Gibson Co. property already had valid lease for oil and gas development, COA affirms

IL file photo

A Gibson County property was already under a valid lease for oil and gas production and could not be leased for development to an energy company, the Court of Appeals of Indiana ruled Wednesday in affirming a lower court’s summary judgment decision.

The case involves a dispute over an oil and gas lease that dates back more than 80 years.

According to court records, on Aug. 30, 1937, pursuant to an oil and gas lease referred to as the Keck lease, J.H. McClurkin obtained oil and gas rights to approximately 480 acres of real property in Gibson County.

Years later in August 2009, Janice,  Paul, Steven and Travis Pegram entered into an oil gas lease with Lair Trust on approximately 143 acres of property where they claimed to own an interest. The Pegram lease, which was recorded in November 2009, includes a legal description of 62.7 acres of the property subject to the Keck lease.

Also in August 2009, Janice Pegram filed an affidavit to cancel the Keck lease due to it not being operated for production for oil and gas for more than one year. The Gibson County recorder subsequently stamped the Keck Lease as “invalid-void.”

Then in November 2009, the Indiana Department of Natural Resources approved the drilling of a new well on the property, to be operated by Ice and Oil Potts Co. on behalf of Mega Oil Inc.

In April 2010, Noble Energy Inc. assigned Citation 2004 Investment LLC its right, title and interest in the Keck lease, with the two sides entering into a $554 million purchase agreement for assets Citation would acquire in Indiana, Illinois and Oklahoma.

Citation did not become aware of the Pegram well on the Keck lease site until July 2017, when it was listed on the DNR database.

Citation and Citation Oil and Gas Corp. jointly filed a five-count complaint in January 2019 seeking a declaratory judgment that the Keck lease was valid, that they were the holders of the lease and that the Pegram lease on the Gibson County site was void and invalid. The Citation complaint also claimed Mega Oil’s activities constituted a trespass and asked to eject the company from the property and enjoin them from operating within the Keck lease lands.

Mega Oil filed a motion for partial summary judgment claiming to be a bona fide purchaser for value. The Gibson Circuit Court denied Mega Oil’s motion in July 2020.

But the trial court granted Citation’s motion for partial summary judgment in May 2022, noting there had been more than 20 oil and gas wells drilled and completed on the Keck site and citing one well that continues to produce oil in paying quantities.

In granting Citation’s motion, the trial court ruled the Pegrams didn’t have the legal authority to lease oil and gas on property that was already under lease, and ruled that Pegram’s affidavit and lease were void under Indiana law.

The trial court also found that Mega Oil had notice of the valid Keck lease before it took assignment of the Pegram lease.

An appeal ensued and the Court of Appeals affirmed, with Judge Elaine Brown writing the opinion for the appellate court.

On the issue of whether the Keck lease was properly declared void and invalid, the appellate court cited Wilson v. Elliot, 589 N.E. 2d 259 (Ind. Ct. App. 1992), a case where a lessor attempted to partially cancel a lease.

In that case, the court held, “Logically, if the written request incorrectly identifies the land and the lease, the county recorder cannot certify on the appropriate title which lease is null and void. Incorrect certifications destroy the goal of clear and reliable record titles.”

In a footnote, the court disagreed that the state’s statute provided for the partial cancellation of leases.

Brown pointed out that the Pegram affidavit included a description of an area of 62.7 acres in which Pegram owned her interest, which is less than the total 480 acres of the Keck lease.

The appellate court’s opinion added that even if the Pegram affidavit adequately described the lands of the Keck lease and Pegram as the owner, the designated evidence demonstrates continued oil production.

“We cannot say the Pegram Affidavit properly described the lands of the Keck Lease, identified Pegram as owner of the lands of the lease, or constituted an affidavit adequate to cancel the lease,” Brown wrote.

Judges L. Mark Bailey and Leanna Weissmann concurred.

The case is MEGA OIL, INC., an Illinois corporation, et al. v. CITATION 2004 INVESTMENT, LLC, a Delaware Limited Liability Company, 22A-MI-1275.

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