Bays Exploration Inc. v. Pensa Inc.

• Decision Date: 11 February 2011
• Docket Number: No. CIV–07–754–D.,CIV–07–754–D.
• Citation: 771 F.Supp.2d 1289
• Parties: BAYS EXPLORATION, INC., a Texas corporation; Bays Energy Partners 2007 L.P., a Texas limited partnership, Plaintiffs,v.PENSA, INC., a Colorado corporation, Defendant.
• Court: U.S. District Court — Western District of Oklahoma

771 F.Supp.2d 1289

BAYS EXPLORATION, INC., a Texas corporation; Bays Energy Partners 2007 L.P., a Texas limited partnership, Plaintiffs,

v.PENSA, INC., a Colorado corporation, Defendant.

No. CIV–07–754–D.

United States District Court, W.D. Oklahoma.

Feb. 11, 2011.

David A. Elder, Matthew W. Brockman, William A. Johnson, Hartzog Conger Cason & Neville, Oklahoma City, OK, for Plaintiffs.Gregg R. Renegar, Kornfeld Franklin Renegar & Randall, Oklahoma City, OK, Thomas J. Kimmell, Zarlengo & Kimmell PC, Denver, CO, for Defendant.

ORDER

TIMOTHY D. DeGIUSTI, District Judge.

Before the Court is the Motion for Partial Summary Judgment [Doc. No. 190] of Plaintiff Bays Exploration, Inc. (“Bays”) ¹. Defendant PenSa, Inc. (“PenSa”) timely responded, and Bays filed a reply.

Background:

Bays brought this action to recover amounts allegedly due and owing by PenSa arising from the drilling and operation of several jointly owned oil and gas wells located in Oklahoma. Bays is the operator of certain jointly owned wells, and PenSa claims a non-operator/working interest in those wells. As more fully explained herein, Bays and PenSa executed letter agreements and joint operating agreements naming Bays the operator of the wells. In general, the joint operating agreements contain provisions governing the contracting parties' interests and the responsibilities, rights, and duties of the operator and non-operators; the agreements also contain provisions controlling the drilling and development of the subject wells. With respect to their drilling and exploration activities for the wells, Bays and PenSa also executed a letter agreement known as an Area of Mutual Interest Letter Agreement, which also prescribes certain rights and obligations of the contracting parties.

Pursuant to these agreements, Bays began drilling and operating several wells. Ultimately, disputes developed between Bays and PenSa regarding their respective rights and obligations. As more specifically explained herein, Bays contends PenSa failed to timely elect to participate in certain wells, thereby relinquishing its interests in those wells; PenSa argues its elections were timely and/or any delayed election is excused by the parties' agreements or Bays's improper conduct. In addition, PenSa failed to pay certain joint interest billings on wells in which it elected to participate; it contends payment was excused for various reasons including, inter alia, improper or excessive charges and Bays's failure to fulfill its obligations under the agreements. PenSa also challenged the propriety of Bays's sale of its interests in the jointly owned wells and properties to Plaintiff Bays Energy Partners 2007, L.P. (“Bays Energy Partners”).

Bays and Bays Energy Partners filed this lawsuit asserting ten claims for relief; in its counterclaims, PenSa asserts fifteen claims for relief. The claims and counterclaims involve two general topics: 1) Bays's operation of the jointly owned wells and properties; and 2) the effect of Bays's sale of its interests in the jointly owned wells and properties to Bays Energy Partners. In its motion, Bays seeks partial summary judgment only with respect to some of the claims and counterclaims related to the first category. In general, its claims in that category ² assert a breach of contract based on PenSa's failure to pay amounts represented by some joint interest billings and seek declaratory judgments regarding the legal consequences of PenSa's actions or inactions as a non-operator of specific wells. Bays also seeks foreclosure of an operator's lien regarding certain properties. PenSa's counterclaims related to the first topic include claims that Bays breached its obligations as operator in numerous specific ways. It also seeks declaratory judgments that PenSa's failure to elect to participate in certain wells and its failure to pay some joint interest billings was proper and/or warranted by Bays's allegedly improper conduct. PenSa also seeks an accounting by Bays as well as an order directing Bays to provide PenSa with certain well and seismic information. PenSa further alleges that Bays breached both a fiduciary duty and a duty of good faith and fair dealing, and seeks damages attributable to such breaches. In addition, PenSa asserts a quiet title claim to certain properties and seeks removal of Bays as operator.

In its motion for partial summary judgment, Bays does not seek judgment on all claims asserted against PenSa; instead, its motion is limited to the following specific contentions:

1) PenSa's election to participate in the Konlee Jae No. 2–35 a/k/a Joey No. 1–35 Well was not timely and resulted in PenSa's classification as “non-consent” under the applicable Joint Operating Agreement (“JOA”);

2) PenSa affirmatively elected not to participate in the Brinlee Ann Marie No. 1–26 Well, thereby relinquishing its rights in that well, and it is not entitled to make a retroactive election to participate;

3) PenSa failed to respond to Bays's well proposals for three wells—the Wildhorse No. 1–26, the Sandra Kay No. 1–26, and the Maria No. 1–26, thereby relinquishing its right to participate in those wells, and it is not entitled to retroactively elect to participate;

4) PenSa failed to pay its proportionate share of the joint interest billings for wells in which it did participate, and that failure constitutes a breach of contract and an event of default under the JOAs;

5) Bays was entitled to suspend PenSa's rights as a result of the foregoing alleged defaults;

6) Bays has a valid and enforceable operator's lien which is superior to any right, title, or interest of PenSa in the subject wells and properties;

7) PenSa cannot, as a matter of law, recover on its counterclaim based on breach of fiduciary duty because Oklahoma does not recognize such a duty under these facts; and

8) PenSa cannot, as a matter of law, recover on its counterclaim of breach of a duty of good faith and fair dealing because Oklahoma does not recognize such a duty under these facts.

In response to the motion for partial summary judgment, PenSa argues that Bays is not entitled to judgment on any of these contentions. It asserts that there are material factual disputes precluding summary judgment.

Summary judgment standards:

Summary judgment is proper where the undisputed material facts establish that a party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A material fact is one which may affect the outcome of the suit under the governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247–48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). To dispute a material fact, the non-moving party must offer more than a “mere scintilla” of evidence; the evidence must be such that “a reasonable jury could return a verdict” in its favor. Id. “[T]he requirement that a dispute be ‘genuine’ means simply that there must be more than ‘some metaphysical doubt as to the material facts.’ ” Anderson, 477 U.S. at 260–261, 106 S.Ct. 2505 (quoting Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)). The facts and reasonable inferences therefrom must be viewed in the light most favorable to the non-moving party. MacKenzie v. City & County of Denver, 414 F.3d 1266, 1273 (10th Cir.2005).

If the undisputed facts establish that a party cannot prove an essential element of a cause of action, the movant is entitled to judgment on that cause of action. Celotex, 477 U.S. at 322, 106 S.Ct. 2548. However, a party seeking summary judgment need not disprove the opposing party's claim; it must only point to “a lack of evidence” on an essential element of that claim. United States v. AMR Corp., 335 F.3d 1109, 1113 (10th Cir.2003); Adler v. Wal–Mart Stores, Inc., 144 F.3d 664, 671 (10th Cir.1998). The burden then shifts to the claimant to go beyond the pleadings and present facts, admissible in evidence, from which a rational trier of fact could find in its favor; conclusory arguments are insufficient, as the facts must be supported by affidavits, deposition transcripts, or specific exhibits incorporated therein, and it is not the Court's responsibility to attempt to find evidence in the record which could support a claimant's position. Adler, 144 F.3d at 671–72.

The record before the Court:

The parties' briefs include an extensive discussion of the facts underlying this action and the application of Oklahoma law, which the parties agree governs this dispute, to those facts. The parties have also submitted a voluminous record containing extensive documents for the Court's review. In support of its motion, Bays lists numerous facts which it contends are undisputed. Although PenSa disputes some factual statements, numerous facts are expressly undisputed, and the parties' arguments focus primarily on the legal consequences of those facts.

The parties agree that, on or about April 12, 2005, they executed a letter agreement regarding oil and gas wells in an area known as the Treasure Valley North Prospect; the agreement was an Area of Mutual Interest Agreement (“Treasure Valley AMI agreement”). It was executed for the purpose of acquiring oil and gas leasehold and mineral interests in certain lands located in Garvin County and Murray County, Oklahoma.

The Treasure Valley AMI agreement provides, in pertinent part, that Bays shall be the operator of the properties covered therein, that the oil and gas leases acquired are subject to a Model Form Operating Agreement, also known as a JOA, and that, in the event of a conflict between the Treasure Valley JOA and the Treasure Valley AMI agreement, the terms of the AMI agreement shall prevail. The Treasure Valley AMI agreement also provides that, following the drilling and completion of the initial test well, the first subsequent well in the prospect will not be commenced until 90 days after the date...