil and gas lease or
oil, gas, and mineral lease in which [ARCO] or its
predecessor(s) in title is the lessor and which covers
property as described in Exhibit A hereto, or any part thereof
or any interest therein; (ii) the royalty interest, non-
participating royalty interest or non-executory mineral
interest either granted to or reserved by any deed, grant, or
conveyance in which [ARCO] or its predecessor(s) in title is
either the grantor or grantee hereto, or any part thereof or
any interest therein; (iii) each overriding royalty interest, net
profit interest or other non-cost bearing interest either
granted to or reserved by or in favor of [ARCO] or its
2

predecessor(s) in title in any assignment or conveyance in
which [ARCO] or its predecessor(s) in title is either the
assignor or assignee and which covers property as described
in Exhibit A hereto, or any part thereof or any interest
therein; and (iv) without limitation of the foregoing each
royalty interest, overriding royalty interest, net profit interest
or other non-cost bearing interest which has been unitized,
communitized or pooled under unit, communitization,
pooling or similar agreements, or under orders of state
regulatory agencies, and which unitized, communitized or
pool interest covers property as described in Exhibit A
hereto, or any part thereof, or any interest therein,
INSOFAR AND ONLY INSOFAR AS (but without
limitation of the provisions of subsection (iv), above) each
Royalty Interest covers or relates to the lands and other
property described in Exhibit A under the heading
“Description of Lands;”

(b) All of [ARCO]’s rights, titles, and interests in and to all
units, pooled acreage, proration or spacing units, or other
allocation of acreage established by, or in accordance with
applicable state, federal, tribal, or local law, to the extent
and solely to the extent that such rights, titles, and interests
related to the interests described in Subsection (a) above;

(c) All of Assignor’s right, title, and interest in and to all oil,
gas, and other minerals produced from the interests
described in Subsections (a) and (b) above subsequent to the
Effective Time and all proceeds of such production.
***

Attached to the Assignment was a document entitled “Exhibit A,”

which described the subject property as follows:

Field Name Property Name Intr Type Description of
Lands
Bethany Talbert S F UI All of Section 18-
Unit ORR T14N-R15W,
containing
604.850 acres, as
described more
fully in Dept. of
Conservation
Order No. 289
dated 9-16-54.
ARCO interest
reserved in
Assignment dated
7-16-54 from
Southern
3

Production Co. to
Ralph R. Gilster.
et al. recorded in
Vol. 725, Pg. 269
of the
Conveyance
Book.

Exhibit A also provided, in pertinent part:

PREAMBLE

1. Unless the context otherwise requires, all terms that are
defined in the Assignment and Conveyance dated August 11,
1992, by and between [ARCO] and [Columbine] to which this
Exhibit A is attached shall have the meanings stated in said
Assignment and Conveyance.
***
3. This Exhibit includes the following headings:
***
Intr Type: Interest Type
***
UI. A royalty interest, overriding royalty interest, net profit
interest or other non-cost bearing which has been unitized,
communitized or pooled under unit, communitization, pooling
or similar agreements, or under orders of state or federal
regulatory agencies.
***
Description of Lands: The description of the lands and depths
included in the Royalty interests. The description does not
necessarily signify that ARCO owns the entire interest
described or that ARCO owns such interest as to all depth
intervals described.
***
4. Notwithstanding any provision thereof to the contrary, the
Purchase and Sale Agreement to which this Exhibit A is
attached is intended to and does cover any and all producing
zones and/or formations underlying the lands described in this
Exhibit A, without regard to any depth or formation restrictions
set forth herein. For purposes of the preceding sentence, a zone
and/or formation shall be deemed to be “producing” to the
extent, as of the Effective Date, (a) there is actual production of
oil, gas and/or other hydrocarbons from such zone or formation,
or (b) there is a well or wells located on the lands described in
this Exhibit A which are completed to such zone or formation,
but such well or wells are being reworked or are otherwise
temporarily shut-in.

4

The conflict herein pertains to royalties on production of natural gas

from the Haynesville Formation, which was unitized in 2009, approximately

17 years after the 1992 Agreement was reached. The Talbert Property is

included in the Haynesville Formation. Columbine asserts that the 1992

Agreement includes the disputed interest in the Haynesville Formation,

while BP/ARCO maintains the 1992 Agreement includes only the zones that

were producing in 1992.

Not long after the parties entered into the PSA/Assignment, disputes

began to arise with regard to who owned what properties and who was

entitled to certain royalties. Pertinent to this matter, both Columbine and

BP/ARCO claimed to own the disputed interest in the royalties in the Talbert

Property. According to BP/ARCO, the term, “UI,” listed beneath the

caption “Intr Type” denotes the type of interest being conveyed, i.e., only

the unitized interest. Therefore, BP/ARCO claimed that it never conveyed

the interests that were not unitized or producing at the time of the sale.

Columbine argued that BP/ARCO never limited the transaction to the

producing units. Columbine asserted that the “UI” term was used to indicate

that the interest being sold was unitized, and the interest being conveyed was

described under the “Description of Lands” heading. Further, according to

Columbine, in the cases where BP/ARCO intended to limit the sale, such as

depth or formation limitations, it did so under the “Description of Lands”

heading.

When the dispute arose, Goodrich filed the instant concursus

proceeding and deposited the funds into the registry of the court. The parties

filed cross motions for summary judgment, which were denied. The matter

proceeded to trial during which the parties agreed that ARCO prepared the
5

Assignment, and Paragraph 4 was prepared by the attorney representing

Columbine.

Multiple witnesses testified at trial and via depositions. Kevin

Preston, the Vice-President of Aviva, testified that he was a petroleum

reservoir engineer, and he had been involved in the “economic analysis of

and property evaluation of oil and gas properties” for approximately 40

years. He stated that he had “screened hundreds” of sales packages in

preparation for the acquisition of oil and gas properties. With regard to the

Talbert Property, Preston described his understanding of the

PSA/Assignment as follows:

In this case, we would get ARCO’s right[s], title and interest in
the tracts in Section 18 that ARCO owned. We would get those
as to all depths and all formations. And as to any formations
that had been unitized – in this case it was the Pettit. We would
get that too. So we would have – that zone that had been
unitized so ARCO was getting revenue and we would be
getting revenues from wells that potentially weren’t even on
ARCO acreage. It had been unitized.
***
[The agreement] says we got the royalty and overrides
associated with those lands . . . and the description of the lands
is not limited. I mean there are many cases where they went on
to say, “Limited to the Pettit or limited to the Crane or limited
to the Hosston or limited to the unitized formation.” But the SF
Talbert property, it doesn’t say that.
***

Preston also testified as follows: the Assignment did not “create an

interest for anyone other than Columbine”; the property descriptions and the

Assignment were prepared by ARCO; Paragraph 4 was prepared by the

attorney for Columbine and was added because Columbine had discovered

that several wells had depth limitations that had been depleted; and there

6

was no language in Paragraph 4 that would limit the conveyance to “only

producing zones” because the document does not use the word “only.”

Preston stated:

And in this case the phrase is, “The purchase and sale
agreement is intended to and does cover all producing zones.”
So that’s a true statement. It covers all producing zones. It
would apply only where you had other wording in this
document that was contrary to us getting producing zones. And
that only occurs in the handful or, you know, the few examples
where a property was limited and the well had been
recompleted to a zone outside of those limitations. Otherwise,
we were already getting all producing zones.
***

Preston reiterated that there was no intent by Columbine to limit the

conveyance to only producing zones. He testified as follows: the language

in Paragraph 4 “was an expansion of rights that were already granted”; in

instances where sellers opt to reserve certain royalties or interests, the

language is “very explicit” and “very clear” and is “typically put in bold

print”; ARCO’s assertion that “UI” meant that the only thing being

conveyed was the interest in the unit was incorrect; “UI” was used to

indicate that the property had been unitized and that there were “no

restrictions to the unitized zone”;2 Columbine was being paid royalties on

multiple properties with a “UI” designation, including at least one on the

Talbert property; and the other “UI” well on the Talbert Property was being

2
Preston stated:

You know, I have counted these up. There are over 278 UI types interests
in this Assignment. And 175 of those are limited, further limited. It goes
on – even though it’s described as a unit, it may cite a unit order, there’s
language in there that says, “Limited to the Pettit. Limited to the Hosston.
Limited to the unitized formation.” And there are 103 of these UI type
interest that don’t have any. And these are approximate numbers.

7

drilled by a different drilling operator, and there had never been a question

as to who should receive the royalty payments.3

Andrea Pollack, the Founder and President of Aviva, testified that she

was never informed that ARCO was conveying overriding royalty interests

only in the producing zones. She also testified that Columbine intended to

purchase all zones/formations, producing and non-producing, for the 1,500

properties. Pollack stated that she had purchased at least 12 royalty

packages prior to the 1992 deal, and the benefit of purchasing such packages

is the potential for additional drilling, new discoveries, and new technology.

According to Pollack, the ARCO package included “a widespread of

producing and non-producing royalties, some of which included depth

limitations and others which did not.” She reiterated that she was sold both

producing and non-producing zones, and she was never informed that

ARCO only intended to sell only producing zones or revenue streams.

Pollack also stated that she had never bid on a “revenue-stream-only” deal,

and she would never do so.

James M. Perkins, Jr., was employed by ARCO as its manager of

acquisitions and divestiture from 1985-1993. He testified that the statements

made in the Brochure were “true and accurate.” Notwithstanding that

assertion, Preston testified that ARCO’s intention was to limit the royalties

being sold to the “current producing” revenue stream, while retaining rights

“where applicable.” He stated that ARCO attempted to prepare the property

descriptions to “maximize ARCO’s retention of any future potential of the

3
Preston was recalled to testify as a rebuttal witness. He stated that it would not
have been too expensive to ARCO to limit the sale of the properties to “producing zones
only.”

8

properties”; however, ARCO did not employ enough people to prepare

accurate descriptions of the properties. Perkins testified that “it was an

economic decision by ARCO as to whether they wanted to spend the money

and manpower to make sure, for a particular piece of property, it was limited

to a producing interval.” According to Perkins, ARCO decided that it was

not economically feasible to obtain title opinions on each of the 1,500

properties it sold to Columbine.

Kay O’Brien testified that she was employed by ARCO as a business

consultant for 22 years. She described her job as “kind of the liaison

between accounting and land.” She stated that she was not “involved in” the

royalty package deal. However, as the business consultant, she “attended

most of the meetings” regarding the royalty package to “kind of observe and

listen” to “make sure the accounting needs were going to be met.” O’Brien

stated that it was her understanding that the wells being conveyed in the

royalty package were the ones “that were producing.”

James Grover testified that he was employed by ARCO as a division

order analyst and was “responsible for determining ownership in a well, and

maintaining ownership over the life of the well to facilitate the payment of

royalties.” He stated that he reviewed records for operated and non-operated

properties, and “it was more difficult to determine non-operated” ownership

interests. Grover testified that the “overall quality” of the records in this

case was “poor,” due, in part, to the numbers, types, and locations of entities

from which ARCO acquired the properties. Grover also testified that

although he was not involved in preparing, marketing, or negotiating the

royalty package, he was “familiar with” the PSA/Assignment. He stated that

9

after the transaction was finalized, he worked with Columbine “to transition

payments that were previously coming to ARCO over to them.”

Mark Landt testified that he was employed by ARCO from 1976-

2000. He stated that he worked as the “land and negotiation manager” and

was “involved in” the royalty package deal.4 He testified as follows: ARCO

drafted the property descriptions “to limit the sale to the current producing

interval and spacing unit, insofar as we had the knowledge to do so”; “if the

producing interval could not be described, the description was limited to the

royalty interests ARCO retained under the farmout assignment or lease”;

during the process of preparing the property descriptions, ARCO was aware

of “some issues” with regard to “properly describing” the producing

formation for the non-unitized tracts; ARCO intended to sell only the

currently producing interests, while retaining the remaining rights “where

applicable”; the “legal descriptions of the royalties to be sold were written so

as to describe as closely as possible only those lands currently in producing

units or allocated to producing wells”; ARCO prepared the descriptions “to

maximize ARCO’s retention of any future potential of the properties”; and

the property descriptions prepared by ARCO were “ambiguous.”

John Sansbury testified as a paid consultant for ARCO. He testified

that in 1992, he was employed as ARCO’s land manager and was

responsible for closing the sale to Columbine. Sansbury testified that ARCO

was aware that the property descriptions were “not necessarily accurate in all

regards,” and he described ARCO’s internal files as “sketchy at best” and

“inaccurate.” With regard to Paragraph 4 of the Assignment, Sansbury

4
Landt testified that he was transferred to a different position prior to the
execution of the agreement in dispute.
10

stated that the paragraph was prepared by the attorney for Columbine

because Columbine “wanted to make sure that they received the producing

formation zones that they were entitled [to].” He admitted that Paragraph 4

did not use the word “only” to indicate that the sale was limited to the then-

producing zones.

Randolph Kelly Green testified as an expert in petroleum engineering,

with an emphasis on reservoir evaluations. Green stated that he was

employed by Netherland, Sewell and was involved in preparing the ARCO

reserve estimates, but he was not involved in negotiating the PSA and

Assignment. He stated that Netherland, Sewell was asked to evaluate

producing and non-producing reserves on behalf of ARCO. Green also

testified that ARCO did not indicate that the royalty package was limited to

a revenue stream from producing properties or zones, and he was not told to

limit his evaluation to producing zones only. Green stated that if the sale

had been limited to producing zones only, he believes ARCO would have

told him to exclude non-producing reserves from the evaluation. He stated,

“We were asked to evaluate proved developed producing reserves and

proved developed non-producing reserves at the time.”

Gary Hoff testified via deposition. He stated that he was employed by

ARCO from 1973-1993. He testified that he was involved in the preparation

of the PSA and Assignment, but he had never seen the Brochure. Hoff

stated that ARCO decided to sell producing zones only, and Aviva was

aware of that decision. He admitted that he had never seen a written

document indicating that ARCO was selling only producing zones. Hoff

stated that the only language indicating that the sale was limited to

11

producing zones was the language set forth in Paragraph 4 of the

Assignment.

John Moore, who was employed by ARCO in its acquisition/divesture

division, also testified via deposition. He testified as follows: he was

involved in the attempt to sell the properties in 1988, and the subsequent sale

in 1992; he approved the Brochure, and he believed the information included

therein was accurate; the Brochure was designed to market for sale the

“upside potential” of future productive or non-producing zones for the

properties; the Brochure referenced producing zones and “potentially

producing zones”; the Brochure indicated that potential bidders could make

their own estimate of additional potential, and that additional potential

would include non-producing zones; when the Brochure was updated prior

to the 1992 sale, the list of properties was changed; the bid instruction letter

did not contain any reference that only producing zones were being sold; a

letter written to Kevin Preston regarding the royalty package did not indicate

that the term “UI” meant that only the interests in unitized formations were

being sold; he did not recall ARCO changing the scope “of what was being

sold to exclude from the sale all non-producing zones”; he believes the

bidders would have been notified in writing if ARCO had decided to limit

the sale to producing zones only; if ARCO had intended not to convey a

certain interest to Columbine, “it would seem” that ARCO would have made

the reservation in writing; “according to the English language,” Paragraph 4

did not state that only producing zones were being sold; ARCO could have

specifically stated that the sale was being limited to producing zones only “if

they wanted to”; and there was “some lack of clarity” in the language of the

agreement.
12

Moore also confirmed internal correspondence he prepared in 1988

and 1992 with regard to the Brochure and the potential sale. In comparing a

memorandum he prepared in 1988 to one that he prepared in 1992, Moore

testified that the properties were being described “to limit the sale to the

current producing interval and spacing unit, insofar as we had the knowledge

to do so.” During Moore’s deposition testimony, the colloquy was as

follows:

Q. And that’s in your April 29, 1992, memo. If you look back
at the August ’88 one, it says, “The legal descriptions of the
royalties to be sold were written . . . so as to describe as closely
as possible only those lands currently producing units or
allocated to producing wells.

A. Similar.
***
Q. Next sentence says, “If the producing interval could not be
described, the description was limited to the royalty interests
ARCO retained on the farmout assignment or lease.” Do you
see where it says that?

A. I see that.

Q. That’s ultimately what happened, right? In the property
description. If it could not be limited to a producing interval,
then it was – the description was simply limited to the royalty
interests ARCO retained under the farmout assignment or
lease?

A. Again, it would appear to be[.]
***

After hearing the testimony and reviewing the evidence, the trial court

found as follows: (1) Texas law applies, pursuant to the agreement of

parties; (2) Paragraph 4 of Exhibit A “expands the Assignment to include

zones which were producing as of July 1, 1992, notwithstanding the depth

limitations included in the property descriptions . . . and does not limit the

overriding royalties conveyed by the Assignment to only producing zones as

of July 1, 1992”; (3) the “Description of Lands” for the Disputed Interest
13

does not contain any limitation to a zone or formation; (4) the inclusion of

“UI” in the column “Intr Type” for the Disputed Interest does not operate to

convey an interest only in a unitized formation; and (5) Columbine is

entitled to all overriding royalties attributable to the Disputed Interest.

BP/ARCO appeals.

DISCUSSION

BP/ARCO contends the trial court erred in its interpretation of the

contract. According to BP/ARCO, the inclusion of the term “UI” beneath

the “Intr Type” column of the property description operated to convey an

interest only in a unitized formation, and the trial court erred in finding

otherwise. BP/ARCO argues that the property description makes it clear

that the “interest type” that ARCO conveyed to Columbine was the “UI,”

i.e., the unitized interest, and the Pettit/Hosston Formation was the only

unitized, producing interest on the property at the time the parties entered

into the PSA/Assignment. BP/ARCO maintains that the Haynesville

Formation did not come into existence until 2009; therefore, ARCO clearly

did not intend to transfer the then-nonexisting unitized interest in the

Haynesville Formation.

Columbine, on the other hand, contends the interest being conveyed

was described under the “Description of Lands” heading of the agreement,

and the term “UI” was used to indicate that the property being sold had been

unitized. Further, according to Columbine, in the cases where BP/ARCO

intended to limit the sale, such as depth or formation limitations, it did so

under the “Description of Lands” heading. Columbine notes that BP/ARCO

did not place any limitations or restrictions on the property being conveyed

in this case.
14

We note that the trial court conducted a choice of law analysis and

determined that Texas law applies to this matter, pursuant to the forum

selection provision in the contract.5 Neither party appealed the trial court’s

determination. Therefore, that ruling is final, and this Court shall apply

Texas law to this matter.

Texas law, with regard to contracts and contract interpretation,

provides as follows:

Contracts are reviewed under a de novo standard of review.
Barrow-Shaver Res. Co. v. Carrizo Oil & Gas, Inc., 590 S.W.
3d 471 (Tex. 2019).

Absent ambiguity, contracts are construed as a matter of law.
Plains Expl. & Prod. Co. v. Torch Energy Advisors Inc., 473
S.W. 3d 296, 305 (Tex. 2015); Moayedi v. Interstate 35/Chisam
Rd., L.P., 438 S.W. 3d 1, 7 (Tex. 2014). In construing a written
contract, our primary objective is to ascertain the parties’ true
intentions as expressed in the language they chose. Id.
Contracts are construed from a utilitarian standpoint, bearing in
mind the particular business activity sought to be served, and
avoiding unreasonable constructions when possible and proper.
Plains Expl., supra; Reilly v. Rangers Mgmt., Inc., 727 S.W. 2d
527, 530 (Tex. 1987). To that end, the courts consider the
entire writing, harmonizing and giving effect to all the contract
provisions so that none will be rendered meaningless. Plains
Expl., supra; Moayedi, supra. No single provision taken alone
is given controlling effect; rather, each must be considered in
the context of the instrument as a whole. Id. Additionally,
words are given their plain, common, or generally accepted
meaning unless the contract shows that the parties used words
in a technical or different sense. Id.

A contract is not ambiguous if the contract’s language can be
given a certain or definite meaning. Plains Expl., supra; El
Paso Field Servs., L.P. v. MasTec N. Am., Inc., 389 S.W. 3d
802 (Tex. 2012). But if the contract is subject to two or more
reasonable interpretations after applying the pertinent
5
La. C.C. art. 3540 allows contracts to be governed by the law expressly chosen
or clearly relied upon by the parties. A choice of law provision in a contract is presumed
valid until it is proved invalid. Daniels v. Int’l Paper Co., 51,633 (La. App. 2 Cir.
11/3/17), 245 So. 3d 180, writ denied, 18-0236 (La. 3/23/18), 239 So. 3d 295; Barnett v.
American Const. Hoist, Inc., 11-1261 (La. App. 1 Cir. 2/10/12), 91 So. 3d 345. See also
Pinto Tech. Ventures, L.P. v. Sheldon, 526 S.W. 3d 428 (Tex. 2017); In re Laibe Corp.,
307 S.W. 3d 314 (Tex. 2010)

15

construction principles, the contract is ambiguous, creating a
fact issue regarding the parties’ intent. Id.

While extrinsic evidence of the parties’ intent is not admissible
to create an ambiguity, the contract may be read in light of the
circumstances surrounding its execution to determine whether
an ambiguity exists. Plains Expl., supra; El Paso Field Servs.,
supra; Balandran v. Safeco Ins. Co. of Am., 972 S.W. 2d 738,
741 (Tex. 1998). Consideration of the surrounding facts and
circumstances is simply an aid in the construction of the
contract’s language and has its limits. Plains Expl. & Prod.
Co., supra; Sun Oil Co. v. Madeley, 626 S.W. 2d 726, 731 (Tex.
1981). The rule that extrinsic evidence is not admissible to
create an ambiguity “obtains even to the extent of prohibiting
proof of circumstances surrounding the transaction when the
instrument involved, by its terms, plainly and clearly discloses
the intention of the parties, or is so worded that it is not fairly
susceptible of more than one legal meaning or construction.”
Sun Oil Co., supra, at 732 (quoting Lewis v. E. Tex. Fin. Co.,
136 Tex. 149, 146 S.W. 2d 977, 980 (1941)). Mere
disagreement over the interpretation of an agreement does not
necessarily render the contract ambiguous. Plains Expl. &
Prod. Co., supra.

An ambiguous contract is strictly construed against the drafter.
Gonzalez v. Mission Am. Ins. Co., 795 S.W. 2d 734 (Tex.
1990); Liberty Surplus Ins. Corp. v. Exxon Mobil Corp., 483
S.W. 3d 96 (Tex. App. 2015).

The arguments raised in this case implicate overlapping standards of

review. As stated above, the interpretation of a contract is a question of law,

to which courts apply a de novo standard of review. Barrow-Shaver Res.,

supra; MCI Telecomms. Corp. v. Texas Utilities Electric Co., 995 S.W. 2d

647 (Tex. 1999). Herein, the trial court entered written findings of fact and

conclusions of law. Findings of fact made by the trial judge, sitting as the

factfinder, enjoy the same status as findings of a jury. Texas Outfitters Ltd.,

LLC v. Nicholson, 572 S.W. 3d 647 (Tex. 2019); Anderson v. City of Seven

Points, 806 S.W. 2d 791 (Tex. 1991). Therefore, a trial court’s fact findings

are reviewed by the same standards used to review the sufficiency of the

evidence to support a jury’s findings. Hegar v. Am. Multi-Cinema, Inc., 605

16

S.W. 3d 35 (Tex. 2020), reh’g denied (Aug. 28, 2020); Catalina v. Blasdel,

881 S.W. 2d 295 (Tex. 1994).

In the instant case, in ruling in favor of Columbine, the trial court

reviewed the documentary evidence and summarized the testimony in its

entirety. The trial court considered the intent of the parties and concluded

that the parties did not intend the PSA and Assignment to be limited only to

the zones that were producing at the time of the agreement. The court

stated, in pertinent part:

***
Here, the parties presented ample evidence of their respective
intent when entering into the PSA and Assignment. What is
most interesting to the Court is that, with few exceptions and
despite the diametrically opposed positions the parties have
taken, the intent evidence is largely consistent. With respect to
the Disputed Interest, all parties agree that it is a “grouped”
property. It was uncontested that the “grouped” properties
generated less income for ARCO, received less attention from
ARCO, and Netherland, Sewell conducted less analysis of the
“grouped” properties as opposed to the “major” properties for
purposes of the Brochure and 1992 update.

Ms. Pollack and Mr. Preston both testified explicitly and
convincingly that ARCO solicited bids on producing and non-
producing zones via the Brochure and that Aviva/Columbine
intended to and, in fact, did bid upon and purchase producing
and non-producing zones. They also testified that Paragraph 4
was prepared by Aviva/Columbine’s attorney, Ms. Lynch, to
expand the Assignment to include producing zones which
would have otherwise been excluded due to depth limitations
found in some Exhibit A property descriptions.

On behalf of BP/ARCO, Mr. Perkins and Mr. Moore testified
that the statements made in the Brochure were true and
accurate. Mr. Moore further testified that he does not recall
ARCO changing the scope “of what was being sold to exclude
from the sale all non-producing zones” in 1992, and, if ARCO
had done so, he believes the bidders would have been notified
in writing. All BP/ARCO witnesses testified consistently that
ARCO did not notify potential bidders, particularly Aviva, in
writing of ARCO’s intention to exclude all non-producing
zones from the royalty package. Additionally, all BP/ARCO

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witnesses confirmed that ARCO’s royalty records, including
property descriptions, were largely inadequate and inaccurate.
***

The court further stated, in pertinent part:

Now having the benefit of considerable witness testimony, the
Court finds the parties intended Paragraph 4 to expand the
property descriptions to provide an additional basis of royalty
for Columbine’s benefit. Specifically, the parties intended
Paragraph 4 to expand the Assignment to include zones which
were producing as of July 1, 1992, notwithstanding the depth
limitations included in the property descriptions. The Court
finds that Paragraph 4 does not limit the overriding royalties
conveyed by the Assignment to only producing zones as of July
1, 1992. In making these findings, the Court notes that all of
Columbine’s and BP/ARCO’s witnesses agree that ARCO’s
property descriptions were problematic. Further, BP/ARCO
witnesses confirmed that ARCO made the business decision not
to spend the time and money necessary to prepare accurate
property descriptions. Instead, ARCO made the economic
decision, which was internally acknowledged and accepted, “to
limit the sale to the current producing interval and spacing unit,
insofar as [ARCO] had the knowledge to do so.” To the extent
that the producing zone could not be described, ARCO made
the business decision to limit the property description “to the
royalty interests ARCO retained under the farmout assignment
or lease.” With respect to the Disputed Interest, the property
description was limited, just as ARCO envisioned and intended,
to the royalty interests ARCO retained under that certain
Assignment, dated July 16, 1954, from Southern Production
Co. to Ralph R. Gilster, et al.
***
Further, no credible testimony supported BP/ARCO’s
contention that inclusion of “UI” in the column “Intr Type” on
Exhibit A operated to convey an interest only in a unitized
formation. Accordingly, the Court finds that the Disputed
Interest did not include a depth limitation beyond that which
may be contained in the Assignment, dated July 16, 1954, from
Southern Production Co. to Ralph R. Gilster, et al. Further, the
Court finds that Columbine is entitled to all overriding royalties
attributable to the Disputed Interest.
***
With respect to the PSA, Assignment, and events surrounding
the negotiation and execution of the same, the Court makes the
following additional observations. The Court found Ms.
Pollack and Mr. Preston to be credible witnesses. The Court
believes that Ms. Pollack testified truthfully that Aviva has
never and would never bid upon or purchase a revenue stream
only. In addition, the Court believes that Aviva/Columbine was
never advised by ARCO or its employees that ARCO intended
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the royalty package to be a revenue-stream-only or producing-
zones-only deal. To the extent that ARCO intended to convey
producing zones only, despite inclusion of property descriptions
containing to depth limitation, that intention was not revealed to
Aviva. “A secret or undisclosed intention of the grantor not to
divest himself of title will not prevent a duly executed and
delivered deed from taking effect.” Adams v. First Nat. Bank of
Bells/Savoy, 154 S.W. 3d 859, 870 (Tex. App. 2005).

(Emphasis in original).

After conducting a thorough de novo review of this record, we agree

with the conclusions of the trial court. Both parties to the contract have

diverging views regarding the interest being conveyed in the

PSA/Assignment. The contradictory positions make it clear that the contract

is “subject to two or more reasonable interpretations,” and the parties’

intentions cannot be clearly ascertained solely from the language of the PSA

and Assignment. Therefore, the contract is ambiguous, and the trial court

correctly interpreted the language of the contract “in light of the

circumstances surrounding its execution.” See Plains Expl., supra.

Of necessity, this Court must analyze the trial court’s findings

concerning the circumstances surrounding the execution of the contract. We

find the trial court’s most thorough analysis, and conclusions drawn

therefrom, reflected no error.

Notwithstanding BP/ARCO’s contention, we cannot give controlling

effect to the term “UI” without considering that term in the context of other

provisions of the contract. In constructing the contract for the sale of the

properties, ARCO defined “Description of Lands” as “the description of the

lands and depths included in the Royalty interests.” The “land” described in

the contract under the heading “Description of Lands” was as follows:

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All of Section 18-T14N-R15W, containing 604.850 acres, as
described more fully in Dept. of Conservation Order No. 289
dated 9-16-54. ARCO interest reserved in Assignment dated 7-
16-54 from Southern Production Co. to Ralph R. Gilster, et al.

Further, paragraph (a)(iv) of the Granting Clause states, in part: “each

Royalty Interest covers or relates to the lands and other property described in

Exhibit A under the heading ‘Description of Lands’[.]”

There is nothing in the language of the agreements to indicate that

ARCO intended to reserve for itself any zones that were not producing as of

the date of the sale.

Likewise, the PSA and the Assignment are devoid of any language

that would have put Aviva/Columbine on notice that ARCO intended to sell

only the interests that were producing at the time of the sale.

Furthermore, the testimony clearly established that ARCO was the

drafter of the PSA. Thus, any ambiguity in the contract, under Texas law,

must be strictly construed against ARCO. See Gonzalez v. Mission Am. Ins.

Co., supra; Liberty Surplus Ins. Corp., supra.

Moreover, the testimony was lengthy regarding the parties’ intentions.

Pollack and Preston testified that ARCO provided no indication of its intent

to sell producing zones only, and Columbine would not have placed a bid

had ARCO done so. Although many of the witnesses testifying on behalf of

ARCO maintained that ARCO intended to sell only the zones that were

producing at the time of the sale, they agreed that the PSA and Assignment

did not specify that only producing zones were being sold. The witnesses

admitted that had ARCO intended to reserve non-producing zones, the

intention should have been made clear in the written agreement.

20

In particular, Landt, who was instrumental in negotiating the royalty

package deal on ARCO’s behalf, testified that ARCO attempted to prepare

the property descriptions to limit the sale to the units that were currently

producing “insofar as we had the knowledge to do so.” Nevertheless, Landt

went on to state, “If the producing interval could not be described, the

description was limited to the royalty interests ARCO retained under the

farmout assignment or lease.”

Sansbury also played a pertinent part for ARCO in the royalty

package deal. He described the property descriptions as “sketchy” and

“inaccurate,” and he admitted that Paragraph 4 did not use the word “only”

to indicate that the sale was limited to the then-producing zones.

Green testified that ARCO asked Netherland, Sewell to evaluate both

production and non-producing reserves. Green stated that if ARCO had

intended to limit the sale to producing zones only, he believes ARCO would

have told him to exclude non-producing reserves from the evaluation.

Moore, who approved the Brochure and was involved in negotiating

the agreement, admitted that ARCO advertised both producing zones and

potentially producing zones. He stated that he did not recall ARCO

changing the scope “of what was being sold to exclude from the sale all non-

producing zones,” and he believed the bidders would have been notified in

writing if ARCO had decided to limit the sale to producing zones only.

Further, Moore testified that Paragraph 4 did not state that only producing

zones were being sold, and ARCO could have specifically stated that the

sale was being limited to producing zones only “if they wanted to.”

Based on our review of this record, we find that the trial court did not

err in finding that the “Description of Lands” for the Disputed Interest does
21

not contain any limitation to a zone or formation, and the inclusion of “UI”

in the column “Intr Type” for the Disputed Interest does not operate to

convey an interest only in a unitized formation. As the trial court so aptly

stated, “[N]o credible testimony supported BP/ARCO’s contention that

inclusion of ‘UI’ in the column ‘Intr Type’ on Exhibit A operated to convey

an interest only in a unitized formation.” Consequently, we find no error in

the trial court’s determination that Columbine is entitled to all overriding

royalties attributable to the Disputed Interest.

CONCLUSION

For the foregoing reasons, the trial court’s judgment is affirmed. The

costs of this appeal are assessed to the defendants, Atlantic Richfield

Company and BP America Production Company.

AFFIRMED.

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