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Petroflow Energy Corp. v. Sezar Energy, L.P.

United States District Court, N.D. Oklahoma

October 3, 2017

PETROFLOW ENERGY CORPORATION Plaintiff,
v.
SEZAR ENERGY, L.P., and BRITTANY ENERGY, LLC, Defendant(s).

          OPINION AND ORDER

          TERENCE C. KERN UNITED STATES DISTRICT JUDGE.

         Before the Court are (1) Defendants Sezar Energy, L.P.'s and Brittany Energy, LLC's Motion for Summary Judgment (Doc. 47); (2) Motion for Partial Summary Judgment of Petroflow Energy Corporation and Brief in Support (Doc. 43); and (3) Defendants' Motion to Strike the Affidavit of Kim Booth (Doc. 51).

         I. Factual Background [1]

         On June 15, 2014, Plaintiff Petroflow Energy Corporation (“Plaintiff” or “Petroflow”) entered into a “Central Prospect Participation Agreement” with Defendants Sezar Energy, L.P. (“Sezar”) and Brittany Energy, LLC (“Brittany”) (collectively, “Defendants”). All parties are in the business of acquiring, exploring for, developing, and producing oil and gas properties within Oklahoma. Prior to entering into the Central Prospect Participation Agreement (the “Agreement”), Plaintiff and Defendants had been independently drilling wells and building infrastructure in the Hunton Lime formation in several counties in eastern central Oklahoma referred to by the parties as the “Area of Mutual Interest, ” or “AMI.” The Agreement states that the parties jointly desire to exchange working interests in the AMI and jointly develop the AMI. The Agreement notes that Petroflow, Petroflow Canada Acquisition Corp., and Equal Energy Ltd. (“Equal”) entered into an agreement scheduled to close on or before July 31, 2014 (the “Equal Acquisition”) and that Plaintiff would own multiple oil and gas leases in the AMI upon closing its agreement with Equal. The Agreement states that it is effective June 15, 2014, but not actionable until the closing of the Equal Acquisition. The Equal Acquisition closed on July 31, 2014. A Joint Operating Agreement (“JOA”) between Equal and Sezar is incorporated as Exhibit B to the Agreement.[2]

         The parties dispute the meaning of certain terms and provisions in the Agreement and the parties' rights and obligations under the Agreement and JOA. Portions of the Agreement relevant to the present motions are reproduced below:[3]

AMI Area” means all the property described on Exhibit “A.”
. . .
Initial Project Wells” means the first three wells drilled.
Leasehold Interests” means the oil and gas leases and forced pooling orders/rights described on Exhibit “A” attached hereto, together with all other oil and gas leases, leasehold estates, subleases, forced pooled interests, mineral interests, operating rights and other rights, authorizing the owner thereof to explore for and produce oil, gas, and related hydrocarbons, and other minerals located in the AMI Area, which are all subject to the Petroflow Reserved ORRI, if applicable.
Other Project Wells” means, collectively the other wells mutually agreed to by the Parties in writing to be drilled in the AMI Area other than the Initial Project Wells.
. . .
Petroflow Reserved ORRI” means the overriding royalty interest in the Leasehold Interests to be retained by Petroflow, if applicable, equal to the difference of lease burdens of record and 20%.
. . .
Properties” means collectively, the (a) Leasehold Interests, (b) Related Contracts, and (c) interests related to the foregoing.
. . .
2.1. Subject to the terms and conditions of this Agreement, Petroflow hereby agrees to sell, and Participant hereby agrees to buy, (i) an undivided working interest in the Properties covering or relating to the Initial Project Wells of 30.00% BPO; 30.00% APO, and (ii) an undivided working interest in Properties covering or relating to lands located in the AMI Area (excluding the Initial Project Wells, but including, without limitation, the Other Prospect Wells) of 30.00% BPO; 30.00% APO for Sezar or Brittany (if Sezar so designates) . . . .
2.2. Participant shall pay to Petroflow actual costs of the leases, title and other costs associated with the Leasehold Interests representing Participant's proportionate share of existing leasehold costs with a corresponding credit for any leasehold purchased by Brittany or Sezar. Participant agrees to further pay their proportionate share of all future Properties acquisition and force pooling costs necessary for the drilling of any subsequent well(s) in the AMI Area within fifteen (15) days of invoice for same. Petroflow retains the option to Cash Call Participant.
. . .
6.1. A Participant's decision to not participate in any particular lease and/or well in the AMI Area (excluding the Initial Project Wells, but, including, without limitation the Other Prospect Wells) will not terminate this Agreement or such Participant's rights hereunder to participate in other leases and/or wells in the AMI Area as set forth in this Agreement.
6.2. After the drilling and completion of the Initial Project Wells, all subsequent wells in the AMI Area (including, without limitation, the Other Prospect Wells) shall be governed by the Joint Operating Agreement; provided that, (i) as set forth in Section 2.1 of this Agreement, Petroflow agrees to sell, and Participant agrees to buy, an undivided working interest in any additional Properties covering or relating to lands located in the AMI Area (including, without limitation, the Other Prospect Wells) of 30.00% BPO; 30.00% APO for Sezar or Brittany if Sezar so designates, . . . and (ii) as set forth in Section 2.2, Participant shall pay actual costs of the leases, title and other costs associated with the Leasehold Interests representing Participant's proportionate share of existing leasehold costs, and Participant will also pay its proportionate share of all future Properties acquisition and force pooling costs necessary for the drilling of any subsequent in accordance with the Joint Operating Agreement.
. . .
11.7. In the event of a conflict between this Agreement and the Joint Operating Agreement, Joint Operating ...

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