Enduro Operating LLC v. Echo Production, Inc.
2017 NMCA 18
N.M. Ct. App.2016Background
- Echo sent a proposal on Dec. 1, 2010 under an A.A.P.L. Form 610 JOA to drill Well 6H; notified parties had 30 days to elect and the proponent had 90 days after that (120 days total from notice) to actually commence and complete with due diligence.
- Conoco elected not to participate on Dec. 28, 2010; Enduro later acquired Conoco’s non-consent interest.
- Echo surveyed and staked the site (Nov. 29–30, 2010), performed engineering/permit-related work, contracted a driller (Mar. 14, 2011), and applied for a drilling permit on Mar. 31, 2011; the 120-day period expired Apr. 2, 2011.
- No on-site construction or heavy-equipment work occurred during the 120-day period; the drilling permit was not approved until Apr. 13, 2011, and the well was spudded May 25, 2011.
- Enduro sued, asserting Echo failed to “actually commence” within the JOA deadline and therefore had to resubmit a proposal; the district court granted Echo summary judgment and excluded Enduro’s expert; the Court of Appeals reversed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Echo ‘‘actually commence[d] the proposed operation’’ within the JOA’s 120‑day period | Enduro: preparatory, "back-room" work without meaningful on‑site activity or an approved permit does not satisfy commencement; Echo’s failure requires resubmission | Echo: Johnson v. Yates allows that any activities in preparation for or incidental to drilling can satisfy commencement; its engineering, contracting, staking, and permit application suffice | Held for Enduro: Echo’s actions were insufficient as a matter of law. Meaningful on‑site activity ancillary to drilling (and ordinarily a permit in hand) is generally required; mere back‑room preparations are inadequate |
| Whether Echo’s late permit application (and lack of approved permit within the period) affects commencement analysis | Enduro: absence of an approved permit within the period weighs against finding lawful commencement | Echo: obtaining permits is important but not indispensable if other preparatory acts show commencement | Held: Lack of an approved permit within the 120 days is a significant factor; permitting normally accompanies meaningful commencement and its absence supports reversal |
| Whether appellate court must address district court’s exclusion of Enduro’s expert testimony and attorney fees | Enduro: exclusion was erroneous; seeks reversal on both exclusion and fee award | Echo: district court acted within discretion | Held: Court reversed on commencement ground and awarded judgment to Enduro; because reversal disposes of the merits, the court did not reach/examine the expert‑exclusion or attorney‑fees issues on appeal |
Key Cases Cited
- Johnson v. Yates Petroleum Corp., 981 P.2d 288 (N.M. Ct. App. 1999) (discusses preparatory acts and is clarified as not endorsing an "any activity" literal standard)
- Valence Operating Co. v. Anadarko Petroleum Corp., 303 S.W.3d 435 (Tex. App. 2010) (back‑room preparations without meaningful on‑site work held insufficient as a matter of law)
- Petersen v. Robinson Oil & Gas Co., 356 S.W.2d 217 (Tex. Civ. App. 1962) (list of on‑site preliminary acts that courts have treated as commencement)
- Oelze v. Key Drilling, Inc., 481 N.E.2d 801 (Ill. App. Ct. 1985) (permit obtained, site leveled, and pit work supported finding of commencement)
- D’lo Royalties, Inc. v. Shell Oil Co., 389 F. Supp. 538 (S.D. Miss. 1975) (preliminary site work and diligence can satisfy commencement obligations)
- Nearburg v. Yates Petroleum Corp., 943 P.2d 560 (N.M. Ct. App. 1997) (discusses A.A.P.L. form language; courts should not rewrite unambiguous contract terms)
- Hamilton v. Texas Oil & Gas Corp., 648 S.W.2d 316 (Tex. App. 1982) (cited in prior New Mexico decisions for commencement standards)