Petro Pro, Ltd. v. Upland Resources, Inc.

279 S.W.3d 743, 169 Oil & Gas Rep. 607, 2007 Tex. App. LEXIS 4690, 2007 WL 1717178
CourtCourt of Appeals of Texas
DecidedJune 14, 2007
Docket07-05-0327-CV
StatusPublished
Cited by26 cases

This text of 279 S.W.3d 743 (Petro Pro, Ltd. v. Upland Resources, Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals of Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Petro Pro, Ltd. v. Upland Resources, Inc., 279 S.W.3d 743, 169 Oil & Gas Rep. 607, 2007 Tex. App. LEXIS 4690, 2007 WL 1717178 (Tex. Ct. App. 2007).

Opinions

OPINION

PATRICK A. PIRTLE, Justice.

This appeal concerns a dispute between assignors, assignees, and intervening royalty owners regarding the construction of two oil and gas wellbore assignments, wherein the assignments expressly limited the assigned interest to “rights in the wellbore” of a given well. Presenting similar issues, Appellants, Pe-tro Pro, Ltd. and L & R Energy Corporation, and Intervenors, Nancy Wilson Briscoe, Judith Brock Seitz, and Carolyn Rogers, appeal the denial of their respective motions for summary judgment and the grant of summary judgment in favor of appellees, Upland Resources, Inc., KCS Resources, Inc., Great Lakes Energy Partners, L.L.C., and Steve Zemkoski. By their issues, Appellants and Intervenors contend the trial court misconstrued the nature and scope of the assigned interest. Appellants also appeal the denial of their motion to have funds tendered into the court’s registry. We reverse and render judgment declaring the rights of the parties as to those issues before the trial court.1

Background Facts

Original Oil and Gas Leases

The two assignments in question pertain to rights in the wellbore of the King “F” No. 2 gas well, located on a 704-acre pooled gas unit in Roberts County. The [746]*746material facts surrounding the well are not disputed. In September 1992 and 1993, Upland Resources, Inc. (hereinafter individually referred to as “Upland Resources”) entered into five oil, gas, and mineral leases involving separate tracts of land in Roberts County. In 1993, Medallion Production Company (“Medallion”) acquired the leasehold and spud the King “F” No. 2 well on one of the leased tracts consisting of 500 acres. The tract covered multiple gas-producing formations, including the Brown Dolomite formation, located at depths of approximately 3,400 to 3,600 feet, and the Cleveland formation, located approximately 6,500 to 6,600 feet beneath the surface. The King “F” No. 2 well was completed as a gas well in the Cleveland formation and produced gas in paying quantities. Several months after the well was completed, Medallion pooled the 500-acre tract with 204 acres from an adjacent tract to create an irregular shaped, 704-acre gas unit. The leasehold interest in the 704-acre unit was subsequently acquired by KCS Medallion Resources (“KCS”) and MB Operating Co., Inc. (“MB”). Eventually, the leasehold area situated horizontally outside the 704-acre unit and vertically below 6,800 feet was released.

‘Wellbore Only” Assignments

In 1998, for reasons undisclosed in the record, KCS and MB decided that the King “F” No. 2 well was no longer economically viable. Consequently, in November of that year, KCS and MB sold their interests in the well at an auction of oil and gas properties. The winning bidder, L & R Energy (“L & R”), received the interests from KCS and MB via the two assignments in controversy. The assignments were identical in that they both conveyed the following:

All of Seller’s right, title and interest in and to the oil and gas leases described in Exhibit “A” attached hereto and made a part hereof (“Subject Leases”) insofar and only insofar as said leases cover rights in the wellbore of the King “F” No. 2 Well.

(Emphasis added). Pursuant to the express terms of the assignments, L & R’s leasehold interest became effective on December 1,1998.

New Development Activity

Several years after the assignments, operators in the area began drilling and completing gas wells in the shallower Brown Dolomite formation. In May 2003, pursuant to a farmout agreement with KCS, Upland Resources entered the pooled gas unit and completed a horizontal gas well in the Brown Dolomite formation. The well, dubbed the Skeeterbee No. 1, traversed within 600 feet of the King “F” No. 2 well. By June 2004, Upland Resources had completed two more gas wells within the 704-acre pooled gas unit, the horizontal Skeet-erbee No. 2 and the vertical Skeeterbee No. 3. Both those wells were completed in the Brown Dolomite formation.

Meanwhile, in April 2004, L & R assigned its interest in the King “F” No. 2 well to Petro Pro Ltd. (hereinafter individually referred to as “Petro Pro”). Concerned with Upland Resource’s drilling activities, Petro Pro sent a letter to Upland Resources and KCS requesting that both parties clarify their respective interests in the pooled gas unit. Both parties promptly responded with letters stating their belief that Petro Pro did not acquire any leasehold interest outside the confines of the King “F” No. 2 wellbore. Petro Pro replied with a letter stating claims for trespass and conversion and demanding that Appellees vacate the leasehold and cease production from the Skeeterbee wells.

Suit Filed

Finally, in September 2004, citing Upland Resources and KCS’s refusal to re[747]*747solve the dispute, Petro Pro and L & R (hereinafter collectively referred to as “Pe-tro”) filed the underlying suit against Upland, KCS, and other interested parties, Great Lakes Energy Partners, L.L.C., and Steve Zemkoski (hereinafter collectively referred to as “Upland”) for trespass, bad faith trespass, conversion, and money had and received. Petro claimed they owned the exclusive right to produce gas from the entire 704-acre pooled gas unit, from the surface to a depth of 6,800 feet. Petro also sought a declaratory judgment declaring the property rights and ownership interests acquired by the respective parties by virtue of the assignments and an accounting of all proceeds from the sale of gas produced from the Skeeterbee wells. Petro also filed a motion requesting that any production revenue from the Skeeter-bee wells be placed into the court’s registry until the dispute was resolved. Upland initially responded to the allegations by filing a general denial. Upon learning of the pending dispute between Petro and Upland, the royalty interest owners in the 704-acre pooled gas unit, Nancy Wilson Briscoe, Judith Brock Seitz, and Carolyn Rogers (hereinafter collectively referred to as “Intervenors”) filed a plea of intervention seeking damages for the alleged breach of implied covenants and for tor-tious interference with existing contracts. Intervenors contended that Petro’s lawsuit and wrongful claims of ownership prevented Upland from fully developing the lease and protecting the lease from drainage from adjacent wells.

Competing Motions for Summary Judgment

On February 1, 2005, Upland filed a motion for summary judgment contending that Petro’s rights were limited to the right to produce gas from the Cleveland formation only and the right to “enhance” that production. Upland further contended that Petro’s rights were restricted to the physical confines of the King “F” No. 2 well only, without the right to deepen the well to other zones or horizons, or the right to perforate the wellbore casing for the purpose of producing any other zone or horizon lying between the surface and the presently producing section of the Cleveland formation. Subsequently, Inter-venors filed a motion for partial summary judgment contending Petro had the right to produce from any formation subject to governmental regulations, which limited the horizontal extent of Petro’s rights to forty acres surrounding the King “F” No. 2 wellbore.

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Bluebook (online)
279 S.W.3d 743, 169 Oil & Gas Rep. 607, 2007 Tex. App. LEXIS 4690, 2007 WL 1717178, Counsel Stack Legal Research, https://law.counselstack.com/opinion/petro-pro-ltd-v-upland-resources-inc-texapp-2007.