Title: ANR Production Co. v. Kerr-McGee Corp.

State: wyoming

Issuer: Wyoming Supreme Court

Document:

ANR Production Co. v. Kerr-McGee Corp.1995 WY 48893 P.2d 698Case Number: 94-167, 94-168Decided: 04/04/1995Supreme Court of Wyoming

ANR 
PRODUCTION COMPANY, a Delaware Corporation, Appellant (Defendant),

v.

KERR-McGEE CORPORATION, as Successor to Argent 
Energy, Inc., formerly known as Woods Petroleum Corporation, a Delaware 
Corporation, Appellee (Plaintiff).

KERR-McGEE CORPORATION, as Successor to Argent 
Energy, Inc., formerly known as Woods Petroleum Corporation, a Delaware 
Corporation, Appellant (Plaintiff),

v.

ANR PRODUCTION COMPANY, a Delaware Corporation, 
Appellee (Defendant).

 

Appeal 
from District Court, Converse County, Gary P. Hartman, 
J.

W. Perry Dray, William J. 
Thomson, and Brandin Hay of Dray, Madison & Thomson, P.C., Cheyenne, and 
Michael S. Yauch, Houston, TX, for ANR 
Production Co.

Morris R. Massey of Brown 
& Drew, and Craig Newman, Casper, for Kerr-McGee 
Corp.

Before GOLDEN, C.J., THOMAS, MACY and LEHMAN, JJ., 
and GRANT, District Judge.

MACY, 
Justice.

[¶1]      ANR Production 
Company and Kerr-McGee Corporation each appeal from the order in which the 
district court entered a judgment against ANR Production and in favor of 
Kerr-McGee but denied Kerr-McGee's request for an award of interest at the rate 
of eighteen percent per annum on the judgment and attorneys' fees pursuant to 
WYO. STAT. §§ 30-5-301 to -303 (1983 & Supp. 1994) (the 
Act).

[¶2]      We affirm the 
district court's judgment in all respects.

Issues

[¶3]      ANR Production, 
as the appellant in Case 

No. 94-167, presents two 
issues:

I.          
Are the trial court's findings of fact with respect to volumes of First 
Bench hydrocarbons produced by Appellant ANR Production Company's South Powell 
2-1 well, and hence the trial court's findings of fact with respect to the 
damages suffered by Appellee Kerr-McGee Corporation, supported by sufficient 
evidence in the record?

II.          
Was Kerr-McGee's damages claim unliquidated, such that the trial court's 
conclusions of law with respect to prejudgment interest were in 
error?

[¶4]      Kerr-McGee, as 
the appellant in Case No. 94-168, presents a single issue:

Whether Kerr-McGee Corporation, as the prevailing 
party in this action to recover proceeds derived from the sale of First Bench 
hydrocarbons, is entitled to recover interest and reasonable attorneys' fees 
pursuant to W.S. §§ 30-5-301 et seq. . . .?

Facts

[¶5]      The Wyoming Oil 
and Gas Conservation Commission (the Commission) gave approval in 1983 for the 
formation of the Powell Pressure Maintenance Unit (the Unit). The Unit produces 
hydrocarbons from the First Bench of the First Frontier Formation in Converse 
County. In the area of the Unit, the First Bench is an excellent hydrocarbon 
reservoir; however, because of the retrograde condensate nature of the 
reservoir, its pressure must be maintained above a critical pressure which is 
known as the dew point. As hydrocarbons are produced from the reservoir, the 
pressure decreases. If the pressure were to decline below the dew point, 
producible hydrocarbons would be irretrievably lost. The Unit was formed in 
order to allow the owners of the oil and gas leaseholds and other interests, 
through the Unit's designated operator, to inject gas into the First Bench to 
maintain the pressure above the dew point.

[¶6]      Woods Petroleum 
Corporation was designated as the original operator of the Unit. ANR Production 
was one of the nonoperating working interest owners of the Unit and, 
accordingly, executed the Unit Agreement and the Unit Operating Agreement. 
Pursuant to those agreements, only the Unit's operator was authorized to conduct 
operations on behalf of the Unit in the unitized area of the First 
Bench.

[¶7]      The agreements 
provided, however, that individual oil and gas lessees could obtain permission 
to explore and develop zones other than the First Bench which were located 
within the same geographical area as the Unit. The Second Bench of the First 
Frontier Formation is a potentially productive zone which is found approximately 
forty to fifty feet below the First Bench within the surface boundaries of the 
Unit. The Second Bench is geologically distinct from the First Bench. In the 
area of the Unit, the Second Bench is a low quality hydrocarbon reservoir, and 
Second Bench wells must be completed by using hydraulic fracture treatments in 
order to artificially stimulate their production.

[¶8]      In September 
1986, ANR Production requested permission from Woods Petroleum to drill and 
complete the South Powell Federal No. 2-1 well (the South Powell well) in order 
to test the Second Bench within the surface boundaries of the Unit. ANR 
Production had previously completed the Alford Federal well and the Bozeman 
Trail well in the Second Bench in the general area of the Unit. In the letter in 
which it requested permission to drill the South Powell well, ANR Production 
represented that it would complete that well in the same manner as it had 
completed the Alford Federal well.

[¶9]      The members of 
the Unit approved ANR Production's request. ANR Production drilled the South 
Powell well in November 1986 and hydraulic fracture treated it in December 1986. 
ANR Production used a different material to prop the fractures open in the South 
Powell well than it had used in the Alford Federal well. The South Powell well 
commenced sustained commercial production in March 1987.

[¶10]   In June 1988, after it had 
conducted tests and reviewed data which indicated that the South Powell well was 
producing significantly more hydrocarbons than other Second Bench wells, Woods 
Petroleum concluded that the South Powell well was in communication with and 
producing oil and gas from the unitized First Bench. Woods Petroleum informed 
ANR Production of its conclusion and requested that ANR Production shut-in the 
production from the well. ANR Production refused.

[¶11]   Woods Petroleum presented an 
application to the Commission, requesting that the Commission order the South 
Powell well to be shut-in if the Commission determined that communication 
existed. After several months of consideration, the Commission concluded that 
ANR Production's fracture treatment of the South Powell well had caused 
substantial communication between the First Bench and the Second Bench and that 
hydrocarbons were being drained from the First Bench to the Second Bench through 
the perforations in the South Powell well. In March 1989, the Commission ordered 
ANR Production to shut-in the production from the South Powell well. This Court 
affirmed the Commission's decision to shut-in the South Powell well in ANR 
Production Company v. Wyoming Oil and Gas Conservation Commission, 800 P.2d 492 
(Wyo. 1990).

[¶12]   On November 6, 1990, the Unit's 
operator, Argent Energy, Inc., which was formerly known as Woods Petroleum, 
filed a lawsuit against ANR Production. When Kerr-McGee succeeded Argent Energy 
as the operator of the Unit, it was substituted as the party plaintiff in the 
case. In its first amended complaint, Kerr-McGee pleaded six claims for relief: 
(1) conversion of hydrocarbons, (2) trespass, (3) breach of contract, (4) a 
claim for interest and attorneys' fees under the Act, (5) punitive damages, and 
(6) strict liability. ANR Production filed counterclaims against Kerr-McGee 
which included claims for (1) breach of contract, (2) conversion of hydrocarbons 
and mineral trespass, and (3) interest and attorneys' fees pursuant to the 
Act.

[¶13]   The district court held a bench 
trial in June 1993. During the trial, the district court dismissed Kerr-McGee's 
strict liability claim. At the conclusion of the trial, the district court 
issued its findings of fact and conclusions of law in a decision letter. The 
district court generally concluded that ANR Production had trespassed against 
Kerr-McGee and had converted First Bench hydrocarbons which belonged to the Unit 
to its own use. The district court determined that ANR Production had breached 
its contractual obligations to the Unit, and it also held that the Act did not 
apply under the circumstances of this case. The district court decided that 
Kerr-McGee was not entitled to receive an award of punitive damages and denied 
ANR Production's counterclaim. Specifically, the district court found that ANR 
Production had converted 132,357 barrels of oil and 932,756 million standard 
cubic feet of gas from the Unit, and it granted a judgment in favor of 
Kerr-McGee in the amount of $6,038,075.02. After the district court denied ANR 
Production's post-trial motions, both parties appealed to this 
Court.

Damages

[¶14]   ANR Production contends that the 
district court's findings of fact as to the volume of First Bench hydrocarbons 
produced by the South Powell well were not supported by the evidence in the 
record. ANR Production maintains, therefore, that Kerr-McGee did not meet its 
burden of proving its damages to a reasonable degree of certainty. We 
disagree.

In accordance with W.R.C.P. 52(a), this Court will 
not set aside a district court's findings of fact unless the findings are 
clearly erroneous. Hopper v. All Pet Animal Clinic, Inc., 861 P.2d 531, 538 
(Wyo. 1993). "`A finding is "clearly erroneous" when[,] although there is 
evidence to support it, the reviewing court on the entire evidence is left with 
the definite and firm conviction that a mistake has been committed.'" Id. 
(quoting United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S. Ct. 525, 542, 92 L. Ed. 746 (1948)). Stated alternatively: "[A] determination that a 
finding is against the great weight of the evidence means a finding will be set 
aside even if supported by substantial evidence." Id. See also Samuel v. Zwerin, 
868 P.2d 265, 267 (Wyo. 1994). We review a district court's conclusions of law 
de novo on appeal. Hopper, 861 P.2d  at 538.

McNeiley v. Ayres Jewelry 
Co., 886 P.2d 595, 597 (Wyo. 1994). We have also held: "`Damages must be proven 
with a reasonable degree of certainty, and a court may not resort to speculation 
or conjecture in determining the proper amount to award.'" Sannerud v. Brantz, 
879 P.2d 341, 345 (Wyo. 1994) (quoting Cottonwood Valley Ranch, Inc. v. Roberts, 
874 P.2d 897, 899 (Wyo. 1994)).

[¶15]   ANR Production and Kerr-McGee each 
presented expert testimony at trial to quantify the amount of hydrocarbons which 
had been drained from the unitized First Bench by the South Powell well. Stephen 
Holditch, Ph.D., a petroleum engineer who testified as an expert witness on 
behalf of Kerr-McGee, used an "analogy" method to quantify the amount of 
hydrocarbons converted by ANR Production. Stephen Malkewicz, who was ANR 
Production's expert petroleum engineer, used a computer reservoir simulation 
model to determine the amount of converted hydrocarbons. The expert engineers 
reached different conclusions as to the amounts of hydrocarbons drained from the 
First Bench.

[¶16]   The district court generally found 
that the engineering evidence offered by Kerr-McGee was more credible and more 
persuasive than was the engineering evidence presented by ANR Production and, 
therefore, accepted Dr. Holditch's calculations as to the amounts of converted 
oil and gas. Dr. Holditch identified three Second Bench wells which were 
analogous to the South Powell well. Using the average monthly production of 
those three wells, Dr. Holditch employed a statistical analysis to estimate the 
amount of the South Powell well's monthly production which originated from the 
Second Bench. He then subtracted that amount from the South Powell well's total 
monthly production to determine the amount of First Bench hydrocarbons which ANR 
Production had converted. In total, Dr. Holditch concluded that the South Powell 
well produced 132,357 barrels of oil and 932,756 million standard cubic feet of 
gas which rightfully belonged to the Unit.

[¶17]   Kerr-McGee established a sufficient 
foundation for Dr. Holditch's damages calculations. Dr. Holditch testified that 
experts in his field generally accepted the analogy method as being a procedure 
for quantifying production, and his testimony was consistent with the geologic 
and petrologic evidence presented by Kerr-McGee's other expert 
witnesses.

[¶18]   ANR Production insists that Dr. 
Holditch's conclusions as to the amount of hydrocarbons converted were 
scientifically inaccurate because they showed that the South Powell well 
produced First Bench hydrocarbons during every month that the well was in 
production. ANR Production contends that Dr. Holditch's conclusions were 
erroneous because he failed to take two factors into account: (1) the existence 
or nonexistence of a negative pressure differential in the first month1 of production which would have 
allowed hydrocarbons to flow from the First Bench into the South Powell well's 
wellbore, and (2) the fact that the First Bench oil had been swept away from the 
South Powell well when the Unit's gas front passed through the area in the 
Spring of 1988. We note that the analogy methodology does not use the pressure 
differential factor or the gas front factor as a consideration in reaching 
conclusions about the quantity of produced hydrocarbons. Kerr-McGee emphasized 
in its oral argument that those factors are independent of the analogy method of 
quantification.

[¶19]   The evidence adduced at trial did 
not support ANR Production's contention that it was physically impossible for 
the South Powell well to produce First Bench hydrocarbons during its first month 
of production because the subterranean pressures in the Second Bench were higher 
than were those in the First Bench. Under the fundamental laws of physics, 
hydrocarbons move from higher pressure areas to lower pressure areas. Dr. 
Holditch observed, however, that, in determining whether hydrocarbons would flow 
from the First Bench through the fracture to the South Powell well's 
perforations, the relevant measurement was the difference between the flowing 
bottom hole pressure of the South Powell well and the pressure of the First 
Bench, not the difference between the average pressure in the Second Bench and 
the average pressure in the First Bench. Although no direct evidence was 
produced about the actual flowing bottom hole pressure of the South Powell well, 
Dr. Holditch testified that, "as soon as the well was fracture treated, the two 
benches were connected and [that,] as soon as the Second Bench started producing 
and the bottom-hole flowing pressure dropped below the [pressure in the First 
Bench]," the hydrocarbons would have begun to flow from the First Bench to the 
South Powell well.

[¶20]   ANR Production insists that the 
negative pressure differential which would have allowed hydrocarbons to flow 
from the First Bench to the South Powell well could not have come into existence 
immediately after the well was drilled. In support of its contention, ANR 
Production points to Dr. Holditch's testimony about the Alford Federal well 
which was also completed in the Second Bench and which was communicated to the 
First Bench by a fracture. Dr. Holditch testified:

Q.        [BY MR. 
YAUCH]. . . .

Do you have an opinion today as to whether the Alford 
Federal initially produced First Bench oil?

A.        My opinion 
is it would have as soon as the pressure in the fracture and Second Bench 
dropped below the pressure in the First Bench. And I don't know what those 
pressures were, but as soon as that happened, First Bench oil would start being 
produced in that well. 

Q.        But you 
don't know when or if that happened?

A.        I don't 
know when it happened, but I would be very, very surprised if that flow in 
pressure in all those wells, because they're so poor, has not been pulled way 
down since that time and probably during the first few months, but I don't know. 
I haven't looked at those numbers.

ANR Production contends that 
Dr. Holditch's testimony

clearly demonstrates that there is a lag time between 
the initial production pressure of a Second Bench well in communication via a 
fracture with the First Bench and the existence of a pressure differential 
between the First Bench and the Second Bench which allows a Second Bench well to 
produce First Bench hydrocarbons.

[¶21]   ANR Production's argument fails to 
take into account Dr. Holditch's testimony about the Manning Flat well which was 
located very near the South Powell well and which was also initially 
communicated between the two benches:

Q.        [BY MR. 
YAUCH]. . . .

Let's talk about the initial period after it was 
initially completed and frac'd and before the cement squeeze job was undertaken. 
Was there communication between the First Bench and the Second Bench through 
that frac during that time frame?

A.        
Yes.

Q.        And in what 
direction was that communication?

A.        Well, 
the communication is in both directions. I mean you have two layers of rock 
connected by fracture so the communication can go either 
way.

Q. 
       Okay. 
Which direction did it go in that initial period?

A. 
       
Talking about the communication or the flow rates - the flow within the 
fracture?

Q. 
       The 
flow within the fracture. Thank you.

A. Well, it depends on what the pressure is at the 
perforations in the Second Bench. When they started [producing] the well and 
reducing the pressure at the perforations in the Second Bench, then oil will 
flow from the First Bench through the fracture to the Second Bench to the 
surface. If they shut the well in and pressure increases, then flow can go back 
the other way so it all depends upon the pressure 
differential.

Q. 
       And 
at the time that the well was initially put on production, is it your testimony 
that the flow rate was from the First Bench to the Second Bench at the Manning 
Flat?

A.        
Yes.

Dr. Holditch's testimony 
makes it clear that it was, in fact, physically possible for a Second Bench well 
which had communicated with the First Bench to produce First Bench hydrocarbons 
from the outset of its production. Therefore, the record does not support ANR 
Production's pressure differential argument.

[¶22]   ANR Production also argues that the 
district court's findings of fact did not account for "the undisputed passage of 
a gas front through the First Bench at the South Powell [well] in early 1988. 
The passage of such a gas front makes First Bench oil production from [the] 
South Powell [well] impossible." The Unit injected gas into the First Bench in 
order to maintain the reservoir pressure above the dew point. The gas injection 
process created a gas front which moved through the reservoir from higher 
pressure areas to lower pressure areas. The gas front pushed oil in front of it 
toward producing wells. When the gas front reached a well, that well's gas-oil 
ratio increased dramatically. After the gas front hit a well, the well could 
"gas out," meaning that most of the oil had been pushed away from the well and 
that the well was producing mainly gas.

[¶23]   Dr. Holditch testified that the gas 
front arrived at the South Powell well sometime between January and April of 
1988. ANR Production argues that, once the gas front passed the South Powell 
well in April to May 1988, the well could not have produced any more First Bench 
oil because all the oil would have been pushed away. Accordingly, ANR Production 
contends that the district court's finding that the South Powell well produced 
First Bench oil after the gas front had passed was clearly 
erroneous.

[¶24]   The evidence produced at trial does 
not support ANR Production's conclusion. Dr. Holditch 
testified:

There is no sharp, clear [gas] front. The front will 
have some distance to it. So I say the - there is a difference between when the 
front arrived, which is the leading edge of the front, and when a well has been 
gassed out, which means all of the oil had been pushed out. There is a 
distinction there.

The record shows that not 
all wells gas out after the passage of the gas front. Dr. Holditch stated: 
"[T]he concept that[,] when the front goes through a well, the well gases out 
and the oil flow rates go to zero is not a valid concept." Dr. Holditch 
testified that a number of wells in the Unit continued to produce large 
quantities of First Bench oil after the gas front had passed through their area. 
Therefore, contrary to ANR Production's assertion, it was still possible for the 
South Powell well to produce First Bench oil after the gas front 
passed.

[¶25]   The district court properly 
considered the pressure differential and the gas front factors and correctly 
decided to accept Dr. Holditch's volume calculations. The district court's 
findings of fact were not clearly erroneous, and Kerr-McGee proved its damages 
to a reasonable degree of certainty.

Prejudgment Interest

[¶26]   ANR Production argues that the 
district court erred by granting a prejudgment interest award to Kerr-McGee 
because Kerr-McGee's claim for damages was unliquidated. We disagree. Kerr-McGee 
was entitled to be awarded interest as an element of its damages which resulted 
from ANR Production's conversion of its hydrocarbons regardless of whether the 
damages claim was liquidated.

[¶27]   ANR Production is correct when it 
argues that, generally, true interest is recoverable by the prevailing party on 
only liquidated claims. "`Prejudgment interest is recoverable in Wyoming on 
liquidated claims but not on unliquidated claims, with a liquidated claim being 
defined as one that is readily computable by basic mathematical calculation.'" 
Dunn v. Rescon Technology Corp., 884 P.2d 965, 968 (Wyo. 1994) (quoting O's Gold 
Seed Company v. United Agri-Products Financial Services, Inc., 761 P.2d 673, 677 
(Wyo. 1988)).

[¶28]   In conversion cases, however, the 
equivalent of interest on the value of converted property is recoverable as an 
element of damages. The Wyoming Supreme Court specifically ruled on this issue 
in Alanko v. Wayman (Estate & Guardianship of Johnson), 78 Wyo. 173, 320 P.2d 429 (1958). In that case, we held that the allowance of interest in a 
conversion case is not interest per se but is an additional amount of damages 
which the finder of fact may, in its discretion, award to compensate the 
plaintiff for the time between the origin of the cause of action (i.e., the 
conversion) and the trial. 78 Wyo. at 187, 320 P.2d 429. The purpose of this 
rule was articulated in 18 AM.JUR.2D Conversion § 121 at 233 (1985) (emphasis 
added):

In actions for conversion it is generally recognized 
that interest, or the equivalent of interest, on the value of the property 
converted, may be recovered. While interest has usually been accepted as a 
proper measure of damages to be added to the value of the property from the date 
of conversion to the date of trial, the 
purpose of the award is to compensate the plaintiff for the loss sustained 
because of the taking of property.

[¶29]   Similarly, in Reposa v. Buhler, 770 P.2d 235 (Wyo. 1989), this Court adopted the RESTATEMENT (SECOND) OF TORTS § 927 
(1979) which established that interest may be recovered as an element of damages 
in cases which involve the tortious conversion or destruction of a chattel. 770 P.2d  at 237. See also RESTATEMENT (SECOND) OF TORTS, supra at § 913(1)(a) cmt. 
(a).

[¶30]   ANR Production maintains that our 
decision in O's Gold Seed Company requires that the damages claim be liquidated 
in order for interest to be awarded to the prevailing party in a conversion 
case. O's Gold Seed Company cannot, however, be interpreted as broadly as ANR 
Production proposes. O's Gold Seed Company was a conversion case in which an 
interest award was allowed. One of the issues on appeal was whether the correct 
interest rate had been used in computing the amount of the judgment. The 
district court found that the claim was liquidated. The parties did not contest 
that finding on appeal; accordingly, we cited the general rule that prejudgment 
interest is recoverable in Wyoming on liquidated claims. 761 P.2d  at 677. The 
Court did not discuss in that case whether prejudgment interest may be available 
in conversion cases as an element of damages. Our decision in O's Gold Seed 
Company, therefore, does not state that a claim must be liquidated in order for 
a party to recover prejudgment interest in a conversion case. In accordance with 
Alanko and Reposa, we hold that the finder of fact may, in its discretion, award 
interest as an element of damages in a conversion case regardless of whether the 
claim is liquidated or unliquidated. The district court did not err in awarding 
prejudgment interest at the rate of seven percent per annum to Kerr-McGee on its 
conversion claim.

Penalty 
Interest and Attorneys' Fees

[¶31]   Kerr-McGee contends that pursuant 
to the Act it is entitled to be awarded interest at the rate of eighteen percent 
per annum on its damages plus attorneys' fees. The district court held that the 
Act did not apply in this case. We agree.

[¶32]   The material provisions of the Act 
are presented at §§ 30-5-301(a) and 30-5-303(a) and (b). Section 30-5-301(a) 
provides in pertinent part:

(a) The proceeds derived from the sale of production 
from any well producing oil, gas or related hydrocarbons in the state of Wyoming 
shall be paid to all persons legally entitled thereto, except as hereinafter 
provided. . . .

Section 30-5-303(a) and (b) 
provides in pertinent part:

(a) Any lessee or operator, purchaser or other party 
legally responsible for payment who violates the provisions of this article is 
liable to the person or persons legally entitled to proceeds from production for 
the unpaid amount of such proceeds, plus interest at the rate of eighteen 
percent (18%) per annum on the unpaid principal balance. . . 
.

(b) The district court for the county in which a well 
producing oil, gas or related hydrocarbons is located has jurisdiction over all 
proceedings brought pursuant to this article and the prevailing party in any 
proceedings brought pursuant to this article shall be entitled to recover all 
court costs and reasonable attorney's fees.

[¶33]   Applying our well-known rules of 
statutory interpretation, we hold that the Legislature's intent, as expressed in 
the plain language of the statutory provisions, was to limit the application of 
the Act to cases where a preexisting legal obligation for payment of the 
proceeds of the sale of hydrocarbons exists. See, e.g., Halpern v. Wheeldon, 890 P.2d 562, 564-65 (Wyo. 1995) (reciting the rules for statutory interpretation). 
The Legislature expressly stated that the proceeds shall be paid to "all persons 
legally entitled thereto" by any party "legally responsible for payment." §§ 
30-5-301(a), -303(a). The Legislature's repeated use of the term "legally" 
indicates that the Act was intended to apply only in cases where the parties had 
a prior legal relationship.

[¶34]   The Act presupposes that the party 
who was responsible for the payment had a right and an obligation to sell the 
hydrocarbons for the party who was legally entitled to receive the proceeds. 
Section 30-5-301(a) states that the "proceeds derived from the sale" of the 
hydrocarbons shall be paid over to the legally entitled party. The deadline for 
the payment of the proceeds hinges upon the date of the sale of the 
production.

[¶35]   This interpretation is consistent 
with our earlier decisions in which we applied the Act. In each of our prior 
decisions, the parties had a preexisting legal relationship for the sale of the 
hydrocarbons. Ferguson v. Coronado Oil Company, 884 P.2d 971 (Wyo. 1994) 
(contractual interest in the net profits); Cities Service Oil and Gas 
Corporation v. State, 838 P.2d 146 (Wyo. 1992) (royalties); Moncrief v. Harvey, 
816 P.2d 97 (Wyo. 1991) (royalties); State v. BHP Petroleum Company, Inc., 804 P.2d 671 (Wyo. 1991) (royalties); Independent Producers Marketing Corp. v. Cobb, 
721 P.2d 1106 (Wyo. 1986) (royalties).

[¶36]   In this case, ANR Production and 
Kerr-McGee had no prior relationship which would have entitled ANR Production to 
produce or sell unitized First Bench hydrocarbons. Indeed, ANR Production's lack 
of authority to take the Unit's oil and gas was one of the primary issues at 
trial. Kerr-McGee was actually entitled to have the hydrocarbons themselves, not 
just the proceeds. Since the parties did not have a preexisting legal 
relationship, the district court correctly ruled that ANR Production was not 
liable to Kerr-McGee for the eighteen percent penalty interest or attorneys' 
fees under the Act.

Conclusion

[¶37]   The district court did an admirable 
job of conducting and deciding this very complex case and did not commit any 
reversible errors.

[¶38]   Affirmed.

 

FOOTNOTE

1 ANR Production contends in its brief 
that the negative pressure differential could not have existed during the first 
few months of the South Powell well's production. During oral arguments, 
however, ANR Production limited its argument to the first month of production, 
contending that, if Kerr-McGee's proof of damages for the first month was 
insufficient, its entire claim must fail.