AI Generated Opinion Summaries

This summary was computer-generated without any editorial revision. It is not official, has not been checked for accuracy, and is NOT citable.

Facts

• The dispute centers around the ownership of interests in two oil wells, the Stetson well and the HL2 well, located in Eddy County, New Mexico. Initially, JKM Energy, L.L.C. (JKM) offered to purchase a working interest in the Stetson well from Chisos, Ltd. (Chisos). The conveyance prepared by JKM included the entire area where both wells were located, but Chisos intended only to convey the Stetson well. Despite this, the conveyance signed and recorded was ambiguous, leading to a dispute over whether it included just the Stetson well or both wells. Subsequently, Chisos attempted to recomplete the HL2 well without proper notice to JKM, believing JKM had no interest in it, which JKM contested (paras 3-8).

Procedural History

• [Not applicable or not found]

Parties' Submissions

• Chisos, Ltd.: Argued that the conveyance was intended only for the Stetson well and that they had acted in good faith regarding the HL2 well operations. They contended that the district court erred in finding the conveyance ambiguous and in its interpretation favoring JKM (paras 10, 15, 21, 26).
• JKM Energy, L.L.C.: Maintained that the conveyance included all of Chisos’ operating rights in the area, covering both wells. They argued that Chisos failed to provide proper notice of its intent to recomplete the HL2 well and acted in bad faith (paras 10, 15, 21, 26).

Legal Issues

• Whether the conveyance between Chisos and JKM included all of Chisos’ operating rights in the area or was limited to the Stetson well only.
• Whether Chisos failed to give proper notice to JKM about the recompletion of the HL2 well and if such failure constituted bad faith.

Disposition

• The district court's interpretation of the conveyance as including all of Chisos’ rights in the area was affirmed.
• The court also affirmed the finding that Chisos acted in bad faith by not giving proper notice to JKM regarding the HL2 well, ordering Chisos to provide JKM with an accounting of costs and revenues and an opportunity to retroactively elect to participate (para 2).

Reasons

• The Court of Appeals, per Judge Michael D. Bustamante, with Judges Roderick T. Kennedy and Michael E. Vigil concurring, found substantial evidence supporting the district court's findings. The conveyance was deemed ambiguous due to conflicting interpretations and modifications made by Chisos. The court applied the Restatement (Second) of Contracts to determine the conveyance's meaning, favoring JKM based on the parties' knowledge and intentions at the time of the agreement. The court also found Chisos in breach of the joint operating agreement for failing to provide proper notice to JKM about the HL2 well operations, supported by substantial evidence of Chisos' bad faith actions. The decision to provide JKM a retroactive opportunity to participate in the HL2 well was upheld as a consequence of Chisos' bad faith (paras 10-29).