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Statoil USA Onshore Properties Inc. v. Pine Resources, LLC

United States District Court, S.D. West Virginia, Charleston Division

June 16, 2017

STATOIL USA ONSHORE PROPERTIES INC., Plaintiff,
v.
PINE RESOURCES, LLC, Defendant.

          MEMORANDUM OPINION AND ORDER

          IRENE C. BERGER, UNITED STATES DISTRICT JUDGE

         The Court has reviewed Statoil USA Onshore Properties Inc.'s Motion for Summary Judgment (Document 103) and Memorandum of Law in Support (Document 104), Defendant Pine Resources, LLC's Response in Opposition to Plaintiff's Motion for Summary Judgment (Document 105), and Statoil USA Onshore Properties Inc.'s Reply in Support of Its Motion for Summary Judgment on Damages (Document 110). The Court has also reviewed Defendant Pine Resources, LLC's Motion for Summary Judgment on Damages (Document 107) and Memorandum of Law in Support (Document 108), Statoil USA Onshore Properties Inc.'s Response in Opposition to Pine Resources, LLC's Motion for Summary Judgment on Damages (Document 112), and Defendant Pine Resources, LLC's Reply in Support of Its Motion for Summary Judgment on Damages (Document 113). Additionally, the Court has reviewed all attached exhibits. For the reasons stated herein, the Court finds that both motions for summary judgment should be denied.

         FACTUAL BACKGROUND AND PROCEDURAL HISTORY

         This case involves a contract dispute between the Plaintiff, Statoil, and the Defendant, Pine. The Court previously issued an opinion granting summary judgment to Statoil on the issue of whether it was bound by certain contract provisions as the successor to the party that entered into the contract. (Mem. Op. and Order) (Document 90). The Fourth Circuit reversed and remanded. (4CCA Op.) (Document 97). The factual background is thoroughly set forth in those opinions, which the Court incorporates herein. Therefore, only a brief summary of the relevant facts is necessary.

         Pine owned the mineral interests for a 565-acre tract of land in Barbour County, West Virginia (the Langley tract). In 2008, Pine sold the Marcellus mineral rights to PetroEdge, a non-party to this suit, for $479, 876.00, pursuant to the terms of a Purchase and Sale Agreement (PetroEdge PSA). (att'd as Pl.'s Ex. 1) (Document 103-1.) Pine retained an 18% overriding royalty interest (ORRI). The PetroEdge PSA provided, among other things, that the Purchaser would apply for a meter tap on a gas transmission line within sixty days of execution of the PetroEdge PSA, spud[1] one well within one year after installation of the meter tap, and spud three wells (including the first well) within five years after installation of the meter tap. (Id. at § 5.7.) The specific language, as relevant, is as follows:

(a) On or before the sixty (60) day anniversary of the Execution Date, Purchaser shall apply for a meter tap on a gas transmission line of Purchaser's choice in Barbour County, West Virginia at a location to be specified by Purchaser. The day upon which such meter tap is installed shall be referred to herein as the “Langley Tap Installation Date.”
(b) On or before the one (1) year anniversary of the Langley Tap Installation Date, Purchaser shall spud not less than one (1) well on the Contract Area. On or before the five (5) year anniversary of the Langley Tap Installation Date, Purchaser shall spud not less than three (3) wells on the Contract Area (provided that, for the avoidance [of] doubt, any well spudded in satisfaction of the obligation described in the preceding sentence shall also be credited towards the obligation described in this sentence).

(PetroEdge PSA § 5.7.)

         PetroEdge twice negotiated for additional time to apply for the meter tap and to begin the first well. It began drilling one well, the Bumgardner 5-2H, but did not complete the well or begin production. The surface entry point of drilling for the Bumgardner 5-2H is not within the Contract Area, and PetroEdge did not consider it to satisfy the PetroEdge PSA until the lateral drilling reached the Contract Area. There is dispute as to whether the Bumgardner 5-2H satisfies one of the well requirements in the PetroEdge PSA in its current, non-producing state. In 2012, PetroEdge sold the Marcellus mineral rights to Statoil via the Statoil PSA. (att'd as Def.'s Ex. 6) (Document 105-1.) The Statoil PSA specifically references the unfulfilled obligation to drill two additional wells on the Langley tract. Pine representatives testified that Pine insisted on a drilling obligation in the PetroEdge PSA because the Langley tract was the most valuable to Pine, based on its size and Pine's ownership of all mineral rights for the tract. Those representatives recalled some negotiation regarding the timing of the obligation to spud wells. They testified that the intent of the PetroEdge PSA as a whole, and Section 5.7 specifically, was to ensure prompt completion of wells and production of gas.

         The PetroEdge PSA contains a provision disclaiming any “special, punitive, indirect or consequential damages in connection with this Agreement and the transactions contemplated thereby.” (PetroEdge PSA at § 8.13.) Both parties have submitted expert reports[2] regarding the potential damages arising from the lack of royalty payments due to the failure to complete wells, with vastly divergent results, based on different methodologies and different assumptions as to anticipated output and anticipated prices.

         Statoil previously sought summary judgment on two grounds: that it was not bound by the contract provisions at issue, and that the asserted breach did not result in damages. The Court found that it was not bound by the contract provisions and did not reach the damages question. The Fourth Circuit reversed, finding that the contract should be read more broadly to give meaning to a successors and assigns clause and to be “consistent with the Pine PSA's apparent objective of promoting mineral production.” (4CCA Op. at 15.) However, the Fourth Circuit “decline[d] to engage in a complex injury analysis” and instead left “the issue of injury for the district court to address on remand in the first instance.” (Id. at 27.) Pine and Statoil have filed cross motions for summary judgment, which are fully briefed and ripe for ruling.

         STANDARD OF REVIEW

         The well-established standard in consideration of a motion for summary judgment is that “[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a)-(c); see also Hunt v. Cromartie, 526 U.S. 541, 549 (1999); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986); Hoschar v. Appalachian Power Co., 739 F.3d 163, 169 (4th Cir. 2014). A “material fact” is a fact that could affect the outcome of the case. Anderson, 477 U.S. at 248; News & Observer Publ'g Co. v. Raleigh-Durham Airport Auth., 597 F.3d 570, 576 (4th Cir. 2010). A “genuine issue” concerning a material fact exists when the evidence is sufficient to allow a reasonable jury to return a verdict in the nonmoving party's favor. FDIC v. Cashion, 720 F.3d 169, 180 (4th Cir. 2013); News & Observer, 597 F.3d at 576.

         The moving party bears the burden of showing that there is no genuine issue of material fact, and that it is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a); Celotex Corp., 477 U.S. at 322-23. When determining whether summary judgment is appropriate, a court must view all of the factual evidence, and any reasonable inferences to be drawn therefrom, in the light most favorable to the nonmoving party. Hoschar, 739 F.3d at 169. However, the non-moving party must offer some “concrete evidence from which a reasonable juror could return a verdict in his favor.” Anderson, 477 U.S. at 256. “At the summary judgment stage, the non-moving party must come forward with more than ‘mere speculation or the building of one inference upon another' ...


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