Moncrief v. Louisiana Land and Exploration Co., s. 92-23

• Decision Date: 04 November 1993
• Docket Number: 92-24,Nos. 92-23,s. 92-23
• Citation: 861 P.2d 516
• Parties: W.A. MONCRIEF, Jr., Appellant (Plaintiff), v. The LOUISIANA LAND AND EXPLORATION COMPANY; BHP Petroleum Company, Inc.; Inexco Oil Company; and North Central Oil Corporation, Appellees (Defendants). MYCO INDUSTRIES, INC. and Yates Drilling Company, Appellants (Plaintiffs), v. The LOUISIANA LAND AND EXPLORATION COMPANY; BHP Petroleum Company, Inc.; Inexco Oil Company; and North Central Oil Corporation, Appellees (Defendants).
• Court: Wyoming Supreme Court

Page 516

861 P.2d 516

W.A. MONCRIEF, Jr., Appellant (Plaintiff), v. The LOUISIANA LAND AND EXPLORATION COMPANY; BHP Petroleum Company, Inc.; Inexco Oil Company; and North Central Oil Corporation, Appellees (Defendants).

MYCO INDUSTRIES, INC. and Yates Drilling Company, Appellants (Plaintiffs), v. The LOUISIANA LAND AND EXPLORATION COMPANY; BHP Petroleum Company, Inc.; Inexco Oil Company; and North Central Oil Corporation, Appellees (Defendants).

Nos. 92-23, 92-24.

Supreme Court of Wyoming.

Nov. 4, 1993.

Rehearing Denied Dec. 9, 1993.

Morris R. Massey of Brown & Drew, Casper, Robert C. Grable of Kelly, Hart & Hallman, Fort Worth, TX, for appellant W.A. Moncrief, Jr. in No. 92-23.

Phillip Wm. Lear, Salt Lake City, UT, for appellants MYCO Industries, Inc. and Yates Drilling Co. in No. 92-24.

Marilyn Kite and Jack D. Palma, II of Holland & Hart, Cheyenne, Peter A. Bjork and James L. Simmons of Poulson, Odell & Peterson, Denver, CO, for appellees in Nos. 92-23, 92-24.

Before MACY, C.J., and THOMAS, CARDINE, GOLDEN and TAYLOR, JJ.

GOLDEN, Justice.

According to the parties, this declaratory judgment action involves the construction of unambiguous provisions of several written agreements relating to the non-consent drilling operations of a deep exploratory oil and gas well on acreage committed to the unitized field known as the Madden Deep Unit, ¹ and the application of those unambiguous provisions to undisputed facts.

Following the publication of this court's original opinion in this case which reversed a summary judgment in favor of appellees, appellees applied for rehearing. ² We granted that application. Appellees relied upon their memorandum of points and authorities submitted with their rehearing application, as well as upon their previous brief. Appellants also relied upon their previously filed briefs and filed a response to appellees' rehearing memorandum. Later, pursuant to this court's grant of rehearing Upon the rehearing, a majority is now convinced that this court's original opinion was in error. Accordingly, that original opinion is herewith withdrawn. To place this in proper perspective, the following background is provided. Having the declaratory judgment action before it, the district court, in a summary judgment setting, determined that the provisions of the several written agreements were unambiguous and that the consenting parties (appellants) to the proposed drilling of the deep exploratory well in question constituted a minority in interest in the deep well's 640-acre drilling block area. Consequently, the district court held that the non-consenting parties (appellees) had to pay a penalty of 1,000 percent of the drilling costs and the cost of newly acquired equipment to and including wellhead connections, but did not have to execute an assignment to the consenting parties of their lease interests in a number of sections.

oral argument was held on June 24, 1993. ³

In this court's original opinion, a majority reversed the district court's summary judgment. The majority concluded (1) the doctrine of equitable conversion was applicable to the farmout agreement in question and the farmees, who belonged to the group of consenting parties, had earned an equitable interest in the farmout acreage when drilling of the deep exploratory well commenced and (2) the unit operating agreements were ambiguous with respect to (a) whether all acreage within the 640-acre drilling block area, including the 160-acre farmout tract, must be accounted for as either consenting or non-consenting, and (b) at what point in time the parties' ownership interests must be assessed, i.e., when they elect whether or not to participate in the drilling of the well or when the drilling of the well is commenced. Having concluded that these ambiguities existed, the majority remanded with directions that the district court consider extrinsic evidence to determine the parties' intent.

Having had the benefit of rehearing, a majority of this court has now concluded that the district court's summary judgment must be affirmed.

In the briefs originally filed, the respective parties presented certain issues to be addressed. As seen by appellant W.A. Moncrief, Jr., (Moncrief), the issues were:

A. The district court erred in ruling that the Farmout acreage did not constitute a committed working interest.

B. The district court erred in ruling that the Farmout acreage was not a carried working interest.

C. The district court erred in concluding that the Farmout acreage did not qualify as a working interest under the Unit Agreement.

D. The district court erred in ruling that Moncrief was not vested with an interest in the nature of an equitable title.

E. The district court erred in concluding that the interest of Moncrief in the Farmout was not an interest in the lease under federal regulations.

Appellants MYCO Industries, Inc. (MYCO) and Yates Drilling Company (Yates), being aligned with Moncrief, listed these issues:

A. Whether the district court committed reversible error by considering the B. Whether the district court committed reversible error by concluding Amoco's interest was not a "carried working interest" even though the farmees held a present interest in the working interest of the 160-acre tract and were obligated to pay all of the costs of the well while Amoco had no obligation to contribute to the costs?

consenting parties' ownership interests at the time the well was proposed instead of at the time drilling operations commenced thereby concluding that the 160-acre tract was not "committed working interest" acreage owned by a party to the supplemental unit operating agreement?

Appellees, consisting of the Louisiana Land and Exploration Company, BHP Petroleum Company, Inc., Inexco Oil Company, and North Central Oil Corporation (all of whom are hereinafter collectively referred to as "non-consenting parties"), declared a single issue:

The District court was correct in ruling that Moncrief, MYCO, and Yates are not a "majority in interest" in the drilling of the Exploratory well in the Madden Deep Gas Unit.

FACTS

On May 1, 1967, the parties to this dispute, or their predecessors in interest, Amoco Production Company (Amoco), and others entered into a unit agreement for the Madden Deep Unit Area (unit agreement) covering about 70,000 acres in Natrona County and Fremont County, Wyoming. Each party's working interest in acreage committed to the unit was listed on Exhibit B attached to the unit agreement. Amoco was the working interest owner of the 160-acre tract of land at issue in this case, ⁴ and Amoco held a federal oil and gas lease on this tract. Amoco's working interest was shown on Exhibit B.

On April 2, 1968, the parties to this dispute, or their predecessors in interest, entered into the so-called Madden-Badwater Agreement. Article III of that agreement, titled "After Acquired Leases," provided, in relevant part, that if a party acquires an interest in an oil and gas lease within a certain designated area then that party shall promptly offer an interest in such lease interest to the other parties. An offeree has ten days in which to notify in writing the offeror of its election to participate in the acquisition.

On June 17, 1969, the parties to the unit agreement entered into a Revised Unit Operating Agreement (Revised UOA). Among others, the parties to this Revised UOA include Amoco and the parties to this dispute, or their respective predecessors in interest. As to all parties, the Revised UOA governs unit operations at subsurface depths above the base of the Waltman Shale.

On June 2, 1975, some of the parties to the Revised UOA, notably including appellants and appellees, entered into a Supplemental Unit Operating Agreement (Supplemental UOA) to govern operations at subsurface depths greater than 5,500 feet below the base of the Waltman Shale. Amoco did not enter into this Supplemental UOA. Accordingly, Amoco's deep rights, i.e., rights at subsurface depths greater than 5,500 feet below the base of the Waltman Shale, continued to be governed by the Revised UOA. In summary, then, either the Revised UOA or the Supplemental UOA, or both, apply to operations of the Madden Deep Unit, depending upon the depth of the drilling and the identity of the parties involved.

In May, 1990, Moncrief obtained a commitment from Amoco to enter into a farmout By Moncrief's letter dated May 31, 1990, showing addressees as

                agreement 5 covering Amoco's 160-acre tract.  Amoco's lease was not in danger of expiring if drilling was not expeditiously commenced.  Rather, the lease was held by production.  The parties agree that Amoco's purpose in entering into the farmout was to obtain geologic information. 6  Moncrief and Amoco continued negotiations about the specific terms of the farmout agreement into July, 1990.  They did not finalize these terms until July 26, 1990, or a few days thereafter. 7  Before we examine more closely their negotiations and the relevant language of the farmout agreement as it appeared both in the initial proposed agreement and in the finalized agreement, we shall note the other events that transpired during the time period in which those negotiations continued
                

"Madden Deep Group

Madden Deep Unit

Working Interest Owners"

Moncrief discussed the Amoco farmout, proposed an exploratory well to be drilled on the farmout tract, designated the drilling block area for this exploratory well, and invoked the provisions of both the Revised UOA and the Supplemental UOA concerning the election whether or not to participate in the drilling of the proposed well. About the Amoco farmout, Moncrief stated he "has obtained" the farmout covering Amoco's 160-acre tract "which will be earned by drilling a well on or within a mile of said tract." About the drilling of that well, Moncrief proposed "a 24,500' Madison test in the SW 1/4 NE 1/4 of Section 12," which was the Amoco tract, under the terms of both the Revised...