San Juan Basin Consortium v. Enervest San Juan

• Citation: 67 F.Supp.2d 1213
• Decision Date: 18 October 1999
• Docket Number: No. Civ.A. 97-B-2710.,Civ.A. 97-B-2710.
• Parties: SAN JUAN BASIN CONSORTIUM, LTD., a Colorado limited partnership, WS & DM, Inc., a Colorado corporation, and Methwan Corporation, a Colorado corporation, Plaintiffs, v. ENERVEST SAN JUAN ACQUISITION LIMITED PARTNERSHIP, a Texas limited partnership, EnerVest Management Company, L.L.C., a Texas limited liability company, and EnerVest San Juan Operating, L.L.C., a Delaware corporation, Defendants.
• Court: U.S. District Court — District of Colorado

67 F.Supp.2d 1213

SAN JUAN BASIN CONSORTIUM, LTD., a Colorado limited partnership, WS & DM, Inc., a Colorado corporation, and Methwan Corporation, a Colorado corporation, Plaintiffs, v. ENERVEST SAN JUAN ACQUISITION LIMITED PARTNERSHIP, a Texas limited partnership, EnerVest Management Company, L.L.C., a Texas limited liability company, and EnerVest San Juan Operating, L.L.C., a Delaware corporation, Defendants.

No. Civ.A. 97-B-2710.

United States District Court, D. Colorado.

October 18, 1999.

Peter A. Bjork, John P. Baker, Bjork, Lindley & Danielson, PC, Denver, CO, for Plaintiffs.

Keith D. Tooley, Brian S. Tooley, Welborn Sullivan Meck & Tooley, PC, Denver, CO, for Defendants.

MEMORANDUM OPINION AND ORDER

BABCOCK, District Judge.

Defendants, EnerVest San Juan Acquisition Limited Partnership ("ESJA"), EnerVest Management Company, LLC ("EMC"), and EnerVest San Juan Operating, LLC ("ESJO") (collectively, "EnerVest" or "Defendants"), move for partial summary judgment, pursuant to Rule 56, on Plaintiffs' claim for declaratory judgment. Plaintiffs, San Juan Basin Consortium, Ltd. ("SJBC"), WS & DM, Inc. ("WS & DM"), and Methwan Corporation ("Methwan") (collectively, the "San Juan Group" or "Plaintiffs"), oppose the motion and file a cross-motion for partial summary judgment regarding the same claim. EnerVest also moves for partial summary judgment on the San Juan Group's claims of quiet title, unjust enrichment, conversion, and theft. The San Juan Group opposes these motions. The motions are adequately briefed and oral argument will not materially aid their resolution. I grant, as set forth below, EnerVest's motion for summary judgment on the San Juan Group's declaratory judgment claim and accordingly deny the San Juan Group's cross-motion. I deny EnerVest's motion for summary judgment on the San Juan Group's quiet title claim. Finally, I grant EnerVest's motion for summary judgment upon the San Juan Group's claims of unjust enrichment, conversion, and theft. Jurisdiction exists under 28 U.S.C. § 1332.

I.

The following facts are relevant to my determination of the motions and cross-motions for summary judgment. This case involves contracts concerning the production of methane gas from a coal seam under lands located in La Plata County, Colorado, within the exterior boundaries of the Southern Ute Indian Reservation.

A. The 44 Canyon Agreement

On December 21, 1987, Plaintiff WS & DM, the managing general partner of Plaintiff SJBC, entered into a contract, known as the "44 Canyon Agreement," with Bowen/Edwards Associates, Inc. ("BEA"). In that agreement, BEA offered to sell WS & DM working and net revenue interests in the "Prospect Area." Under the terms of the agreement, BEA would earn 20% "back-in" working and net revenue interests after "payout" of wells drilled in the Prospect Area. (Complaint ¶¶ 16, 23). "Payout" occurs when the working interest owners who participate in the costs of drilling and completing a well (the "consenting owners") recoup the costs and expenses of drilling and completing that well. Only then are the owners who chose not to contribute to these initial costs (the "non-consenting owners") entitled to be "back-in" among the other owners and take and sell gas production and share in the expenses and revenues associated with the well. (Nelson Affidavit, ¶ 3).

B. The Additional Acreage Agreement

On May 2, 1988, WS & DM and BEA entered into a second contract, known as the "Additional Acreage Agreement." EnerVest contends that although this contract is dated May 2, 1988, it was not signed until September 26, 1988. Pursuant to the Additional Acreage Agreement, BEA acknowledged that it had previously provided acreage leaseblocks to WS & DM "specifically identified by prospect name and approximate acreage as follows: ... BEA 44 Canyon Prospect ..." BEA also agreed that "[t]he separate, prior written agreements referred to above will remain in full force and effect." The Additional Acreage Agreement provides that "BEA ... will promptly undertake, with due diligence and best efforts, to secure and present to WS & DM proposals and agreements for the acquisition of Additional Acreage Leaseblocks (`Prospects'), which Prospects WS & DM may reject or accept in its sole discretion." Under the Additional Acreage Agreement, BEA would earn only 2.6875% "back-in" working and net revenue interests upon "payout" of wells drilled in Prospects presented by BEA and accepted by WS & DM, as opposed to the 20% BEA reserved in the 44 Canyon Agreement. (Complaint ¶¶ 17, 23). EnerVest vigorously contends that the Additional Acreage Agreement was never recorded in the La Plata County real property records at any time relevant to this action. (Answer and Counter-claims, ¶ 8).

C. The Decker Lease Assignment

The San Juan Group alleges that in 1990, BEA acquired an assignment of a portion of "the Decker Lease." The San Juan Group also contends that BEA, WS & DM, and SJBC agreed that the interests conveyed by the Decker Lease Assignment would be owned by the parties in accordance with the 44 Canyon Agreement and the Additional Acreage Agreement, as applicable. (Complaint ¶ 18). Because the San Juan Group contends that lands in the Decker Lease are governed by the Additional Acreage Agreement, it argues that BEA was entitled to the lesser percentage ownership provided in that contract. EnerVest contends, on the other hand, that the 1990 acquisition of the Decker Lease was only a formalization of an actual assignment that had taken place in August 1988, before the Additional Acreage Agreement was in effect and, therefore, the higher percentages in the 44 Canyon Agreement should apply.

The Decker Lease included an oil and gas leasehold for sections 4 and 5 of Township 32. ("the Sections 4 and 5 lands"). (Complaint ¶ 18). The San Juan Group contends that the Sections 4 and 5 lands are not within the parameters of the Prospect Area as defined by the 44 Canyon Agreement. Nor are the Sections 4 and 5 lands within the region known as the "44 Canyon" and, therefore, the San Juan Group contends that those lands are governed by the Additional Acreage Agreement, not the 44 Canyon Agreement. (Complaint ¶ 19). However, EnerVest contends that the parties to the 44 Canyon Agreement, including SJBC, acknowledged that the leasehold interests in Sections 4 and 5 were owned in proportion to the parties' respective interests in the 44 Canyon Agreement, not the Additional Acreage Agreement.

WS & DM conveyed its interest in the Decker Lease to SJBC, which, in turn, sold part of the interest to the Phelps-Tointon Group. The Phelps-Tointon Group later sold its interest back to BEA. The interest sold by the Phelps-Tointon Group to BEA is not at issue. (Complaint ¶ 20).

D. The BEA-Emerald Assignment

In December 1991, BEA assigned all of its interests in the Sections 4 and 5 lands to Emerald San Juan Company ("Emerald") ("the BEA-Emerald Assignment"), the predecessor in interest to EnerVest. The BEA-Emerald Assignment made no mention of WS & DM, SJBC, or their alleged interests in the Sections 4 and 5 lands. Although the San Juan Group contends that the Sections 4 and 5 lands are governed by the Additional Acreage Agreement (with a 2.6875% back-in for BEA) and not the 44 Canyon Agreement (with a 20% back-in for BEA), (Complaint ¶¶ 19, 23), the BEA-Emerald Assignment states that it is "made pursuant to and subject to that certain 44 Canyon Participation and Subscription Agreement." (Complaint ¶ 21).

E. The Emerald-SJBC Assignment

In October 1994, Emerald assigned to SJBC ("the Emerald-SJBC Assignment") the following interests in the Sections 4 and 5 lands: (1) "`an undivided 26.81036% working interest from the surface of the earth to and including the base of the Fruitland Formation;'" and (2) "`an undivided 85.00000% working interest (to be adjusted after payout) from the base of the Fruitland Formation to and including 100 feet below the base of the Fruitland Formation.'" Although the working interests conveyed by the Emerald-SJBC Assignment are conceded as accurate, the San Juan Group alleges that the assignment does not correct the misstatement in the BEA-Emerald Assignment, that it was purportedly "made pursuant to and subject to that certain 44 Canyon Participation and Subscription Agreement." (Complaint ¶ 21). Emerald is EnerVest's predecessor in interest. Therefore, Emerald's interests eventually inured to EnerVest.

F. Ratification and Joinder to Operating Agreement

Concurrently with the October 1994 Emerald-SJBC Assignment, Emerald and SJBC entered into a separate agreement regarding the Amax Suit # 5-5 Well, which states, in relevant part: "SJBC agrees that the interest which it has been assigned ... in and to the Well was granted and accepted with the understanding that SJBC will be treated as a `non-consenting owner' within the context of the provisions of Section 34-60-116(b)(1) and (b)(11) of the Colorado Revised Statutes...." (Complaint ¶ 25).

G. The Subject Wells

Two coalbed methane gas wells, the "Meridian # 401" (a/k/a Burlington Resources # 401) and the "Amax Suit # 5-5" (a/k/a Cedar Ridge SU # 5-5) (collectively, "the Subject Wells"), are the wells at issue in this case. The Meridian # 401 is located on Section 4 lands, was drilled on October 28, 1991, and is 50% owned and wholly operated by Burlington Resources Oil and Gas Company. The Amax Suit # 5-5 is located on Section 5 lands, was drilled on September 15, 1992, and is wholly operated by Cedar Ridge LLC, which likewise owns an undisputed 50% working interest in that well. SJBC and EnerVest, together, own the remaining 50% working interests in both wells, but dispute the percentages of their respective interests. (Complaint ¶ 10).

SJBC did not participate or contribute a proportionate share of the drilling and completion costs of the Subject Wells and, consequently, became a "nonconsenting owner" under C.R.S. § 34-60-116(7)(b) whose interest was subject...