Pca Minerals LLC v. Merit Energy Co.

• Decision Date: 28 July 2015
• Docket Number: Case No. 1:13-cv-1243
• Parties: PCA MINERALS LLC, Plaintiff, v. MERIT ENERGY COMPANY, LLC, Defendant.
• Court: U.S. District Court — Western District of Michigan

PCA MINERALS LLC, Plaintiff, v. MERIT ENERGY COMPANY, LLC, Defendant.

Case No. 1:13-cv-1243

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION

July 28, 2015

Hon. Hugh W. Brenneman, Jr.

OPINION

On October 8, 2013, plaintiff PCA Minerals LLC ("PCA") filed a complaint in the Manistee County Circuit Court for declaratory judgment and other relief against defendant Merit Energy Company, LLC ("Merit Energy") regarding PCA's rights to share in the production of oil and gas from certain property in Manistee County, Michigan, that has been included in unitized and pooled areas that have been, and are, producing oil, gas and other hydrocarbons. Compl. (docket no. 1-1). Merit Energy removed the action to this Court based upon diversity jurisdiction. See Amended Notice of Removal (docket nos. 1 and 8); 28 U.S.C. § 1332. This matter is now before the Court on PCA's "Motion for partial summary judgment regarding PCA's interest in the lands" (docket no. 73), PCA's "Motion for partial summary judgment regarding the extinguishment of defendant's lease covering PCA's lands" (docket no. 74), PCA's "Motion for partial summary judgment regarding the applicable statute of limitations that applies to PCA's claims" (docket no. 75), and Merit Energy's "Motion, pursuant to Fed. R. Civ. P. 56, for summary judgment against plaintiff PCA Minerals LLC" (docket no. 77).

I. PCA's claims

A. Overview

In its complaint, PCA alleged that it is entitled to a share of the production from two separate tracts in the unitized and pooled areas that Merit Energy operates. Compl. at ¶ 1. At the heart of PCA's claim is that a certain conveyance dated January 11, 1955 (sometimes referred to herein as the "Belcher Deed") created a 50-year fixed term interest in the oil, gas and other minerals which expired on January 10, 2005. Id. at ¶ 21. PCA alleged that its right to share in the production accrued on January 11, 2005, but that Merit Energy has not accounted for, calculated or paid PCA its share of the production. Id. at ¶ 1. Specifically, PCA alleged that it has been the rightful owner of oil, gas and minerals in the property since January 11, 2005, that it has a .289315 interest in the yearly production of the Manistee 24 Unit, which produced 168,520 Mcf ¹ of gas "from January 2005 through early summer 2013", and that it has a .50 interest in the yearly production of Bahr Unit, which produced 196,660 McF of gas and 50,145 barrels of oil during that same time period. Id. at ¶¶ 27, 45-47.

B. PCA's ownership interest

This lawsuit involves the ownership of certain mineral rights in certain real estate (the "property") located in Manistee County, Michigan, described as follows:

The South Half (S 1/2) of Southwest Quarter (SW 1/4) excepting and reserving a strip one rod wide along the East side thereof for highway, and the Northwest Quarter (NW 1/4) of Southeast Quarter (SE 1/4) of Section Twenty-four (24), Township Twenty-two North (22), Range Sixteen West (16), containing in all one hundred nineteen & 23/100 (119.23) acres more or less.

In a warranty deed dated January 11, 1955, recorded January 24, 1955 in Liber 176, Page 470, Roy S. Belcher and Susye L. Belcher, husband and wife, as grantors, conveyed the property to the North American Timber Company, a Michigan Corporation,

Excepting and reserving unto the said grantors exclusive rights to all oil, gas and mineral rights in and under the foregoing described premises for a period of fifty (50) years after the execution of this deed, together with the right of ingress and egress thereon and the use of the surface of said real estate as may be reasonably necessary for the development and production of such oil, gas and minerals.

Belcher Deed (docket no. 73-3 at p. ID# 635).² Neither party disputes that Roy S. Belcher owned the mineral rights to the property when he executed this deed on January 11, 1955.³

In Agreement of Merger dated June 24, 1963, North American Timber Company merged into and became Packaging Corporation of America. See Agreement of Merger, recorded in Liber 248, Page 241 (docket no. 73-8).

In a deed dated June 8, 1965, recorded June 14, 1965, in Liber 264, Page 83, Packaging Corporation of America conveyed to PKG Corporation the "[s]urface and remainder interest in oil, gas and minerals in and to the S1/2 SW1/4; NW1/4 SE1/4 of Section 24, Township 22 North, Range 16 West, being lands conveyed by Deed dated 1-11-55 and recorded in Liber 176, Page 470." See Deed (docket no. 83-8 at pp. ID## 1536-37, 1553). However, this deed contained errors with respect to the names of the grantor and grantee, and a corrective quit claim deed was recorded in 1967 to confirm that the grantee, the former PKG, was now known as PackagingCorporation of America.⁴ See Diehlman v. Dwelling - House Ins. Co., 78 Mich. 141, 43 NW 1045 (1889) (corrective deed permitted to have retroactive effect to remedy a faulty description of the real property).

In 1989 and 1992, Packaging Corporation of America conveyed portions of the surface estate of the property. Each of the deeds reserved the grantor's interest in oil, gas and other hydrocarbons. See Warranty Deed, recorded in Liber 518, Page 449 (docket no. 73-12 at pp. ID## 717-18); Warranty Deed, recorded in Liber 561, Page 258 (docket no. 73-12 at pp. ID## 719-20); Warranty Deed, recorded in Liber 570, Page 28 (docket no. 73-12 at pp. ID## 721-22).

In a Notice of Intention to Retain Mineral rights, dated March 31, 1992, filed April 22, 1992 in Liber 557, Page 799, Packaging Corporation of America identified itself as "the owner of the oil, gas and minerals" on several tracts, including the following lands in Section 24, T 22North, R 16 W: "S1/2 SW1/4 EXC a strip 1 rod wide along the East side thereof for hwy; NW1/4 SE1/4." See Notice of Intention (docket no. 73-13).

On November 2, 1995, Packaging Corporation of America filed a Certificate of Amendment, changing its name to "Tenneco Packaging Inc." See Delaware Secretary of State filing, Liber 727 Page 362 (docket no. 73-14).

In a Quit Claim Mineral Deed dated September 29, 1997, recorded in Liber 660, Page 483, Tenneco Packaging, Inc. conveyed to Martin-Marks I L.L.C., "all of the interest of the Grantor, if any, in the minerals on, in and under and that may be produced in the Counties of . . . MANISTEE . . . including, without limitation, the land described on Exhibit A attached hereto. . . including, without limitation, all oil, gas and other hydrocarbon substances . . ." See Quit Claim Mineral Deed (docket no. 73-15) (emphasis in original). The real estate described in Exhibit A included the following lands in Section 24, T 22 North, R 16 W: "S1/2 SW1/4 EXC a strip 1 rod wide along the East side thereof for hwy; NW1/4 SE1/4." Id. at p. ID# 734.

Martin-Marks I, L.L.C. changed its name to "PCA Minerals LLC" effective August 17, 2011. See Amendment to the Articles of Organization of Martin-Marks I, L.L.C. (docket no. 73-16 at p. ID# 740).

C. Development of the property

On September 22, 1972, Roy S. Belcher, a single person, executed an oil, gas and mineral lease in favor of Shell Oil Company, which was recorded in Liber 310, Page 548, and which granted a lease on the following property located in Manistee County, Michigan:

TOWNSHIP 22 NORTH, RANGE 16 WEST

SECTION 24: S1/2 of SW1/4 and NW Frl 1/4 of SE Frl 1/4 (limited to whatever interest lessor may have in said property)

Belcher Lease (docket no. 73-17 at p. ID# 744).

Paragraph 2 of the lease included a primary term of five years:

Unless sooner terminated or no longer kept in force under other provisions hereof, this lease shall remain in force for a term of five (5) years from the date hereof, hereinafter called "primary term", and so long thereafter as operations, as hereinafter defined, are conducted upon said land with no cessation for more than ninety (90) consecutive days.

Id. Under the lease, the Shell Oil Company agreed to pay Belcher a royalty equal to one-eighth (1/8th) part of all oil produced and saved by the lessee from the property. Id. at ¶ 3.

In its complaint, PCA alleged a chronology of the development of the oil and gas rights excepted and reserved in the Belcher Deed. In this chronology, PCA refers to the property as "the Lands." Merit does not contest this chronology, having admitted these allegations in its answer. See Answer at ¶¶ 28-41 (docket no. 7). These admitted facts are no longer at issue⁵:

28. As for the oil and gas development of the Lands, as noted, Belcher executed the Lease with, Shell Oil Company on September 22, 1972. Exhibit 6. Shell Oil Company initially drilled a natural gas well, the State Manistee & Ryder 1-24, located at the center of the E/2 of the SW/4, encompassing a portion of the Lands (the "St. Ryder 1-24"). The St. Ryder 1-24 was drilled on an eighty- acre permitted well spacing unit consisting of the E/2 SW/4, Section 24, T22N, RI6W. See Ryder 1-24 Permit to Drill, Exhibit 16.

29. The eighty-acre acre [sic] production unit upon which the Ryder 1-24 was drilled was expanded to encompass additional acreage via a Pooling Agreement dated May 5, 1977. The Pooling Agreement included that portion of the Landsdescribed as Section 24, S/2 SW/4, containing 80 acres. See Pooling Agreement, Liber 356 Page 629, Exhibit 17. Under the Pooling Agreement, all unitized substances produced were allocated to each tract that comprised the Unit Area in proportion to the acreage contained in that tract. Id. As explained below, this acreage was eventually included in what is now known as the Manistee 24 Unit.

30. In February of 1976, Shell Oil Company drilled a well located at the SE/4 SW/4 of the NE/4, Section 24, T22N, RI6W, the Bahr et al. 4-24 (the "Bahr Well"). The Bahr Well was completed on an eighty-acre permitted well spacing unit consisting of the SW/4 NE/4 and NW/4 SE/4 of Section 24, T22N-RI6W (the "Bahr Unit"). A Declaration of Pooling dated January 26, 1978 established the Unit, and specifically references the Lease.

...