## Facts

- A 1956 oil-and-gas lease covered an 8,545-acre tract later divided among successors into three separate tracts owned by Springer Ranch, Rosalie Matthews Sullivan, and the Jones/Matthews group.
- By 1993, existing vertical wells and multi-tract production units created uncertainty about royalty sharing among the tract owners.
- In 1993, the successors executed a royalty-sharing contract providing that “all royalties payable” from any “well or wells” on the original tract would be paid to the “owner of the surface estate on which such well or wells are situated,” “without reference to any production unit.”
- A horizontal well (Springer Ranch No. 2) was later drilled with its wellhead on Springer Ranch’s tract; the lateral wellbore extended beneath multiple tracts and terminated under Sullivan’s tract.
- Springer Ranch claimed the contract required payment of all royalties to the surface owner where the wellhead and surface equipment were located.
- Sullivan and others claimed the “well” included the entire horizontal wellbore, requiring allocation of royalties among surface owners based on the productive portions beneath each tract.
- Springer Ranch filed a declaratory-judgment action seeking a construction awarding it all royalties from the horizontal well.
- The trial court construed the contract to require allocation of royalties for the horizontal well based on the productive portions of the well underlying each party’s property; Springer Ranch appealed.

## Issues

1. Whether the 1993 royalty-sharing contract requires a horizontal well’s royalties to be paid entirely to the surface owner where the wellhead is located.
2. Whether the contract instead requires royalties to be allocated among surface owners based on the productive portions of the horizontal wellbore underlying each surface estate, notwithstanding the clause “without reference to any production unit.”

## Decision

- The court of appeals affirmed the declaratory judgment.
- The court held the 1993 contract required royalties from the horizontal well (and future covered horizontal wells crossing tract lines) to be apportioned according to the productive portions of the wellbore underlying each surface estate.
- The court rejected construing “well” as synonymous with “wellhead” and treated the agreement as unambiguous when read as a whole.

## Legal Principles

- Contract interpretation gives effect to the parties’ intent as expressed in the instrument, read as a whole, and applies plain meaning where the agreement is unambiguous.
- In ordinary and legal usage, “well” refers to the bored or sunk hole/shaft through which minerals are produced, not merely the surface wellhead.
- The phrase “surface estate” denotes a legal unit of ownership in land that extends within the tract’s boundaries (subject to the severed mineral estate), so a wellbore located within those boundaries can be “situated” on that surface estate.
- The preposition “on” in “on which such well or wells are situated” can encompass location within the bounds of a tract and does not compel a wellhead-only rule for a cross-tract horizontal well.
- A clause directing payment “without reference to any production unit” bars allocation based on regulatory or designated production/proration units, but does not bar allocation based on where the productive portions of a horizontal wellbore lie beneath the parties’ surface estates.

## Conclusion

The court construed the royalty-sharing contract to treat a horizontal “well” as the entire wellbore and held that royalties must be allocated among surface-estate owners in proportion to the productive portions of the wellbore underlying each owner’s tract, rather than paid solely to the tract containing the wellhead.


Springer Ranch, Ltd. v. Jones, 421 S.W.3d 273 (Tex. App.—San Antonio 2013)