Entek GRB, LLC v. Stull Ranches, LLC

• Decision Date: 07 August 2012
• Docket Number: Civil Action No. 11–cv–01557–PAB–KLM.
• Citation: 885 F.Supp.2d 1082
• Parties: ENTEK GRB, LLC, Plaintiff, v. STULL RANCHES, LLC, Defendant.
• Court: U.S. District Court — District of Colorado

885 F.Supp.2d 1082

ENTEK GRB, LLC, Plaintiff,

v.STULL RANCHES, LLC, Defendant.

Civil Action No. 11–cv–01557–PAB–KLM.

United States District Court, D. Colorado.

Aug. 7, 2012.

L. Poe LeggetteLucy H. Deakins, Fulbright & Jaworski, LLP, Denver, CO, for Plaintiff.

Dudley W. Von Holt, James M. Cox, Thompson Coburn, LLP, St. Louis, MO, for Defendant.

ORDER

PHILIP A. BRIMMER, District Judge.

This matter is before the Court on the Motion for Preliminary Injunction [Docket No. 126] filed by plaintiff Entek GRB, LLC. On August 1, 2012, the Court heard testimony presented by plaintiff and defendant Stull Ranches LLC (“Stull”). The Court exercises jurisdiction over this matter pursuant to 28 U.S.C. § 1331.

I. FINDINGS OF FACT

1. Entek is the lessee of mineral estates granted by the Bureau of Land Management (“BLM”). Entek is the successor-in-interest of Stone & Wolf, LLC (“Stone & Wolf”) and Clayton Williams Energy, Inc. (“Clayton Williams”). Its mineral estates are located in the Focus Ranch Unit (“FRU”), which is a collection of mineral leases combined to facilitate development. See Pl. Ex. 10. The FRU was created in 1999 and consists of 40,000 acres located in Routt County, Colorado. Entek is the operator of the FRU.

2. The majority of the land located in the FRU is leased pursuant to federal statutes. The two relevant statutes for purposes of this motion are the Stock–Raising Homestead Act of 1916 (“SRHA”), 43 U.S.C. § 291 et seq. (repealed in part by Pub.L. 94–579 (1976)), and the Mineral Leasing Act of 1920 (“MLA”), 30 U.S.C. § 181 et seq. The SRHA severed the surface and mineral estates for public lands in the western states to facilitate the concurrent development of both the surface and subsurface resources. Watt v. W. Nuclear, Inc., 462 U.S. 36, 42–45, 103 S.Ct. 2218, 76 L.Ed.2d 400 (1983). In passing the statute, Congress expected homesteaders to use the surface for raising stock and crops, while Congress sought to ensure that valuable subsurface resources would remain at the disposition of the United States. Id. Although the SRHA was repealed in part in 1976, the section of the statute that reserves mineral estates for the federal government is still in effect. 43 U.S.C. § 299. The MLA was enacted to give the Secretary of the Interior broad power to issue oil and gas leases on public lands even if they were not located in known producing oil and gas fields. Udall v. Tallman, 380 U.S. 1, 2, 85 S.Ct. 792, 13 L.Ed.2d 616 (1965).

3. Entek's mineral leases and patents in the FRU are granted pursuant to these federal statutes. It owns the rights to Patent 985094, Pl. Ex. 3, Patent 1010281, Pl. Ex. 4, Lease COC–59666, Pl. Ex. 5, Lease COC–69894, Pl. Ex. 6, and Lease COC–59491. Pl. Ex. 7. These leases and patents are for minerals located subjacent to Stull's surface estate. Stull does not challenge Entek's ownership rights to these minerals.

4. Entek is the lessee of minerals from well 3–1. The 3–1 well is located on land owned by the BLM. Entek seeks to enter the 3–1 well to complete well bore work and to start production activity. The 3–1 well is located in the northwest quarter of Section 3, Township 11 North, Range 88 West of the FRU. See Pl. Ex. 2. Currently, there is only one available road (“Access Road”) from which Entek may reach the 3–1 well. The Access Road runs from the southeast of the FRU in Section 11, Township 11 North, Range 88 West to the northwest at Section 33, Township 12 North, Range 88 West.

5. Entek cannot reach the 3–1 well from the southeast because of the ruling in Stone & Wolf, LLC v. Three Forks Ranch Corp., No. 00–cv–01130–REB–OES, 2004 WL 5615898 (D.Colo. Jan. 8, 2004). In addition, because Stull owns the surface and mineral estates for property located in Section 3, Township 11 North, Range 88 West over which the Access Road crosses, Stull has refused to give permission to Entek to use the southeast portion of the road for the purpose of accessing the 3–1 well. See Pl. Ex. 2.

6. Lessees Clayton Williams and New Frontier Energy, Inc. (“New Frontier”) accessed the 3–1 well by using an easement (“Stull Easement”) obtained through an agreement with Stull. The Stull Easement utilized the northwest portion of the Access Road, which travels across Section 33, Township 12 North, Range 88 West into Section 3, Township 11 North, Range 88 West. See Pl. Ex. 2. However, Stull revoked the easement after New Frontier violated its terms. Stull refuses to grant Entek an easement, arguing that allowing oil companies to use the Access Road adversely affects its land. Stull claims that its ranch is known as a pristine and peaceful destination filled with wildlife on which it runs a small hunting business. Stull claims that the use of the Access Road by oil companies has a negative effect on its hunting business and poses a danger for elk, cattle, and sage grouse.

7. In September 2011, Entek filed a motion for a preliminary injunction to gain access to the 3–1 well. The Court denied Entek's September 2011 motion for an injunction because the injunction was outside the scope of the complaint. After the denial of the preliminary injunction, Entek sought an alternate route to reach the 3–1 well. It made a proposal to the BLM to create another road on BLM property to enter the 3–1 well, see Pl. Ex. 33, which the BLM denied on November 8, 2011. See Pl. Ex. 34 at 1–4. Entek appealed the decision on December 5, 2011 and is currently awaiting a response.

8. Because of federal and state regulations, Entek has approximately three months to perform surface altering activities in the FRU. The season during which Entek can work on the 3–1 well usually begins in July and ends forty-eight hours before the start of rifle season for big game in the fall. This year, the drilling season began on July 1, 2012 and will conclude sometime in October.

9. Entek filed the present motion for a preliminary injunction after it became clear that the BLM would not approve an alternate road before October 2012. Entek seeks access to the 3–1 well before October to perform well bore activity and prepare the well for drilling. Entek seeks to enjoin Stull from restricting its ability to reach the 3–1 well.

10. Entek states that it will utilize directional drilling to reach approximately 8000 feet below the well's surface. Entek claims that drilling at this depth will reach minerals located subjacent to Stull's surface under Lease COC–59491 and Patent 985094. See Pl. Ex. 12 at 3. According to Entek, the bottom of the well hole will be subjacent to surface separately owned by the Sheep Mountain Partnership (“Sheep Mountain”) and Stull. See id.

11. Entek claims that, if it is not able to access the 3–1 well during this drilling season, it will be subject to irreparable harm. Tim Hopkins, Entek's regional manager, testified at the hearing. He estimates that a one year delay in the production of the 3–1 well could cost Entek between $1.2 and $1.8 million in lost revenue. This sum is based on the 3–1 well producing 200 barrels of oil per day with an oil price of $75 per barrel. Mr. Hopkins based these estimates on the rate of production of the 12–1 well. The 12–1 well is located in the FRU, and Mr. Hopkins believes that the 12–1 well is a good predictor of the 3–1 well's potential because both wells were built in the same year and have similar characteristics. He testified that a one year delay in production will also delay the production of other wells in the FRU and delay further knowledge of the geological structure of the oil fields.

12. Mr. Hopkins estimated that it would cost Entek $4 million (non-amortized) to complete construction of the well. Mr. Hopkins testified that such work will involve 25 semi-trucks hauling water, pipes, and cement over the Access Road for 30 to 60 days. He testified that the increase of activity on the Access Road could require additional road construction and could affect Stull's hunting business. Mr. Hopkins said that it was common for oil companies to work on properties reserved for hunting.

13. Mr. Hopkins testified that Entek has secured permits from the BLM and the Colorado Oil and Gas Conservation Commission (“COGCC”) to commence drilling activity. Entek also secured a drilling crew and is prepared to commence drilling activity at any time. It applied for three bonds pursuant to the SRHA. See Pl. Ex. 15. The BLM only granted the bond for Lease COC–59491. See Pl. Ex. 16. Stull claims that the BLM did not grant bonds for Leases COC–59666 and COC–69894 because the BLM does not grant bonds for leases on which no drilling activity is conducted.

14. David Smith, Entek's land manager, testified at the hearing. Mr. Smith's duties include reviewing Entek's land records and patents. Mr. Smith has reviewed Leases COC–59666, COC–69894, and COC–59491. In reviewing these leases, he did not find clauses which purported to grant a mineral lessee the right to use the surface area owned by one individual to access a mineral estate on the surface of another.

II. ANALYSIS

A party seeking a preliminary injunction must show (1) a likelihood of success on the merits; (2) a likelihood that the movant will suffer irreparable harm in the absence of preliminary relief; (3) that the balance of equities tips in the movant's favor; and (4) that the injunction is in the public interest. RoDa Drilling Co. v. Siegal, 552 F.3d 1203, 1208 (10th Cir.2009) (citing Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7, 20, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008)). The Tenth Circuit has made it clear that “because a preliminary injunction is an extraordinary remedy, the right to relief must be clear and unequivocal.” Beltronics USA, Inc. v. Midwest Inventory Distrib., LLC, 562 F.3d 1067, 1070 (10th Cir.2009).

For certain preliminary injunctions, the movant has a heightened burden of showing that the traditional four factors weigh heavily and compellingly in its favor before obtaining a preliminary injunction. See ...