1 IN TH E COURT OF APPEALS O F THE ST ATE OF NEW MEXICO

2 O pin ionN um

be r: ___ ____ ____ 3 Fi lin g D at e: N ove m be r 21, 201 6 4 NOS . 34, 581 & 34,918 (Consolidated) 5 ENDURO OPERATI NG LLC, 6 Pl ai nt iff

-Ap pe ll an t, 7 v
. 8 ECHO PRODUCTIO N, INC.; TALUS, I NC.; 9 TWIN M ONT AN A, INC .; CIM ARRON RIV ER 10 INVES TMENTS , LLC; CMW I NTERES TS, I NC.; 11 D2 RES OURCES, LL C; ELG ER EXPLORATI ON, 12 IN C . ; P LA IN S P R OD U C TI ON , IN C . ; SO LI S 13 ENE RGY , L LC; THE A LLA R C OMP AN Y; 14 KEN SE LI GMAN; a nd W. G LEN ST REET, J R., 15 D ef

en da nts -Appe lle es . 16 AP PE AL FR OM T HE D ISTRICT C OUR T OF ED DYCO UN TY 17 Lisa B. Riley, D istrict Jud ge 18 Hin kl e Sh an orLLP 19 AndrewJ. C louti er 20 Park er

B. F ols e 21 Ro swe ll , NM 22 fo r Appe llant1 Ro de y , Dick as on , Slo an , Aki n & Ro bb , P.A.

2 Edw ard Ricc o 3 Alb uq ue rq ue , NM 4 Cotton, Bledsoe, T ighe & Dawson, P .C. 5 T er ry W
. Rh oa ds 6 Jared M. Moore 7 Mi dl an d, TX 8 for Appellees 9 Michael J. He nry , A ttorney at L aw , P .C. 10 Michael J. He nry 11 Fo rt Wort h, TX 12 for Appellees Echo Pr oductio n, Inc. ; Ta lus, Inc. ; Tw in Mont ana , I nc . ; Cim arron River 13 In ve st m en ts , LLC; CM W Int eres ts, In c. ; D 2 Res ou rces , LLC; Elg er Ex pl or at io n, In c.; 14 Pl ai ns P ro duc tio n, I nc . ; S oli s E ne rg y , L L C; the A llar Co m pa ny ; and W
. G le nn S tr ee t, 15 Jr
. 16 McC or m ic k, Ca raway, Tab or& By ers , LLP 17 Ca s F
. T ab or 18 Carlsbad, NM 19 for Appellee Ke n Seligm an18 Sp ec if ic al ly f or thi s c as e, A
. A
. P. L
. F orm 610 -1 982. 1 1 OPIN ION 2 KEN NED Y, Judge. 3 { 1} T oday , w e cl ar if y our opi nio n in Jo hnso n v. Yates P etro le um Co rp. , 199 9- 4 NMC A- 066, 127 N.M. 355, 981 P. 2d 28 8, as to the im port of our observation in that 5 case that “ any

activities in preparation for, or incide n t al to, drilling a we ll are 6 su ffi ci en t” to sat is fy

a co nt ract ter m

req ui rin g t ha t d ril li ng of a well be “ co m m en ced .” 7 Id

. ¶ 11. T ha t obse rv at ionis obi te r di cta and so broad a standard as to have inv ited 8 m isi nte rp re ta tio n. I n Jo hnso n , sub se que nt d iscus si on of the iss ue e nunc ia te d m an y 9 specific ac tivities o f phy sical, operational significance that, in c om binatio n, qualified 10 as c om

m en ci ng dri lli ng o pe ratio ns. T he se a ct ivi tie s w er e furthe r qu al if ie d by 11 num er ous ci ta tio ns t o ca se law , as w e dis cu ss h er ei n. By the se standard s, w e ev al ua te 12 whether activities und ertaken by a party in this case satisfy a “ com m encem ent clause” 13 in a j oint o perating agreem ent (JOA ) based on a standard form used by the Am erican 14 Association of Petroleum Landm en. We determ ine that actions un dertaken by that 1 15 party , E ch o P ro duc tio n, In c. (E ch o) , w er e ins uf fi ci en t i n th is c as e to c onst itu te 16 “ com m encemen t .” Our opinion reverses the summ ary j udgm ent in Echo’ s favor, 17 whi ch Pla in ti ff En du ro Oper at in g LLC (En du ro ) ap pe al s.2

1 { 2} Enduro filed suit against Echo, asserting th at E cho did n ot comm ence 2 ope ratio ns p er

the JOA, to whi chboth are part ie s, E ch o w as the re fo re r equir ed to 3 resubm it a proposal, y et failed to do so. The par ties filed cross-m otion s for sum m ary 4 j udgm en t re ga rd ing w he the r E ch o sa tis fi ed the “ co m m en ce m en t” r equir em en t i n th e 5 JOA
. The dist rict court granted E cho’ s m otion for sum m ary j udgm ent and denied 6 En du ro ’s m o t i o n s fo r s u m m ar y ju d g m en t . Th e d i s t ri ct co u rt al s o g ra n t ed Ec h o ’s 7 m oti on t o e xc lude the te sti m ony of E ndur o’ s e xpe rt

w itn es s. E ndur o a

ppe al s, 8 asserting the district court erre d in granting Ec ho’s m otion s. W e agre e w ith Enduro 9 that Echo did not com

m ence operations within the required tim e period as required 10 by the JO A
. Be ca

use w e re ve rs e the dis tr ic t co urt’ s de nia l of sum m ar y j udgm en t t o 11 Enduro, we need not re ach the issue of whether the district court properly excluded 1 2 t h e t es t i m o n y o f E n du ro ’s ex p er twi t n es s . We t h er ef o re re v er s e t h e d i s t ri ct co u rt ’s 13 or de r an d r em an d f

or pr oc ee din gs c onsi ste nt w iththi s op ini on. 14 I. BACKGRO UND 15 { 3} O n Apr il 25, 200 6, E ch o e nte re d into the JO A f or de ve lop m en t of

a n oi l and 16 ga s pr ope rty

w ithanum

be r of part ie s in cl udi ng C onoc oP hil lip s ( Co noc o) a s no n17 operator. This case is concerned with actions taken under the JOAto develop a new 18 w el l ( W el l 6H ) in E ddy Co unty . Arti cl e V I of

the JO A r equir ed

that a party to the8 T he pr ec ise langua ge of the JO A pr ovi de s, “ Sh oul d any party he re to d es ir e to 2 9 dr ill a ny

w el l .
. . or

to rew ork, de ep enor

plu g ba ck

adr y hol e dr ill ed

a t the j oin t 10 ex pe nse of

a ll pa rt ie s or

a w el l j oin tly ow ne d by al l the part ie s and n ot the n pr oduc ing 11 in p ay ing quant it ie s, the party de sir ing to dr ill , r ew ork, de ep enor plu g ba ck

suc h a 12 w el l sh al l gi ve the oth er pa rt ie s w ri tte n no tic e of the pr opos ed

ope ratio n, spe ci fy ing 13 the w ork to be pe rf

orm ed , the loc at ion , pr opos ed de pth , obj ec tiv e fo rm at iona nd the 14 es tim at ed co st of the ope ratio n. T he part ie s r ec ei vin g su chanot ic e sha ll ha ve thi rty 15 (3 0) day s a ft er

r ec ei pt o f the not ic e w ith in w hic h to not if y the party w ish ing to do the 16 wor k wh et he r th ey

ele ctto pa rti ci pa te in th e co st of t he pro po se d o pe r a t i o n . . . . 17 Fa ilure of

aparty re ce ivi ng suc h not ic e to re ply w ith in the pe ri od ab ove f ixe d sh al l 18 constitu te an el ec t i o n by that party

not to p articipate in the cost of the proposed 19 op erat io n.” 20 N on- co nse nt p ar tie s r el inquis he d th ei r int er es t i n th e W ell 6H and the 3 21 co nse nti ng p ar

tie s w ere e nti tle d to r ec ei ve the non -c onse nti ng p ar ty ’ s sh ar e of 22 pr oc ee ds. 3 1 JO A w ho d es ir ed

to dr ill a w el l— in this c as e E ch o—p ro vid e w ri tte n no tic e of it s 2 pr opos ed

ope ratio n to the oth er

JO A part ie s. T he not if

ie d part ie s ha d th irty

day s f ro m 3 the not ic e to el ec t to partic ipa te or de cl ine pa rt ic ipa tio n inthe pr opos ed ope ratio n. 2 4 Parties who declined to participate we re then dee m ed “ non-cons ent” parties. Af ter 3 5 de liv er ing aw ri tte n pr opos al , an d all ow ing thi rty da y s f or part ie s to de ci de on the ir 6 ac tio ns, A rt ic le VI.B.2 requ ir ed that the pr opos ing party “ ac tua lly c om m en ce the 7 pr opos ed

ope ratio n and com

ple te it w ith due dil ige nc e” w ith in n ine ty day s a ft er

the15 T he e xa ct langua ge of

the JO A states th e fo llo w ing : “ If a ny party r ec ei vin g 4 16 suc h not ic e as pr ovi de d in A rt ic le V I. B. 1 or V II
. D
. 1 .
. . e le ct s no t t o part ic ipa te in the 17 pr opos ed

ope ratio n, the n, in or de r to b e en tit le d to the be ne fi ts o f th is Arti cle , the 18 party or part ie s gi vin g th e not ic e an d su choth er part ie s a s sh al l ele ct to par tic ipa te in 19 the ope ratio n sha ll, w ith in nin ety ( 90) day s a ft er

the e xpi ratio n of

the not ic e pe ri od 20 of thi rty ( 30) day s . . . a ct

ua lly c om m en ce the pr opos ed

ope ratio n and c om

ple te it 21 wit h d ue di li ge nc e.” 4 1 e x p i r a t i o n o f

t h e t h i rt y- d a y n o t i c e p e r i o d
. I n t h i s o p i n i o n , t h e t o t a l a m o u n to f t i me 4 2 fro m no ti ce t o c omm en cem en t o f dr il li ng is refe rred to as “ th e 1 20 -d ay pe rio d.” 3 { 4} If

E ch o f ai le d to co mm en ce dr ill ing ope ratio ns b y the e nd o f the pe ri od, the 4 p ro p o s al would fail, and all parties to the JOAwould be returned to the status they 5 ha d pr ior

to the pr opos al ’ s c ir cu la tio n. I f E ch o c hose to pr oc ee d w iththat w el l a ga in, 6 Ec ho would be required to resubm it another propos al to all interested parties. At that 7 poi nt, E ndur o w oul d have a n op portun ity to be co m e a co nse nti ng int er es t c ap ab le of 8 re ce ivi ng p ro ce ed s of

the w el l f

ro m the ti m e it be gan pr oduc ing
. E ch o dr ill ed a nd 9 finished th e w ell after

the 1 20 -day

period without ever resubm itting a proposal, w hich 10 End ur o b el ie ve s was im pr op er u nd er t he JOA. 11 { 5} E ch o se nt i ts p ro posa l t o dril l W el l 6H to the w orkin g in te re st o w ne rs on 12 D ec em

be r 1, 2010
. Co noc o re ce ive d Ec ho’ s pr opos al , a nd e le ct ed not to pa rt ic ipa te 13 on D ec em

be r 28, 201 0, th us be co m ing anon -c onse nt p ar ty . E ndur o su

bse que ntl y 14 pur ch as ed

Co noc o’ s in te re st i n W el l 6H sub j ec t t o it s no n- co nse nt s ta tus .1 8 E n du r o l a t e r a me n d e di t s c o mp l a i n t , d r o p p i n g i t s t r e s p a s s c l a i m. 5 1 9 E ndur o r e qu e s t e dp a rt i a l s u m m ary j u d g m e n ta r g u i n g t h a tE c h o w a s n ot 6 20 en ti tl edto us e an ex cu lp at ory cla us e in th e JOA.

5 1 { 6} A s m or e tho ro ughl y dis cu sse d be low , the w el l w as not dr ill ed w ith in the 120
- 2 day pe ri od, al tho ugh E ch o cont inu ed ope ratio ns r el at ed

to dr ill ing W el l 6H pa st the 3 12 0- da y

pe rio d fr om

it s i ni ti al no ti ce, an d e ve nt ua ll y dri ll eda pr od uc in g wel l. 4 { 7} E ndur o br ough t su it ag ai nst E ch o and the oth er

w or ki ng int er es t owne rs f or 5 breach of c ontract, trespass, con version, v iolation s of t he Ne w Mexico Oil and G as 6 Pr oc ee ds P ay

m en t A ct , a nd d eclara to ry r el ie f. E ndur o a sse rt ed

that E ch o f

ai le d to 5 7 “ co m m en ce ” ope ratio ns an d w as the re fo re re qui re d to re subm it the pr opos al , the re by 8 pr ovi din g E ndur o an op portun ity to co nse nt t o E ch o’ s prop osa l and re ce ive pr oc ee ds 9 from the we ll. E nduro based it s claim s on the language in Article IV of the JOAthat 10 provides, “ if the actual operation has not b een com m enced w ithin the tim e provided 11
. . . and if any

party h er et o s t i l l desires to conduct said o peration, w ritten notice 12 propos ing sam e m

ust be resubm itted to th e o t h er p ar t i es . . . as if no prior proposal 13 ha d be enm ad e. ” O nly E nd ur o an d E ch o r em ai n a s part ie s inthe pr oc ee din gs o n 14 ap pe al
. 15 { 8} Litigation ensued, and Enduro and Ec ho filed a series of m otion s. E nduro filed 16 thr ee se pa rate m oti ons fo r pa rt ia l su m m ar y j udgm en t. T he fi rs t m oti on is n ot at i ssu e 17 in this appeal. Enduro’ s second m otion for partial summ ary j udgm ent asserted that 66

1 w ith out ha vin g ob ta ine d th e ap pr opr ia te dr ill ing pe rm it pr ior to the ex pir at ion of the 2 120- day

de ad lin e, E ch o c oul d no t l eg al ly ha ve c om

m en ce d dr ill ing ope ratio ns. T he 3 dis tr ic t c ourt de nie d this m oti on. E ndur o’ s th ir d m oti on f or part ia l su m

m ar y j udgm en t 4 as serted that E cho’ s actions du ring the 120 -day period did no t constitu te the actual 5 co m m en cem en t o f op erat io ns req ui redby the JOA. 6 { 9} E ch o fi le d a m oti on f or sum m ar y j udgm en t, a sse rt ing that the und isp ute d f ac ts 7 established th at it had com m enced W ell 6H during the 120-day period and com pleted 8 the well w ith du e diligence, entitlin g it to j udgm ent as a m atter of law. Ec ho also filed 9 a m otion to exclude the testim ony of Phillip T. Bre we r, who E nduro so ught to qualify 10 as a n e xpe rt in the ar ea of cu sto m an d usa ge of the oil an d ga s in dustry in southe as t 1 1 N e wM e x i c o , s p e c i f

i c a l l y. 12 { 10} The district court held a hearing on t hese m otion s, during which it granted 13 E ch o’ s m oti on t o e xc lud e Br ew er ’ s te sti m ony . T he c ourt l at er iss ue d ale tte r de ci sio n 14 de ny ing E ndur o’ s f

ir st tw o m oti ons fo r pa rt ia l su m m ar y j udgm en t and gran tin g 1 5 Ec h o ’s t h i rd s u ch m o t i o n fo r su m m ar y ju d g m en t . End u ro ap p ea l s t h e d i s t ri ct co u rt ’s 1 6 g ra n to f s u m

m ar y ju d g m en tt o Ec h o as we l l as i t s e x c l u s i o n o f i t s ex p er tBr ew er ’s 1 7 t e s t i mo n y.7

1 II. DISC US SION 2 A. Sum m ary Judgm ent—C om m ence m ent 3 1. Su m m ar y Ju dg m en t St an da rd on A pp ea l 4 { 11} Sum

m ary j udgm ent is appropriate wher e th e m ovant is entitled to judgm ent as 5 a m atter of law and there is no genuin e issue as to any m aterial f

acts. Rule 1-056(C) 6 N MR A
. I n othe r w or ds, if

the f ac ts are no t in di sput e an d on ly the le ga l e ff

ec t of 7 th os e fac ts is le ft to be de te rm in ed , su m m ary jud gm en t i s p ro pe r. G arr ityv . O ve rla nd 8 She ep sk

in C o. of Ta os , 199 6- N MS C- 032, ¶ 29, 121 N
. M. 710 , 91 7 P. 2d 1 382. 9 “ Whe re c ro ss- m oti ons fo r sum m ar y j udgm en t ar e pr es en te d on the ba sis of ac om m on 10 legal issue, this Court m ay reverse both the grant of one party ’ s m otion and the denial 11 of th e o pp os in g p art y ’s cro ss -m ot io n a nd awardjud gm en t o n t he cro ss -m ot io n.” 12 Gri sham v . A lls tat e In s. Co

. , 199 9- N MC A -1 53, ¶ 2, 128 N
. M. 340 , 992 P
. 2d 8 91. 13 “ W e re solve all reasonable in fe re n ce s in favor of the party oppo sing s umm ary 14 j udgm en t, a nd w e vie wthe ple ad ing s, a ff idavit s, de posi tio ns, a nsw er s to 15 in te rro ga to rie s, an d a dm is si on s i n t he li gh t mo s t f av or ab le to a tr ia l o n t he m eri ts .” 16 M adri d v

. B rin ker R es t. Co rp. , 2016-NMS C-003, ¶ 16, 363 P.3d 1197 (internal 17 quot at ionm ar

ks and c itatio n om itt ed ). O ur c ourts d isf

av or sum m ar y j udgm en t and 18 vi ew it as a dra st ic rem ed y th atsh ou ld be us edwit h g reat cau ti on . Id

.8

1 { 12} “ Whe re the [ dis tr ic t] c ourt’s gr an t of sum m ar y j udgm en t i s f

ound ed on a 2 m ista k e o f law , the c ase should be rem anded so th at the issues m ay be resolved 3 through application of correct law .” R um m el v. St. P aul Surp lus L ines I ns. Co

. , 199 7- 4 NMS C-042, ¶ 9, 123 N. M. 767, 945 P. 2d 98 5. O n appeal, neit h er p ar ty argues that 5 ge nui ne iss ue s of m at er ia l fa ct ex ist
. T he da te s and e xte nt o f E ch o’ s a ct ivi tie s to dr ill 6 the we ll are not in dispu te. Rather, the parties’ argum ent is base d in the legal effec t 7 of those facts; we therefor e re view the dis trict court’ s orders regar ding the summ ary 8 jud gm en t m ot io ns de no vo . See Self v. United Parcel Serv., Inc. , 199 8- N MS C- 046, 9 ¶ 6, 126 N
. M. 396 , 970 P
. 2d 5 82; State Fa r m M ut. A uto. Ins. C

o. v. Barker , 200 4- 10 N MC A -1 05, ¶

4, 136 N
. M. 211 , 96 P
. 3d 3 36. 11 2. Ac tual C om m ence m ent of Dr illing Activities 12 { 13} T h e c e n t r a l i s s u e i n t h i s ap p e a l i s w h e t h e r E c h o ’ s a c t i o n s p r e p a r i n g t o d ri ll 13 W ell 6H w ere enough to dem onstrate that i t “ actually com m ence[d] the proposed 14 ope ratio n and c om

ple te [d ] it w ith due dil ige nc e” w ith in the 120 -d ay pe ri od. W e m

ust 15 fir st lo okto what act io ns Echo to okto co m m en ce o pe rat io ns . 16 a. Ac tion Tak en 17 { 14} T he part ie s agre e on the f oll ow ing f

ac ts. T he JO A da te d Apr il 25, 200 6, 18 gove rn s th e pa rt ie s’ c ondu ct in this c as e. O n N ove m be r 29 and 3 0, 201 0, E ch o 1 9 wo rk ed wi t h J o e J an i ca , ag eo l o g i ca l en g i n ee r, t o s u rv ey an ds t ak e We l l 6 H’s18 A lth oughE ch o as se rt s tha t thi s c onsu ltatio n la ste d f ro m D ec em be r 2010 unt il 7 19 W el l 6H w as c om

ple te d, the e vid en ce pr of fe re d insup port of

H ag ga rt ’ s a ff

idavit is 20 da te d M ar ch6, 201 1. 9 1 loc at ion . On Dece m

be r 1, 201 0, E ch o su

bm itt ed apr opos al to al l w orkin g in te re st 2 ow ne rs , pur suant to the pr oc ed ur es se t forth in the JO A , in whic h it pr opos ed to dr ill 3 W el l 6 H. The 1 20 -d ay pe rio d e nd edApri l 2 , 20 11
. 4 { 15} Co noc o w as a n in te re st o w ne r at the tim e the pr opos al w as dis tr ibu te d, a nd i t 5 elected to not participate pursuant to th e JOAon Dece m ber 28, 2 0 1 0
. En d uro then 6 pur ch as ed Co noc o’ s non- co nse nt int er es t. E ch o ap pli ed f or adr ill ing pe rm it tha t the 7 Ne w Mexico Oil Cons ervation Division rece ived on March 31, 2011. T he perm it was 8 approved on April 13, 2011 . The parties agree that the relevant 120-day period ended 9 Apr il 2, 2011
. W e co nsi de r onl y ac tio ns ta ke n up to tha t poi nt in our co ns id era tio n 10 of whet he r Ech o c omm en ceddri ll in g a ct iv it ie s wi th in th e 1 20 -d ay pe rio d. 11 { 16} Insup port of

it s m oti on, E ch o pr of

fe re d e vid en ce that i n or de r to c om ple te the 12 re qui red pe rm its , the y c ondu ct ed

sur ve y s, stake d th e sit e, de sig ne d ac los ed loo p 13 sy ste m , a nd o btai ne d a dr ill ing pr oc ed ur e, spu d pr ogr am , a nd c as ing pr ogr am . T he 14 road to the site was pre-existing at the tim e of the survey , prior to the propo sal. I n 15 earl y Marc h 20 11, E ch o co m

m uni cate d w ith John T hom a, a ge olo gis t, re ga rd ing the 16 design and engineering of a lateral for W ell 6H. Ec ho contracted to bui ld a drill pad 7 1 7 on Ap r i l 2 9 , 2 0 1 1 , a n de n t e r e di n t o ad r i l l i n g c o n t r a c tw i t h J W D r i l l i n g , I n c . on10

1 Marc h 14 , 201 1, to co m m en ce on May

20, 201 1. T he w el l w as spu dde d onMay 25, 2 20 11 , frack edfro m

Ju ly 5 th ro ug h 7 , and be ga n p ro du ct io n o n Au gu st 5, 2 01 1. 3 3. Legal Standard for C om m ence m ent 4 { 17} T he part ie s are a lso in ag re em en t tha t Jo hnso n is the m ost appli cable N ew 5 Me xic o auth or ity

on this iss ue . T he y

dif fe r, how ev er , on it s in te rp re ta tio n and the 6 effe ct that it has on the f acts of this case. Ec ho contend s that the dist rict court re ached 7 the correc t result, f

ocusing on the langu age of Jo hnso n that su gge sts “ any activities 8 in p reparatio n f

or , or inc ide nta l t o, dr ill ing aw el l are suf fi ci en t” to re ac h th e 9 co nc lus ionthat i t c om m en ce d dr ill ing under th e JOA
. 199 9- N MC A -0 66, ¶ 11 10 (e m pha sis a dde d)
. E ndur o, on the oth er hand, ins ist s th at Jo hnso n s t a n d s f orthe 11 propos ition that the exi stence of m ea nin gfu l on- sit e ac tiv ity is de te rm ina tiv e to the 12 is su e o f co m

m en cem en t. Jo hnso n fairly gives bot h im

pressions ; we n eed to clarif y 13 our pos iti on. 14 { 18} InJ

ohns on , this Court looked at the propriety of summ ar y judg m ent granted 15 fo r fa ilure to dil ige ntl y c ont inu e to p ro se cu te dr ill ing ope ratio ns r athe r than in iti at e 16 ne w op erat io ns as i n t hi s ca se . Id

. ¶ 8. T he le as e in tha t c as e re qui re d th e 17 co m m en ce m en t and p ro se cu tio n of dr ill ing ope ratio ns, to co m pl et ionof

aw el l 18 wit ho ut ces sa ti on fo r a cert ai n ti m e p eri od
. Id

. ¶ 5. T he a ct ion s take n by

the ope rator 19 dur ing that t im e pe ri od i nc lud ed stakin g and s urve y ing the loc at ion an d fil in g and11

1 rece iv in g a dri ll in g p erm it
. Id

. ¶ 7. There was als o an agre em en t with a co nt ract or , a 2 bul ldo ze r o n l o c a t i o n , a n de f f o rt s m a d e t o c l e a r

b r u s h a n dl e v e l t h e w e l l l o c a t i on 3 wit hi n t he ti m e p eri od
. Id

. W e fr am ed

the iss ue a s ade te rm ina tio n of w he the r tho se 4 act io ns were su ffi ci en t t o d em on st rat e co m m en cem en t o f dr il li ng op erat io ns . Id

. ¶ 11. 5 Re as oni ng tha t m ost

c ourts “ ha ve be enr ea dy

to fi nd the co m

m en ce m en t of

ope ratio ns 6
. . . wher e only the m ost m odest prepar ations for drilling have b ee n m ade[, ] ” id. 7 (i nte rn al quo ta tio n m ar ks and c itatio n om itt ed ), ” w e not ed that “ it ap pe ar s th at

a ny 8 activities in preparation for, or incidental to, d rilling a well are sufficient.” Id

. U sin g 9 thi s st an dard , thi s C ourt he ld tha t the ste ps t ak enin Jo hnso n w er e suf fi ci en t t o 10 co nst itu te c om

m en ce m en t of dr ill ing ac tiv iti es , re ve rs ing the dis tr ic t c ourt’ s gr an t of 11 su m m ary jud gm en t. Id

. ¶ 13. 12 4. Echo D id N ot “Act ually Com m ence ” 13 { 19} A s n o t e d , t h e p a rt i e s p u l l d i f f e r e n ts t a n d a r d s f

r o m Jo hnso n to b e ap pli ed in thi s 14 case. Ec ho sug gests that we im plem ent a standard for c omm encem ent that is satisfied 15 wher e there has been “ m inim al activity on the prem ises,” while Enduro sugg ests that 16 “ m eanin gf

ul o n- sit e ac tiv ity ” m ay

suf fi ce . W ith out ex pli ci tly ad opt ing ei the r of the se 17 standards, w e can affir m atively state that Echo’ s actions du ring the relevant 120-day 18 pe ri od d o no t sat isf

y the ind ic ia of co m

m en ce m en t tha t exi ste d in Jo hnso n . H ere, as 19 in Jo hnso n , th e w el l l oc at ionw as sur ve y ed a nd s ta ke d, a nd s te ps w er e ta ke n to appl y12

1 fo r the ne ce ssary pe rm its
. I n th is c as e, how ev er , the onl y a ddi tio na l st ep take n duri ng 2 the r el ev an t pe ri od w as to en te r int o aco ntra ct w ithadr ill ing c om

pa ny . N o on -s ite 3 ac tiv ity

oc curr ed oth er than th e sur

ve y a nd s ta kin g E ch o c om

ple te d be fo re the 4 p r opos al da te . E ch o’ s pe rm it ap pli catio n w as not appr ove d w ith in the 120 -d ay pe ri od. 5 Inc ontra st, the pr opos ing party in Jo hnso n obt ai n ed approval of the necessary 6 pe rm its , m ove d he av y equip m en t ont o the w el l sit e, an d too k ste ps to cl ear br ush an d 7 le ve l t he gro un d a t t he well lo cat io n. 8 { 20} Ci ti ng 3 Eug en e Kun tz , A T re ati se on t he L awof O il and G as , § 32
. 3( b) , a t 76 9 (1 989) , E ch o no te s th at f or c om m en ce m en t t o oc cur, “ som e ac t per fo rm ed on the land 1 0 i t s e l f ” i s r e qu i r e d
. A n d t h e c a s e s c i t e db y Jo hnso n ap pe ar to supp ort this state m en t. 11 Fo r ex am

pl e, P et er se n v . R obi nson O il & G as C o. , 356 S
. W
. 2d 2 17 ( T ex . Ci v. App. 12 1962 ), e nunc ia te d astandard giv enthe f

ac ts i n th at

c as e: 13 The gener al rule seem s to be that a ctual drilling is unnecessary , but that 14 the loc at ionof w el ls, ha uli ng l um

be r on the pr em ise s, e re ct ionof 15 derricks, providin g a w ater supply , m ovin g m achinery on the pre m ises 16 an d si m ilar ac ts p rel im inary to the be gin nin g of

the a ct ua l w ork of 17 drilling , when p erfor m ed with the bona fide intention to proceed 18 the re af

te r w ithdil ige nc e tow ar d th e co m ple tio n of the w el l, c onst itu te 19 a co m

m en ce m en t or

be gin nin g of a w el l or

dr ill ing ope ratio ns w ith in the 20 m eaning of this clause of the lease. 21 Id

. at 220 (internal quotatio n m arks and citation om itted). 22 { 21} In Oe lze v. Key Drilling, Inc. , the driller had obtained a drillin g perm it, staked 23 the w el l l oc at ion , le ve le d aw el l si te , a nd d ug s lus h pits . 4 81 N
. E
. 2d 8 01, 802 ( Il l.13

1 App. Ct. 1985 ). D ’l o Roy alt ies, I nc . v . She ll O il Co

. dealt w ith “ dilig ence” m ore than 2 the other cases, but held that prelim inary site work that proceeded with diligence as 3 w ell as actua l di lig en ce in start ing a ct ua l dr ill ing , a lon g w ithpay ing a“ shut -i n” 4 ro y al ty paym en t w as suf

fi ci en t to co nst itu te co m

m en ce m en t of

dr ill ing
. 389 F
. S upp. 5 538, 548-49 (S. D. Miss. 1975). T he conclusio n we reac h here is, w e believe, im plied 6 b y Jo hnso n ’s us e o f th es e cas es in co nc ert wit h 3 Kun tz , supra , § 32
. 3( b) , a t 76
. 7 { 22} T w o f

ac ts i n parti cu la r we ighhe av ily in our de te rm ina tio n inthi s c as e— the 8 la ckof a ny on -s it e act iv it y an d Ech o’s fa il ur e to ob ta in—o r ev en ap pl y forun ti l t wo 9 day s before e xpiration o f the 120-day period—approved p erm its durin g the 120-day 10 pe ri od. T houg h it did spe nd tw o da y s sur ve y ing an d stakin g the W el l 6H 11 loc at ion

—the onl y

on- sit e ac tiv ity

it a cc om pli she d—i t did so prio r to sen din g ou t the 12 pr opos al that tr igg er ed the 120- day pe ri od. T he fa ct tha t E ch o ha d no appr ove d pe rm it 13 to dri ll pr ior

to the e nd o f the 120- da y pe ri od i s a lso im portant t o our de te rm ina tio n 14 in this c as e. 19. 15. 14 N MA C w as c re at ed in or de r to “ re qui re a n op er at or to obt ai n 15 a pe rm it pri or t o c om m en ci ng drilling [. ] ” 19.15.14.6 N MAC (em phasis add ed). It 16 would have been contrary to the rule for E cho to com m ence drilli ng prior to approval 17 of the pe rm it. A s su ch , i t fol low s th at to co nc lud e E ch o’ s a ct ion s w er e ad equa te to 18 co nst itu te c om

m en ce m en t of dri lli ng w oul d be to co ndon e E ch o’ s c om m en ci ng t o 19 dr il l an un au th or iz ed , un pe rm it te d wel l.14

1 { 23} Ec ho argues that in th is day of latera l drilling , f

racking, an d “ m o re com

plex 2 en gineer in g de sig n and p re pa ratio n th anin the day s w he n dr ill ing aw el l m eant 3 sim ply ere cting a derrick and boring a vertica l h o l e[ ,] ” changed circum stances 4 dem and a rec onsid eration of what constitu tes preparing for drilli ng. E cho em phasizes 5 t h e “ba ck -r o o m ” w o r k r e qu i re dt o g et a w el l u n d er wa y an dch ar ac t er i ze s En du ro ’s 6 posi tio n as as se rt ing tha t onl y ac tiv iti es on t he gr ound

c ount tow ar d c om

m en ce m en t 7 of dr ill ing
. W e dis ag re e w iththat c ha ra ct er iz at iona nd w iththe pr opos iti on E ch o 8 ad v a n ces . Firs t, we n ot e th atth e o nl y m at eri al ch an ge in th e la ng ua ge of A.A.P.L. 9 Fo rm 610 w ith re ga rd to co m m en ce m en t sin ce 1977 ha s be en to ex te nd w ha t w as a 10 six ty -d ay

pe ri od f or c om m en ce m en t t o ni ne ty

day s f oll ow ing the not ic e pe ri od, both 11 refl ect ed in th e ag reem en t us edin th is cas e, an d a s amend edin 19 89
. Se e Ne arbu rg 12 v. Yates P etrol eu m Co rp. , 199 7- N MC A -0 69, ¶ ¶ 3, 15 n n. 1 & 2, 123 N
. M. 526, 943 13 P.2 d 5 60 ( q u ot in g l an gu ag e fro m A.A.P.L. Fo rm

61 0- 19 77 an d -1 98 9) . A.A.P.L. 14 Form 610 is an unam

bigu ous contract, and it is not for th e cou rts to change contract 15 la ng ua ge forth e b en efi t o f on e p ar t y to th e d et riment o f an ot he r. Ne arbu rg , 199 7- 16 NMC A- 069, ¶ 23. N o changes in th e indu stry have resulted in any change to the form 17 langua ge of

the c ontra ct

sin ce 198 2, inc lud ing 199 7 w he n we de ci de d Ne arbu rg , 18 thr oughto the pr es en t c as e. T his c onsi de ratio n, pa ir ed wit h th e la ck

of a ny on- sit e 19 activity

during t h e 1 2 0 -d ayperiod, lea ds us to conclude that it is no new18 Be ca use w e co nc lu de that E ch o di d no t c om m en ce the pr opos ed

ope ratio n 8 19 within the tim e period specified in the JOA , we need not address the issu e of w hether 20 it com

pleted the well w ith du e diligence. 15 1 interpretation of the contract form by which w e hold that Echo’ s on-site actions were 2 not m eanin gf

ul and c an not

se ri ousl y be c ha ra ct er iz ed

a s m ini m al
. 8 3 { 24} In Jo hnso n , the dr ill ing party “ stake d and s urve y ed

th e l o c at ion , appl ie d f

or a nd 4 re ce ive d a pe rm it to dr ill the w el l, a nd b eg anpr ep ar ing a nd b uil din g th e w el l l oc at ion 5 pr io r to th e ex pi rat io n o f th e p rimary te rm .” 19 99 -NMCA- 06 6, ¶ 12 , Acco rd in gl y , we 6 ad opt ed

the vie wthat c om

ple tin g so m e an d u nd er ta kin g othe r on- sit e ac tio ns 7 an ci llary

to ac tua l dr ill ing c an , in som e sit ua tio ns , b e ad equa te to am ount to 8 co m m en cem en t. Id

. W e ha ve no qua rr el w iththat pr opos iti on. 9 { 25} It

is unc le ar f ro m the r ec or d w ha t st an da rd

the dis tr ic t c ourt a

ppl ie d inthi s c as e 10 whe n re ach in g i ts co nc lu si on . Se e G eo rge v . Ca ton , 1979 -N MCA -028, ¶ 6, 93 N. M. 11 370, 600 P
. 2d 8 22 ( not ing that w hil e a dis tr ic t c ourt i s not re qui re d to sta te it s r ea sons 12 or m ake find ings, finding s are perm issib le and often helpful for appellate re view). It 13 ap pe ar s, how ev er , tha t the dis tr ic t cour t re ad the langua ge in Jo hnso n qui te li te ra lly 14 tha t anya ct ivi ty

is suf fi ci en t to co nst itu te co m

m en ce m en t. T hr ough thi s r ea din g, the 15 district c ourt disregar ded the utter lack of any on-site a ctivity during th e 1 2 0 -day 16 pe rio d i n t hi s ca se . Con se qu en tl y, w e b e l ie ve th ata li te ral in te rp ret at io n o f “ an y ,” 17 re sul te d intoo li be ra l a standard an d di sr eg ar de d ho wr em ove d th e ac tio ns t ak enby16 E ch o a tte m pts to m ak e a di st incti on b etw ee n th e “ dr ill ing ope ratio ns” 9 17 re fe re nc ed

in Jo hnso n a nd “pr opos ed ope ratio n” r ef

er en ce d in the JO A
. Co ntr ar y to 18 E ch o’ s a sse rt ionthat the JO A “ om its an y re fe re nc e to dri lli ng, ” the JO A inc lud es a 19 desire “ to drill, rew ork, .
. . dee pen or plug b ac k ” as actio ns that could constitu te a 20 “ pr opos ed ope ratio n. ” E ch o does not a ct ua lly a sse rt that the a ct

to be c om

m en ce d in 21 thi s c as e is anythi ng ot he r th an the dr ill ing of ane ww el l. W e the re fo re f ind a ny 22 distin ction that Echo attem pts to d rawbetwee n the term s to be unp ersuasive.

16 1 Ec ho in this case m ight b e fr om actual drilling. W e instead believe the corre ct 9 2 s t a n d a r dt o b e ap p l i e di n t h i s c a s e , mo r e r e a s o n ab l y d r a w n f r o m Jo hnso n , is that 3 u n d e rt a k i n g me a n i n g f

u l o n - s i t e a c t i o n s a n c i l l a ry t o a c tu a l d r i l l i n g c a n , u n d e r s o me 4 circum stances, am ou n t to comm encem ent, but each c ase re quires an indiv idual 5 an al y si s o f th e act io ns tak en by the pro po se d d ril le r. Fo r th e reas on s th at fo ll ow, we 6 do no t regard the facts and circum stances in this case as such that Echo’ s actions can 7 be ch arac te riz edas “ co m m en cem en t” as r eq ui redby the JOA. 8 { 26} While the facts of this case are only som ew hat sim ilar to those of Jo hnso n , they 9 are very sim ilar to the facts of V ale nc e O pe rat ing Co

. v. A nada rk

o P etrol eu m Co rp. , 10 303 S. W
. 3d 4 35 ( T ex . App. 201 0)
. E ch o di spara ge s Valence , insinua t i n g that 11 Ne arbu rg

did not agree with its analy sis and that this Court rej ects Te xas oil and gas 12 lawde ci sio ns. W e not e thr ee pr obl em s w ithE ch o’ s c ont en tio n. F ir st, the quo ta tio n 13 Ec ho uses (“ W e do not agree w ith the [Te xas] Court’ s an al ysi s[.] ”) substitut ed 14 “ T ex as ” fo r the tr

ue c as e ci te d (

H am ilton v . T

ex as O il & G as C

orp. , 648 S. W
. 2d 3 16 15 (T ex . App. 198 2) ). N ow he re in Ne arbu rg is Va lence cit ed
. Se e Ne arbu rg , 199 7-17

1 N MC A -0 69, ¶ 10. Se co nd, al tho ugh E ch o does not thi nk tha t P et er

son m ak es se nse 2 in tod ay ’ s w or ld, as w e poi nte d out ab ove , thi s Co urt re lie d in Jo hnso n on the very 3 Te x a s c a s e Ec h o d i d n o t c i t e , n a mel y H am ilton , fo r the standard

of c om m en ce m en t 4 th at it en un ci at ed . Last , Ne arbu rg ha d no thi ng a t a ll to d o w ithw ha t a ct ion s f ulf ill the 5 co m m en ce m en t c lause . Whil e w e re al iz e E ch o’ s ne ed to em pha siz e the qua lity

of it s 6 “ba ck -ro o m” p r e p a r a t i o n
— p r e p a r a t i o n s s p e c i f

i c a l l y re je c t e db y Valence as su ffici ent 7 to f ind “ co m m en ce m en t” of

dr ill ing ope ratio ns—the se ge ne ric an d in ap posi te 8 quot at ion s are m isl ea din g. E ch o’ s ar gum en t tha t “ nothin g” in Jo hnso n indicates that 9 Ec ho’s e fforts should n ot be consid ered t he com m encem ent of operations is belied 10 by the f ac t t ha t whi le th e ope rator s in Jo hnso n a nd i n Valence obt ai ne d ape rm it to 11 dr il l, Ech o n ev er d id
. Valence i s s p e c i f i c ab o u t t h e e f

f e c t o f r e l yi n g o n “b a c k

- r o o m” 12 pr ep ar at or

y a ct ivi ty to subs tit

ute f or f ai lur e to e nga ge in on-si te pr ep ar at ion s to 13 co m m en ce dr ill ing aw el l. 303 S
. W
. 3d a t 44 1. I t do es not c onst itu te the 14 “ co m m en ce m en t” of

dr ill ing a ct ivi tie s. 15 { 27} In Valence , the T ex as c ourt of appea ls w as a ske d to int er pr et anon -c onse nt 16 pr ovi sio n inaj oin t op er at ing ag re em en t tha t wa s virtua lly ide nti ca l to the one in thi s 17 cas e. Id

. a t 43 8- 39. T ha t no n- co nse nt p ro vis ionse t f orth the sa m e tim e pe ri od f or 18 Valence , the non- ope rator , to “ ac tua lly c om m en ce w ork onthe pr opos ed ope ratio n” 19 as Echo ha d u nd er t he JOA h ere. Id

. at 439-40 (internal quo ta t i on m arks om itted).18

1 D ur ing the r el ev an t t im e pe ri od, the ap pe llant obt ai ne d a top ogr ap hic m ap of the w el l 2 loc at ion s and a

pr el im inary lis t of

ins tr um en ts, stake d th e w el l l oc at ion , he ld m ee tin gs 3 re gard ing howto bui ld o n th e w el l l oc at ion , pr ep are d c ost e sti m at es , a nd g ot the 4 n e c e s s a ry

dri ll in g p erm it s. Id

. a t 44 0. A ll oth er

w ork, inc lud ing bui ldi ng r oa ds, 5 re stakin g th e w el l loc at ion , sig nin g dr ill ing co ntr ac ts, an d ac tua l dr ill ing , w er e done 6 ou ts id e o f th e ti m e pe rio d pr es cri be d by t he joi nt op erat in g a gr eem en t. Id

. The Te xas 7 co urt a cknow le dge d th at a ct ua l dr ill ing is not ne ce ssary to co m ply w itha n ob lig at ion 8 to c om m en ce dr ill ing ope ratio ns and p re pa rator y a ct ivi tie s are usu al ly

suf fi ci en t i n 9 th atreg ard
. Id

. It w ent on, however , to char acter ize the appellant’ s ac t ivities as 10 “ back[-] room p re p aration s,” noting that no on-site activity except that prelim inary 11 s t ak i n g had occurred, and concluded th at such prelim inary activities alone wer e 12 ins uf fi ci en t t o c onst itu te the a ct ua l c om m en ce m en t of w ork unde r the j oin t op er at ing 13 ag reem en t as a m at te r of law. Id

. a t 44 1. 14 { 28} T he f

ac ts o f thi s c as e ar e m

uc h th e sa m e as tho se pr es en te d in Valence , e xc ep t 15 tha t r athe r than ob ta in the ne ce ssary dr ill ing pe rm its pr ior

to the e xpi ratio n of

the 16 de ad lin e, E ch o si gne d adr ill ing c ontra ct ins te ad an d a

ppl ie d f or ape rm it in the 17 w an ing day s of

the 120 -d ay

pe ri od. N ei the r ca se co nta ins fa ct s in whic h any on- sit e 18 ac tiv ity

oc curr ed , oth er

than pr el im inary

stakin g. I n Valence , the non- ope rator at le as t 19 obt ai ne d dr ill ing pe rm its f or a ll w el ls pr ior to the e xpi ratio n of the de ad lin e, m ak ing19

1 it at le as t po ssi ble that dr ill ing c oul d take pla ce . W e fin d th e rea soni ng i n th at c as e 2 pe rs ua siv e an d c onsi ste nt w ith Jo hnso n . 3 { 29} It

appe ar s that the dis tr ic t cour t r ea d th e langua ge in Jo hnso n qui te li te ra lly to 4 hol d th at anyactivity

is suffici e nt

t o constit ute com

m encem ent; a standard with w hich 5 we disagree. The lack of any on-site activity during th e 120-day period in this case, 6 as a m at te r of law , c an not sup port su m

m ar y j udgm en t ba se d up on E ch o havin g 7 “ co m m en ce d” dr ill ing ope ratio ns. “ Ba ck -r oom ” pr ep ar at ion s, en gin ee ri ng p lans, a nd 8 es pe ci al ly

obt ai nin g dr ill ing pe rm its a re im portant, but

the e m pha sis of ti m e lim its in 9 the JO A is to t im el y

und er ta ke the pr oc es s by

w hic h a w el l i s sp ud, w hic h is a 10 phy sical event occurring on the well site. Allow ing “ any ” p reparations to count as 11 co m m en ce m ent of dr ill ing , how ev er r em ove d th ose a ct ion s are f ro m on- sit e 12 pr ep ar at ion s f

or dr ill ing , is a m ist ak e. W e ins te ad be lie ve the c or

re ct standard to be 1 3 ap p l i e di n t h i s c a s e , d r a w n f r o m Jo hnso n and other authorities cited abov e, is that 14 undertaking on-site actions that m ay be ancillary to a ctual drilling , to an extent that 15 m eanin gf

ull y de m onstrate s adil ige nt i nte nt t o un de rt ak e actua l dr ill ing w ith in the 1 6 t i m e l i m i t o f t h e co m

m en ce m en t cl au s e, wi l l b e s at i s fa ct o ry t o fu l fi l l t h e o p er at o r’s 17 obl iga tio ns. F urthe r, und er m ost c ir cu m stanc es that m eanin gf ul pro gr es s w oul d a lso 18 include havin g a d rilling perm it in hand. Bythis m easure, the fac ts and circum stances 19 in this c as e ar e not suc h that E ch o’ s ac tio ns c anbe c ha ra ct er iz ed a s “ co m m en ce m en t”20

1 as r equir ed

by the JO A , an d in de ed

the y f ai l a s am atte r of

law . W e ac co rd ing ly 2 re ve rs e the sum

m ar y j udgm en t gr an te d by

the dis tr ic t c ourt, a nd r em an d f or e ntr y of 3 sum m ar y j udgm en t f

or E ndur o onit s m ot io n that m ai nta ine d E ch o ha d no t 4 co m m en ce d dr ill ing ope ratio ns a s r equir ed
. 5 B. At torney’s F ees 6 { 30} E ndur o a lso r ai se s is sue s onappe al pe rt ai nin g to the dis tr ic t cour t’ s aw ar d of 7 attor ne y ’ s f ee s. Be ca use our dis posi tio n of

the iss ue s a

bove a lte rs the gr ound s on 8 which attorney ’ s fees w ere aw arded, we decline to address the issue of attorney ’ s fees 9 in this appe al
. 10 III. CON CLU SION 11 { 31} H av ing de term in ed tha t the dis tr ic t c ourt m isi nte rp re te d Jo hnso n to reac h an 12 incorrect r esult, and that Ec ho’s progress to “ actual comm encem ent” o f drilling was 13 insufficient as a m atter of law to satisfy the JOA ’ s requirem ents, w e conclude that 1 4 ju d g m en tas a mat t ero f l aw wa s p ro p er , b u tt h at En du ro i s t h e p re v ai l i n g p ar t y. W e 15 the re fo re r ev er se the dis tr ic t c ourt and r em an d fo r furthe r pr oc ee din gs c onsi ste nt w ith 16 thi s op ini on. 17 { 32} IT IS S O ORDERE D.
18 19 R OD ERIC K T . KE N N ED Y , Ju dg e21

1 WE CO NCUR:
2

____ ____ ____ ____ ____ ____ ____ ____ __ 3 LI N D A M . V A N Z I, Ju dg e
4

____ ____ ____ ____ ____ ____ ____ ____ __ 5 J. M IL ES HA N IS EE , Ju dg e