Justia Energy, Oil & Gas Law Opinion Summaries

This case stemmed from a dispute over the proper calculation of royalty payments on state oil and gas leases. Over the years, the Legislature has enacted several versions of the statutory oil and gas lease, and Lessees have entered into “hundreds” of oil and gas leases with the State. Specifically, the New Mexico Legislature enacted statutory oil and gas leases in 1919, 1925, 1927, 1929, 1931, 1945, 1947 and 1984. This appeal concerned the royalty clauses contained in the 1931 and the 1947 statutory lease forms. Both the 1931 lease and 1947 lease specified that the payment of royalty was to be calculated as a percentage of the “net proceeds” resulting from the sale of gas. During 2005 and 2006 Commissioner audited ConocoPhillips Company and Burlington Resources Oil & Gas Company’s royalty payments. Following the Audit, Commissioner notified Lessees that they had been underpaying their royalty obligations and issued them assessments for the underpayment. The Commissioner claimed that pursuant to the terms of the statutory lease forms Lessees could not deduct the post-production costs necessary to prepare the gas for the commercial market when calculating their royalty payments. Commissioner claimed that the improper deductions for post-production costs resulted in ConocoPhillips underpaying royalties by approximately $18.9 million and Burlington underpaying by approximately $5.6 million. In response to Commissioner’s audit and assessments, Lessees filed a complaint in the district court seeking a declaration that Commissioner’s assessment of additional royalty constituted a deprivation of due process, an unconstitutional impairment of contract, and breach of contract. In addition, Lessees claimed that Commissioner had exceeded his constitutional and statutory powers by issuing the assessments and had effectively usurped legislative power by seeking royalty payments under calculation methods not approved by the Legislature. In response, Commissioner alleged a host of counterclaims for breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of the implied covenant to market. This appeal pertained to three orders granting summary judgment on behalf of Lessees and a fourth order denying Commissioner’s motion for reconsideration of the district court’s previous dismissal of his counterclaim for breach of the implied covenant to market. In the first order, the district court granted Lessees’ motion for summary judgment. Upon review of the several orders and claims before the Supreme Court on appeal, the Court affirmed the trial court's grant of summary judgment. View "ConocoPhillips Co. v. Lyons" on Justia Law

Bowers Oil and Gas, Inc. (BOG) entered into a Gas Purchase Contract with Kinder Morgan Operating, L.P. (Kinder Morgan), pursuant to which Kinder Morgan agreed to purchase coal bed methane gas from certain of BOG's wells. Kinder Morgan transferred its interest in the Contract, and Kinder Morgan's successor eventually terminated the Contract pursuant to a provision that allowed either party to terminate if in the terminating party's sole opinion, the sale or purchase of the gas became unprofitable or uneconomical. BOG thereafter filed suit asserting claims for breach of contract and breach of the covenant of good faith and fair dealing. Following a bench trial, the district court found no contract breach or covenant breach and ruled in favor of Kinder Morgan and its successor. Upon review, the Supreme Court affirmed. The Court found no breach of contract in the successor's removal of the pipelines connecting BOG to the gas gathering system and that the Gas Purchase Contract was properly terminated for economic cause. Furthermore, the Court found no clear error in the district court's rejection of BOG's claim for breach of the implied covenant and fair dealing. View "Bowers Oil & Gas, Inc. v. DCP Douglas, LLC" on Justia Law

This case arose from an underlying dispute involving three parties related to an alleged breach of an assignment agreement. The three parties disagreed over the appointment of arbitrators to hear their dispute. The agreement to arbitrate seemed designated for a two-party dispute. Notwithstanding that the parties agreed to arbitrate before three arbitrators, the district court ordered the parties to proceed to arbitration before five arbitrators: three party-appointed arbitrators, who would then choose two neutral arbitrators. If the party-appointed arbitrators could not agree, the district court ordered the parties to petition for appointment of the two neutral arbitrators. On appeal, the Fifth Circuit Court of Appeal affirmed in part and vacated in part the district court's judgment, holding (1) there was a lapse in the naming of the arbitrators in the parties' agreement; (2) the district court was authorized to exercise appointment power under 9 U.S.C. 5; and (3) the district court erred in deviating from the parties' express agreement to arbitrate before a three-member panel. Remanded. View "BP Exploration Libya Ltd. v. ExxonMobil Libya Ltd." on Justia Law

Joseph purchased the BP franchise in 2006 for $400,000. In 2009, Sasafrasnet purchased BP’s interests in the land and a Dealer Lease and Supply Agreement, becoming lessor and franchisor. The DLSA authorizes Sasafrasnet to terminate if Joseph fails to make payment according to EFT policy, causing a draft to be dishonored as NSF more than once in 12 months; Sasafrasnet is not obligated to extend credit, but did deliver fuel before collecting payment. There were several instances of NSF EFTs; Sasafrasnet began to require payment in advance. Later, Sasafrasnet allowed Joseph to resume paying by EFT within three days of delivery, but established a $2,500 penalty for any NSF and stated that pre-pay would resume if he incurred two more NSFs. There were additional NSFs, so that Joseph had incurred nine for amounts over $20,000 and three for amounts over $45,000. Sasafrasnet gave Joseph 90 days’ notice that it was terminating his franchise, listing the NSFs and failing scores on a mystery shopper inspection as bases for termination. Joseph sued under the Petroleum Marketing Practices Act, 15 U.S.C. 2801. The district court denied a preliminary injunction to prevent the termination. The Seventh Circuit reversed, holding that the statute requires additional findings.View "Joseph v. Sasafrasnet, LLC" on Justia Law

The Stockmans entered into an extension of their mineral lease with Chesapeake Louisiana, L.P. and received a $240,000 bonus. In May 2008, the Stockmans entered into a mineral lease with Petrohawk Properties, L.P. for a $1.45 million bonus. Petrohawk then dishonored the draft and executed a second mineral lease with the Stockmans, paying them a $1.7 million bonus. Chesapeake sued the Stockmans for breach of contract, and the parties settled at trial. The Stockmans then sued Petrohawk for fraud in obtaining the first mineral lease, and Chespeake sued Petrohawk for intentional interference with its contract with the Stockmans. The district court (1) found that Petrohawk procured the first mineral lease by fraud and rescinded the lease, (2) dismissed Chesapeake's tort claim, and (3) dismissed Petrohawk's claim for a return of its bonus money. The Fifth Circuit Court of Appeals affirmed, holding (1) Petrohawk obtained the first lease by fraud, and the district court did not err in rescinding the lease, awarding attorney's fees to the Stockmans; (2) the district court did not err in dismissing Petrohawk's counterclaim for the return of the lease bonus; and (3) the district court correctly dismissed Chespeake's intentional interference with a contract claim. View "Petrohawk Props., L.P. v. Chesapeake Louisiana, L.P." on Justia Law

Defendant-Appellant and Cross-Appellee BP America Production Company (BP) appealed a judgment from a jury verdict in favor of Plaintiffs-Appellees and Cross-Appellants, a certified class of royalty and overriding royalty owners. The judgment included $9,740,973 in damages for failure to pay royalties consistent with the underlying leases and $3,443,372.40 in prejudgment interest (calculated at 15%). The class took issue with two aspects of BP's "netback" method for market-value-at-the-well contracts: its sales price for natural gas liquids (NGLs) at the tailgate and its processing cost. Specifically, the class complained that BP sold refined NGLs at the tailgate of the processing plant to an affiliate company at a discount (called an "affiliate transfer price"), and that BP, as co-owner of the plant, deducted an inflated processing fee, thereby lessening their royalty payments. Further, the class alleged BP breached the covenants of good faith and fair dealing in their contracts. BP's theory of the case was that there is a market for gas at the well, and that its netback method resulted in royalty payments in line with market values. BP unsuccessfully moved in limine to prohibit the class from introducing evidence regarding the royalty practices of ConocoPhillips ("COP"), co-owner of the processing plant with BP. Upon review, the Tenth Circuit concluded that disputed evidence of material fact on the market-value leases existed to preclude either party from judgment as a matter of law in their favor. Admission of the COP evidence was an abuse of district court's discretion and reversible error; the Tenth Circuit reversed for a new trial on that ground. On remand, the Court ordered the district court vacate the judgment entered on the jury's verdict and the prejudgment interest award, and provide an explanation of any ruling on the breach of the implied covenant of good faith and fair dealing. View "Abraham v. BP America Production Co." on Justia Law

Pentonville Developers, Ltd. and Marblearch Trading, Ltd., two Cyprus oil brokerage companies, sued the Republic of Iraq for unilaterally terminating two contracts for the purchase and sale of Iraqi oil. The district court concluded it had subject matter jurisdiction notwithstanding Iraq's assertion of sovereign immunity under the Foreign Sovereign Immunities Act because the lawsuit fell within the "commercial exception" to that immunity. The Ninth Circuit Court of Appeals reversed, holding that because the lawsuit was not based upon commercial activity by Iraq in the United States, nor upon an act in connection with such commercial activity having a direct effect in the United States, the district court erred in denying Iraq's motion to dismiss for lack of subject matter jurisdiction. View "Terenkian v. Republic of Iraq " on Justia Law

The Regional School District (Mahar), entered into a price watch agreement with Northeast Energy Partners, a licensed broker of energy services based in Connecticut, pursuant to which Northeast would negotiate and secure contracts for the provision of Mahar's electricity from energy suppliers. Mahar did not enter into the agreement to obtain Northeast's services pursuant to the competitive bidding procedures contained in G.L. c. 30B. When Mahar questioned the validity of the agreement, Northeast sought a declaratory judgment that the agreement is valid and enforceable because, under G.L. c. 30B, 1 (b ) (33), the agreement is exempt from the competitive solicitation and bidding procedures set forth in G.L. c. 30B. The Massachusetts Supreme Court ruled in favor of Northeast, holding that a contract between a school district and an energy broker for procurement of contracts for electricity is exempt from the requirements of G.L. [c.] 30B as a contract for 'energy or energy related services' pursuant to G.L. c. 30B, 1 (b ) (33). View "NE Energy Partners, LLC v. Mahar Reg'l Sch. Dist." on Justia Law

Defendant-Appellant James Brown owned interests in several businesses. In late 2004, he acquired and redesigned two convenience stores on opposite sides of Exit 2 on Interstate 29 in North Sioux City, South Dakota. Plaintiff-Appellee Stern Oil, a fuel distributor for Exxon Mobil Corporation, contacted Brown while he was remodeling the properties. Although Brown was negotiating with another fuel distributor, he ultimately elected to do business with Stern Oil. When Brown notified Stern Oil that he would no longer purchase its fuel, Stern Oil initiated this breach of contract action. Brown filed a counterclaim, alleging fraudulent inducement. Stern Oil argued that Brown contracted to purchase a minimum amount of fuel for a ten-year period. The circuit court granted Stern Oil's motion for summary judgment on both the breach of contract claim and on Brown's counterclaim, but the issue of damages proceeded to trial. After trial, the circuit court awarded Stern Oil eight years of lost profits. Brown appealed. Upon review, the Supreme Court reversed the circuit court's grant of summary judgment. Both Brown's fraudulent inducement counterclaim and Stern Oil's breach of contract claim involved disputed material facts. Therefore, the Court concluded the circuit court erred in granting Stern Oil summary judgment. The case was remanded for further proceedings. View "Stern Oil Co. v. Brown" on Justia Law

In August of 2009, Samson Resources Company owned oil and gas leases covering 87.78 mineral acres in Roger Mills County, Oklahoma, including the Schaefer Lease. The Schaefer Lease covered 70 net acres in the Southwest Quarter of Section 28 and had a three-year primary term that ended on November 22, 2007. If drilling operations were commenced by the end of the primary term, the lease would continue so long as such operations continued. On August 2, 2007, Newfield sent a letter to Samson, proposing to drill a well in Section 28. The estimated cost of the well was over $8.5 million dollars. On August 9, 2007, Newfield filed an application with the Commission, seeking to force pool the interests of Samson and other owners in Section 28. Newfield sent an e-mail dated April 14, 2008, to Samson that informed Samson that Newfield had commenced operations prior to the expiration of the Schaefer Lease. Newfield's e-mail stated that Samson had underpaid well costs and that an election to participate with 87.78 acres would require prepayment of $1,411,982.45. Samson responded by e-mail on the same date, informing Newfield its intent was only to elect its 17.78 acres. On April 28, 2008, Samson filed an Application seeking to have its election to participate in the well limited to 17.78 acres rather than 87.78 acres. After an administrative hearing, the Administrative Law Judge determined that Samson's timely election to participate only covered 17.78 acres of its interest and that Samson accepted the cash bonus as to its remaining 70 acres. The Oil and Gas Appellate Referee reversed the ALJ's determination, finding that the ALJ improperly relied on actions which occurred prior to the issuance of the pooling order. The Commission issued Order No. 567706, which adopted the Referee's report, reversed the ALJ, and declared that Samson had elected to participate to the full extent of its 87.78 acre interest in the unit. The Commission found Samson made a "unilateral mistake" when it elected to participate to the full extent of its interest. Samson appealed the Commission's order to the Court of Civil Appeals, which affirmed. Before COCA issued its opinion affirming the Commission, Samson filed an action in the district court alleging actual fraud, deceit, intentional and negligent misrepresentation, constructive fraud, and breach of duty as operator. Samson also alleged Newfield's actions amounted to extrinsic fraud on the Commission, rendering Pooling Order No. 550310 invalid as to Samson's working interest attributable to the 70-acre Schaefer Lease. The trial court granted Newfield's motion to dismiss for lack of subject matter jurisdiction, finding the petition to be an impermissible collateral attack on a valid Commission order. The Court of Civil Appeals affirmed. After its review, the Supreme Court found that Samson's actions for damages sounding in tort were beyond the Commission's jurisdiction, and the district court in this case was the proper tribunal for Samson to bring its claims. The trial court's order granting Newfield's Motion to Dismiss was reversed, and the case was remanded for further proceedings. View "Samson Resources Co. v. Newfield Exploration Mid-Continent, Inc." on Justia Law