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Jesmar Energy, Inc. v. Range Resources-Appalachia, LLC

United States District Court, W.D. Pennsylvania

October 13, 2017

JESMAR ENERGY, INC., Plaintiff,
v.
RANGE RESOURCES - APPALACHIA, LLC., Defendant.

          OPINION ECF NO. 10

          LISA PUPO LENIHAN UNITED STATES MAGISTRATE JUDGE

         Currently pending before the Court is the Motion to Remand to State Court Pursuant to 28 U.S.C. § 1447(c) (ECF No. 10) brought on behalf of Plaintiff Jesmar Energy, Inc. (“Jesmar”). For the reasons set forth below, the Court will deny the motion to remand.

         I. FACTUAL BACKGROUND & PROCEDURAL HISTORY

         The following facts are alleged in Jesmar's Complaint, which has been brought against Defendant Range Resources - Appalachia, LLC (“Range”).

         On April 11, 2007, Jesmar signed an oil and gas lease ("Lease") with James E. Main ("Mr. Main") wherein Mr. Main agreed to lease to Jesmar the right to drill for, produce, and develop approximately 153 net mineral acres of oil and gas in Buffalo Township, Washington County, Pennsylvania (the "Property''). (Compl., ¶ 3, ECF 1-2.) The term of the Lease was for ten years beginning on April 11, 2007, and for as long thereafter that date as gas may be produced from the Property. (ECF No. 1-2, ¶ 4.) The lease also provided for the payment of a one-eighth (1/8) royalty realized by the lessee of the Lease from the proceeds of the gas from the Property to be paid to Mr. Main. (ECF No. 1-2, ¶ 6.)

         Thereafter, on or about August 30, 2011, Rice Drilling B, LLC ("Rice Energy”) and Jesmar entered into a letter of intent for Rice Energy to purchase the Lease from Jesmar, with Jesmar reserving an overriding royalty interest ("ORRI") equal to the difference between 17.5% and the leasehold burden of record. (Id., ¶ 7.) On December 21, 2011, Jesmar and Rice Energy executed an Assignment of Oil and Gas Lease (the "Assignment"). (Id., ¶ 8.) The Assignment assigned all of Jesmar's right, title, and interest under the Lease to Rice Energy subject to Jesmar retaining an ORRI to the Lease:

OVERRIDE: [Jesmar] hereby reserves an overriding royalty interest in the Subject Lease equal to the difference between the respective lease burdens of record and 17.5% in and to all of the oil, gas and the respective constituents thereof, produced, saved, and marketed from the lands described therein, but in no event shall [Jesmar] deliver to [Rice Energy] less than an 82.5% net revenue interest in the [Lease]. In the event that the Subject Lease covers less than a full interest in the oil and gas in the lands described therein or [Jesmar] owns less than a full interest in the Subject Lease the overriding royalty interest herein reserved shall be proportionally reduced.

(Id., ¶ 10.) The lease burden of record (the Lease) referred to in the Assignment is a net lease allowing the lessee under the Lease to take deductions from the lessor's l/8th royalty interest resulting in the royalty interest from the lease burden of record under the Lease being actually less than the 1/8th royalty interest defined in the Lease. (Id. at ¶ 12.) The Assignment does not provide for any post-production costs, deductions and/or adjustments (including but not limited to deductions for the cost of producing, gathering separating, treating, dehydrating, compression, transporting, and otherwise making the oil, gas and other products ready for sale or use) to be deduced from the ORRI. (Id. at ¶ 13.)

         At some point between August 31, 2011 and April 14, 2016, Rice Energy conveyed the Assignment to Range. (Id. at ¶ 14.) In 2016, Range began drilling for, producing, and marketing natural gas from the Property, thereby requiring Range to pay Jesmar based upon the ORRI it retained in the assignment. (Id. at ¶ 17.) To date, Range has made three ORRI payments to Jesmar based upon the ORRJ it retained in the Assignment. (Id. at ¶ 18.) The three ORRJ payments that Range has made to Jesmar have all been reduced by deductions for various costs Range alleges it has incurred for, among other things, transporting, gathering, purchasing fuel and processing natural gas from the Property. (Id. at ¶ 20.)

         More specifically, on February 28, 2017, Range provided a ORRI statement to Jesmar, calculating the gross value due Jesmar under the ORRI at $752.07, which was reduced by $332.82 for the following deductions to arrive at a net ORRI of $419.25: ''Finn Capacity, " "Gathering-INV, " and "Proc Fee INV." (Id. at ¶¶ 21-22.) On March 31, 20l7, Range provided a ORRI statement to Jesmar calculating the gross value due Jesmar under the ORRI at $12, 665.29, which was reduced by $4, 389.15 for the following deductions to arrive at a net ORRI of $8, 276.14: “Transport-INV, " "Finn Capacity, " "Gathering-INV, ' "Purchased Fuel, " and "Proc Fee-INV." (Id. at ¶¶ 23-24.) On May 31, 2017, Range provided an ORRI statement to Jesmar calculating the gross value due Jesmar under the ORRI at $5, 311.22, which was reduced by $2, 632.89 for the following deductions to arrive at a net ORRI of $2, 678.33: "Firm Capacity, " "Gathering-INV, " ''Purchased Fuel, " and "Transport-INV."27. (Id. at ¶¶ 25-26.)

         To date, Range has not made any other payments to Jesmar in compensation for any oil, natural gas, or constituent parts thereof that it obtained pursuant to the rights granted to it under the Lease through its assignment.[1] (Id. at ¶ 27.)

         On June 12, 2017, Jesmar instituted this action in the Court of Common Pleas of Greene County by way of a Complaint that alleges claims against Range for breach of contract, unjust enrichment, and declaratory relief related to an Assignment of Oil and Gas Lease (“the Assignment”) originally entered into between Jesmar and Rice Energy, and later acquired by Range. (Id.) Essentially, Jesmar contends that Range has breached the Assignment and is being unjustly enriched by only paying Jesmar for a portion of its ORRI from the natural gas produced from the Property, and improperly deducting costs from these payments. ((Id. at ¶ 31.) “By improperly taking deductions from Plaintiff s ORRI, Defendant has failed to pay Plaintiff the required proceeds from the Property in the amount of ‘17.5% in and to all of the oil, gas and the respective constituents thereof produced, saved, and marketed from the [Property]' less ‘'the respective lease burdens of record ....'.” Jesmar also seeks declaratory relief in the form of a judgment order declaring:

(a) The Assignment requires that Defendant pay Plaintiff "l7.5% in and to all of the oil, gas and the respective constituents thereof, produced, saved, and marketed from the [Property]" less "the respective lease burdens of record ....";
(b) The "lease burden of record" referred to in the Assignment is "one-eighth of the revenue realized by [Defendant] for all gas and the constituents thereof produced and marketed from the [Property]..." "less all taxes, assessments, and adjustments on production ....";
(c) The Assignment requires that Defendant pay Plaintiff 17.5% of all of the oil, gas and the respective constituents thereof, produced, saved, and marketed from the Property, less 12.5% of the revenue realized by Defendant for all gas and the constituents thereof produced and marketed from the Property, less all taxes, deductions, assessments, and adjustments on production related to the aforesaid 12.5% of the revenue realized by Defendant; and,
(d) Any other relief the Court deems appropriate.

(Id., ad damnum cl. - Count III.)

         On July 13, 2017, Range removed this action to federal court, predicating removal jurisdiction on diversity of citizenship. (Notice of Removal, ECF No. 1.) Attached to the notice was an affidavit by Sarah Black, who is employed by Range as a Landman II. (Black Aff., ECF No. 1-5.)

         In response, Jesmar filed the pending motion for remand (ECF No. 10) and a supporting brief (ECF No. 11). Jesmar did not submit ...


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