Bedore v. Ranch Oil Co.

• Decision Date: 14 October 2011
• Docket Number: No. S–10–912.,S–10–912.
• Citation: Bedore v. Ranch Oil Co., 282 Neb. 553, 805 N.W.2d 68 (Neb. 2011)
• Parties: Marlene BEDORE, Personal Representative of the Estate of George John Vlasin, deceased, et al., appellees and cross-appellants, v. RANCH OIL COMPANY, a Colorado corporation, and Bellaire Oil Company, a Colorado corporation, appellants and cross-appellees.
• Court: Nebraska Supreme Court

282 Neb. 553

805 N.W.2d 68

Marlene BEDORE, Personal Representative of the Estate of George John Vlasin, deceased, et al., appellees and cross-appellants,

v.RANCH OIL COMPANY, a Colorado corporation, and Bellaire Oil Company, a Colorado corporation, appellants and cross-appellees.

No. S–10–912.

Supreme Court of Nebraska.

Oct. 14, 2011.

Syllabus by the Court

1. Summary Judgment: Appeal and Error. An appellate court will affirm a lower court's grant of summary judgment if the pleadings and admitted evidence show that there is no genuine issue as to any material facts or as to the ultimate inferences that may be drawn from the facts and that the moving party is entitled to judgment as a matter of law.

2. Contracts: Judgments: Appeal and Error. The meaning of a contract is a question of law, in connection with which an appellate court has an obligation to reach its conclusions independently of the determinations made by the court below.

3. Damages: Judgments: Appeal and Error. With respect to damages, an appellate court reviews the trial court's factual findings under a clearly erroneous standard of review.

4. Judgments: Costs: Appeal and Error. The standard of review for an award of costs is whether an abuse of discretion occurred.

5. Appeal and Error. Appellate courts do not generally consider arguments and theories raised for the first time on appeal.

6. Contracts: Mines and Minerals. Where the parties have bargained for and agreed on a time period for a temporary cessation clause, the agreed-on time period will control over the common-law doctrine of temporary cessation allowing a reasonable time for resumption of drilling operations.

7. Leases: Mines and Minerals. Oil and gas leases are to be strictly construed against the lessee and in favor of the lessor.

8. Contracts. The fact that the parties have suggested opposing meanings of a disputed instrument does not necessarily compel the conclusion that the instrument is ambiguous.

9. Evidence: Appeal and Error. An appellate court cannot consider as evidence statements made by the parties at oral argument or in briefs, as these are matters outside the record.

10. Contracts. A court is not free to rewrite a contract or to speculate as to terms of the contract which the parties have not seen fit to include.

11. Leases: Mines and Minerals: Waiver: Time. In oil and gas leases, it is well established that the acceptance of royalties by a lessor after the expiration of the primary term does not waive expiration of the lease or estop the landowner from claiming the lease is no longer valid.

12. Damages: Appeal and Error. An award of damages may be set aside as excessive or inadequate when, and not unless, it is so excessive or inadequate as to be the result of passion, prejudice, mistake, or some other means not apparent in the record.

13. Damages. The trier of fact may award only those damages which are the probable, direct, and proximate consequences of the wrong complained of.

14. Damages: Proof. A plaintiff's burden to prove the nature and amount of its damages cannot be sustained by evidence which is speculative and conjectural.

15. Damages: Proof. A claim for lost profits must be supported by some financial data which permit an estimate of the actual loss to be made with reasonable certitude and exactness.

16. Attorney Fees. If an attorney seeks a fee for his or her client, that attorney should introduce at least an affidavit showing a list of the services rendered, the time spent, and the charges made.

17. Rules of the Supreme Court: Pretrial Procedure: Appeal and Error. A ruling under Neb. Ct. R. Disc. § 6–326(b)(4)(C)(i) is reviewed for an abuse of discretion.

R.K. O'Donnell and James R. Korth, of McGinley, O'Donnell, Reynolds & Korth, P.C., L.L.O., Ogallala, for appellants.

Nancy S. Johnson, of Conway, Pauley & Johnson, P.C., and Thomas M. Rhoads, of Glaves, Irby & Rhoads, Wichita, KS, for appellees.

HEAVICAN, C.J., WRIGHT, CONNOLLY, GERRARD, STEPHAN, McCORMACK, and MILLER–LERMAN, JJ.

McCORMACK, J.

I. NATURE OF CASE

George John Vlasin and Betty L. Vlasin, husband and wife, leased the oil and gas rights to their land to Bellaire Oil Company and its affiliate, Ranch Oil Company (collectively Ranch Oil). Ranch Oil operated on one-half of the land described in the lease. Byron E. Hummon, Jr., owner of Hummon Corporation (collectively Hummon), operated on the other one-half of the lease. After the primary term of the lease expired and the wells stopped producing oil, George and Betty entered into a new lease agreement with Hummon which encompassed the entirety of their land. Upon learning of the agreement, Ranch Oil took action to revive one of its dormant wells by drilling out the plug and inserting pumping equipment. Ranch Oil relied on a savings provision of the lease, which stated that “this lease shall not terminate provided lessee commences operations for drilling a well within sixty (60) days from such cessation.” George and Betty did not believe Ranch Oil's actions saved the lease and, joined by Hummon, brought suit against Ranch Oil in 2005 for declaratory judgment, trespass, and conversion. After George's death in October 2008, Marlene Bedore was appointed as personal representative of George's estate. We will collectively refer to George (later Bedore), Betty, and Hummon as “the plaintiffs.” The court ruled in favor of the plaintiffs, but awarded only nominal damages. Ranch Oil appeals, and the plaintiffs cross-appeal.

II. BACKGROUND

1. Leases

In 1980, George and Betty entered into an oil and gas lease with Murphy Minerals Corporation for approximately 1,052 acres of their land in Hayes County, Nebraska (Murphy–George/Betty lease). The Murphy–George/Betty lease was for a term of 10 years,

and as long thereafter as oil, gas, casinghead gas, casinghead gasoline, condensate, or any of the products covered by [the Murphy–George/Betty] lease is, or can be, produced, and as long as provided in paragraphs 11, 12 and 14, and as long as any of the rights granted hereby are being exercised by lessee. Paragraph 14 subjects the Murphy–George/Betty lease to all federal and state laws and regulations. Paragraph 11 provides:

Notwithstanding anything in [the Murphy–George/Betty] lease contained to the contrary, it is expressly agreed that if lessee shall commence operations for drilling at any time while [the Murphy–George/Betty] lease is in force, [it] shall remain in force and its term shall continue so long as such operations are prosecuted and, if production of any of the minerals covered by [the Murphy–George/Betty] lease results therefrom, then as long as such production continues.

Paragraph 12 states:

If within the primary term of [the Murphy–George/Betty] lease, production on the leased premises shall cease from any cause, [the Murphy–George/Betty] lease shall not terminate provided operations for the drilling of a well shall be commenced before or on the next ensuing rental paying date; or provided lessee begins or resumes the payment of rentals in the manner and amount hereinbefore provided. If after the expiration of the primary term of [the Murphy–George/Betty] lease, production on the leased premises shall cease from any cause, [the Murphy–George/Betty] lease shall not terminate provided lessee commences operations for drilling a well within sixty (60) days from such cessation, and [the Murphy–George/Betty] lease shall remain in force during the prosecution of such operations, and if production of any of the minerals covered by [the Murphy–George/Betty] lease results therefrom, then as long as such production continues.

At the same time, George's brother, Joseph Peter Vlasin, and his wife, Doris M. Vlasin, entered into a similar lease agreement with Murphy Minerals Corporation for their adjoining land.

2. Assignment of Leaseholds

In 1986, Harvard Petroleum Corporation, successor in interest to Murphy Minerals Corporation, assigned its lease with Joseph and Doris to Hummon (Hummon–Joseph/Doris interest). Harvard Petroleum Corporation also assigned to Hummon approximately one-half of the 1980 Murphy–George/Betty lease (Hummon–George/Betty interest). The other one-half of the Murphy–George/Betty lease was retained by Harvard Petroleum Corporation. In 1999, this one-half interest of the Murphy–George/Betty lease was conveyed to Ranch Oil (Ranch Oil–George/Betty interest).

3. Pooling Agreement and Wells

Hummon drilled and operated two wells on the Hummon–George/Betty interest: well No. 1, drilled in 1985, and well No. 2, drilled in 1987. Hummon drilled one well on the Hummon–Joseph/Doris interest, well No. 1–34, in 1987. Hummon also drilled and maintained other wells in the area under leases with neighboring landowners.

Ranch Oil operated three wells on the Ranch Oil–George/Betty interest. Well No. 34–22 was drilled in 1989. Well No. 34–23 was drilled in 1986. Well No. 34–31 was drilled in 1990. These wells were drilled by its predecessor in interest, Harvard Petroleum Corporation.

(a) Pooling Agreement

Before Hummon was able to drill well No. 1–34 in 1987, the Vlasin parties entered into a pooling agreement so that well No. 1–34 would be within a 40–acre legal subdivision, as required by the rules and regulations of the Nebraska Oil and Gas Conservation Commission (NOGCC).¹ The pooling agreement created a 40–acre “communitized area” for the production, storage, processing, and marketing of the oil and gas produced from the land on which well No. 1–34 would be located. The royalty proceeds from the oil production on communitized areas would be divided in proportion to the parties' relative acre contributions. The pooling agreement stated:

It is understood and agreed that ... well [No. 1–34] as previously described, if completed as a producing oil and/or gas well m[a]y be produced for the benefit of the parties hereto under the provisions of this pooling agreement ... and the production of oil and/or gas from said land shall constitute...