EOG Res., Inc. v. Floyd C. Reno & Sons, Inc.

468 P.3d 667

EOG RESOURCES, INC., Appellant (Plaintiff),

v.FLOYD C. RENO & SONS, INC., Appellee (Defendant).

S-20-0013

Supreme Court of Wyoming.

July 23, 2020

Representing Appellant: Jeffrey S. Pope and Isaac N. Sutphin, Holland & Hart, LLP, Cheyenne, Wyoming. Argument by Mr. Pope.

Representing Appellee: Kendal R. Hoopes, Yonkee & Toner, LLP, Sheridan, Wyoming. Argument by Mr. Hoopes.

Before DAVIS, C.J., and FOX, KAUTZ, BOOMGAARDEN, and GRAY, JJ.

FOX, Justice.

[¶1] EOG Resources, Inc. (EOG) conducted oil and gas operations on the Floyd C. Reno & Sons, Inc. (Reno) ranch pursuant to a 2010 surface use agreement. In 2019, EOG proposed an amended surface use agreement that would grant it additional rights over the property. Reno rejected the proposal. In response, EOG filed a complaint under the Wyoming Eminent Domain Act, seeking to condemn rights-of-way, easements, and surface use rights on approximately 2,100 acres of Reno property. The district court began the hearing on EOG's complaint, then continued it. Nearly four months later, EOG amended the complaint, now seeking to condemn only a 70-acre pipeline easement. The district court dismissed EOG's complaint, concluding that EOG had not complied with the Eminent Domain Act's good-faith negotiation requirement. We affirm.

ISSUE

[¶2] Did the district court err by concluding that EOG failed to satisfy the Wyoming Eminent Domain Act's good-faith negotiation requirement?

FACTS

[¶3] EOG holds various oil and gas leases throughout Campbell and Converse Counties, some of which underlie the Reno ranch. Since 2010, EOG has conducted oil and gas operations on Reno's land pursuant to a surface use agreement. In 2019, EOG proposed entering into an "Amended and Restated Surface Use Agreement," that would grant it additional "surface use rights," "access rights-of-way and easements." Under the amended surface use agreement, EOG would drill horizontal wells in the Niobrara and Mowry oil and gas formations to develop up to approximately 400 additional wells on the Reno ranch, along with extensive associated infrastructure.

[¶4] EOG sent Reno an "Initial Offer Letter" informing it of the proposed project. The letter stated:

EOG is seeking to acquire access rights-of-way and easements across [Reno] property ... as well as surface use rights associated with the well site locations and other related infrastructure necessary for (i) the development and transportation of oil and gas, and (ii) the associated use, treatment and disposal of water associated with the development and transportation of oil and gas. This letter constitutes an offer to purchase those easements and surface use rights.

For these rights, EOG offered Reno "an initial payment of up to $7,352,115.00 for full project development" and "annual payments of up to $2,202,480.00 ... for full project development," but stated that EOG would "pay based on actual development[.]" The proposed surface use agreement offered Reno an initial payment of $40.00 per rod and $7.50 per rod annually for buried oil, water, or gas pipelines "[i]n the event that [EOG] desire[d] to construct" such infrastructure.

[¶5] The letter also referred to pending litigation between EOG and Reno concerning the extent of EOG's rights and interests under the 2010 surface use agreement. EOG asserted that "all of the rights and surface uses set forth" in the agreements attached to its offer were necessary for its proposed project, noting that "[s]ome – but not all – of those necessary rights and surface uses are covered at least in part by provisions of the 2010 SUA; others are intertwined, or are altogether different, than those set forth in the enclosed agreements." It stated that if Reno was "willing to clearly stipulate ... which specific rights and surface uses ... [were] covered by the 2010 SUA," EOG would "consider withdrawing those stipulated rights and uses from this offer." The letter advised that Reno was "not obligated to accept this offer" but that if Reno did not provide a timely response and good-faith negotiations failed, "EOG may move forward with legal proceedings to obtain surface use and access rights."

[¶6] Attached to the letter was a "map showing the overview of EOG's proposed operations, including well site locations, access roads, pipeline and other infrastructure corridors, compressor stations, communication towers, water sources, water ponds and other necessary surface uses[.]"

Exhibit 17.¹ Also attached to the letter was a "financial summary chart," the proposed "Amended and Restated Surface Use Agreement," a proposed "Water Wells and Water Ponds Agreement," and a proposed "Facility Site Lease." The letter stated that these documents "depict[ed] the size and location of the easements and surface use rights EOG [was] seeking" and "provid[ed] information about the project and the project's potential impact in sufficient detail for reasonable identification on [Reno] property."

[¶7] Reno rejected EOG's offer and proposed a counteroffer that, among other modifications, sought considerably higher compensation for the project. Reno also noted that the existing surface use agreement between EOG and Reno was "incredibly broad" and that it already authorized EOG to "undertake most of [its] proposed development plan as long as [EOG] strictly complie[d]" with the agreement. EOG responded with a "Final Offer Letter," stating that it was "of the opinion that the compensation and other terms offered [in Reno's counteroffer] greatly exceed[ed] any reasonable market value for the rights-of-way, easements and other surface use rights sought by EOG." EOG again stated that it would "consider withdrawing" from the offer any rights that Reno was willing to stipulate EOG already had under the 2010 surface use agreement. Absent such stipulation, EOG offered to acquire the interests identified in its initial offer on largely the same terms.²

[¶8] EOG filed a "Complaint in Condemnation," seeking to condemn "[n]on-exclusive surface use rights, easements, and rights-of-way, including well-site locations" over approximately 2,110.96 acres. Attached to the complaint was the same map provided to Reno in EOG's initial offer letter. The complaint alleged compliance with various requirements of the Wyoming Eminent Domain Act, including the Act's good-faith negotiation requirement. Pursuant to W.R.C.P. 71.1, EOG requested "an expedited hearing to determine [its] right to condemn the interests sought" and an order granting it immediate possession and use of the property, with a hearing to determine the value of compensation later on.

[¶9] The district court held a hearing on EOG's request for immediate possession. EOG presented evidence that its horizontal-well project was designed to "minimize the impact to the surface" of the Reno ranch, that EOG's existing surface use rights were insufficient for the project, and that the project would result in significant royalty and tax payments to the State. EOG also presented evidence that, in addition to its initial and final offer letters, it had attended meetings with Reno to discuss the scope of the project and answer any questions about it.

[¶10] EOG's division manager of facilities and pipeline, William Pritchard, testified concerning the map that EOG had provided Reno with its initial and final offer letters. He explained that the map "show[ed] all the infrastructure that is required to develop the ... mineral assets underlying [the Reno] acreage." He believed that EOG was not seeking any rights in the condemnation action that it had not explained or shown to Reno in prior negotiations.

[¶11] Peter Garbee, an EOG landman, also testified concerning the offer made to Reno and the map and other documents provided to Reno with the offer. Mr. Garbee explained that the map showed "all of the proposed operations" and that the financial summary spreadsheet "was the breakdown of the payments and showed the acreage ... for the proposed sites." He asserted that the map, financial summary spreadsheet, and proposed agreements "would sufficiently enable [Reno] to evaluate the effect of the proposed project" and that "if there was anything that [Reno] still had questions about, [it] could ask." Finally, he acknowledged that the $7,352,115.00 offer to Reno was "contingent" on actual development, meaning that the full amount would only be paid if and when EOG completed every piece of proposed infrastructure. Thus, instead of a lump-sum payment of $7,352,115.00, Reno would receive discrete sums for separate pieces of the project, as broken down in the financial summary spreadsheet, raising the possibility that Reno could receive far less.

[¶12] The president of Reno, Pete Reno, testified about the oil and gas operations EOG conducted on the Reno ranch pursuant to the 2010 surface use agreement, stating that EOG had "conducted every kind of oil and gas operation that they ever wanted to do on these lands in the past, they're doing it now as we speak and they are allowed to do it tomorrow." He also testified that he could not tell from the map where proposed rights-of-way and other facilities were to be located. He explained that the map was "small," "jumbled up," and that there were "a lot of things on it." He acknowledged that EOG provided Reno several "larger" maps at "in-person meetings," that showed "different things." Mr. Reno also testified that it was "hard to tell" what compensation EOG was offering Reno because it was unclear whether Reno would "ever get the $7 million."

[¶13] After Mr. Reno's testimony, the district court continued the hearing to allow Reno additional time to designate an expert. Meanwhile, EOG filed a motion for leave to amend its complaint, which the district court granted. The amended complaint stated that "EOG has constructed and will continue to construct well pads, roads, pipelines, and other infrastructure" under the 2010 surface use agreement, but that it needed to condemn 70 acres for construction and...