EQUINOR USA ONSHORE PROPERTIES INC., f/k/a STATOIL USA ONSHORE PROPERTIES, INC., Plaintiff - Appellee,
PINE RESOURCES, LLC, Defendant-Appellant.
Argued: December 11, 2018
from the United States District Court No. 2:14-cv-21169 for
the Southern District of West Virginia, at Charleston. Irene
C. Berger, District Judge.
Allen Barnette, JACKSON KELLY, PLLC, Charleston, West
Virginia, for Appellant.
Alexander, BECK REDDEN LLP, Houston, Texas, for Appellee.
Michael M. Fisher, Vivian Hatzi Basdekis, JACKSON KELLY,
PLLC, Charleston, West Virginia, for Appellant.
T. Towner, BECK REDDEN LLP, Houston, Texas; Bridget Furbee,
Bridgeport, West Virginia, John J. Meadows, STEPTOE &
JOHNSON PLLC, Charleston, West Virginia, for Appellee.
GREGORY, Chief Judge, MOTZ, and FLOYD, Circuit Judges.
GREGORY, CHIEF JUDGE
appeal concerns a contractual obligation to "spud"
three wells on a tract of land in West Virginia. The parties
dispute whether the obligation to "spud" the wells
is an obligation only to begin drilling or to complete the
wells to the point of mineral production. Following a bench
trial, the district court determined that the Purchase and
Sale Agreement ("PSA") executed between Petitioner
Pine Resources, LLC and the predecessor of Respondent Equinor
USA Onshore Properties, Inc. f/k/a Statoil USA Onshore
Properties, Inc. contains no requirement that the spudded
wells be completed to production. We agree with the district
court that the PSA does not require hydrocarbon production.
We therefore affirm.
Resources sold its Marcellus mineral rights in 565 acres of
land in Barbour County, West Virginia (the "Langley
tract") to PetroEdge Energy LLC, a non-party, pursuant
to a November 7, 2008 PSA. In addition to documenting the terms of
the mineral rights sale, the PSA set forth certain drilling
obligations on the Langley tract. Specifically, PetroEdge
agreed to apply for a meter tap on a gas transmission line on
or before 60 days after executing the PSA, i.e.
December 7, 2008. Following installation of that meter tap,
the PSA provided for the "spudding" of three wells:
the first was to be spudded within one year of the meter
tap's installation, and a total of three wells were to be
spudded within five years of the meter tap's
installation. The PSA permitted PetroEdge to satisfy the
spudding obligations by spudding horizontal wells with
openings that were off the Langley tract so long as any
portion of the well traversed the Langley tract. Pursuant to
the PSA, Pine Resources retained an overriding royalty
interest ("ORRI") of 18% of the hydrocarbons
"produced from or attributable to" the mineral
rights that were sold to PetroEdge. J.A. 1734.
contained other provisions related to the parties'
drilling and surface operations. The parties agreed to meet
on a quarterly basis to consult regarding each other's
drilling plans and to use reasonable efforts to cooperate
with each other in their surface operations. The PSA also
established procedures to be used if a party chose to abandon
a "producing well" that ceased to produce
and a half after the PSA was executed, concern grew that
PetroEdge would be unable to meet the deadline for the
spudding of the first well due to a delay in installation of
the meter tap. PetroEdge had been able to secure only one of
two rigs that it needed to drill the first well, which was to
be a horizontal well with a surface opening outside of the
Langley tract. The second rig was necessary to drill the
horizontal portion of the well, which would eventually
penetrate the Langley tract. The parties agreed to extend the
deadline for spudding of the first well to December 31, 2011
in exchange for $100, 000 in consideration paid to Pine
Resources. The parties also agreed that the meter tap
installation date would be set at April 1, 2009, regardless
of the actual installation date, and that the deadline for
spudding of the second and third wells would be April 1,
2014. After a second delay, the parties agreed to amend the
PSA a second time to allow PetroEdge until March 31, 2012 to
satisfy its contractual obligations in connection with the
first well. No additional consideration was paid.
began drilling the first well, known as Bumgardner 5-2H, in
December 2011. The well was drilled to 6, 134 feet and
penetrated the Langley tract in March 2012. It was never
completed, however, and has never produced hydrocarbons.
drilling the first well, the parties continued to meet on a
quarterly basis until September 2012, when PetroEdge missed
the quarterly meeting. In late 2012, PetroEdge's CEO
Larry Richard notified Pine Resources that PetroEdge had sold
its mineral interests to Statoil. The PetroEdge-Statoil
purchase agreement provided that Statoil would assume
responsibility for the "performance of all express and
implied obligations" arising from "instruments in
the chain of title to the Assets, the Leases, the Contracts
and all other orders, contracts and agreements to which the
Assets are subject, including the payment of royalties and
overriding royalties." J.A. 2440. Schedule 3.25 of that
contract listed the Pine Resources-PetroEdge PSA as one of
these contracts and indicated: "The first drilling
obligation satisfied by drilling the Bumgardner #5-2H Well.
Must drill at least two (2) additional wells, vertical or
horizontal, on or before April 1, 2014 (may be
negotiable)." J.A. 1856.
Pine Resources learned of Statoil's purchase of
PetroEdge's mineral rights, Pine Resources's
principals made several attempts to contact Statoil to
schedule quarterly meetings. They initially received no
formal response. Months later, on July 11, 2013, Statoil and
Pine Resources met. During that meeting, Statoil's Joshua
Ozment informed Pine Resources that a second well had been
permitted on the same pad as the first well and that Ozment
assumed that his company would drill that well.
July 11, 2013, Pine Resources notified Statoil in writing of
what Pine Resources considered to be three ongoing violations
of the PSA. First, Pine Resources stated that Statoil had
failed to meet its quarterly meeting obligation. Second, Pine
Resources considered Statoil's failure to "complete[
] and turn[ ] into production" the first well a breach
of the PSA. J.A. 1823. And third, Pine Resources noted the
remaining drilling obligations and requested an update of
Statoil's plans to satisfy those obligations. Statoil did
not respond to that correspondence, but the company's
vice president of business development forwarded Pine
Resource's letter internally, stating, "Sounds like
we are in some trouble, but maybe you guys get a lot of
these." J.A. 1857.
Resources followed up its July 11, 2013 letter with
additional emails and phone calls in an attempt to ascertain
Statoil's plans to satisfy its obligations under the PSA.
In December 2013, Statoil informed Pine Resources that it
would not complete the first well or drill the second or
third wells and asked that Pine Resources explain its demands
in writing. Pine Resources sent a demand letter to Statoil,
stating "[t]here was an immediate requirement to
contract with a pipeline for service and a requirement to
drill three wells." J.A. 1826. A month later, Statoil
responded that it was "not obligated to complete the
[first well] until the Langley Meter Tap is ...