Preview
TEMPORARY INJUNCTION
1
REPORTER'S RECORD
VOLUME 1 OF 1 VOLUMES
TRIAL COURT CAUSE NO. 2015-47031
BREITBURN OPERATING,LP ( IN THE DISTRICT COURT OF
QRE OPERATING,LLC (
(
VS (
(
ROGER D. PARSONS,IN HIS (
CAPACITY AS TRUSTEE OF THE (
LL&E ROYALTY TRUST ( HARRIS COUNTY, TEXAS
(
VS (
(
QRE OPERATING,LLC QR ENERGY(
LP, BANK OF NEW YORK MELLON(
TRUST COMPANY, NA BREITBURN(
ENERGY PARTNERS,LP (
BREITBURN MANAGEMENT, ET AL( 133rd JUDICIAL DISTRICT
_______________________________________________________
TEMPORARY INJUNCTION
_______________________________________________________
On the 14th day of May, 2021, the following
proceedings came on to be held in the above-titled and
numbered cause before the Honorable JACLANEL McFARLAND,
Judge Presiding, held in Houston, Harris County, Texas.
Proceedings reported by computerized stenotype
machine.
REPORTER'S NOTE: These proceedings were taken over a zoom
video conference call. There may be unavoidable
inaudibles in the transcript due to the limitations of
this mechanism of reporting during COVID-19.
DARLENE STEIN
OFFICIAL COURT REPORTER
133rd DISTRICT COURT
HARRIS COUNTY, TEXAS
TEMPORARY INJUNCTION
2
APPEARANCES
Mr. Geoff A. Gannaway
SBN: 24036617
Ms. Mary Kate Raffetto
BECK REDDEN
1221 McKinney St., #4500
Houston, Texas, 77010
Telephone: (713) 951-3700
Telephone: (713) 951-3720 (Fax)
Attorney for Plaintiffs
Mr. John H. Kim
SBN: 00784393
Mr. David McDougald
SBN: 13570525
THE KIM LAW FIRM
4309 Yoakum, #2000
Houston, Texas 77006
Telephone: (713) 522-1177
Telephone: (888) 809-6793 (Fax)
Attorney for Defendants
Mr Byron Keeling
SBN: 11157980
KEELING & DOWNES
4511 Yoakum Blvd., #125
Houston, Texas 77006
Telephone (832) 214-9900
Attorney for Defendants
Mr. Joseph G. Thompson,III
SBN: 00788534
PORTER HEDGES
1000 Main Street, #36 Floor
Houston, Texas 77002
Attorney for Third-Party Defendant ConocoPhillips Co.
Mr. Andrew Harvin
SBN: 09187900
DOYLE RESTREPO HARVIN & ROBBINS,LLP
440 Louisiana, #2300
Houston, Texas 77002
Attorney for Third-Party Defendant Stifel, Nicolaus & Co.
TEMPORARY INJUNCTION
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VOLUME 1
CHRONOLOGICAL INDEX
May 14, 2021 PAGE/VOL
PROCEEDINGS.............................. 5 1
ARGUMENT BY MR. KIM...................... 7 1
ARGUMENT BY MR. KEELING.................. 10 1
ARGUMENT BY MR. KIM...................... 18 1
ARGUMENT BY MS. RAFFETTO................. 19 1
ARGUMENT BY MR. KIM...................... 45 1
ARGUMENT BY MR. GANNAWAY................. 58 1
ARGUMENT BY MS. RAFFETTO................. 62 1
ARGUMENT BY MR. KIM...................... 64 1
ARGUMENT BY MR. GANNAWAY................. 67 1
PLAINTIFF'S WITNESSES DIRECT CROSS
GREGG LAMB
By Mr. Gannaway 82
By Mr. Kim 113
By Mr. Gannaway 144
By Mr. Kim 153
DEFENDANT'S WITNESSES DIRECT CROSS
SAUL SOLOMON
By Mr. Kim 153
By Mr. Gannaway 180
PROCEEDINGS CONCLUDED.................... 207 1
REPORTER'S CERTIFICATE................... 208 1
TEMPORARY INJUNCTION
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VOLUME 1
EXHIBITS OFFERED BY THE DEFENDANT
EXHIBIT DESCRIPTION OFFERED ADMITTED VOL.
1. Conveyance 6 6 1
2. Agreement 6 6 1
3. Trust Agreement 6 6 1
4. Letter 6 6 1
5. Trust Form 6 6 1
6. Email 6 6 1
7. Demand Letter 6 6 1
8. Response Letter 6 6 1
9. Email 6 6 1
10. Account Statement 6 6 1
11. Letter 6 6 1
12. Letter 6 6 1
13. Motion of Debtors 6 6 1
14. Interim Order 6 6 1
15. Final Order 6 6 1
16. Motion for Relief 6 6 1
17. Email 6 6 1
18. Memorandum 6 6 1
19. Order 6 6 1
20. Email 6 6 1
21. Email 6 6 1
22. Email 6 6 1
23. Final Decree 6 6 1
24. Maverick Valuation 6 6 1
25. Bank Statement 6 6 1
26. Letter 6 6 1
27. Letter 6 6 1
28. Signed TRO 6 6 1
29. Certificate 6 6 1
30. Email 6 6 1
31. CV of Saul Solomon 6 6 1
32. Net Proceeds Withdrawn 1
33. Schedule 1 Withdrawn 1
34. Schedule 2 Withdrawn 1
35. Map of Jay Field 7 7 1
36. Breitburn Statement 7 7 1
37. Balance Sheets 7 7 1
38. NPI Calculation 7 7 1
39. Financial Statement 7 7 1
40. Jay ARO Inputs 7 7 1
41. Budget LOS 7 7 1
42. Red Notebook 165 165 1
43. NPI Calculation 151 152 1
TEMPORARY INJUNCTION
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(P R O C E E D I N G S)
THE COURT: Okay. For the record, I'm
going to have you announce who you are and who you
represent, please.
MR. KIM: John Kim, David McDougald, David
Toy, Byron Keeling on behalf of Defendants.
MR. GANNAWAY: Your Honor, Geoff Gannaway,
Mary Kate Raffetto, and Bilma Canales on behalf of the
Plaintiff, Breitburn Operating, LP.
MR. HARVIN: Andrew Harvin, counsel for
Steven Nicolaus.
MR. THOMPSON: Good Morning. This is Joe
Thompson on behalf of ConocoPhillips.
THE COURT: Okay. Is that it?
All right. I guess y'all saw -- and maybe
you didn't. I was able to get the TRO extended finally
last night before midnight. I hope nobody did anything
between that. My -- I luckily had the number of the
ancillary clerk because it had been e-mailed to me, but I
didn't -- and then it was in the court's file, but it was
after 5:00 o'clock before I realized it. And my clerk
was unavailable. So, finally, I realized it and called
the ancillary clerk and he put it on my to-be signed page
and got it signed.
TEMPORARY INJUNCTION
6
MR. GANNAWAY: Your Honor, I believe the
Wells Fargo account at issue today is still in tact.
THE COURT: Good. Good. All right. So I
am ready to listen. I have a fresh cup of coffee and I'm
ready.
MR. KIM: So, Your Honor, I think we have
reached a number of agreements.
THE COURT: That's wonderful.
MR. KIM: We have some stipulated facts
that we have filed with the court and we would ask the
Court to entertain those and accept those as if factually
testified to today.
THE COURT: Okay. I've seen those and I
will. I do.
MR. KIM: Thank you.
We have combined our hearing exhibits
where they are a combination of everything. There are
some objections, but I think I can cut through it.
We would ask the Court, and I will tell
you that we have an agreement on Exhibits 1 through 31.
THE COURT: Okay. You are offering 1
through 31 without objection. They are admitted.
MR. KIM: I will withdraw 32, 33 and 34.
THE COURT: Okay.
MR. KIM: And then we ask for admission of
TEMPORARY INJUNCTION
7
35 through 41 without objection.
THE COURT: All right. Thirty-one
through -- I'm sorry. 35 through 41, is that what you
said?
MR. KIM: Yes, Your Honor.
THE COURT: Are admitted without
objection.
MR. KIM: And so, Your Honor, I think with
those stipulated facts and with these exhibits entered
into evidence, it's going to really shorten up our
presentation.
I do think that the Court under its
inherent powers has the ability to address and really
short-circuit this whole thing because part of what we're
asking for is putting the money in the registry of the
court. And I think the Court has the obligation and, in
fact, the power to do it under its inherent powers and we
would ask that the Court do that, which would obviate the
need for the remainder of the temporary injunction
hearing.
The reason why it's simple -- but I'm
going to let Mr. Keeling, who I have been calling "Big
Brain" on this video so far, give you the legal
justification and argument and the distinguishment of --
I'm sure the Court has not read it, but I will tell the
TEMPORARY INJUNCTION
8
Court that Mr. Gannaway filed a motion -- a supplemental
brief this morning solely on the issue of putting the
money in the registry of the court, but it's not
persuasive, as Mr. Keeling will tell you.
Byron.
MR. GANNAWAY: Your Honor, before we begin
with argument, there was a couple of other housekeeping
matters I would like to address real quickly.
THE COURT: Sure.
MR. GANNAWAY: First of all, Mr. Kim, I
think, did submit to the Court an Exhibit 42. He didn't
reference it just now.
But do I understand that's withdrawn, Mr.
Kim?
MR. KIM: No. I will prove it up with the
witness and admit it if I need to.
MR. GANNAWAY: Understood.
And then, Your Honor, there were some
exhibits that I've alerted Mr. Kim are sensitive to my
client and we would ask that they either be filed under
seal or only reviewed in camera. We have agreed that
they will go up on appeal if there is an appeal of this
matter and filed under seal with the appellate court.
But those exhibits are 24, 30, 36, 37, 39, 40 and 41.
THE COURT: Any objection to that?
TEMPORARY INJUNCTION
9
MR. KIM: No, Your Honor.
But candidly, I think after this
proceeding if we get passed the registry of the court
issue, would -- I think Geoff is going to have to do a
76(a).
THE COURT: Well, right now I'll just say
they're going to be reviewed in camera and I won't seal
them and then that will take care of that at this point.
MR. GANNAWAY: Thank you, Your Honor.
MR. KIM: Mr. Keeling.
MR. KEELING: John, thanks.
Good morning, Your Honor. I have --
(Inaudible)
THE COURT: Your audio is -- whoa, whoa,
whoa. Your audio is not good. So I don't know whether
if somebody has got a cell phone on or if you just need
to be closer to the microphone. I'm not sure. Try
again.
MR. KEELING: Maybe that's what I need to
do, and that's part of the reason for the apology. The
Internet is off in my office. Can you hear me all right?
THE COURT: I can.
MR. KEELING: All right. I'll just try to
stay as close to the microphone as possible and apologize
that what that necessarily means is you'll get a probably
TEMPORARY INJUNCTION
10
uncomfortable full view of my face.
THE COURT: You look fine.
MR. KEELING: Well, thank you.
Really, what this hearing boils down to is
an issue over ownership. Respectfully, on this side of
the table we believe that that's the very issue that the
bankruptcy court has asked this Court to address. And
spending just a few moments on the ownership issue, I
think the first place we have to begin is with the
Conveyances themselves.
Everyone agrees that this case arises from
a securities of Conveyances. And on their face the
Conveyances say that they are Conveyances of an
overriding royalty interest. And part of the dispute
that you've seen in the briefing before you is a dispute
over how the parties characterize that interest.
Breitburn, or BBOP, repeatedly
characterizes that interest as a net profits agreement.
But on its face, the Conveyances are clear; it's an
overriding royalty interest.
Under Texas law, a royalty is a share of
the production that's generated from oil and gas wells.
The Court's probably familiar with the
classic example of a royalty interest, which is an
interest that derives from an oil and gas lease where the
TEMPORARY INJUNCTION
11
mineral estate owner conveys the right to use and exploit
the mineral oils under the mineral estate in return for a
royalty interest, which is a share of the production. An
overriding royalty interest is no different from a
practical effect from a royalty interest.
Typically, an override is a royalty
interest that comes from the working interest owner
rather than from a mineral estate owner.
But as the Texas Supreme Court has
repeatedly declared over the course of Texas oil and gas
jurisprudence, an overriding royalty interest is
functionally the same thing as a royalty interest.
Whether the royalty interest is a classic
royalty or an override, the parties may themselves agree
on how to calculate it. And there are lots of ways in
which parties can calculate a royalty. In a classic
royalty under an oil and gas lease, you may see that the
parties agree that the royalty interest owner will
receive one-eighth of the market value of the production
at the wellhead, where they might agree that the royalty
owner will receive one-eighth of the gross proceeds that
the producer receives on a third-party arm's length
downstream sale of the oil and gas production. But it's
all a matter of contract. The royalty is determined on
what the parties agree to.
TEMPORARY INJUNCTION
12
Typically, an override -- overriding
royalty interest is a fractional share of the gross
proceeds and it doesn't carry any of the costs of
production.
But as the Texas Supreme Court recognized
in the Hyder case a few years ago, the parties are free
to describe their royalty interest however they want to
and there is absolutely nothing wrong with an overriding
royalty interest being measured as a fractional share of
the net proceeds or net profits. In other words, an
override can, in fact, if the parties agree, bear the
costs of production and post-production expense. And
that's what we've got here.
The Conveyances are Conveyances of an
overriding royalty interest in which the parties have
expressly agreed to measure but override as a share of
the net profits or net proceeds that the producer
receives from the production in the Jay Field.
And to circle back to where we started,
BBOP wants to characterize the Conveyances as a net
profit agreement, but it's not. It's an override that
the parties have agreed to measure in the form of net
profits, and that's not just a matter of semantics. That
distinction is important because the Texas Supreme Court
has repeatedly over the years, even as recently as a few
TEMPORARY INJUNCTION
13
weeks ago, recognized that all royalty interests in oil
and gas production are real property interests. So when
a royalty interest is measured by net profits, Texas
courts have routinely held that it's a real property
interest.
We've provided to the Court citations to
the Houston Bluebonnet case, which is a very recent case
making that point. We have also cited the T-Vestco case
and the Parker case.
I was prepared to share screen with those.
I can provide copies of those cases separately to the
Court under the circumstances. But those are three cases
that involve interests in a share of the oil and gas
production from a wellhead. That's significant because
BBOP offers no case, none, zip, zero, that involves a net
profits interest in oil and gas production from the
wellhead.
BBOP cites the Lang opinion out of the
Texas Supreme Court. The Lang opinion was a will
contest. The decedent in the Lang case owned an interest
in the Prue Ranch. Before she died she sold the Prue
Ranch to some real estate developers. She retained a net
profits interest in the profits that those real estate
developers would earn after turning the Prue Ranch into a
commercial real estate development. Lang has absolutely
TEMPORARY INJUNCTION
14
nothing to do with oil and gas production. Lang properly
recognized that the net profits interest in that case was
a mere contractual interest in proceeds which necessarily
are personal property, not real property. Those doesn't
involve a royalty interest.
The same is true of the Dolenz case on
which BBOP relies. Dolenz was the case where a party had
an interest in a 1950 gas sales contract. The gas sales
contract was for downstream oil and gas after it had been
refined. It was not a contract involving the sale of
production at the wellhead. And so, therefore, the
Federal Court in Dolenz ruled that a net profits interest
in the gas sales contract was personal property.
That's significant because there's a third
case on which BBOP relies. And I want to emphasize that
third case. BBOP relies on a case called Berthelot
Berthelot is very much like Dolenz Berthelot is a case
in which a party previously had interest in the proceeds
from a gas refinery plant. It assigned its interest and
retained a net profits interest in that refinery plant's
sales.
And in Berthelot the Court concluded that
that net profits interest was personal property, not real
property. And interestingly, the Court on page 317 of
the opinion -- again, it's one I had hoped to share
TEMPORARY INJUNCTION
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screen with, but I can provide it separately to the
Court.
On page 317 of the Berthelot opinion, the
Court distinguished the T-Vestco case on which we relied.
And the Court said: Look, in T-Vestco, the interest was
an interest in oil and gas production, or royalty
interest. That's what made the interest in T-Vestco
real property interest, and that's distinguished from the
circumstances in Berthelot. So Berthelot itself draws
the distinction that we point out to the Court. Our case
is a T-Vestco case, not a Berthel
Preview
TEMPORARY INJUNCTION 1 REPORTER'S RECORD VOLUME 1 OF 1 VOLUMES TRIAL COURT CAUSE NO. 2015-47031 BREITBURN OPERATING,LP ( IN THE DISTRICT COURT OF QRE OPERATING,LLC ( ( VS ( ( ROGER D. PARSONS,IN HIS ( CAPACITY AS TRUSTEE OF THE ( LL&E ROYALTY TRUST ( HARRIS COUNTY, TEXAS ( VS ( ( QRE OPERATING,LLC QR ENERGY( LP, BANK OF NEW YORK MELLON( TRUST COMPANY, NA BREITBURN( ENERGY PARTNERS,LP ( BREITBURN MANAGEMENT, ET AL( 133rd JUDICIAL DISTRICT _______________________________________________________ TEMPORARY INJUNCTION _______________________________________________________ On the 14th day of May, 2021, the following proceedings came on to be held in the above-titled and numbered cause before the Honorable JACLANEL McFARLAND, Judge Presiding, held in Houston, Harris County, Texas. Proceedings reported by computerized stenotype machine. REPORTER'S NOTE: These proceedings were taken over a zoom video conference call. There may be unavoidable inaudibles in the transcript due to the limitations of this mechanism of reporting during COVID-19. DARLENE STEIN OFFICIAL COURT REPORTER 133rd DISTRICT COURT HARRIS COUNTY, TEXAS TEMPORARY INJUNCTION 2 APPEARANCES Mr. Geoff A. Gannaway SBN: 24036617 Ms. Mary Kate Raffetto BECK REDDEN 1221 McKinney St., #4500 Houston, Texas, 77010 Telephone: (713) 951-3700 Telephone: (713) 951-3720 (Fax) Attorney for Plaintiffs Mr. John H. Kim SBN: 00784393 Mr. David McDougald SBN: 13570525 THE KIM LAW FIRM 4309 Yoakum, #2000 Houston, Texas 77006 Telephone: (713) 522-1177 Telephone: (888) 809-6793 (Fax) Attorney for Defendants Mr Byron Keeling SBN: 11157980 KEELING & DOWNES 4511 Yoakum Blvd., #125 Houston, Texas 77006 Telephone (832) 214-9900 Attorney for Defendants Mr. Joseph G. Thompson,III SBN: 00788534 PORTER HEDGES 1000 Main Street, #36 Floor Houston, Texas 77002 Attorney for Third-Party Defendant ConocoPhillips Co. Mr. Andrew Harvin SBN: 09187900 DOYLE RESTREPO HARVIN & ROBBINS,LLP 440 Louisiana, #2300 Houston, Texas 77002 Attorney for Third-Party Defendant Stifel, Nicolaus & Co. TEMPORARY INJUNCTION 3 VOLUME 1 CHRONOLOGICAL INDEX May 14, 2021 PAGE/VOL PROCEEDINGS.............................. 5 1 ARGUMENT BY MR. KIM...................... 7 1 ARGUMENT BY MR. KEELING.................. 10 1 ARGUMENT BY MR. KIM...................... 18 1 ARGUMENT BY MS. RAFFETTO................. 19 1 ARGUMENT BY MR. KIM...................... 45 1 ARGUMENT BY MR. GANNAWAY................. 58 1 ARGUMENT BY MS. RAFFETTO................. 62 1 ARGUMENT BY MR. KIM...................... 64 1 ARGUMENT BY MR. GANNAWAY................. 67 1 PLAINTIFF'S WITNESSES DIRECT CROSS GREGG LAMB By Mr. Gannaway 82 By Mr. Kim 113 By Mr. Gannaway 144 By Mr. Kim 153 DEFENDANT'S WITNESSES DIRECT CROSS SAUL SOLOMON By Mr. Kim 153 By Mr. Gannaway 180 PROCEEDINGS CONCLUDED.................... 207 1 REPORTER'S CERTIFICATE................... 208 1 TEMPORARY INJUNCTION 4 VOLUME 1 EXHIBITS OFFERED BY THE DEFENDANT EXHIBIT DESCRIPTION OFFERED ADMITTED VOL. 1. Conveyance 6 6 1 2. Agreement 6 6 1 3. Trust Agreement 6 6 1 4. Letter 6 6 1 5. Trust Form 6 6 1 6. Email 6 6 1 7. Demand Letter 6 6 1 8. Response Letter 6 6 1 9. Email 6 6 1 10. Account Statement 6 6 1 11. Letter 6 6 1 12. Letter 6 6 1 13. Motion of Debtors 6 6 1 14. Interim Order 6 6 1 15. Final Order 6 6 1 16. Motion for Relief 6 6 1 17. Email 6 6 1 18. Memorandum 6 6 1 19. Order 6 6 1 20. Email 6 6 1 21. Email 6 6 1 22. Email 6 6 1 23. Final Decree 6 6 1 24. Maverick Valuation 6 6 1 25. Bank Statement 6 6 1 26. Letter 6 6 1 27. Letter 6 6 1 28. Signed TRO 6 6 1 29. Certificate 6 6 1 30. Email 6 6 1 31. CV of Saul Solomon 6 6 1 32. Net Proceeds Withdrawn 1 33. Schedule 1 Withdrawn 1 34. Schedule 2 Withdrawn 1 35. Map of Jay Field 7 7 1 36. Breitburn Statement 7 7 1 37. Balance Sheets 7 7 1 38. NPI Calculation 7 7 1 39. Financial Statement 7 7 1 40. Jay ARO Inputs 7 7 1 41. Budget LOS 7 7 1 42. Red Notebook 165 165 1 43. NPI Calculation 151 152 1 TEMPORARY INJUNCTION 5 (P R O C E E D I N G S) THE COURT: Okay. For the record, I'm going to have you announce who you are and who you represent, please. MR. KIM: John Kim, David McDougald, David Toy, Byron Keeling on behalf of Defendants. MR. GANNAWAY: Your Honor, Geoff Gannaway, Mary Kate Raffetto, and Bilma Canales on behalf of the Plaintiff, Breitburn Operating, LP. MR. HARVIN: Andrew Harvin, counsel for Steven Nicolaus. MR. THOMPSON: Good Morning. This is Joe Thompson on behalf of ConocoPhillips. THE COURT: Okay. Is that it? All right. I guess y'all saw -- and maybe you didn't. I was able to get the TRO extended finally last night before midnight. I hope nobody did anything between that. My -- I luckily had the number of the ancillary clerk because it had been e-mailed to me, but I didn't -- and then it was in the court's file, but it was after 5:00 o'clock before I realized it. And my clerk was unavailable. So, finally, I realized it and called the ancillary clerk and he put it on my to-be signed page and got it signed. TEMPORARY INJUNCTION 6 MR. GANNAWAY: Your Honor, I believe the Wells Fargo account at issue today is still in tact. THE COURT: Good. Good. All right. So I am ready to listen. I have a fresh cup of coffee and I'm ready. MR. KIM: So, Your Honor, I think we have reached a number of agreements. THE COURT: That's wonderful. MR. KIM: We have some stipulated facts that we have filed with the court and we would ask the Court to entertain those and accept those as if factually testified to today. THE COURT: Okay. I've seen those and I will. I do. MR. KIM: Thank you. We have combined our hearing exhibits where they are a combination of everything. There are some objections, but I think I can cut through it. We would ask the Court, and I will tell you that we have an agreement on Exhibits 1 through 31. THE COURT: Okay. You are offering 1 through 31 without objection. They are admitted. MR. KIM: I will withdraw 32, 33 and 34. THE COURT: Okay. MR. KIM: And then we ask for admission of TEMPORARY INJUNCTION 7 35 through 41 without objection. THE COURT: All right. Thirty-one through -- I'm sorry. 35 through 41, is that what you said? MR. KIM: Yes, Your Honor. THE COURT: Are admitted without objection. MR. KIM: And so, Your Honor, I think with those stipulated facts and with these exhibits entered into evidence, it's going to really shorten up our presentation. I do think that the Court under its inherent powers has the ability to address and really short-circuit this whole thing because part of what we're asking for is putting the money in the registry of the court. And I think the Court has the obligation and, in fact, the power to do it under its inherent powers and we would ask that the Court do that, which would obviate the need for the remainder of the temporary injunction hearing. The reason why it's simple -- but I'm going to let Mr. Keeling, who I have been calling "Big Brain" on this video so far, give you the legal justification and argument and the distinguishment of -- I'm sure the Court has not read it, but I will tell the TEMPORARY INJUNCTION 8 Court that Mr. Gannaway filed a motion -- a supplemental brief this morning solely on the issue of putting the money in the registry of the court, but it's not persuasive, as Mr. Keeling will tell you. Byron. MR. GANNAWAY: Your Honor, before we begin with argument, there was a couple of other housekeeping matters I would like to address real quickly. THE COURT: Sure. MR. GANNAWAY: First of all, Mr. Kim, I think, did submit to the Court an Exhibit 42. He didn't reference it just now. But do I understand that's withdrawn, Mr. Kim? MR. KIM: No. I will prove it up with the witness and admit it if I need to. MR. GANNAWAY: Understood. And then, Your Honor, there were some exhibits that I've alerted Mr. Kim are sensitive to my client and we would ask that they either be filed under seal or only reviewed in camera. We have agreed that they will go up on appeal if there is an appeal of this matter and filed under seal with the appellate court. But those exhibits are 24, 30, 36, 37, 39, 40 and 41. THE COURT: Any objection to that? TEMPORARY INJUNCTION 9 MR. KIM: No, Your Honor. But candidly, I think after this proceeding if we get passed the registry of the court issue, would -- I think Geoff is going to have to do a 76(a). THE COURT: Well, right now I'll just say they're going to be reviewed in camera and I won't seal them and then that will take care of that at this point. MR. GANNAWAY: Thank you, Your Honor. MR. KIM: Mr. Keeling. MR. KEELING: John, thanks. Good morning, Your Honor. I have -- (Inaudible) THE COURT: Your audio is -- whoa, whoa, whoa. Your audio is not good. So I don't know whether if somebody has got a cell phone on or if you just need to be closer to the microphone. I'm not sure. Try again. MR. KEELING: Maybe that's what I need to do, and that's part of the reason for the apology. The Internet is off in my office. Can you hear me all right? THE COURT: I can. MR. KEELING: All right. I'll just try to stay as close to the microphone as possible and apologize that what that necessarily means is you'll get a probably TEMPORARY INJUNCTION 10 uncomfortable full view of my face. THE COURT: You look fine. MR. KEELING: Well, thank you. Really, what this hearing boils down to is an issue over ownership. Respectfully, on this side of the table we believe that that's the very issue that the bankruptcy court has asked this Court to address. And spending just a few moments on the ownership issue, I think the first place we have to begin is with the Conveyances themselves. Everyone agrees that this case arises from a securities of Conveyances. And on their face the Conveyances say that they are Conveyances of an overriding royalty interest. And part of the dispute that you've seen in the briefing before you is a dispute over how the parties characterize that interest. Breitburn, or BBOP, repeatedly characterizes that interest as a net profits agreement. But on its face, the Conveyances are clear; it's an overriding royalty interest. Under Texas law, a royalty is a share of the production that's generated from oil and gas wells. The Court's probably familiar with the classic example of a royalty interest, which is an interest that derives from an oil and gas lease where the TEMPORARY INJUNCTION 11 mineral estate owner conveys the right to use and exploit the mineral oils under the mineral estate in return for a royalty interest, which is a share of the production. An overriding royalty interest is no different from a practical effect from a royalty interest. Typically, an override is a royalty interest that comes from the working interest owner rather than from a mineral estate owner. But as the Texas Supreme Court has repeatedly declared over the course of Texas oil and gas jurisprudence, an overriding royalty interest is functionally the same thing as a royalty interest. Whether the royalty interest is a classic royalty or an override, the parties may themselves agree on how to calculate it. And there are lots of ways in which parties can calculate a royalty. In a classic royalty under an oil and gas lease, you may see that the parties agree that the royalty interest owner will receive one-eighth of the market value of the production at the wellhead, where they might agree that the royalty owner will receive one-eighth of the gross proceeds that the producer receives on a third-party arm's length downstream sale of the oil and gas production. But it's all a matter of contract. The royalty is determined on what the parties agree to. TEMPORARY INJUNCTION 12 Typically, an override -- overriding royalty interest is a fractional share of the gross proceeds and it doesn't carry any of the costs of production. But as the Texas Supreme Court recognized in the Hyder case a few years ago, the parties are free to describe their royalty interest however they want to and there is absolutely nothing wrong with an overriding royalty interest being measured as a fractional share of the net proceeds or net profits. In other words, an override can, in fact, if the parties agree, bear the costs of production and post-production expense. And that's what we've got here. The Conveyances are Conveyances of an overriding royalty interest in which the parties have expressly agreed to measure but override as a share of the net profits or net proceeds that the producer receives from the production in the Jay Field. And to circle back to where we started, BBOP wants to characterize the Conveyances as a net profit agreement, but it's not. It's an override that the parties have agreed to measure in the form of net profits, and that's not just a matter of semantics. That distinction is important because the Texas Supreme Court has repeatedly over the years, even as recently as a few TEMPORARY INJUNCTION 13 weeks ago, recognized that all royalty interests in oil and gas production are real property interests. So when a royalty interest is measured by net profits, Texas courts have routinely held that it's a real property interest. We've provided to the Court citations to the Houston Bluebonnet case, which is a very recent case making that point. We have also cited the T-Vestco case and the Parker case. I was prepared to share screen with those. I can provide copies of those cases separately to the Court under the circumstances. But those are three cases that involve interests in a share of the oil and gas production from a wellhead. That's significant because BBOP offers no case, none, zip, zero, that involves a net profits interest in oil and gas production from the wellhead. BBOP cites the Lang opinion out of the Texas Supreme Court. The Lang opinion was a will contest. The decedent in the Lang case owned an interest in the Prue Ranch. Before she died she sold the Prue Ranch to some real estate developers. She retained a net profits interest in the profits that those real estate developers would earn after turning the Prue Ranch into a commercial real estate development. Lang has absolutely TEMPORARY INJUNCTION 14 nothing to do with oil and gas production. Lang properly recognized that the net profits interest in that case was a mere contractual interest in proceeds which necessarily are personal property, not real property. Those doesn't involve a royalty interest. The same is true of the Dolenz case on which BBOP relies. Dolenz was the case where a party had an interest in a 1950 gas sales contract. The gas sales contract was for downstream oil and gas after it had been refined. It was not a contract involving the sale of production at the wellhead. And so, therefore, the Federal Court in Dolenz ruled that a net profits interest in the gas sales contract was personal property. That's significant because there's a third case on which BBOP relies. And I want to emphasize that third case. BBOP relies on a case called Berthelot Berthelot is very much like Dolenz Berthelot is a case in which a party previously had interest in the proceeds from a gas refinery plant. It assigned its interest and retained a net profits interest in that refinery plant's sales. And in Berthelot the Court concluded that that net profits interest was personal property, not real property. And interestingly, the Court on page 317 of the opinion -- again, it's one I had hoped to share TEMPORARY INJUNCTION 15 screen with, but I can provide it separately to the Court. On page 317 of the Berthelot opinion, the Court distinguished the T-Vestco case on which we relied. And the Court said: Look, in T-Vestco, the interest was an interest in oil and gas production, or royalty interest. That's what made the interest in T-Vestco real property interest, and that's distinguished from the circumstances in Berthelot. So Berthelot itself draws the distinction that we point out to the Court. Our case is a T-Vestco case, not a Berthel