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IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
____________________
No. 91-6137
____________________
IN THE MATTER OF: GHR ENERGY CORPORATION,
Debtor.
MEDALLION OIL COMPANY, ET AL.,
Appellants,
versus
TRANSAMERICAN NATURAL GAS CORPORATION,
Appellee.
__________________________________________________________________
Appeal from the United States District Court for the
Southern District of Texas
_________________________________________________________________
ON PETITION FOR REHEARING
(November 24, 1992)
(Opinion August 27, 1992, 5th Cir. 1992, ___ F.2d ___)
Before BRIGHT,* JOLLY, and BARKSDALE, Circuit Judges.
PER CURIAM:
On petition for rehearing, Medallion Oil Company and H. S.
Finkelstein ("Medallion") strenuously argue that this case is
controlled by the Texas appeals court decision in Cain v. Neumann,
316 S.W. 915 (Tex. Civ. App. 1958). In Cain, a third party held an
overriding royalty interest in a lease that by its own terms would
*Senior Circuit Judge of the Eighth Circuit, sitting by
designation.

continue as long as "oil, gas, or other minerals can be produced
thereon." The lessor and lessee purported to terminate the
original lease and enter into a new lease that would effectively
eliminate the overriding royalty owner's interest. Nevertheless,
production on the leased property never abated. The facts in Cain
suggested that the defending parties intentionally harmed the
overriding royalty interest owner for their own unjustifiable
benefit. The court held that the parties had not terminated the
original lease and that the overriding royalty interest survived.
Medallion has failed to convince us that Cain controls the
instant case. After careful thought and review, we conclude that,
as far as our case is concerned, the greater force of authority is
found in the more recent Texas Supreme Court decision in Sunac
Petroleum Corp. v. Parkes, 416 S.W.2d 798 (Tex. 1967). In Sunac,
the lessee allowed a lease to terminate that was subject to an
overriding royalty interest. After the old lease terminated, the
lessee procured a new lease of the property. Noting that the
original lease had a surrender clause that expressly allowed the
lessee to terminate his interest in the leased property, the Texas
Supreme Court found that the lessee had no obligation to maintain
the lease. The supreme court also pointed out that this was not a
"washout" transaction "involving some bad faith on the part of the
lessee." Id. at 804. The Texas Supreme Court then held that the
new lease was not a continuation of the original lease and that the
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overriding royalty interest of the sublessee, as we have held here,
did not survive.

We must admit, however, that neither Sunac nor Cain controls
the case before us. We believe that two factors are dispositive of
this case: First, in this case the 1987 agreement between
Transamerican and El Paso contained an express surrender clause.
By its own terms, the lease ended when Transamerican surrendered
its interest to El Paso. That agreement governs this case.
Second, Transamerican and El Paso entered into the new agreement
because of the dispute between them. The new agreement had nothing
to do with the Medallion-Transamerican relationship. There was not
even a hint of impropriety on the part of Transamerican.
We might well reach a different result if the facts here had
suggested that Transamerican surrendered its interest in the lease
to destroy the rights of the overriding royalty interest owner.
We, therefore, DENY Medallion's petition for rehearing.
D E N I E D.
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