Omimex Energy, Inc. v. Joyce Blohm

374 F. App'x 643
CourtCourt of Appeals for the Sixth Circuit
DecidedApril 16, 2010
Docket09-1158
StatusUnpublished
Cited by1 cases

This text of 374 F. App'x 643 (Omimex Energy, Inc. v. Joyce Blohm) is published on Counsel Stack Legal Research, covering Court of Appeals for the Sixth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Omimex Energy, Inc. v. Joyce Blohm, 374 F. App'x 643 (6th Cir. 2010).

Opinion

LUDINGTON, District Judge.

Defendant Joyce G. Blohm, and her now-deceased husband, Homer, granted a mineral deed to the Miller Brothers Oil Corporation in 1983 for a term of twenty years, or as long thereafter as gas or oil were “being produced” or “capable of being produced from wells drilled during the 20 year term.” It is undisputed that no qualifying well was drilled on the Blohms’ property during the twenty-year term. Nevertheless, Plaintiff Omimex Energy, the Miller Brothers’ successor in interest, contends that later agreements between the parties modified the condition such that a well drilled in 1980, which began producing in 2002, satisfies the modified condition. Joyce Blohm contends the deed was never modified, and the plain language of the condition was never satisfied.

The district court initially denied Blohm’s motions to dismiss and for summary judgment, concluding that later agreements demonstrated the parties’ understanding that the condition had been satisfied. Op. & Order, Sept. 19, 2006. The district court reversed course one year later, however, and granted Blohm’s second summary judgment motion based on the plain language of the condition. Op. & Order, Nov. 15, 2007. The district court noted that Omimex had not advanced any evidence to support its position beyond the deed itself and its interpretation of several ambiguous agreements that were later entered into by the parties. Those agreements, the district court held, were insufficient to demonstrate mutual assent to a modification of the deed. For the reasons stated below, the district court’s decision will be affirmed.

I

In the 1970s and early 1980s, oil and natural gas companies were beginning to purchase mineral leases in western Michigan’s Oceana County, intending to exploit the extensive natural gas reserves underlying the area’s forests and farmlands. *645 The gas in Oceana County was “sour,” meaning it was contaminated with toxic hydrogen sulfide, and needed to be “sweetened” before it would be marketable. The sweetening process required transporting the sour gas by pipeline about fifty miles north to a plant near Manistee. At the time of the transactions at issue in this case, the pipeline had not been extended into southern Oceana County, and the natural gas in the area was not marketable.

In 1981, Amoco renewed a mineral lease, originally granted in 1976, for the oil, gas, and minerals underlying the Blohms’ 200-acre farm in Claybanks Township. The primary term of the lease concluded on December 7, 1983, but the lease would be automatically extended if mineral production took place on the land during the primary term. Amoco also held a lease on the minerals underlying an adjacent property to the south, which was owned by the Blohms’ neighbors, the Foxes. In 1980, Amoco drilled a well known as the Miller-Fox 1-11 on an eighty-acre parcel owned by the Foxes’ that was adjacent to the Blohms’ farm. In early 1983, about a year before the 1981 lease would expire, Amoco petitioned the Michigan Supervisor of Wells to establish a 160-acre “drilling unit” for the Miller-Fox 1-11, which would include the southernmost eighty acres of the Blohms’ farm and the adjacent eighty-acre parcel of the Foxes’ property on which the Miller-Fox 1-11 had been drilled.

A “drilling unit” is “the maximum area that may be efficiently and economically drained by 1 well.” Mich. Comp. Laws § 324.61513(2). To limit “waste,” only one well may be drilled per drilling unit. See Mich. Comp. Laws §§ 324.61501(q), .61502, .61513(3). Consequently, if the Blohms’ southernmost eighty acres were pooled with the Foxes’ eighty-acre parcel into a single drilling unit, the Blohms would be prohibited from drilling a well on the portion of their property that was within the drilling unit. 1

The Blohms, however, remained interested in developing a well on their own property, and began negotiating development plans with the Miller Brothers Oil Corporation, who held a similar interest, in late 1981. Blohm Aff. ¶ 7. On April 16, 1983, the Blohms agreed to terms with the Miller Brothers, granting a mineral deed intended to facilitate development of a well on their farm. The deed conveyed, subject to the existing Amoco lease, an undivided one-half interest in the minerals underlying the Blohms’ farm 2 to the Miller Brothers Oil Corporation “for a term of 20 years or as long thereafter as oil, gas or other hydrocarbons are being produced or are capable of being produced from wells drilled during the 20 year term.” The deed was signed two-days before the Supervisor of Wells was scheduled to conduct a hearing on Amoeo’s proposed drilling unit for the Miller-Fox 1-11. It gave the Miller Brothers, 3 who paid $250,000 for the deed and wanted to drill a well on the Blohms’ farm, a significant interest in the supervisor’s decision.

On April 18, 1983, the Supervisor of Wells for the State of Michigan held a hearing to determine the appropriate drilling unit for the Miller-Fox 1-11. See *646 Mich. Comp. Laws § 324.61507. Homer Blohm and the Miller Brothers traveled to Lansing, along with the neighboring landowner, Mr. Fox, to oppose the expanded drilling unit and the accompanying limitations on drilling. Blohm Aff. ¶ 12. If adopted, the drilling unit would combine the minerals in the N 1/2 of the SW 1/4 of Section 11, which the Blohms and Miller Brothers owned, with the minerals in S 1/2 of the SW 1/4 of Section 11, which the Foxes owned, into a single 160-acre drilling unit serviced by the existing Miller-Fox 1-11 well. Amoco held a mineral lease covering all the minerals in the unit and also owned the well. In a May 9, 1983 opinion, the Supervisor granted Amoco’s request, ruling against the Blohms and Miller Brothers. The Supervisor decided that the entire 160 acres in the southwest quarter of Section 11 could be drained by the Miller-Fox 1-11, and drilling additional wells would be a “waste.” Op. & Order of the Supervisor of Wells, No. (A) 6-3-83. The decision made it more difficult for the Blohms and Miller Brothers to drill a well on the Blohms property, because it meant that only 120 acres of the 200-acre farm remained available for drilling.

Nevertheless, on May 13, 1983, four days after the Supervisor’s opinion was issued, the Blohms and Miller Brothers signed an amended letter agreement, specifying that the Blohms had been paid in full for the one-half mineral interest they deeded to the Miller Brothers. The Blohms and Miller Brothers recorded the deed with the Oceana County Register of Deeds the same day. See Aff. of Joyce Blohm ¶ 11; Mineral Deed. The deed granted the Miller Brothers an ownership interest in the minerals, subject to the twenty-year production contingency and the 1981 lease to Amoco.

Beginning in March 1984, the Miller Brothers and Blohms commenced efforts to terminate the Amoco lease and remove the Blohms’ eighty-acre parcel from the Miller-Fox 1-11 drilling unit. Blohm Aff. ¶¶ 16-17. First, on March 9, the Blohms leased the remaining mineral interests in their property to the Miller Brothers for a primary term of one year, and as long thereafter as the Miller Brothers engaged in drilling or mineral production on the land.

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Bluebook (online)
374 F. App'x 643, Counsel Stack Legal Research, https://law.counselstack.com/opinion/omimex-energy-inc-v-joyce-blohm-ca6-2010.