EOG Resources, Inc. v. Turner

• Decision Date: 09 August 2005
• Docket Number: No. 2003-CA-01572-COA.,2003-CA-01572-COA.
• Citation: 908 So.2d 848
• Court: Mississippi Court of Appeals
• Parties: EOG RESOURCES, INC., f/k/a Enron Oil & Gas Company, Nat Prestage, Douglas McKibben and Crownpointe Resources, Inc., Appellants v. Mark TURNER and Nita Turner, Appellees.

908 So.2d 848

EOG RESOURCES, INC., f/k/a Enron Oil & Gas Company, Nat Prestage, Douglas McKibben and Crownpointe Resources, Inc., Appellants v. Mark TURNER and Nita Turner, Appellees.

No. 2003-CA-01572-COA.

Court of Appeals of Mississippi.

August 9, 2005.

Christy Michelle Sparks, Donald James Blackwood, Glenn Gates Taylor, Ridgeland, attorneys for appellants.

David Ringer, attorney for appellees.

Before BRIDGES, P.J., CHANDLER and ISHEE, JJ.

CHANDLER, J., for the Court.

¶ 1. Mark and Nita Turner sued EOG Resources, Inc. (formerly known as Enron Oil & Gas Co.) its agent, Crownpointe Resources, Inc., and several of Crownpointe's representatives for damage to the surface of two parcels of property caused by EOG's oil operations pursuant to a mineral lease. The Chancery Court of Simpson County awarded the Turners $60,250 in compensatory damages and $27,000 in attorney's fees. EOG, Crownpointe, and Crownpointe's representatives appeal, arguing (1) that the chancellor applied the wrong legal standard in determining whether to hold EOG liable to the Turners; (2) that, under the correct legal standard, there was insufficient evidence to support a finding for the Turners; (3) that the chancellor erroneously relied upon a post-trial appraisal report in calculating damages; (4) that parts of the appraisal report upon which the chancellor relied were not properly before the court; (5) that the chancellor erroneously found that a gravel pit upon which EOG built an oil well contained commercial gravel; (6) that the chancellor erroneously assessed damages for the cost of surface restoration; (7) that the Turners were estopped from claiming that EOG improperly selected the well site; and (8) that the award of attorney's fees was erroneous.

¶ 2. Since EOG's first and second issues are dispositive of this appeal, we do not address EOG's other assignments of error. We find that the chancellor applied an incorrect legal standard in holding EOG liable for surface damage. We further find that, applying the correct legal standard, the evidence was insufficient to support a finding for the Turners because there was no proof that EOG wantonly or negligently damaged the surface or used more of the surface than was reasonably necessary to conduct its oil and gas operations. Therefore, we reverse the judgment of the chancery court and render a judgment in favor of EOG, Crownpointe, and Crownpointe's representatives.

FACTS

¶ 3. The following facts were adduced before the chancery court. On June 14, 1951, Thomas Cox conveyed to D.W. Smith the southwest quarter of the southwest quarter of Section 20 (the "North Forty") and the northwest quarter of the northwest quarter of Section 29 (the "South Forty"), both in Township 1 North, Range 2 East in the Merit field. The deed from Cox to Smith contained a mineral rights reservation, which provided, "[a]ll the minerals, oil and gas, together with any and all rights pertaining thereto, are expressly reserved on this land, and there is also reserved such rights-of-way as may be desirable or necessary to the development and use of the reservations herein." Subsequently, EOG leased the estate created by the mineral reservation.

¶ 4. In approximately January 1997, EOG began fieldwork to locate the Cox No. 1 well. EOG hired Crownpointe as its agent for negotiations with surface landowners and to assist with fieldwork. At that time, Nita Turner and her mother, Sue Garner, owned the surface of the North Forty as joint tenants. Sue Garner also owned an undivided one-half interest in the South Forty, and Dewey Smith Jr. and his wife owned the other one-half interest.

¶ 5. It was customary for EOG to obtain advance settlements of surface damages in order to establish good relationships with surface owners and to contractually expand EOG's legal rights beyond the rights it already had as a mineral lessee. In February 1997, Doug McKibben, a representative of Crownpointe, contacted Garner in an effort to reach an advance settlement of surface damages for EOG's planned activities on the North Forty and the South Forty. McKibben offered Garner $500 if she would sign a "Surface Use and Damage Release Agreement." The agreement provided for the surface owner's grant to EOG of a right-of-way easement and a surface easement for access, ingress and egress for construction and maintenance of a drilling pad and production facilities. The agreement stated, inter alia, that the surface owner would indemnify EOG from all damages to persons or property arising from EOG's use of the land. The agreement also provided that EOG would restore the property in the manner customary to the petroleum industry and in accord with Mississippi's rules and regulations. Garner referred McKibben to Nita, who was negotiating on behalf of Garner. Nita refused the offer.

¶ 6. By approximately March 1997, EOG had decided to locate the Cox No. 1 well atop an unused gravel pit in the northwest corner of the South Forty. At that time, the Turners lacked any ownership interest in the South Forty. Due to drilling requirements, the well would be directionally drilled beginning at the gravel pit, with the well's bottom hole to be located southeast of the pit in the South Forty. EOG's employees and representatives testified that the gravel pit was selected as the site to begin directional drilling due to its size, its elevation, its flatness, the ease with which it could be smoothed, and the fact that it had an existing road. Since there were no trees present in the gravel pit, timber damage would be minimized. Further, one surface owner, Dewey Smith, Jr., favored use of the pit because it had been used as a garbage dump, which EOG would clean up before drilling the well. Smith, Jr. had signed a surface damage agreement.

¶ 7. EOG was also considering routes for a gravel-topped access road that would attach the well site to a public road. The access road would be used to haul heavy drilling equipment to and from the well site and also would be used by tanker trucks. EOG initially considered a road route that would approach the well site from the west across property owned by the Turners' relatives. Due to safety concerns with the adjoining highway and title problems with the properties involved, EOG rejected that plan. ¶ 8. In March 1997, McKibben met with Nita and Mark Turner for further negotiations concerning an advance settlement of surface damages. McKibben informed the Turners that EOG had decided not to locate the road across the property owned by the Turners' relatives. EOG was now contemplating an access road that would run from the well site northeast through the North Forty and connect with Wilson Welch Road.

¶ 9. The Turners stressed to McKibben that, in 1996, Nita had entered into a stewardship plan concerning the North Forty. The stewardship plan was a written agreement in which Nita agreed to act as a good environmental steward of the property. The plan indicated that the North Forty had been clearcut in 1994. Nita testified that the plan included government funding for timber planting, but that the funding had been delayed. The plan specified that Nita planned to construct a retirement cabin "on the crest of a large, flat ridge" providing a view of the surrounding countryside. Nita told McKibben that, due to the stewardship plan, she did not want EOG to touch the North Forty and, especially, the ridge where the cabin was specified.

¶ 10. McKibben told the Turners that EOG's planned access road through the North Forty would traverse the ridge. Due to the planned cabin, the Turners preferred that the access road be constructed south of the ridge along the borderline dividing the North Forty and the South Forty. At the Turners' request, McKibben agreed to investigate an alternative road location as that would be as far south of the ridge as possible. He flagged a more southerly road location and proposed it to EOG. EOG approved it. But, when McKibben showed the proposal to Nita, she stated that it was unacceptable and again refused to sign the surface damage agreement. When asked to name a price to sign the agreement, Nita wrote a note demanding $250,000 for EOG to go anywhere on the North Forty, $150,000 for EOG to go around its edges, or EOG could "go someway other than my forty."

¶ 11. On April 2, 1997, the Turners' attorney notified Crownpointe that the Turners now were represented by counsel. The letter indicated the Turners' willingness to negotiate a surface damage agreement if EOG gave the Turners a courses and distances description, a description of the well site, and omitted "any subsequent wells" from the coverage of the agreement. On April 28, Crownpointe responded by sending a plat map of the proposed well site and the proposed southerly access road, along with a letter stating that it would commence surface operations pursuant to the mineral lease as soon as possible and was willing to make a fair settlement for damages. There is no indication that the Turners responded to Crownpointe's letter until negotiations resumed in June 1997. On April 4, 1997, Garner conveyed her undivided one-half interest in the South Forty to Mark and Nita, retaining a life estate for herself.¹ On April 25, 1997, EOG applied for a permit to drill the Cox No. 1 well.

¶ 12. On May 12, 1997, McKibben sent a memo to Nat Prestage, another representative of Crownpointe, concerning two potential routes for the access road. The memo stated, in pertinent part:

The first possible route is one selected in an attempt to satisfy landowner wishes. This alternate route was surveyed and is set out in the referenced plat. The alternate route places the road as far to the south as possible for us to build because of terrain. This is not the best location for our purposes, but it is acceptable. This route will also involve more damage to timber, although the appraised value of this timber would not be high.

The second possible route, and the...