United States District Court, D. New Mexico
THE ANDERSON LIVING TRUST f/k/a THE JAMES H. ANDERSON LIVING TRUST, et al., Plaintiffs,
ENERGEN RESOURCES CORPORATION, Defendant.
MEMORANDUM OPINION AND ORDER
MATTER comes before the Court upon a Motion for Summary
Judgment on the Colorado Plaintiff's Fourth Claim for
Relief (Doc. 215), filed on February 28,
2019 by Defendant Energen Resources Corporation (âDefendantâ
case concerns the calculation and payment of royalties on
natural gas produced from wells located in northern New
Mexico and southern Colorado within the geologic formation
known as the San Juan Basin. The New Mexico Plaintiffs
(Anderson Living Trust, Pritchett Living Trust and
Neely-Robertson Revocable Family Trust) own interests only in
wells located in New Mexico. Plaintiff Tatum Living Trust
(“Tatum Trust”) owns interests in wells located
in Colorado. Defendant Energen Resources Corporation
(“Defendant” or “Energen”) is the
owner and operator of the natural gas wells on the oil and
gas leases at issue in this lawsuit.
the issues related to the claims in this case have been
briefed and addressed by the Court. Docs. 175, 177.
Plaintiffs appealed the Court's adverse rulings and the
Tenth Circuit Court of Appeals affirmed in part and reversed
in part. See Anderson Living Tr. v. Energen Res.
Corp., 886 F.3d 826, 847 (10th Cir., Mar. 2,
2018). As a result of the Court's rulings on
claims asserted by the other New Mexico Plaintiffs which have
been affirmed by the Tenth Circuit, the only remaining New
Mexico Plaintiff is the Neely-Robertson Revocable Family
Trust (“N-R Trust”). See Doc. 194 at 3
& 5 (table); Doc. 198 at 4, 6.
motion, Defendant seeks dismissal of a claim for
“Breach of the Duty to Market Hydrocarbons-Colorado,
” asserted by the sole Colorado Plaintiff in this case.
See Sec. Am. Compl. (“SAC”), Doc. 70 at
¶¶59-63. This particular claim has never been
briefed by the parties or otherwise addressed by the Court.
See Doc. 207 at 5.
Fourth Claim for Relief, Plaintiff Tatum Trust asserts that
Energen failed to comply with its obligation to bear all
costs associated with placing the natural gas produced from
the subject wells located in the State of Colorado in
marketable condition, according to the “marketable
condition rule” followed by Colorado. See Doc.
70 (SAC), ¶63. In Garman v. Conoco, Inc., the
Colorado Supreme Court held that, “absent an assignment
provision to the contrary, ” all costs incurred to make
the gas marketable must be borne entirely by the lessee and
are not deductible from royalty payments. 886 P.2d 653, 654
(Colo. 1994). This means that the producer (or lessee) must
bear the expenses incurred in order for the gas to reach
marketable condition. See Cont'l Potash, Inc. v.
Freeport-McMoran, Inc., 115 N.M. 690 (1993); Rogers
v. Westerman Farm Co., 29 P.3d 887 (Colo. 2001) (the
implied duty to market obligates a producer to bear
“the expense of getting the product to a marketable
condition and location”). In this case, the Tatum Trust
lease expressly addresses the allocation of
post-production costs between the Tatum Trust and Energen:
Lessor shall not bear, directly or indirectly, any production
or post-production cost or expenses, including without
limitation, cost or expenses for storing, separating,
dehydrating, transporting, compressing, treating, gathering,
or otherwise rendering marketable or marketing the Products,
and no deduction or reduction shall be made for any such
costs and expenses in computing any payment, or the basis
upon which any payment is, to be made to Lessor pursuant to
clauses (a), (b) or (c).
Doc. 215-1 (Ex. A, for leases dated Dec. 15, 2000 and Dec. 1,
2003). In addition, the Tenth Circuit recognized that the
Tatum Trust leases expressly provide for the allocation of
post-production costs and royalties on volumes of gas and
liquids not sold by Energen, such as gas used as fuel
(Plaintiff's fuel gas claims) and drip condensate. Doc.
177 at 4; see Anderson Living Trust, 886 F.3d at
Colorado prohibits oil and gas well operators like Energen
from deducting from the royalty payment the costs necessary
to render the gas marketable, unless the lease provides
otherwise. See Garman, 886 P.2d at 653-54, 659-60.
These leases do not provide otherwise; in fact, they
explicitly prohibit Energen from deducting post-production
costs from the Trust's royalty.
Anderson Living Trust, 886 F.3d at 848 (emphasis
Fourth Cause of Action refers to the lease provisions,
See Doc. 70 at 60 (“Under the terms of the oil
and gas leases and other documents creating the
Plaintiffs' interest. . . Energen has a duty and covenant
to market production to the mutual advantage of [the
parties]”). It asks the Court to find that
“Energen owes an implied duty to market under the terms
of the subject Colorado leases” to Plaintiffs. Doc. 70,
contends that the implied duty to market has no bearing on
the proper calculation of royalties paid to the Tatum Trust
because the leases contain express language which allocates
post-production costs to Energen, and this language
eliminates the need for Plaintiff to rely on the
“marketable condition rule.” As a result,