Opinion ID: 1158112
Heading Depth: 1
Heading Rank: 5

Heading: The Critical Question and the Parties' Contentions.

Text: The critical question we must answer is at what point in time, according to the provisions of the unit operating agreements, must the determination be made whether the consenting parties constitute a majority or minority in interest for purposes of selecting which one of the two penalty provisions shall apply to the non-consenting parties. Briefly stated, appellants contend that the majority-minority determination must be made at the commencement of the actual drilling of the exploratory well, that is, spudding in or as their counsel more colorfully phrased it during re-argument, when the drilling bit hits the dirt and the table moves right. At that precise moment in time and space, according to appellants, the consenting parties, Moncrief and Yates, as farmor Amoco's farmees, through the application of the doctrine of equitable conversion, which is more traditionally recognized in installment land sales transactions, acquired sufficient equitable interest in farmor Amoco's working interest in the 160-acre tract so as to entitle them to count that working interest as consenting for purposes of the majority-minority determination upon which the selection of penalty hinged. In the event the court does not embrace appellants' equitable conversion theory, however, appellants advance several alternative arguments why the Amoco 160-acre tract must be counted as belonging to Moncrief and Yates for voting purposes. They contend the unit agreement itself, which covers the farmout tract in question, contemplates that parties (like Moncrief and Yates) may control acreage in the Unit by independent contracts, of which a farmout agreement is a type. They also contend the unit operating agreements specify that working interests that are carried interests, of which a farmor's interest under a farmout agreement is a type, will be credited to the carrying parties, of which farmees like Moncrief and Yates are a type. Yet another alternative argument made by appellants is that applicable federal regulations demonstrate the interest acquired by Moncrief and Yates from Amoco under the farmout agreement was an interest in a federal lease. Finally, they contend Amoco assigned its federal lease to Moncrief in March 1991, albeit after the declaratory judgment action was filed, and such assignment merely confirmed the previously existing status of Moncrief and Yates as being entitled to count Amoco's working interest as consenting for purposes of the majority-minority determination. Again briefly stated, appellees reject each of the foregoing contentions. In particular, appellees' answer to the critical question is that the majority-minority determination must be made, according to the unambiguous provisions of the Supplemental UOA, before the commencement of the exploratory well's drilling operations. In this regard, they point to the provisions of the election procedure set out in the Supplemental UOA and apply those provisions to the undisputed facts surrounding Moncrief's May 31 and July 11 notifications to the parties. Under appellees' approach, since the majority-minority determination must be made before drilling operations commence, the application vel non of the doctrine of equitable conversion is a non-issue. Responding to appellants' alternative arguments, appellees present arguments addressing each one. As we shall explain, we find appellees' arguments persuasive and their positions legally correct, and, therefore, we affirm the district court's summary judgment in their favor.