Shell Rocky Mountain Prod. v. Ultra Resources
| Decision Date | 30 May 2003 |
| Docket Number | No. 02-CV-1039-B.,02-CV-1039-B. |
| Citation | 266 F.Supp.2d 1331 |
| Parties | SHELL ROCKY MOUNTAIN PRODUCTION, LLC, a Delaware limited liability company, Plaintiff/Counter-Defendant, v. ULTRA RESOURCES, INC., a Wyoming corporation, Defendant/Counter-Plaintiff. |
| Court | U.S. District Court — District of Wyoming |
Mark W. Gifford, Casper, Phillip D. Barber, Denver, CO, for Plaintiff.
John R. Vincent, Riverton, T. Brooke Farnsworth, Farnsworth & VonBerg, Houston, TX, for Defendant.
ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT ON OPERATORSHIP, GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT ON WELL COSTS, AND DENYING DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT
This case arises out of ongoing disputes over the operation of oil and gas wells on jointly leased properties in Sublette County, Wyoming. The matter is before the Court on: (1) Defendant and Counter-Plaintiff Ultra Resources, Inc.'s ("Ultra") Motion for Partial Summary Judgment (2) Plaintiff Shell Rocky Mountain Production, LLC's ("Shell") Motion for Summary Judgment on Operatorship; and (3) Shell's Motion for Summary Judgment on Well Costs. After reading the briefs, hearing oral argument, and being fully advised of the premises, the Court FINDS and ORDERS as follows:
Statement of Parties and Jurisdiction
Shell is a Delaware limited liability company whose principal place of business is Texas. Ultra is a Wyoming corporation whose principal place of business is either Colorado or Wyoming. This Court exercises diversity jurisdiction pursuant to 28 U.S.C. § 1332. Venue is proper under 28 U.S.C. § 1391(a), (c).
In order to resolve prior disputes, the parties entered a Settlement Agreement ("Settlement") in an underlying suit in which Ultra was a defendant and Shell (then known as McMurry Energy Company, LLC) was a plaintiff.1 The Settlement references a 1996 Farmout Agreement ("Farmout Agreement") between the parties' predecessors in interest. The parties also executed several Joint Operating Agreements ("JOAs") in conjunction with the Settlement. The Settlement essentially provides that the party with the majority ownership of jointly held working interests will be the operator of wells drilled on the joint leasehold acreage. Shell holds the majority interest in Farmout Lands, and Ultra holds the majority interest in Non-Farmout Lands. On the surface estate, these Farmout and Non-Farmout Lands alternate with each other in a checkerboard pattern.
In the spring of 2002, Shell proposed the drilling of a new well (the "Riverside 2-14 Well"). The well was proposed for a depth of 12,500 feet; however, for this block, Farmout Lands were limited to a depth of 9,931 feet. The lands below that depth ("earnings depth") were Non-Farmout Lands. Thus, Ultra immediately protested that it should be Operator, since the well would encroach into lands where it held a majority interest. However, Shell persisted that it would be Operator of the Riverside 2-14 Well.
Other wells are also at issue in this case. These wells are all located on the surface of Farmout Lands and drilled vertically to below the earnings depth, so that their bottom-hole is located in lands where Ultra owns the majority interest.
On June 28, 2002, Shell filed a declaratory judgment action to enforce the Settlement. All of the wells at issue have a surface location on Farmout Lands, where Shell holds the majority interest, and are drilled vertically so that their bottom-hole location is in lands where Ultra holds the majority interest. Shell requests a declaration that it is Operator of these wells.
On July 18, 2002, Ultra filed a Complaint against Shell in Sublette County, Wyoming, seeking: (1) damages for breach of the Settlement by Shell, and an order requiring compliance with the Settlement; and (2) reformation of the JOAs to make them comply with the terms of the Settlement. Shell filed a timely Notice of Removal on August 7, 2002. On November 15, 2002, this Court entered an Order that consolidated both cases for all purposes. When Ultra filed its Answer to Shell's Complaint in federal court, it included three counterclaims. The first two repeat Ultra's two Claims for Relief listed above. The third is for breach of the JOAs by imposing excessive drilling and operations costs.
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there are no genuine issues as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The Court views the evidence in the light most favorable to the party opposing summary judgment. Jenkins v. Wood, 81 F.3d 988, 990 (10th Cir. 1996).
The party moving for summary judgment bears the initial burden of demonstrating that there is an absence of evidence to support the nonmoving party's claims. Celotex Corp. v. Catrett, All U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The burden then shifts to the nonmoving party to establish the existence of an essential element of the claims on which it bears the burden of proof at trial. Id. "While the movant bears the burden of showing the absence of a genuine issue of material fact, the movant need not negate the nonmovant's claim." Jenkins, 81 F.3d at 990.
To satisfy this burden, the nonmoving party must go beyond the pleadings and designate specific facts to make a showing that there is a genuine issue for trial. Ford v. West, 222 F.3d 767, 774 (10th Cir.2000). In order to successfully resist summary judgment, there must be sufficient evidence on which a jury could reasonably find for the nonmoving party. Anderson v. Liberty Lobby, Inc., All U.S. 242, 251, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Furthermore, a "mere ... scintilla of evidence in support of the nonmovant's position is insufficient to create a dispute of fact that is `genuine'; an issue of material fact is genuine only if the nonmovant presents facts such that a reasonable jury could find in favor of the nonmovant." Lawmaster v. Ward, 125 F.3d 1341, 1347 (10th Cir.1997).
When the contract is clear and unambiguous, a court's inquiry into the parties' intent is limited to the four corners of the contract. Amoco Prod. Co. v. EM Nominee P'ship Co., 2 P.3d 534, 540 (Wyo.2000). "[T]he words used in the contract are afforded the plain meaning that a reasonable person would give to them." Id. The interpretation of an unambiguous contract, as well as the existence of any ambiguities, is a question of law for the court. Id. "Extrinsic evidence is not admitted to contradict the plain meaning of an unambiguous contract." Prudential Preferred Props, v. J & J Ventures, Inc., 859 P.2d 1267,1271 (Wyo.1993).
When "two instruments are executed as the evidence of one transaction, they shall be read and construed as one instrument." Slans v. Curtis, 39 Wyo. 1, 269 P. 31, 33 (1928) (internal quotation marks and citation omitted). General terms and provisions in a contract yield to specific ones, if the two provisions are not reconcilable. Landen v. Prod. Credit Ass'n of Midlands, 737 P.2d 1325, 1328 (Wyo.1987).
A court must avoid construing a contract so as to render one of its provisions meaningless, since each provision is presumed to have a purpose. Wyo. Game & Fish Comm'n v. Mills Co., 701 P.2d 819, 822 (Wyo.1985). If possible, a court should also avoid a construction leading to a conclusion that inconsistent provisions exist in the contract. Shepard v. Top Hat Land & Cattle Co., 560 P.2d 730, 732 (Wyo. 1977). In giving effect to the contracting parties' intent, a court should abide by the rule that "common sense and good faith are the necessary considerations in contract construction." Wangler v. Federer, 714 P.2d 1209,1213 (Wyo.1986).
Shell argues that the Settlement gives it the right to operate all wells drilled vertically on the surface of Farm out Lands, to all depths, regardless of which party holds the majority interest at the bottom-hole location. Ultra responds that under the Settlement, the party with the majority interest at the bottom-hole location of the well is Operator. If the Settlement is clear and unambiguous, then the Court will look no further than the four corners of that document. Section 3.2 of the Settlement reads:
PLAINTIFFS and DEFENDANTS have also settled all claims and disputes relating to who shall serve as Operator of the Farmout Lands and the Non-Farmout Lands, which lands are described in and are subject to that certain Farmout Agreement .... The surface acreages of the Farmout Lands and the Non-Farmout Lands are described in Exhibits "A" and "B" hereto, respectively. The Farmout Lands are subject to depth restrictions as set forth in the Farmout Agreement and in the Joint Operating Agreements ("JOAs") executed contemporanously herewith. Except as provided in Sections 3.4 and 4.1 herein, the parties agree that [Shell] shall be the Operator of all wells drilled on a surface location on the Farmout Lands to all depths, under the Joint Operating Agreements ("JOAs") that have been concurrently signed by the parties hereto.... The parties acknowledge that the ownership interests underlying the Farmout Lands may vary depending upon the depth to which a particular well is drilled on the Farmout Lands, and the parties have agreed on a method that will allocate all costs of exploration, drilling, operation and production, as well as all production revenues, on all wells drilled on the Farmout Lands in a manner which is consistent with the ownership interests of the parties at the various depths underlying the Farmout Lands where said costs are incurred and such production obtained, said allocation being set forth in the JOAs that the parties have executed contemporaneously herewith.
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Shell Rocky Mountain Production v. Ultra Resources
...in which it held a majority interest irrespective of the depth to which those wells were drilled. Shell Rocky Mountain Prod., LLC v. Ultra Res., Inc., 266 F.Supp.2d 1331, 1336 (D.Wyo.2003). We exercise jurisdiction pursuant to 28 U.S.C. § 1291, and affirm in part, and reverse in The predece......