Woody Inv., LLC v. Sovereign Eagle, LLC

362 P.3d 107

WOODY INVESTMENT, LLC and Pipkin Corporation, Plaintiffs–Appellants/Cross–Appellees,

v.SOVEREIGN EAGLE, LLC and Dawson Geophysical Company, Defendants–Appellees/Cross–Appellants.

No. 32,830.

Court of Appeals of New Mexico.

July 28, 2015.

Certiorari Denied, Oct. 23, 2015, No. 35,532.

Heidel, Samberson, Newell, Cox & McMahon, Michael Newell, Lovington, NM, for Appellants/Cross–Appellees.

Cavin & Ingram, P.A., Stephen D. Ingram, Albuquerque, NM, for Appellees/Cross–Appellants.

Chatham Partners, Inc., Karin V. Foster, Albuquerque, NM, for Amicus Curiae.

OPINION

VIGIL, Judge.

{1} This is a case that involves claims brought under the Surface Owners Protection Act (SOPA), NMSA 1978, §§ 70–12–1 to –10 (2007), and the common law as a result of geophysical seismic surveys conducted on lands owned or leased by Plaintiffs. The only claims that proceeded to trial were Plaintiffs' claims of negligence and trespass because the district court granted summary judgment on Plaintiffs' SOPA and breach of contract claims. The jury determined there was no liability for negligence and trespass, and Plaintiffs appeal from the summary judgments. We reverse. We also briefly address Plaintiffs' argument that the district court erred in not allowing their expert witness on damages to testify at the trial and Defendants' cross-appeal.

BACKGROUND

{2} Sovereign Eagle, LLC (Sovereign) is a gas and oil operator that operates wells on lands owned by Woody Investments, LLC (Woody). Sovereign contracted with Dawson Geophysical Company (Dawson) to conduct geophysical seismic surveys in what is called the Tule Field in order to evaluate potential future oil and gas operations. The surveys were to be conducted on land that Woody and Pipkin Corporation (Pipkin) either owned or leased from the State Land Office.

{3} Pursuant to SOPA, Sovereign gave notice of the planned geophysical survey to Woody and Pipkin (Plaintiffs)¹ and when the parties were not able to agree on the terms of a surface use and compensation agreement, Sovereign posted a SOPA bond to enter upon Plaintiffs' lands and conduct the geophysical survey. See Section 70–12–5 (setting forth procedures required under SOPA before entry upon lands to conduct oil and gas operations, including advanced notice and requirements for negotiating a proposed surface use and compensation agreement that governs operations and compensation for damages to the surface); see Section 70–12–6 (stating that when no surface use and compensation agreement has been made, the operator may enter the surface owner's property and conduct oil and gas operations after posting a bond). In addition, Dawson obtained a permit from the State Land Office to conduct the geophysical survey.

{4} Dawson then entered Plaintiffs' lands and conducted the geophysical survey. In order to conduct the survey, cables and seismic equipment were laid on the surface by foot, ATVs, pickup trucks, and vibroseis trucks equipped with balloon tires. Geophysical seismic surveys generate, record, and analyze soundwaves that travel through the earth and are reflected back from the different types of rock below the surface. The two main methods used to generate seismic waves are (1) the drilling of shot holes and the detonation of explosives placed in the holes, and (2) vibroseis. In this case, shot holes were not drilled and no detonating explosives were used. Where vibroseis is used, a line or grid of receivers, or geophones, is placed on the surface connected with cables for transmission of the data to a centralized vehicle. A vibroseis truck weighs 62,000 pounds and the truck's "terra tires" or balloon tires displace the weight of the vehicle to eighteen pounds per square inch. The soundwaves caused by the vibrations of the vibroseis truck bounce off geologic formations beneath the earth and return to the surface to be captured by the geophones. When the detailed images are combined with other information, geologists can map seismic geomorphology and reservoir quality. Dawson conducted a two-dimensional survey, in which seismic readings were taken from points laid down a straight line, as well as a three-dimensional survey, in which seismic readings were taken from points laid out in a grid.

{5} After the survey was completed, Plaintiffs filed a complaint against Sovereign and Dawson (Defendants) seeking damages for negligence, breach of contract, violation of SOPA, and trespass. The district court granted summary judgment on the SOPA and breach of contract claims, and trial proceeded on the negligence and trespass claims. The jury found that Defendants were not liable on these claims. Plaintiffs appeal from the summary judgments granted to Defendants on the SOPA and breach of contract claims. Plaintiffs also appeal from the order of the district court that barred Plaintiffs' expert from expressing his opinion on damages.

DISCUSSION

{6} The standard we apply in reviewing an order granting summary judgment is well settled. "We review the district court's decision to grant summary judgment de novo. Summary judgment is appropriate where the facts are undisputed, and the movant is entitled to judgment as a matter of law. We review the facts in a light most favorable to the nonmoving party. Further, all reasonable inferences from the record should be made in favor of the nonmoving party. New Mexico courts view summary judgment with disfavor." T.H. McElvain Oil & Gas Ltd. P'ship v. Benson–Montin–Greer Drilling Corp., 2015–NMCA–004, ¶ 19, 340 P.3d 1277, cert. granted, 2014–NMCERT–012, 344 P.3d 988 (alterations, internal quotation marks, and citations omitted). To the extent applicable, we discuss additional authorities and facts which pertain to each issue discussed.

A. The SOPA Claim

{7} The district court granted summary judgment on the SOPA claim based on its conclusion that "Defendants' geophysical survey is a non-surface disturbing activity as defined in SOPA § 70–12–5(A) and not an oil and gas operation as defined in SOPA" and therefore "Plaintiffs have no claim for damages under SOPA resulting from Defendants' geophysical survey." For the following reasons, we conclude that the district court erred as a matter of law by concluding that Defendants' geophysical seismic survey is not an "oil and gas operation" covered by SOPA.

{8} "Statutory interpretation is a question of law, which we review de novo." First Baptist Church of Roswell v. Yates Petroleum Corp., 2015–NMSC–004, ¶ 9, 345 P.3d 310 (internal quotation marks and citation omitted). In interpreting a statute, our primary goal is to ascertain and give effect to the Legislature's intent. Id. "Under the rules of statutory construction, when a statute contains language which is clear and unambiguous, we must give effect to that language and refrain from further statutory interpretation." Id. (alteration, internal quotation marks, and citation omitted). We look at the statute as a whole. Id.

{9} The purpose of SOPA is to balance surface owners' and mineral lessees' interests. SOPA aims to minimize damage and loss of available surface for agriculture caused by oil and gas operations, Section 70–12–4, to promote a fair negotiation process between the surface owner and the mineral lessee, Section 70–12–5, and to not delay exploration and development of minerals, Section 70–12–6.

{10} Before the enactment of SOPA, surface owners could only recover damage to the land if they had a contract with oil and gas operators that had an express reclamation provision or if the oil and gas operators unreasonably, negligently, or excessively used the land. See Amoco Prod. Co. v. Carter Farms Co., 1985–NMSC–071, ¶¶ 11–12, 103 N.M. 117, 703 P.2d 894, abrogated by McNeill v. Burlington Res. Oil & Gas Co., 2008–NMSC–022, 143 N.M. 740, 182 P.3d 121. However, SOPA now imposes strict liability upon oil and gas operators for surface damage caused by oil and gas operations. Section 70–12–4 directs:

A. An operator shall compensate the surface owner for damages sustained by the surface owner, as applicable, for loss of agricultural production and income, lost land value, lost use of and lost access to the surface owner's land and lost value of improvements caused by oil and gas operations. The payments contemplated by this section only cover land affected by oil and gas operations.

B. An operator shall not be responsible for allocating compensation between the surface owner and any tenant, except that an operator shall compensate a tenant of the surface owner for any leasehold improvements damaged as a result of the operator's oil and gas operations if the improvements are approved and authorized by the surface owner. The compensation shall equal the cost of repairing or replacing the improvements.

C. An operator shall reclaim all the surface affected by the operator's oil and gas operations.

{11} Defendants argue that geophysical seismic surveys are preliminary to actual oil and gas operations and therefore cannot be included within "oil and gas operations." Defendants' argument stems from the SOPA notice provisions that differentiate between "activities that do not disturb the surface," under Section 70–12–5(A), and "oil and gas operations" outlined under the more extensive notice provision of Section 70–12–5(B). We agree that conducting a geophysical survey only requires five days notice under Section 70–12–5(A), but we do not agree that such a survey is excluded from SOPA's definition of "oil and gas operations."

{12} The Legislature broadly defined "oil and gas operations" to include "all activities affecting the surface owner's land that are associated with exploration, drilling or production of oil or gas[.]" See § 70–12–3(A) (emphasis added). From our analysis of New Mexico and out-of-state statutes and case law, a geophysical seismic survey—whether it disturbs the surface or not—is an exploratory activity. "Exploration" is "[t]he search for oil and gas. Exploration operations include: aerial surveys, geophysical...