Burg v. Ruby Drilling Co., Inc.
| Decision Date | 27 November 1989 |
| Docket Number | Nos. 88-220,88-221,s. 88-220 |
| Citation | 783 P.2d 144 |
| Parties | Bob BURG and Fred W. Boekel, d/b/a Lakota Partnership, Appellants (Defendants), v. RUBY DRILLING CO., INC., Jesse Dale Ruby and Max L. Ruby, Appellees (Plaintiffs). RUBY DRILLING CO., INC., Jesse Dale Ruby and Max L. Ruby, Appellants (Plaintiffs), v. Bob BURG and Fred W. Boekel, d/b/a Lakota Partnership, Appellees (Defendants). |
| Court | Wyoming Supreme Court |
David D. Uchner, Cheyenne, and Peter A. Bjork and Gregory Danielson of Poulson, Odell & Peterson, Denver, Colo., for appellants in case No. 88-220 and appellees in case No. 88-221.
Michael A. Maycock of Michael A. Maycock, P.C., Gillette, for appellees in case No. 88-220 and for appellants in case No. 88-221.
Before CARDINE, C.J., THOMAS, URBIGKIT and GOLDEN, JJ., and BROWN, J., retired.
This is an appeal and cross-appeal from a judgment generally in favor of an oil and gas drilling company, Ruby Drilling Company, Inc., (Ruby), Jessie Dale Ruby (Dale Ruby), and Max L. Ruby as individuals, in their action to recognize and enforce certain terms of a written agreement and an alleged oral agreement with an oil and gas partnership consisting of Bob Burg, Fred Boekel, and others d/b/a Lakota Partnership (Lakota), which owned the working interest in three oil and gas leases in Crook County, Wyoming. Also involved was Peter Young who had dealt with both Ruby and Lakota on those leases. Ruby sought to recover both development and operating costs incurred while working the properties under the written agreement, as well as assignments of certain undivided interests in some of the leases under the alleged oral agreement.
As will be explained in more detail later, the trial judge, after a bench trial and several post-trial hearings, ordered Lakota to assign Ruby and Max L. Ruby each a 20% working interest in two of the disputed leases. The trial judge granted: (1) Ruby a lien upon Lakota's interests in both of those leases for pre-production development costs in the sum of $42,462.14; (2) Ruby $15,120 in post-production operating expenses from Lakota under a theory of quantum meruit; (3) Ruby $1,718.74 for Lakota's share of ad valorem taxes on production from one of the leases which was advanced by Ruby; and (4) Ruby $7,500 from Lakota for attorney fees associated with the lien issues under W.S. 29-3-103, plus $783.55 for costs. Finally, the judge ordered that the judgment shall constitute a decree of foreclosure of Lakota's working interests in Lease nos. 1 and 2. Proceeds of the sheriff's foreclosure sale were to be applied to the judgment, costs and expenses with any excess divided between the parties 60% to Lakota and 40% to Ruby and the individual plaintiffs. The trial judge refused to award Ruby or the individual plaintiffs: (1) as development costs, any money for the value of Ruby's equipment destroyed in a rig fire (which occurred during the development phase of work under the written agreement between the parties); (2) an assignment of a working interest in the so-called Federal lease; and (3) an additional $3,549.45 in attorney's fees under the lien issues.
In its appeal in case no. 88-220, Lakota seeks reversal of that part of the trial court's judgment granting Ruby an oil and gas lien for pre-production development costs of $42,462.14 upon Lakota's working interest in the two leases, rather than on production revenues as set forth in the written agreement. Lakota argues that, under the terms of the parties' express contract, if an oil and gas lien attaches at all, it attaches only to production revenues and should not require foreclosure and sale of Lakota's entire working interest in the two leases. Additionally, Lakota claims the trial court's written judgment failed to treat Lakota's 40% working interest in those two leases under the written agreement separately from appellant Peter Young's 20% working interest in those leases under that same agreement. Lakota argues this point in light of evidence in the record indicating an oral agreement between Young and Ruby under the purported terms of which Young paid certain sums In contrast, in its cross-appeal in case no. 88-221, Ruby and Max Ruby seek to reverse those parts of the trial court's judgment refusing: (1) to grant Ruby an assignment of an interest in the so-called Federal lease; (2) to award Ruby the value of its equipment destroyed in the rig fire, and (3) to award Ruby an additional $3,549.45 in attorney fees. 2
of money to Ruby for Ruby's rendering of certain services. Lakota asserts that, based on the evidence presented at trial, it remains unclear whether Young's oral agreement with Ruby was effective both before and after payout of production costs on the leases and was applicable to both pre-production development costs and post-production operating expenses. Consequently, Lakota asks this court to remand the case for additional findings of fact relating to: (1) determining the precise terms of the oral agreement between Young and Ruby; (2) conducting an accounting of payments made to Young and of payments Young made to Ruby; and (3) determining the date on which Young transferred his 20% working interest in a state lease to Lakota in exchange for an interest in a Federal lease. 1
Comparing the foregoing appellate issues with the trial court's judgment, we conclude that neither party appeals from those features of the judgment awarding Ruby only 60% of the total development costs, awarding Ruby 100% of the operating costs on a quantum meruit basis, awarding Ruby a working interest in two of the disputed leases, awarding Ruby 60% of the ad valorem taxes it advanced on Lakota's behalf, and awarding Ruby costs of $783.55.
In case no. 88-220, which is Lakota's appeal, we hold that the lien statute has no application to this set of facts. Accordingly, we reverse and remand those portions of the judgment ordering foreclosure and sale of Lakota's working interests in two of the disputed leases to satisfy the oil and gas lien. On remand the district court shall accomplish the appropriate division of the production revenues through the application of the parties' contract. We affirm on the remaining issues. In case no. 88-221, which is Ruby's appeal, we affirm the district court's decisions not to require Lakota to assign Ruby an interest in the federal lease and not to allow Ruby to recover its losses on equipment destroyed in the rig fire. Since we hold that the lien statute does not apply, we reverse and vacate the award of attorney's fees to Ruby. All other aspects of the judgment are affirmed.
The specific oil and gas leases involved here are located in the Tomcat Oil Field in Crook County, Wyoming. They include:
(1) an August 1, 1983, lease covering the SW 1/4NE 1/4NW 1/4SE 1/4 of Section 15, Township 49 North, Range 65 West, 6th P.M. (Lease no. 1); (2) a "top lease" over an expired July 26, 1983, lease covering the SW 1/4SE 1/4SE 1/4SW 1/4 of Section 10, Township 49 North, Range 65 West, 6th P.M. (Lease no. 2);
(3) a May 1, 1973, federal lease covering the NE 1/4SE 1/4 of Section 15, and the N 1/2SW 1/4 of Section 14, Township 49 North, Range 65 West, 6th P.M. (Federal lease).
Lakota and Ruby had been involved in previous dealings on the lands covered by Leases no. 1 and 2 with a man named Grady Perkins; both had been unable to get Perkins to pay his bills. Recognizing that they were losing money to Perkins, Lakota and Ruby began negotiating an agreement that might allow each of them to recover their losses. While Lakota and Ruby were negotiating, Ruby began drilling and reworking wells on the lands covered by Lease no. 1. On August 31, 1983, Lakota submitted two written agreements to Ruby concerning the lands covered by Lease no. 1 and nearby land covered by Lease no. 2. Dale Ruby, acting for Ruby, made written amendments on these agreements, initialed the changes, and returned them to Lakota; Lakota did not agree to those amendments and no contract was reached. On September 28, 1983, Lakota assigned Ruby an undivided 20% interest in Lease no. 1.
Between the fall of 1983 and the spring of 1984, Lakota executed a number of assignments of the working interests in a group of leases covering lands near those at issue in this case. Some of these assignments granted Pete Young, Dale Ruby, 3 and Max Ruby each a 16.66% working interest and others granted the same three individuals each a 20% working interest. One of the assignments also contains a United States Bureau of Land Management designation of Ruby as the operator of that particular lease. Ruby would later contend that these assignments evidenced an oral agreement between Lakota and Ruby to assign Dale Ruby d/b/a Ruby, Max Ruby, and Pete Young similar interests in Lease no. 2 and the Federal lease. There was also evidence that Ruby had posted a state water pollution control discharge permit bond for a water discharge pit on the Federal lease.
The parties finally reached an agreement concerning Lease no. 1 and put it in a writing dated May 18, 1984. That document was a hybrid agreement involving aspects of both a farmout agreement and an operating agreement. It provided that Dale Ruby d/b/a Ruby Drilling Company, Inc., would be the operator, that Lakota was the owner, and that Ruby, Max Ruby and Pete Young each owned a 17.1% working interest in that lease. Under the agreement, Ruby was to drill or rework ten wells on the Lease no. 1 lands and the parties agreed to the following formula for division of production and recovery of development expenses associated with bringing those wells into production:
5. [Lakota] agrees to allow [Ruby] to recover all of its costs and expenses of drilling, testing, completing, equipping and placing wells on production * * * revenues as set forth below:
(a) On production obtained prior to payout and after payout:
PARTY PERCENTAGE INTEREST
Gene L. Payne) 12.5 of 8/8 Fee Royalty
Sylvia Levinson)
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