Opinion
NO. 2019-CA-000991-MR
04-17-2020
THOMAS CRISP; JAMES LARGE; MAGNUM DRILLING OF OHIO, INC.; AND MAGNUM DRILLING, INC. APPELLANTS v. BLACKRIDGE APPALACHIAN LAND, LLC; AND BIGSTAR ENERGY, L.P. APPELLEES
BRIEFS FOR APPELLANTS: Brad Derifield Louisa, Kentucky BRIEF FOR APPELLEES: Anne A. Chesnut R. Clay Larkin Lexington, Kentucky
NOT TO BE PUBLISHED APPEAL FROM LAWRENCE CIRCUIT COURT
HONORABLE JOHN DAVID PRESTON, JUDGE
ACTION NO. 18-CI-00250 OPINION
AFFIRMING
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BEFORE: JONES, MAZE AND L. THOMPSON, JUDGES. THOMPSON, L., JUDGE: Thomas Crisp, James Large, Magnum Drilling of Ohio, Inc., and Magnum Drilling, Inc. (hereinafter referred to collectively as Magnum) appeal from a declaratory judgment order which held that a natural gas lease they held had expired. We find no error and affirm.
FACTS AND PROCEDURAL HISTORY
In 1980, Sam and Joyce Caudill executed an oil and gas lease in favor of Burchett Investment Corporation as lessee on a piece of property (hereinafter called the Blackburn Property). Magnum purchased this lease in 2000. At that time, and at all times relevant, the Blackburn Property was owned by Anna Rae Blackburn. In 2000, the property contained one working gas well and Ms. Blackburn was receiving free gas from the well pursuant to the terms of the lease. Later, two other members of the Blackburn family built houses on the land and began receiving free household gas from the well.
Magnum's intention was to drill new wells on the property because the original well was not producing much gas. Before any new wells could be drilled, Magnum and Ms. Blackburn had a falling out and Ms. Blackburn told Magnum not to enter onto her property. Magnum acquiesced to this request and has drilled no new wells nor removed gas from the original well since 2000.
In 2015, Ms. Blackburn executed an oil and gas lease covering the same property to BigStar Energy, L.P. BigStar later assigned a 50% interest in this lease to Blackridge Appalachian Land, LLC. Ms. Blackburn is not a party to this action and has not been deposed; however, it appears as though she believed the previous lease had terminated pursuant to its terms because Magnum had not produced any gas from the well since 2000. After receiving their lease, Appellees attempted to produce oil and gas from the Blackburn Property, but Magnum objected. This prompted Appellees to bring this declaratory action.
Mr. Large, one of the owners of Magnum, was deposed during discovery. He testified that Magnum has neither collected nor sold gas from the well since the lease was purchased. He also testified that no one from Magnum has been on the property in over ten years and that no royalties have ever been paid to Ms. Blackburn.
Appellees eventually moved for summary judgment, which the court granted. The court held that Magnum's lease had terminated pursuant to its terms. The lease stated that it was valid for an initial period of five years but would continue so long as oil or gas was being produced from the property. The court found that no gas had been produced from the well since Magnum purchased the lease and that the household gas being used by the Blackburn family did not count for purposes of "gas being produced." This appeal followed.
ANALYSIS
The standard of review on appeal of a summary judgment is whether the trial court correctly found that there were no genuine issues as to any material fact and that the moving party was entitled to judgment as a matter of law. . . . "The record must be viewed in a light most favorable to the party opposing the motion for summary judgment and all doubts are to be resolved in his favor." Summary "judgment is only proper where the movant shows that the adverse party could not prevail under any circumstances." Consequently, summary
judgment must be granted "[o]nly when it appears impossible for the nonmoving party to produce evidence at trial warranting a judgment in his favor[.]"Scifres v. Kraft, 916 S.W.2d 779, 781 (Ky. App. 1996) (citations omitted).
Magnum argues on appeal that there was a sufficient quantity of gas produced on the property to keep the lease from terminating or, in the alternative, that summary judgment was granted in error because there is still a genuine issue of material fact to be determined. We disagree and conclude that the trial court did not err in granting summary judgment in Appellees' favor.
For an oil or gas well to be deemed as producing, the well must produce oil or gas in paying quantities. Sawyer v. Potter, 223 Ky. 359, 3 S.W.2d 758, 759 (1928). This means that the quantity must be substantial enough to pay the lessor a royalty. Id.; see also Cumberland Contracting Co. v. Coffey, 405 S.W.2d 553 (Ky. 1966). Here, Ms. Blackburn has never received a royalty from Magnum. In addition, Magnum has not built new wells nor been on the property in over a decade. Although Ms. Blackburn requested Magnum refrain from entering upon her land, Magnum could have sought help from the courts. It did not. We agree with the trial court that no gas has been produced by Magnum's well; therefore, pursuant to the terms of the lease, Magnum's interest in the property has been terminated.
Magnum also argues that summary judgment was granted in error because there is a material issue of fact. Citing to Warfield Natural Gas Co. v. Allen, 248 Ky. 646, 59 S.W.2d 534, 537 (1933), Magnum argues that whether or not gas is being produced in paying quantities is a question of fact. Here, Mr. Large filed an affidavit and testified at a deposition. Mr. Large testified that the well at issue was producing paying quantities of gas. He testified that there were currently three houses receiving free gas from the well. He argued that the amount of gas those houses received would be an amount that would satisfy the paying quantities standard if Magnum sold it on the open market.
We believe this argument is too speculative to survive summary judgment. "[S]peculation and supposition are insufficient to justify a submission of a case to the jury, and [] the question should be taken from the jury when the evidence is so unsatisfactory as to require a resort to surmise and speculation." O'Bryan v. Cave, 202 S.W.3d 585, 588 (Ky. 2006) (quoting Chesapeake & Ohio Ry. Co. v. Yates, 239 S.W.2d 953, 955 (Ky. 1951)). Here, Mr. Large testified that no one from Magnum has been to the property in over ten years. He also testified that no one has been keeping track of the meter readings at the well and that no one has ever measured the amount of gas being sent to the three houses on the Blackburn Property. Mr. Large has no measurements or concrete facts to support his argument, only speculation. This is insufficient.
CONCLUSION
In this case, Magnum has done nothing to secure the production of gas on the Blackburn Property in over ten years. Furthermore, Magnum has no evidence, other than self-serving and speculative testimony, whether the amount of gas being used by the Blackburn family is in such a quantity to turn a profit and pay royalties. Pursuant to the terms of the lease, Magnum's interest in the property has terminated. We affirm the judgment of the trial court.
Magnum raises other arguments in its briefs regarding the marketability of the gas and whether the lease was abandoned or forfeited, as opposed to it terminating pursuant to its terms. These issues were not addressed by the trial court and are not relevant to our analysis; therefore, we will not address them. --------
ALL CONCUR. BRIEFS FOR APPELLANTS: Brad Derifield
Louisa, Kentucky BRIEF FOR APPELLEES: Anne A. Chesnut
R. Clay Larkin
Lexington, Kentucky