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Berenergy Corp. v. BTU Western Resources, Inc.

Supreme Court of Wyoming

January 4, 2018

BERENERGY CORPORATION, Appellant (Plaintiff),
v.
BTU WESTERN RESOURCES, INC.; SCHOOL CREEK COAL RESOURCES, LLC; and PEABODY POWDER RIVER MINING, LLC, Appellees (Defendants). BTU WESTERN RESOURCES, INC.; SCHOOL CREEK COAL RESOURCES, LLC; and PEABODY POWDER RIVER MINING, LLC, Appellants (Defendants),
v.
BERENERGY CORPORATION, Appellee (Plaintiff).

          Appeal from the District Court of Campbell County The Honorable Thomas W. Rumpke, Judge

          Representing Berenergy Corporation: Peter C. Forbes of Carver Schwarz McNab Kamper & Forbes, LLC, Denver, Colorado; Darin B. Scheer and Blake A. Klinker of Crowley Fleck PLLP, Cheyenne, Wyoming. Argument by Mr. Forbes.

          Representing BTU Western Resources, Inc.; School Creek Coal Resources, LLC; and Peabody Powder River Mining, LLC: Patrick R. Day, P.C.; Thomas L. Sansonetti, P.C.; Matt J. Micheli, P.C.; Jeffrey S. Pope, Holland & Hart LLP, Cheyenne, Wyoming. Argument by Mr. Day.

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

          DAVIS, Justice.

         [¶1] This case involves a dispute between mineral developers in Wyoming's Powder River Basin. Berenergy Corporation produces oil from several sites under three oil and gas leases granted by the United States Department of the Interior, Bureau of Land Management (BLM). The surface area covered by those leases and wells overlaps lands that, pursuant to BLM coal leases, affiliates of Peabody Energy Corporation (Peabody) are planning to strip-mine.

         [¶2] Berenergy's suit eventually led to cross-motions for summary judgment, the district court's April 1, 2015 "Order Granting in Part and Denying in Part Plaintiff's Motions for Summary Judgment and Granting in Part and Denying in Part Defendants' Motion for Summary Judgment, " and the court's October 13, 2016 "Order Declaring Rights Pursuant to the Court's Summary Judgment Order Dated April 1, 2015, and Granting Incidental Relief to Enforce Declaration." Berenergy appealed the aspects of those orders that essentially required it, at the appropriate times, to cease production and cap its wells below the projected coal seam, so that Peabody could "mine through" the affected areas. Peabody cross-appealed the aspects that required it to place over $13, 000, 000 in escrow to cover Berenergy's additional costs, if it was in the future granted permission by the Wyoming Oil and Gas Conservation Commission to directionally drill an offsite well for enhanced water-flood production of the oil to which it was entitled.

         [¶3] We remand the case with directions for further proceedings before the district court, despite our belief that the case will most likely have to be dismissed.

         ISSUE

         [¶4] Considering our disposition of this case, we reduce Berenergy's several intertwined issues into a single issue:

Does this case present a justiciable issue when this Court cannot render a decision binding on a federal agency, and can only offer an advisory opinion which may or may not ultimately bind the parties?

         Our resolution of that question makes it unnecessary to address any issues relating to the monetary aspects of the district court's challenged orders.

         FACTS

         [¶5] This case involves complex facts and issues, but given the relatively narrow question we address, we will limit our statement of the facts to those pertinent to answering it. On May 6, 2014, Berenergy filed a complaint for a declaratory judgment that the terms of its earlier-granted BLM oil leases provided it with rights superior to any obtained by Peabody through its later coal leases. It alleged that its superior rights precluded Peabody from forcing it to shut down its wells for fifteen to twenty years, with no compensation, while Peabody mined through the areas containing or immediately adjacent to those wells. It sought declarations to that effect, and to prevent Peabody from conducting its mining operations in such a fashion as to interfere with Berenergy's operations, including its plan to increase production by water-flooding the oil-bearing formations covered by its leases.[1]

         [¶6] On June 19, 2014, the case was removed to the United States District Court for the District of Wyoming and effectively joined with a suit previously filed by Peabody, which related to the same leases and raised similar questions. The cases were remanded to the state district court approximately a month later after the federal court dismissed them for lack of federal question jurisdiction.

         [¶7] On October 24, 2014, Berenergy filed a motion for a partial summary judgment which largely reiterated the points in its complaint. It also clarified that its primary claim was intended to sound in contract, that it rested on the effective dates and the allegedly unambiguous language of its BLM leases, and that nothing in the Mineral Leasing Act of 1920 (MLA) or the regulations issued under the Act diminished the superior right it enjoyed over Peabody by virtue of that language.[2]

         [¶8] On the other hand, Peabody took the position that the clear and unambiguous language of the oil leases expressly required Berenergy to give "due regard" to coal development, to operate its wells in such a manner as to cause "minimal adverse effect on ultimate recovery" of coal, and in cases of disagreement with coal lessees, to submit the matter to the state district court. It argued that the court was to craft a plan that would maximize production of both minerals while minimizing harm to both parties, and to award compensation for any imbalance in the damages a party might suffer as a result of implementing the plan.

         [¶9] In ruling on the parties' cross-motions for partial summary judgments, the district court determined that the language of Berenergy's leases was unambiguous. However, it concluded that the intent of the parties to those leases, Berenergy and the BLM, could be divined only by reading their provisions in conjunction with Peabody's coal leases and general policy aims articulated in the MLA and the federal rules and regulations promulgated to give effect to that Act. Those extrinsic sources, the court determined, implicitly allowed Peabody to block Berenergy from producing oil-or Berenergy to block Peabody's coal production-so long as the restriction was reasonable. Because the question of reasonableness required factual development, the court denied the portions of both parties' summary judgment motions seeking to unconditionally block or permit Peabody's interference with Berenergy's interests.

         [¶10] Following trial, the district court derived its analysis of what was reasonable from Wyoming rules governing the review of State mineral lease conflicts by the Director of the Office of State Lands.[3] It decided that if the parties could concurrently produce without materially reducing the quantity or value of the oil and coal produced, it had to determine whether Berenergy's operational costs would nevertheless be increased significantly, and whether Peabody can pay those costs without unreasonably burdening its operations. From those determinations, the court would develop a plan for concurrent operations and assess damages.

         [¶11] On the other hand, if the district court determined that concurrent production was impossible, it had to examine whether the value of Peabody's coal so exceeded the value of Berenergy's oil that both parties and the public would receive greater benefit from having Berenergy terminate its current operations, and having Peabody compensate it for its loss. That compensation must be equal to the value of the rights lost by Berenergy, as determined in the manner applicable to condemnation in eminent domain proceedings.

         [¶12] Applying that standard, the district court concluded that concurrent production under Berenergy's proposals was not economically feasible, because it would unreasonably add more than $300, 000, 000 to Peabody's costs to mine the coal. It also determined that because the value of the coal to be mined vastly exceeded that of the oil that could be recovered from Berenergy's existing production from its relatively old wells, those wells should be shut down, and that Peabody should compensate it $878, 021 for doing so. In addition to being compensated for long-term loss of its primary production wells, Berenergy could also be compensated $13, 051, 084 for increases in the cost of secondary water-flooding operations on its existing wells from a new well outside the area to be mined, if such operations were approved by Wyoming authorities. The latter amount was to be escrowed with the district court to assure that it was available if the flooding plan was approved.

         [¶13] Before engaging in this discussion, however, the district court presciently expressed concern over an aspect of this case that we likewise find troubling:

The second curious aspect of this case is that despite all of the leases at issue being Federal leases, the BLM has not been brought in as a party to this case nor has it sought to intervene. To the contrary, the BLM seems content to allow a state court to determine how coal and oil and gas development will proceed on Federal lands. As the Court noted in its summary judgment order, the Court believes this is largely a political issue, which the BLM is tasked with answering. This is especially true since the Secretary of Interior, the administrative head of the BLM, is the "statutory guardian" of the public's interest in minerals. This Court is not aware of another situation wherein a federal agency has been so willing not to dictate to the State's [sic] how things will be done. Political issues can be thorny, but in this case the political issue of who should go first (oil and gas or coal) when concurrent mineral development on Federal lands may not be possible, seems to be a thorny issue that the BLM should be answering. As Winston Churchill said, "The price of greatness is responsibility."
The absence of the BLM, and its refusal to act in light of clear statutory authority (or duty) to do so is even more troubling in light of the BLM's duty to ensure that the people's resources, i.e., minerals, are "extract[ed] in accord with prudent principles of conservation." California Co. v. Udall, 296 F.2d 385, 388 (D.C. Cir. 1961). Berenergy, rightfully so, is only interested in the financial impact allowing coal development may have on its bottom line. Likewise, and rightfully so, Peabody's only interest is ...

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