Assignments Don’t Release Oil-and-Gas Operators Absent Novation; Former Operators Remain “Operators” Under Wyoming’s Split Estate Act; Declaratory Counterclaims Survive Third‑Party Cure

Case: Tear Drop Cattle Company LLC v. Devon Energy Production Company LP

Court: U.S. Court of Appeals for the Tenth Circuit

Date: July 14, 2025

Docket: No. 24-8001

Disposition: Affirmed (order and judgment; nonprecedential but citable for persuasive value)

Introduction

This appeal arises from surface-use and related agreements executed between 2000 and 2008 authorizing Devon Energy Production Company LP (Devon) to conduct coalbed methane operations on land owned by Tear Drop Cattle Company LLC (Tear Drop) in Wyoming. Devon assigned its interests to U.S. Realm Powder River, LLC (formerly Moriah Powder River, LLC) and its affiliate, Carbon Creek Energy, LLC. After the assignees ceased making annual payments and one entered bankruptcy, Tear Drop sued Devon for breach, and Devon counterclaimed for declaratory relief that its assignment extinguished its obligations, sought indemnity from Carbon Creek, and asked for a declaration that Tear Drop could not sue it going forward.

While the counterclaim was pending, the assignees cured past due amounts. The district court dismissed Tear Drop’s affirmative claims as moot, refused to dismiss Devon’s declaratory counterclaim as moot, declined to vacate earlier orders, and granted summary judgment to Tear Drop on the counterclaim—holding Devon remains liable under the agreements, that no novation occurred, and that Devon is subject to penalties under Wyoming’s Split Estate Act.

On appeal, Devon challenged jurisdiction (mootness), sought vacatur, and attacked the summary judgment on the merits. The Tenth Circuit affirmed on all points. The decision is important in three ways:

It confirms that declaratory counterclaims seeking to terminate contractual obligations remain live even if past payment disputes are mooted by a third party’s cure.
It applies and reinforces Wyoming’s Pennaco line of cases: surface-use agreements are contracts imposing nondelegable duties on the original operator, and assignment alone does not discharge those duties absent an exculpatory clause or a novation.
It predicts that Wyoming’s Split Estate Act reaches former operators whose obligations continue through reclamation, rejecting a “current-operator-only” reading.

Summary of the Opinion

Mootness: Tear Drop’s breach claims became moot when the assignees paid past-due amounts, but Devon’s counterclaim for declaratory relief remained live because it sought forward-looking declarations—cancellation as to Devon, nonliability for future obligations, and preclusion of future suits—that would have real-world effects on the parties’ ongoing legal relationship.
Vacatur: The district court did not abuse its discretion by refusing to vacate its earlier summary-judgment order despite mootness of Tear Drop’s claims; the order remained relevant and dispositive to the still-live counterclaim, and vacatur is an equitable remedy assessed on particular circumstances.
Merits—Assignment vs. Servitude: Applying Wyoming law and the Pennaco decisions, the court held the surface-use and related agreements are contracts, not servitudes, and thus Devon’s assignment did not release it from obligations. No exculpatory clause or novation existed.
Novation: Devon presented no evidence of a new contract agreed by all parties or extinguishment of the prior contract, and no conduct by Tear Drop clearly manifesting assent to substitute the assignee and release Devon; therefore, no triable issue of novation existed.
Wyoming Split Estate Act: The Act’s double-payment penalty applies to an “operator,” a term that, read alongside the Act’s definition of “oil and gas operations” as spanning through reclamation, includes former operators whose nondelegable reclamation and payment duties persist. The court followed consistent lower Wyoming court decisions and statutory interpretation principles.

Analysis

Precedents Cited and Their Influence

Rio Grande Silvery Minnow v. Bureau of Reclamation, 601 F.3d 1096 (10th Cir. 2010): Provided the standards for mootness and vacatur. The court used Rio Grande to review mootness de novo and denials of vacatur for abuse of discretion, and to emphasize that vacatur is discretionary and context dependent, especially where mootness results from happenstance.
Smith v. Becerra, 44 F.4th 1238 (10th Cir. 2022); City of Erie v. Pap’s A.M., 529 U.S. 277 (2000): Reinforced the principle that a case is moot when the issues are no longer live or the parties lack a cognizable interest, but remains live when judicial resolution has real-world effects.
Jordan v. Sosa, 654 F.3d 1012 (10th Cir. 2011); Cox v. Phelps Dodge Corp., 43 F.3d 1345 (10th Cir. 1994); Facio v. Jones, 929 F.2d 541 (10th Cir. 1991): Clarified that declaratory relief is forward-looking; a plaintiff must show a good chance of being injured again, and courts avoid merely retrospective advisory opinions.
United States v. Jenks, 129 F.3d 1348 (10th Cir. 1997); Powell v. McCormack, 395 U.S. 486 (1969): Supported the proposition that even if some claims are moot, remaining counterclaims can sustain an Article III controversy.
Pennaco Energy, Inc. v. KD Co. (Pennaco I), 363 P.3d 18 (Wyo. 2015): Established that surface-use agreements are contracts imposing nondelegable duties; laid out factors distinguishing contracts from servitudes (time limits, absence of assignment-release language, lease analogies, payment structure not tied solely to last assignee’s use, reliance on operator’s financial capacity, and reclamation duties).
Pennaco Energy, Inc. v. Sorensen (Pennaco II), 371 P.3d 120 (Wyo. 2016): Emphasized that oil-and-gas leases and surface-use agreements are “of the same breed of contract,” and an original operator remains liable absent an exculpatory clause or novation. The Tenth Circuit followed both the bright-line framing and the deeper intent analysis.
Comet Energy Services, LLC v. Powder River Oil & Gas Ventures, LLC, 185 P.3d 1259 (Wyo. 2008); Wolter v. Equitable Resources Energy Co., W. Region, 979 P.2d 948 (Wyo. 1999); Davidson Land Co. v. Davidson, 247 P.3d 67 (Wyo. 2011): Provided Wyoming contract interpretation principles and the summary judgment posture—unambiguous contracts are construed as a matter of law.
TEP Rocky Mountain LLC v. Record TJ Ranch Ltd. Partnership, 516 P.3d 459 (Wyo. 2022); Lewis v. Platt, 837 P.2d 91 (Wyo. 1992); Scott v. Wyoming Oils, Inc., 75 P.2d 764 (Wyo. 1938): Set out the elements of novation, the requirement of clear manifestation of assent to substitution and release, and that novation is never presumed and must be proven.
Cabot Oil & Gas Corp. v. Followill, 93 P.3d 238 (Wyo. 2004); Wyodak Resources Development Corp. v. Wyoming Department of Revenue, 387 P.3d 725 (Wyo. 2017); Parker Land & Cattle Co. v. Wyoming Game & Fish Commission, 845 P.2d 1040 (Wyo. 1993): Informed the statutory interpretation approach—give words their ordinary meaning, avoid surplusage, and do not insert words into statutes.
Lower Wyoming decisions (persuasive): Tear Drop Cattle Co. v. Andarako B&P Onshore LLC (Wyo. Dist. Ct. Dec. 21, 2020); William P. Maycock II v. Anadarko E&P Onshore LLC (Wyo. Dist. Ct. Feb. 1, 2021)—both applied the Split Estate Act’s penalty provision to parties in Devon’s position (non-current operators).

Legal Reasoning

1) Mootness and the Liveness of Devon’s Declaratory Counterclaim

Article III requires a live controversy. Tear Drop’s breach claims were mooted by the assignees’ cure of past-due payments. But Devon’s counterclaim sought prospective declarations: that the agreements were “cancelled and terminated” as to Devon; that Tear Drop was precluded from suing it in the future; that Devon bore no future liabilities; and that Carbon Creek must indemnify and hold it harmless. The court emphasized that such relief would “have some effect in the real world” by altering the parties’ future behavior—principally whether Tear Drop could continue to treat Devon as bound under the agreements. The record also reflected a good chance of recurring nonpayment (a later 2022 default and ongoing bankruptcy), reinforcing the forward-looking nature of the dispute. Thus, the counterclaim was not moot.

2) Vacatur: Discretion and Particularized Equities

Although mootness arose from a third party’s payment (a “happenstance” that can sometimes justify vacatur), vacatur remains equitable and case-specific. The district court reasonably declined vacatur because the earlier order was “relevant, and ultimately dispositive” of the still-live counterclaim. With jurisdiction intact over the counterclaim, the court had authority to enter the later amended final judgment, and no abuse of discretion occurred.

3) Assignment vs. Servitude: Pennaco Applied

The court applied Wyoming law to decide whether Devon’s assignment relieved it of obligations. Under Pennaco I and II, surface-use agreements of this sort are contracts, not servitudes; obligations do not “run with the land” so as to shift automatically to assignees and release the original obligor. The court identified multiple Pennaco-consistent factors:

Time limits: The agreements contained defined terms (e.g., two-year initial term; four-year term for a treatment-site agreement), a contract hallmark rather than a perpetual servitude.
No assignment-release language: There was no language stating Devon’s obligations end upon assignment, and under Pennaco I, such release language would be expected if intended.
Lease analogy: Surface-use agreements are akin to oil-and-gas leases; leases bind the original lessor even after assignment, supporting nondelegability.
Payment logic: Annual payments were connected to the overall project and the original operator’s financial capacity, not just an assignee’s current use, reinforcing that Tear Drop relied on Devon’s credit and performance.
Reclamation and financial capacity: Obligations through reclamation are significant and tied to the operator’s ability to perform; allowing discharge by assignment to an entity of unknown solvency would be commercially unreasonable and contrary to the parties’ objective intent.

Devon’s arguments failed under this framework. Contractual permission to assign does not equate to release. The presence of easement or right-of-way language in some subordinate agreements did not convert the comprehensive arrangement into a servitude; those documents existed to facilitate the operations authorized by the surface-use agreement. And tying some payments to “use” rather than “reclamation” did not change the outcome; Pennaco I involved a similar “use-linked” payment term yet held the original operator remained liable.

4) Novation: No Evidence of Substitution and Release

A novation requires: a prior contract; agreement of all parties to a new contract; extinguishment of the prior contract; and a valid new contract. Novation is never presumed and must be pleaded and proven by the party asserting it. Although Devon pointed to Tear Drop’s cooperation with the assignees, it produced no evidence of a tri-party agreement, no clear manifestation by Tear Drop assenting to substitution and release, and no extinguishment of the prior contract. To the contrary, where consent was requested, Tear Drop conditioned consent on Devon’s continuing liability, and Tear Drop sent notices of late payment and default to Devon—conduct inconsistent with any release. No reasonable factfinder could find novation on this record.

5) Wyoming Split Estate Act: “Operator” Includes Former Operators Through Reclamation

The Act imposes a double-payment penalty if an “oil and gas operator” fails to timely pay an installment due under an annual damage agreement and does not cure within 60 days after notice. The court rejected Devon’s argument that “operator” refers only to current operators. Reading the statutory scheme as a whole, “oil and gas operations” expressly encompasses the full life cycle “from exploration through production and reclamation of the disturbed surface.” Because an original operator’s duties in Wyoming are nondelegable and continue through reclamation, the ordinary meaning of “operator,” in context, reaches former operators whose contractual obligations persist. The court’s reading aligned with Wyoming’s interpretive canons (avoid inserting “currently,” avoid surplusage) and with the persuasive trend in Wyoming district courts. Public policy reinforced the conclusion: if the penalty applied only to current operators, an operator could escape the deterrent by assigning to an insolvent affiliate or exiting shortly before default, undermining the statute’s purpose.

Impact

This decision, although nonprecedential, is likely to be influential in Wyoming and in federal courts applying Wyoming law, and it offers concrete guidance for oil-and-gas transactions and surface-use disputes:

Assignments do not release original operators: Parties should assume that surface-use obligations remain with the original operator absent an explicit release (exculpatory clause) or a properly documented novation to which the surface owner clearly assents.
Drafting consequences: Operators seeking to transfer obligations should negotiate:
- Express exculpatory clauses tied to assignment (noting enforceability and surface owner assent issues), and/or
- Formal novation agreements signed by all parties, clearly extinguishing the original agreement and substituting the assignee.
Due diligence and credit risk: Because obligations persist through reclamation, original operators remain exposed to assignee defaults. Transaction pricing, indemnities, security, and reserves should reflect that continuing liability.
Litigation strategy: A third-party cure of past-due amounts does not necessarily moot declaratory claims about ongoing rights and obligations. Parties should assess whether forward-looking declarations will affect future conduct to keep such claims alive.
Vacatur expectations: When mootness is due to happenstance, vacatur is possible but not automatic. If an earlier order remains relevant to live claims, courts may preserve it.
Split Estate Act exposure: Former operators face double-payment penalties for untimely annual damage payments under surface agreements. Operators should implement compliance systems to avoid penalty exposure even post-assignment.
Bankruptcy interplay: The assignee’s insolvency does not shield the original operator. Upstream operators should consider guarantees, letters of credit, collateral, or escrow arrangements to mitigate downstream default risk.

Complex Concepts Simplified

Mootness: A case is moot if there’s nothing left for the court to decide that will change the parties’ legal relationship. If a claim seeks a declaration that will shape what parties can or cannot do in the future, it is likely not moot.
Declaratory judgment: A court order that clarifies rights and obligations. It is forward-looking—used to prevent future disputes or clarify ongoing relationships.
Vacatur: Erasing a prior court order. It’s not automatic when a case becomes moot; courts balance equities and the case’s circumstances.
Assignment vs. Delegation: Assignment transfers contract rights; delegation transfers duties. Under general contract law, delegating a duty does not release the delegator from liability unless the other contracting party agrees.
Servitude vs. Contract: A servitude (like an easement) “runs with the land,” binding subsequent owners and relieving the original obligor. A contract binds the original parties unless they expressly agree otherwise.
Novation: A new agreement that substitutes a new obligor and releases the original. It requires clear agreement by all parties and extinguishes the prior contract. Courts will not presume it; the party claiming novation must prove it.
Exculpatory clause: Contract language that releases a party from liability—here, a clause that would free an original operator from obligations upon assignment. Absent such a clause (or novation), the original operator remains liable.
Wyoming Split Estate Act penalties: If an operator fails to make a required annual damage payment on time and doesn’t cure within 60 days after notice, it owes twice the unpaid amount. “Operator” includes those whose obligations extend through reclamation, not just whoever is currently operating on the land.
Reclamation: Restoring the land after operations end. Under Wyoming law, the duty to reclaim—and associated financial responsibility—can keep an original operator on the hook even after assignment.

Conclusion

The Tenth Circuit’s decision in Tear Drop Cattle Company v. Devon Energy Production clarifies three significant points with practical consequence:

Declaratory counterclaims that define ongoing rights and obligations are not mooted by a third party’s cure of past-due amounts; they remain justiciable when they will materially affect future conduct.
Under Wyoming law, surface-use agreements for oil-and-gas operations are contracts imposing nondelegable duties on the original operator. Assignment alone does not discharge those duties; only an exculpatory clause or a clear novation can do so—and novation must be clearly proven.
Wyoming’s Split Estate Act applies to former operators so long as their obligations, including reclamation, persist; reading “operator” to mean only “current operator” would require impermissibly inserting words into the statute and would undercut its remedial purpose.

Although issued as a nonprecedential order and judgment, the opinion synthesizes Wyoming’s Pennaco jurisprudence, reinforces settled federal mootness doctrine, and offers a persuasive and comprehensive roadmap for drafting, transactions, and litigation involving surface-use agreements in Wyoming and within the Tenth Circuit. For operators and landowners alike, the message is clear: plan for assignment carefully, document novation if a release is intended, and maintain scrupulous compliance with payment obligations to avoid statutory penalties.