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First City Nat’l Bank of Midland v. Concord Oil Co – Case Brief Summary (Texas)

In First City Nat'l Bank of Midland v. Concord Oil Co., 808 S.W.2d 133 (Tex. App.--El Paso 1991, no writ), the parties did not make an initial redetermination of reserves when the Tobe Foster Production Payment terminated.

Instead, in a 1969 letter agreement, the parties agreed to waive the initial redetermination of reserves and to make a final redetermination of reserves after July 1, 1974.

However, the parties did not make such a final redetermination. Concord Oil, 808 S.W.2d at 135.

The appellants in Concord Oil, which we will refer to collectively as the Bank, were either original sellers under the assignment or successors-in-interest of original sellers.

The appellee was Concord Oil, the successor-in-interest of Continental Investors, the buyer under the assignment. Id. at 134-35.

Concord Oil sought a declaratory judgment that PPC had terminated on Tracts 11 and 12. The El Paso court explained that, alternatively, Concord Oil requested "an order setting the procedure to be used by the parties to determine the quantities of oil which could be commercially produced, based on the data available in 1974 and 1975." Id. at 135-36.

The Bank requested a declaratory judgment that PPC was still in effect on the tracts. Id. at 136.

The trial court entered an order requiring that the parties attempt to establish the reserves that existed in the subject tracts in a manner that followed the procedure set forth in the assignment for establishing reserves.

The order required that the parties try to determine, by mutual agreement, the total reserves existing in the tracts on three different dates: (1) July 1, 1974, which was fifteen years from the effective date of the assignment; (2) December 20, 1985; and (3) August 17, 1989, which was the date of the trial court's order. Id.

The parties each selected an engineer, and those engineers agreed on a determination of gross oil reserves in barrels as follows:

Effective Date     D.M. Womack (Tract 11)     J.C. Womack (Tract 12)     

                 

7/1/74     93,740 barrels     273,368 barrels     

                 

12/20/85     45,394 barrels     132,526 barrels     

                 

8/17/89     23,377 barrels     68,248 barrels     

The trial court concluded that July 1, 1974, was the proper date for determining the reserves. Id. The trial court entered a judgment declaring that PPC had not terminated as to either of the tracts but would terminate when 90% of the oil reserves existing on July 1, 1974, had been produced.

Thus, the trial court concluded that PPC would terminate on Tract 11 when 84,366 barrels of oil had been produced from the reserves of 93,740 barrels and on Tract 12 when 246,031.2 barrels of oil had been produced from the reserves of 273,368 barrels. Id.

On appeal, the Bank asserted that the trial court had erred in adopting July 1, 1974, as the final determination date.

The Bank argued that the trial court should have adopted August 17, 1989, the date the trial court issued its order, as the date for making the final determination of reserves and that the trial court should have declared that PPC would not terminate until there remained unproduced 10% of the reserves that existed on August 17, 1989. Concord Oil, 808 S.W.2d at 136.

In a cross-point, Concord Oil asserted that the trial court had erred in failing to determine that PPC had terminated on the tracts.

Concord Oil argued that, under the terms of the assignment, PPC was to terminate when there had been depletion of 90% of the reserves as estimated in the initial redetermination, which the assignment provided would be made when the Tobe Foster Production Payment terminated.

Therefore, Concord Oil contended that the assignment required PPC to terminate when there remained unproduced 10% of the reserves that existed in 1969 when the Tobe Foster Production Payment terminated. Id. at 136-37.

The El Paso court disagreed with both parties' positions. Applying the rules relating to the construction of unambiguous contracts to the assignment, the court concluded that "the parties intended that a PPC would terminate when there remained unproduced not less than 10 percent of the reserves that existed on July 1, 1974." Id. at 137. Therefore, the court affirmed the trial court's judgment. Id. at 139.