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Pennaco Energy, Inc. v. KD Co. LLC

Supreme Court of Wyoming

December 2, 2015

PENNACO ENERGY, INC., Appellant (Defendant),
v.
KD COMPANY LLC, a Wyoming close limited liability company, Appellee (Plaintiff). PENNACO ENERGY, INC., Appellant (Defendant),
v.
FIRST NORTHERN BANK OF WYOMING, BUFFALO, WYOMING, AS TRUSTEE OF THE CREDIT SHELTER TRUST ESTABLISHED ON JANUARY 16, 2005, UNDER THE LEO M. HOLLCROFT REVOCABLE TRUST, DATED APRIL 12, 2002; and FIRST NORTHERN BANK OF WYOMING, BUFFALO, WYOMING, AS TRUSTEE OF THE CLAIRE B. HOLLCROFT REVOCABLE TRUST, DATED APRIL 12, 2001, Appellees (Plaintiffs).

Appeals from the District Courts of Sheridan and Johnson Counties The Honorable William J. Edelman, Judge

Representing Appellant: Marie R. Yeates and Michael A. Heidler of Vinson & Elkins, L.L.P., Houston, Texas; Mark R. Ruppert and Isaac N. Sutphin of Holland & Hart, LLP, Cheyenne, Wyoming. Argument by Ms. Yeates.

Representing Appellees: Kendal R. Hoopes of Yonkee & Toner, LLP, Sheridan, Wyoming.

Representing Petroleum Association of Wyoming, Amicus Curiae in Support of Pennaco Energy Inc.: Thomas F. Reese, Ryan J. Schwartz, William E. Reese, and Kyle A. Ridgeway of Williams, Porter, Day & Neville, P.C., Casper, Wyoming.

Representing Texas Oil & Gas Association, Amicus Curiae in Support of Pennaco Energy Inc.: Timothy M. Stubson of Crowley Fleck PLLP, Casper, Wyoming.

Before BURKE, C.J., and HILL, DAVIS, FOX, and KAUTZ, JJ.

KAUTZ, Justice.

[¶1] Pennaco Energy, Inc. (Pennaco) obtained oil and gas leases in northeastern Wyoming. Pennaco then made contracts with the surface landowners, who were predecessors of Appellees. These agreements granted Pennaco access to and use of the landowners' land during exploration and production under the mineral leases. In the agreements, Pennaco committed to pay for damages and for use of the land and, when operations ceased, to restore the land as nearly as possible to its prior condition. Pennaco developed its coalbed methane operation, drilling for and producing gas, and made the required payments for several years. It then assigned its interest in the operations and agreements to CEP-M Purchase, LLC (CEP-M), which re-assigned those interests to High Plains Gas, Inc. (High Plains Gas). Since Pennaco's assignment, neither Pennaco nor the assignees have made any of the payments required under the agreements, nor have they reclaimed any of the land.

[¶2] Appellees (referred to as landowners jointly, and individually as KD or Hollcroft) sued Pennaco, CEP-M and High Plains Gas for breach of the agreements. CEP-M and High Plains Gas defaulted. The district court granted summary judgment in favor of the landowners, concluding that Pennaco remained liable under the agreements even after assignment.

[¶3] Pennaco appeals, claiming the district court erred in applying contract law to find that it remained liable under the agreements. Pennaco contends the agreements created covenants running with the land, which can only be enforced against someone in privity of estate with the landowners. Upon assigning the agreements and leases to CEP-M, Pennaco asserts, it ceased to have privity of estate with the landowners and cannot be held liable under the agreements. We conclude the district court correctly ruled Pennaco remains liable under the agreements, and affirm the judgments.

ISSUES

[¶4] The issues for our determination are:

1. Whether the district court correctly ruled that Pennaco remains liable for performing the obligations under the agreements after assigning a portion of its interest under those agreements to a third party.

2. Whether the district court properly awarded costs and attorney fees to the landowners.

FACTS

[ΒΆ5] The ranch lands at issue in these cases are located in the Powder River Basin in Sheridan County and Johnson County, Wyoming. During the 1990s, Pennaco acquired interests in oil and gas leases for the mineral estate underlying the ranch lands. Pennaco then made contracts with the surface owners, who were predecessors of KD and Hollcroft. In those contracts, the surface owners granted Pennaco the right to enter the lands for purposes of drilling, completing and producing gas wells, constructing and maintaining access roads and power lines, and installing pipelines to transport gas and water produced from gas wells drilled on the lands. In exchange, Pennaco agreed to make ...


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