Denbury Onshore, LLC v. Christensen

101 F.Supp.3d 1147

DENBURY ONSHORE, LLC, a Delaware Limited Liability Company, Plaintiff,

v.Robert F. CHRISTENSEN and Janet K. Christensen, Defendants.

Case No. 14–CV–19–ABJ.

United States District Court, D. Wyoming.

Signed April 17, 2015.

James R. Belcher, Timothy Michael Stubson, Crowley Fleck PLLP, Casper, WY, for Plaintiff.

Brian J. Marvel, Scott P. Klosterman, Williams Porter Day & Neville PC, Casper, WY, for Defendants.

OPINION AND ORDER DENYING DENBURY'S MOTION FOR SUMMARY JUDGMENT ON ITS THIRD, FOURTH, AND FIFTH CLAIMS FOR RELIEF AGAINST THE CHRISTENSEN DEFENDANTS AND OPINION AND ORDER DENYING DENBURY'S MOTION FOR SUMMARY JUDGMENT ON CHRISTENSENS' COUNTERCLAIM IV (BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING) AND THEIR DAMAGES COUNTERCLAIMS AND ORDER GRANTING IN PART AND DENYING IN PART DENBURY'S MOTION TO STRIKE AFFIDAVIT AND EXHIBITS

ALAN B. JOHNSON, District Judge.

The following have come before the Court for consideration: Denbury Onshore, LLC's, Plaintiff, Motion for Summary Judgment on its Third, Fourth, and Fifth Claims for Relief Against the Christensen Defendants(Doc. No. 17), Robert F. Christensen's and Janet K. Christensen's (“Christensens”), Defendants, opposition (Doc. No. 24), and Denbury's further reply (Doc. No. 25); Denbury's Motion for Summary Judgment on Christensens' Counterclaim IV (Breach of the Covenant of Good Faith and Fair Dealing) and Their Damages Counterclaims(Doc. No. 51), and the Christensens' opposition (Doc. No. 62); and Denbury's Motion to Strike Affidavit and Exhibits(Doc. No. 65), and the Christensens' opposition (Doc. No. 75). After reviewing the parties' submissions, the arguments of counsel at the hearing, the applicable law, and being fully advised, the Court finds that Denbury's Motion for Summary Judgment on its Third, Fourth, and Fifth Claims for Relief Against the Christensen Defendants should be DENIED,that Denbury's Motion for Summary Judgment on Christensens' Counterclaim VI (Breach of the Covenant of Good Faith and Fair Dealing) and Their Damages Counterclaims should be DENIED,and that Denbury's Motion to Strike Affidavit and Exhibits should be GRANTED IN PART and DENIED IN PARTfor the reasons stated below.

BACKGROUND

This case centers on the proposed construction of a one-quarter mile long road in Section 3, Township 45 North, Range 76 West, Campbell County, Wyoming.¹The United States conveyed the surface of Section 3 by patents issued pursuant to the Stock–Raising Homestead Act of 1916, 43 U.S.C. §§ 291–302(“SRHA”). Under the patents, the United States reserved all minerals underlying Section 3 as well as the right to use the surface of Section 3 to produce the reserved minerals. Robert Christensen's parents, Charles and Alice Christensen (“Christensen Parents”), owned a ranch in Campbell County, Wyoming, which included the surface of Section 3. Between 1976 and 1988, Robert and Janet Christensen obtained their interest in the lands from Christensen Parents via four different warranty deeds.

On August 22, 1980, the Wyoming Oil and Gas Conservation Commission (“WOGCC”) created the Hartzog Draw Unit (“HDU”), a 35,000 acre oil and gas secondary recovery unit in Campbell and Johnson Counties, Wyoming, which includes Section 3. The surface of the HDU overlies federal, state, and private mineral interests. All minerals under the unit surface have been committed to the HDU. All mineral interests included in the HDU share in the production of oil and gas from unit operations, irrespective of the location of the wells from which oil and gas is produced.

The federal government certified the Unit on August 27, 1980 and determined that “the drilling, production, rental, minimum royalty, and royalty requirement of all Federal leases committed to [the Unit] agreement are hereby established, altered, changed, or revoked to conform with the terms and conditions of this agreement.” The State of Wyoming Board of Land Commissioners approved the Unit Agreement and included State of Wyoming minerals in the Unit in its July 17, 1980 Order and also amended the State of Wyoming leases to conform to the Unit Agreement. In pertinent part, the Unit Agreement states the following:

WHEREAS, the parties hereto are the owners of working, royalty, or other oil and gas interests in the Unit Area subject to this Agreement; and

WHEREAS, the term “Working Interest” as used herein shall mean the interest held in Unitized Substances or in lands containing Unitized Substances by virtue of a lease, operating agreement, fee title, or otherwise, which is chargeable with and obligated to pay or bear all or a portion of the costs of drilling, developing, producing, and operating the land under the unit or cooperative agreement. “Royalty Interest” as used herein shall mean a right to or interest in any portion of the Unitized Substances or proceeds thereof other than a Working Interest. The owner of oil and gas rights that are free of lease or other instrument conveying the working interest rights to another shall be regarded as a Working Interest Owner to the extent of a seven-eighths (7/8ths) interest in and to such oil and gas rights, and as a Royalty Owner to the extent of the remaining one-eight (l/8th) interest therein;

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NOW THEREFORE, in consideration of the premises and the promises herein contained, the parties hereto commit to this Agreement their respective interests in the below-defined Unit Area....

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1. ENABLING ACT AND REGULATIONS.The Mineral Leasing Act of [illegible], as amended, supra, and all valid, pertinent regulations, including operating and unit plan regulations, heretofore issued thereunder or valid, pertinent and reasonable regulations hereafter issued thereunder are accepted and made a part of this Agreement as to Federal lands, provided such regulations are not inconsistent with the terms of this Agreement; and as to non-Federal lands, the oil and gas operating regulations in effect as of the effective date hereof governing drilling and producing operations, not inconsistent with the terms hereof or the laws of the State in which the non-Federal land is located, are hereby accepted and made a part of this Agreement.

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10. RIGHTS AND OBLIGATIONS OF UNIT OPERATOR.Except as otherwise specifically provided herein, the exclusive right, privilege, and duty of exercising any and all rights of the parties hereto, including surface rights, which are necessary or convenient for prospecting for, producing, storing, allocating, and distributing the Unitized Substances are hereby delegated to and shall be exercised by the Unit Operator as herein provided. Acceptable evidence of title to said rights shall be deposited with said Unit Operator and, together with this Agreement, shall constitute and define the rights, privileges, and obligations of Unit Operator. Nothing herein, however, shall be construed to transfer title to any land or to any lease or operating agreement, it being understood that under this Agreement the Unit Operator, in its capacity as Unit Operator, shall exercise the rights of possession and use vested in the parties hereto only for the purposes herein specified.

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11. PLAN OF OPERATION.... [T]he parties hereto, to the extent of their rights and interests, hereby grant to the Unit Operator the right to use as much of the surface of the land within the Unit Area as may be reasonably necessary for the operation and the development of the Unit Area hereunder.

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26. NO WAIVER OF CERTAIN RIGHTS.Nothing in this Agreement contained shall be construed as a waiver by any party hereto of the right to assert any legal or constitutional right or defense as to the validity or invalidity of any law of the State of Wyoming, or of the United States, or regulations issued thereunder in any way affecting such party, or as a waiver by any such party of any right beyond his or its authority to waive....

Doc. No. 18–1, p. 4–39. On July 16, 1980, Cities Service, Denbury's predecessor in interest, the Christensen Parents, and the Christensens approved and became parties to the Unit Agreement. The Christensen Parents and the Christensens became parties to the Unit Agreement by singing an “Agreement to become a party to Unit Agreement or Unit Operating Agreement Hartzog Draw Unit Area Campbell and Johnson Counties, Wyoming.” Id.at 40–45. The Christensen Parents and the Christensens signed that agreement as “Royalty Owners.” Id.

On September 1, 1983, Cities Service and the Christensen Parents entered into the Surface Damage Agreement (“SDA”). In pertinent part, the SDA provides the following:

For and in consideration of the covenants and agreements herein contained, and other valuable consideration, the parties hereto AGREE:

1. That operator conducts oil and gas production operations on Owner's property situated in Campbell & Johnson Counties State of Wyoming, to Wit: ... [Section] 3 ... in T45N, R76W.

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3. That in order for Operator to enter and conduct production operations, it is necessary that they cross and use certain property of Owners, and the parties hereby agree as to the entry and surface use thereof.

4. Owners hereby give, grant and convey unto Operator, its agents, employees and assigns, a right-of-way easement to enter upon and use the property of Owners for the purpose of conducting production operations of the below described wells and facilities under lease or leases.

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7. It is agreed that this Agreement can be amended so as to add rights-of-way, easements, and site payments by the revision of Exhibit “A” and Exhibit “B” to the mutual satisfaction of Owners and Operator.

8. Operator shall notify Owners prior to entry upon said lands. Operator will advise Owners as to the location of well site and shall consult with Owners as to the location of roads, pipelines and other facilities. All surface and mineral use not inconsistent with the rights of Operator, including the right to grant successive easements thereon or across, are hereby reserved to Owner and

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