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DOCE Limited Partnership v. Sandridge Exploration and Production, LLC

United States District Court, D. Kansas

May 8, 2017

DOCE LIMITED PARTNERSHIP, Plaintiff,
v.
SANDRIDGE EXPLORATION AND PRODUCTION, LLC, Defendant.

          MEMORANDUM AND ORDER

          ERIC F. MELGREN UNITED STATES DISTRICT JUDGE.

         Doce Limited Partnership owns land that is leased to SandRidge Exploration and Production, LLC, for oil and gas exploration and development. When Doce learned that SandRidge was also using this land to dispose millions of barrels of water produced from its other oil and gas operations, this lawsuit commenced. Doce alleges that the disposal of off-lease water was unauthorized and constitutes breach of contract and trespass. Doce also claims that SandRidge was unjustly enriched by disposing of the off-lease water without the right do so. Doce moves for partial summary judgment (Doc. 22), seeking a judgment that SandRidge was not authorized to dispose of off-lease water on its land. SandRidge also seeks summary judgment (Doc. 24). SandRidge contends that it was in fact authorized to dispose of off-lease water on Doce's land, and therefore, cannot be held liable for breach of contract, trespass, or unjust enrichment. Because the parties' unambiguous agreement allowed for the diposal of off- lease water, the Court grants SandRidge's motion for summary judgment and dismisses Doce's claims.

         I. Factual and Procedural Background[1]

         Plaintiff Doce Limited Partnership owns the surface and mineral rights in and under land in Harper County, Kansas. Doce leased two parcels of that land to Defendant SandRidge Exploration and Production, LLC, pursuant to two earlier leases that SandRidge had acquired. Those earlier leases were executed by SandRidge's predecessors in 1977 and 2010, respectively. In June 2013, Doce and SandRidge entered into a Voluntary Pooling and Unitization Agreement (the “VPU Agreement”). The VPU agreement consolidated the two parcels of land that were covered by the 1977 and 2010 leases into a single production unit (the “Doce Unit”). Under the VPU agreement, SandRidge could drill a horizontal well that crossed the boundary line between the two parcels of land.

         After the parties executed the VPU agreement, SandRidge approached Doce about entering a potential right of way and easement agreement. SandRidge and Doce exchanged several proposed easements. And on August 15, 2013, Doce, as grantor, executed a Surface Right of Way and Easement (the “ Surface Easement”). In exchange for the Surface Easement, SandRidge paid Doce $20, 000. Relevant here, the Surface Easement provided:

1) [Doce] grants, transfers, conveys and warrants unto [SandRidge] a right of way and easement covering the entirety of that certain tract of the Land containing three and one-tenth (3.10) acres, (hereinafter referred to as the “Surface Easement”) [] over and through the Land for the purposes of, locating, drilling, completing, constructing, using, installing, operating, inspecting, protecting, altering, maintaining, re-entering, improving, repairing, changing the size of, removing, plugging, and replacing an oil, gas, and/or saltwater disposal well or wells, facilities and all appurtenances necessary to operate the same . . . .
2) [Doce] also grants, transfers, conveys, and warrants unto [SandRidge] the right to drill, complete, construct, use, or operate, convert, maintain, re-enter and repair a saltwater disposal well or wells for [SandRidge's] use in and for the disposal of saltwater, brine and mineral water and other liquids produced from oil and gas operations operated by or on behalf of [SandRidge], to be located anywhere on the lands comprising the Surface Easement, with all appurtenances necessary to operate the same.

         At the end of November 2013, SandRidge completed the Astoria 3306 1-34 SWD well (the “Astoria well”), a saltwater disposal well located on the Doce Unit. The next month, SandRidge began disposing water into the Astoria well. In April 2014, SandRidge completed two horizontal producing wells on the Doce Unit: they were named the Lee 3306 1-34H and 2-34H wells, respectively.

         SandRidge connected the Astoria well to a water disposal system that includes multiple oil, gas, and disposal wells. The water disposal system receives water from all of the connected oil and gas wells, and transports that water to any one or more of the water disposal wells included in the system. The water disposal system that included the Astoria well also included 51 other wells, most of which were not located on the Doce Unit. Between two and seven of those wells were water disposal wells, the rest, presumably, were oil and gas wells. In other words, between 44 and 49 of the wells in the system produced water, which was disposed into only handful of water disposal wells, one of which was the Astoria well.

         It is undisputed that SandRidge disposed of water from both the Doce Unit and elsewhere (off-lease) into the Astoria well. In 2014, the Lee 3306 1-34H and 2-34H wells on the Doce Unit produced 954, 994 barrels of water. Over that same period, SandRidge disposed of 2, 032, 101 barrels of water into the Astoria well.

         Upon discovery that SandRidge was disposing of water produced off-lease into the Astoria well, Doce brought this action in Harper Country District Court. Doce argues that SandRidge was not authorized to dispose of off-lease water on the Doce Unit. Accordingly, Doce claims that Astoria breached the VPU Agreement and the Surface Easement and committed a past and ongoing trespass by disposing of off-lease water into the Astoria well. Doce also alleges that SandRidge was unjustly enriched because it did not compensate Doce for its use of the Astoria well to dispose of off-lease water.

         Both parties now seek summary judgment. Doce seeks partial summary judgment, asking the Court to determine that under the parties' agreements, SandRidge was not authorized to dispose of off-lease water on Doce's land. Alternatively, Doce seeks judgment declaring that the Surface Easement is ambiguous, and therefore requires the consideration of extrinsic evidence to construe the parties' rights. Conversely, SandRidge argues that the Surface Easement authorized it to dispose of off-lease water on the Doce Unit. And so SandRidge argues that because the parties agreed that it could dispose of off-lease water into the Astoria well, the Court should dismiss Doce's claims for breach of contract, trespass, and unjust enrichment.

         II. Legal Standard

         Summary judgment is appropriate if the moving party demonstrates that there is no genuine issue as to any material fact, and the movant is entitled to judgment as a matter of law.[2]A fact is “material” when it is essential to the claim, and issues of fact are “genuine” if the proffered evidence permits a reasonable jury to decide the issue in either party's favor.[3] The movant bears the initial burden of proof and must show the lack of evidence on an essential element of the claim.[4] If the movant carries its initial burden, the nonmovant may not simply rest on its pleading but must instead “set forth specific facts” that would be admissible in evidence in the event of trial from which a rational trier of fact could find for the nonmovant.[5]These facts must be clearly identified through affidavits, deposition transcripts, or incorporated exhibits-conclusory allegations alone cannot survive a motion for summary judgment.[6] The Court views all evidence and reasonable inferences in the light most favorable to the party opposing summary judgment.[7]

         Though the parties in this case filed cross-motions for summary judgment, the legal standard remains the same.[8] Each party retains the burden of establishing the lack of a genuine issue of material fact and entitlement to judgment as a matter of law.[9] Each motion will be considered separately.[10] To the extent the cross-motions overlap, however, the court may address the legal arguments together.[11]

         III. Analysis

         The parties agree that under Kansas law, the 1977 and 2010 leases give SandRidge the right to dispose of water that was produced on the Doce Unit into the Astoria well.[12] This right is created both by implication and statute.[13] But those leases did not give SandRidge the right to dispose of off-lease water into the Astoria well.[14] Rather, SandRidge would need separate permission to dispose of off-lease water into the Astoria well.[15] An exception to this principle exists when the off-lease water is used to increase oil production, but those facts are not present in this case.[16] And so this case turns on the question of whether Doce authorized SandRidge to dispose of off-lease water into the Astoria well.

         Each party relies on its interpretation of the Surface Easement in arguing that SandRidge was or was not authorized to dispose of off-lease water into the Astoria well. For that reason, the outcome of the parties' motions turns on the Court's construction of the Surface Easement. The construction and interpretation of a contract is a question of law that properly may be determined on a motion for summary judgment, provided the contract is unambiguous.[17]

         In interpreting a written instrument, the Court will assign the terms their plain, general, and common meaning.[18] The language used anywhere in the instrument will be construed in harmony with the rest of the provisions.[19] And the Court will avoid an interpretation that would reduce the contract's terms to an absurdity.[20]

         At issue is paragraph two of the Surface Easement, which provides:

[Doce] also grants, transfers, conveys, and warrants unto [SandRidge] the right to drill, complete, construct, use, or operate, convert, maintain, re-enter and repair a saltwater disposal well or wells for [SandRidge's] use in and for the disposal of saltwater, brine and mineral water and other liquids produced from oil and gas operations operated by or on behalf of [SandRidge], to be located anywhere on the lands comprising the Surface Easement, with all appurtenances necessary to operate the same.

         Doce argues that the above paragraph did not authorize SandRidge to dispose of off-lease saltwater because “nowhere in this paragraph is disposal of off-lease or ‘foreign' produced saltwater ever mentioned.” Rather, Doce asserts that in the context of the entire Surface Easement, the reference to “the disposal of saltwater . . . from oil and gas operations operated by or on behalf of” SandRidge refers only to SandRidge's operations on the Doce Unit.

         On the other hand, SandRidge emphasizes the words “produced from oil and gas operations operated by or on behalf of [SandRidge]” that describe the “saltwater, brine and mineral water and other liquids” that SandRidge is authorized to dispose. SandRidge notes that this language contains no limitations, and argues that a plain reading grants SandRidge the right to dispose on the Doce Unit any saltwater that it has produced, whether that saltwater was produced from the Doce Unit or off-lease. SandRidge contends that “[i]f Doce or SandRidge had intended to limit disposal to only water produced by oil or ...


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