Kysar v. Amoco Production Co., No. 01-2359.

• Decision Date: 26 July 2004
• Docket Number: No. 01-2359.
• Parties: Raymond L. KYSAR; Patsy Sue Kysar; Kysar Family Trust, Plaintiffs-Appellants, v. AMOCO PRODUCTION COMPANY, Defendant-Appellee. New Mexico Farm & Livestock Bureau, Amicus Curiae.
• Court: U.S. Court of Appeals — Tenth Circuit

379 F.3d 1150

Raymond L. KYSAR; Patsy Sue Kysar; Kysar Family Trust, Plaintiffs-Appellants, v. AMOCO PRODUCTION COMPANY, Defendant-Appellee New Mexico Farm & Livestock Bureau, Amicus Curiae.

No. 01-2359.

United States Court of Appeals, Tenth Circuit.

July 26, 2004.

As Amended August 30, 2004.

Appeal from the United States District Court for the District of New Mexico, Lorenzo F. Garcia, United States Magistrate Judge.

Victor R. Marshall, Victor R. Marshall & Associates, Albuquerque, NM, for Plaintiffs-Appellants.

Tanya M. Trujillo (Bradford C. Berge with her on the briefs), Holland & Hart, LLP, Santa Fe, NM, for Defendant-Appellee.

Lee E. Peters, Hubert & Hernandez, P.A., Las Cruces, NM, for amicus curiae New Mexico Farm & Livestock Bureau.

Before HENRY, PORFILIO, and BRISCOE, Circuit Judges.

HENRY, Circuit Judge.

This case arises from a dispute over access to a gas well. The Kysar family owns a ranch on the Animas River in San Juan County, New Mexico. Amoco is the lessee under various leases of mineral estates under the Kysars' ranch as well as to lands owned by the Bureau of Land Management (BLM), adjacent to and just north of the Kysars' property. Several oil and gas wells drilled and operated by Amoco are on these properties. This litigation centers around one Amoco well, the Sullivan Gas Com E Well (the "Sullivan E well" or "the well"). See attached schematic (Att.1). The well is located on BLM land that is part of a unit that also includes minerals under the Kysars' surface estate. Both the BLM land and a portion of the Kysars' land are subject to a 1992 joint development agreement with the federal government. The Kysars filed this tort action against Amoco in New Mexico state court. Amoco removed the case to federal court pursuant to 28 U.S.C. §§ 1331 and 1441(b). The Kysars' complaint alleges that Amoco's use of the Kysars' roads in order to operate and service the Sullivan E well constituted unlawful trespass and unfair trade practices under New Mexico law. The Kysars also raise an unjust enrichment claim. The Kysars did not seek certification to the New Mexico courts to resolve this issue of state law. We certified two questions of state law to the New Mexico Supreme Court. Those question have been answered, and, exercising our jurisdiction pursuant to 28 U.S.C. § 1291, we affirm the district court's order in part, reverse in part, and remand for further proceedings.

I. FACTUAL BACKGROUND

The facts of this case are not in dispute. The lawsuit concerns Amoco's access to the Sullivan E well, which is part of the "Fruitland" coal formation, one of many geologic mineral formations underlying both the Kysars' land and the BLM land. The Sullivan E well is located on a tract of BLM land, in Section 22, adjacent to the Kysars' ranch.

The Kysars purchased the ranch in 1983, subject to a reservation of previously leased oil, gas and other minerals, "[w]ith right of ingress and egress for removal of the same." Aplts' App. 158 (Warranty deed, dated May 14, 1956). In addition, the conveyance was subject to all easements of record for pipe and pipe lines, roads and rights of way passage and other easements. See id. The conveyance was also subject to a right-of-way granted in 1954 to the Southern Union Gas Company for the purpose of constructing a road to and from Southern Union's "contemplated well location." Aplts' App. at 41 (Right-of-Way Grant, dated May 10, 1954).

Amoco is the successor-in-interest to the mineral rights underlying the Kysars' ranch and the BLM land. Amoco's mineral rights under the Kysars' ranch are dictated under two substantively identical leases: the Keys lease that governs 344 northern acres of the Kysars' ranch, and the Jaquez lease that covers the remaining southern portion of the ranch (which cover all of Section 27 and portions of Sections 28, 33, and 34).

The Keys and Jaquez leases were signed in 1948. In 1953, the Keys and Jaquez leases were amended to provide that the mineral rights lessee (i.e., Amoco's predecessor-in-interest), at its option, and without the surface owners'"joinder or further consent," could pool and unitize the leasehold estate with any other land or lease covering adjacent lands. Aplts' App. at 39 (Amendment to Oil and Gas Lease, dated June 10, 1953); see also Supl.App. at 10 (Amendment to Oil and Gas Lease, dated June 15, 1953) (same).

Specifically, the amendments gave the mineral rights lessee:

the power and right, at any time during the term of this lease, as to all or any part of the land ... and as to any one or more of the formations thereunder and the oil, gas, and all by-products therein or produced therefrom, at its option and without Lessor's joinder or further consent, to pool and unitize the leasehold estate and the Lessor's royalty estate created by this lease with the rights of any third parties in all or any part of the land ... and with any other land, lands, lease, leases, oil, gas, and all by-products therein and royalty rights, or any of them, adjacent, adjoining or located within the immediate vicinity of the land covered by this lease, whether owned by Lessee or some other person ... so as to create by such pooling and unitization, one or more drilling or production units. Each such drilling or production unit shall not exceed 320 acres.

Aplts' App. at 39; Supl.App. at 10 (same). In the amendment, the parties also

agreed that the commencement, drilling, completion of or production from a well, on any portion of a unit created hereunder, shall not have the effect of continuing this lease in force insofar as it covers the land not included within such unit, and no unit shall be created which covers and includes land in more than one Section.

Aplts' App. at 39; Supl.App. at 10 (same). Amoco, as the successor to the rights of the original mineral lessee, retains these rights.

In 1992, Amoco entered into a communitization agreement that committed 36.84 acres in Section 22 that Amoco held under the amended Keys lease to a joint development project with several other tracts of land. As the attached schematic indicates, the 36.84 acres of Section 22 constitute a relatively small segment of the Kysars' ranch. The communitization agreement covered the Fruitland coal gas seam geologic formation underlying the specified tracts. Pursuant to 30 U.S.C. § 226(j), the federal government approved the communitization agreement with Amoco and the other signatories.

In considering where to locate the Sullivan E well, Amoco approached the Kysars about placing the well within the boundaries of the 36.84 acres of the Kysars' ranch that are subject to the communitization agreement. None of the six wells on the Kysars' ranch are on the communitized property. After the Kysars indicated that they did not want the Sullivan E well on their land (because it would hinder their cultivation of alfalfa), Amoco drilled the well on BLM land.

Two private roads access the Sullivan E well: (1) the north branch or bridge road, extending through Sections 27 and 28, which crosses the Kysars' property held under the amended Keys lease and includes a suspension bridge ("bridge road") and (2) the longer branch road, extending through Sections 27 and 34, which crosses both Keys and Jaquez lease property ("back gate road"). Amoco acceded to a request by the Kysars that Amoco not use the bridge road, based on the Kysars' fear that the bridge could not sustain heavy equipment. Amoco maintains that although it has thus far been able to limit itself to using the less convenient back gate road, it nevertheless has the right to use both roads to access the Sullivan E well.

In 2000, the Kysars negotiated a right of way with Coleman Oil, another oil company, that planned to drill a well on BLM lands within the communitized unit. In exchange for the right of way, the Kysars receive a 2.5% overriding royalty on all production from the new well, plus various payments for improvements and maintenance on the roads.

II. THE DISTRICT COURT'S FINDINGS

Before the district court, the Kysars argued that (1) the communitization does not authorize Amoco to cross the portion of their ranch contained within the communitized area to access the Sullivan E gas well on the adjacent BLM land (Section 22); (2) Amoco is not entitled to cross the non-communitized portion of the Kysars' ranch via the bridge road (sections 27 and 28); and (3) Amoco is not authorized to cross the southern portion of the Kysars' ranch via the back gate road (sections 34 and 27). The district court rejected each of these arguments.

First, the district court determined that the communitization agreement granted Amoco the right to access the Sullivan E well by crossing that portion of the Kysars' surface estate overlying the communitized formations. The district court concluded that, by virtue of the oil and gas leases and the later communitization agreement, a mineral rights lessee could use the surface area of the lease to access and develop a well located on a nearby tract owned by others even where the lease did not expressly grant this right. The district court determined that the communitization agreement affected" `both the lands described as being committed to the communitization area and each lease committed to the agreement.'" Aplts' App. at 236 (quoting Wolff v. Belco Dev. Corp., 736 P.2d 730, 733 (Wyo.1987) (emphasis in original)). "If production anywhere in a unit is considered to be production from each tract, then each surface tract within a unit is subject to the right of reasonable ingress and egress by lessees ... [to] extract[ ] minerals from the unit." Id. at 234. Second, the district court also determined that Amoco is entitled to use both the bridge road and back gate road for its access to wells on the Kysars' ranch and for access to the Sullivan E well. The court found that because the "communitization agreement ... `modifies and changes' the Keys lease," id. at 238, access should be...