Tulsa Energy, Inc. v. Oklahoma Oil & Gas Management, Inc. (In re Tulsa Energy, Inc.)

181 B.R. 544, 1995 Bankr. LEXIS 371
CourtUnited States Bankruptcy Court, N.D. Oklahoma
DecidedMarch 24, 1995
DocketBankruptcy No. 92-00803-C; Adv. No. 93-0240-C
StatusPublished
Cited by1 cases

This text of 181 B.R. 544 (Tulsa Energy, Inc. v. Oklahoma Oil & Gas Management, Inc. (In re Tulsa Energy, Inc.)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, N.D. Oklahoma primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Tulsa Energy, Inc. v. Oklahoma Oil & Gas Management, Inc. (In re Tulsa Energy, Inc.), 181 B.R. 544, 1995 Bankr. LEXIS 371 (Okla. 1995).

Opinion

[546]*546MEMORANDUM OPINION

STEPHEN J. COVEY, Bankruptcy Judge.

This matter comes on to be heard upon the amended complaint filed herein by Tulsa Energy, Inc. (“Tulsa Energy”) against KPL Production Company (“KPL”), Dalco Petroleum (“Dalco”), and Dynex Energy, Inc. (“Dynex Energy”), among others. The parties have filed stipulated facts and briefs on the issues. Upon review of the evidence and the applicable law, the Court finds as follows:

Procedural Background

Tulsa Energy filed its voluntary petition under Chapter 7 of the Bankruptcy Code on March 11, 1992. On August 19, 1993, Tulsa Energy filed this adversary proceeding. In its amended complaint, filed on August 26, 1993, Tulsa Energy sought turnover of suspended revenue from certain oil and gas production and interest thereon from KPL, operator of the wells. In addition, Tulsa Energy requested that this Court determine the rights and interests of Tulsa Energy, Dalco, Dynex Energy, and Dynex Properties, Inc. (not a party to this litigation) (collectively, the “Settling Parties”) in the oil and gas production. The Settling Parties have agreed on the determination of their respective interests in the oil and gas production.1 The only issue remaining is whether KPL must pay interest on the suspended revenues and, if so, what rate of interest applies.

Statement of Facts

Dalco has owned a working interest in certain oil and gas wells (the “Wells”)2 since May 1984. Dalco assigned some of its interest in the Wells to Dynex. On June 19,1992, Dalco assigned its interest in the Wells to Tulsa Energy.

In early 1984, Dalco and Dynex Energy became involved in a dispute with regard to their respective interests in the Major # 1 well. KPL received notice of the dispute and suspended revenues beginning with May 1984 production. On October 11,1990, Dalco requested that KPL suspend one-half of the revenues of Dynex Energy in the King, Lan-kard, Elmer, and Ernest wells. Dalco notified KPL that the revenues should be suspended pending execution of division and/or transfer orders reflecting a change in the payout status of these wells.

KPL suspended all revenues of Dalco and Dynex Energy in the King, Lankard, Elmer, and Earnest wells pending execution of appropriate documents. To date, KPL has received no executed division or transfer orders from Dalco, Dynex, or Tulsa Energy.

On August 10, 1994, KPL paid the suspended revenues in the amount of $80,354.70 into the Court. KPL did not pay any interest on the suspended revenues.

Conclusions of Law

The principal issue before the Court is whether KPL must pay interest on the suspended revenues. Oklahoma’s Production Revenue Standards Act provides as follows:

Except as otherwise provided in paragraph 2 of this subsection, where proceeds from the sale of oil or gas production or some portion of such proceeds are not paid prior to the end of the applicable time periods provided in this section, that portion not timely paid shall earn interest at the rate of twelve percent (12%) per an-num to be compounded annually, calculated from the end of the month in which such production is sold until the day paid.
2. a. Where such proceeds are not paid because the title thereto is not marketable, such proceeds shall earn interest at the rate of six percent (6%) per annum to be compounded annually, calculated from the end of the month in which such production was sold until such time as the title to such interest becomes marketable. Marketability of title shall be determined in accordance with the then current title [547]*547examination standards of the Oklahoma Bar Association.

52 O.S.Supp.1993, § 570.10 (emphasis added) (hereinafter the “Production Revenue Standards Act” or the “Act”).3 The Act provides that if proceeds from oil and gas production are not paid within a specified time, interest must be paid on the proceeds at the rate of twelve percent (12%) per annum. However, the Act further provides that if title to the oil and gas production is not marketable, interest shall be paid at the rate of six percent (6%) per annum.

The Act provides that “[mjarketability of title shall be determined in accordance with the then current title examination standards of the Oklahoma Bar Association.”4 While there are no Oklahoma eases which further define marketability under the Act,5 this Court finds that title to the oil and gas production in this case was not marketable. Dalco and Dynex have had an ongoing dispute over their interests in the proceeds of the Wells since 1984. The stipulation of facts filed herein as well as the joint motion filed by the Settling Parties contain numerous references to the ongoing dispute regarding the ownership of the oil and gas production.6 This Court holds that if the owners of a working interest cannot agree as to how the revenues should be divided, the title to the working interest is not marketable. This Court can cite no authority to support its holding, but it seems self-evident. Therefore, the statute requires that KPL pay interest on the suspended revenues at the rate of six percent (6%) per annum.

KPL has raised several defenses to its obligation to pay interest on the oil and gas production. The first defense raised by KPL concerns the division orders. In 1984, Dalco and Dynex Energy executed division orders on all the Wells.7 KPL contends that Dalco and Dynex Energy are bound by the language in the division orders which provides that if a dispute arises concerning title, unless such dispute is resolved to KPL’s satisfaction, KPL may withhold proceeds without interest. The Court disagrees with KPL’s reasoning.

[548]*548The language of the Production Revenue Standards Act providing for payment of interest on suspended revenues is mandatory. Contracts or portions thereof in derogation of statutes will not be enforced by Courts. 15 O.S.1993, § 211; Dycus v. Belco Industries, Inc., 569 P.2d 553, 556 (Okla.Ct.App.1977); see An-Cor, Inc. v. Reherman, 835 P.2d 93, 95-96 (Okla.1992); Hamilton v. Cash, 185 Okla. 249, 91 P.2d 80, 81 (1939). The division order which provides for suspension of proceeds without payment of interest is in derogation of the Production Revenue Standards Act and, therefore, will not be enforced by this Court.

KPL has also raised the statute of limitations as a defense to its liability for interest on the suspended revenue. The Court finds that the statute of limitations does not bar Tulsa Energy’s claim for interest on the suspended revenues.

Prior to September 1, 1992, the statute of limitations applicable to the Production Revenue Standards Act was determined by 12 O.S. § 95 (Second) which provides a three-year limitation for actions created by statutes. After September 1, 1992, the Act was amended to create a limitation period of five years. 52 O.S.Supp.1993, § 570.14(D). The amendment specifically stated that it did not apply “to production occurring prior to September 1, 1992.” Accordingly, the statute of limitations applicable to the Act is three years for production occurring prior to September 1, 1992 and five years for production occurring after September 1, 1992.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Parker v. Independent School District No. I-003
82 F.3d 952 (Tenth Circuit, 1996)

Cite This Page — Counsel Stack

Bluebook (online)
181 B.R. 544, 1995 Bankr. LEXIS 371, Counsel Stack Legal Research, https://law.counselstack.com/opinion/tulsa-energy-inc-v-oklahoma-oil-gas-management-inc-in-re-tulsa-oknb-1995.