Arrington v. El Paso Natural Gas Co.

• Decision Date: 18 September 1964
• Docket Number: Civ. No. 9478.
• Citation: 233 F. Supp. 522
• Parties: J. H. ARRINGTON and Metropolitan Paving Co., Inc., a corporation, Plaintiffs, v. EL PASO NATURAL GAS CO., a corporation, Defendant.
• Court: U.S. District Court — Western District of Oklahoma

233 F. Supp. 522

J. H. ARRINGTON and Metropolitan Paving Co., Inc., a corporation, Plaintiffs, v. EL PASO NATURAL GAS CO., a corporation, Defendant.

Civ. No. 9478.

United States District Court W. D. Oklahoma.

September 18, 1964.

Barefoot, Moler & Bohanon, Oklahoma City, Okl., for plaintiffs.

Cochran, Dudley, Fowler, Rucks, Baker & Jopling, Oklahoma City, Okl., for defendant.

DAUGHERTY, District Judge.

This case involves the interpretation of and performance under a written contract between the plaintiffs herein (and their assignors) and the defendant. Under this contract the plaintiffs assigned to the defendant the gas rights only in certain oil and gas leases covering properties in Texas for a cash consideration of $56,605.00 based upon estimated gas reserves thereunder, which consideration was paid, plus an agreement by the defendant for further development within a specified two year period following which a reevaluation of the estimated gas reserves under the properties would be made with $0.03 per MCF to be paid by defendant to plaintiffs for any additional reserves found to exist above those originally estimated between the parties when the contract was entered into. The contract was dated December 20, 1957, the additional wells were to be drilled within a two year period ending March 21, 1960, and the reevaluation of the gas reserves was to be made by respective representatives of the parties on or about June 30, 1960.

The provisions of the said written contract pertinent to this litigation are as follows:

"Within two (2) years from the date of closing, you agree to drill, or cause to be drilled, sufficient test wells on the subject lease or on leases owned by you adjacent thereto a sufficient number of test wells to enable our respective representatives to make the evaluation provided for hereinbelow. If sufficient information as to the recoverable gas reserves underlying the subject leases can be acquired without drilling wells on the subject leases, or to the maximum permissible density on the subject leases, you shall not be obligated to drill the same if such information can be obtained by conducting drilling operations on adjacent leases. Such wells shall be drilled by you, at your sole cost, risk and expense, to a depth sufficient to test the Dolomite or Granite Wash formations.

"On June 30, 1960, representatives of your company and my representatives shall redetermine and reevaluate the recoverable gas reserves underlying the acreage described hereinabove (which has not been reassigned to me or which has not been released or relinquished pursuant to the applicable provisions of this agreement) attributable to the net interest I have assigned to you therein. In the event our representatives cannot agree on the reevaluation and redetermination of the recoverable gas reserves as of said date, then, in such event, such reserves shall be reevaluated and redetermined by a mutually agreed upon independent evaluation engineer or a firm of independent engineers. The decision of such evaluation engineer(s) shall be final and binding upon the parties hereto, and all expenses incurred in connection with such reevaluation and redetermination by said independent evaluation engineer(s) shall be divided equally between the parties hereto."

"* * * Provided, however, that in the event you should desire to release or relinquish any portion of the subject properties, either by the failure to pay delay rentals or otherwise, at any time subsequent to the date hereof, you shall so notify me, in writing, and I shall have a period of thirty (30) days following receipt of such notice within which to notify you, in writing, that I desire a reassignment of any such lease, and you shall, within thirty (30) days following receipt of my notice as aforesaid, reassign to me the entire right, title and interest in any such lease insofar as same covers lands, the gas leasehold interest in which you so desire to release or relinquish, which I have assigned to you pursuant to this agreement. In the event I fail to notify you within said period that I do not desire reassignment of such gas leasehold estate, you shall have the right to release or relinquish the same, and you shall have no further liability therefor to me. As to any portion of the subject lands which is either reassigned to me or released and relinquished by you as aforesaid, the gas reserves under any such lands, if any, shall not be considered in making the reevaluation and redetermination of recoverable gas reserves as provided for hereinabove."

The leases were duly assigned to the defendant on March 21, 1958, and certain development took place in the areas involved by the defendant and others during the said two year period which began on March 21, 1958, the date of closing, and ended on March 21, 1960. The leases finally involved were situated in eight different sections and will be treated under the following eight descriptions with the development pertinent to each within the said two year period set out under its description:

1. Section 43, Blk. 23, H. & G. N.

Defendant drilled a well in the S. W. ¼ of this Section under 160 acre spacing, a west off-set well under 640 acre spacing, and also drilled a well in the Section to the south. Another company drilled a north offset which was a dry hole.

2. E½ of E½, Section 63, Blk. 23, H. & G. N.

This 160 acres was united with the balance of the acreage in the section to form the required 640 acre spacing unit. Defendant drilled a well in this spacing unit (S. W. ¼) and also drilled a west and south offset. A dry hole had previously been drilled in the north offset. Defendant owned no leases in the east offset but another company drilled a dry hole in an east offset location.

3. Section 10, Blk. 23, H. & G. N.

Defendant drilled a well in the N. ½ of the section to the north. Another company drilled a dry hole in the S. ½ of the section to the north. A dry hole had previously been drilled in the center of the section to the north. The parties relinquished this lease in April, 1960, as developments in the field showed this section to be down structure from the probable gas-water contact line.

4. NE¼, Section 104, Blk. 22, H. & G. N.

The defendant drilled a north offset and a northeast diagonal offset. Another company drilled an east offset. The defendant did not drill a west offset on which it owned the lease but did drill in the section to the west one spacing unit removed. Another company drilled a dry hole in the section to the south.

5. SW¼, Section 71, Blk. 16, H. & G. N.

Defendant owned no offsetting leases to the north, west or south but had the lease on the east offset. Another company drilled the north offset and the southwest diagonal offset. The defendant did not drill the east offset but drilled two wells in the section to the east. There was a previous dry hole in the northeast diagonal offset.

6. NE¼ Section 70, Blk. 16, H. & G. N.

Defendant drilled the northeast diagonal offset and a second well in the northeast diagonal section and wells in the sections to the east and south. Another company drilled wells in the sections to the north and west.

7. 19.29 acres in NW¼ NW¼ Sec. 36, Blk. 17, H. & G. N.

A defendant farmout well was drilled in the south part of this section (a south offset location) and another well in the section to the north.

8. E½ NE¼ Section 35, Blk. 17, H. & G. N.

A defendant farmout well was drilled in the section to the east (SE diagonal offset) and the northeast diagonal section. There was a dry hole on this tract unknown to any of the parties until shortly before trial.

The language of the written contract between the parties provided for sufficient test wells on each lease or on leases owned by defendant adjacent to each lease to enable a reevaluation. It thus becomes necessary to determine, first, what is an adjacent lease under the contract, and then, second, what drilling operations are essential to provide sufficient information to enable representatives of the parties to redetermine and reevaluate the underlying gas reserves as to each lease.

This contract covers Texas property, was to be performed in Texas, and is governed by Texas law. See Cowley v. Anderson, 10 Cir., 159 F.2d 1. Under Texas law adjacent (leases) need not be contiguous nor touching but may be removed from the subject property (lease). The following Texas cases would seem to settle this point:

In State of Texas ex rel. Pan American Production Co. et al. v. Texas City, Texas, et al., 157 Tex. 450, 303 S.W.2d 780:

"The term `adjacent' is not a word of fixed or definite meaning. The authorities are almost unanimous in according to that term the meaning of `neighboring or close by' or `in the vicinity of and not necessarily contiguous or touching upon.' The meaning is determined to some extent by the context or by the subject matter. State v. Camper, Tex.Civ. App., 261 S.W.2d 465, wr. ref. * *"

In Broun et al. v. Texas & N. O. R. Co. (Tex.App.) 295 S.W. 670:

"The word `adjacent' has been variously used in the sense of `abutting,' `adjoining,' `contiguous,' `attached,' `beside,' `bordering on,' `close or nearby,' `close or contiguous, but not touching,' `near,' `close,' `in proximity,' `neighboring but not necessarily in contact.' 1 C.J. 1196; 1 A. & E. Ency. of Law (2d Ed.) 633. In United States v. St. Anthony Railway Company, 192 U.S. 524, 24 S.Ct. 333, 48 L.Ed. 548, where an act granted to certain railroads the right of way through public lands, with the right to take materials for the construction of their lines from the public lands `adjacent' to the line of the road, it was held that lands within two miles of the right of way were adjacent. That which is adjacent may be separated by some intervening object. Baxter v. York Realty Company, 128 App.Div. 79, 112 N.Y. S. 455, 456. A thing is adjacent to another when it lies near or close to it, although it is not in actual contact

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