7 BEFORE THE CORPORATION COMMISSION OF THE STATE OF OK j, REPLACEMENT F~~~~~ E D ON Mai 1 7 2ao~ F I LED / RECEIVED APPLICANT: CHESAPEAKE OPERATING, INC. AND CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP MAY 1 8 20F RELIEF SOUGHT: POOLING COURT CLERK'S OFFICE - OKC CORPORATION COMMISSION LEGAL DESCRIPTION: SECTION 2, TOWNSHIP ) CAUSE CD N9. 9~~~ 1 11 NORTH, RANGE 24 WEST, ROGER MILLS ) COUNTY, OKLAHOMA ) MOTION TO DISMISS AND/OR CONT INUE COMES NOW JMA Energy Company, LLC ("JMA"), and moves that the referenced Motion for Determination of Well Costs under Pooling Order No. 480263 be dismissed or continued for the following reasons : The Commiss ion Does Not Have Subject Matter Jurisidiction To Reso lve The Dispute With The Respondent The Application states on its face that there is a "disagreement between Chesapeake and JMA Energy Company, L.L.C. as to certain completion costs associated with the Whitledge 3-2H Well drilled on the unit." [Application, 3]. However, Chesapeake mischaracterizes the dispute currently between the parties as a question of the reasonableness of costs associated with the completion of the Whitledge 3-2H Well drilled on the unit (the "Well"). The dispute to which Chesapeake refers does not involve the reasonableness of costs which otherwise would be within the purview of the Commission's jurisdiction. Rather, the dispute is about Chesapeake's conduct during the completion of the Well which resulted in costs being incurred by the non-operating working interest owners in the Well which, but for Chesapeake's misconduct, would not have been incurred. That precise issue is before the State District Court of Roger Mills County in the case of Yukon Trading Company, L. L. C., et al v. Chesapeake Exploration Limited Partnership and Chesapeake Operating, Inc., Case No. CJ-2006-23 (the "State Court Damage Action"). In the State Court Damage Action, the Plaintiffs [Yukon Trading Company, L.L.C., ABC Energy Company, L.L.C., Blackstone Investments, L.L.C. and Zephyr Resources, L.L.C., which are the successors in interest of the working interest in the well of record in JMA Energy Company, L.L.C. ("JMA")], allege, as non-operating working interest owners in the Well, that Chesapeake Exploration Limited Partnership and Chesapeake Operating, Inc. (collectively "Chesapeake"), as operator of the Well : (a) began a multi-stage completion attempt of the Well ; and (b) during the completion process, knowingly and intentionally allowed the pumping pressure of the Well to substantially exceed the maximum prudent pressure for the liner then being utilized by Chesapeake. As a result of Chesapeake's conduct, the liner burst and/or failed, and the Plaintiffs sustained damages. The Plaintiffs allege that Chesapeake's actions and inactions constitute negligence and are sufficient to give rise not only to actual damages but also to punitive damages. A copy of the Petition in the State Court Damage Case is attached as Exhibit "" as a part hereof. Chesapeake's Answer (attached as Exhibit "_" as a part hereof) admits the Plaintiffs are owners in the Well (Petition 4 ; Answer 4). The current dispute which Chesapeake asserts as the basis for its Application herein thus involves not whether the costs incurred by Chesapeake to restore the Well to its status before the liner burst and/or failed were "reasonable", but rather whether those costs would have been incurred but for Chesapeake's misconduct and, if not, whether Chesapeake or the Plaintiffs should bear those costs and, if the Plaintiffs are entitled to recover those costs, whether the Plaintiffs also are entitled to punitive damages. In other words, Chesapeake has taken what is, in reality, a "damages" dispute and called it a "reasonableness of costs" dispute in order to invoke this Commission's jurisdiction. The real issues in the "dispute" at hand are the nature and extent of Chesapeake's duties as an operator under a Pooling Order and the existence and extent of Chesapeake's liability for the breach of such duties. The law is settled that the Commission has no subject matter jurisdiction to entertain such a dispute for damages since it is a matter of private rights beyond the purview of the Commission's jurisdiction. In Samson Resources Co. v. Corporation Commission, 1985 OK 31, 702 P.2d 19, the Oklahoma Supreme Court held :
APPLICANT: CHESAPEAKE OPERATING, INC. AND CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP CAUSE CD NO. : 20030442 1 PAGE TWO "We have previously held that the status of unit operator confers a duty to operate the leaseholds as a unit and to safeguard the correlative rights of the various interest holders. Therefore, just as a mineral lessor has a right to enforce a lessee's implied covenant to develop a lease as a prudent operator, which includes a duty to protect against drainage by the lessee's other operations, an interest holder in a unitized section has a right to enforce the unit operator's duty to conduct operations as a prudent operator. However, the type of questions presented in an action of this nature; the relationship of the parties ; their duties; their rights and obligations ; and the existence of liability for the breach of such duties, are matters particularly with the province of the district courts. As the Commission lacks the power to entertain a suit for damages, the seeking of relief in that forum would be not efficacious." Id. at 3. It is clear that Chesapeake's attempt to characterize this "dispute" as one involving the reasonableness of costs is a thinly veiled attempt to circumvent the jurisdiction of the State Court in the State Court Damage Action. Chesapeake's Application should be dismissed and the issues left to resolution in the proper forum - the State District Court. 2. The Application Should Be Continued Until Such Time As It Can Be Prosecuted Again st The Real Parties In Interest The Application states on its face that there is a "disagreement between Chesapeake and [JMA] as to certain completion costs associated with the [Well]." [Application, 3]. The Affidavit of Mailing filed herein on November 6, 2005 states that the Application and the Notice of Hearing thereon were mailed to the parties listed on Exhibit "A" attached, which included the Respondent, JMA, but did not include Yukon Trading Company, L.L.C. ("Yukon"), or ABC Energy Company, L.L.C. ("ABC"), or Blackstone Investments, L.L.C. ("Blackstone") or Zephyr Resources, L.L.C. ("Zephyr") [Yukon, ABC, Blackstone and Zephyr collectively referenced herein as "Other Owners"]. The evidence will show conclusively that the Other Owners are the owners of all of the rights to drill of record in the name of JMA. The evidence will show conclusively that the Other Owners have paid the costs attributable to such interest and are the true and actual owners with respect to the costs billed by Chesapeake for the Well. It is the settled policy of the Oklahoma Courts that any case should be prosecuted in the name of the real party in interest. The seminal decision on the issue is Stinchcomb v. Patterson, 1917 OK 446, 167 P. 619. Stinchcomb established the Oklahoma test as to whether a party was the real party in interest : "The test of whether one is the real party in suit is, Does he satisfy the call for the person who has the right to control and receive the fruits of the litigation? The rule is stated in a recent ably written work thus: `The real party in interest, within the meaning of the provision of the Code, is the person who will be entitled to the benefits of the action if successful ; one who is actually and substantially interested in the subject-matter, as distinguished from one who has only a nominal, formal, or technical interest in or connection with it. '"[Emphasis supplied]. Stinchcomb v. Patterson, T 7 ; 167 P. at Code of Civil Procedure, 2017.. This rule has been carried forward in the Oklahoma Consequently, subject to the other relief requested herein, the Application should be dismissed, or in the alternative continued, until such time as Chesapeake gives proper notice to the Other Owners and with whom the alleged "dispute" really exists. Respectfully submitted, By : HELM & ON~ ~ - -=-----~. CHARLES L. HELM (OBA #4059 ) 105 NORTH HUDSON HIGHTOWER BUILDING, SUITE 700 OKLAHOMA CITY, OKLAHOMA 73102 (405) 232-900 0 ATTORNEY FOR JMA ENERGY COMPANY, LLC
APPLICANT: CHESAPEAKE OPERATING, INC. AND CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP CAUSE CD NO. : 20030442 1 PAGE THREE CERTIFICATE OF MAILIN G This is to certify that a true and correct copy of the above and foregoing Motion to Dismiss and/or Continue mailed by regular U.S. Mail, with postage fully pre-paid, on the 17th day of May, 2007, to the following : Elias, Books, Brown & Nelson, PC Mr. Richard K. Book s Two Leadership Square 211 North Robinson, Suite 1300 Oklahoma City, Oklahoma 73102-711 4 Averex Inc. P.O. Box 52305 Lafayette, LA 7050 5 Axiom LLC P.O. Box 3430 Edmond, OK 73083-343 0 Axis Exploration LLC Bank IV Building 15 W. 61" Street #2350 Tulsa, OK 74119-541 5 Dale Folks, Trustee of the Dale Folks 1986 Revocable Trust P.O. Box 343 0 Edmond, OK 73083-3430 Dale Folks LLC P.O. Box 343 0 Edmond, OK 73083-3430 Darko Minerals Ltd. 6200 Desert Moon Loop Tucson, AZ 8575 0 David P. Folks P.O. Box 219 8 Edmond, OK 73083-219 8 J. Hiram Moore Ltd. P.O. Box 910196 Dallas, TX 75391-019 6 JMA Energy Company LLC 1021 N.W. Grand Blvd. Oklahoma City, OK 7311 8 Larry O. Hulsey & Co. P.O. Box 1143 Graham, TX 7645 0 TLW Investments Inc. P.O. Box 5452 5 Oklahoma City, OK 73154-152 5 Walter Duncan Oil, L.P. 100 Park Avenue, Suite 1200 Oklahoma City, OK 73102 ~ --t ~ \ CHARLES L. HELM
IN THE DISTRICT COURT OF ROGER MILLS COUNTY STATE OF OKLAHOM A YUKON TRADING COMPANY, L.L.C., ABC ENERGY COMPANY, L.L.C., BLACKSTONE INVESTMENTS, L.L.C. and ZEPHYR RESO URCES, L.L.C. V. Plaintiffs, Case No. -P,- ~~~ 6Z3 CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP and CHESAPEAKE OPERATING, INC. Defendants. FILED NOV - 9 200 6 PETITION COURT CLERK ROGER MILLS COUNTY pfr Plaintiffs Yukon Trading Company, L.L.C., ABC Energy Company, L.L.C., Blackstone Investments, L.L.C., and Zephyr Resources, L.L.C. (hereinafter collectively referred to as "Plaintiffs"), for their claims and causes of action against Defendants Chesapeake Exploratio n Limited Partnership and Chesapeake Operating, Inc. (hereinafter collectively referred to a s "Chesapeake"), allege and state as follows : 1. Plaintiffs are limited liability companies formed under the laws of the State of. Oklahoma with their principal places of business located in Oklahoma. 2. Chesapeake Exploration Limited Partnership is a limited partnership formed under the laws of the State of Oklahoma with its principal place of business located in Oklahoma. 3. Chesapeake Operating, Inc. is a corporation formed under the laws of the State of Oklahoma with its principal place of business located in Oklahoma.
, 4. Plaintiffs own oil and gas leasehold interests in Section 2, Township 11N, Rang e 24W, Roger Mills County, Oklahoma ("Section 2"). 5. The Oklahoma Corporation Commission ("OCC") has issued an Order creating a drilling and spacing unit for the Cherokee common source of supply underlying Section 2. On September 11, 2003, the OCC issued Order Number 480263 pooling the oil and gas rights and interest in various common sources of supply, including the Cherokee, underlying Section 2. Further, the Order designated Chesapeake as the operator of the unit. 6. As the operator of the above-described unit, Chesapeake proposed the drilling of a well in Section 2 to be known as the Whitledge No. 3-2H Well (the "Well"). The Well was to b e drilled to the Cherokee common source of supply. Plaintiffs are non-operating working interest owners in the Well. 7. Chesapeake began drilling the Well in October, 2005. In conjunction with its drilling operations, Chesapeake utilized a liner in the Well. 8. In January, 2006, Chesapeake began a multi-stage completion attempt of th e Well. During the completion process, Chesapeake knowingly and intentionally allowed the pumping pressure of the Well to substantially exceed the maximum prudent pressure for the line r then being utilized by Chesapeake. Consequently, the liner burst and/or failed. Plaintiffs sustained damages as a result thereof. 9. Chesapeake was fully aware of the maximum prudent pressure for the liner bein g utilized by Chesapeake in the drilling of the Well. Notwithstanding, Chesapeake knowingly an d intentionally allowed the pressure on the Well to substantially exceed the maximum prudent pressure for the liner. Chesapeake's actions and inactions in this regard constitute negligence. 2
10. Chesapeake's actions and inactions in this matter were intentional, reckless and i n total disregard of Plaintiffs' rights. As such, to punish Chesapeake and to deter the same or similar conduct in the future, punitive damages should be assessed against Chesapeake. Premises considered, Plaintiffs respectfully request that Judgment be entered in thi s matter in favor of Plaintiffs in an amount in excess of Ten Thousand Dollars ($10,000.00), together with prejudgment and post judgment interest, that punitive damages be assessed against Chesapeake, that Plaintiffs be awarded their costs incurred in this matter, including a reasonable attorneys' fee to the extent authorized by law, and that Plaintiffs be awarded such other and further relief, both legal and equitable, to which they may be entitled. Respectfully submitted, NA ~ /\,- ROBER. CC HEON, OBA #5945 MICHAE. MASSAD, OBA #1141 7 1021 NORTHWEST GRAND BLVD. OKLAHOMA CITY, OKLAHOMA 73118 TELEPHONE: (405) 947-4322 FACSIMILE: (405) 942-1976 ATTORNEYS FOR PLAINTIFF S 3
IN THE DISTRICT COURT OF ROGER MILLS COUNTY STATE OF OICLAHOMA YUKON TRADING COMPANY, L.L.C., ) ABC ENERGY COMPANY, L.L.C., } BLACKSTONE INVESTMENTS, L.L.C. and ZEPHYR RESOURCES, L.L.C. } Plaintiffs, V. Case No. CJ-2006-2 3 CHESAPEAKE EXPLORATION ) LIMITED PARTNERSHIP and ) CHESAPEAKE OPERATING, INC. } ) Defendants. ) ANSWER (Chesapeake Exploration Limited Partnership and Chesapeake Operating, Inc.) COMES NOW the Defendants, Chesapeake Exploration Limited Partnership and Chesapeake Operating, Inc., (hereinafter collectively referred to as "Chesapeake"), and for their answer to the Plaintiffs' Petition allege and state : Any allegations not specifically admitted herein are denied and strict proof thereof is hereby demanded. 1. Chesapeake is unaware of the truth of the facts set out in Paragraph 1 and therefore, deny. 2. Admitted. 3. Admitted. 4. Admitted. 5. Admitted. 6. Admitted. 1
} 7. Admitted. 8. Denied. 9. Denied. 10. Denied..AFFIRMATIVE DEFENSES 11. Chesapeake asserts the following affirmative defenses : 1) Failure to state a claim for relief ; 2) Action pending in another jurisdiction ; 3) Waiver ; 4) Estoppel. 12. Chesapeake reserves the right to amend and supplement its answer and the right t o assert additional affirmative defenses as discovered during the pendency of this action. WHEREFORE, Chesapeake Exploration Limited Partnership, and Chesapeak e Operating, Inc, pray that the Court deny Plaintiffs their requested relief and grant Defendant s recovery of their costs, attorney fees, and such other relief as the Court deems appropriate. Respectfully submitted, Robert N. Barnes, OBA #537 Patranell Britten Lewis, OBA #12279 BARNES & LE7!?c _LT p 701 N.W. 63rd Street, Suite 500 Oklahoma City, OK 73116 (405) 843-036 3 (405) 843-0790 FAX rbames(u7barneslewis.com nlewisna,barneslewi s. com AND 2
Fred Gipson, OBA #14236 Chesapeake Energy Corporation 6100 N. Western Avenue Oklahoma City, OK 73118 (405) 879-934 6 (405) 879-9531 fgipson cr,chlcenergy.com ATTORNEYS FOR DEFEhrD.9NTS CHESAPEAKE EXFLORATIONLIMITED PARTNERSHIPAND CHESAPEAKE UPERATING, ING 3
CERTIFICATE OF SERVIC'E, This is to certify that a true and correct copy of the above and foregoing was mailed, faxed, or emailed, this 19 i day of December, 2006, to the following counsel of record : Robert D. McCutcheon Michael J. Massa d 1021 Northwest Grand Blvd. Oklahoma City, Oklahoma 73118 AT?'ORNEYS FOR PLAfNTIFFS 62 Patranell Britten Lewi s 4