Summary 2008 WY 49

Summary of Decision issued April 22, 2008

Summaries are prepared by Law Librarians and are not official statements of the Wyoming Supreme Court.

Case Name: Stone v. Devon Energy Production Co., LP

Citation: 2008 WY 49

Docket Number: S-07-0166

Appeal from the District Court of Johnson County, the Honorable John G. Fenn, Judge.

Representing Appellant (Plaintiffs): Steven R. Winship of Winship & Winship, PC, Casper, Wyoming.

Representing Appellee (Defendants): Scott P. Klosterman of Williams, Porter, Day & Neville, PC, Casper, Wyoming.

Facts/Discussion: Stone and Loundagin owned operating rights under a state oil and gas lease which they assigned to Devon Energy Production Co. and Carpenter & Sons, Inc. After Devon and Carpenter failed to offer to reassign the operating rights to them six months before the lease expiration date, Stone and Loundagin filed a complaint asserting that Devon and Carpenter breached the assignment contract and should be ejected from the leasehold. In addition they pleaded trespass and conversion and sought an accounting and injunctive relief. The district court granted partial summary judgment for Devon and Carpenter on the breach of contract claim concluding that the lease had not expired and the reassignment obligation was never triggered.
Neither the parties nor the Court found cases involving a reassignment clause like the one at issue. The clauses are almost exclusively found in the oil and gas arena and many require a reassignment offer only in the event that the assignee intends to let the lease expire. Many also require the assignor to respond to an offer of reassignment within a specified time period or lose the right to reassignment. In the instant case, all parties agreed that the intent of the reassignment clause was to avoid the loss of the lease. The Court held that the reassignment clause required Devon and Carpenter to make an offer to reassign the operating rights to Stone and Loundagin before October 2, 2001. Considering the language of the clause in the context in which it was written and looking to the surrounding circumstances, the subject matter, and the purpose of the agreement, it was clear the parties intended the term “expiration” to mean the expiration date of the lease that was contained within the lease itself. The interpretation was consistent with the underlying purpose of reassignment clauses generally which is to protect assignors against the loss of their overriding royalty interest prior to the end of the primary term. The Court found it significant that the clause these parties drafted and agreed to, did not contain language to the effect that a reassignment offer was required if the assignee desired to surrender the lease. The omission of language that appeared to be standard in oil and gas reassignment clauses suggested that rather than being dependent on the assignee’s intent, the parties intended the reassignment offer to be made on a date certain – prior to six months before the expiration of the lease or October 2, 2001.
In the instant case, the lease never terminated and thus, Stone and Loundigan incurred no damages. They continued to receive the timely payment of all overriding royalties due under the lease.

Holding: The Court held that the reassignment clause required Devon and Carpenter to make an offer to reassign the operating rights to Stone and Loundagin on or before October 2, 2001. The Court affirmed the partial summary judgment order because under the particular circumstances, no contract damages could be proven.

The partial summary judgment on breach of contract was affirmed and the matter was remanded for consideration of the remaining claims.

J. Kite delivered the decision.

J. Golden dissented stating that the supplemental agreement at issue required Devon and Carpenter to offer reassignment of all pertinent acquired rights under the lease to SEI not later than 6 months prior to the expiration of each such lease. J. Golden agreed that the intent of the parties in including the reassignment clause was to prevent the lease from expiring without giving SEI the opportunity to save it. Devon and Carpenter must allow SEI an opportunity to save the lease when they know their actions will not be enough to do so. By focusing on the practical, as versus the theoretical “expiration” of the lease, J. Golden believed the reassignment provision imposed such a requirement. He would have upheld the grant of summary judgment to Devon and Carpenter.

Link: http://tinyurl.com/6cj2jm .

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