Enduro Operating, LLC v. Echo Production, Inc.
34,581 34,918
| N.M. Ct. App. | Nov 21, 2016Background
- Echo (operator) circulated a joint operating agreement (A.A.P.L. Form 610-1982) proposal to drill Well 6H on Dec 1, 2010; Conoco declined and became non-consent; Enduro later acquired Conoco’s non-consent interest.
- The JOA required written notice, 30 days to elect, then the proposer must “actually commence the proposed operation and complete it with due diligence” within 90 days after the 30-day notice period (a 120-day total window).
- Echo surveyed and staked the well site (Nov 29–30, 2010) and performed permit application activity (permit received by O.C.D. on Apr 13, 2011), but had no on-site construction or heavy-equipment activity during the 120-day period (which ended Apr 2, 2011).
- Echo entered a drilling contract (Mar 14, 2011) and began pad construction and drilling after the 120-day period; it spudded May 25, 2011 and the well produced in August 2011.
- Enduro sued, alleging Echo failed to “commence” within the JOA time frame and thus should have resubmitted its proposal; district court granted summary judgment for Echo and excluded Enduro’s expert; on appeal the Court of Appeals reverses summary judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Echo “actually commence[d]” the proposed operation within the JOA’s 120-day period | Echo’s limited preparatory acts (staking, permit application, engineering, contracting) qualify as commencement; any preparatory activity suffices per Johnson | Echo: any activities in preparation or incidental to drilling are sufficient; back‑room work should count | Held: No. Mere back‑office preparations and pre‑proposal staking (with no meaningful on‑site work and no approved permit within the 120 days) did not constitute commencement as a matter of law |
| Proper legal standard for “commence” under Johnson v. Yates | Enduro: Johnson requires meaningful on‑site activity to show commencement | Echo: Johnson’s language means even minimal or remote preparations suffice | Held: Court clarifies Johnson was overbroad as dicta; correct standard is that meaningful on‑site actions ancillary to drilling—showing diligent intent and usually including a permit—are required in the usual case |
| Whether Johnson controls and permits counting purely off‑site/back‑room work | Enduro: Johnson does not allow substitution of exclusively off‑site work for on‑site commencement | Echo: Johnson and authorities allow modest preparations to establish commencement | Held: Court adopts a middle view—on‑site ancillary work can suffice in some circumstances, but not merely off‑site/back‑room preparations absent meaningful on‑site progress |
| Attorney’s fees (impact of reversal) | Enduro: challenges district court award | Echo: defended fee award | Held: Court declines to address fees because reversal changes grounds for award; remands for further proceedings consistent with opinion |
Key Cases Cited
- Johnson v. Yates Petroleum Corp., 981 P.2d 288 (N.M. Ct. App. 1999) (discussed scope of preparatory acts for commencement; some language was dicta and later clarified)
- Nearburg v. Yates Petroleum Corp., 943 P.2d 560 (N.M. Ct. App. 1997) (interpreting A.A.P.L. form language; courts should not rewrite clear contract terms)
- Valence Operating Co. v. Anadarko Petroleum Corp., 303 S.W.3d 435 (Tex. App. 2010) (back‑room preparations and minimal staking held insufficient as a matter of law to constitute commencement)
- Petersen v. Robinson Oil & Gas Co., 356 S.W.2d 217 (Tex. Civ. App. 1962) (examples of on‑site acts that courts have treated as commencement, e.g., hauling lumber, erecting derricks)
- Oelze v. Key Drilling, Inc., 481 N.E.2d 801 (Ill. App. Ct. 1985) (on‑site leveling, slush pits, and permit supported finding of commencement)
- D’lo Royalties, Inc. v. Shell Oil Co., 389 F. Supp. 538 (S.D. Miss. 1975) (preliminary site work pursued with diligence can establish commencement)