Sound Energy Co. v. Ascent Res. - Utica, LLC

• Decision Date: 23 March 2021
• Docket Number: Civil Action 2:18-cv-1771
• Parties: SOUND ENERGY COMPANY, INC., et al., Plaintiffs, v. ASCENT RESOURCES - UTICA, LLC, et al., Defendants.
• Court: U.S. District Court — Southern District of Ohio

SOUND ENERGY COMPANY, INC., et al., Plaintiffs, v. ASCENT RESOURCES - UTICA, LLC, et al., Defendants.

Civil Action 2:18-cv-1771

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF OHIO EASTERN DIVISION

March 23, 2021

Magistrate Judge Elizabeth P. Deavers

OPINION AND ORDER

Plaintiffs, Sound Energy Company, Inc. ("Sound Energy"), Bruce A. Levengood, Robert F. Timmerman, Michael L. Demattio, Charles A. Baker, and Cassandra McCune, Individually and as Executor of the Estate of Michael McCune, bring this action asserting claims against Defendants Ascent Resources - Utica, LLC ("Ascent") and Carrizo (Utica) LLC ("Carrizo") arising out of various oil and gas leases covering properties in Guernsey County, Ohio.

With the consent of the parties and by Order of Reference (ECF No. 10), pursuant to 28 U.S.C. § 636(c), this matter is before the Court for consideration of the parties' summary judgment briefing: Plaintiffs' Motion for Partial Summary Judgment (ECF No. 41) ("Plaintiff's Motion"); Defendant Carrizo (Utica) LLC's Motion for Summary Judgment (ECF No. 43) ("Carrizo's Motion"); and Defendant Ascent Resources - Utica, LLC's Motion for Summary Judgment (ECF No. 44) ("Ascent's Motion").¹ Each Motion has been fully briefed and is ripe for review. (See ECF Nos. 42, 67-70, 73-75.)

This matter also is before the Court for consideration of Plaintiffs' Motion to Strike Portions of Ascent Resources - Utica, LLC's Motion for Summary Judgment (ECF No. 71) (the "Motion to Strike"). Defendants did not formally respond to the Motion to Strike, but Ascent filed a Notice of Filing of Table of Contents to its Motion for Summary Judgment Against Plaintiffs which appears to respond to some of the concerns set forth in the Motion to Strike. (ECF No. 72.) To the extent Ascent's filing constituted a response, Plaintiffs did not file a Reply, and the Motion to Strike is therefore ripe for review.

For the following reasons, Plaintiffs' Motion for Partial Summary Judgment (ECF No. 41) is DENIED; Defendant Carrizo (Utica) LLC's Motion for Summary Judgment (ECF No. 43) is GRANTED; and Defendant Ascent Resources - Utica, LLC's Motion for Summary Judgment (ECF No. 44) is GRANTED IN PART, as to Counts Four, Five and Seven, and DENIED IN PART WITHOUT PREJUDICE to refiling as to Counts One and Two. Additionally, Plaintiffs' Motion to Strike Portions of Ascent Resources - Utica, LLC's Motion for Summary Judgment (ECF No. 71) is DENIED.

I. FACTUAL BACKGROUND

This case arises out of a number of oil and gas leases for properties throughout Guernsey County, Ohio. Some of the leases date back to the 1960s and 1970s, while others were onlycreated in the past ten years. The transfer history of these leases is largely not in dispute. The parties' respective rights under the subject leases, on the other hand, remain disputed. To properly frame the parties' disputes, the Court will first establish the timeline of when the parties created and transferred the subject leases, and then set forth the undisputed facts regarding how the parties have performed under the subject leases.

A. The Parties' Creation and Transfers of the Subject Leases

1. 2012: Plaintiffs Own the Sound Energy Leases and Assign Themselves Overriding Royalty Interests

Sound Energy is an oil and gas exploration company which owns numerous oil and gas leases covering real property throughout Ohio. (ECF No. 18 at PAGEID # 578, ¶ 10.) In 2012, Sound Energy, together with five individuals, Plaintiffs Levengood, Timmerman, Demattio, Baker, and McCune (collectively, the "Individual Plaintiffs"), jointly owned eighteen (18) oil and gas leases covering lands in Guernsey County, Ohio (the "Sound Energy Leases"). (ECF No. 59-1 at PAGEID ## 3428-3429; see also ECF No. 59-1 at PAGEID ## 3403-3426; ECF No. 52 at PAGEID # 2709.)² The Sound Energy Leases, identified below by the original Lessors' names, are the subject of this case:

• Wayne A. Dorst (the "Dorst Lease");

• Rex. C and Cecilia Murray (the "Murray Lease");

• Roland B. and Alicia Estep (the "Estep Lease");

• Fred & Irene Montgomery (the "Montgomery Lease");

• Marguerite Bond (the "M. Bond Lease");

• Lee R. and Kathleen Angle (the "Angle Lease");

• John and Martha McElhaney (the "J. and M. McElhaney Lease");

• Lewis R. and Ferna E. Hibbs (the "Hibbs Lease");

• John J. and Evelyn L. Pribonic (the "Pribonic Lease");

• John A. and Martha McElhaney (the "J.A. and M. McElhaney Lease");

• William F. and Ruth McCormick (the "McCormick Lease");

• Dell J. Merryman (the "Merryman Lease");

• Lewis W. Latham, et al. (the "Latham Lease");

• Eugene and Janet Bond (the "E. and J. Bond Lease");

• Kenneth G. and Bernice McClelland (the "K. and B. McClelland Lease");

• Walter H. Baird (the "Baird Lease");

• Donald McClelland (the "D. McClelland Lease"); and

• Glenn B. and Lauretta Downerd (the "Downerd Lease").

(See ECF No. 59-1 at PAGEID # 3429.)

On June 25, 2012, Sound Energy assigned to each Individual Plaintiff a working interest in the Sound Energy Leases. (ECF No. 59-1 at PAGEID ## 3441-3442.) Also on June 25, 2012, Sound Energy assigned to each Individual Plaintiff an overriding royalty interest ("ORRI") in the Sound Energy Leases. (Id. at PAGEID ## 3472-3475 (the "ORRI Assignment").) Critically, the ORRI Assignment contained language that the ORRI applied to the Sound Energy Leases "and any replacement or substitutes therefor." (Id. at PAGEID # 3472.) The ORRI Assignment further provided that Plaintiffs' ORRI was "limited to and only insofar as such relates to or includes the Geologic Formation," which was defined as "all subsurface depths from the bottom [of] the Clinton formation to the center of the earth." (Id.)³

2. 2012, 2014: Plaintiffs Obtain Amendments and Ratifications of Some of the Sound Energy Leases

In late 2012, Plaintiffs obtained amendments and ratifications of three of the Sound Energy Leases. (ECF No. 59-1 at PAGEID ## 3477-3485 (regarding the Downerd Lease); 3529-3546 (regarding the J. and M. McElhanney Lease and the Murray Lease) (the "2012 Amendments and Ratifications").) In May 2014, Plaintiffs obtained amendments and ratifications of three more of the Sound Energy Leases. (ECF No. 59-1 at PAGEID ## 3486-3528 (regarding the Merryman Lease, the Angle Lease, and the M. Bond Lease) (the "2014 Amendments and Ratifications").) The 2012 Amendments and Ratifications and the 2014 Amendments and Ratifications were substantially similar, in that they added pooling provisions to the subject Sound Energy Leases in anticipation that Plaintiffs would then assign portions of the subject Sound Energy Leases to Carrizo. (ECF No. 50 at PAGEID # 2343.)

Of note, each of the 2012 Amendments and Ratifications and the 2014 Amendments and Ratifications contained language that each subject lease was "currently held by production on the Leased Premises or on lands pooled therewith . . . and it is the desire of the Parties to modify and amend the Lease to more prudently investigate, explore, prospect, and drill for, develop and produce the Leased Premises for oil and gas and prevent any future disputes, and to also ratify and confirm the Lease[.]" (See ECF No. 59-1 at PAGEID ## 3479 (regarding the Downerd Lease); 3493 (the Merryman Lease); 3502 (the Angle Lease); 3512, 3523 (the M. Bond Lease), 3531 (the J. and M. McElhaney Lease); 3540 (the Murray Lease).)

3. 2014-2016: Carrizo Obtains Working Interests in the Deep Horizons and Drills Wells Pursuant to the Sound Energy Leases

On June 11, 2014, after executing the 2014 Amendments and Ratifications, Plaintiffs assigned their working interests in the Deep Horizons from three of the Sound Energy Leases to Carrizo. (ECF No. 18 at PAGEID ## 608-615 (regarding the M. Bond Lease, the Angle Lease,and the Merryman Lease).) In March 2015, Carrizo unitized the Wagler LNG DR Unit (the "Wagler Unit") and drilled two wells, the Wagler 1H and the Wagler 2H, within the Wagler Unit. (ECF No. 60-1 at PAGEID ## 3703-3720.) Thereafter, Carrizo produced oil and gas from the Wagler 1H and Wagler 2H wells, for which Carrizo paid Plaintiffs royalties pursuant to the ORRI. (ECF No. 50 at PAGEID # 2361.)

4. 2016: Carrizo Enters into the Carrizo Leases

In November and December 2016, Carrizo entered into top leases⁴ with landowners of the property subject to five of the Sound Energy Leases: the Downerd Lease, the Angle Lease, the Merryman Lease, the J. and M. McElhaney Lease, and the Murray Lease. (ECF No. 18 at PAGEID ## 616-630 (the "Carrizo Leases").) Operating as top leases, the Carrizo Leases would become effective "immediately upon the expiration, termination, cancellation, surrender, release, forfeiture or other cessation of the Base Lease[s]," referring to the corresponding Sound Energy Leases. (Id.)

5. 2017-2018: Ascent Obtains Carrizo's Working Interest in the Sound Energy Leases and Carrizo's Interest in the Carrizo Leases; Ascent Enters into the Ascent Leases; and Ascent Operates the Wagler Unit and the Hoop Unit

In November 2017, Carrizo assigned its interests in several oil and gas leases to Ascent. (ECF No. 61-1 at PAGEID ## 3843-3947 (the "2017 Assignment"). Through the 2017 Assignment, Ascent acquired the Carrizo's working interest in the Deep Horizons from the Sound Energy Leases, including Carrizo's working interest in the Wagler Unit, and Carrizo's interest in the Carrizo Leases. (Id.) Ascent then entered into five additional top leases. (ECF No. 62-1 at PAGEID ## 3960-4051 (the "Ascent Leases").)

Accordingly, by the end of 2017, Ascent held the working interest in the Deep Horizons from some of the Sound Energy Leases (including the working interest in the Wagler Unit),⁵ the full interest in the Carrizo Leases, and the full interest in the Ascent Leases. On January 4, 2018, Ascent unitized another oil and gas well unit, the Hoop LND GR Unit (the "Hoop Unit"), on property that was covered by the Ascent Leases and the Carrizo Leases. (ECF No. at 62-1 at PAGEID ## 4053-4064.) In February and March of 2018, Ascent drilled wells...