In this case the Supreme Court will be asked to decide if the Circuit Court of Ritchie County (Judge Sweeney) improperly granted summary judgment to Ms. Welch and awarded partial rescission of an oil and gas lease held by CNX. The Court may also consider issues relating to the scope of Supreme Court mandates following remand as well as the duties of oil and gas operators to reasonably develop and drill leaseholds.
The Petitioner, CNX, appeals a Circuit Court decision which granted Mary Maxine Welch partial rescission of an oil and gas leasehold held by CNX relating to 850 acres in Ritchie County. This is actually the second time that this case has come before the Supreme Court. Previously, in St. Luke’s United Methodist Church, et al. v. CNG Development Co., 222 W.Va. 185, 663 S.E.2d 639 (2008) the Supreme Court reversed a 2006 trial court ruling which dismissed allegations in an amended complaint seeking partial rescission of the leasehold for failure to reasonably develop the oil and gas interests. The Supreme Court provided that “[o]n remand to the trial court, a reasonable period of time should be established to provide for . . . additional development efforts[.]” The opinion further stated that “[i]f the trial court finds that no significant additional development efforts have been pursued . . . at the conclusion of such reasonable period of time, then the trial court should proceed to take evidence on the issue of whether . . . the implied covenant of further development [has been breached] or whether evidence can be produced on the issue of undue hardship.” The operator also had “the option of foregoing any additional development of the lease tract should it no longer be interested in pursuing the same.” The scope of the mandate on remand and the actions of the parties and the trial court thereafter are at issue here. Upon remand following the 2008 decision, an Agreed Order was entered which set a “drilling plan” for the development of the acreage at issue. The “drilling plan” provided for the drilling of 11 total wells on the property through 2011. Eight of the eleven proposed wells were drilled whereupon CNX ceased drilling operations and filed a Notice of Modification of Drilling Plan by CNX Gas Company, LLC. CNX relied upon changes in economic circumstances as justification for its “suspension” of the drilling plan.
The Respondent filed an amended pleading and reasserted her rescission claims based upon CNX’s decision to suspend the drilling plan. The Trial Court found that the Agreed Order setting forth the proposed drilling plan following remand “supplanted CNX’s implied obligation to develop the [leasehold] as a reasonably prudent operator.” Trial Court Order at ¶4. “By electing, in its discretion, not to further develop the [lease] pursuant to the Agreed Order, CNX has exercised its option to forego any additional development of the leased tract[.]” Id. at ¶5The Trial Court found that “CNX should give up the leased area that is not currently producing oil or gas to allow another entity to engage in exploration and development efforts on the currently undeveloped port of the . . . lease.” Id. at ¶6.
CNX asserts that the trial court below improperly permitted pleadings and considered matters beyond the scope of the mandate issued upon remand of this case following the first appeal. CNX asserts that it complied with the provision of the Agreed Order entered following remand and had the authority to provide notice of the suspension of the drilling plan contained in that order. CNX asserts that the Agreed Order was not a contract which supplanted its duties to reasonably develop the property. CNX asserts that Ms. Welch’s actions in seeking to amend her complaint to seek additional rescission arguments was beyond the scope of the mandate and that the trial court erred in considering those pleadings and arguments in awarding summary judgment and partially rescinding CNX’s leasehold as to the undeveloped acreage.
Ms. Welch asserts that CNX terminated the drilling plan as provided for in the Agreed Order following remand when it “suspended” drilling and failed to drill any additional wells in 2012. As such, CNX exercised its rights to forego any additional development as contemplated by the Supreme Court’s prior opinion when it “unilaterally” modified the drilling plan set forth in the Agreed Order. To the extent that any of the procedures following remand did not comply with the mandate, Mrs. Welch asserts that CNX initiated any such failures when it proposed and authored the Agreed Order that was entered by the trial court.
Any current case with implications in the area of oil and gas rights, duties and obligations is important given the changing landscape of the current oil and natural gas development in West Virginia. The Court could have the opportunity to discuss the duties that oil and gas operators/lessees have to reasonably develop and to continue development of leasehold estates. Conversely, the Court has in recent years taken more seriously the scope of its mandates and the conduct of the trial courts and parties on remand. Either way, the case may provide additional guidance on one or more important fronts.