McCall v. Chesapeake Energy Corp.

2007 OK CIV APP 59, 164 P.3d 1120, 169 Oil & Gas Rep. 142, 2007 Okla. Civ. App. LEXIS 33, 2007 WL 1952928
CourtCourt of Civil Appeals of Oklahoma
DecidedJanuary 9, 2007
Docket102,929
StatusPublished
Cited by11 cases

This text of 2007 OK CIV APP 59 (McCall v. Chesapeake Energy Corp.) is published on Counsel Stack Legal Research, covering Court of Civil Appeals of Oklahoma primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
McCall v. Chesapeake Energy Corp., 2007 OK CIV APP 59, 164 P.3d 1120, 169 Oil & Gas Rep. 142, 2007 Okla. Civ. App. LEXIS 33, 2007 WL 1952928 (Okla. Ct. App. 2007).

Opinion

*1122 JOHN F. FISCHER, Judge.

1 1 This is an appeal from the Trial Court's order granting summary judgment to a well operator in a declaratory judgment action. The appeal involves the operator's dispute with a working interest owner regarding the marketing of production from certain wells. Based on our review of the record on appeal and applicable law, we affirm.

BACKGROUND FACTS

T2 Plaintiff, Mary McCall, successor in interest to Jack O. McCall, owns non-operating working interests in four wells located in the Kirtley Unit No. 1 in Beckham County, Oklahoma. Defendant Chesapeake Operating, Inc., is the operator of the Kirtley Unit, and a wholly owned subsidiary of Defendant Chesapeake Energy Corporation (CEC).

T3 Three of McCall's wells, the "Amos 1-29," the "Sharum 1A-30," and the "D.L. Sanders 1-24," are subject to joint operating agreements (the JOAs). The JOAs, based on a standard industry model form 1 , are identical in their terms, but differ as to date of execution. An agreement dated July 2, 1973, applies to the Amos and Sharum wells, while one dated August 25, 1976, applies to the Sanders well. Sometime in February 1977, the JOAs for the Amos and Sharum wells were amended to include a "Gas Balancing Agreement." However, it appears that neither McCall nor her predecessor in interest ever executed those agreements. There was no gas balancing agreement applicable to the Sanders well.

T4 Chesapeake Operating and Plaintiff were not subject to a JOA on her fourth well, the Staley 1-29. Chesapeake was the designated operator of the Staley well under the terms of a pooling order entered by the Oklahoma Corporation Commission (OCC).

T5 In July 2004, Chesapeake Operating began corresponding with McCall regarding marketing of production from the four unit wells. By letter dated October 5, 2004, McCall's attorneys notified Chesapeake Operating of her objections to the proposed marketing arrangement and that she was electing to exercise her rights under the provisions of Oklahoma's Natural Gas Market Sharing Act (NGMSA), 52 0.98.2001 §§ 581.1 through 581.10, to market her share of production. 2 The letter further stated:

Your proposed arrangement covers areas and creates obligations broader than the obligations and rights set forth in the [NGMSA].
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It is also understood that the administrative fees are currently controlled by a schedule established from time to time by the [OCC], and that such fees are currently authorized to be deducted from proceeds. Your August 9, 2004 letter also disclosed that Chesapeake has been charging marketing fees on gas of 2% of the gross sales price and $0.20 per barrel oil prior to January 1, 2002, and after January 1, 2002, 3% of net resale price on gas and $0.30 per barrel on oil. Please advise me where same was disclosed in [MeCall's] revenue statements. Also, please advise me under what authority you are charging a marketing fee on oil. The reasonableness of such fees is an issue on which [McCall] presently does not agree with Chesapeake.

T6 Chesapeake Operating responded to the letter, and refused to market McCall's share of gas from the Amos, Sharum and Sanders wells under the terms of the Act. Chesapeake Operating asserted that, pursuant to paragraph 13 of the JOAs, each party was required to market its own production, and it had no obligation to market production *1123 on behalf of non-operating working interest owners. However, it offered to market McCall's gas under its "standard marketing agreement," onee she signed it.

T7 McCall declined to sign Chesapeake Operating's standard marketing agreement. On May 20, 2005, she filed an action against Chesapeake Operating and CEC seeking declaratory judgment pursuant to 12 0.8. Supp. 2004 § 1651. She requested the Trial Court to (1) determine the parties' rights and liabilities under the JOA; and (2) find that the JOA is not a marketing agreement and that she is entitled to elect to market her proportionate share of production from the Kirtley Unit through Chesapeake Operating pursuant to the provisions of the NGMSA. In their joint answer, Defendants denied that MeCall had any right to elect to market her share under the terms of the NGMSA. CEC denied any contractual relationship with McCall and asserted that it was not the operator of the wells at issue.

1 8 Chesapeake Operating asserted a counterclaim against McCall, seeking a declaration that it had no obligation to market her production from the Amos, Sharum and Sanders wells under the NGMSA because, under the terms of section 581.4 of the NGMSA, McCall was ineligible to elect to market share from those wells. Chesapeake Operating also sought its own declaratory judgment regarding the Staley well. Chesapeake Operating conceded that McCall could elect to market her production from that well pursuant to the NGMSA. The purchaser of gas production from the Staley well was Chesapeake Energy Marketing, Inc. (CEMI). 3 For its services related to gas sales, CEMI deducted a flat 3% from the net resale price, with the working interest owner bearing its royalty owners' share of the fee. Chesapeake Operating requested the Trial Court to determine that McCall was obligated to bear her proportionate share of the marketing fees deducted by CEMI. Chesapeake Operating also requested the Trial Court to determine another issue in dispute in regard to the Staley 1-29 pooled well-the effective date of McCall's election to market share under the Act.

T9 On the same day that they filed their answer, Defendants sought summary judgment on all claims and counterclaims. McCall responded, sought summary judgment on her claims, and moved for a continuance to conduct discovery as to Chesapeake Operating's counterclaims.

T 10 After extensive briefing and two hearings, the Trial Court, finding no genuine dispute as to any material fact, granted summary judgment in favor of Defendants. The journal entry of judgment identifies four grounds on which the Trial Court based its determination that Defendants were entitled to judgment as a matter of law. The Trial Court determined that: (1) pursuant to seetion 581.4(B)(1) of the NGMSA, McCall is not eligible to market share as to those wells (the Amos 1-29, DL Sanders 1-24, and Sharum 1A-30) governed by the JOAs; (2) in regard to the Staley 1-29 pooled well, the terms of the NGMSA obligate McCall to bear her proportionate share of the 3% marketing fee deducted by CEMI, the purchaser of Chesapeake Operating's gas; (8) pursuant to seetion 581.5(A) of the NGMSA, McCall is not entitled to market share in the Staley 1-29 well for periods of time prior to January 1, 2005 (i.e., prior to the first day of the month following 60 days from Chesapeake Operating's receipt of her written election to market share under the NGMSA); and (4) McCall failed to state a claim against CEC, the parent company of both Chesapeake and CEML.

T11 McCall appeals. She raises seven allegations of error in her petition in error, six of which can be summarized as a contention that the Trial Court erred as a matter of law in its interpretation and application of the NGMSA and the JOA terms.

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Cite This Page — Counsel Stack

Bluebook (online)
2007 OK CIV APP 59, 164 P.3d 1120, 169 Oil & Gas Rep. 142, 2007 Okla. Civ. App. LEXIS 33, 2007 WL 1952928, Counsel Stack Legal Research, https://law.counselstack.com/opinion/mccall-v-chesapeake-energy-corp-oklacivapp-2007.