Humphrey v. Placid Oil Company

• Decision Date: 29 May 1956
• Docket Number: Civ. A. No. 1135.
• Citation: 142 F. Supp. 246
• Court: U.S. District Court — Eastern District of Texas
• Parties: J. A. HUMPHREY, G. E. Hall, A. Pollard Simons and William D. McBee, Plaintiffs, v. PLACID OIL COMPANY, Defendant.

142 F. Supp. 246

J. A. HUMPHREY, G. E. Hall, A. Pollard Simons and William D. McBee, Plaintiffs, v. PLACID OIL COMPANY, Defendant.

Civ. A. No. 1135.

United States District Court E. D. Texas, Sherman Division.

May 29, 1956.

COPYRIGHT MATERIAL OMITTED

Lanham Croley (of Golden, Croley, Howell, Johnson & Mizell), Dallas, Tex., for plaintiffs, J. A. Humphrey and G. E. Hall.

Bascom Thomas (of Bowyer, Gray, Thomas, Crozier & Harris), Dallas, Tex., for plaintiff, A. Pollard Simons.

Fred G. Gannon, Dallas, Tex., for plaintiff, William D. McBee.

Ralph B. Shank (of Shank, Dedman & Payne), Dallas, Tex., for defendant, Placid Oil Co.

SHEEHY, Chief Judge.

This is an action by the plaintiffs, each of whom is a resident and citizen of the State of Texas, to recover from the defendant, a Delaware corporation, damages in the sum of $25,000 for alleged breach of contract or in the alternative to recover in quantum meruit the reasonable value of their services which plaintiffs allege is the sum of $25,000, which action grows out of a dry hole contribution letter agreement dated April 8, 1955, executed by the defendant and accepted by the plaintiffs' assignors.

The pertinent facts are found to be as hereinafter stated.

In the early part of April, 1955, Alex Hickey and H. R. Randall were contemplating drilling a test well for oil or gas in the southwest quarter of the I. Abraham Survey in Grayson County, Texas. This well was to be what is commonly referred to as a wildcat well. At that time Placid Oil Company owned oil and gas leases covering four tracts of land in the immediate area of the I. Abraham Survey, two of which tracts were contiguous to the I. Abraham Survey. The Shell Oil Company and Midwest Oil Corporation each owned oil and gas leases covering lands in the immediate area of the I. Abraham Survey. As is often done in the oil business, Hickey and Randall sought financial assistance in the drilling of the test well from other owners of oil and gas leases covering lands in the area in which the test well was to be drilled. The defendant, Placid Oil Company, gave to Hickey and Randall what is commonly referred to as a dry hole contribution letter. This letter, which hereinafter will be referred to as the dry hole letter, is dated April 8, 1955, and was accepted by Hickey and Randall on April 12, 1955. The body of the letter is set out in Appendix A attached hereto and made a part hereof. Similar dry hole letters were obtained by Hickey and Randall from Midwest Oil Corporation and Shell Oil Company under the terms of which Midwest Oil Corporation was to make a dry hole contribution of $1,000 and Shell Oil Company was to make a dry hole contribution of $10,000. The test well could not have been drilled without the agreement of defendant to make the dry hole contribution in the sum of $25,000 and defendant was so advised by Hickey and Randall before it agreed to make the dry hole contribution in the sum of $25,000. After having first obtained the written consent of the defendant so to do, Hickey and Randall assigned all of their right, title and interest in and to the dry hole letters, including the dry hole letter of the defendant, to the plaintiffs, and thereafter the plaintiffs undertook the drilling of the test well referred to in the dry hole letters which is known as the S. A. Johnson No. 1 well. The well was commenced on April 28, 1955, and the plaintiffs continued the drilling of same until a depth of 10,025 feet was reached on July 27, 1955, at which time certain electrical logs or surveys of the well down to the 10,025 foot depth were made. The Oil Creek Sand of Ordivician Age was not encountered or reached at or prior to the 10,025 foot depth. At all times during the drilling of the well to the 10,025 foot depth defendant's representatives had free access to the derrick floor and were given all information concerning the drilling of the well, including daily drilling reports, samples of all cuttings and cores obtained in the drilling operations and copies of all electrical logs or surveys. During the process of drilling to the 10,025 foot depth the plaintiffs caused several drill stem tests to be made of certain formations or horizons in which there was either a showing of oil or the presence of oil sand. The first drill stem test was attempted on July 6, 1955, when a depth of 8,380 feet had been reached. Plaintiffs gave the defendant notice that this test was to be made, and the defendant had its geologist present at the well when the test was made. However, at the time plaintiffs notified defendant of the fact that such test was to be made defendant advised plaintiffs that it would not be necessary, in the future, to give advance notice to defendant of further drill stem tests. The first drill stem test was an effort to test the formation between 8,258 feet and 8,380 feet. Because of a packer failure this drill stem test was not successful. On July 8, 1955, when the well had been drilled to a depth of 8,422 feet, a second drill stem test was made testing the formation or formations between 8,255 feet and 8,422 feet. There was no failure of this test, and the results of the test were promptly transmitted to the defendant. On July 11 and 12 when the well had been drilled to a depth of 8,606 feet, a drill stem test was made of the formation or formations between 8,571 feet and 8,606 feet. The results of this test were promptly furnished to the defendant. On July 19 and 20, 1955, when the well had been drilled to a total depth of 9,270 feet, the plaintiffs made a drill stem test of the formation or formations between 9,202 feet and 9,270 feet. The results of this test were promptly furnished the defendant.

When the electrical logs or surveys of the well were made on July 27, 1955, as aforesaid, defendant's geologist was present and defendant was furnished with true and correct copies of said electrical logs or surveys.

On July 27, 1955, after obtaining the information shown by the electrical logs or surveys above mentioned, plaintiffs considered that information, together with the results of the drill stem tests that were made during the course of drilling and the samples of the various cuttings and cores obtained throughout the drilling operation and after obtaining the advice and opinions of their geologists and a petroleum engineer, concluded that the well down to the 10,025 foot depth was a dry hole, i. e., it was not capable of producing oil or gas in paying quantities. Subsequent to reaching that conclusion and on the same date plaintiffs contacted defendant's representatives in defendant's office in Shreveport, Louisiana, and advised defendant's said representatives of its conclusions as to the well being a dry hole and made inquiry of defendant's representatives with reference to defendant's attitude as to making payment of the $25,000 provided for in its dry hole letter. Defendant's representatives contacted by plaintiffs advised plaintiffs that the defendant's decision in the matter would await the return of defendant's President, Mr. Dalton, to Shreveport on July 28, 1955. On the afternoon of July 28, 1955, defendant sent to plaintiffs the following telegram:

"Reference Made To Dry Hole Contribution Agreement Of April 8, 1955, Under Which S A Johnson # 1 Is Drilling. You Are Obligated To Properly Test All Horizons In Well Which Appear Promising Of Producing Oil Or Gas. To Do So You Must Set Pipe And Conduct Tests By Perforating And Sandfracing The Following Zones: 8142-8160; 8176-8190; 8240-8300; 8390-8450; 8570-8676; 8832-8870; 8955-8992; And 9200-9350. We Request That Well Be Properly Tested As Herein Provided, The Failure Of Which Will Be A Material Breach Of Agreement And A Forfeiture Of All Your Rights Under Same."

This telegram was received by plaintiffs in Dallas, Texas, at approximately 5 o'clock p.m. on July 28. The telegram was confirmed by defendant in a letter to plaintiffs dated July 28, 1955. From the time the plaintiffs completed the making of the electrical logs or surveys of the well on July 27 until defendant's telegram, above mentioned, was received on the afternoon of July 28 all operations at the well were shut down. Plaintiffs, upon receiving defendant's said telegram, treated same as an anticipatory breach or repudiation on the part of the defendant of the dry hole letter agreement in question. Considering that defendant had breached or repudiated said dry hole letter agreement plaintiffs decided to drill the well deeper and drilling operations were resumed. The well was then drilled to a depth of 10,250 feet. Upon that depth being reached additional electrical logs or surveys were run. These last mentioned electrical logs or surveys showed the formation between 10,028 feet and 10,060 feet to be promising of producing oil in paying quantities. As a result of that information plaintiffs proceeded to set pipe in the well, to perforate the pipe at the depth from 10,028 to 10,060 feet and to sandfrac.¹ Upon the completion of this last mentioned operation the plaintiffs were able to and did complete the well as a producing well on or about August 1, 1955, with production being from a formation or formations below 10,025 feet. The well has never been plugged and is still producing oil, however, the production has consistently declined each month. In September, 1955, the first month of production from the well, 1,403.96 barrels of oil were produced. Each month thereafter the production became less. In January, 1956, the production was down to 525.82 barrels and the evidence does not show the exact production for any month after January, 1956.

Up to the time plaintiffs received defendant's telegram, above quoted, plaintiffs had allowed defendant's agents or representatives full access to the derrick floor of the drilling rig and had furnished to defendant all information relative to said well and the drilling thereof available to plaintiffs as required by defendant's dry...