Green v. Denbury Resources ( 2002 )

UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 02-60010
Summary Calendar
RUSSELL BARTON GREEN; BETTY M. GREEN,
Plaintiffs-Appellants,
VERSUS
DENBURY RESOURCES; et al,
Defendants,
DENBURY RESOURCES
Defendant-Appellee.
Appeal from the United States District Court
For the Southern District of Mississippi, Jackson Division
(4:00-CV-65-LN)
June 13, 2002
Before DeMOSS, PARKER, and DENNIS, Circuit Judges.
PER CURIAM:*
Denbury Resources, Inc. (Denbury) owns a mineral lease and an
*
Pursuant to 5TH CIR. R. 47.5, the Court has determined that this
opinion should not be published and is not precedent except under
the limited circumstances set forth in 5TH CIR. R. 47.5.4.
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easement to operate a pipeline over land belonging to Russell and
Betty Green. The Greens have alleged that Denbury breached the
easement contract by transporting “off-lease” saltwater through the
pipeline on their property. They argue that the easement only
allows Denbury to use the pipeline for transporting liquids that
come from the Greens’ land. The district court granted summary
judgment in favor of Denbury, finding that it acted within its
rights under the mineral lease when it used “off-lease” saltwater
in its exploration efforts. We AFFIRM. Because the Mineral Lease
gives Denbury the right to produce oil “in any manner whatsoever,”
and because the pipeline easement does not restrict Denbury’s
rights under the mineral lease, summary judgment was warranted.
I.
This dispute involves a 328-acre plot of land on an oil field
in southeastern Mississippi. In 1937, appellant Russell Green’s
grandfather, G. R. Green, sold an oil and gas lease over the plot
to Gulf Oil Company (“the Green lease” or “the Mineral Lease”).
The mineral lease granted Gulf Oil the exclusive right to use the
land for producing oil, gas, sulfur and other minerals as well as
the exclusive right to explore the land for oil and gas “in any
manner whatsoever.” The lease granted G. R. Green a 1/8 royalty
interest in all oil produced on the land. Appellants Russell and
Betty Green inherited this plot of land from G. R. Green as well
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his rights under the mineral lease.1
Gulf Oil constructed at least four wells on the Greens’ land
during the late 1940s. Although the wells were initially
productive, they eventually became depressurized and production
slowed. Because there was no “active water drive” in the area, the
naturally existing “trapped pressure” became depleted as oil was
extracted from the wells. As a result, a substantial amount of
recoverable oil was trapped underground because there was no
pressure left to push the oil to the surface.
Chevron eventually acquired the production rights under the
Green lease when it purchased Gulf Oil. In the mid 1990s, Chevron
instituted a “secondary recovery operation” on the Green lease; it
planned to replenish subsurface pressure by forcing saltwater into
the inactive wells. The influx of water from the secondary
recovery operation creates underground pressure and makes mineral
extraction easier. Thus, with approval from the Mississippi State
Oil and Gas Board, Chevron converted some of the oil wells on the
Greens’ property into saltwater injection wells and constructed
pipelines to transport saltwater to the converted wells.
After purchasing the production rights from Chevron in 1998,
1
The district court inaccurately stated that the Greens own no
mineral interest in the land. G. R. Green sold his royalty
interest in the land before the appellants inherited the property,
so the appellants currently receive no royalties under the lease.
The Greens do, however, own a ½ mineral interest in the land. This
misstatement of fact is inconsequential to the disposition of this
case on appeal.
3
Denbury continued the secondary recovery operation on the Greens’
property. The Greens claim that at least some of the saltwater
that Denbury used to repressurize the oil field came from outside
of the Greens’ property.2 Denbury transported the saltwater to the
injection wells using the pipeline on the Greens’ property.
Pursuant to a 1999 agreement between Denbury and the Greens (“the
Pipeline Easement”), Denbury has an easement to operate the
pipeline to transport oil, gas, saltwater, and other liquids. The
Greens argue, however, that the Pipeline Easement only grants
Denbury the right to transport liquids produced from the Green
lease and other lands pooled with the Green lease. Therefore, the
Greens contend that Denbury exceeded its rights under the Pipeline
Easement when it used the pipeline to transport “off-lease”
saltwater.
The Greens sued Denbury in Mississippi state court arguing
that Denbury’s transportation of “off-lease” saltwater violated the
Pipeline Easement and gave rise to claims for trespass, nuisance,
2
There is some question regarding whether Denbury has actually
ever used “off-lease” saltwater in its recovery efforts. The
Greens have identified no record evidence in their briefs
indicating that off-lease liquids were used. Denbury’s engineer in
charge of operations on the Green lease stated in his affidavit
that since May 1999, “the unit wells in the area of the Plaintiffs’
lands have recovered more barrels of water than have been
injected.” He therefore concluded that “it is fair to say that
most, if not all, water injected since May 1999, has come from the
unitized area.” But because this is an appeal of Denbury’s motion
for summary judgment, we must construe the evidence in the light
most favorable to the Greens. Barhonovich v. Amer. Nat. Ins. Co.,
947 F.2d 775 (5th Cir. 1991).
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conversion, unjust enrichment, taking without due process of law,
compensatory damages, and punitive damages. Denbury, which is a
Texas corporation, removed the case to the Southern District of
Mississippi. After a lengthy discovery period, Denbury filed a
motion for summary judgment arguing that the Mineral Lease permits
it to use “off-lease” saltwater in its production and exploration
efforts and that the Pipeline Easement is not in conflict with the
Mineral Lease. The district court granted the motion and the
Greens now appeal that ruling.
II.
“We review a district court’s ruling on motion for summary
judgment de novo, applying the same standards as those that govern
the district court’s determination.” McKee v. Brimmer, 39 F.3d 94(5th Cir. 1994). Summary judgment must be granted if the court
determines that there is no genuine issue as to any material fact
and that the moving party is entitled to judgment as a matter of
law. Fed. R. Civ. P. 56(c). To ascertain whether there are
genuine issues of material fact in this Mississippi-based diversity
action, we look to the substantive law of Mississippi. Lavespere
v. Niagara Mach. & Tool Works, Inc., 910 F.2d 167, 177-78 (5th Cir.
1990). We must view the evidence in the light most favorable to
the Greens, who are the nonmoving parties. Barhonovich v. Amer.
Nat. Ins. Co., 947 F.2d 775 (5th Cir.1991).
III.
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On appeal, the Greens renew their argument that the Pipeline
Easement prohibits Denbury from transporting any “off-lease”
saltwater over the pipeline.3 In pertinent part, the 1999 Pipeline
Easement gives Denbury an easement over the Greens’ property for:
the constructing, maintenance, operations, inspecting,
repairing and removing, in whole or in part, a pipeline
and appurtenances thereto for the transportation of oil,
petroleum products, gas, fresh water, saltwater, and
other liquids or gaseous substances produced from [the
Greens’] lease or from those lands unitized or pooled
therewith in connection with [Denbury’s] oil, gas and
water operations on, under, over, upon, through and
across the following described lands situated in Jasper
County, Mississippi . . . .
(R. 501) (emphasis added). The Greens’ position is that the above
language restricts Denbury’s right to use the pipeline only for
transporting liquids that come from the Greens’ property or from
outside property under a common pooling agreement.
This position ignores, however, the explicit language in the
Pipeline Easement that preserves Denbury’s rights to produce and
explore for oil under the Mineral Lease:
It is understood and agreed between the parties
hereto, that the signing of this agreement by [Denbury]
does not waive any rights [Denbury] holds and owns by
virtue of any oil, gas and mineral leases and other
agreements, recorded or unrecorded; said oil, gas and
mineral leases and other agreements remain in full force
3
The Greens do not claim that Denbury has been negligent in its
secondary recovery operation or that it has damaged the surface of
the Greens’ property. In fact, the Greens concede that Denbury has
conducted a “textbook” secondary recovery operation. (R. 590).
The Greens’ sole complaint is that Denbury had no right to
transport “off-lease” saltwater over the pipeline.
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and effect.
(R. 502) (emphasis added). This “non-waiver clause” in the
Pipeline Easement thus makes clear that Denbury retains its rights
under the Mineral Lease, which gives Denbury broad discretion to
produce and explore for oil “in any manner whatsoever.” The Lease
specifically provides:
That the said Lessor . . . does hereby lease, demise and
let unto said Lessee the tract of land hereinafter
described with the exclusive right of exploiting the same
for and producing oil, gas, sulphur and other minerals
therefrom, and to that end also grants the exclusive
rights and privileges of exploring in any manner
whatsoever the said land for mineral indications, of
drilling and operating thereon for oil, gas, sulphur and
other minerals . . . .
(R. 398).
We interpret contracts under Mississippi law using the “four
corners” doctrine; we exam the contract in its entirety and read
its terms as would an ordinary layman. Pursue Energy Corp. v.
Perkins, 558 So. 2d 349, 352 (Miss. 1990). In light of the Mineral
Lease’s provision that Denbury may explore for oil “in any manner
whatsoever,” we hold that Denbury did not breach the Pipeline
Easement when it transported off-lease saltwater through the
pipeline in its secondary recovery efforts. Denbury’s motives for
using the off-lease saltwater were legitimate; it sought to
repressurize the field so that it could revive the nonproductive
wells on the Greens’ lease. The effort falls squarely within
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Denbury’s right and obligation to produce oil under the Mineral
Lease. This is not a case where Denbury used the pipeline for a
purpose unrelated to production, like transporting or depositing
off-lease waste liquids. By its express language, the non-waiver
clause in the Pipeline Easement preserves Denbury’s right to
produce and explore for oil under the Mineral Lease.
Although we decide this case on principles of contract
interpretation, Mississippi courts have acknowledged the general
principle that a mineral lessee may use the surface where
reasonably necessary to extract minerals. Reynolds v. Amerada Hess
Corp., 778 So. 2d 759, 762 (Miss. 2000) (“Long-established law in
Mississippi provides that the severed mineral owner or lessee has
the right to use the surface of the lands for all reasonable
purposes to explore and drill for oil and gas and may use as much
of the surface as is reasonably necessary to exercise its rights,
but it cannot intentionally or negligently damage or use more of
the land surface than is reasonably necessary in its mining
operation.”). Mississippi courts have also rejected the general
proposition that a subsequent surface lease supersedes a mineral
lessee’s right to use as much of the surface as is reasonably
necessary for mining. Id. at 762-64.
III.
The agreements between Denbury and the Greens unambiguously
give Denbury the right to explore for oil “in any manner
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whatsoever.” Denbury’s alleged use of off-lease saltwater to
repressurize wells on the Green lease did not violate the Pipeline
Easement because that agreement explicitly states that the Mineral
Lease remains in “full force and effect.” We therefore AFFIRM the
district court’s summary judgment ruling.
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