Moncrief v. Sohio Petroleum Co.

• Citation: 775 P.2d 1021
• Decision Date: 16 June 1989
• Docket Number: 88-88,Nos. 88-87,s. 88-87
• Parties: W.A. MONCRIEF, Jr., and Charles Taubman, Appellants (Plaintiffs), v. SOHIO PETROLEUM COMPANY; BHP Petroleum Company, Inc., successor in interest to Monsanto Company; Grace Petroleum Corporation, successor in interest to W.R. Grace & Co.; North Central Oil Corporation; Yates Drilling Company; Martin Yates, III; and Inexco Oil Company, Appellees (Defendants). SOHIO PETROLEUM COMPANY; BHP Petroleum Company, Inc., successor in interest to Monsanto Company; Grace Petroleum Corporation, successor in interest to W.R. Grace & Co.; North Central Oil Corporation; Yates Drilling Company; Martin Yates, III; and Inexco Oil Company, Appellants (Defendants), v. W.A. MONCRIEF, Jr., and Charles Taubman, Appellees (Plaintiffs).
• Court: United States State Supreme Court of Wyoming

Page 1021

775 P.2d 1021

W.A. MONCRIEF, Jr., and Charles Taubman, Appellants (Plaintiffs), v. SOHIO PETROLEUM COMPANY; BHP Petroleum Company, Inc., successor in interest to Monsanto Company; Grace Petroleum Corporation, successor in interest to W.R. Grace & Co.; North Central Oil Corporation; Yates Drilling Company; Martin Yates, III; and Inexco Oil Company, Appellees (Defendants).

SOHIO PETROLEUM COMPANY; BHP Petroleum Company, Inc., successor in interest to Monsanto Company; Grace Petroleum Corporation, successor in interest to W.R. Grace & Co.; North Central Oil Corporation; Yates Drilling Company; Martin Yates, III; and Inexco Oil Company, Appellants (Defendants), v. W.A. MONCRIEF, Jr., and Charles Taubman, Appellees (Plaintiffs).

Nos. 88-87, 88-88.

Supreme Court of Wyoming.

June 16, 1989.

Morris R. Massey of Brown & Drew, Casper, for appellants in No. 88-87 and appellees in No. 88-88.

Neil J. Short, Casper, Larry R. Veselka and Billy Coe Dyer of Vinson & Elkins, Houston, Tex., Peter A. Bjork of Poulson, Odell & Peterson, Denver, Colo., Gretchen VanderWerf of Hawley & VanderWerf, Denver, Colo., and David D. Uchner, Cheyenne, for appellees in No. 88-87 and appellants in No. 88-88.

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

MACY, Justice.

This appeal and cross-appeal arises from an action brought by appellants W.A. Moncrief, Jr. and Charles Taubman seeking specific performance of an alleged contractual obligation on the part of appellees Sohio Petroleum Company; BHP Petroleum Company, Inc.; Grace Petroleum Corporation; North Central Oil Corporation; Yates Drilling Company; Martin Yates III and Inexco Oil Company to offer and/or assign appellants an interest in a renewed oil and gas lease and an accounting for appellants' share of the gas production attributable to their alleged interest in the disputed lease. The district court granted summary judgment to appellees upon the ground that appellants' claim was barred by laches and the applicable statute of limitations.

We affirm.

The issues presented by Moncrief and Taubman may be summarized in this manner:

1. Did the district court properly conclude that appellants' claim was barred by laches?

2. Did the district court properly determine that appellants' claim was barred by Wyo.Stat. § 1-3-105 (1977)?

Our resolution of the issues presented on direct appeal precludes the necessity of addressing the contingent cross-appeal brought by appellees, challenging the conclusion by the district court that Taubman (and, through Taubman, Moncrief) retained an interest in the renewed lease entitling him to notice of, and an opportunity to participate in, the acquisition of the renewed lease.

The facts of this case, involving myriad agreements and transactions, are complicated and cover the better part of two decades. By a written agreement dated April 2, 1968 (the Wolf Agreement), Erving Wolf and several other persons and entities (Wolf assignors) assigned to Stonehenge Oil Company, Inc. (predecessor in interest to appellants) an undivided one-fourth interest in and to the shallow rights ¹ in the leases listed on Exhibits A and B (the A and B leases) to the Wolf Agreement. These leases covered approximately 64,000 acres of land in the Madden Deep Unit Area in Fremont and Natrona Counties, Wyoming. Pursuant to the Wolf Agreement, Stonehenge also acquired an option to earn "deep rights" in the A and B leases by participating in the drilling of an exploratory well to a depth sufficient to test the Cody formation or 19,000 feet, whichever was the lesser depth.

Under separate but identical agreements, the Wolf assignors assigned to appellees, or their predecessors in interest, various fractional interests, totaling 72.92%, in the shallow rights in the same A and B leases with the same option to earn interests in the deep rights. ² We will refer to these agreements collectively as the "Wolf Agreements" and the various assignees, including Stonehenge, as the "Wolf assignees." The Hugh S. Day lease (Day lease), the lease at issue, was listed on Exhibit B of each Wolf Agreement as one of the assigned leases. Although most of the A and B leases were within the Madden Deep Unit, ³ the Day lease, covering approximately 520 acres, was located just outside the boundary of the Unit but within the Area of Mutual Interest (AMI). The Exhibit B listing of the Day lease indicated that the lease would expire on May 14, 1972. With respect to expiring leases, paragraph 1.1.1 of the Wolf Agreements provided that: "In the event any of said leases terminates and is subsequently re-acquired by either party hereto, it shall be considered as an 'after-acquired lease' under Article III hereinbelow." Article III of the Wolf Agreements provided:

In the event that either party acquires an interest in oil and gas leases within the area delineated by the solid heavy line on the map attached [the AMI] * * *, it shall promptly offer an interest therein by notice in writing, describing the terms and conditions applicable to such acquisition, to the other party and any third parties owning interests in the Exhibit "A" and "B" leases in proportion to the ownership of each such party in said leases. * * * Each party electing to participate shall have the right to acquire an interest in the proportion that its interest assigned hereunder bears to the interest of all electing parties * * *.

Subsequent to the initial agreements described above, the following series of events transpired, eventually leading to the litigation in this case. On November 4, 1969, Stonehenge assigned its undivided one-fourth interest in the shallow rights to the A and B leases to Volunteer Oil and Gas Company. Pursuant to the terms of the assignment, Stonehenge retained its deep rights option but granted Volunteer the option to earn one-half of Stonehenge's one-fourth participatory rights in the deep rights by paying all costs attributable to Stonehenge in drilling and completing two deep test wells. In February of 1970, Stonehenge was dissolved, and Taubman, as the sole surviving stockholder, succeeded to all of its assets. On December 22, 1970, Volunteer conveyed to an affiliate of Petro-Lewis Corporation all of its one-fourth interest in the shallow rights and its option to earn deep rights in the A and B leases. ⁴

Sohio, as the operator of the Madden Deep Unit, coordinated the exercise of the deep rights option by the Wolf assignees (also referred to by the parties as the Madden Group). In early 1972, Sohio reviewed the status of the A and B leases, notified the owners of shallow rights of certain leases which were to expire in the near future, including the Day lease, and held a meeting with the shallow rights owners regarding the expiring leases. Neither Stonehenge nor Taubman was notified of or included in these communications and discussions, although Petro-Lewis, as successor to Stonehenge's shallow rights, was included. Sohio recommended that leases lying outside the Madden Deep Unit, including the Day lease, be allowed to expire. The Day lease expired on May 14, 1972.

Contrary to its recommendation, Sohio reacquired or renewed the Day lease. By letter dated May 26, 1972, Sohio advised all parties owning shallow rights in the A and B leases of the Day lease renewal and offered them an opportunity to participate in the lease in proportion to their respective interests in the A and B leases. Petro-Lewis, as successor to the shallow rights of Stonehenge, was notified and elected not to participate. Neither Stonehenge nor Taubman was notified of the acquisition. All other interest owners participated, and the proportionate interest of each participant in the renewed Day lease was revised to allocate among the participants the one-fourth interest of Petro-Lewis and the expenses attributable to it. Sohio recorded the renewed Day lease in Fremont County on June 30, 1972. The partial assignments of that lease were similarly recorded on May 17, 1973. The recorded assignments did not show Taubman or Moncrief as owning any interest in the renewed Day lease.

Sohio proposed a deep test well on November 1, 1972, and all interest owners were given until December 1, 1972, to make a participation election. On December 1, 1972, Taubman assigned to Moncrief his contractual option to earn deep rights, reserving for himself a two percent overriding royalty convertible to a working interest at the completion of the well. Correspondingly, Moncrief agreed to pay all of the costs of the well attributable to Taubman's interest. The deep test well was spudded on February 14, 1973, and it reached total depth on August 8, 1974. The well was completed as a significant gas producer in October of 1974.

In 1976, Moncrief formed the Long Butte Unit, an exploratory unit adjacent to the Madden Deep Unit. The Long Butte Unit encompassed approximately 480 acres of the Day lease. Moncrief was the operator of the Long Butte Unit, and in preparation of the Unit Agreement, which indicates lease ownership within the Unit, Moncrief's staff became aware that he had no interest in the renewed Day lease. In July of 1977, Moncrief wrote to Inexco Oil Company inquiring as to why he had not received an interest in the renewed Day lease. Inexco referred the inquiry to Sohio which responded by letter dated October 13, 1977, relating that the lease had been tendered to Petro-Lewis in 1972 and that Petro-Lewis had elected not to participate in the reacquisition of the lease. Thus, Moncrief became aware that he and Taubman had lost the deep rights to that tract. Thereafter, several producing wells were drilled in the Long Butte Unit significantly increasing the value of the renewed Day lease.

In the summer and fall of 1982, Moncrief, as unit operator, prepared division orders and began making distributions of proceeds from the sales of gas from the Long Butte Unit. The division orders reflected that neither Moncrief nor Taubman had...