State v. Moncrief
| Decision Date | 03 June 1986 |
| Docket Number | No. 85-283,85-283 |
| Citation | 720 P.2d 470 |
| Parties | The STATE of Wyoming, Ed Herschler, Thyra Thomson, James B. Griffith, Stan Smith, and Lynn Simons, as members of the Board of Land Commissioners, James B. Griffith, as State Auditor, and Howard M. Schrinar, as Commissioner of Public Lands, Appellants (Defendants), v. W.A. MONCRIEF, Jr., Texaco Oil Company, Monsanto Oil Company, nka BHP Petroleum Company, Inc., ANR Production Company, Coastal Oil and Gas Corporation, Sohio Petroleum Company, Grace Petroleum Corp. and C.B. Moncrief, Appellees (Plaintiffs). |
| Court | Wyoming Supreme Court |
A.G. McClintock, Atty. Gen., Michael L. Hubbard, Senior Asst. Atty. Gen., Michael R. O'Donnell and Clinton D. Beaver, Asst. Attys. Gen., for appellants.
Morris R. Massey and William H. Brown of Brown, Drew, Apostolos, Massey & Sullivan, Casper, for appellees W.A. Moncrief, Jr. and C.B. Moncrief.
Marvin G. Twenhafel, Denver, Colorado; and Richard L. Williams of Williams, Porter, Day & Neville, P.C., Casper, for appellee Texaco Oil Co.
William T. Schwartz of Schwartz, Bon, McCrary & Walker, Casper, Bruce F. Kiely, Thomas J. Eastment, and Peter A. Moir of Baker & Botts, Washington, D.C., and Kenneth R. Satterly, Houston, Tex., for appellee Monsanto Oil Co. nka BHP Petroleum Co., Inc.
Houston G. Williams of Williams, Porter, Day & Neville, P.C., Casper, for appellee ANR Production Co.
H. Vincent Draa, III, Houston, Tex., and Thomas A. Nicholas of Hirst & Applegate, Cheyenne, for appellee Coastal Oil and Gas Corp.
John S. Carr, Houston, Tex., Warren J. Ludlow, Dallas, Tex., and Paul B. Godfrey and John A. Sundahl of Godfrey & Sundahl, Cheyenne, for appellee Sohio Petroleum Co.
Robert C. Hawley and Gretchen VanderWerf of Hawley & VanderWerf, Denver, Colo., for appellee Grace Petroleum Corp.
Before THOMAS, C.J., and BROWN, CARDINE, URBIGKIT and MACY, JJ.
This case involves the interpretation and construction of the royalty clauses contained in six oil and gas leases on common school and state law library lands. The district court entered partial summary judgment in favor of the lessees. The State has appealed.
We reverse.
The State raises the following issues:
The facts were stipulated to by all of the parties 1 and include the following. The six leases which are the subject of this dispute were executed from 1967 to 1976 and cover common school and state law library lands in Fremont County. In 1976, these leased lands were made part of the Long Butte Unit Area, which produces substantial quantities of natural gas. Each lessee's respective share of the gas produced is sold pursuant to a contract between the lessee and its purchaser.
Since December 1979, gas has been sold by the lessees, and royalties have been paid to the State based on the amount realized from the sales. In May of 1983, as a result of an audit conducted by the Natural Resources Production Audit Group, the state auditor issued a demand letter to the lessees in which he alleged that the State had not received all of the royalties due. According to the state auditor, the royalties should have been calculated on the basis of the highest price received by any working interest owner in the Long Butte Unit. The lessees disputed this interpretation of the leases and filed a declaratory judgment action in the district court.
The lessees' complaint requested a declaratory judgment that, under the terms of the leases, "[r]oyalties payable to the State are to be computed and paid on the basis of the amounts realized by each lessee from the sale of its gas at the wells." The State responded by asserting that (1) the trust nature of common school and state law library lands requires that the gas be sold at current fair market value; (2) the leases require that the value of gas for royalty purposes be approved by the lessor; and (3) the leases require that state royalties be paid on gas at no less than the price received by the United States for its royalties. The parties agreed to limit the legal issue before the district court to " 'the legal basis for determining the royalty amounts payable to the State for gas produced and sold from the State leases in the Long Butte Unit.' " The parties filed motions for summary judgment. Finding the amount realized to be the proper basis for computing royalty payments, the district court denied the State's motion and entered summary judgment in favor of lessees. The question is now before this Court pursuant to a Rule 54(b), W.R.C.P., determination that there is no just reason for delay.
The disputed royalty provisions contained in the six leases, drafted by the State, are identical and state in part:
For convenience, the provision under subsection (d)(ii) of the leases will be referred to in this opinion as the market-value/amount-realized provision. The provision stating that "the value shall be as approved by the lessor" will be referred to as the lessor-approval provision. Finally, the clause beginning "in no event" will be referred to as the federal-floor provision.
Upon reviewing the royalty provisions quoted above, the district court determined that the leases were ambiguous. The court, therefore, looked to extrinsic evidence to aid its interpretation and construction. The district court's examination of the evidence disclosed that the lessor-approval and federal-floor provisions were part of the leases as originally drafted. The market-value/amount-realized provision, however, was added later. Despite the retention of the lessor-approval and federal-floor provisions, the district court concluded that the addition of the market-value/amount-realized provision had the effect of "superseding" the lessor-approval and federal-floor provisions.
The State contends before this Court that in reading the lessor-approval and federal-floor provisions out of the leases, the district court in effect rewrote the leases contrary to the parties' intent and the law. In contrast, lessees claim that the court merely "reconciled" what were clearly conflicting provisions of the leases.
An oil and gas lease is a contract and must be construed under the doctrines applicable to contracts. Kuehne v. Samedan Oil Corporation, Wyo., 626 P.2d 1035 (1981). In Amoco Production Company v. Stauffer Chemical Company of Wyoming, Wyo., 612 P.2d 463, 465 (1980), we stated the general rules for contract interpretation:
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