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

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

February 14, 2018




         On July 17 and July 18, 2017, the parties appeared before the Court for a bench trial in the above-styled matter. The Court has reviewed Statoil USA Onshore Properties Inc.'s Post-Trial Proposed Findings of Fact and Conclusions of Law (Document 154) and Defendant Pine Resources, LLC's Proposed Post-Trial Findings of Fact and Conclusions of Law (Document 155), as well as all testimony and exhibits introduced during trial. For the reasons stated herein, the Court concludes that Statoil USA Onshore Properties Inc. (Statoil) is entitled to judgment in its favor.


         This case has a somewhat protracted procedural history, and several pertinent issues were resolved by the Fourth Circuit or by this Court during consideration of motions for summary judgment. Therefore, the Court will provide a brief procedural history and an overview of the key contractual provisions at issue prior to making findings of fact based on the testimony and evidence presented during the bench trial.

         A. Procedural History

         This litigation began on July 8, 2014, with a complaint seeking declaratory judgment in favor of Statoil.[1] Pine Resources, Inc. filed a counterclaim on August 22, 2014. In brief summary, Pine entered into a Purchase and Sale Agreement (Pine PSA), conveying the Marcellus mineral rights on a 565-acre tract of land, the Langely tract, to PetroEdge, a non-party, in 2008. In 2012, PetroEdge conveyed its interest to Statoil. The contract contained a provision, described more fully below, requiring the Purchaser to spud one well within one year and an additional two wells within five years. Statoil sought declaratory judgment that those provisions did not apply to it under the terms of the Pine PSA. On September 9, 2015, the Court issued an opinion granting summary judgment to Statoil, finding that certain provisions of the contract were applicable only to PetroEdge, and not to its successors or assigns. The Fourth Circuit reversed and remanded, holding that Statoil stepped into PetroEdge's shoes for purposes of the Pine PSA. Thus, it has been established that Statoil breached the Pine PSA by failing to spud the required wells.[2]

         The parties had also provided briefing regarding damages: Pine argued that Statoil was required to complete wells and produce minerals, and Pine should therefore receive damages based on its lost royalties. Statoil argued that no damages resulted from any breach of the spudding requirement, because minerals are produced when a well is completed, not when it is spud, and the contract does not expressly require production. The Fourth Circuit declined to address the damages question. It did, however, find that the Pine PSA had an “apparent objective of promoting mineral production, ” which it described as an “elaborate production scheme.”[3] (4CCA Op. at 15) (Document 97). The parties filed cross-motions for summary judgment on damages. Statoil argued that Pine could not establish damages resulting from its breach of the Pine PSA. Pine argued that “spudding” could be interpreted to require drilling, completing, and producing mineral from a well, while Statoil argued that “spudding” a well means only beginning a well. The Court held that “spudding, ” which is not defined in the Pine PSA, means to begin to drill a well, as defined by dictionaries, court decisions, and the experts in this matter. However, the Court found that the contract as a whole could be read to require production, and denied summary judgment. Thus, the issues that remained for resolution at trial were (a) whether the Pine PSA, together with extrinsic evidence, required production, and if so, (b) the amount of damages resulting from Statoil's failure to drill the wells and produce minerals.

         B. Contract Language

         The Pine PSA provided for the sale of the Marcellus mineral rights to PetroEdge for a purchase price of $479, 876. (Pine PSA at § 2.1) (Tr. Ex. 3, Document 145-4.) Section 5.5, entitled “Consultation Regarding Operations, ” provides:

From and after the execution Date and until such time as Purchaser no longer has an interest in the Mineral Rights, the Parties agree to meet on a Calendar Quarter basis to consult with each other regarding each Party's drilling plans and surface operations within the Contract Area (the “Quarterly Meetings”). No. later than thirty (30) days prior to each scheduled Quarterly Meeting, each Party will provide to the other Party its anticipated drilling plans for the following Calendar Quarter. Each Party shall use its reasonable efforts to cooperate with the other in its respective operations.

         Section 5.6, entitled “Joint Use of Contract Area, ” provides:

(a) The Parties understand that each Party may have existing or future wells, pipelines, and access roads located within the Contract Area, and no Party shall unreasonably interfere with or impede the operations of the other Party within the Contract Area. Upon request by a Party, the other Party shall permit such requesting Party the right to utilize any existing well pads and access roads in the Contract Area in a manner that does not unreasonably interfere with the operations of such other Party. The requesting Party shall make repairs for any damage to and to share in the cost of maintenance of any shared well pads or access roads for so long as the requesting Party continues to share such wellpads and access roads with the non-requesting Party, and indemnify the non-requesting Party for any other Damages sustained by the non-requesting Party as a result of the requesting Party's use of such shared wellpads and access roads.
(b) Whenever the Parties are drilling, operating or maintaining wells on the Contract Area at the same time, then the Parties shall cooperate with each other in a reasonably commercial manner so that such parallel activities can be accommodated.

         Section 5.7 has been and remains central to the parties' dispute in this case. That section, entitled “Certain ...

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