427 P.3d 1052 (Okla. 2018), 115078, Hall v. Galmor
|Citation:||427 P.3d 1052, 2018 OK 59|
|Opinion Judge:||Wyrick, J.:|
|Party Name:||E.L. HALL, d/b/a Hall Family Production, Plaintiff/Appellant, v. Michael Stephen GALMOR a/k/a Steve Galmor, d/b/a MSG Oil and Gas, and the Estate of Paul Stumbaugh, Defendants/Appellees.|
|Attorney:||Keith A. Needham and Amy N. Wilson, NEEDHAM & ASSOCIATES, PLLC, Oklahoma City, Oklahoma, for Appellant. Charles P. Horton, HORTON & ASSOCIATES ATTORNEYS AT LAW, P.C., Altus, Oklahoma, and G. Dale Elsener, Edmond, Oklahoma, for Appellee Michael Stephen Galmor. Randy Mecklenburg, Andrew E. Karim, a...|
|Judge Panel:||Gurich, V.C.J., and Winchester, Edmondson, Colbert, Reif, Wyrick, and Darby, JJ., concur. Combs, C.J., and Kauger, J., concur in the result.|
|Case Date:||June 26, 2018|
|Court:||Supreme Court of Oklahoma|
As Corrected June 26, 2018
As Corrected July 16, 2018
Rehearing Denied September 10, 2018
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ON APPEAL FROM THE DISTRICT COURT OF BECKHAM COUNTY, STATE OF OKLAHOMA; HONORABLE FLOYD DOUGLAS HAUGHT, DISTRICT JUDGE
[¶0] This appeal concerns the trial courts judgment after a bench trial that denied the Appellants petition to cancel Appellees oil and gas leases, to quiet title in favor of the Appellants "top leases," and to hold Appellee liable for slander of title. This Court retained the appeal to address several issues of first impression. We decline to adopt the definition of "capability" propounded by the Appellant and affirm the district courts finding that Appellees wells were capable of production in paying quantities. We affirm the district courts judgment insofar as it quieted title in Appellees favor as to leasehold interests located inside those wells spacing units. We reverse the district courts judgment, however, insofar as it quieted title in Appellees favor as to leasehold interests in lands falling outside those wells spacing units, because the statutory Pugh clause found in 52 O.S. § 87.1(b) so requires. We further find that the title of the bill enacting the statutory Pugh clause did not violate Article V, Section 57 of the Oklahoma Constitution and that the effect of the statutory Pugh clause upon Appellees leasehold interests does not result in an unconstitutional taking in violation of Article II, Section 23 of the Oklahoma Constitution. Lastly, we reverse the district courts judgment insofar as it quieted title in Appellees favor as to leases upon which no well has ever been drilled.
JUDGMENT OF THE DISTRICT COURT AFFIRMED IN PART AND REVERSED IN PART; CASE REMANDED FOR FURTHER PROCEEDINGS
Keith A. Needham and Amy N. Wilson, NEEDHAM & ASSOCIATES, PLLC, Oklahoma City, Oklahoma, for Appellant.
Charles P. Horton, HORTON & ASSOCIATES ATTORNEYS AT LAW, P.C., Altus, Oklahoma, and G. Dale Elsener, Edmond, Oklahoma, for Appellee Michael Stephen Galmor.
Randy Mecklenburg, Andrew E. Karim, and Michelle L. Nabors, HARRISON & MECKLENBURG, INC., Kingfisher, Oklahoma, for Amicus Curiae, Oklahoma Mineral Owners Association.
I. FACTUAL AND PROCEDURAL BACKGROUND
[¶1] Between 1954 and 2008, the predecessors-in-interest for Appellee Michael Stephen Galmor d/b/a MSG Oil and Gas ("Galmor") entered into thirty oil and gas leases covering mineral interests in lands located in Beckham County, Oklahoma.1 All thirty leases contained habendum clauses that made the leases valid for primary terms lasting between 90 days and 10 years and then for secondary terms thereafter lasting as long as oil or gas is "produced" from the leased premises. In the event production ceased during the secondary term, twenty-nine of the leases also contained "cessation of production" clauses that gave the lessee a grace period ranging between 60 days and 6 months during which to re-establish production
either by reworking the existing well or by drilling a new well.2
[¶2] During the primary terms of those leases, Galmors predecessors-in-interest drilled seven wells into the Granite Wash. formation and the Permian Dolomite (a/k/a Brown Dolomite) formation.3 These seven wells were located on lands covered by fourteen of the thirty leases at issue.4 The lands covered by two of those fourteen leases were also subject to voluntary pooling agreements with lands covered by six more leases on which no wells had been drilled.5 The lands covered by
the remaining ten leases did not have completed wells and were not otherwise held under a voluntary pooling agreement or a statutory spacing unit.6
[¶3] During the secondary terms of the fourteen leases on which wells had been drilled, six of the seven wells actually produced oil and gas.7 Some of the wells drilled prior to the 1990s ceased production for "a number of years" during that decade, but afterwards attained their previous production levels.8
[¶4] Galmors immediate predecessor-in-interest, a Texas corporation named Marion Energy Inc. ("Marion Energy"), stopped pumping gas out of the Denby 2, Speed B-4, G.S. Spencer 1, R.B. Jordan 1, and R.B. Jordan 2 wells in August 2011 and on the Speed 6-B well in January 2012.9 The trial court found that "no one really knows why production ceased [because] .... [a]ll [of Marion Energys] principals are gone and are probably bankrupt."10 But one witness who formerly worked for Marion Energy postulated that the wells were not very productive after Marion Energy replaced jack pumps with plunger lifts and that this poor production technique ultimately resulted in the repossession of Marion Energys rented compressors that had allowed it to market to a buyer who owned a high-pressure line to north of the field.11
[¶5] The seventh well, the Dalton Counts 1-16 well, produced and marketed 1,675 Mcf of natural gas during its six months of operation. Marion Energy stopped pumping gas out of the Dalton Counts 1-16 well in May 2008.12 This shut-down occurred during the primary term of seven of the eight relevant leases; the eighth lease had just passed into its secondary term after a short six-month primary term.13 Again, the particular reason for the shut-down was unclear.14
[¶6] Within a few months of all wells being shut down, Marion Energy was looking to offload all of its assets in Beckham and Greer Counties. In the spring of 2012, Marion Energy
contacted Galmor about its desire to sell the seven wells at issue, approximately fifty other wells, and a gas-gathering system for $2,000,000. Galmor declined the offer because of the price.15 By December 2013, Marion Energy had also approached Appellant E.L. "Bo" Hall d/b/a Hall Family Production ("Hall").16 Although Hall was interested in purchasing the seven wells at issue in this lawsuit, he did not wish to buy any of the other assets. Marion Energy, however, was not interested in selling its assets in piecemeal fashion. Instead, Hall suggested that Marion Energy approach one of his investors, James Steedly of Triple "S" Gas, Inc.17 In early 2014, Marion Energy apparently lowered its asking price to $200,000 for all potential buyers.18 Galmor inspected all the wells being sold in January 2014, but put everything on hold once it appeared someone else might buy the wells. During February and March 2014, Triple "S" Gas directed Hall to exercise due diligence by inspecting the public record on Marion Energys leases and production records.20 Hall notified Marion Energy on April 22, 2014, that Triple "S" Gas was not interested in pursuing acquisition of Marion Energys assets "due to issues surrounding the marketability of title to the underlying leases and Marion Energys failure to market the product and/or pay shut-in royalties for the last three years."21 Five months later, on October 4, 2014, Galmor and Marion Energy signed an agreement for the purchase of all assets at the reduced price, and the Corporation Commission transferred operations to Galmor on October 30, 2014.22
[¶7] Despite his refusal of Marion Energys proposed deal, Halls quest for Marion Energys property did not end in April 2014. Between April and June, Hall secured and recorded "top leases" from fifteen mineral owners that covered many of the same lands covered by Marion Energys fourteen "bottom leases" on which the seven wells are located.23 The trial court found that "it is more probably true than not that plaintiff Hall was purchasing new leases from the royalty owners at the same time he was negotiating with Marion Energy for a purchase of Marions interest."24 Hall pursued these leases because he apparently thought the seven wells at issue were capable of producing in paying quantities.25 In July 2014, Hall contacted Marion Energy to advise that he intended to take over operations of the seven wells and to ask Marion Energy about releasing its fourteen bottom leases. Marion Energy responded by letter dated July 23, 2014, asserting that it remained "the operator of record of the [seven] wells" and
that it continued to "own[ ] valid and existing oil and gas leases covering" them; Marion Energy also threatened legal action if Hall "attempt[ed] to access the well or exercise any purported lease rights." On October 23, 2014, Halls attorney sent a letter further outlining Halls position that Marion Energys leases were invalid but offering $20,000 in lieu of litigation.28 Twenty-one days later, Marion Energys attorney advised Halls attorney that Marion Energy had completed a sales transaction with a buyer who had taken over operations of the leases and wells at issue and suggested that future correspondence be directed to that new operator, Galmor.29 Hall subsequently made the same overture to Galmor by letter dated November 21, 2014, offering $20,000 in lieu of litigation, but Halls overtures went unanswered.30 Hall then sent Galmor two demand letters pursuant to the Oklahoma Nonjudicial Marketable Title Procedures Act, 12 O.S. § § 1141.1 et seq., both of which went unanswered.31
[¶8] On February 26, 2015, Hall filed this suit against Galmor, seeking to invalidate Galmors leases, to quiet title in favor of his fifteen top leases, and to recover compensatory and punitive damages for an alleged slander of...
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