Case Title: PITCO PRODUCTION COMPANY v. CHAPARRAL ENERGY, INC.

Citation: 

Docket Number: 94748

State: oklahoma

Court: Oklahoma Supreme Court

Date: 2003-01-21T00:00:00Z

Document:
PITCO PRODUCTION COMPANY v. CHAPARRAL ENERGY, INC.  PITCO PRODUCTION COMPANY v. CHAPARRAL ENERGY, INC. 2003 OK 5 63 P.3d 541 Case Number: 94748 Decided: 01/21/2003 THE SUPREME COURT OF THE STATE OF OKLAHOMA [63 P.3d 541] PITCO PRODUCTION COMPANY, Plaintiff-Appellee, v. CHAPARRAL ENERGY, INC., AND CHEYENNE PETROLEUM COMPANY, Defendants-Appellants. ON CERTIORARI TO THE COURT OF CIVIL APPEALS, DIVISION II ¶ 0 Following resignation of a JOA-designated unit operator and balloting for selection of a new operator, Pitco sought a declaratory decree naming it as operator of one of two wells in a Corporation Commission-created drilling and spacing unit. The District Court, Haskell County, John N. Henderson, Judge, ruled the JOA did not preclude the election of multiple operators and designated Chaparral as operator of one well and Pitco as operator of the second well. The Court of Civil Appeals, Division II, affirmed the declaratory decree. THE COURT OF CIVIL APPEALS' OPINION AND THE TRIAL COURT'S DECLARATORY DECREE ARE VACATED AND THE CAUSE IS REMANDED FOR FURTHER PROCEEDINGS TO BE CONSISTENT WITH TODAY'S PRONOUNCEMENT.[63 P.3d 542] Gregory L. Mahaffey, Oklahoma City, Oklahoma, for appellants. James W. Smith, Stigler, Oklahoma, for appellee. Opala, V.C.J. ¶ 1 The dispositive issue presented on certiorari is whether the terms of a joint operating agreement that designates one party as operator of the unit area and whose language refers to the "operator" in singular form permits the election of more than one unit operator in a Corporation Commission-designated spacing and drilling unit. We answer in the negative.2 I. ANATOMY OF THE LITIGATION ¶ 2 Chaparral and Cheyenne (appellants) and Pitco (appellee) are working interest owners in a Corporation Commission-designated drilling and spacing unit. Two wells have been drilled in the unit area. ¶ 3 At the time the first well (Scott No. 1-23) was drilled in 1980 the working interest owners entered into a Joint Operating Agreement (JOA or contract or agreement), designating Cheyenne as the operator of the unit area. Upon completion of a second well (the Kirkwood No. 1-23) in 1981, Cheyenne assumed operator status of that well in accordance with the provisions of the JOA. In 1998 Cheyenne resigned as operator and sold its interests to Chaparral, invoking the JOA's "new operator" provisions.3 Chaparral sought election to be named unit operator of both wells. Balloting resulted in Chaparral receiving 69.547840% vote of the working interest owners in the Scott well but only 46.129760% vote of the owners in the Kirkwood well. Pitco then offered itself for election as unit operator, and the results of this ballot revealed that it received 51.07738% vote of interests in Kirkwood well4. ¶ 4 It is important to note that the resulting vote occurred because of an existing imbalance of ownership interests in the two wells. The imbalance was the consequence of an earlier violation of the Maintenance of Unit Ownership clause5 of the JOA. In antic-[63 P.3d 543]ipation of the situation in which today's parties find themselves, the JOA provides that conveyances are to be made so as to maintain the same ratio of ownership throughout the unit area. This provision was breached approximately sixteen (16) years earlier in 1982 when a working interest holder, Samson, conveyed its interest in the Scott well (and not the Kirkwood), thereby creating the imbalance in ownership interests in the two wells. ¶ 5 Pitco requested that Chaparral relinquish operation of the Kirkwood well. Chaparral refused. Pico sought a declaratory decree6 naming it as operator of the Kirkwood well. The trial court, after hearing arguments, ruled that the contract did not preclude multiple operators who are elected by a majority vote in interest of the working interest operators.7 It directed Chaparral to remain as operator of the Scott well and Pitco to serve as operator of the Kirkwood well. Chaparral appealed from this order. The Court of Civil Appeals [COCA], Division II, reasoned that the trial court's decree construing the contract as not precluding multiple operators was erroneous; only independent, competing operators are prohibited. Because the parties permitted the existence of a condition which led to the election of multiple operators and because the trial court reached a correct result, COCA affirmed the trial court's decree. II. ARGUMENTS ON CERTIORARI ¶ 6 Chaparral contends the JOA requires an election of one operator for the unit area. The agreement's language and content do indeed contemplate only one unit operator. COCA's reasoning - "the parties permitted the existence of a condition which, by its nature, led to the problem of multiple operators" - is not just incorrect, it is also used by COCA as a basis to allow the breach of one contract provision (the earlier violation of the Maintenance of Unit Ownership Clause) to excuse enforcement of another (the election of a sole unit operator).8 ¶ 7 Pitco argued before COCA simply that the language of the JOA neither precludes more than one unit operator nor an election of operators on a well-by-well basis.9 ¶ 8 Both sides presented this controversy as a private-law issue. We have no record support for the notion that the controversy may be affected in any way by the Corporation Commission's regulatory power over production and conservation of oil and gas. III. PERTINENT JOA PROVISIONS ¶ 9 The question before us is one of contract construction. The JOA at issue, an A.A.P.L. Form 610 - Model Form Operating Agreement - 1956, is a printed form which is altered by certain deletions and modifications of the parties. The term "operator" is not defined in the agreement. A document entitled "Accounting Procedure Joint Opera-[63 P.3d 544] tions," attached as an exhibit and made a part of the JOA, defines "operator" as "the party designated to conduct the Joint Operations." ¶10 Two JOA provisions primarily reference the status of unit operator. The first, is paragraph 5, entitled "Operator of Unit."11 At the contract's inception it was agreed by the parties that Cheyenne would be designated operator of the unit area. Paragraph 5 provides "Cheyenne Petroleum Company shall be the Operator of the Unit Area . . ." The second provision whose content primarily addresses the unit operator is one which the contracting parties modified. All of paragraph 19, "Resignation, Removal and Selection of New Operator,"12 replaced the printed form's paragraph of the same number. That paragraph deals with selection of a new operator. The modified language of this paragraph uses the term "operator" in singular form and describes selection of "a successor operator" in the event of resignation or removal of the existing operator.13 ¶11 All other references to "operator" in the JOA and its exhibits refer to that entity in singular form, often accompanied by singular-form grammatical articles. The JOA contains no specific language which either permits or limits the number of operators in the unit area. IV. RULES FOR CONSTRUING THE JOA ¶12 The JOA is a contract to be construed like any other agreement.14 If language of a contract is clear and free of ambiguity the court is to interpret it as a matter of law,15 giving effect to the mutual intent of the parties at the time of contracting.16 Whether a contract is ambiguous and hence requires extrinsic evidence to clarify the doubt is a question of law for the courts.17 ¶13 The essence of Pitco's argument is that the contract's silence on limiting the number of operators supports a construction that permits multiple operators in this unit area. Pitco's landman testified that it is not uncommon industry practice for there to be more than one operator per unit area. ¶14 The parties disagree whether the JOA precludes multiple operators. The mere fact the parties disagree or press for a different construction does not make an agreement ambiguous. A contract is ambig-[63 P.3d 545]-uous if it is reasonably susceptible to at least two different constructions. V. THE JOA - WHILE NEITHER EXPLICIT NOR SILENT CONCERNING THE NUMBER OF OPERATORS TO BE PERMITTED IN THE UNIT- IS NOT AMBIGUOUS ¶15 The dispositive factor of our analysis must be whether an examination of the entire JOA text reveals more than one operator for this unit is a reasonable interpretation of the contract's provisions. Our four-corners' examination of the contractual instrument in question reveals the terms and provisions are neither ambiguous nor susceptible to more than one interpretation. ¶16 We note at the outset the singular form of the term "operator" (with corresponding singular articles of grammar modifying the term) is used consistently throughout the document. The JOA is a pre-printed model-form operating agreement where the parties complete the document by filling in the blanks with necessary information. While the document shows the parties made some modifications to the contract's provisions, nowhere is the singular term "operator" altered to reflect a plural form of the expression. ¶17 The word "operator," while commonly used in the oil and gas industry, conveys no technical significance.24 One requires no special knowledge to impart meaning to the term "operator" (or passages containing the term "operator"), nor is evidence of industry usage for this term necessary to enhance or otherwise clarify the term's ten-[63 P.3d 546]-or.25 The responsibilities of the operator are delineated by various provisions throughout the agreement and are not contested by today's parties. Likewise, the term "unit area" conveys no technical information. The JOA defines unit area,26and its definition serves to limit those lands, oil and gas leasehold interests and oil and gas interests to be developed under the agreement. Because we hold the JOA's terms plain and unambiguous, we cannot consider Pitco's adduced proof that it is common industry practice to allow more than one operator per unit area.27 ¶18 Having decided the contract is unambiguous and a clear reflection of the parties' intention, we turn next to consider whether, from a four-corners' examination of the JOA, the parties intended more than one operator in the unit area. The agreement plainly reveals the parties' intent with regard to the number of unit operators authorized for the unit area. ¶19 At its inception, the parties to the JOA designated one party (Cheyenne) to serve as unit operator.28 The same paragraph (naming Cheyenne operator of the unit area) empowers it "to conduct and direct and have full control of all operations on the unit area."29 In the event of the operator's resignation, a later paragraph of the JOA provides for the selection of a successor operator.30 We note that the original pre-printed form provision dealing with selection of a new operator was stricken by the parties and new, original language substituted in its place. Even with this alteration, the terminology used in the JOA refers to one operator. These provisions, at the heart of this controversy, create, invest with authority, and allow for the succession of but a single operator. Remaining contractual provisions serve to complement these paragraphs and clothe the operator with specific responsibilities31 - duties which if undertaken by multiple operators would be ponderous, defeating the enabling terms of paragraph 8. When the JOA is read as a whole, only one construction [63 P.3d 547]is reasonable. One operator is to conduct and exercise complete control of all operations on the unit area, regardless of the number of wells. ¶20 Lastly we note that Pitco's argument - nothing in the JOA prohibits multiple operators32 - is likened to the logical impossibility of "proving a negative." To accept Pitco's view would require that future contracts redundantly restate in the negative every positive statement previously made.33 We decline to engage in so strained a construction of an agreement to create an ambiguity where none exists.34 VI. SUMMARY ¶21 Oklahoma's extant jurisprudence and her comprehensive statutory scheme governing contractual agreements are well established. Applying the general principles of contract construction, we hold the JOA in contest clearly manifests the parties' intention to allow but one operator who has full and complete control over operations on the unit area. Our review of the agreement reveals contract terms to be unambiguous and readily understood when read in their plain and ordinary sense. The language and text of the contract, as an entirety, establishes one operator, empowers it with complete control over all operations within the unit area, and, in the event of operator's resignation, provides for selection of a successor operator. Because we conclude the JOA authorizes but one operator to conduct unit-wide operations, we need not address Pitco's argument (pressed before COCA) that election of operators is to be made on a well-by-well basis. ¶22 On certiorari previously granted on Chaparral's petition, the Court of Civil Appeals' opinion and the trial court's declaratory decree are vacated; the cause is remanded for further proceedings to be consistent with today's pronouncement. ¶23 WATT, C.J., OPALA, V.C.J., LAVENDER, HARGRAVE, KAUGER, AND WINCHESTER, JJ., CONCUR. ¶24 BOUDREAU, J., CONCURS IN RESULT. ¶25 HODGES AND SUMMERS, JJ., DISSENT.[ 63 P.3d 548 ] FOOT