Enerquest Oil & Gas, LLC v. Exploration

• Decision Date: 07 November 2013
• Docket Number: No. SA:12–CV–542–DAE.,SA:12–CV–542–DAE.
• Citation: 981 F.Supp.2d 575
• Parties: ENERQUEST OIL & GAS, LLC, and Chieftain Energy, LLC, Plaintiffs, v. PLAINS EXPLORATION & PRODUCTION COMPANY, EOG Resources Inc., Denis Brysch, Rachel Brysch, Lisa Ann Labus, Kevin V. Labus, Karen S. Brysch, Leonard Moy Jr., Edwin Moy, Diane Pape, Leroy Moy, and Adelene Manka, Defendants.
• Court: U.S. District Court — Western District of Texas

981 F.Supp.2d 575

ENERQUEST OIL & GAS, LLC, and Chieftain Energy, LLC, Plaintiffs,

v.PLAINS EXPLORATION & PRODUCTION COMPANY, EOG Resources Inc., Denis Brysch, Rachel Brysch, Lisa Ann Labus, Kevin V. Labus, Karen S. Brysch, Leonard Moy Jr., Edwin Moy, Diane Pape, Leroy Moy, and Adelene Manka, Defendants.

No. SA:12–CV–542–DAE.

United States District Court,

W.D. Texas,

San Antonio Division.

Nov. 7, 2013.

John Matthew Sjoberg, David E. Jackson, Jackson Sjoberg McCarthy & Wilson LLP, Austin, TX, for Plaintiffs.

Kelli Tieken Kenney, Michael E. McElroy, McElroy Sullivan & Miller, LLP, Patton G. Lochridge, J. Derrick Price, McGinnis, Lochridge & Kilgore, Austin, TX, John H.H. Bennett, Ronald B. Walker, Walker Keeling LLP, Victoria, TX, for Defendants.

ORDER: (1) GRANTING MINERAL OWNERS' MOTION FOR PARTIAL SUMMARY JUDGMENT; (2) DENYING PXP'S MOTION FOR PARTIAL SUMMARY JUDGMENT; (3) DENYING PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT; (4) GRANTING EOG'S MOTION FOR PARTIAL SUMMARY JUDGMENT ON SEISMIC CLAIMS; (5) DENYING AS MOOT PXP'S MOTION TO SEVER; (6) DENYING PLAINTIFFS' MOTION FOR LEAVE TO FILE THIRD AMENDED COMPLAINT

DAVID ALAN EZRA, Senior District Judge.

On October 10, 2013, the Court heard oral argument on the Opposed Motion for Leave to File Third Amended Complaint and the Motion for Partial Summary Judgment filed by Plaintiffs Chieftain Energy, LLC (“Chieftain”) and EnerQuest Oil & Gas, LLC (“EnerQuest”) (Dkt. 107, 122); the Opposed Motion to Sever and the Motion for Partial Summary Judgment filed by Defendant Plains Exploration & Production Company (“PXP”) (Dkt. 105, 113), the latter of which Defendant EOG Resources, Inc. (“EOG”) has joined ( see Dkt. # 124); EOG's Motion for Partial Summary Judgment on Plaintiffs' Seismic Claims (Dkt. # 125); and the Motion for Partial Summary Judgment filed by Denis Brysch, Karen S. Brysch, Rachel Brysch, Kevin V. Labus, Lisa Ann Labus, Adelene Manka, Edwin Moy, Leroy Moy, Leonard Moy, Jr., and Diane Pape (collectively, “the Mineral Owners”) (Dkt. # 126). John Matthew Sjoberg, Esq., and David E. Jackson, Esq., appeared on behalf of Chieftain and EnerQuest; Michael E. McElroy, Esq., appeared on behalf of PXP; J. Derrick Price, Esq., appeared on behalf of EOG; and John H.H. Bennett appeared on behalf of the Mineral Owners.

After careful consideration of the memoranda and exhibits in support of and in opposition to the motions, and in light of the Parties' arguments at the hearing, the Court, for the reasons that follow, GRANTS the Mineral Owners' Motion for Partial Summary Judgment (Dkt. # 126); DENIES PXP's Motion for Partial Summary Judgment (Dkt. # 113) and EOG's motion joining and adopting it (Dkt. # 124); DENIES EnerQuest's Motion for Partial Summary Judgment (Dkt. # 122); GRANTS EOG's Motion for Partial Summary Judgment on Plaintiffs' Seismic Claims (Dkt. # 125); DENIES AS MOOT PXP's Motion to Sever (Dkt. # 105); and DENIES EnerQuest's Motion for Leave to File Third Amended Complaint (Dkt. # 107).

BACKGROUND

Plaintiffs EnerQuest Oil & Gas, LLC, and Chieftain Energy, LLC, are Oklahoma oil companies. Chieftain is wholly owned by its sole member, EnerQuest. (Dkt. # 66 (“SAC”) ¶¶ 5–6.) For purposes of this Order the Court will refer to these entities collectively as “EnerQuest.”

In 2008, EnerQuest acquired two oil, gas, and mineral leases in Karnes County, Texas (collectively, the “Leases”). These lands are owned by Defendants Denis Brysch, Rachel Brysch, Lisa Ann Labus, Kevin V. Labus, Karen S. Brysch, Leonard Moy Jr., Edwin Moy, Diane Pape, Leroy Moy, and Adelene Manka (collectively, the “Mineral Owners”). The Leases, which were identical in all relevant respects, had two-year primary terms and could be maintained “for so long thereafter as a covered mineral [was] produced in paying quantities” or the Leases were “otherwise maintained in effect pursuant to [their] provisions....” (Dkt. 114–2, 114–3 (“Leases”) ¶ 2.) Among the provisions capable of extending the Leases in the absence of actual production was the following “shut-in well” clause:

[I]f, during or after the primary term one or more wells on the leased premises or lands pooled therewith are capable of producing oil and gas or other substances covered hereby in paying quantities, but such well or wells are either shut-in or production therefrom is not being sold by Lessee for a period of 90 consecutive days, then Lessee may pay shut-in royalty of one dollar per acre of land then covered by this lease, such payment to be made to Lessor on or before the end of said 90–day period and thereafter on or before each anniversary of the end of said 90–day period while the well or wells are shut-in and it shall be considered that such well is producing paying quantities for all purposes hereof during any period for which shut-in royalty is tendered; provided that if this lease is otherwise being maintained by the payment of rentals or by operations, or if a well or wells on the leased premises is producing in paying quantities, no shut-in royalty shall be due until the end of the 90–day period next following the end of the rental period or the cessation of such operations or production, as the case may be.

(Leases ¶ 3(c) (emphases added).)

Although there were a number of old wells on the leased land, none was producing at the time EnerQuest acquired the Leases in 2008. (Dkt. # 126 Ex. G at 2–3.) For almost two years, EnerQuest made no attempt to produce oil or gas from the Leases. On June 2, 2010, however, EnerQuest ran a diagnostic test on an old oil well. ( Id. Ex. K at 10–11.) That well was originally completed in 1961 and had been shut in by the prior operator approximately four years prior to the diagnostic test. (Dkt. # 122 Ex. F ¶ 6.) During the production test, the well produced about 47,000 cubic feet of gas. ( Id. Ex. F ¶ 7.) After approximately nine hours, its pressure and flow rate dropped too low to measure. (Dkt. # 113 Ex. I at 13.) Once the test was completed, the well was shut in. (Dkt. # 122 Ex. E ¶ 12.) On June 3, 2010, EnerQuest changed out the wellhead and several valves. ( Id. Ex. K at 6–7.)

Based on the results of the June 2, 2010 test, EnerQuest reclassified the old oil well as a gas well, renamed it the Brysch No. 1 Well (the “Well”), and pooled the Leases' acreage into a single gas unit. (Dkt. # 122 Ex. C.) EnerQuest performed no additional operations on the Well before the Leases' two-year primary terms expired on July 28, 2010, and August 4, 2010. (Dkt. # 122 at 5.)

On September 10, 2010, the Brysches' attorney sent a letter to EnerQuest's president, Greg Olson, stating that the Leases had terminated. (Dkt. # 126 Ex. C at 1.) On September 14, 2010, EnerQuest attemptedto pay shut-in royalties to the Mineral Owners (Dkt. # 126 Ex. D at 1; Dkt. # 122 Ex. E ¶¶ 15–18), arguing that the Well, while not actually producing, was “capable of producing in paying quantities” within the meaning of the shut-in well provision excerpted above (Dkt. # 122 Ex. E ¶¶ 13, 20; Dkt. # 126 Ex. L at 1).

Believing that the Leases had expired, the Mineral Owners signed new leases with Dan Hughes Company, L.P. (“Dan Hughes”) a few weeks later. (Dkt. # 122 Exs. G–N.) In November of 2010, Dan Hughes assigned half of its interest in the new leases to Defendant EOG Resources, Inc. (“EOG”) and sold the remainder to Defendant Plains Exploration and Production Company (“PXP”). (Dkt. # 131 Exs. N, O.)

In April 2011, EnerQuest—still maintaining that the Leases had not expired because it had timely tendered shut-in royalties—paid $84,000 to connect the Well to a pipeline so that its gas could be marketed. (Dkt. # 126 Ex. F at 1–2; id. Ex. G at 8.) Then, in early July 2011, EnerQuest began producing the well using unassisted intermittent flow. (Dkt. # 126 Ex. H at 6.) From July 20 to 22, 2011, EnerQuest acid washed and swabbed the Well's tubing. ( Id. at 11.) In January 2012, EnerQuest installed a rod pump, which enhanced and stabilized production. (Dkt. # 122 Ex. F ¶ 12.)

On June 1, 2012, EnerQuest and Chieftain filed this lawsuit against PXP, EOG, and the Mineral Owners, bringing claims for breach of EnerQuest's leases, trespass to try title, removal of cloud on title, and declaratory relief. (Dkt. # 1 ¶¶ 33–41.) PXP and EOG brought counter-claims for trespass, trespass to try title, conversion, and declaratory relief (Dkt. # 32 ¶¶ 62–65; Dkt. # 33 ¶¶ 62–66); and the Mineral Owners brought counter-claims for bad-faith pooling, trespass, conversion, breach of contract, suit to quiet title, and declaratory relief (Dkt. # 31 ¶¶ 66–74). EnerQuest later amended its complaint to include additional claims against EOG that stem from an alleged seismic trespass. ( See SAC ¶¶ 43–49.)

On June 3, 2013, PXP filed the Opposed Motion to Sever that is now before the Court. (Dkt. # 105.) Also before the Court are EnerQuest's Opposed Motion for Leave to File Third Amended Complaint, which was filed on June 10, 2013 (Dkt. # 107); a number of cross-Motions for Partial Summary Judgment on the issue of whether EnerQuest's leases terminated at the end of their primary terms or remain in effect (Dkt. 113, 122, 124, 126); and PXP's Motion for Partial Summary Judgment on Plaintiffs' Claims for Seismic Trespass, Assumpsit, and Right to Exclusive Possession of Seismic Information and Injunctive Relief (Dkt. # 125).

LEGAL STANDARD

Summary judgment is granted under Federal Rule of Civil Procedure 56 when “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); see also Cannata v. Catholic Diocese of Austin, 700 F.3d 169, 172 (5th Cir.2012). The main purpose of summary judgment is to dispose of factually unsupported claims and defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 323–24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

The moving party bears the initial burden of demonstrating the absence of any genuine issue of material fact. Id. at 323, 106...