Spring Creek Exploration & Prod. Co. v. Hess Bakken Inv., II, LLC

• Decision Date: 10 April 2018
• Docket Number: No. 17-1010,17-1010
• Citation: 887 F.3d 1003
• Parties: SPRING CREEK EXPLORATION & PRODUCTION COMPANY, LLC; Gold Coast Energy, LLC, Plaintiffs-Appellants, v. HESS BAKKEN INVESTMENT, II, LLC, f/k/a TRZ Energy, LLC ; Statoil Oil & Gas, LP, f/k/a Brigham Oil & Gas, LP, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

887 F.3d 1003

SPRING CREEK EXPLORATION & PRODUCTION COMPANY, LLC; Gold Coast Energy, LLC, Plaintiffs-Appellants,

v.HESS BAKKEN INVESTMENT, II, LLC, f/k/a TRZ Energy, LLC ; Statoil Oil & Gas, LP, f/k/a Brigham Oil & Gas, LP, Defendants-Appellees.

No. 17-1010

United States Court of Appeals, Tenth Circuit.

Filed April 10, 2018

Opinion Revised April 13, 2018 Nunc Pro Tunc to April 10, 2018

Tamir I. Goldstein (John W. Mill and Joseph C. Daniels with him on the briefs), Sherman & Howard L.L.C., Denver, Colorado, for Plaintiffs-Appellants.

Cameron P. Pope, Andrews Kurth Kenyon LLP, Houston, Texas (Alexis J. Gómez, Andrews Kurth Kenyon LLP, Houston, Texas; Craig L. Stahl, Andrews Kurth Kenyon LLP, The Woodlands, Texas; and Frank C. Porada, Berenbaum Weinshienk PC, Denver, Colorado, with him on the briefs), for Defendant-Appellee Statoil Oil & Gas LP.

Robert S. Safi, Susman Godfrey L.L.P., Houston, Texas (Ashley L. McMillian and Abigail C. Noebels, Susman Godfrey L.L.P., Houston, Texas, and Elizabeth J. Hyatt, Ogborn Mihm, L.L.P., Denver, Colorado, with him on the briefs), for Defendant-Appellee Hess Bakken Investments II, LLC.

Before LUCERO, McKAY, and McHUGH, Circuit Judges.

ORDER

This matter is before us on Plaintiffs-Appellants' Petition for Panel Rehearing ("Petition") and Defendants-Appellees' responses thereto. Upon careful consideration of the Petition and the responses, we grant the Petition in part to the extent of the modifications in the attached revised opinion. Our February 21, 2018 opinion is withdrawn and replaced by the attached revised opinion.

Plaintiffs Spring Creek Exploration & Production Company, LLC ("Spring Creek") and Gold Coast Energy, LLC ("Gold Coast") appeal from four separate district court orders dismissing contract and tort claims against Defendants Hess Bakken Investments II, LLC ("Hess") and Statoil Oil & Gas, LP ("Statoil").¹ For reasons to follow, we affirm.

McHUGH, Circuit Judge.

I. BACKGROUND

A. Factual History

This case arises out of the oil fields of western North Dakota. Our story begins around January 2009, when Statoil entered into two agreements with a Hess affiliate. One of those agreements the parties call the "Rough Rider Agreement." The Rough Rider Agreement prohibited Hess for one year from acquiring any oil or gas interests in the Rough Rider Prospect (a sizable swath of land in North Dakota's McKenzie and Williams Counties) in exchange for Hess's affiliate receiving certain proprietary information from Statoil.

1. The Tomahawk Agreement

On October 8, 2009, still within the one-year non-compete period, Hess entered into a series of agreements (collectively, the "Tomahawk Agreement") with Spring Creek, Gold Coast, and non-party Coachman Energy relating to the Tomahawk Prospect, a collection of land lying entirely within the much larger Rough Rider Prospect. As one part of the Tomahawk Agreement, Spring Creek and Gold Coast sold all of their oil and gas leasehold interests (covering about 5,400 net acres) in the Tomahawk Prospect to Hess in exchange for an overriding royalty interest ("ORRI") in the hydrocarbons produced under the terms of the leases. The parties refer to this portion of the Tomahawk Agreement as the "First Assignment." Hess's plan for these leases was to drill enough exploratory wells to prove their value and then sell them to larger operators. Spring Creek's president, William Coleman, testified that, at the time of the Tomahawk transaction, he understood that Hess's intention was to "drill [the area] up and then sell it." Aplt. App'x, Vol. XXIII, at 3759, 234:14–21.

In another part of the Tomahawk Agreement, Spring Creek, Gold Coast and Hess executed the "Area of Mutual Interest Agreement." That agreement (the "AMI Agreement") established the entire Tomahawk Prospect as an Area of Mutual Interest ("AMI") for a term of three years. In relevant part, the AMI Agreement states:

During the term of the AMI, only [Hess] may proceed to lease or otherwise acquire interests within the AMI. If, during the term of the AMI, [Hess] should acquire any oil and gas lease, leasehold interest or mineral interest, [Hess] shall offer such interest to Coachman in the following proportions, [Hess] (90%), Coachman (10%), pursuant to that certain Participation Agreement dated October 8, 2009, by and between [Hess] and Coachman.

Id. at Vol. II, 304, § 1. The agreement further provides that "for any oil and gas lease acquired" by Hess in the AMI during the three-year term, Spring Creek and Gold Coast would receive ORRIs in those newly acquired leases, in addition to the ORRIs Spring Creek and Gold Coast were already slated to receive under the existing leases transferred to Hess in the First Assignment. Id.

Finally, the AMI Agreement contains two other clauses relevant to this dispute:

4. Covenant Running with the Land. This AMI and all rights, covenants and conditions hereof shall be considered covenants running with the land and shall inure to and be binding upon the Parties hereto, and their respective successors and assigns.

5. Confidentiality. The terms of this Agreement are confidential and no Party, nor any of its respective affiliates or representatives shall furnish this Agreement, or disclose any of its contents, to any third party.

Id. at 306.

2. Hess-Statoil Settlement Agreement

Hess's foray into the Tomahawk Prospect did not go unnoticed. On January 15, 2010, Statoil sent a letter to Hess alleging that Hess had breached the Rough Rider Agreement by acquiring leases in the Rough Rider Prospect during the non-compete period. That letter led to a February 2010 settlement agreement (the "Hess-Statoil Settlement Agreement"), in which Hess sold most of its Tomahawk Prospect leases to Statoil at a discount. Hess further agreed that any leases it acquired in the Tomahawk Prospect in the next three months would be offered to Statoil at cost (the "three-month tail"). In connection with Statoil's due diligence in executing the Hess-Statoil Settlement Agreement, Hess disclosed to Statoil the terms of the AMI Agreement and provided it with a copy. Statoil had no interest in inheriting Hess's obligations under the AMI Agreement. To that end, the Hess-Statoil Settlement Agreement states the assignment of leases from Hess to Statoil does "not include ... the Area of Mutual Interest Agreement dated October 8, 2009, among [Hess] ..., Spring Creek ... and Gold Coast." Id. at Vol. XXXIV, 5760, ¶ 2.

Neither Spring Creek nor Gold Coast was privy to the Hess-Statoil negotiations. After the agreement was finalized, however, Statoil publicly announced that it had acquired about 10,000 net acres in the Rough Rider Prospect. And on April 12, 2010, Hess and Statoil executed an Assignment, Bill of Sale and Conveyance (the "Second Assignment"), formally transferring the Tomahawk leasehold interests from Hess to Statoil. That conveyance was recorded four days later.

3. The Parties' Dealings After the Hess-Statoil Settlement Agreement

Pursuant to the AMI Agreement, Hess made three assignments to Spring Creek and Gold Coast of ORRIs in leases that Hess acquired in the Tomahawk Prospect. The first, completed in April 2010, included leases acquired through March 24, 2010. The second, sent to Plaintiffs in June 2010, included nine leases acquired through March 11, 2010. The third, sent to Plaintiffs in November 2010, only included leases acquired in 2009. All three assignments referenced "Brigham Leases," a reference to Statoil's predecessor, in the footer.

After the three-month tail in the Hess-Statoil Settlement Agreement expired, Hess notified its lease brokers to resume the hunt for leasing opportunities in the Tomahawk Prospect. Hess was presented at least one opportunity to acquire a lease in the Tomahawk Prospect, but declined to follow through because the lease was relatively small and Hess's strategy was to acquire acreage in larger quantities. Statoil, meanwhile, acquired many additional leases in the Tomahawk Prospect during this time, dozens of which were publicly recorded throughout 2010.

Although it is not clear exactly when Plaintiffs learned of the Hess-Statoil transaction, on September 13, 2010, Mark McPherson, Gold Coast's president, sent an email stating, "We sold Tomahawk to Randy, who flipped to [Hess] until [Statoil] came to [Hess] and claimed [Hess] violated an agreement and [Statoil] got to buy [the Tomahawk Prospect leases] from [Hess]." Id. at Vol. XXVII, 4764. At his deposition, Mr. McPherson was asked how he knew that Statoil purchased the Tomahawk Prospect leases from Hess. His answer: "I think Bill [Coleman, Spring Creek's president] told me." Id. at Vol. XXIV, 3990, 125:13–125:18. That answer is consistent with the testimony of Gold Coast's Rule 30(b)(6) deponent, Amy Pfannenstein. According to Ms. Pfannenstein, Gold Coast knew about the Hess-Statoil Settlement Agreement in September 2010, and Gold Coast learned about the agreement from Spring Creek. Id. at Vol. XXVII, 4672–73, 125:19–126:17.

B. Procedural History

This litigation began on December 13, 2013, when Spring Creek brought suit against Hess and Statoil in Colorado state court. The original complaint identified six claims for relief:

1. Breach of Contract (against Hess)

2. Breach of Contract (against Statoil)

3. Breach of the Implied Covenant of Good Faith and Fair Dealing (against Hess)

4. Tortious Interference with Contract (against Statoil)5. Fraudulent Concealment (against Hess and Statoil)

6. Civil Conspiracy (against Hess and Statoil)

Spring Creek attached three exhibits to its original complaint:

1. The First Assignment (part of the October 8, 2009, Tomahawk Agreement, by which Spring Creek and Gold Coast sold Tomahawk leases to Hess)

2. The AMI Agreement (also part of the Tomahawk Agreement, by which Spring Creek, Gold Coast, and Hess identified the Tomahawk area as one of mutual interest)

3. The Second Assignment (part of the Hess-Statoil Settlement, by which Hess assigned its Tomahawk leases to Statoil)

On January 17, 2014, Statoil...