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,

(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,

(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."

. The Texas Supreme Court then held that the

new lease was not a continuation of the original lease and that the

-2- 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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