Title: WADI PETROLEUM, INC. v. ULTRA RESOURCES, INC.

State: wyoming

Issuer: Wyoming Supreme Court

Document:

WADI PETROLEUM, INC. v. ULTRA RESOURCES, INC.2003 WY 4165 P.3d 703Case Number: 02-22Decided: 03/26/2003
OCTOBER TERM, A.D. 2002

 

                                                                                                
   

 

WADI 
PETROLEUM, INC., a

Texas 
corporation

 

Appellant(Plaintiff) 
,

 

v.

 

ULTRA 
RESOURCES, INC., a

Wyoming 
corporation; and QUESTAR

EXPLORATION 
& PRODUCTION

COMPANY, 
a Texas corporation,

 

Appellees(Defendants) 
.

 

Appeal 
from the District Court of Sublette County

The 
Honorable D. Terry Rogers, Judge (Retired)

 

Representing 
Appellant:

Terry 
W. Mackey and David Evans of Hickey, Mackey, Evans & Walker, Cheyenne, 
Wyoming.  Argument by Mr. 
Mackey.

 

Representing 
Appellee Ultra Resources, Inc.:

Gerald 
Mason of Mason & Mason, P.C., Pinedale, Wyoming; and George W. Mueller of 
Burns, Wall, Smith & Mueller, P.C., Denver, Colorado.  Argument by Mr. 
Mason.

 

Representing 
Appellee Questar Exploration & Production Company:

Thomas 
Reese of Brown, Drew & Massey, LLP, Casper, Wyoming; and Brad W. Breslau of 
Grund & Breslau, P.C., Denver, Colorado.  Argument by Mr. 
Reese.

 

 

Before 
HILL, C.J., and GOLDEN, LEHMAN, and VOIGT, JJ, and BURKE, 
DJ.

 

 

            
HILL, Chief Justice.

 

[¶1]      Appellant, Wadi 
Petroleum, Inc. (Wadi), seeks review of the district court's order granting a 
partial summary judgment1 in favor of Appellees, Ultra 
Resources, Inc. (Ultra) and Questar Exploration & Production, Inc. 
(Questar).  The parties disagreed 
about the meaning of language used in an assignment of an oil and gas lease 
concerning the quantum of an overriding royalty interest.  The district court heard and relied on 
extrinsic evidence in order to resolve what it considered an inherent ambiguity 
in the language used in the assignments.  
It is the district court's reliance on such extrinsic evidence, rather 
than only looking at the four corners of the assignment, which is the central 
issue in this appeal.  Wadi asserts 
that the plain language of the assignment is unambiguous, whereas Ultra and 
Questar contend that the language used is incomplete and indefinite, and its 
precise meaning cannot be ascertained with certainty unless extrinsic evidence 
is considered.

 

[¶2]      We will 
affirm.

 

[¶3]      Wadi proposes 
these as the issues to be decided:

 

I.          
Can an assignment filed of record transferring oil and gas interests be 
rendered ambiguous via the testimony of experts regarding industry custom and 
practice?

 

II.          
Is an executory contract of sale of a real property interest merged into 
the transfer document filed of record?

 

III.         
Is the most persuasive extrinsic evidence used in determining the intent 
of the parties documents authored by the parties contemporaneous to the 
assignment in question?  Can a 
division order alter or amend an agreement or title 
documents?

 

Ultra 
and Questar filed a combined brief, but did not include a statement of the 
issues.  We glean this summary of 
the issues from headings used within their brief:

 

I.          
The quantum of the overriding royalty interest conveyed by the BLM 
assignments was indefinite, unclear and not apparent thereby necessitating the 
introduction of extrinsic evidence.

            
A.  Nature of ambiguity and 
lack of clarity.

                        
1.  [Wadi] takes inconsistent positions regarding whether the 
BLM assignments are silent as to proportionate reduction.

                        
2.  Silence can create ambiguity where the omitted term would 
naturally be present.

                        
3.  To avoid ambiguity regarding proportionate reduction, the 
parties must state explicitly the intention to reduce or not to 
reduce.

                        
4.  The BLM assignments are ambiguous on their 
face[s].

            
B.  Admission of extrinsic evidence regarding proportionate 
reduction is appropriate where the instrument is not clear on its 
face.

            
C.  [Wadi] concedes [that] extrinsic evidence is necessary for 
the trial court to interpret the BLM assignments.

                        
1.  [Wadi's] previous counsel agreed that extrinsic evidence 
was necessary to interpret the BLM assignments.

                        
2.  [Wadi's] acquisition manager would have inquired further 
had he seen the BLM assignments.

                        
3.  The testimony of William Schwartz, [Wadi's] expert witness, 
supported the need for extrinsic evidence to determine the quantum of interest 
reserved by Hondo.

 

II.          
Prior to this litigation, all attorneys examining title concluded that 
the BLM assignments were indefinite, unclear and not 
apparent.

 

III.         
The BLM assignments placed Wadi on inquiry notice with respect to whether 
proportionate reduction was intended.

 

IV.        
Extrinsic evidence indicates that the overriding royalty interests now 
owned by [Wadi] were intended to be proportionately 
reduced.

            
A.  The 1978 agreement indicates that Hondo and EPNG intended 
the overriding royalty interest to be proportionately reduced absent specific 
language to the contrary.

            
B.  The division orders signed by Hondo reflect an intention to 
proportionately reduce the reserved overriding royalty 
interest.

                        
1.  The documents offered by [Wadi] as extrinsic evidence are 
silent as to proportionate reduction.

                        
2.  The extrinsic evidence offered by [Wadi] is subsequent to 
the 1978 transaction and therefore entitled to no greater weight than other 
extrinsic evidence.

                        
3.  The division orders signed by Hondo merely clarify [its] 
intent regarding proportionate reduction and do not alter or amend any 
contractual agreement.

            
C.  EPNG, the other party to the transaction in 1978, agreed 
that it was the intention of the parties that Hondo's reserved overriding 
royalty interest was to be proportionately reduced.

            
D.  [Ultra's and Questar's] title experts opined that 
proportionate reduction of the reserved Hondo interest was likely intended by 
the BLM assignments.

 

V.        The 
decision of this Court in Amoco Production Company v. EM Nominee Partnership 
Company is consistent with the trial court's ruling in this 
case.

 

VI.        
[Wadi's] interest can be no greater than the interest of its predecessors 
in interest.

 

FACTS

 

[¶4]      The properties at 
issue in this case are included in a federal oil and gas unit (the Mesa Unit, 
formerly known as the Pinedale Unit) located in Sublette County, southwest of 
Pinedale.  Significant new drilling 
and production commenced in the unit during 1997-98, which is the event that 
precipitated the controversy at hand, i.e., there was additional 
revenue to be divided up among the several interest holders.  Ultra and Questar are two of the three 
working interest owners with respect to the leases at issue (the third working 
interest owner is not a party to this litigation).  Questar is the operator of the 
unit.  The six leases at issue have 
a lengthy title history, but it suffices to note here that, during late 1993 and 
early 1994, they were acquired by Wadi.  
Wadi claimed that it acquired a 3.125% overriding royalty interest (ORRI) 
in those leases, and Ultra and Questar claimed that Wadi only acquired a .625% 
interest because Wadi's predecessors in interest held only a 20% working 
interest (therefore, Wadi's interest was 20% of 3.125% = .625%).  The six leases at issue are 
these:

 

            
Lease #                      
Wadi's claimed ORRI           
Conceded ORRI

            
WY  08589               
            
3.125%                                   
.625%

            
WY  08592               
            
3.125%                                   
.625%

            
WY  08593               
            
3.125%                                   
.625%

            
WY  015315                        
3.125%                                   
.625%

            
WY  015317                        
3.125%                                   
.625%

WY 
 016167                        
3.125% + 1%             
.625% + 1% previously owned

 

[¶5]      On Bureau of Land 
Management forms designed to accommodate the assignment of such interests, 
Wadi's predecessors in interest indicated that the overriding royalty or 
production payments reserved were 3-1/8% of 8/8, as shown above.  In another more-or-less contemporaneous 
document (which is referred to as the "1978 agreement") relating to these same 
properties, this language was used by Wadi's predecessors in 
interest:

 

            
 and reserving, however, unto Hondo, and El Paso does hereby, as may be 
necessary assign unto Hondo, an undivided 1/16th of 8/8ths 
overriding royalty interest as to the lands and leases shown on exhibit B 
below the above-described depth limitation, which overriding royalty shall 
not be proportionately reduced if El Paso owns less than the entire 
leasehold interest; and further reserving unto Hondo all rights and interests of 
Hondo above said above depth limitation.

            
El Paso hereby agrees that El Paso shall assume any and all obligations, 
if any, of Hondo attendant to the interests of Hondo released or assign 
[sic] hereby and further acknowledges that Hondo shall by separate 
assignments transfer unto El Paso all of the record title of Hondo within the 
Pinedale Unit as constituted prior to the September 12, 1977 contraction, except 
those lands and leases shown on Exhibit B, reserving unto Hondo a 3 1/8% 
overriding royalty interest in addition to any existing leasehold 
burdens.

 

[¶6]      There are two 
items in the above-quoted passage that contribute to the controversy at 
hand.  First, with respect to the 
1/16 of 8/8 royalty on exhibit B lands, the document specifically provides that 
it is not to be proportionately reduced.  
With respect to the 3-1/8% overriding royalty on other lands, which is 
the provision that affects the leases at issue herein, the document is silent as 
to proportionate reduction.  Wadi 
contends that the document is clear that no proportionate reduction was intended 
with respect to any of the interests included in that document.  On the other hand, Ultra and Questar 
contend that the document suggests that proportionate reduction was intended 
because of the silence; however, at a minimum, the silence creates an ambiguity 
which requires reference to evidence outside the four corners of the principal 
documents.

 

[¶7]      The district 
court made detailed findings, and we will summarize the pivotal facts it 
included in those findings.  As we 
embark on this summary, we take note that the record includes more than 1,000 
pages of exhibits and more than 600 pages of testimony.  It is conceded by all parties that Wadi 
owned whatever interests were owned by its predecessors in interest and, stated 
in other terms, there was nothing about the transaction which resulted in Wadi 
obtaining an interest which was either greater than or lesser than the interest 
which was created when the leases came into being.  The six leases at issue here were 
purchased by Wadi as part of an agreement, which gave them an interest in some 
900 wells and 300 fields.  Those 
properties were divided into two categories, A and B properties.  The six leases at issue were in the B 
category and were transferred without warranty of title, "as is, where is, with 
all faults and defects."  It was 
contended by Ultra and Questar that Wadi essentially paid nothing for the 
category B properties and the district court made a finding to that effect.  As shall become evident as we proceed 
through a discussion of the issues, this "fact" (Wadi disputes the validity of 
the finding) plays no role in our decision, though it is a point that is a part 
of the "whole story."  The district 
court also found that Wadi did not diligently research exactly what it bought, 
especially with respect to the properties at issue, but we place this point in 
that same category as being a part of the "whole story," although it has no 
direct impact on our ultimate decision.  
It is clear from the record that had Wadi been more diligent in its 
search of records it would have found that division orders, as well as other 
documents, indicated that Wadi's interest in these six leases was very likely 
subject to proportionate reduction as claimed by Ultra and Questar.  That too is part of the "whole story," 
but we also need not rely on that circumstance as a part of the basis for our 
decision.

 

[¶8]      The record in 
this case includes title examinations done by several experienced oil and gas 
lawyers, all but one of whom indicated that the probable consequence of the 
original leases and assignments would be that Wadi's interest would be 
proportionately reduced to .625%.  
The record also reflects that Wadi's predecessors in interest received 
all production revenue at the .625% rate.

 

[¶9]      The district 
court determined "that the assignments in which the subject overrides were 
reserved are ambiguous as to the amount reserved," and ultimately that, based on 
the extrinsic evidence considered, the ambiguity should be resolved in favor of 
Ultra and Questar.

 

STANDARD 
OF REVIEW

 

[¶10]   The applicable standard of review 
is well-summarized in a case that is cited by both parties for its substantive 
holdings, as well as for its articulation of the pertinent standard of 
review:

 

A 
summary judgment is appropriate in litigation when there are no genuine issues 
of material fact and the prevailing party is entitled to judgment as a matter of 
law.  Ahearn v. Anderson-Bishop 
Partnership, 946 P.2d 417, 421 (Wyo.1997); Woodard v. Cook Ford Sales, 
Inc., 927 P.2d 1168, 1169 (Wyo.1996); Roemer Oil Co. v. Aztec Gas & 
Oil Corp., 886 P.2d 259, 262 (Wyo.1994);  see also, W.R.C.P. 56(c).  In contract litigation, when the terms 
of the agreement are unambiguous, the interpretation is a question of law, and a 
summary judgment is appropriate because there is no genuine issue of material 
fact.  Examination Management 
Services, Inc. v. Kirschbaum, 927 P.2d 686, 689 (Wyo.1996);Union Pacific 
Resources Co. v. Texaco, Inc., 882 P.2d 212, 218-19 (Wyo.1994).  Whether a contract is ambiguous is a 
question of law for the reviewing court.  
Prudential Preferred Properties v. J and J Ventures, Inc., 859 P.2d 1267, 1271 (Wyo.1993).  We 
review questions of law de novo without affording deference to the 
decision of the district court.  
Hermreck v. United Parcel Service, Inc., 938 P.2d 863, 866 
(Wyo.1997);  Griess v. Office of 
the Atty. Gen., Div. of Criminal Investigation, 932 P.2d 734, 736 
(Wyo.1997).

 

            
According to our established standards for interpretation of contracts, 
the words used in the contract are afforded the plain meaning that a reasonable 
person would give to them.  
Doctors' Co., v. Insurance Corp. of America, 864 P.2d 1018, 1023 
(Wyo.1993).  When the provisions in 
the contract are clear and unambiguous, the court looks only to the "four 
corners" of the document in arriving at the intent of the parties.  Union Pacific Resources Co., 882 
P.2d at 220;  Prudential 
Preferred Properties, 859 P.2d  at 1271.   In the absence of any ambiguity, 
the contract will be enforced according to its terms because no construction is 
appropriate.  Sinclair Oil Corp. 
v. Republic Ins. Co., 929 P.2d 535, 539 (Wyo.1996); Prudential Preferred 
Properties, 859 P.2d  at 1271.

 

Amoco 
Production Company v. EM Nominee Partnership Company, 
2 P.3d 534, 539-40 (Wyo. 2000).

 

[¶11]   We add this supplementation of 
that standard of review:

 

Our 
primary focus in construing or interpreting a contract is to determine the 
parties' intent, and our initial inquiry centers on whether the language of the 
contract is clear and unambiguous.  
If the language of the contract is clear and unambiguous, then we secure 
the parties' intent from the words of the agreement as they are expressed within 
the four corners of the contract.  
Common sense and good faith are leading precepts of contract 
construction, and the interpretation and construction of contracts is a matter 
of law for the courts.  Reed, 
¶ 10, 18 P.3d 1161.   We 
have also recognized that the language of a contract is to be construed within 
the context in which it was written, and the court may look to the surrounding 
circumstances, the subject matter, and the purpose of the contract to ascertain 
the intent of the parties at the time the agreement was made.  Polo Ranch Company v. City of 
Cheyenne, 969 P.2d 132, 136 (Wyo.1998).

 

Williams 
Gas Processing--Wamsutter Company v. Union Pacific Resources 
Company, 
2001 WY 57, ¶ 12, 25 P.3d 1064, ¶ 12 (Wyo. 2001); also see Boley v. 
Greenough, 2001 WY 47, ¶ 11, 22 P.3d 854, ¶ 11 (Wyo. 2001) ("In 
interpreting unambiguous contracts involving mineral interests, we have 
consistently looked to surrounding circumstances, facts showing the relations of 
the parties, the subject matter of the contract, and the apparent purpose of 
making the contract."); and Newman v. RAG Wyoming Land Company, 2002 WY 
132, ¶¶ 11-12, 53 P.3d 540, ¶¶ 11-12 (Wyo. 
2002).

 

[¶12]   However, if the meaning of a 
contract is ambiguous or not apparent, it may be necessary to use evidence in 
addition to the contract itself in order to determine the intention of the 
parties.  In such instances, 
interpretation of the contract becomes a mixed question of law and fact.  Wilder v. Cody Country Chamber of 
Commerce, 868 P.2d 211, 216 (Wyo. 1994); Alexander v. Phillips Oil 
Company, 707 P.2d 1385, 1387 (Wyo. 1985):

 

If 
the contract is ambiguous, the intent of the parties may be determined by resort 
to extrinsic evidence.  
Rouse, 658 P.2d at 78;  
Mountain Fuel Supply Co. v. Central Engineering & Equipment 
Co., 611 P.2d 863 (Wyo.1980).  
An ambiguous contract is one "which is obscure in its meaning because of 
indefiniteness of expression or because of a double meaning being present."  Farr, 746 P.2d  at 433.   See also Bulis, 565 P.2d  at 
490.   The existence of 
ambiguity is a question of law.  
Hensley v. Williams, 726 P.2d 90 (Wyo.1986);  Amoco Production Co., 612 P.2d  at 
465.

 

True 
Oil Company v. Sinclair Oil Corporation, 
771 P.2d 781, 790 (Wyo. 1989).

 

DISCUSSION

 

May 
Expert Testimony be Used to Render the Assignments Ambiguous?

 

[¶13]   In his treatise on oil and gas law, 
Richard Hemingway includes this discussion which is especially apropos to the 
issue we must resolve in this case:

 

            
(A)  Definition of 
Fraction

 

            
As in the case of all interests carved out of the lessee's interest, care 
must be used in defining the fraction or quantum interest.  Pure Oil Co. assigns to A an overriding 
royalty of 1/16.  Consider the 
following statements of interest:

 

(a)  1/16 out of the lessee's 7/8 
interest;

            
(b)  1/16 out of 
7/8;

            
(c)  1/16 out of 7/8 working 
interest;

            
(d)  1/16 out of 7/8 
leasehold.

 

In 
each instance the statement of the interest is ambiguous.  In all four cases the interest is 
susceptible of two constructions:  
(1) that the 
interest is a full 1/16 interest (or 8/128) and is merely payable out of the 
lessee's interest; or (2) that the quantum of the interest is of the lessee's 
interest under the lease, and not of full production, i.e., 1/16 x 7/8 =              
               
              
   7/128.  In both (c) and (d), 
an additional interpretation may be made that the interest is equal to 1/16 x 
7/8 x 7/8 = 49/1008.  This is due to 
the fact that the terms "working interest" and "leasehold estate" have a common 
meaning as the right to 7/8 of production.  
Since the fraction 7/8 and the particular phrase both appear in the 
clause it might be assumed by some that both be given effect.  Therefore, it is necessary that the 
draftsman define the fraction precisely.  
If it is the intent that a full 1/16 interest be created the clause 
should read, "1/16 of 8/8 of production," or "1/16 of gross production."  If the lesser interest, the phrase may 
read, "1/16 of 7/8 of 8/8 of production," or "1/16 of 7/8 of gross 
production."

 

            
An additional problem will occur where the lease from which the 
non-cost-bearing interest is created does not cover the full interest in the 
minerals.  In the above illustration 
assume that the lease of Pure Oil Company covers only a one-half interest in the 
minerals.  Two constructional 
problems occur.  The first is 
whether the proportionate reduction clause in the lease applies to reduce the 
overriding royalty or production payment in proportion to the interest under 
lease.  However, by the lease terms 
the proportionate reduction clause applies only to interests created under the 
lease.

 

            
The second problem is just the converse of the first.  Where the non-cost-bearing interest is 
created under the ½ interest lease of Pure above, will it be automatically 
reduced in amount, due to the drafting of the assignment?  It is the normal practice to tie the 
non-cost-bearing interest to the lease from which it is created.  In the above illustration Pure drafts 
the following clause:

            

"*  *   * an overriding royalty of 1/16 of 
7/8 of 8/8 of all of the oil, gas and other minerals produced and saved under 
and by virtue of said lease."

 

Query:  As the lease covers only half of the 
minerals, does the non-cost-bearing interest refer only to the half mineral 
interest under the lease?  Under 
some authority it would seem that the answer is yes, and that the overriding 
royalty interest created is only a 1/32.

 

            
To protect against either undesired result a clause should be inserted 
into the instrument providing that the non-cost-bearing interest will or will 
not be reduced, regardless of the interest under lease.  Also a further provision may be inserted 
to deal with the effect of failure of title to the lease 
interest:

 

"Although 
it is believed that the net mineral interest in the said lease owned by the 
Assignor amounts to not less than a 0.875000 working interest, if by reason of 
failure of title in whole or in part, or for any other reason, the net mineral 
leasehold interest actually acquired by Assignor in said lease should be less 
than the interests hereinbefore set forth, then the overriding royalty interest 
herein assigned to Assignee shall not be reduced in amount as hereinabove set 
forth."

 

Where 
it is desired that the overriding royalty be reduced the phrase may be changed 
to read, "then the overriding royalty interest herein assigned to Assignee shall 
bear its proportionate part of such loss and shall be reduced 
proportionately."  Where a partial 
interest lease is assigned and it is desired that the interest not be reduced 
due to title loss, recitations in the above clause should be changed 
appropriately.  [Footnote 
omitted.]

 

Richard 
W. Hemingway, Law of Oil and Gas, § 9.9(A), at 635-637 (3rd ed. 1991); also see 2 Howard R. 
Williams, Charles J. Meyers, Oil and Gas Law, § 411.1(c) and (d), at 
308-13 (see esp. p. 312, "The assignment instrument may and should 
expressly provide for or against proportionate reduction.") (2002); 4 Howard R. 
Williams, Charles J. Meyers, Oil and Gas Law, § 686.2, at 432-457 
(see esp. p. 447, "It would be preferable under such circumstances to 
treat the instrument as ambiguous and to admit parol evidence to assist the fact 
finder in resolving this ambiguity [where proportionate reduction clause is 
lacking].").

 

[¶14]   Relying on this authority, we hold 
that the district court correctly concluded that the reservations of the 
overriding royalty interests were ambiguous due to a lack of clarity and 
incompleteness of expression.  
Therefore, we need not directly respond to this argument.  Because the assignments did not make 
that point clear, they were ambiguous and it was necessary for the district 
court to consider extrinsic evidence, which properly included the opinions of 
experts in oil and gas law, in order to resolve the ambiguity which arose on the 
face of the assignments.  The 
ambiguity was not structured by those opinions.  They were merely used by the district 
court in resolving the pre-existing ambiguity.  This readily distinguishes this case 
from Amoco Production v. EM Nominee Partnership, 2 P.3d 534, 541 (Wyo. 
2000) wherein we held:

 

Nothing 
in the language of Article 11 of the Unit Agreement addresses the repayment of 
leasehold royalties previously paid.  
Its plain language is concerned only with the potential of retroactive 
adjustment of royalties for production that had occurred prior to the effective 
date of the revision of the participating area.  Amoco's endeavor to invoke the testimony 
of experts with respect to industry custom and practice in applying this 
language inverts our rule with respect to extrinsic evidence.  Instead of relying upon the extrinsic 
evidence to resolve an ambiguity, Amoco seeks to invoke the extrinsic evidence 
to structure an ambiguity.  This 
would amount to this Court writing a new contract for the parties, and we are 
foreclosed from that endeavor.  
Union Pacific Resources Co., 882 P.2d  at 220; Prudential 
Preferred Properties, 859 P.2d  at 1271.

 

In 
the instant case the ambiguity is inherent in the assignments, and the extrinsic 
evidence is used only to assist the trial court in resolving the 
ambiguity.

 

Did 
the Executory Contract of Sale Merge into the Filed Transfer 
Document?

 

[¶15]   In this argument, Wadi asserts that 
Ultra and Questar promote a theory that the original assignments "imply" 
proportionate reduction, and that the silence of the 1978 agreement with respect 
to proportionate reduction also "implies" that proportionate reduction should 
apply.  Relying in part on our 
decision in EM Nominee, Wadi contends that "silence" does not create 
ambiguity.  Again, EM Nominee 
is distinguishable in this regard.  
The authorities we have cited and relied upon emphasize that in an 
instance such as this, silence leaves open the question of proportionate 
reduction, whereas that line of reasoning was not applicable to the "silence" 
with which we were concerned in EM Nominee.  In addition, Wadi recites this passage 
from 40 North Corporation v. Morrell, 964 P.2d 423, 426 (Wyo. 1998) to 
advance an argument that the relevant title documents "merged" so as to render 
them unambiguous:

 

40 
North accepted a warranty deed to the property in exchange for a promissory note 
and mortgage.  While the executory 
contract for sale stated that the resulting mortgage would have a subordination 
clause, the final agreement did not include such a clause.  At the time of delivery and acceptance 
of the deed, the executory contract for sale merged into the deed, mortgage and 
promissory note.  40 North can only 
assert breach of contract against the Morrells based upon the covenants in the 
deed, mortgage, and promissory note.  
Since there is no subordination clause in the mortgage, 40 North has no 
basis for asserting breach of contract.

 

Comparing 
the circumstances of the 40 North case to those of the instant case, we 
are simply unable to see the applicability of the "merger" theory propounded by 
Wadi.

 

May 
a Division Order Alter or Amend the Title Documents?

 

[¶16]   Wadi contends that the only 
documents that may be considered are the assignments themselves and the 1978 
agreement.  Wadi contends that the 
district court could not consider a March 15, 1984 Division Order, which 
indicated that Wadi's predecessors in interest, Hondo, owned a .625% ORRI.  Wadi contends that use of a division 
order in such a fashion is prohibited by Wyo. Stat. Ann. § 30-5-305(a) 
(LexisNexis 2001):

 

§ 30-5-305.  Collection; 
reporting and remittance of royalties.

(a) 
Unless otherwise expressly provided for by specific language in an executed 
written agreement, "royalty", "overriding royalty", "other nonworking interests" 
and "working interests" shall be interpreted as defined in W.S. 30-5-304.  A division order may not alter or amend 
the terms of an oil or gas lease or other contractual agreement.  A division order that alters or amends 
the terms of an oil and gas lease or other contractual agreement is invalid to 
the extent of the alteration or amendment and the terms of the oil and gas lease 
or other contractual agreement shall take precedence.

 

[¶17]   The flaw in this argument is that 
the division order was not used to "alter or amend" the terms of the assignments 
but only to assist the trial court in resolving the inherent ambiguity in the 
assignments.

 

[¶18]   Finally, Wadi maintains that there 
are many other documents which were created both before and after the creation 
of the division order that indicate Wadi's ORRI should be 3.125% and, therefore, 
there is no need to look at the division order.  We have carefully reviewed those 
documents, and we are convinced that they do nothing more than perpetuate the 
ambiguity, which originated in the disputed assignments.

 

CONCLUSION

 

[¶19]   We hold that the district court was 
correct, as a matter of law, in determining that the disputed assignments were 
ambiguous.  Because the assignments 
were ambiguous, the district court properly examined extrinsic evidence in order 
to resolve the ambiguity.  We also 
agree with the district court's evaluation of the evidence that produced the 
conclusion that Wadi's interest was proportionately reduced to .625%.  The order of the district court is 
affirmed, and the matter is remanded to the district court for further 
proceedings consistent with this opinion.

FOOTNOTES

   1The district 
court's order included the required certification:

 

Rule 54.  Judgment; 
costs.

. . 
. .

            
(b) Judgment upon multiple claims or involving multiple parties.  When more than one claim for relief is 
presented in an action, whether as a claim, counterclaim, cross-claim, or 
third-party claim, or when multiple parties are involved, the court may 
direct the entry of a final judgment as to one or more but fewer than all of the 
claims or parties only upon an express determination that there is no just 
reason for delay and upon an express direction for the entry of 
judgment.  In the absence of 
such determination and direction, any order or other form of decision, however 
designated, which adjudicates fewer than all the claims or the rights and 
liabilities of fewer than all the parties shall not terminate the action as to 
any of the claims or parties, and the order or other form of decision is subject 
to revision at any time before the entry of judgment adjudicating all the claims 
and the rights and liabilities of all the parties.

 

W.R.C.P. Rule 54(b).  
(Emphasis added.)