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Click here for the full text of this decision FACTS:San Saba Energy and Charles McCord (as well as McCord Productions and McCord Investments) signed a purchase and participation agreement, as well as an operating agreement, with Louisiana Land and Exploration Co. (LLEC) for oil, gas and mineral rights in an area of mutual interest (AMI). As part of the agreement, the parties were to share any additional mineral interest they acquired in the AMI. The agreement, however, described this obligation differently in three different parts of the agreement. The purchase and participation agreement and the operating agreement are attached to each other as exhibits, and each is incorporated by the other. The purchase and participation agreement states that, if there is a conflict, the purchase and participation agreement controls. Four months later, in March 1998, McCord entered into a program agreement with O’Sullivan Oil & Gas Co., Scully Oil & Gas Co. and others. McCord agreed to provide operating capital. In turn, McCord would receive “the right to participate in any Investment Opportunity that has been identified and selected for acquisition by this Program, in any amount up to an undivided 25% of the interest to be acquired.” Pursuant to the program agreement, Osprey Resources, Inc. purchased the 605-acre Perez ranch and certain royalty interests, which lay within the AMI. O’Sullivan also acquired an oil and gas lease conveying the mineral estate in and under the Perez ranch, which was originally executed in favor of the Sue-Ann Oil & Gas Company. O’Sullivan told McCord about these acquisitions in mid-1998, and McCord agreed to participate in them, paying its pro rata share of the acquisition costs. In August 1998, McCord determined that the Perez ranch lay within the AMI and notified O’Sullivan that it had elected not to participate in the ownership of the surface and mineral estates that had been acquired. O’Sullivan said it was about to sell these interests and suggested that McCord accept its pro rata share from the proceeds of the sales as reimbursement. McCord agreed to this arrangement. O’Sullivan assigned a portion of the Sue-Ann lease that same month to Pursuit Exploration Company, another party to the purchase and participation agreement and the operating agreement. O’Sullivan assigned to Pursuit a portion of the oil and gas subsurface leasehold interest. O’ Sullivan sold the surface estate in November. O’Sullivan reimbursed McCord for 25 percent of the proceeds from these conveyances. Because Pursuit Exploration was a party to the purchase and participation agreement and the operating agreement, it notified the other parties of its acquisition the subsurface leasehold it acquired in the Sue-Ann leasehold. McCord elected to participate in the lease, but San Saba did not. San Saba sued McCord for breach of contract for failing to offer a proportional share of the interests or rights that McCord acquired in the Sue-Ann property. San Saba alleged that McCord planned to defraud San Saba of the interests it was entitled to. The trial court granted McCord’s summary judgment motion. HOLDING:Affirmed in part; reversed and remanded in part. The court starts by addressing whether a genuine issue of material fact remains on the question of whether McCord acquired (or acquired the right to acquire) an oil and gas interest in which the parties’ contracts required McCord to offer San Saba a proportional share. Resolution of the issue depends on what obligations the parties’ agreements imposed respecting the acquisition of additional mineral interests. Because the operating agreement uses the descriptive term “i.e., by farmin” to modify the phrase regarding the acquisition of “the right to acquire” an additional mineral interest in the AMI, it contains a more restrictive definition of the requisite additional interests than does the purchase and participation agreement. The court further notes that both agreements provide that the terms of the purchase and participation agreement control in cases of conflict. Therefore, the definition of additional mineral interests contained in the purchase and participation agreement controls. The court then examines the operating agreement and the O’Sullivan program agreement to see what they say about acquiring interests and notification to others. The court concludes that there is a genuine issue of material fact regarding whether McCord acquired an “additional oil, gas or mineral interest” in the AMI. Also, because it is undisputed that McCord did not give notice of this additional interest to San Saba, summary judgment for McCord on this point was improper. The court next reviews the summary judgment on San Saba’s fraud claim and finds summary judgment proper, as San Saba’s allegations are no more than an allegation that McCord conspired with others to breach the operating agreement. Such a cause of action is not recognized in Texas, the court finds. The court also finds, however, that San Saba provided more than a scintilla of evidence in response to McCord’s no-evidence summary judgment motion on this issue of damages in the form of lost profits. OPINION:Felipe Reyna, J.; Gray, C.J., Vance and Reyna, JJ.

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