Revolution Res., LLC v. Annecy, LLC

477 P.3d 1133

REVOLUTION RESOURCES, LLC, Plaintiff/Appellee,

v.ANNECY, LLC, Defendant/Appellant.

Case No. 118,708

Supreme Court of Oklahoma.

FILED NOVEMBER 24, 2020

Michael J. Blaschke, Michael J. Blaschke, PC, and Rachel Lawrence Mor, Rachel Lawrence Mor, PC, Oklahoma City, OK, for Defendant/Appellant

John M. Krattiger, Nicholas V. Merkley, and Jay P. Walters, GableGotwals, Oklahoma City, OK, for Plaintiff/Appellee

COMBS, J.:

I. FACTS AND PROCEDURAL HISTORY

¶1 On February 18, 2020, the Plaintiff/Appellee, Revolution Resources, LLC, (Revolution), an oil and gas well operator, commenced this action under the commonly referred to, Oklahoma Surface Damages Act (SDA), 52 O.S. §§ 318.2 — 318.9,¹ by filing a Petition to Appoint Appraisers. Revolution is engaged in the business of drilling, completion, and operation of oil and gas wells within the State of Oklahoma and serves as the operator in the oil and gas drilling operations on the subject premises:

Southwest Quarter (SW/4) Northeast Quarter (NE/4) of Section 9, Township 13N, Range 4W, Oklahoma County, Oklahoma.

In February 2018, Revolution acquired and became the operator of a 30,000 acre unit that was created in 1947 pursuant to Order 20212 of the Oklahoma Corporation Commission (OCC). The unit is known as the West Edmond Hunton Lime Unit (WEHLU). Order 20212 approved the creation of the WEHLU for the unitized management, operation and further development of the Hunton Lime formation oil and gas pool. The subject premises is located within the WEHLU. On June 13, 2018, Revolution filed with the Oklahoma County Clerk a Notice of West Edmond Hunton Lime Unit and Surface Rights. The Notice quoted, as follows, from the Plan of Unitization which Order 20212 approved:

XX.

RIGHTS OF WAY

The Unit shall have a servitude and right-of-way on, over and across all of the lands in the Unit Area for the purpose of laying, constructing, building, using and maintaining, operating, changing, repairing and removing pipelines, tanks, telegraph and telephone lines, water lines and other facilities for the development and operation of the Unit Area for oil and gas and for the gathering, handling and disposal of Unit Production; provided, the Unit shall pay all damages to growing crops, timber, fences, improvements and structures on the land resulting from the exercise of the rights and privileges granted to it in this section.

Exhibit "A" attached to the Notice contained the legal description of all lands covered under the WEHLU, which included all of Section 9 of Township 13 North, Range 4 West, Oklahoma County, Oklahoma.

¶2 The record reflects the Defendant/Appellant, Annecy, LLC, (Annecy) purchased the subject premises in August 2019.² Annecy purchased the land to build expensive luxury homes in the NE/4 of Section 9 of Township 13 North, Range 4 West, Oklahoma County, Oklahoma. The plat for this portion of land had been approved by the City of Oklahoma City (City) and Annecy received a permit to begin construction. Construction was set to begin on February 24, 2020. Annecy claims the subject premises was zoned (R-1) for single-family residential use only.

¶3 Revolution contacted Annecy in October 2019 to discuss its intent to drill an oil and gas well on the subject premises. An agreement between the parties was never reached. Revolution then pursued and received permits from the OCC and the City to drill on the premises in December 2019.³ Pursuant to the SDA, Revolution served Annecy with its Notice of Intent to Drill on February 13, 2020.⁴ As required by law, within five days of service of the notice Revolution attempted to continue good-faith negotiations with Annecy for a surface use agreement for any damages that might occur to the subject premises.⁵ No agreement was reached and on February 18, 2020, Revolution filed its Petition to Appoint Appraisers and served a Ten Day Notice.⁶ Title 52 O.S. 2011, § 318.5, provides that "[o]nce the operator has petitioned for appointment of appraisers, the operator may enter the site to drill." On February 19, 2020, pursuant to this statute, Revolution entered the subject premises to begin construction of the well.

¶4 On February 24, 2020, Annecy filed a Special Appearance and Motion for Temporary Injunction/Restraining Order and Expedited Hearing. Annecy's two main arguments in support of its motion for extraordinary relief were: 1) Annecy would suffer irreparable harm if Revolution is allowed to drill on the subject premises,⁷ and 2) Revolution was required under the City's Code⁸ and state law⁹ to procure a variance from the City's Board of Adjustment (BOA) prior to the City issuing the permits.¹⁰ Because a variance hearing was never held nor was an order granting a variance made by the BOA, Annecy asserted it never received notice of a hearing and thus was not given an opportunity to be heard and object to Revolution's operations. Had such a hearing been held, Annecy stated they "reasonably believe[ ]" they would have prevailed in preventing Revolution from receiving a variance and drilling on the subject premises and therefore there was a likelihood they would have been successful on the merits of such a BOA variance hearing.

¶5 In response, Revolution notes there are no homes or homeowners on the subject tract and Annecy has not yet performed any substantial development work that would affect anyone other than Annecy's pecuniary interests. On the other hand, any delay to Revolution's drilling operations would cause a significant hardship to Revolution and others by causing standby and additional mobilization charges from the rig operator for releasing the rig, potentially cause the loss of the use of its rig to another operation, and causing the delay in payment of royalties to over 5,600 WEHLU mineral owners. Revolution further asserted, the SDA was specifically created by the Legislature to handle this very situation. It provides for money damages, i.e., legal relief, to surface estate owners for any potential harm they may suffer by the drilling operations; it does not provide for an injunction, i.e., equitable relief. Injunctive relief cannot be granted because Annecy suffers no irreparable harm. This is a business dispute over the value of surface land which will be determined by three appraisers pursuant to the SDA. It is nothing else. There is nothing special about the subject premises other than Annecy's desire to maximize its profit by developing it into luxury homes and selling them for the maximum amount possible.

¶6 Additionally, Revolution argued Annecy cannot show a likelihood of success on the merits. Annecy stated in its motion that it "reasonably believes" it would succeed on the merits of a BOA hearing. Revolution asserts such a BOA hearing is "hypothetical" due to recent changes in the law and the present action is under the SDA. The only success on the merits is pursuant to the SDA, i.e., Revolution will drill its well, the subject premises will be appraised, and Annecy will receive monetary compensation for damages to its surface estate. Further, a reasonable belief that one would succeed on the merits is not the required clear and convincing evidence of a "likelihood of success on the merits" needed to establish this element for a temporary injunction. Annecy cannot be successful on the merits of its stated goal of preventing Revolution from drilling on the subject premises. This goal is premised on the BOA denying Revolution's right to drill through refusing to issue a variance at a hearing that never occurred. Revolution argued that to the extent the City's Code bears upon these proceedings it has been preempted by a recently enacted law that dramatically diminished municipal powers over oil and gas operations.

¶7 In 2015, the Legislature enacted 52 O.S. Supp. 2015, § 137.1 and repealed 52 O.S. 2011, § 137.¹¹ The repealed § 137¹² had for decades provided broad powers to political subdivisions to regulate oil and gas operations as follows:

Nothing in this act is intended to limit or restrict the rights of cities and towns governmental corporate powers to prevent oil or gas drilling therein nor under its police powers to provide its own rules and regulations with reference to well-spacing units or drilling or production which they may have at this time under the general laws of the State of Oklahoma.

It was replaced with § 137.1 which provides:

A municipality, county or other political subdivision may enact reasonable ordinances , rules and regulations concerning road use, traffic, noise and odors incidental to oil and gas operations within its boundaries, provided such ordinances, rules and regulations are not inconsistent with any regulation established by Title 52 of the Oklahoma Statutes or the Corporation Commission . A municipality, county or other political subdivision may also establish reasonable setbacks and fencing requirements for oil and gas well site locations as are reasonably necessary to protect the health, safety and welfare of its citizens but may not effectively prohibit or ban any oil and gas operations , including oil and gas exploration, drilling , fracture stimulation, completion, production, maintenance, plugging and abandonment, produced water disposal, secondary recovery operations, flow and gathering lines or pipeline infrastructure. All other regulations of oil and gas operations shall be subject to the exclusive jurisdiction of the Corporation Commission . Provided, notwithstanding any provision of law to the contrary, a municipality, county or other political subdivision may enact reasonable ordinances, rules and regulations concerning development of areas within its boundaries which have been or may be delineated as a one-hundred-year floodplain but only to the minimum extent necessary to maintain National Flood Insurance Program eligibility. (emphasis added).

Revolution noted the Oklahoma Attorney General wrote a detailed opinion concerning the changes made in § 137.1. The opinion found the...