January 11, 2016
Under the Wyoming Supreme Court's recent ruling in Pennaco Energy, Inc. v. KD Company LLC, 2015 WY 152 (Wyo. 2015), parties assigning agreements pertaining to oil and gas development should be aware that, absent express language in the agreement to the contrary, they could remain responsible in the event of subsequent breaches by their assignees, even when those breaches occur years later.
The dispute in Pennaco surrounded several surface use and water storage agreements executed by Pennaco Energy, Inc. (Pennaco) and landowners in Johnson and Sheridan Counties, Wyoming, during the 1990s. The surface use agreements required Pennaco to make annual payments to the landowners, provide compensation for surface damages, and reclaim all wells on the covered lands upon termination of Pennaco's oil and gas leases. The water storage agreements similarly required Pennaco to make annual payments, but also obligated it to construct certain pipelines and reservoirs. Pennaco complied with these obligations until 2010, when it assigned a portion of its interests in the agreements to CEP-M Purchase, LLC (CEP-M). Soon thereafter, CEP-M assigned all of its rights to High Plains Gas, Inc. (High Plains). Neither CEP-M nor High Plains made the required annual payments and both failed to comply with several other provisions of the agreements.