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Running Foxes Petroleum, Inc. v. Nighthawk Production LLC

United States District Court, D. Colorado

March 30, 2016



Marcia S. Krieger, Chief Judge.

THIS MATTER comes before the Court on the Defendant’s Motion for Summary Judgment (#76), the Plaintiff’s Response (#88), and the Defendant’s Reply (#93). The Court exercises subject matter jurisdiction under 28 U.S.C. § 1332.

I. Material Facts

Having reviewed the record and submissions of the parties, the Court finds the following material facts to be undisputed, or where there is a dispute, they are construed in the light most favorable to the Plaintiff.

The Plaintiff and the Defendant are entities involved the oil and gas industry. For several years, they both held mineral interests located across four counties in Colorado. Their mutual obligations to one another were governed by several joint operating agreements (JOAs). But the parties had disagreements, which they attempted to resolve with a series of new agreements that arguably modified their rights and obligations under the operative JOAs.

In this action, the Plaintiff contends that the Defendant breached the terms of the Middle Mist JOA by failing to maintain one lease, the Knutson Bottom Lease, and by failing to give notice that it acquired a new, replacement lease, the Knutson Top Lease. The Defendant seeks summary judgment on largely undisputed facts.

A. The Umbrella Agreements between the Parties

The parties entered into the Middle Mist JOA[1] in October 2007. The Middle Mist JOA defines its contract area as “all of the lands, Oil and Gas Leases and/or Oil and Gas Interests intended to be developed and operated for Oil and Gas purposes” in Lincoln and Washington Counties.[2] At the time the Middle Mist JOA was executed, the Plaintiff and the Defendant each held a 50% working interest[3] in the leases subject to the JOA.

Article VIII.B of the Middle Mist JOA required the parties to notify each other if one of them secured a “renewal or replacement” of any oil and gas lease or interest subject to the JOA.[4] The notified party then had 30 days in which to elect to participate in the renewal or replacement lease. To participate, the notified party was required to pay a share of the acquisition costs. The amount to be paid was in proportion to the interest that the notified party held in the “Contract Area” at the time the new lease was acquired. The “Contract Area” is conceptually defined as all of the lands, leases, and interests that are intended to be developed under the Middle Mist JOA.

On December 23, 2011, the parties entered into a Purchase and Sale Agreement (2011 PSA) with respect to the “Jolly Ranch Project Properties.” Under the 2011 PSA, the Plaintiff sold the Defendant half of its working interest in several leases. The term “Jolly Ranch Project Properties” is not specifically defined in the 2011 PSA, but there is an attached list of leases, located across Washington, Lincoln, Elbert, and Kiowa counties, that were subject to the agreement. Among those listed were several leases located on property subject to the Middle Mist JOA. The effect of the transaction was to reduce Plaintiff’s working interest in the leases to 25% with Defendant holding a 75% working interest.

Thereafter the parties had disagreements, which they resolved in a Settlement Agreement dated October 8, 2012. As pertinent here, paragraph 5 of the Settlement Agreement created an exclusive option for the Defendant to purchase the Plaintiff’s remaining 25% working interest in the “Jolly Ranch Project Properties, ” exercisable at any time until July 5, 2013. During the option period, the Defendant was responsible for all costs and entitled to all revenues attributable to the Plaintiff’s 25% working interest in the leases located within the “Area of Mutual Interest, ”[5] and the Plaintiff was deemed to have gone “non-consent” on any leases or elections that the Plaintiff could have otherwise participated in.[6]

On October 31, 2012, the parties entered into an additional agreement (the Letter Agreement), the purpose of which was to confirm the parties obligations to one another under the existing “Joint Operating Agreement for the Jolly Ranch Project, ” recognizing that such obligations may have been affected by the 2011 PSA and the Settlement Agreement. The Letter Agreement provides that during the option period the Defendant was required to provide Plaintiff on a quarterly basis with (i) a list and copies of any new leases acquired within the “area of mutual interest;” (ii) an itemized list of acquisition costs for each lease; and (iii) a list of leases that expired, were terminated, or were otherwise lost.

The Defendant exercised its option under the Settlement Agreement in July 2013. The parties then entered into a final purchase and sale agreement (the 2013 PSA) by which the Plaintiff sold to the Defendant its remaining 25% working interest in several leases that were otherwise subject to the Middle Mist JOA, with an effective date of transfer of October 8, 2012.

B. Specific Leases Subject to the ...

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