Journey Acquisition-II, L.P. v. EQT Prod. Co.

• Decision Date: 18 August 2014
• Docket Number: Civ. No. 12–108–GFVT.
• Citation: 39 F.Supp.3d 877
• Court: U.S. District Court — Eastern District of Kentucky
• Parties: JOURNEY ACQUISITION–II, L.P., Plaintiff, v. EQT PRODUCTION COMPANY, Defendants.

39 F.Supp.3d 877

JOURNEY ACQUISITION–II, L.P., Plaintiff
v.
EQT PRODUCTION COMPANY, Defendants.

Civ. No. 12–108–GFVT.

United States District Court, E.D. Kentucky, Southern Division, London.

Signed Aug. 18, 2014.

39 F.Supp.3d 882

Christian D. Tucker, Elizabeth S. Kerr, Jack E. Price, Jr., Walker C. Friedman, Friedman Suder & Cooke, PC, Fort Worth, TX, Wayne F. Collier, Kinkead & Stilz, PLLC, Lexington, KY, for Plaintiff.

Lindsay M. Bouffard, John Kevin West, Steptoe & Johnson PLLC, Columbus, OH, Nora Clevenger Price, Steptoe & Johnson, PLLC, Lexington, KY, for Defendants.

MEMORANDUM OPINION & ORDER

GREGORY F. VAN TATENHOVE, District Judge.

This case concerns the interpretation of a number of contractual agreements entered into by Journey Acquisition–II, LP (Journey) and EQT Production Company (EQT). The agreements involve conveyances of interests in oil, natural gas, mineral rights, and related assets connected to several large tracts of land in southeastern Kentucky. They also involve drilling rights and the ownership or lease of the acreage on which certain oil wells are located. In 2001, EQT agreed to sell, lease, and otherwise transfer certain of these lands and rights to Journey. The primary dispute presently before the Court concerns which lands and rights were actually conveyed. The parties have filed several motions and cross-motions for summary judgment and for partial summary judgment, all of which have been fully briefed. At Journey's request, the Court held oral arguments on the motions for partial summary judgment on July 7, 2014, during which the Court denied a related motion to strike [R. 102] but took the other motions under advisement. For the reasons that

39 F.Supp.3d 883

follow, the Court denies EQT's motion for summary judgment; grants in part and denies in part Journey Acquisition's first motion for partial summary judgment; and grants Journey Acquisition's second, third, and fourth motions for partial summary judgment.

I

A

Journey Acquisition is a Texas limited partnership involved in oil and gas exploration and production in Kentucky. [R. 67 at 2.] EQT is a Pennsylvania corporation that is also extensively involved in the production and development of oil and gas. [Id. ] The real property that is the subject of their dispute is located mainly in Letcher, Perry, and Leslie Counties, and covers thousands of noncontiguous acres. The parties also dispute various wells, equipment, and mineral rights associated with those properties.

Essentially, there are three types of property interests at issue. First, EQT owned in fee simple about 100 tracts of land across eastern Kentucky (Fee Properties), and had the authority to either drill on those lands itself or lease the drilling rights to another party. [R. 86–1 at 2; R. 87–1 at 3.] Second, EQT leased several hundred oil and gas interests located primarily on properties in Eastern Kentucky, meaning that EQT had the right to explore for and produce oil and gas beneath lands actually owned by third parties (Third–Party Leases). [R. 86–1 at 2; R. 87–1 at 2.] For these properties, EQT could, and did, assign its rights as a lessee to another party. Third, EQT also owned several hundred existing wells along with the associated equipment, pipeline operations, and various other agreements that typically accompany oil and gas production. [R. 67 at 3–4; R. 87–1 at 3.] For most of the properties at issue, EQT was either the fee owner or lessee, but for some of the properties, EQT operated with Kentucky River Coal Company (KRCC) as joint venturers. [R. 86–1 at 3.]

In 2001, EQT decided to “divest” itself of a large number of its oil-producing properties in order to focus on gas production. [R. 86–1 at 3.] To assist in this transfer, EQT hired an adviser, Randall & Dewey, Inc., who then prepared a “2001 Kentucky Property Divestment Data Room Summary” (2001 KPD DRS) describing the interests and properties that EQT planned to sell or otherwise transfer. [Id. at 3–4.] EQT also prepared a number of maps to illustrate the boundaries of the properties it was offering. These were included in the 2001 KPD DRS. [Id. ] The 2001 KPD DRS was shown to potential purchasers who, if interested, could see more detailed information after signing a confidentiality agreement and then bid on the property. [Id. at 7.] Journey's president, Brian Baer, and a petroleum engineer who worked for Journey at the time named Greg Shockley (who now works for EQT), evaluated EQT's offering, along with other consultants retained by Journey. [Id. at 7–8.] Journey then submitted a bid and ultimately became the successful purchaser. [Id. at 8.]

On October 4, 2001, Journey and EQT entered into a Purchase and Sale Agreement (PSA) that was made effective as of July 1, 2001. The purchase price was $64,090,000. [R. 67 at 3; R. 87–2 at 2.] In the PSA, EQT agreed to sell Journey its title to and interests in numerous properties, wells, pipelines, and other assets located in five Kentucky counties. [R. 87–1 at 8; R. 87–2 at 7.] The PSA also contained an agreement to apply Kentucky law to any dispute [R. 87–2 at 41], and included a merger clause stating that this PSA superseded all prior agreements, understandings, and discussions. [Id. at 40.]

39 F.Supp.3d 884

Part of the interests described in the PSA included EQT's leasehold rights under the Third–Party Leases and a variety of mineral rights to the Fee Properties Journey purchased. [Id. at 7.] The PSA further provided for a due diligence period of nearly two months and possible price adjustments if necessary. [Id. at 19–25.] Attached to the PSA were also several exhibits listing or describing in more detail the property that EQT was transferring. For instance, Exhibit A to the PSA lists and describes the various leasehold tracts that Journey acquired from EQT. [See R. 87–2 at 56–72.] Exhibit D to the PSA lists the wells that were being conveyed. [R. 87–4 at 17–29.] Exhibit J to the PSA lists and describes the various fee properties involved in the transfer. [See R. 87–6 at 34–37.] The PSA also contained a “Further Assurances” clause stating that Journey was to receive any oil and gas interest owned by EQT within certain blue-outlined boundaries on a series of maps attached as Exhibit N. [R. 87–2 at 39.] The parties now dispute the exact meaning of this clause and whether EQT conveyed any property to Journey that was not within the blue boundaries of the Exhibit N maps.

At closing on November 30, 2001, the parties completed the second phase of their deal, in which they executed two other documents called “the Master Assignment,” and a lease of EQT's fee properties, called “the Oil and Gas Lease” (or “2001 Lease”). [R. 86–1 at 10–11.] In the Master Assignment, EQT formally assigned to Journey a list of properties that EQT leased from third parties, as well as several hundred wells with their associated rights and equipment. [R. 87–12.] The descriptions of the lease properties were attached to the Master Assignment as Exhibit A, and the list of wells being transferred was attached as Exhibit B. [Id. at 5, 23.] For these properties, EQT assigned Journey the rights, title, and interests “down to the stratigraphic equivalent of the base of the Devonian Shale formation.” [Id. at 1.] In the 2001 Lease, EQT leased to Journey a number of properties that EQT owned in fee, leasing them for a primary term of five years. [R. 87–8 at 1–2.] Attached to the 2001 Lease as Exhibit A was a tract-by-tract description of these leased properties. [R. 87–8 at 14–17.] Also attached was Exhibit A–1 containing a set of maps that listed and described the tracts subject to the lease and were “virtually identical” to the maps in Exhibit N to the PSA. [Id. at 18–29.] Some of the assignments and leases were only partially assigned or leased to Journey, and where that was the case, an explanatory endnote was placed in the property description on the appropriate exhibit. The largest third-party lease involved in the transaction was the Fordson Lease, which contained over 6,333 noncontiguous acres in Perry, Leslie, and Letcher Counties. [R. 86–1 at 12.]

During the due diligence period between October 4 and November 30 of 2001, EQT's land-administration director Cindy Perdue oversaw the task of “scrubbing” the exhibits for accuracy “trying to get them right before closing.” [R. 87–1 at 19; R. 81 at 34–37, 65–66.] Journey retained a company called Title Pro and its president Jay Karickhoff to confirm EQT's title to the land on which the top-producing wells were located, but because that well value was the basis for confirming the value to Journey's secured lender, Karickhoff was not concerned with evaluating the title to any part of land not associated with the existing high-producing well sites. [R. 87–1 at 19; R. 73 at 5, 12–13, 37–38.] Neither Mr. Karickhoff nor Ms. Perdue could recall assuming or being told that the land being conveyed was limited solely by the blue outlines on the attached maps. [See R. 73 at 33–41; R. 81 at 72–73.] EQT now claims to own many of the properties that

39 F.Supp.3d 885

Journey claims were conveyed in the 2001 transaction. In particular, EQT claims...