DOUBLE EAGLE PETROLEUM & MINING CORPORATION v. QUESTAR …, 02-265.

• Citation: 78 P.3d 679,2003 WY 139
• Decision Date: 30 October 2003
• Docket Number: No. 02-265.,02-265.
• Parties: DOUBLE EAGLE PETROLEUM & MINING CORPORATION, a Wyoming corporation; and Wind River Resources, Inc., a Wyoming Corporation, Appellants (Plaintiffs), v. QUESTAR EXPLORATION & PRODUCTION COMPANY, a Texas corporation; Wexpro Company, a Utah corporation; Lance Oil & Gas Company, Inc., a Delaware corporation; and Ultra Resources, Inc., a Wyoming corporation, Appellees (Defendants).
• Court: United States State Supreme Court of Wyoming

78 P.3d 679

2003 WY 139

DOUBLE EAGLE PETROLEUM & MINING CORPORATION, a Wyoming corporation; and Wind River Resources, Inc., a Wyoming Corporation, Appellants (Plaintiffs), v. QUESTAR EXPLORATION & PRODUCTION COMPANY, a Texas corporation; Wexpro Company, a Utah corporation; Lance Oil & Gas Company, Inc., a Delaware corporation; and Ultra Resources, Inc., a Wyoming corporation, Appellees (Defendants).

No. 02-265.

Supreme Court of Wyoming.

October 30, 2003.

Representing Appellant: Mark W. Gifford and Craig, Newman, Casper, WY.

Representing Appellee: Mr. Thomas Reese of Brown, Drew & Massey, LLP, Casper, WY for Questar Exploration & Production Co. & Wexpro Co.; Mr. R. Michael Mullikin of Mullikin, Larson & Swift, Jackson, WY and Gary C. Davenport of McGloin, Davenport, Severson & Snow, Denver, CO for Lance Oil & Gas Co.; and Mr. Gerald Mason of Mason & Mason, P.C., Pinedale, WY and George W. Mueller of Burns, Wall, Smith & Mueller, P.C., Denver, CO for Ultra Resources.

Before HILL, C.J., and GOLDEN, LEHMAN, and VOIGT, JJ., and BROOKS, D.J LEHMAN, Justice.

[¶ 1] At issue in this case is the meaning and effect of two assignments of federal oil and gas leases. The assignments both carved out and reserved a 3.125 percent overriding royalty interest in the leases. At trial, the district court found that the assignments were ambiguous and, therefore, considered extrinsic evidence of the parties' intent when entering into the assignments. Ultimately, the district court found that the parties intended the 3.125 percent overriding royalty interest in the leases to be proportionately reduced to reflect that at the time the assignments were made the assignor was the owner of a 20 percent working interest in the leases. Thus, only a .625 percent overriding royalty interest in the leases was effectively assigned. We affirm.

ISSUES

[¶ 2] Appellants, Double Eagle Petroleum & Mining Corporation and Wind River Resources, Inc., set forth the following issues:

1. Is there any ambiguity in written assignments of oil and gas leases that reserve to the assignor a "3-1/8% of 8/8ths" overriding royalty interest?

2. Under the doctrine of merger, was it error for the trial court to use a collateral agreement to structure an ambiguity in the written assignments?

3. Did the trial court err when it utilized expert testimony to structure an ambiguity in the written assignments?

4. Did the trial court err when it gleaned the parties' intent from documents generated years after the written assignments?

5. Did the trial court err when, in the absence of any claim under the Wyoming Recording Act, it found that Appellants had notice of title problems regarding the overriding royalty interests at issue?

FACTS AND HISTORICAL BACKGROUND

[¶ 3] Prior to 1978, Hondo Oil and Gas Company (Hondo) became the owner of a 20 percent carried working interest in the subject oil and gas leases. In 1978, Hondo and El Paso Natural Gas Company (El Paso) entered into an agreement which in part conveyed the involved leases but reserved to Hondo certain overriding royalty interests. Pursuant to the 1978 agreement, Hondo provided separate assignments for each lease at issue. These assignments on Bureau of Land Management forms state that Hondo, "as owner of 20 percent of record title" in each lease, "hereby transfers and assigns" to El Paso its interests in the leases, reserving to Hondo an overriding royalty of "3 1/8% of 8/8ths."

[¶ 4] In 1980, a Unit Agreement for the development and operation of the Mesa Unit, which encompasses the lands described in the leases, was executed naming Mountain Fuel Supply Company (Mountain Fuel) as operator. Mountain Fuel then changed its name to Wexpro Company (Wexpro). Hondo was then merged into its parent company, Atlantic Richfield Company (ARCO). In 1991, Double Eagle Petroleum & Mining Corporation (Double Eagle) acquired an assignment from ARCO of its interest in the leases. In 1997, Double Eagle conveyed one-half of its interest in the leases to Wind River Resources, Inc. (Wind River).¹

[¶ 5] A dispute then arose between appellants and Wexpro as to the amount of overriding royalty interest in the leases held by appellants, which resulted in the instant litigation being filed. Upon trial concerning solely those claims involving declaratory relief, the district court ruled that appellants' overriding royalty interest in the leases was proportionally reduced to .625 percent by the 20 percent interest out of which it was created. This appeal followed.

STANDARD OF REVIEW

[¶ 6] After trial, the district court issued specific findings of fact and conclusions of law. In Ahearn v. Hollon, 2002 WY 125, ¶ 15, 53 P.3d 87, ¶ 15 (Wyo.2002) (quoting Hutchings v. Krachun, 2002 WY 98, ¶ 10, 49 P.3d 176, ¶ 10 (Wyo.2002)), this court reiterated our applicable standard of review:

The purpose of specific findings of fact is to inform the appellate court of the underlying facts supporting the trial court's conclusions of law and disposition of the issues. Hopper v. All Pet Animal Clinic, Inc., 861 P.2d 531, 538 (Wyo.1993). While the findings of fact made by a trial court are presumptively correct, we examine all of the properly admissible evidence in the record. Because this court does not weigh the evidence de novo, findings may not be set aside because we would have reached a different result. Rather, the appellant has the burden of persuading the appellate court that the finding is erroneous. Id. See also Maycock v. Maycock, 2001 WY 103, ¶ 11, 33 P.3d 1114, ¶ 11 (Wyo.2001). Findings of fact are not set aside unless inconsistent with the evidence, clearly erroneous, or contrary to the great weight of the evidence. The definitive test of when a finding of fact is clearly erroneous is when, although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed. A determination that a finding is against the great weight of the evidence means that a finding will be set aside even if supported by substantial evidence. Id. See also Mathis v. Wendling, 962 P.2d 160, 163 (Wyo.1998). Conclusions of law made by the trial court are not binding on this court and are reviewed de novo. Maycock, ¶ 12.

[¶ 7] We have also stated:

In contract litigation, when the terms of the agreement are unambiguous, the interpretation is a question of law.... Examination Management Services, Inc. v. Kirschbaum, 927 P.2d 686, 689 (Wyo.1996); Union Pacific Resources Co. v. Texaco, Inc., 882 P.2d 212, 218-19 (Wyo.1994). Whether a contract is ambiguous is a question of law for the reviewing court. Prudential Preferred Properties v. J and J Ventures, Inc., 859 P.2d 1267, 1271 (Wyo. 1993). We review questions of law de novo without affording deference to the decision of the district court. Hermreck v. United Parcel Service, Inc., 938 P.2d 863, 866 (Wyo.1997); Griess v. Office of the Atty. Gen., Div. of Criminal Investigation, 932 P.2d 734, 736 (Wyo.1997).

According to our established standards for interpretation of contracts, the words used in the contract are afforded the plain meaning that a reasonable person would give to them. Doctors' Co. v. Insurance Corp. of America, 864 P.2d 1018, 1023 (Wyo.1993). When the provisions in the contract are clear and unambiguous, the court looks only to the "four corners" of the document in arriving at the intent of the parties. Union Pacific Resources Co., 882 P.2d at 220; Prudential Preferred Properties, 859 P.2d at 1271. In the absence of any ambiguity, the contract will be enforced according to its terms because no construction is appropriate. Sinclair Oil Corp. v. Republic Ins. Co., 929 P.2d 535, 539 (Wyo.1996); Prudential Preferred Properties, 859 P.2d at 1271.

Amoco Prod. Co. v. EM Nominee Partnership Co., 2 P.3d 534, 540 (Wyo.2000).

[¶ 8] We add this supplementation of that standard of review:

Our primary focus in construing or interpreting a contract is to determine the parties' intent, and our initial inquiry centers on whether the language of the contract is clear and unambiguous. If the language of the contract is clear and unambiguous, then we secure the parties' intent from the words of the agreement as they are expressed within the four corners of the contract. Common sense and good faith are leading precepts of contract construction, and the interpretation and construction of contracts is a matter of law for the courts. Reed, ¶ 10, 18 P.3d 1161. We have also recognized that the language of a contract is to be construed within the context in which it was written, and the court may look to the surrounding circumstances, the subject matter, and the purpose of the contract to ascertain the intent of the parties at the time the agreement was made. Polo Ranch Company v. City of Cheyenne, 969 P.2d 132, 136 (Wyo.1998).

Williams Gas Processing—Wamsutter Company v. Union Pacific Resources Company, 2001 WY 57, ¶ 12, 25 P.3d 1064, ¶ 12 (Wyo.2001); also see Boley v. Greenough, 2001 WY 47, ¶ 11, 22 P.3d 854, ¶ 11 (Wyo.2001) ("In interpreting unambiguous contracts involving mineral interests, we have consistently looked to surrounding circumstances, facts showing the relations of the parties, the subject matter of the contract, and the apparent purpose of making the contract."); and Newman v. RAG Wyoming Land Company, 2002 WY 132, ¶¶ 11-12, 53 P.3d 540, ¶¶ 11-12 (Wyo. 2002).

However, if the meaning of a contract is ambiguous or not apparent, it may be necessary to use evidence in addition to the contract itself in order to determine the intention of the parties. In such instances, interpretation of the contract becomes a mixed question of law and fact. Wilder v. Cody Country Chamber of Commerce, 868 P.2d 211, 216 (Wyo.1994); Alexander v. Phillips Oil Company, 707 P.2d 1385, 1387 (Wyo.1985):

If the contract is ambiguous, the intent of the parties may be determined by resort to extrinsic evidence. Rouse, 658 P.2d at 78; Mountain Fuel

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