Barber et al v. Chesapeake Exploration LLC

Filing 30

OPINION AND ORDER granting defts' 21 MOTION for Summary Judgment; judgment will be entered accordingly. Signed by Chief Judge J. Leon Holmes on 1/13/12. (vjt)

IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
WESTERN DIVISION
DEWAYNE BARBER and
PAULETTE BARBER, husband and wife
v.

PLAINTIFFS

No. 4:11CV00234 JLH

CHESAPEAKE EXPLORATION, LLC;
BP AMERICA PRODUCTION COMPANY;
and BHP BILLITON PETROLEUM
(FAYETTEVILLE), LLC

DEFENDANTS

OPINION AND ORDER
The issues in this case concern an oil and gas lease in which Dewayne Barber and Paulette
Barber granted to Chesapeake Exploration Limited Partnership, now Chesapeake Exploration, LLC,
the right to drill for oil and gas on property in Section 26, Township 9 North, Range 6 West, White
County, Arkansas. In this action, the Barbers seek a declaration that the lease expired at the end of
its primary term of five years. In the alternative, the Barbers seek a declaration that the lease did
not include twenty mineral acres that they own in Section 26. The defendants have now moved for
summary judgment, which the Barbers obviously oppose. For the reasons that will be explained,
the defendants’ motion for summary judgment is granted.
I.
A court should enter summary judgment if the evidence demonstrates that there is no genuine
dispute as to any material fact and that the moving party is entitled to judgment as a matter of law.
Fed. R. Civ. P. 56(a); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50, 106 S. Ct.
2505, 2511, 91 L. Ed. 2d 202 (1986). The moving party bears the initial responsibility of
demonstrating the absence of a genuine dispute of material fact. Celotex Corp. v. Catrett, 477 U.S.
317, 323, 106 S. Ct. 2548, 2553, 91 L. Ed. 2d 265 (1986). If the moving party meets this burden,

the nonmoving party must respond by coming forward with specific facts establishing a genuine
dispute for trial. Torgerson v. City of Rochester, 643 F.3d 1031, 1042 (8th Cir. 2011) (en banc).
In deciding a motion for summary judgment, a court views the evidence in the light most favorable
to the nonmoving party and draws all reasonable inferences in that party’s favor. PHL Variable Ins.
Co. v. Fulbright McNeill, Inc., 519 F.3d 825, 828 (8th Cir. 2008). A genuine dispute exists only if
the evidence is sufficient to allow a jury to return a verdict for the nonmoving party. Anderson, 477
U.S. at 249, 106 S. Ct. at 2511. When a nonmoving party cannot make an adequate showing
sufficient to establish a necessary element of the case on which that party bears the burden of proof,
the moving party is entitled to judgment as a matter of law. Celotex Corp., 477 U.S. at 322-23, 106
S. Ct. at 2552.
II.
It is undisputed that Dewayne and Paulette Barber entered into an oil and gas lease with
Chesapeake. The lease recites that the agreement was made on June 8, 2005. The acknowledgment
recites that the Barbers executed the lease on July 21, 2005.

The Barbers say that the

acknowledgment is false because they were out of the country on that date, but they admit that they
signed the lease and that the lease presented to the Court bears their signatures.
The first issue is whether the lease has expired. Paragraph 1 of the lease provides:
This lease shall remain in force for a primary term of Five (5) years and as long
thereafter as oil, gas or other hydrocarbons are produced from said leased premises
or from lands pooled therewith.
Paragraph 9 of the lease provides:
Notwithstanding anything contained in this Lease to the contrary, it is expressly
agreed that if the Lessee shall commence operations as provided herein at any time
while this Lease is in force, this Lease shall remain in force and its terms shall

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continue so long as such operations are prosecuted, and if production results
therefrom, then as long as production is maintained.
Paragraph 5 of the lease defines “operations” as follows:
The term “operations” as used herein shall include, without limitation, the following:
Commencing, construction of roadways, preparation of drillsite, drilling, testing,
completing, reworking, recompleting, deepening, plugging back, repressuring,
pressuring maintenance, cycling, secondary recovery operations, or the production
of oil or gas, or the existence of a shut-in well capable of producing oil or gas.
Subsequently, SEECO, Inc., secured an order from the Arkansas Oil and Gas Commission
dated February 11, 2010 (Order No. 032-2010-01), pooling and integrating unleased mineral
interests and uncommitted leasehold working interests for development in a drilling unit consisting
of Section 26, Township 9 North, Range 6 West, White County, Arkansas. Pursuant to the
provisions of the Order of the Arkansas Oil and Gas Commission, Chesapeake elected to participate
in the well proposed by SEECO to the extent of the oil and gas leases that it held covering lands in
Section 26, Township 9 North, Range 6 West. SEECO commenced drilling the Peter Harmon 09-06
#1-26H well in Section 26, Township 9 North, Range 6 West on March 21, 2010.
Chesapeake contends that because SEECO began drilling before the expiration of the fiveyear lease of the Barbers, the lease remains in effect and has not expired, citing Snowden v. JRE
Invs., Inc., 2010 Ark. 276, ___ S.W.3d __, 2010 WL 2210644 and Garner v. XTO Energy, 2011 Ark.
App. 606, 2011 WL 4824319. In those two cases, the Arkansas courts construed leases that were
substantially identical to the present lease with respect to the relevant provisions, and in both of
those cases the courts construed the leases to mean that if drilling was commenced before the end
of the primary term and continued thereafter until the well began producing, the leases continued
in effect beyond the end of the primary term.

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The Barbers concede that the lease provided that it would remain in force and effect if
operations were to begin during the primary term of the lease and continue thereafter if production
were to result. They concede that the term “operations” includes drilling. They contend, however,
that the drilling by SEECO did not result in continuation of the lease beyond the primary term
because the lease requires that the operations be conducted by the lessee in order to continue the
lease in effect beyond the primary term. They note that neither Snowden nor Garner addressed a
situation in which the entity that began the operations during the term of the lease was not the lessee.
While it is true that paragraph 9, which is quoted above, provides that the lease will remain
in effect if the lessee commences operations during the primary term of the lease, and SEECO is not
the lessee, nevertheless other provisions in the lease refute the Barbers’ argument. Paragraph 5 of
the lease provides, in pertinent part:
Lessee hereby is given the right at its option, at any time and whether before or after
production, to pool for development and operation purposes all or any part or parts
of the leased premises or rights therein with any other land in the vicinity thereof
....
Operations on any part of any lands so pooled shall, except for the payment of
royalties, be considered operations on leased premises under this Lease, and,
notwithstanding the status of a well at the time of pooling, such operations shall be
deemed to be in connection with a well which is commenced on leased premises
under this Lease.
Thus, the lease unambiguously provides that Chesapeake could pool the leased premises with other
land in the vicinity for development and operation and that operations on any part of the pooled land
would be considered operations under the lease.
Furthermore, an Arkansas statute provides:
All operations, including, but not limited to, the commencement, drilling, or
operation of a well upon any portion of a drilling unit for which an integration order
has been entered shall be deemed for all purposes the conduct of operations upon
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each separately owned tract and interest in the drilling unit by the several owners
thereof.
Ark. Code Ann. § 15-72-305(b) (Repl. 2009). Thus, by statute, SEECO’s drilling is “deemed for
all purposes the conduct of operations upon” the land leased by the Barbers to Chesapeake.
Although the Arkansas courts have not construed section 15-72-305(b), similar statutes in other
jurisdictions have been construed to mean that drilling on a portion of a drilling unit for which an
integration order has been entered extends the leases on property within the ordered unit. See Tri
M Petroleum Co. v. Getty Oil Co., 792 F.2d 558, 561-62 (5th Cir. 1986).
The Barbers assert that the defendants did not raise this defense in their answers as required
by the rules of civil procedure and that the Barbers were not made aware of the defense until after
the deposition of Dewayne Barber on December 3, 2011, which was two weeks after the deadline
for the amendment of pleadings and two days after the discovery deadline. That argument is without
merit. The Barbers’ initial complaint alleged only that the lease did not include twenty of the
mineral acres that they owned; it did not allege that the lease expired at the end of its primary term.
The Barbers filed an amended complaint on August 3, 2011, adding a count alleging that the lease
expired at the end of its term. In paragraph 15 of the amended complaint, the Barbers alleged that
no hydrocarbons were produced from the leased premises or lands pooled therewith before the end
of the five-year term in the lease. Paragraph 17 alleged that the lease expired at the end of its term.
Chesapeake answered on August 23, 2011. BHP Billiton Petroleum (Fayetteville), LLC, and BP
America Production Company filed answers on September 2, 2011, and on September 6, 2011. All
three of the answers state in paragraph 15 that the defendants “affirmatively assert that the lease at
issue in Plaintiffs’ Complaints is held by production by SEECO’s Peter Harmon 9-6 1-26H well,
which had a spud date of March 21, 2010, prior to the expiration of the oil and gas lease which is
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attached as Exhibit A to Plaintiffs’ Complaint.” All three of the answers denied the allegations in
paragraph 17 of the amended complaint. Thus, the defendants affirmatively stated in their answers
that operations commenced pursuant to the terms of the lease by virtue of the well drilled by
SEECO, and they expressly denied that the lease expired at the end of its term.
For the reasons stated, the defendants’ motion for summary judgment is granted on the issue
of whether the lease continued in effect beyond its primary term.
III.
The second issue concerns the extent of the lands leased by the Barbers to Chesapeake. At
the time the Barbers entered into the lease with Chesapeake, they believed that they had mineral
rights to fifty-nine acres in Section 26. It is undisputed that Chesapeake initially paid the Barbers
a bonus of $8,850, calculated at the rate of $150 per acre for fifty-nine acres. Sometime later it was
learned that the Barbers actually owned mineral rights to seventy-nine acres in Section 26.
Chesapeake eventually discovered the error and in January 2011 sent the Barbers a check for $3,000
to pay the Barbers $150 per acre for the additional twenty mineral acres. The Barbers refused to
negotiate the check.
The issue is whether the Barbers leased to Chesapeake the mineral rights to all of the
seventy-nine acres in which they owned mineral rights, or only to the fifty-nine mineral acres that
they believed that they owned at the time they executed the lease. The lease grants as follows:
WITNESSETH, that Lessor, for and in consideration of the sum of Ten and More
Dollars ($10.00 & more) in hand paid, and of the covenants and agreements
hereinafter contained to be performed by the Lessee, does hereby grant, demise, lease
and let unto said Lessee exclusively the hereinafter described land, for the purpose
of carrying on geological, geophysical, seismic, and other exploration work, and
drilling and operating for, producing and saving all of the oil, gas, (including
casinghead gas, coal seam gas, coal bed methane gas, helium and all other
constituents) and other hydrocarbons, all that certain tract of land, together with any
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reversionary rights therein situated in the County of White[,] State of Arkansas, and
described as follows:
ALL
of Section 26, Township 9 North, Range 6 West, and containing 640.00 acres, more
or less, and also, in addition to the above described land, any and all strips or parcels
of land, other than those constituting regular governmental subdivisions, adjoining
or contiguous to the above described land and owned or claimed by Lessor, all of the
foregoing land being hereinafter referred to as leased premises. It is the intention of
the Lessor herein that the leased premises cover and include all lands owned or
claimed by Lessor in the above numbered governmental section or sections together
with any and all accretions thereto whether or not herein accurately and completely
described.
Paragraph 18 of the lease provides:
It is the intent of the Lessor to lease all of Lessor’s interest in and to the Section
described herein, whether or not the tracts recited hereon are properly described, and
further it is understood that this lease includes all rights owned by the Lessor in this
section whether or not correctly described and any other properties owned by the
Lessor in the drilling and spacing unit for this well, including without limitation,
strips, gores, alleyways, roadways, accretions and avulsions.
The granting clause of the lease expressly and unambiguously states that the lessor intends
for the leased premises to include all lands that the lessor owns or claims in Section 26, Township
9 North, Range 6 West. Although the legal description in the lease is not specific as to what lands
the Barbers owned within Section 26, a conveyance of all that they owned within a specified section
is a sufficient conveyance under Arkansas law. See Ketchum v. Cook, 220 Ark. 320, 323-24, 247
S.W.2d 1002, 1004 (1952) (a deed conveying all of the grantor’s real estate within a specified onehalf of a quarter section was a sufficient description); Turrentine v. Thompson, 193 Ark. 253, 254,
99 S.W.2d 585, 586 (1936) (a deed conveying all of the grantor’s land in Hempstead County,
Arkansas, would contain a sufficient legal description); Snyder v. Bridewell, 167 Ark. 8, 11, 267
S.W. 561, 562 (1924) (a legal description in a mortgage was sufficient when it described all of the
lands owned by the mortgagor in specified counties in Arkansas); cf. Luthi v. Evans, 223 .Kan. 622,

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625-26, 576 P.2d 1064, 1067-68 (1978) (an oil and gas lease conveying all of the lessor’s property
in a certain county is valid). Because the lease here unambiguously provides that the lessor intends
to include in the lease all of the lessor’s property within Section 26, Township 9 North, Range 6
West, and because such a conveyance is valid under Arkansas law, the defendants are entitled to
summary judgment on the issue of whether the lease included all of the mineral rights owned by the
Barbers in Section 26 or only the fifty-nine acres of which they were aware at the time they signed
the lease.
In opposing summary judgment, the Barbers first argue that summary judgment should be
denied because they do not believe that the lease that they signed used the word “all” to describe the
portion of Section 26 that they were leasing to Chesapeake. Instead, they contend that the lease that
they signed had written in that they were leasing fifty-nine acres to Chesapeake. That contention
is based upon the deposition testimony of Dewayne Barber. When asked whether the lease before
the Court was the lease that he signed, Dewayne Barber testified: “I couldn’t swear it is, because
it has got 640 acres here, and I think, to my recollection, it was 59 acres is what I signed on the
lease. I wouldn’t swear to that.” After acknowledging that the signatures were those of him and his
wife, Dewayne Barber testified that the lease that he and Mrs. Barber signed was placed in a safe
at home, but the safe was stolen a few days after the lease was signed. The Barbers then went to the
courthouse to obtain file-marked copies of the deeds and leases that had been in the safe, and they
obtained the lease that is presently before the Court. They do not have any other lease. Although
Mr. Barber testified that he thought that what he signed stated that he was leasing fifty-nine acres,
he added, “I wouldn’t swear to that.” Thus, the Barbers are unable to present any admissible

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evidence to show that they signed a lease for fifty-nine acres rather than the lease that is before the
Court.
The Barbers next argue that the lease is ambiguous because it purports to lease all of
Section 26, which consisted of 640 acres, when there is no dispute about the fact that the Barbers
did not own all of Section 26. They point out that the lease contains a warranty clause, and it would
have made no sense for them to warrant that they had title to 640 acres, when they and Chesapeake
knew to the contrary. Thus, the Barbers argue, the Court should “put itself in the position of the
parties and interpret the language used in the light of attendant circumstances.” Abbott v. Pearson,
257 Ark. 694, 700-01, 520 S.W.2d 204, 209 (1975). Assuming, for the sake of argument, that the
property description in the lease is in doubt so that the Court may put itself in the position of the
parties and interpret the language in the light of attendant circumstances, the Barbers still cannot
avoid summary judgment.
Dewayne Barber was asked at his deposition to read the relevant portion of the lease, and
then was asked as follows:
Q

Okay. So, what did that mean to you, or what does that mean to you now?

A
Well, it means that their intent is to claim all the lands that you own in that
property, in that section.
Q
So, everything you own in section 26, township nine north, range six west,
according to that paragraph, is covered by this lease?
A

That’s what they want, yes.

Later in his deposition, Dewayne Barber testified that shortly after the safe was stolen, he
and his wife went to the courthouse and obtained copies of all of their deeds and leases. When they
did so, they realized that they owned seventy-nine acres in Section 26, not fifty-nine acres. The

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Barbers owned all of the property rights, less one-half of the minerals, in a seventy-eight acre tract
in Section 26, and they also owned all property rights in a forty-acre tract. The mistake was that
they had thought, when they signed the lease with Chesapeake, that they only had one-half of the
mineral rights on the forty acres. Mr. Barber testified as follows:
Q
So, was it within that same few months that you took a look at your deed and
saw that you had all the 40 acres –
A

Yes.

Q

– instead of just half?

A
That’s right. And we tried to contact them [the agent for Chesapeake], you
know, to get it straightened out, and never could get anybody to get back with us.

***
Q

. . . And did you just kind of let it slide?

A
Well, then Chesapeake had some people come by to get some right-of-way
to lay a pipeline.
Q

Right.

A

So, I mentioned it to them.

Q

Do you remember who they were?

A

No. It was just a right-of-way agent.

Q

Okay.

A
And they don’t – they haven’t responded, or they didn’t communicate it any
further, evidently.
Q

And when, about, was that?

A

Oh, it has been, what, two years ago or so, two, two and a half.
MS. BARBER:

We told the seismograph people, though, when they
first came out to explore, we told them that.
THE WITNESS: Yeah, told the seismograph people, as well.

***
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Q
. . . So, basically, every time you saw somebody that was a contractor for or
an agent for Chesapeake, you tried to tell them, say, “Hey, you didn’t pay me for my
20 acres”; is that right?
A

That’s right, we did.

The testimony of Mr. Barber, as well as the comment on the record of Mrs. Barber, show that they
believed that the lease with Chesapeake included the twenty acres at issue here. They repeatedly
sought to be paid for that additional twenty acres, unsuccessfully. Mr. Barber admitted in his
deposition that, if Chesapeake had paid him and his wife for the twenty acres at the time they
discovered that they owned mineral rights to seventy-nine acres in Section 26, they would have
accepted the payment.
Q
So, really and truly, if Chesapeake had sent – well, I’m not trying to put
words in your mouth. But if Chesapeake had sent you this $3,000.00 check several
years ago, then you would have taken the check and we wouldn’t be here today?
A

There is a good possibility of it, yes.

Q
So, the real issue that we are dealing with, as far as you are concerned, is the
fact that it took them five years or longer to get it all sorted out?
A

That’s right.

Based on the deposition testimony, it is undisputed that the Barbers intended to lease to
Chesapeake all of the mineral rights that they owned within Section 26, which accords with the plain
language of the lease. At the time they signed the lease, the Barbers believed that they only owned
mineral rights on fifty-nine acres, and they accepted payment based on that acreage. Within a few
months after executing the lease, however, they learned that they actually owned mineral rights to
seventy-nine acres. They believed at the time that they had leased all of the seventy-nine acres to
Chesapeake, and they requested payment from Chesapeake for the additional twenty acres.
Although there was a delay in securing payment from Chesapeake, the undisputed facts establish
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that the parties intended the lease to include all of the mineral rights owned by the Barbers within
Section 26. The defendants are therefore entitled to summary judgment on this issue.
CONCLUSION
For the reasons stated, the defendants’ motion for summary judgment is granted. Document
#21. The unambiguous language of the lease and the testimony of Dewayne Barber establish that
the Barbers and Chesapeake intended that the lease would include all of the mineral rights owned
by the Barbers in Section 26, Township 9 North, Range 6 West, in White County, Arkansas. The
undisputed facts also establish that the lease continued in full force and effect after the expiration
of the primary term by virtue of the integration order entered by the Arkansas Oil and Gas
Commission dated February 11, 2010 (Order No. 032-2010-01) and the subsequent drilling of the
Peter Harmon 09-06 #1-26H well by SEECO, Inc., commencing on March 21, 2010.
IT IS SO ORDERED this 13th day of January, 2012.

J. LEON HOLMES
UNITED STATES DISTRICT JUDGE

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