Bad Faith Lease Violation

Can anyone explain who gave Newfield or the operator the right to violate the terms of the lease contract ? Summary of the Facts:

It has taken me awhile to verify the facts surrounding the breach of contract in Sec 36 15N 9W in Kingfisher County. Here’s what I currently understand has taken place from 2017 until today.

  1. My mother’s 1977 lease was fulfilled by Phillips Petroleum on 2/19/1996 after completing 4 wells, one per quarter, as to the density of one well per 160 acres, as per lease terms and understanding of 1977 vertical leases. The Alig Unit production unit was transferred to Newfield in 2001.

  2. Newfield made an application to the commission to drill another well–a 640-acre oil spaced well–despite limitation in the lease to 160-acre oil spacing. Newfield was notified of this conflict and then pulled it back and filed for increased density well using old 640-gas spacing knowing they were drilling an oil well. Newfield willfully, knowingly, in bad faith and gamesmanship violated terms and conditions of said 1977 lease. In May 2017 Newfield was first notified of the conflict with my lease in a long line attempts to resolve the dispute.

3.After protest as to the 640 spacing Newfield dismissed commission order 664222 . Newfield willfully, knowingly, in bad faith and gamesmanship filed Application to Increase Density and established a new 640 acre gas drilling unit knowing they were drilling for oil, in direct violation of spacing clause to avoid a new lease, to their financial advantage and harming and diluting my mineral estate.

Paragraph 6 of my lease States, “In order to properly develop and operate said lease premises so as to promote conservation of oil, gas and other minerals in and under that may be produced from said premises or in order to obtain larger production allowable from any government having control over such matters, however, such pooling to be of tracts contiguous to one another and to be into a unit or units NOT exceeding 160 acres each in the event of an oil well, or into a unit or units not exceeding 640 acres each in the event of a gas well."

  1. Newfield willfully, knowingly in bad faith mislead royalty owners and the Corp. Commission with an Application to Increase Density using a 1980 gas spacing order 164538 to establish the new 640 acre drilling unit named the “Katie Lease” for their planned oil well 1509 1H-36. Newfield’s new drilling unit has never been spaced for oil nor did Newfield pool the leases outside their new unit. From my view Newfield should either rely on the lease and the agreed to 160 acre voluntary oil spacing or obtain new horizontal leases.

OTC Gross Production PUN #: 073-223182-0-0000 Legal Description: -AL-36-15N-09W Lease Name: KATIE API: 073-25663 Well Name/Number: 1509 1H-36 County Name: Kingfisher Well Classification: Oil County Percent: 100.0000%

  1. Newfield from its own testimony presented that the Alig unit is incapable of draining all of the producible hydrocarbons which also implies the unit wasn’t able to produce in commercial paying quantities. The Alig Unit was producing until the trespass well 1509 1H-36 was drilled and completed. The truth is Newfield was afraid to allow the Alig unit to drain the section and did not want to obtain new leases. I have reasonable belief that the Alig A1-4 wells, PUN 073-062720-00000, has failed to continue producing in paying quantities. Evidence from the Oklahoma Gross Production Tax records and monthly statements do not reconcile and highly suggest that the production unit was not producing in commercial paying quantities. Furthermore, and in accordance with the Oklahoma Production Revenue Standards Act, 5.2 O.S. 570.8(G}, I made two formal requests for information furnished to the operator(s) under the PRSA and records of receipts and payments of proceeds which have occurred over the last 5 years on PUN 073-062720-00000.

  2. Newfield violated the implied covenant of Good Faith and Fair Dealing traditionally found in contracts; however, few courts have explored the issue of whether an oil and gas lease is subject to the basic implied covenant of good faith and fair dealing traditionally found in contracts.
    Newfield used 21st century technology to exploit royalty owners with antiquated vertical exploratory leases of 1977. Mineral owners were paid the bare minimum on exploratory leases which are still being held to those standards and are unable to obtain rewards of horizontal drilling and the true value of today’s leases.

Newfield’s Bad Faith and gamesmanship isn’t limited to lease violation. In fact, they have failed to respond to all my correspondence, objections, notices, request and demands. The Oklahoma Corporation Commission states, "The Commission has no jurisdiction or authority over lease disputes. Any problems or questions with regard to a leasing problem should be discussed with the person or company you leased to or with an attorney”.

“‘Good faith performance or enforcement of a contract emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party.’” Id. at ¶ 26, 839 N.E.2d 49, quoting Restatement of the Law 2d, Contracts, Section 205, Comment a (1981).

Based on the foregoing, it can be logically concluded that an oil and gas lease is a contract, and because it is a contract, an oil and gas lease is subject to the implied covenant of good faith and fair dealing. Good faith means that the effort to combine acreage must consider the interest of both the lessee and the lessor. (Amoco Prod. Co. v Alexander, 622 S.W. 2d 563, 568 (Texas 1981). The Supreme Court of Oklahoma defined Good Faith in Sapulpa Petroleum Co. v. Mc Cray as: “Good faith consists of an honest intention to abstain from taking any unconscientious advantage of another, even though forms or technicalities of the law, together with an absence of all information or belief of facts which would render the transaction unconscientious.”

The good faith standard placed upon the lessee’s exercise of the power to pool has been described as not permitting the lessee to use "the power to pool granted by the lessor in such a way as to be beneficial to the lessee while contrary to the interest of the lessor; instead, The oil and gas lease was historically seen as a transaction between two parties with unequal bargaining powers an unsophisticated farmer negotiating with an oil and gas corporation. See Merrill, The Law Relating to Covenants Implied in Oil and Gas Leases 1926 (2d Ed 1940 & Supp.1964);

It is well-established that every contract has an implied covenant of good faith and fair dealing that requires not only honesty but also reasonableness in the enforcement of the contract. PHH Mortg. Corp. v. Ramsey, 10th Dist. Franklin No. 13AP-925, 2014-Ohio-3519, ___ N.E.3d ___, ¶ 33 citing Littlejohn v. Parrish, 163 Ohio App.3d 456, 2005-Ohio-4850, 839 N.E.2d 49, ¶ 21 (1st Dist.).

Newfield first breeched the contact upon filing an application for 640 oil spacing knowing they where limited to 160 acre spacing.

The vertical lease was the understanding of the day in 1977 and was never meant to be applicable with today’s horizontal drilling.

Had the state legislature not relied on the Oklahoma Producers to write legislation it could have been possible that all horizontal wells would have been required to obtain new leases. Oklahoma has made a mockery of oil & gas contract law.

Looking for an attorney

Very interesting issues.