Court of Appeals for the Fifth Circuit
Storey Minerals v. EP Energy E&P
24-204770 citations·
Summary of the case Storey Minerals v. EP Energy E&P
The MSB Owners appealed adverse rulings on subject-matter jurisdiction, ripeness, and the merits of their administrative expense claims under 11 U.S.C. § 503(b)(1)(A) in EP Energy's Chapter 11 bankruptcy case. The court affirmed the lower court's decision. The MSB Owners, lessors of mineral leases, claimed that EP's temporary cessation of production during bankruptcy proceedings terminated the leases, constituting trespass and entitling them to administrative expense claims.
Key Issues of the case Storey Minerals v. EP Energy E&P
- Subject-matter jurisdiction
- Administrative expense claims under 11 U.S.C. § 503(b)(1)(A)
Key Facts of the case Storey Minerals v. EP Energy E&P
- EP Energy filed for Chapter 11 bankruptcy on October 3, 2019.
- EP temporarily ceased production due to market conditions during the COVID-19 pandemic.
Decision of the case Storey Minerals v. EP Energy E&P
Affirmed
Opinions
Case: 24-20477 Document: 99-1 Page: 1 Date Filed: 03/10/2026
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
____________
FILED
March 10, 2026
No. 24-20477
____________ Lyle W. Cayce
Clerk
In the Matter of EP Energy E&P Company, L.P.,
Debtor,
Storey Minerals, Limited; Storey Surface, Limited;
Maltsberger, L.L.C.; Maltsberger/Storey Ranch,
L.L.C.; Maltsberger/Storey Ranch Lands, L.L.C.; Rene
R. Barrientos, Limited,
Appellants,
versus
EP Energy E&P Company, L.P.,
Appellee.
______________________________
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:21-CV-4148
______________________________
Before Elrod, Chief Judge, and Duncan and Engelhardt, Circuit
Judges.
Kurt D. Engelhardt, Circuit Judge:
Appellants Storey Minerals, Ltd., et al. (collectively, the “MSB Own-
ers”) appeal adverse rulings regarding subject-matter jurisdiction, ripeness,
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No. 24-20477
and the merits of their post-petition “administrative expense” claims, pre-
sented under 11 U.S.C. § 503(b)(1)(A), in Debtor–Appellee EP Energy E&P
Co., L.P.’s (“EP” or “EP Energy”) Chapter 11 bankruptcy case. As stated
herein, we AFFIRM. 1
I.
The MSB Owners are the lessors/landowners for 16 “non-standard”
mineral (oil and gas) leases (collectively, the “Leases”) on land located in
South Texas (hereinafter, the “Leased Premises”). 2 Chapter 11 Debtor–
Appellee EP is the lessee/operator for the Leases. EP and its affiliates (the
“Reorganized Debtors”) filed Chapter 11 bankruptcy cases on October 3,
2019 (the “Petition Date”).
In early May 2020, during the pendency of EP’s Chapter 11
bankruptcy case, a substantial decrease in demand for oil (associated with the
COVID-19 pandemic and other market forces) caused market prices to
collapse. Seeking to avoid producing oil that would be sold at a loss, or not at
all, EP temporarily ceased production on the Eagle-Ford field, which
included wells on the Leased Premises. Within 40 days, however, EP
resumed production.
On August 27, 2020, the bankruptcy court confirmed EP’s Plan of
Reorganization (“Plan”). 3 The Plan became effective on October 1, 2020
_____________________
1
Additionally, EP’s pending motion to supplement the record on appeal is
DENIED as MOOT.
2
See Lease dated October 31, 2019, Record on Appeal (“ROA”) 12536–12668.
The parties agree that all of the leases are “substantially the same.” Thus, references
herein to the “Lease” or “Leases” apply equally to all 16 leases unless otherwise stated.
3
See Plan, ROA.4023–94; Confirmation Order, ROA.3971–4021.
2
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(the “Effective Date”). 4 In accordance with the Plan, the bankruptcy court
set October 31, 2020 as the “Administrative Expense Claims Bar Date,” i.e.,
the deadline, unless otherwise provided by the Plan, court order, or
agreement, for filing requests for payment of “Administrative Expense
Claims” under 11 U.S.C. § 503. Id. 5 Regarding the October 31, 2020
deadline, the Notice additionally states:
Holders of Administrative Expense Claims that are required to
file and serve a request for payment of such Administrative
Expense Claims that do not file and serve such a request by the
Administrative Expense Claims Bar Date shall be forever
barred, estopped, and enjoined from asserting Administrative
Expense Claims against the Debtors, or their property and such
Administrative Expense Claims shall be deemed discharged as
of thirty (30) days after the Effective Date. 6
_____________________
4
See October 1, 2020 Notice of (I) Effective Date, (II) Entry of Order Approving
Disclosure Statement on Final Basis, and (III) Entry of Order Confirming Modified Fifth
Amended Joint Chapter 11 Plan of EP Energy Corporation and its Affiliated Debtors
(“Notice”), ROA.4291–93; see also 11 U.S.C. § 1141 (“Effect of Confirmation”).
5
Section 503 of the Bankruptcy Code provides, in pertinent part:
(a) An entity may timely file a request for payment of an administrative
expense, or may tardily file such request if permitted by the court for cause.
(b) After notice and a hearing, there shall be allowed administrative
expenses, other than claims allowed under section 502(f) of this title,
including—
(1)(A) the actual, necessary costs and expenses of preserving the
estate including . . . .
See 11 U.S.C. § 503. A request for payment of administrative expense is made by motion
filed in accordance with the requirements of Rule 9014 of the Federal Rules of Bankruptcy
Procedure. See In re TransAmerican Nat. Gas Corp., 978 F.2d 1409, 1416 (5th Cir. 1992);
Fed. R. Bankr. P. 9014(a) (“In a contested matter not otherwise governed by these
rules, relief must be requested by motion.”).
6
As defined in the Plan:
3
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On October 30, 2020, the MSB Owners filed a motion in the
bankruptcy court entitled “MSB Owners’ Renewed Motion for Allowance
of Administrative Expense Claims Pursuant to Section 503(b)(1)(A) of the
Bankruptcy Code” (hereinafter referred to as “the October 30 Motion” or
“the Administrative Expense Motion”). 7 Contending that EP’s interim
_____________________
“Administrative Bar Date” means the date that requests for payment of
Administrative Expense Claims (other than Fee Claims) must be filed with
the Bankruptcy Court and served on the Debtors . . ., as applicable, that is
thirty (30) days after the Effective Date.”
“Administrative Expense Claim” means any Claim constituting a cost or
expense of administration incurred during the Chapter 11 Cases of a kind
specified under section 503(b)(3) of the Bankruptcy Code and entitled to
priority under sections 507(a)(2), 507(b), or 1114(e)(2) of the Bankruptcy
Code, including (a) the actual and necessary costs and expenses incurred
after the Petition Dates and through the Effective Date of preserving the
Estates and operating the businesses of the Debtors. . . .
“Claim” means a “claim,” as defined in section 101(5) of the Bankruptcy
Code, against any Debtor.
According to Section 101(5), the term “claim” means—
(A) right to payment, whether or not such right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured, or
unsecured; or
(B) right to an equitable remedy for breach of performance if such
breach gives rise to a right to payment, whether or not such right to
an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured, or unsecured.
See 11 U.S.C. § 101(5).
7
See October 30 Motion, ROA.11613–633. Regarding the filing of an
Administrative Claim, Sections 5.2(b) and 11.1(e) of the Plan provide:
§ 5.2–Treatment of MSB Claims, Interests, and Controversies
(b) Postpetition to Pre-Effective Date and Administrative Claims
Nothing in the Plan or this Confirmation Order shall modify or otherwise
alter: (i) the rights of MSB to file an Administrative Claim for alleged
4
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cessation of production had caused the Leases to terminate 8—such that
“EP’s continued oil and gas exploration activities” on the Leased Premises
constitute “an ongoing trespass giving rise to trespass damages” 9 under
Texas law—the October 30 Motion asserts that those damages qualify as
“actual, necessary costs and expenses of preserving the estate” for purposes
of 11 U.S.C. § 503(b)(1)(A). 10 Despite also arguing that “all claims arising
from and after the Debtors’ Petition Date should pass through and remain
payable in full,” 11 the MSB Owners confirm that, “to the extent applicable
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damages relating to postpetition, but Pre-Effective Date, actions of the
Debtors in respect of the MSB contracts; (ii) defenses, counterclaims, or
rights of the Debtors and the Reorganized Debtors, as applicable, to object
on any basis to any such alleged Administrative Claims; or (iii) MSB’s
retention of all real property interests and equitable remedies under the
MSB Contracts that do not constitute Claims; provided however, that
5.2(b)(i) and (ii) above are subject to the Administrative Bar Date, and
provided further that the Bankruptcy Court retains exclusive jurisdiction to
determine whether any dispute with respect to section 5.2(b)
(iii) comprises a Claim, which threshold determination may be heard upon
motion of MSB, the Debtors, or the Reorganized Debtors, as applicable.
§ 11.1 (e)–Retention of Jurisdiction
Pursuant to sections 105(c) and 1141 of the Bankruptcy Code and
notwithstanding entry of the Confirmation Order and the occurrence of
the Effective Date, on or after the Effective Date, the Bankruptcy Court
shall retain exclusive jurisdiction, pursuant to 28 U.S.C. §§ 1334 and 157,
over all matters arising in or related to the Chapter 11 Cases for, among
other things, . . .
(e) to consider Claims or the allowance, classification,
priority, compromise, estimation, or payment of any
Claim, including any Administrative Expense Claim . . . .
8
See October 30 Motion, ¶¶ 21, 23.
9
Id. ¶ 23.
10
Id. ¶¶ 23–24, 40, 47; id. ¶¶ 42–47.
11
Id. ¶ 42; see also id. ¶ 39 (“The MSB Owners contend the matters herein should
pass through and be fully payable to the extent adjudication is need in further actions for
5
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and covered by the Administrative Bar Date,” 12 the motion was filed “to
preserve and protect their entitlement to relief.” 13 Additionally, reporting
that “several [issues and claims] require further adjudicatory proceedings”14
and “involve state law matters and events that occurred both during the
Cases and after the Effective Date,” 15 the motion states, in paragraph 12: 16
In connection with the filing of this Motion, the MSB Owners
will also file a motion seeking threshold determination of status
by this Court in accordance with and pursuant to paragraph 46
of the Confirmation Order 17 with an attached petition to be
_____________________
all of the matters herein. If Debtors contend otherwise, then these are asserted for
preservation and recovery if needed.”).
12
Id. ¶ 11.
13
Id., see also id. ¶¶ 23–24,42–47; id. ¶39 (characterizing the trespass damages as
an “Administrative Expense Claim” that is “entitled . . . to administrative priority [under
§ 503(b) and § 507(a)(2)] as [an] administrative expense claim[].”); id. ¶ 40 (“The MSB
Owners respectfully request that the Court enter an order allowing and/or preserving the
MSB Owners[’] entitlement to an administrative expense claim and requiring [EP] to pay
the MSB Owners the full value of the administrative expense claim as determined and
awarded.”); id. ¶ 41 (“The MSB Owners reserve all rights to pursue any other obligations
owing from and after the Effective Date as well as any others arising under the MSB Leases
during the Cases if subject in any manner to the Administrative Bar Date, and to further
pursue relief for prior termination of any of the Leases as may have occurred.”); id.
(“Conclusion”) (“request[ing] that the Court enter an order allowing the MSB Owners’
administrative expense claim and granting such other relief as this Court deems just and
proper”).
14
Id. ¶ 45.
15
Id.
16
Id. ¶ 12.
17
Paragraph 46 of the Confirmation Order states, in pertinent part:
(i) Post-Petition to Pre-Effective Date and Administrative Claims
Nothing in the Plan or this Confirmation Order shall modify or otherwise
alter: (i) the rights of MSB to file an Administrative Claim for alleged
damages relating to postpetition, but pre-Effective Date, actions of the
Debtors in respect of the MSB contracts; (ii) defenses, counterclaims, or
6
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filed in state court setting forth the basis of the MSB Owners’
post-petition termination of the leases and associated tort
claims (“the Threshold Motion”). For present purposes, this
Motion seeks to assert and thereby preserve any administrative
claim status should there be damages emanating during the
cases from that separate litigation to come.
Six days later, on November 5, 2020, the MSB Owners filed a motion
entitled “MSB Owners’ Motion for Threshold Determination that Proposed
Petition Does Not Include a Prepetition Claim.” The motion was
accompanied by a proposed order and petition (hereinafter referred to as
“November 5 Motion, Proposed Order, and Proposed Petition”). 18
Emphasizing that the MSB Owners were seeking a determination that the
Leases had terminated (under Texas law) as a result of EP’s post-petition
conduct, and that EP’s resulting trespass/conversion continued after the
Plan’s Effective Date, the MSB Owners’ November 2020 submissions
confirmed their desire to have a state court adjudicate the merits of the state-
_____________________
rights of the Debtors and the Reorganized Debtors, as applicable, to object
on any basis to any such alleged Administrative Claims; or (iii) MSB’s
retention of all real property interests and equitable remedies under the
MSB Contracts that do not constitute Claims; provided however, that
sections 5.2(b)(1) and 5.2(b)(ii) of the Plan and (i) and (ii) of this paragraph
are subject to the Administrative Bar Date and provided further that the
Bankruptcy Court retains exclusive jurisdiction to determine whether any
dispute with respect to section 5.2 (b)(iii) of the Plan comprises a Claim,
which threshold determination may be heard upon motion of MSB, the
Debtors, or the Reorganized Debtors, as applicable.
18
See November 5 Motion, ROA.11648-54; Proposed Order, ROA.11763-64;
Proposed Petition, ROA.11655–66.
7
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law lease-termination/trespass damages claims underlying their
§503(b)(1)(A) administrative expense claims.
Specifically, the November 5, 2020 motion states in footnote 2:
The MSB Owners[’] [October 30] Administrative Claim
Motion requests that the amounts awarded for trespass as
adjudicated in conjunction with the equitable remedies for
termination would be best heard together in the state court
action, and that the damages whether for good or bad faith
trespass then be payable in full as awarded in the state court
action when decided, without need for further reservation in
the resolution of the Administrative Claim Motion, since such
claims would be payable in any event by the post bankruptcy
[EP] as a reorganized debtor.
Relatedly, Paragraph 5 of the proposed order provides:
The MSB Owners’ request in the [proposed] Petition 19 for
trespass damages, if applicable, will be adjudicated in the state
court and payable by [EP] as to any amounts awarded by the
state court in full without regard to the [EP] bankruptcy case
and plan.
Over the ensuing several months, numerous submissions raising and
disputing a number of issues, including jurisdiction, abstention, and state law,
followed. On December 14, 2021, the bankruptcy court rendered its
_____________________
19
Replacing the proposed petition that accompanied the November 5, 2020
motion, an “updated proposed petition (filed on November 1, 2021) identifies
“conversion” as a “cause of action” to be asserted, alleging that “Defendants have and
on a continued basis and without right wrongfully and intentionally conducted operations
and removed hydrocarbons and obtained proceeds therefrom from the Leased Premises
despite the termination of the Leases.” The updated proposed petition also contends that
“[EP]” is a “bad faith trespasser” under Texas law.
8
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decision. 20 Reasoning that 28 U.S.C. § 1334(b) and § 157 grant it jurisdiction
over § 503(b)(1)(A) requests for payment of administrative expenses, and
that the MSB Owners’ October 30 motion presented § 503 requests for
payment, the bankruptcy court held that its jurisdictional authority
necessarily included determining the validity (under state law) of the MSB
Owners’ underlying lease-termination/trespass claim. 21 And, characterizing
“the MSB Owners’ jurisdictional objections [as] amount[ing] to equitable
arguments in favor of the Court abdicating its role in administrating EP[’s]
bankruptcy estate,” the bankruptcy court decided that permissive
abstention, authorized by 11 U.S.C. § 1334(c), was “[o]n balance . . .
unwarranted.” 22
Proceeding to the merits of the state-law components of the MSB
Owners’ administrative expense claims, the bankruptcy court held: (1) EP’s
temporary cessation of production had not terminated the Leases; (2) EP’s
continued operations on the Leased Premises did not constitute a trespass;
_____________________
20
See December 14, 2021 Memorandum Opinion (hereinafter “Bankr. Ct. Op.”),
ROA.15387–15433; In re EP Energy E&P Co., No. 19-35647, 2021 WL 5917771 at *1, 5–12
(Bankr. S.D. Tex. Dec. 14, 2021).
21
Id. at 1–2, 9–24 & n.12; In re EP Energy E&P Co., No. 19-35647, 2021 WL
5917771, at *12 (“[T]he MSB Owners chose to seek an administrative expense based on
[EP]’s conduct following the lease termination. Determining whether the MSB Owners
are entitled to an administrative expense, as well as the amount of those claims, requires
the Court to reach the equitable element of the Claim.”); Id. at 24 n.12; In re EP Energy
E&P Co., No. 19-35647, 2021 WL 5917771, at *12 n.12. (“The Court has jurisdiction over
the Temporary Cessation Claim because it is a core matter, and its outcome could affect
EP Energy’s bankruptcy estate. While the lease termination issue turns on Texas law, the
issue presents a legal question that must be resolved in assessing the Claim’s validity”).
22
Id. at 24 n.12; In re EP Energy E&P Co., No. 19-35647, 2021 WL 5917771, at *12
n.12.
9
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and (3) the MSB Owners were not owed damages. 23 Concluding that the MSB
Owners had presented a “futile” administrative expense claim against EP’s
estate, the bankruptcy court denied it. 24
Affirming the bankruptcy court’s disposition, the district court
rejected the MSB Owners’ arguments regarding jurisdiction, abstention, due
process, and applicable Texas law. 25 The instant appeal followed.
II.
When reviewing the decision of a district court acting as an appellate
court, we “apply[] the same standard of review to the bankruptcy court’s
conclusions of law and findings of fact that the district court applied.” In re
JFK Cap. Holdings, L.L.C., 880 F.3d 747, 751 (5th Cir. 2018) (quoting Barron
& Newburger, P.C. v. Tex. Skyline, Ltd. (In re Woerner), 783 F.3d 266, 270 (5th
Cir. 2015) (en banc)); see also In re Sanchez Energy Corp., 159 F.4th 309, 317
(5th Cir. 2025) (“The same standards apply to this court’s review of
bankruptcy court decisions and the district court in its appellate function over
those decisions.”). Accordingly, questions of fact are reviewed for clear error
and conclusions of law, including “[a] bankruptcy court’s subject matter
jurisdiction,” are reviewed de novo. In re Sanchez, 159 F.4th at 317. Mixed
questions of law and fact also are reviewed de novo. Countrywide Home Loans,
Inc. v. Cowin (In re Cowin), 864 F.3d 344, 349 (5th Cir. 2017).
_____________________
23
Id. at 1–2, 25–47; In re EP Energy E&P Co., No. 19-35647, 2021 WL 5917771, at
*1, 5–12.
24
See December 14, 2021 Order, ROA.5713.
25
See Dist. Ct. Op., ROA.15660–93; In re EP Energy E&P Co., 752 F. Supp. 3d 647,
656–72 (S.D. Tex. Sept. 30, 2024).
10
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On appeal, the MSB Owners challenge the bankruptcy court’s
assessments of jurisdiction and the proper application of Texas substantive
law. For the reasons stated herein, we affirm both.
III.
First, we address the bankruptcy and district courts’ jurisdiction and
the MSB Owners’ arguments regarding ripeness. Reiterating that they
“wanted to file a lawsuit in state court . . . to obtain a declaration that the
Leases [had] terminated as a result of production cessation[,] and to obtain
damages for torts such as trespass and conversion for EP[]’s activities on
[their] land after the Leases terminated,” 26 the MSB Owners argue: “The
lower courts erroneously found bankruptcy jurisdiction, usurping states’
rights to decide state-law claims.” 27 They maintain that “[t]he determination
of Lease termination and tort claims . . . belonged in state court” and that
[t]he [bankruptcy and district] courts should not have adjudicated the MSB
Owners’ State-Law Claims on the merits because they lacked jurisdiction to
do so.” 28 The MSB Owners additionally argue that “the lower courts should
not have adjudicated the merits of the State-Law Claims as part of a decision
on [their § 503(b) administrative expense claim], because the [§ 503(b)
administrative expense claim] itself was not ripe for adjudication” and
“rested on numerous contingent events that have not occurred here.” 29
We disagree. In support of this decision, we emphasize that the MSB
Owners’ October 30 motion unequivocally characterizes their requested
_____________________
26
See Appellants’ Orig. Br., at 6–7.
27
Id. at 12.
28
Id.
29
Id. at 13.
11
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“post-petition trespass damages” as “administrative expenses” for
purposes of 11 U.S.C. § 503. 30 The § 503 designation is significant.
A.
An “administrative expense,” as defined by § 503, includes “the
actual, necessary costs and expenses of preserving the estate. See 11
U.S.C. § 503(b)(1)(A). 31 As noted in the MSB Owners’ October 30
motion, 32 § 503(b) administrative expenses, if allowed (after notice and a
hearing), have the second highest priority level for unsecured claims. See 11
U.S.C. § 507(a)(2) (designating allowed § 503(b) administrative expenses as
second in order of priority); In re Jack/Wade Drilling, Inc., 258 F.3d 385, 387
(5th Cir. 2001) (Section 503(b) administrative expenses “are to be given
_____________________
30
See October 30 Motion, at 5, 8–10, 16–20.
31
Tort damages arising from and during the course of the debtor’s post-petition
business operations may constitute “actual, necessary costs and expenses of preserving
the estate.” See Reading v. Brown, 391 U.S. 471, 475, 478, 482–86 (1968); In re Jack/Wade
Drilling, Inc., 258 F.3d at 390 (“Because the receiver [in Reading] had chosen to operate
the estate to improve the position of the existing creditors, fairness dictated that the
injured claimant be entitled to recover its damages at the expense of the existing creditors
when the receiver operated negligently.”); In re Resource Tech. Corp., 662 F.3d 472, 476–
77 (7th Cir. 2011) (explaining treatment of tort liability as a § 503 “administrative
expense); In re TransAmerican Nat. Gas. Corp., 978 F.2d 1409, 1420 (5th Cir. 1992)
(reasoning that “benefit” to the estate, for purposes of § 503(b)(1)(a), includes the
debtor’s ability to “continue to conduct its business, thus generating funds from which
prepetition creditors can be paid”); In re Al Copeland Enter., 991 F.2d 233, 240 (5th Cir.
1993) (granting administrative expense priority under § 503(b)(1)(A) for statutory interest
accruing in favor of the State of Texas, post-petition, on unpaid sales tax revenues ).
Considering the MSB Owners’ express invocation of § 503 and our resolution of this
appeal, we assume without deciding that the damages they seek qualify as “actual,
necessary costs and expenses of preserving the estate.” See, e.g., Matter of Bouchard
Transp. Co., Inc., 74 F.4th 743, 749 (5th Cir. 2023) (identifying satisfaction of § 503(b) as
a “quintessential ‘mixed’ question of law and fact”).
32
See October 30 Motion, at 16–18.
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priority in distribution such that they are generally paid in full before other
unsecured non-priority claims.”). 33
Also, a proceeding to determine a request for payment of
administrative expenses, pursuant to § 503(a) and (b)(1)(A), is a “core
proceeding”—one arising under title 11, or arising in a case under title 11—
for purposes of the jurisdictional provisions of 28 U.S.C. § 1334(b) and
§ 157(a)–(b). 34 See In re Chesapeake Energy Corp., 70 F.4th 273, 281 (5th Cir.
2023) (“[A] reorganized debtor often must resolve, post-confirmation, the
amounts owed on proofs of claim, administrative claims, preference and
fraudulent transfer claims, and attorneys’ fees, all of which fall within ‘core’
bankruptcy jurisdiction.” (emphasis added)). Accordingly, a bankruptcy
court has jurisdiction to “hear and determine” § 503 requests for payment
of administrative expense—i.e., may render a final order, judgment, or
decree appealable to the district court. 35 In fact, the MSB Owners’ October
30, 2020 motion expressly recognizes:
The United States Bankruptcy Court for the Southern District
of Texas (the “Court”) has jurisdiction over this matter
_____________________
33
Section 507 states, in pertinent part: “The following expenses and claims have
priority in the following order . . . . (2) Second, administrative expenses allowed under
section 503(b) of [title 11][.]” See 11 U.S.C. § 507(a)(2).
34
See In re Galaz, 765 F.3d 426, 431 (5th Cir. 2014) (“A core proceeding either
invokes a substantive right created by federal bankruptcy law or one which could not exist
outside bankruptcy.”); see also In re Wood, 825 F.2d 90, 96–98 (5th Cir. 1987) (providing
a detailed discussion of § 1334’s “arising under” and “arising in” phrases and explaining
why “the filing of a proof of claim” that is based on a state-law breach of contract claim is
a “core” proceeding but a breach of contract claim for which no proof of claim has been
filed in the bankruptcy court is not).
35
See 28 U.S.C. § 158(a) (“The district courts of the United States shall have
jurisdiction to hear appeals . . . from final judgments, orders, and decrees . . . of bankruptcy
judges entered in cases and proceedings referred to the bankruptcy judges under section
157 of this title.”).
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pursuant to 28 U.S.C. § 1334. This matter is a core proceeding
under 28 U.S.C. § 157 (b)(2)(A) and (B). 36
Nevertheless, the MSB Owners challenge the bankruptcy court’s
jurisdiction, arguing that it lacked authority to act on the § 503 administrative
expense request unless and until a state court had adjudicated the underlying
state-law claims (over which there was no nonbankruptcy source of federal
subject-matter jurisdiction). Only thereafter, the MSB Owners contend—
“and only if the MSB Owners elected to pursue collection of those pre-
Effective Date damages as an administrative expense—would an analysis [by
the bankruptcy court] be required under Section 503 to assess whether those
damages were actual and necessary costs of preserving the estate.” 37 Indeed,
according to the MSB Owners:
The bankruptcy court did not acquire jurisdiction to determine
the State-Law Claims simply because they had to be decided
before determining the Administrative Expense Reservation,
especially when a state court could have determined the State-
Law Claims first. In other words, although the State-Law
Claims had to “necessarily be resolved,” nothing dictates that
they necessarily had to be resolved by the bankruptcy court. 38
The MSB Owners’ jurisdictional challenge falls short. As numerous
cases have recognized, a bankruptcy court’s determinative authority
encompasses underlying matters, governed by state law, that necessarily
would be resolved in the process of adjudicating core matters over which the
bankruptcy court has federal statutory and constitutional subject-matter
_____________________
36
See October 30 Motion, at 2. The proposed order likewise reports jurisdiction
“over the motion” pursuant to 28 U.S.C. § 1334, and that the matter “is a core proceeding
pursuant to 28 U.S.C. § 157(b).” See October 30 Proposed Order, at 1, ROA.11635.
37
See Appellants’ Orig. Br., at 31.
38
Id. at 21–22.
14
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jurisdiction. See, e.g., Stern v. Marshall, 564 U.S. 462, 499 (2011) (explaining
that a bankruptcy court may constitutionally decide claims/rights that
“stem[ ] from the bankruptcy itself or would necessarily be resolved in the
claims allowance process”); Travelers Cas. & Sur. Co. of Am. v. Pac. Gas &
Elec. Co., 549 U.S. 443, 450–51 (2007) (recognizing that bankruptcy courts
must consult state law to determine most claims because “the basic federal
rule in bankruptcy is that state law governs the substance of most claims”
(cleaned up)); Katchen v. Landry, 382 U.S. 323, 329 (1966) (confirming that
the bankruptcy court’s power to allow or disallow claims includes the power
to inquire into the validity of the alleged debt or obligation upon which a
demand or claim against the estate is based); In re Trendsetter HR, L.L.C.,
949 F.3d 905, 912 (5th Cir. 2020) (confirming that the bankruptcy court
properly “look[ed] to governing state law” to determine whether there [was]
a cognizable bankruptcy claim” for purposes of 11 U.S.C. § 1101(5) (defining
“claim”) and 11 U.S.C. § 502 (governing claims allowance process));
Morrison v. W. Builders of Amarillo, Inc. (In re Morrison), 555 F.3d 473, 479
(5th Cir. 2009) (acknowledging that proceeding to determine the non-
dischargeability of a debt, a “core” proceeding, requires proof of the basis
for and amount of a debt, which may require state-law determination); cf.
Northern. Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 96–97
(1982) (White, J., dissenting) (emphasizing that “the bankruptcy judge is
constantly enmeshed in state-law issues” because “the existence and validity
of [filed] claims recurringly depend on state law”). 39
_____________________
39
Of course, an Article I bankruptcy court may enter final judgment—rather than
submitting proposed findings of fact and conclusions of law to the Article III district
court—only if it has both statutory and constitutional authority to do so. Stern, 564 U.S.
at 482, 503. Thus, regardless of the statutory authorization provided by § 157(b), an
Article I bankruptcy court lacks constitutional jurisdiction to summarily “hear and
determine”—i.e., render a final judgment—a debtor’s (or trustee’s) right of recovery or
relief, provided by or originating in state law, that would not necessarily be resolved in the
15
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We are not convinced that a different rule applies when the
bankruptcy court is presented with a request for payment of an administrative
expense pursuant to § 503, rather than a filed proof of claim, pursuant to
§§ 501 and 502, 40 or a complaint asserting an exception to discharge,
pursuant to § 523. And the MSB Owners impart neither controlling legal
authority nor a principled basis for concluding that the relief supplied by this
particular Bankruptcy Code provision—§ 503(b)—requires bifurcated
federal/state proceedings. 41
_____________________
course of deciding the proof of claim or other “core” bankruptcy matter (proceedings
“arising under title 11” or “arising in”) before the court. Id. at 487, 495–99, 503
(concluding bankruptcy court lacked constitutional authority to render final judgment on
debtor’s counterclaim asserting state law action, independent of the federal bankruptcy
law, that would not necessarily be resolved by a ruling on a creditor’s proof of claim, i.e.,
in the “bankruptcy process of allowing or disallowing claims”); id. at 495 (despite
§ 157(b)(2)(c)’s statutory authorization, debtor’s common-law counterclaim, which
simply sought to augment the bankruptcy estate, must be decided by Article III court);
Granfinanciera v. Nordberg, 492 U.S. 33, 59 (1989) (because petitioners had not filed claims
against the estate, respondent’s fraudulent conveyance claims did not arise as part of
allowance and disallowance of claims and required a trial by jury); Northern Pipeline Constr.
Co., 458 U.S. at 70 (distinguishing restructuring of debtor-creditor relations, at the core
of the federal bankruptcy powers, from adjudication of state-created private rights,
including debtor’s right to recover contract damages); In re Galaz, 765 F.3d at 431
(“‘[W]hen a debtor pleads an action arising only under state-law, . . . or when the debtor
pleads an action that would augment the bankrupt estate, but not “necessarily be resolved
in the claims allowance process [,]” then the bankruptcy court is constitutionally
prohibited from entering final judgment.’” (quoting Waldman v. Stone, 698 F.3d 910, 919
(6th Cir. 2012) (quoting Stern, 564 U.S. at 499))).
40
“Claims ‘allowance’ covers the approval, revision, or rejection of filed claims,
and the process afforded by the Bankruptcy Rules, as effectuated in court orders.” Kipp
Flores Architects, L.L.C. v. Mid-Continent Cas. Co., 852 F.3d 405, 410 (5th Cir. 2017) (citing
Pioneer Invest. Serv. Co. v. Brunswick Assoc. Ltd. P’ship, 507 U.S. 380, 389 (1993)); id.
(“The job of the bankruptcy courts is to oversee trustees’ marshalling of a debtor’s assets
for appropriate distribution among the creditors.”).
41
Of course some differences exist but, for purposes of the issues presently before
us, we are not convinced that any are material to the instant dispute. See, e.g., Kipp Flores
Architects, 852 F.3d at 410 (“The definition of a ‘claim’ in bankruptcy is extremely broad,
16
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Likewise, the availability of permissive abstention does not deprive a
court of jurisdiction that otherwise exists. Rather, the relevant statutory
provision—§ 1334(c)(1)—merely confirms that the jurisdiction granted by
§ 1334(b) does not prevent the court’s deciding, “in the interest of comity
with State courts or respect for State law,” to forgo exercising that
jurisdiction by “abstaining from hearing a particular proceeding.” See
28 U.S.C. § 1334(c)(1).
B.
The MSB Owners’ ripeness argument also fails. “The basic rationale
behind the ripeness doctrine is to prevent the courts, through avoidance of
premature adjudication, from entangling themselves in abstract
disagreements.” Roark & Hardee LP v. City of Austin, 522 F.3d 533, 545 (5th
Cir. 2008) (cleaned up); Monk v. Huston, 340 F.3d 279, 282 (5th Cir. 2003)
(“A court should dismiss a case for lack of ripeness when the case is abstract
or hypothetical.” (cleaned up)). Here, the MSB Owners’ claims were neither
abstract nor hypothetical, and deciding liability did not require further factual
development or speculation.
The underlying events giving rise to their claims—EP’s continuation
of its oil-and-gas operations, after and despite the alleged termination of the
Leases—were not uncertain events that might yield a sufficiently concrete
_____________________
encompassing all rights to payment, of whatever nature, whether fixed, liquidated,
contingent, matured, disputed, legal, equitable, or secured. See 11 U.S.C. § 101(5)(A)); In
re Worldcom, Inc., 401 B.R. 637, 643 (Bankr. S.D.N.Y. 2009) (“Under § 101(5)(A), an
entity with a right to payment against the estate has a claim. The timing of when that right
to payment arose . . . only affects whether the claimant must file a proof of claim or a
request for an administrative expense.”). Furthermore, by virtue of the debtor’s having
filed a bankruptcy petition, all of these proceedings trigger procedures established by
federal bankruptcy law, and their final resolution is determined, to some extent, based on
a source of law other than the Bankruptcy Code.
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impact sometime in the future. To the contrary, both occurred before the
MSB Owners filed their October 30, 2020 motion. Additionally, the
determinative issues present disputed questions of law that do not require
additional factual development for their resolution. See Roark, 522 F.3d at
544 (“A case is generally ripe if any remaining questions are purely legal
ones; conversely, a case is not ripe if further factual development is
required.” (quoting Abbott Labs, 387 U.S. at 149)). 42 Of course, we recognize
that the MSB Owners maintain that their October 30 motion (which their
appellate briefs refer to as the “Administrative Expense Reservation”) was
“filed for preservation only due to the Bar Order,” “awaited adjudication of
the merits of the State-Law Claims in state court, and “rested on numerous
contingent events that have not occurred here.” But, in contrast to claims
that cannot be determined unless and until another matter has been
completed, 43 the MSB Owners’ decision to seek permissive abstention in
favor of a future state court proceeding, 44 after themselves having expressly
_____________________
42
That a complete calculation of damages—in the event of a liability
determination in the MSB Owners’ favor—would require an assessment of post-Effective
Date, ongoing conduct does not preclude ripeness. Such circumstances are not
uncommon in commercial litigation.
43
See, e.g., Money v. City of San Marcos, No. 24-50187, 2025 WL 429980, at *2
(5th Cir. Feb. 7, 2025) (“[A] regulatory takings claim is not prudentially ripe until the
plaintiff has received a final decision from the relevant government unit as to how the
regulation applies to the plaintiff’s property.” (emphasis in original)); Flagg v. Stryker
Corp., 819 F.3d 132, 138 (5th Cir. 2016) (citing La. Rev. Stat. Ann. § 40:1231.8(B)(1)(a)(i)
and recognizing that, under Louisiana law, a medical malpractice suit must be dismissed
without prejudice if the plaintiff has not presented the claim to a medical review panel for
decision prior to filing suit (internal quotation marks omitted)); Columbia Cas. Co. v.
Georgia & Fla. RailNet, Inc., 542 F.3d 106, 111 (5th Cir. 2008) (“[I]n general an insurer’s
duty to indemnify cannot be determined until after the underlying suit has been resolved.”
(citing Collier v. Allstate County Mut. Ins. Co., 64 S.W.3d 54, 62 (Tex. App. 2001))).
44
Whereas § 1334(c)(1) authorizes permissive abstention, § 1334(c)(2) requires
abstention under certain circumstances. That provision states:
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and affirmatively invoked the federal bankruptcy court’s jurisdiction, did not
render the otherwise justiciable proceeding unripe for determination.
Specifically, in this instance, the MSB Owners presented their
administrative expense request to the bankruptcy court, on October 30,
2020, in accordance with § 503, Rule 9014 of the Federal Rules of Bankruptcy
Procedure, and the Plan. They did so, moreover, with the express purpose of
ensuring that the “full value” of sought-after trespass damages were
“asserted for preservation and recovery if needed” as administrative
expenses “entitled to administrative priority under the applicable provisions
of the Bankruptcy Code [§§ 503(b)(1)(A) and 507 (a)(2)].” 45 Thereafter,
despite also asserting that their trespass claims should “pass through”
_____________________
Upon timely motion of a party in a proceeding based upon a State law claim
or State law cause of action, related to a case under title 11 but not arising
under title 11 or arising in a case under title 11, with respect to which an
action could not have been commenced in a court of the United States
absent jurisdiction under this section, the district court shall abstain from
hearing such proceeding if an action is commenced, and can be timely
adjudicated, in a State forum of appropriate jurisdiction.
See 28 U.S.C. § 1334(c)(2) (emphasis added).
Identifying a pending state court proceeding as a requirement for § 1334(c)(2)’s
application, the MSB Owners’ bankruptcy and district court submissions explain that they
did not seek mandatory abstention because they had not already commenced a state court
action. See In re Moore, 739 F.3d 724, 728–29 (5th Cir. 2014) (Section 1334(c)(2) mandates
abstention where “‘(1) [t]he claim has no independent basis for federal jurisdiction, other
than § 1334(b); (2) the claim is a non-core proceeding . . . .; (3) an action has been
commenced in state court; and (4) the action could be adjudicated timely in state court.’”
(quoting In re TXNB Internal Case, 483 F.3d 292, 300 (5th Cir. 2007) (emphasis added));
In re Gober, 100 F.3d 1195, 1206 (5th Cir. 1996) (Ҥ 1334(c)(2) would not require
abstention because no proceeding has been commenced in state court”); see also
Southmark, 163 F.3d at 929 n.2 (identifying “the pendency of state court litigation that can
timely adjudicate the claim” as one of the statutory criteria for mandatory abstention).
45
See October 30 Motion, ¶¶ 23–24, 39–47; id. (“Conclusion”) (“request[ing]
that the Court enter an order allowing the MSB Owners’ administrative expense claim
and granting such other relief as this Court deems just and proper”).
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bankruptcy 46 and seeking to have the state-law component of that claim
determined by a state court, the MSB Owners never sought to withdraw their
administrative expense request—not when the bankruptcy court failed to
promptly act on their November 5, 2020 “Threshold Motion”; 47 not in
December 2020, when EP filed an objection to their administrative expense
request; not in January 2021, when the bankruptcy courts ordered the parties
to submit briefs regarding jurisdiction and abstention; not in February 2021,
when that briefing was completed; not at the March 2021 hearing; and not in
April and May 2021 when the parties submitted briefs regarding the viability
of the MSB Owners’ lease termination/trespass claims.
To the contrary, on September 17, 2021, the MSB Owners again
invoked the bankruptcy court’s jurisdiction, retained in § 11.1(d) of the
Plan, 48 by filing an emergency motion seeking relief regarding EP’s planned
asset sale—“an order enforcing the confirmed Plan”—to ensure that the
MSB Owners’ administrative claims are paid “in full regardless of when
finally allowed.” See “MSB Owners’ Emergency Motion for an Order
Enforcing the Confirmed Plan to Ensure Full Payment of Administrative
Claims ” (hereinafter, the “Emergency Motion”). 49 Indeed, the motion,
_____________________
46
Id. ¶¶ 42, 39.
47
Although not expressly stated as such in the November 2020 submissions, the
MSB Owners’ appellate briefs characterize those submissions as “requesting leave” to
proceed in state court. See Appellants’ Orig. Br. at 11–12, 19, 27, 30; Appellants’ Reply
Br., at 2.
48
Section 11.1(d) of the Plan provides:
[T]he Bankruptcy Court shall retain exclusive jurisdiction . . . to ensure
that distributions to holders of Allowed Claims are accomplished as
provided in the Plan and the Confirmation Order and to adjudicate any and
all disputes arising from or relating to distributions under the Plan[.]
49
See Emergency Motion, at 16.
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contending that the Plan would not have been confirmed absent a promise of
payment in full, 50 insisted that the court “has both the jurisdiction and
obligation to ensure that the Reorganized Debtors pay all allowed
administrative expense claims . . . once allowed.” 51
C.
Given this record, it seems likely that the MSB Owners proceeded in
this manner in hopes of achieving what they apparently believed to be “the
best of both worlds,” i.e., enjoying the security and priority claim status
provided by the Bankruptcy Code, § 507(a)(2), and the Plan, while also
having a state court adjudicator decide whether their non-standard mineral
leases terminated, under Texas law, when the lessee voluntarily ceased
production for a period of approximately 40 days. But ultimately the
_____________________
50
See 11 U.S.C. § 1123(a)(5) (“Notwithstanding any otherwise applicable
nonbankruptcy law, a plan shall [] provide adequate means for the plan’s
implementation”); 11 U.S.C. § 1129(a)(9)(A) (“The court shall confirm a plan only if . . .
the plan provides that . . . with respect to a claim of a kind specified in section 507(a)(2) .
. . of this title, on the effective date of the plan, the holder of such claim will receive on
account of such claim cash equal to the allowed amount of such claim); see also Plan,
§ 2.1(b) (“Treatment of Administrative Claims”), which states, in pertinent part:
On . . . the later of (a) the Effective Date and (b) the first Business Day
after the date that is 30 calendar days after the date each Administrative
Expense Claim becomes an Allowed Administrative Expense Claim, each
holder of an Allowed Administrative Expense Claim (other than a Fee
Claim) shall receive in full and final satisfaction of such Claim . . . Cash in an
amount equal to the Allowed amount of such Claim or such other
treatment consistent with the provisions of section 1129(a)(9) of the
Bankruptcy Code . . . .
51
See Emergency Motion, at 16 (citing Plan, § 11.1(d) and December 20, 2020
Final Decree, ¶ 7, ROA.11854). Paragraph 7 of the December 20, 2020 Final Decree
provides:
All expenses arising from the administration of the Debtors’ estates and
these chapter 11 cases . . . have been paid or will be paid as and when such
expenses come due.
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bankruptcy court declined the MSB Owners’ request for permissive
abstention and the district court affirmed.
And, critically, we are not tasked in this appeal with reviewing those
decisions. The MSB Owners’ appellate briefs do not identify the propriety of
the bankruptcy court’s and district court’s denials of the MSB Owners’
requests for permissive abstention, pursuant to § 1334(c)(1), as issues on
appeal, and issues not raised on appeal are deemed abandoned. See, e.g.,
CenturyTel of Chatham, LLC v. Sprint Commc’ns Co., 861 F.3d 566, 573 (5th
Cir. 2017). In any event, such appellate review is unavailable. Section 1334(d)
precludes appellate review of a district court’s decision denying a request for
permissive abstention pursuant to § 1334(c)(1). See 28 U.S.C. § 1334(d); see
also Southmark, 163 F.3d at 929 (describing appellate jurisdiction to review
order denying permissive abstention and remand as an “historical anomaly”
available solely because that appellant’s bankruptcy case was commenced
prior to the 1994 statutory amendment). 52
In sum, we are satisfied that neither the presence of state-law issues
nor the MSB Owners’ preference for a state-court adjudication of those
issues deprived the bankruptcy court of jurisdiction in this matter. Likewise,
neither rendered the MSB Owners’ administration expense claims unripe.
_____________________
52
See 28 U.S.C. § 1334(d) (emphasis added) (“Any decision to abstain or not to
abstain made under subsection (c) (other than a decision not to abstain in a proceeding
described in subsection (c)(2)) is not reviewable by appeal or otherwise by the court of
appeals.”). Although appellate review by a court of appeals remains available for “a
decision not to abstain in a proceeding described in [§ 1334](c)(2)),” the MSB Owners, as
noted, never moved for mandatory abstention pursuant to § 1334(c)(2).
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IV.
Shifting our focus to the merits, we must determine whether the
bankruptcy and district courts correctly concluded that EP’s 40-day
cessation of production, in May/June 2020, did not cause the Leases to
terminate. In arriving at that conclusion, both courts rejected the MSB
Owners’ assertions that, despite EP’s resumption of production, EP’s failing
to also “commence [and then continue] drilling or reworking operations,”
within 120 days of ceasing production in May 2020, caused the Leases to
automatically terminate. We likewise reject the MSB Owners’ position and
conclude that the Leases did not terminate.
A.
The MSB Owners’ automatic termination argument is based on
language in “Paragraph XI(d)” of the Lease. Paragraph XI—entitled
“Termination and Release”—provides: 53
XI. Termination and Release
(a) Termination. If this lease has not otherwise terminated as
herein elsewhere provided, then upon the expiration of the
primary term 54 or upon the cessation of continuous drilling
operations conducted in accordance with Paragraph VIII
[entitled “Continuous Development], 55 whichever occurs
later, this lease shall then terminate as to all lands covered
hereby except land within a production unit or units at that
time. In addition, this lease shall then terminate with respect to
_____________________
53
See Lease, Paragraph XI–Termination and Release, at 31–33. Underlining,
bracketed ordinal numbers and words, and inter-paragraph spacing between sentences
have been added for emphasis and/or convenience.
54
See Lease, Paragraph III–Primary Term, at 6; Lease, Paragraph V(b)–Delay
Rentals, at 22–23 (regarding production on the leased premises during the primary term).
55
See Lease, Paragraph VIII–Continuous Development, at 28–29.
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[the deep rights] below . . . in each such production unit at the
time of such termination. 56
(b) Release of Leased Premises and Assignment of
Rights in Geophysical Information.
Within sixty (60) days after any partial termination of this lease
as provided in this Paragraph XI, lessee shall deliver to lessor a
plat showing the production unit designated by lessee for wells
then producing oil or gas, and a release properly describing . . .
the acreage released. In the same manner, lessee shall release
this lease when it has terminated in its entirety. . . . 57
(c) Easements Retained Over Lands Released.
Although this lease may have terminated in part and have been
partially released, it is agreed that lessee shall have and retain
such easements over and across such terminated portion or
portions of the land originally covered by these lease as shall be
reasonably necessary for ingress and egress and to enable lessee
to produce, develop, operate and transport oil or gas from the
portion or portions of the lease continuing in effect.
_____________________
56 Paragraph IX of the Lease—entitled “IX. Production Units (Density)”— states,
in pertinent part:
A “production unit” shall be the unit designated by lessee attributable to a
well on the leased premises producing oil or gas, as follows:
(a) Each producing oil well shall hold this lease in force as to not more than
(i) forty acres for all vertical wells . . . and shall be that acreage designated
by lessee as the acres to be attributed to such well by instrument filed for
record in the Office of the County Clerk, LaSalle County, Texas, within
sixty (60) days after the expiration of the primary term. . . .
See Lease, Paragraph IX, at 29.
57
The remainder of this paragraph has been omitted.
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(d) Subsequent Operations.
[1] [Lease-Maintenance Provision] After the occurrence of any
event described in subparagraph (a) of this Paragraph XI,
production from or operations conducted on each production
unit shall maintain this lease in force as to, but only as to, that
portion of the leased premises included within such production
unit, and production from or operations on one unit will not
maintain this lease as to any other production unit.
[2] [Temporary-Cessation Provision] If production should
cease from any production unit, this lease shall terminate as to
all lands and depths included within such unit unless lessee
commences drilling or reworking operations on such unit
within one hundred twenty (120) consecutive days thereafter
and pursues such operations with diligence on the same or
successive wells with no cessation of operations more than one
hundred twenty (120) consecutive days; and if production is
restored from such unit, this lease shall remain in effect as to the
lands and depths included therein as long as oil or gas is
produced from such unit, subject to the remaining provisions
of this lease.
[3] [New-Production-Unit Provision] If the well or wells drilled
or reworked by lessee on such unit are completed and produce
from a different zone or zones than the well original[ly]
completed on such unit necessitating a change in the size of the
unit, or if a well formerly classified as a gas well is for any reason
reclassified as an oil well, then such new, recomputed or
reclassified well or wells shall maintain this lease in force only
as to the new production unit, and lessee shall, within one
hundred twenty (120) consecutive days after the completion of
its drilling or reworking operations on such production unit,
release all land within the previous unit outside the new unit;
provided, however, that lessee may maintain this lease as the
lands outside the new production unit but within the former
production unit by commencing drilling operations thereon
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within one hundred twenty (120) consecutive days and by
pursuing such operations with due diligence on the same or
successive wells with no cessation of operations more than
[120] consecutive days; but upon cessation of such operations,
this lease shall terminate as to all lands formerly encompassed
by such production unit, except as to new production units
assigned to wells then producing oil or gas and designated by
lessee in accordance with the requirements of Paragraph IX
above.
[4] [Permanent-Cessation Provision] Any cessation or absence
of drilling or reworking operations or production on or from a
production unit which continues for a period of one hundred
twenty (120) consecutive days or more shall be deemed for all
purposes of this lease to be permanent and not temporary.
Paragraph XI(d) itself is entitled “Subsequent Operations” but, in the
interest of clarity and convenience, we have assigned names, which appear
above in brackets, to each of its four sentences. We refer to its first sentence
as “the lease-maintenance provision”; its second sentence as “the
temporary-cessation provision”; its third sentence as “the new-production-
unit provision”; and its fourth/last sentence as “the permanent-cessation
provision.” The parties agree that Paragraph XI(d)’s temporary-cessation
provision applies here and that EP resumed production within 40 days—i.e.,
far less than 120 days—of cessation. They disagree, however, regarding the
significance of that resumption of production vis-à-vis the lifespan of the
Leases.
The MSB Owners argue EP’s resumption of production is entirely
irrelevant because, they contend, Paragraph XI(d)’s temporary-cessation
provision still required EP to commence (and diligently pursue) drilling or
reworking operations, within 120 days of the production cessation, in order
to maintain the Leases. The MSB Owners additionally argue that the
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restoration of production addressed in the temporary-cessation provision’s
second clause—“and if production is restored . . . this lease shall remain in
effect”—contemplates only production obtained as a result of the required
timely commenced, newly undertaken “drilling or reworking operations.” 58
In other words, they maintain that, after voluntarily ceasing production, EP’s
essentially “flipping a switch” to “turn[] [existing wells] back on” was not
enough to prevent the Leases’ termination. 59
To support their position, the MSB Owners emphasize the
temporary-cessation provision’s “shall terminate . . . unless” language,
characterizing it as establishing a “special limitation,” rather than an
“optional savings clause,” that, under Texas law, “will actively cause the
lease to terminate ‘unless’ [EP] strictly complies with the lease terms.” See
Appellants’ Orig. Br., at 37; id. at 39 (“Compliance with special limitations
must be “literal,’ and economic difficulties provide no excuse.”). And here,
the MSB Owners argue, the relevant lease terms with which EP was required
to strictly comply were “timely commencing [within 120 days from cessation
of production] drilling or reworking operations and continuing those
operations without delay.”
B.
Both the bankruptcy and district courts rejected the MSB Owners’
lease-termination argument, concluding that EP had satisfied Paragraph
XI(d)’s requirements by resuming production within approximately 40 days.
The bankruptcy court reasoned that, under the Leases’ habendum clause—in
Paragraph III—EP would retain each lease “so long . . . as oil or gas [was]
produced,” or the lease was “maintained in force and effect under other
_____________________
58
See Appellants’ Reply Br., at 28.
59
Id. at 1.
27
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terms and provisions,” 60 and that restoring production within the temporary-
cessation provision’s 120-day time period was sufficient to maintain the
lease. 61 Finally, it read the “and if production is restored” clause to
“identif[y] the event that will hold the lease in force—the restoration of
production.” 62
Affirming the bankruptcy court’s merits determination, the district
court decided that the bankruptcy court had correctly harmonized both parts
of the temporary-cessation provision. Regarding the provision’s “and if
production is restored” clause, the district court reasoned that “Texas
courts also observe that, when two clauses are separated by a semicolon and
the word ‘and,’ the application of ‘basic grammar rules’ indicates that ‘each
clause stands alone.’” The district court concluded: “The semicolon with
the word ‘and’ is thus best taken to mean ‘also,’ with the following clause
providing an additional method of maintaining the lease.” 63
Lastly, the district court explained, “[]the reading given by the
Bankruptcy Court also harmonizes with [Paragraph XI(d)’s last
sentence]”—“the permanent-cessation provision”—providing, in pertinent
part:
Any cessation or absence of drilling or reworking operations or
production on or from a production unit which continues for a
period of one hundred twenty (120) consecutive days or more
_____________________
61
See Bankr. Ct. Op., at 40–43, In re EP Energy E&P Co., No. 19-35647, 2021 WL
5917771, at *20–22.
62
Id. at 40–41; In re EP Energy E&P Co., No. 19-35647, 2021 WL 5917771, at *20.
63
See Dist. Ct. Op., at 25; 752 F.Supp.3d at 667–68.
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shall be deemed for all purposes of this lease to be permanent
and not temporary. 64
This sentence clarifies, the district court concluded, that “if ‘reworking
operations or production’ begin within 120 days, the cessation is only
temporary, and the lease remains in effect. The leases can be maintained
through either of these means.” 65
On appeal, the MSB Owners argue that the district court—by holding
that EP could maintain the leases simply by restarting production, without
also commencing drilling or reworking operations within 120 days of the
cessation of production—“rewrites the Lease terms to impermissibly add a
third alternative”—resuming production—“that the parties did not
include.” 66 They also argue that “the lower courts’ interpretation
impermissibly transforms the conjunctive ‘and’ into the disjunctive ‘or,’”
thereby “obviating the requirement for drilling or reworking operations.” 67
_____________________
64
See Lease, Paragraph XI(d)–Subsequent Operations, at 33 (emphasis added).
65
See Dist. Ct. Op., at 26; 752 F.Supp.3d at 668.
66
See Appellants’ Orig. Br., at 42 (quoting Sundown Energy Ltd. P’ship v. HJSA
No. 3, Ltd. P’ship, 622 S.W.3d 884, 890 (Tex. 2021) (courts “may not rewrite the parties’
contract nor add to its language”)).
67
Id. at 42–43. The MSB Owners additionally challenge the bankruptcy court’s
and district court’s determinations that EP’s continuous development on acreage outside
of existing production units, in accordance with the provisions of Paragraph VIII–
Continuous Development, was sufficient to maintain nine of the sixteen leases at issue,
i.e., those Leases that were not being maintained solely by continued production. This
issue primarily turns on the proper interpretation of Paragraph XI(d)’s “after any event”
language. But, given our determination that the temporary cessation of production that
occurred here did not automatically terminate any of the sixteen Leases, we need not, and
do not, decide this issue.
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C.
Resolution of this aspect of the MSB Owners’ appeal requires that we
ascertain the proper construction of applicable provisions of the Leases.
Under Texas law, the general principles governing the construction of
contracts generally also govern a court’s construction of mineral leases.
Endeavor Energy Res., L.P. v. Discovery Operating, Inc., 554 S.W.3d 586, 595
(Tex. 2018) (“Discovery Operating”). 68 The terms of the lease define the
parties’ respective rights and duties thereunder. Id. 69 Accordingly, “our
objective . . . is “to ascertain the parties’ intent as expressed within the
lease’s four corners.” Id. (quoting Anadarko Petroleum Corp. v. Thompson, 94
S.W.3d 550, 554 (Tex. 2002)). We must “‘examine the entire lease and
attempt to harmonize all its parts, even if different parts appear contradictory
or inconsistent,’ because the parties are presumed to have ‘intended every
clause to have some effect.’” Discovery Operating, 554 S.W.3d at 595 (quoting
Anadarko, 94 S.W.3d at 554).
Our “most important consideration . . . is the agreement’s plain,
grammatical language.” Endeavor Energy Res., L.P. v. Energen Res. Corp., 615
_____________________
68
“When adjudicating claims for which state law provides the rules of decision,
we are bound to apply the law as interpreted by the [relevant] state’s highest court.”
Barfield v. Madison Cnty., Miss., 212 F.3d 269, 271–72 (5th Cir. 2000) (citing
Transcontinental Gas v. Transp. Ins. Co., 953 F.2d 985, 988 (5th Cir. 1992)). “Intermediate
state courts of appeals’ decisions can be persuasive, but are not controlling.” Harken Expl.
Co. v. Sphere Drake Ins. PLC, 261 F.3d 466, 471 n.3 (5th Cir. 2001); In re Canada, No. 25-
10548, 2026 WL 376475, at *2 (5th Cir. Feb. 11, 2026) (deciding to certify question to
state’s highest court where Erie guess otherwise was required).
69
As with contracts generally, the parties are free to decide their contract’s terms,
and the law’s “strong public policy favoring freedom of contract” compels courts to
“respect and enforce” the terms on which the parties have agreed. Phila. Indem. Ins. Co.
v. White, 490 S.W.3d 468, 471 (Tex. 2016); Nafta Traders, Inc. v. Quinn, 339 S.W.3d 84,
95 (Tex. 2011) (“As a fundamental matter, Texas law recognizes and protects a broad
freedom of contract.”).
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S.W.3d 144, 148 (Tex. 2020) (“Endeavor Energy”) (citing Anadarko, 94
S.W.3d at 554 (“We give the lease’s language its plain, grammatical meaning
unless doing so would clearly defeat the parties’ intentions.”)). “[Our] task
‘is to determine, objectively, what an ordinary person using those words
under the circumstances in which they are used would understand them to
mean.’” Id. (quoting URI, Inc. v. Kleberg Cnty., 543 S.W.3d 755, 764 (Tex.
2018)).
“At the same time, [we are mindful that] the objective meaning words
convey often depends upon the ‘objectively determinable facts and
circumstances’ that would influence how a reasonable reader would
understand the language.” Endeavor Energy, 615 S.W.3d at 148 (quoting URI,
543 S.W.3d at 757–58). Accordingly, contracts are read “‘from a utilitarian
standpoint bearing in mind the particular business activity sought to be
served,’ and avoiding unreasonable constructions when possible and
proper.” Id. (quoting Plains Expl. & Prod. Co. v. Torch Energy Advisors Inc.,
473 S.W.3d 296, 305 (Tex. 2015)). 70 “To that end, when contractual text
alone is inconclusive, courts may consider the facts and circumstances
surrounding the contract, including the commercial or other setting in which
the contract was negotiated and other objectively determinable factors that
give context to the parties’ transaction.” Endeavor Energy, 615 S.W.3d at 148
(internal quotation marks omitted).
“If, even after applying all ‘pertinent construction principles,’ a
contract’s language remains susceptible ‘to two or more reasonable
interpretations,’ then the agreement is ambiguous as a matter of law.” Id.
_____________________
70
See also Garcia v. King, 164 S.W.2d 509, 512 (Tex. 1942) (“[T]o understand and
properly interpret the language used by the parties, [the court] must consider the objects
and purposes intended to be accomplished by them in entering into the contract.”).
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(quoting Plains Expl. & Prod. Co., 473 S.W.3d at 305). 71 “In most instances,
an ambiguous contract’s meaning must be determined by a finder of fact, who
may consider evidence of the parties’ subjective intent.” Id. (citing Lenape
Res. Corp. v. Tenn. Gas Pipeline Co., 925 S.W.2d 565, 574 (Tex. 1996)).
However, “[b]ecause oil and gas leases ‘transfer and affect title to real-
property interests . . ., they are subject to special construction rules that apply
particularly to agreements governing property rights.’” Id. (quoting
Discovery Operating, 554 S.W.3d at 595).
One such rule applies to “special limitations,” 72 which are contractual
terms that “‘provide[] that the lease will automatically terminate upon the
_____________________
71
“The ultimate goal, however, is always to determine the parties’ intent as
objectively expressed in the words of their agreement.” Endeavor Energy, 615 S.W.3d at
148. Thus, “[]though consideration of surrounding circumstances is sometimes helpful in
understanding the words chosen by the parties, such extrinsic evidence cannot justify
interpreting contractual ‘language [to] say what it unambiguously does not say.’” Id.
(quoting First Bank v. Brumitt, 519 S.W.3d 95, 110 (Tex. 2017)); see also Sun Oil Co.
(Delaware) v. Madeley, 626 S.W.2d 726, 728 (Tex. 1981) (“The courts will enforce an
unambiguous instrument as written; and, in the ordinary case, the writing alone will be
deemed to express the intention of the parties.”).
72
Under Texas law, “[a] mineral lease grants a fee simple determinable to the
lessee.” BP Am. Prod. Co. v. Red Deer Res., LLC, 526 S.W.3d 389, 394 (Tex. 2017) (citing
Anadarko, 94 S.W.3d at 554 (citing Tex. Co. v. Davis, 113 Tex. 321, 254 S.W. 304, 309
(1923))). “As a result, ‘the lessee’s mineral estate may continue indefinitely, as long as
the lessee uses the land for its intended purpose.’” Id. (quoting Anadarko, 94 S.W.3d at
554). “However, if the event upon which the mineral estate is limited occurs, then the
lessee’s mineral estate terminates automatically.” Id. (quoting Anadarko, 94 S.W.3d at
554). See Discovery Operating, 554 S.W.3d at 606 n.14 (contrasting forfeitures “which
generally arise from the failure to comply with a condition subsequent, [and] cut short the
natural limit of the leasehold interest,” with special limitations, which “do[] not operate
to cut short the estate but simply fix[] one of the natural limits of the estate beyond which
the estate cannot endure, being similar in this respect to a general limitation, and, like a
clause of general limitation, [are] in no proper sense [] forfeiture provision[s]’”) (quoting
A.W. Walker, Jr., The Nature of the Property Interests Created by an Oil and Gas Lease in
Texas, 8 Tex. L. Rev. 483, 486 (1930)); PPC Acquisition Co., LLC v. Delaware Basin
Res., LLC, 619 S.W.3d 338, 349–50 (Tex. App. 2021) (distinguishing special limitations
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happening of a stipulated event.’” Id. at 148 n.1 (quoting Discovery Operating,
554 S.W.3d at 606). 73
“Although whether a lease has terminated is always a question of
resolving the intention of the parties from the entire instrument” a special
limitation will not be found “unless the language is so clear, precise, and
unequivocal that we can reasonably give it no other meaning.” Id. at 149
(quoting Discovery Operating, 554 S.W.3d at 606) (internal quotation marks
omitted)). 74 Accordingly, “contractual language will not be held to
automatically terminate the leasehold estate unless that ‘language . . . can be
given no other reasonable construction than one [yielding that] result.’” Id.
(quoting Knight v. Chicago Corp., 188 S.W.2d 564, 566 (1945)). 75
_____________________
causing oil and gas leases to automatically terminate and breaches of covenants entitling a
party to recover damages or obtain specific performance); Blackmon v. XTO Energy, 276
S.W.3d 600, 605 (Tex. App. 2008) (discussing general and special limitations, conditions
subsequent, and covenants vis-à-vis oil and gas leases); 3 Patrick H. Martin and
Bruce M. Kramer, Howard R. Williams & Meyers, Oil and Gas Law
(hereinafter, “Williams & Meyers”), § 606 (LexisNexis Matthew Bender 2024)
(distinguishing between an “unless” clause—construed as a clause of special limitation
requiring no affirmative act on the part of a lessee who wants to terminate the lease
because termination is automatic—and an “or” clause—construed as a clause of
condition requiring an affirmative act to terminate the lease before its expiration).
73
“Th[e] [stipulated] event may be the cessation of production in contravention
of the lease’s terms, failure to commence drilling or reworking operations within the time
the lease required, or an operator’s failure to timely pay a shut-in royalty the lease
required.” Discovery Operating, 554 S.W.3d at 606 & nn.15–17 (citing Freeman v. Magnolia
Petroleum Co., 171 S.W.2d 339, 342 (Tex. 1943), and Samano v. Sun Oil Co., 621 S.W.2d
580, 583–85 (Tex. 1981)).
74
In other words, though courts are to “resolve questions of contractual meaning
based on objective textual indicators of the parties’ intent, if at all possible . . .[,] when all
available means of interpreting the lease are exhausted and the disputed provision remains
equally susceptible to multiple reasonable readings, the ambiguity [must] be resolved
against imposition of a special limitation.” Endeavor Energy, 615 S.W.3d at 149.
75
In Discovery Operating, the Supreme Court of Texas decided that a retained-
acreage clause providing that “the leases ‘shall automatically terminate as to all acreage
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D.
Applying the foregoing principles, we are not convinced that the
Leases’ terms dictated that EP’s 40-day market-based cessation of
production would cause the Leases to automatically terminate—despite the
interim resumption of production from fully-functional existing wells—
unless EP also began (and thereafter diligently pursued) new drilling or
reworking operations within 120 days from the initial cessation date.
A number of factors lead to this conclusion. To start, Paragraph
XI(d)’s lease-maintenance provision—which immediately precedes the
temporary-cessation provision—states, in significant part: “the production
from or operations conducted on each production unit shall maintain this
lease in force . . . .” Notably, this provision requires ongoing production or
operations to maintain the lease; it unquestionably does not require both. 76
Anchored by that premise, the second and fourth sentences of
Paragraph XI (d)—the temporary-cessation and permanent-cessation
provisions—collectively address cessations of production and cessations of
operations. Focusing on the plain, grammatical language of the provisions,
viewed in the context of the particular purposes to be served by these mineral
leases, we deduce that . . . “an ordinary person using th[e]se words under the
circumstances in which they are used would understand them to mean” that,
subject to the remaining provisions of the lease:
_____________________
not assigned to those proration units . . .’” is “precisely the type of clear and unequivocal
language that imposes a special limitation on a lease and will cause the lease to terminate
under its own terms.” 554 S.W.3d at 606.
76
According to Paragraph IX of the Leases, a “production unit” is “the unit
[acreage] designated by lessee attributable to a well on the leased premises producing oil
or gas.” See Lease, Paragraph IX–Production Units (Density), at 29.
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(1) If production ceases but drilling or reworking operations are
timely commenced (within 120 consecutive days), and pursued
with diligence with no cessation of operations lasting more than
120 consecutive days, those continuous operations will maintain
the lease;
(2) If production ceases but then is restored as a result of timely
commenced drilling or reworking operations, the lease “shall
remain in effect . . . as long as oil or gas is produced from such
unit”;
(3) If production ceases for a period of 120 consecutive days and,
during that time, the lessee does not commence drilling or
reworking operations, the cessation of production will be
deemed permanent, rather than temporary, and the lease shall
terminate as to the lands and depths included within the affected
production unit at the end of that 120-day period; and
(4) If production ceases but then is restored without drilling or
reworking operations—within 120 consecutive days of
cessation—the lease “shall remain in effect . . . as long as oil or
gas is produced from such unit.”
This construction of Paragraph XI(d)’s provisions comports with
Texas jurisprudence, and thus parties’ reasonable expectations, regarding
the automatic termination provisions in oil and gas mineral leases governed
by Texas law. Texas courts have long recognized that the production
required to maintain a mineral lease in its secondary term does not
necessitate non-stop production without interruption of any kind. That is to
say, whereas a permanent cessation of production will automatically terminate
a lease that lasts only “as long as oil or gas is produced,” a temporary cessation
will not. See Ridge Oil Co., Inc. v. Guinn Invs., Inc., 148 S.W.3d 143, 150–51
(Tex. 2004) (“[O]nly permanent cessation of production may cause the
estate to terminate.”); Anadarko, 94 S.W.3d at 554 (“[A] typical Texas lease.
. . automatically terminates if actual production permanently ceases during the
secondary term.”) (emphasis added); Sutton v. SM Energy Co., 421 S.W.3d
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153, 158 (Tex. App. 2013) (“A lease . . . automatically terminates if actual
production during the secondary term ceases other than temporarily.”
(emphasis added)). 77
Furthermore, the temporary cessation of production doctrine is not
limited to “sudden stoppage of the well or some mechanical breakdown of
the equipment used in connection therewith, or the like.” Ridge Oil Co., 148
S.W.3d at 152; see also Krabbe v. Anadarko Petroleum Corp., 46 S.W.3d 308,
319 (Tex. App. 2001) (rejecting assertion that the doctrine is limited to
“physical or mechanical causes”). Nor is the doctrine limited to
unforeseeable and unavoidable causes. Ridge Oil Co., 148 S.W.3d at 152
(reasoning that findings regarding “foreseeability and avoidability” were not
necessary because they “are not essential elements of the temporary
cessation of production doctrine.” (quoting court of appeals’ decision));
Guinn Invs., Inc. v. Ridge Oil Co., 73 S.W.3d 523, 532 (Tex. App. 2002)
(confirming that the temporary cessation of production doctrine can apply to
voluntary cessations), rev’d on other grounds sub nom. Ridge Oil Co., 148
S.W.3d 143 (Tex. 2004).
The maximum duration of a temporary (non-permanent) cessation of
production depends on the terms of the lease. Texas common law establishes
_____________________
77
See also Krabbe v. Anadarko Petroleum Corp., 46 S.W.3d 308, 315 (Tex. App.
2001) (explaining that “the automatic termination rule is relaxed if the lessee can prove
that the cessation of production is temporary”); Sun Operating Ltd. P’ship v. Holt, 984
S.W.2d 277, 281–82 (Tex. App. 1998) (“[I]mplied within an oil and gas lease is the
provision that temporary interruptions in production of commercial quantities will not
cause the lease to terminate.” (citing Midwest Oil Corp. v. Winsauer, 323 S.W.2d 944, 946
(Tex. 1959)); 2 Eugene O. Kuntz, A Treatise on the Law of Oil & Gas
§ 26.13 (1989 ed.) (“The doctrine of temporary cessation of production is a practical
necessity, because oil and gas are never produced and marketed in a continuous,
uninterrupted operation that goes on every hour of the day and night.”).
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an implied term, i.e., that “a lease will continue for a reasonable period of
time, . . . to give the lessee an opportunity to resume production.” Red River
Res., Inc. v. Wickford, Inc., 443 B.R. 74, 81 (Bankr. E.D. Tex. 2010) (citing
Watson v. Rochmill, 155 S.W.2d 783, 784 (Tex. 1941)); Krabbe, 46 S.W.3d at
315 (“The lessee is entitled to a reasonable time” in which to remedy the
cause of the temporary cessation and resume production.”). And “[w]hat
constitutes a reasonable time in which to regain production depends on the
facts of each case.” Williams & Meyers, supra note 72, § 604.4; see also
Krabbe, 46 S.W.3d at 315 (recognizing that “reasonable time” depends on
the facts of the case).
But if, like here, the lease at issue expressly defines the relevant time
period constituting a temporary cessation of production—typically by
expressing a time period during which drilling or reworking operations must
be conducted in order to prevent the lease’s termination—the time period
stipulated in the lease controls. See, e.g., BP America Prod. Co., v. Red Deer
Resources, LLC, 426 S.W.3d 389, 395–96 (Tex. 2017) (requiring proof of a
cessation longer than the 90 days permitted in the lease’s cessation-of-
production savings clause); Sun Operating Ltd. P’ship v. Holt, 984 S.W.2d
277, 282 (Tex. App. 1998) (“[B]ecause the lease at bar expressed a time [60
days] within which drilling and reworking had to be initiated once production
ended, the implied temporary cessation rule invoked by the Sun Parties does
not apply.”); Samano v. Sun Oil Co., 621 S.W.2d 580, 583–85 (Tex. 1981)
(reasoning that the sixty-day provision “afford[ed] a known time for
commencing [the] drilling or reworking operations” required to prevent the
lease’s termination”); Woodson Oil Co. v. Pruett, 281 S.W.2d 159, 164 (Tex.
Civ. App. 1955), writ ref’d n.r.e. (Rule entitling the lessee to a reasonable time
to “remedy the defect and resume production” did not apply to lease in
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which “the parties [had] agreed and stipulated what would constitute
temporary cessation.”). 78
Where the lease contains such express language, a cessation results in
termination where “there has been a cessation of production for a period in
excess of that allowed under the lease.” See Williams & Meyers, supra
note 72, § 604.4; see also, e.g., Red Deer, 426 S.W.3d at 396 (reasoning that
lease termination under a cessation-of-production clause requires a total
cessation of physical production for a period of time longer than that
permitted in the lease’s cessation-of-production clause); Sun Operating, 984
S.W.2d at 282 (Where production ceases, even though wells are capable of
production, and clause requires commencing “drilling or re-working
operations . . . with no cessation of more than sixty consecutive days until
production results[,]” the “lessee still has 60 days to remedy the situation
which caused production to stop or [to] initiate drilling or reworking
operations even though the other wells are capable of production[.]”
(emphasis added)); Mayers v. Sanchez-O’Brien Mins. Corp., 670 S.W.2d 704,
709 (Tex. App. 1984), writ ref’d n.r.e. (Nov. 14, 1984) (Where cessation of
production clause provided that, if production should cease, “this lease shall
not terminate if Lessee commences operations for drilling or reworking
within sixty (60) days thereafter,” Lessee had an additional sixty days (60)
from date of cessation in which to commence actual production, or to rework
or commence additional drilling, in order to avoid lease termination.);
Wainwright v. Wainwright, 359 S.W.2d 628, 629 (Tex. Civ. App.—Fort
Worth 1962, writ ref’d n.r.e.) (construing provision conditioning lease’s
continued existence on lessee’s resumption of drilling operations within 90
days from the cessation to mean that “the lease terminated if production was
_____________________
78
See also Williams & Meyers, supra note 72, § 604.4, § 616.2.
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voluntarily discontinued by [lessee] for more than 90 days” (emphasis
added)); Woodson Oil Co. v. Pruett, 281 S.W.2d 159, 164 (Tex. Civ. App.
1955), writ ref’d n.r.e. (construing lease provision requiring re-working or
drilling operations within sixty days to mean that “cessation of production []
for more than sixty consecutive days is not to be regarded as temporary such
that, if re-working or additional operations were not begun within the sixty-
day period, the lease terminates by its own provisions).
Here, both the temporary-cessation and permanent-cessation
provisions establish 120-day time periods and EP resumed production within
40 days. Even so, the MSB Owners insist that their temporary-cessation
provision is a clause “uniquely tailored to pertain to a cessation . . . remedied
[only] by drilling or reworking operations”; that “the parties carefully
bargained for these terms”; and that “strict compliance” was required. 79
The MSB Owners’ argument is unavailing. The temporary-cessation
provision here is not materially different from the one at issue in Sun
Operating, which, the court reasoned, “deals with prolonging the viability of
the lease once production stops, not with the reasons why production
stopped.” 984 S.W.2d at 282 (emphasis added).
Also, insofar that the MSB Owners argue that the temporary-
cessation provision’s second clause, addressing restoration of production,
contemplates only production obtained as a result of newly commenced
“drilling or reworking operations,” they attribute far too much significance
to the mere presence of a semi-colon followed by the word “and.” The
instant provision also lacks any of the arguably causative language found in
some clauses. See, e.g., Prize Energy Res., L.P. v. Cliff Hoskins, Inc., 345
S.W.3d 537, 552–53 (Tex. App. 2011) (“if they [drilling operations] result in
_____________________
79
See Appellants’ Orig. Br., at 46.
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production of oil, gas, or other mineral”), abrogated in part in other grounds by
Nath v. Texas Children’s Hosp., 576 S.W.3d 707 (Tex. 2019); Wainright, 359
S.W.2d at 629 (“if they [drilling operations] result in production of oil or
gas”); Anadarko, 94 S.W.3d at 553 (“if production results therefrom”).
Additionally, adopting the MSB Owners’ proposed construction
would mean that any temporary interruption of production from an existing,
fully-functional well—regardless of its brevity and/or rationale—would
require that EP automatically undertake and continue (with no cessation of
more than 120 consecutive days) costly and unnecessary drilling or reworking
operations for the sole purpose of avoiding automatic termination of the
Leases. 80 Such a wasteful expenditure of resources is contrary to industry
norms (as reflected in the above-referenced jurisprudence) and the parties’
contractual objectives, i.e., mutually profitable production and reasonable
development (utilizing a “reasonably prudent operator” standard) of the
leased premises for the production of oil or gas. 81 See, e.g., Garcia v. King,
164 S.W.2d 509, 512 (Tex. 1942) (“The object of the contract was to secure
development of the property for the mutual benefit of the parties.”); id. at
511 (“[T]he very purpose of the landowner in executing the lease is to have
_____________________
80
Regarding the definition of “drilling,” the Lease states: “[T]he actual drilling
of a well shall be deemed to have commenced when a derrick, a rig and machinery capable
of drilling to a depth sufficient to test a prospective or potential oil or gas horizon have
been erected, and when such well has been spudded in and is rotating under power.”
“Reworking operations” are defined as “actual work in the hole of a well, in a good and
workmanlike manner, prosecuted with reasonable diligence, in an attempt to recomplete
or repair said well to return it to production.” See Lease, Paragraph I(e) and (u)–
Definitions, at 2, 4–5.
81
See Lease, Paragraph VIII–Continuous Development, Paragraph IX–
Production Units, and Paragraph XI–Termination and Release, at 28–34 (Lease
provisions addressing continuous development, production units, and quantity of wells to
be drilled); Lease, Paragraph IV–Royalties, at 7–17 (provisions regarding royalties and
market pricing); Lease, Paragraph IV(e), at 17 (establishing 25% royalty).
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the oil and gas on the leased premises produced and marketed so that he may
receive his royalty therefrom, and the purpose of the lessee is to discover and
produce oil and gas in such quantities as will yield him a profit,” and “are
material elements to be considered in the interpretation of the contract.”).
Indeed, EP maintains that, in this instance, its “prudent decision to pause
production because of unprecedented external market forces” benefitted the
MSB Owners by yielding “increased royalty revenues.” 82
At a minimum, moreover, the MSB Owners’ proposed construction
of the instant temporary-cessation provision foments pointless uncertainty
regarding a matter for which Texas law has long “promoted greater
certainty,” that is, “the continued existence of a lease.” See Anadarko, 94
S.W. 3d at 560 (explaining that a breach of the implied covenant to reasonably
develop the premises does not automatically terminate a lease because
neither lessee nor lessor could clearly or certainly know “whether the estate
granted was alive or ended”).
We likewise are not persuaded by the MSB Owners’ contention that
the “[bankruptcy court’s and] district court’s interpretation[s] would allow
EPLP to voluntarily cease production and then momentarily turn wells back
on every 119 days with impunity.” 83 As EP points out, the production
required to maintain the Leases is “production in paying quantities measured
over an 18-month period,” and “it is unlikely that one day of production
every 120 days would [satisfy that requirement].” 84 Additionally, even if
such conduct would not automatically terminate the lease, other remedies
_____________________
82
See Appellee’s Br., at 57.
83
See Appellants’ Orig. Br., at 49.
84
See Lease, Paragraph I(q)–Definitions, at 4.
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exist for breaches of the “reasonably prudent operator” standard, including
a claim for money damages. See, e.g., Anadarko, 94 S.W.3d at 560.
Based on the foregoing, we are convinced that, if production ceases,
the Leases’ temporary-cessation provision, properly construed, supplies two
alternative ways to maintain the lease: (1) timely restoration of production, or
(2) if production has not been restored, by commencing drilling or reworking
operations within 120 days of cessation. Of course, as the MSB Owners
emphasize, the parties to a contract may agree to more extensive rights and
obligations than are “typical” in a particular industry. See, e.g., Rosetta Res.
Operating, LP v. Martin, 645 S.W.3d 212, 220 (Tex. 2022) (“Parties are free
to draft novel contractual terms that produce results some may consider
odd.”). And if the MSB Owners had wanted to avoid the result we reach
here, its potential and hardly unforeseeable occurrence could and should
have been clearly addressed during the course of its self-proclaimed “careful
bargaining” by means of sufficiently tailored contractual terms. But, as
noted, under Texas law, contractual provisions will not be “held to
automatically terminate [a] leasehold estate” unless the language is “so clear,
precise, and unequivocal” that it “can be given no other reasonable
construction.” Certainly, the MSB Owners’ proffered construction does not
meet this standard. 85
The interpretation proffered by the MSB Owners—one that would
fundamentally expand the scope of EP’s performance obligations to require
unnecessary and costly drilling or reworking operations any time that the
lessee’s business judgment counseled in favor of a cessation of production
_____________________
85
This standard recognizes that “[s]o far as [a lessee is] concerned, the object in
providing for a continuation of the lease for an indefinite time after the expiration of the
primary period [is] to allow [them] to reap the full fruits of the investments made by them
in developing the property.” Garcia, 164 S.W.2d at 513.
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Case: 24-20477 Document: 99-1 Page: 43 Date Filed: 03/10/2026
No. 24-20477
regardless of its brevity and/or financial prudence—requires much more
clarity than that set forth in the Lease’s language. Indeed, the incongruity of
the MSB Owners’ proffered construction is readily apparent when that
provision is considered in light of the specificity and detail utilized in other
provisions of the contract, including the “new-production-unit provision” in
Paragraph XI(d)’s next/third sentence.
In sum, based on our de novo review of the instant record, applicable
law, and the parties’ submissions, we agree that EP’s failing to “commence
drilling or reworking operations” within 120 days of ceasing production (for
a period of 40 days because of Spring 2020’s unfavorable market conditions)
did not cause the Leases to automatically terminate. Otherwise, EP would be
required to conduct perfunctory, useless operations that “would be of no
benefit to either party” in order to avoid losing the lease. Garcia, 164 S.W.2d
at 511. If that was the parties’ intended result, it was not sufficiently
expressed in their contract. Texas law requires more certainty.
V.
In this appeal, the MSB Owners challenge the bankruptcy court’s
assessments of jurisdiction and the proper application of Texas substantive
law governing the construction of oil and gas leases. For the reasons stated
herein, we AFFIRM.
43