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LP v. Devon Energy Production Company, L.P.

Court of Appeals of Oklahoma, Division II

February 12, 2019

URBAN OIL & GAS PARTNERS B-1, LP and URBAN FUND II, LP, Plaintiffs/Appellees,
v.
DEVON ENERGY PRODUCTION COMPANY, L.P., Defendant/Appellant.

          Mandate Issued: 10/16/2019

          APPEAL FROM THE DISTRICT COURT OF KINGFISHER COUNTY, OKLAHOMA HONORABLE ROBERT E. DAVIS, TRIAL JUDGE

          Karl F. Hirsch, Glenn M. White, HIRSCH, HEATH & WHITE, PLLC, Oklahoma City, Oklahoma, for Plaintiffs/Appellees

          Bradley W. Welsh, GABLE & GOTWALS, Tulsa, Oklahoma, for Defendant/Appellant

          P. THOMAS THORNBRUGH, JUDGE

         ¶1 Defendant, Devon Energy Production Company. L.P. (Devon or Defendant), appeals from the trial court's grant of summary judgment and award of attorney fees in favor of Plaintiffs, Urban Oil & Gas Partners B-1, LP, and Urban Fund II, LP (Plaintiffs or Urban), in Plaintiffs' action to quiet title to Plaintiffs' interest in an oil and gas lease. This action is a companion with Case No. 116, 868, a matter involving substantially identical facts alleged by Plaintiffs against Cimarex Energy Co., as Defendant, as to which we simultaneously issue our opinion today. Based on our review of the record and applicable law, we affirm the trial court's judgment and order.

         BACKGROUND

         ¶2 This matter concerns ownership of certain "deep formation" drilling rights in an oil and gas lease known as the "Alig Lease" on minerals located in the SE/4 of Section 22, Township 15 North, Range 12 East, in Kingfisher County. Plaintiffs filed this action claiming they are the current owners of all rights associated with the Alig Lease and seeking to quiet title as against Defendant, which asserted an interest adverse to Plaintiffs in the deep formation rights. Plaintiffs also alleged they were entitled to attorney fees because, prior to filing suit, they submitted notice and a title curative document to Defendant pursuant to Oklahoma's Nonjudicial Marketable Title Procedures Act, 12 O.S.2011 §§ 1141.1 through 1141.5 ("NMTPA"), but Defendant had not responded.

         ¶3 Defendant admitted it claimed an interest in the Alig Lease as to mineral rights below 9, 414 feet. It claimed that in 1991 Amoco Production Company (Amoco) -- a remote predecessor in interest of Plaintiffs -- made an "Assignment and Bill of Sale" of the Alig Lease to MW Petroleum Corporation [1] (the "1991 Assignment"), which allegedly "limits the extent of the assignment [in the Alig Lease] from the surface to 9, 414 feet in depth." Plaintiffs admit that their title derives from the 1991 Assignment, but assert the assignment was not limited in depth. All parties admit that in 1966 an entity that later became Amoco -- Pan American Petroleum Corporation (Pan American) -- entered into an Operating Agreement with Brookwood Oil Company as operator, and that the Operating Agreement was still in effect when the 1991 Assignment was made. The Operating Agreement covered all of Section 22 but was effective only as to geologic formations encountered from the earth's surface to 9, 414 feet below the surface.

         ¶4 In relevant part, the 1991 Assignment, naming Amoco as Assignor, conveyed to MW as Assignee, the following:

A. All right, title and interest of Assignor in and to the oil and gas leases described on Exhibit "A" (attached hereto and made a part hereof for all purposes), insofar as said leases cover the lands which are specifically described in Exhibit "A" opposite the separate designation of each said lease, subject, however, to the depth limitations described on Exhibit "A" (the "Leases") and, as between the parties hereto, subject to any restrictions, exceptions, reservations, conditions, limitations, burdens, contracts, agreements and other matters applicable to such leases and interests;
All right, title and interest of Assignor in, to and under, or derived from, all presently existing and valid oil, gas or mineral unitization, pooling, operating and communitization agreements, declarations and orders, and in and to the properties covered and the units created thereby, which are appurtenant to the Leases;
All right, title and interest of Assignor in, to and under, or derived from, all presently existing and valid... operating agreements... insofar as the same are appurtenant to the Leases;....

         ¶5 Attached as Exhibit "A" is a schedule of approximately 20 oil and gas leases located in Kingfisher County. The leases are listed by number, original lessor, original lessee, lease date, full legal description, and recordation book and page. The Alig Lease description appears on a page together with a lease known as the Elliot Lease, and is described as follows:

         LEASE SCHEDULE

         EXHIBIT "A" PAGE ONE OF ONE STATE OF OKLAHOMA COUNTY OF KINGFISHER


RECORDED
LEASE NO. LESSOR LESSEE DATE DESCRIPTION BOOK PAGE
All right, title and interest in and to (and subject to) that certain Operating Agreement dated February 2, 1966, by and between Brookwood Oil Company, Operator, and Pan American Petroleum Corporation, Non-Operators, and all amendments thereto, covering All of Section 22, Township 15 North, Range 9 West, limited from the surface to 9,414 feet in depth.
176824 Mabel Elliott and Grady Elliott, Wife and husband B.F. Smith, Jr. 12/08/56 Township 15 North, Range 9 West Section 22: N/2 NE/4 168 576
268760 John L. Alig and Catherine Schwarz Alig and Kate Alig Alvah Hill 07/10/57 Township 15 North, Range 9 West Section 22: SE/4 169 351

         ¶6 Defendant also claims Amoco as a remote predecessor. It alleged that in 1998 Amoco made an assignment from Amoco to Gothic Energy (1998 Assignment), under which Amoco as Assignor conveyed to Gothic as Assignee, the following:

All of Assignor's right, title and interests in, to and under, or derived from, the oil and gas leasehold interests, royalty interests, overriding royalty interests, mineral interests, production payments, net profits interests and surface interests which are described in Exhibit "A";....

         The Alig and Elliott leases appear on Exhibit A to the 1998 Assignment with the following description [2]:

LPN

LEASE DATE

GOVT NO

LESSOR

LESSEE

BOOK

PAGE

DESCRIPTION

176824-1

12/08/56

ELLIOTT, MABEL, ET VIR

SMITH, B.F. JR

168

576

T-15-N R-9-W SEC 22; N/2 NE/4

286760-1

07/10/57

ALIG, JOHN L., ET AL

HILL, ALVAH

169

351

T-15-N R-9-W SEC 22: SE/4

         ¶7 In addition to denying Plaintiffs' title, Defendant denied that Plaintiffs had complied with the NMTPA because Plaintiffs' curative instrument not only demanded that Devon relinquish all rights in the Alig Lease below 9, 414 feet but also erroneously assumed Defendant claimed an interest in the Elliott Lease. Defendant has disclaimed any interest in the Elliott Lease.

         ¶8 Both parties sought summary judgment, asserting the undisputed facts supported their respective positions. They agreed that the "single issue" presented was "the proper legal construction" of the 1991 Assignment of the Alig Lease between Amoco and MW. [3]

         ¶9 The trial court granted Plaintiffs' motion for summary judgment and denied Devon's motion, finding specifically that:

[T]he 1991 Assignment from Amoco Production Company to MW Petroleum Corporation: (1) transferred all of Amoco Production Company's interest in the oil and gas lease known as the Alig Lease, including the Deep Formation Rights, to MW Petroleum Corporation; and, (2) did not except or reserve unto Amoco Production Company any interest in the Alig Lease.... [and that]
Plaintiffs, through mesne conveyances, are the legal, equitable, and rightful owners of the following ...

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