Vonfeldt v. Hanes

• Citation: 414 P.2d 7,196 Kan. 719
• Decision Date: 07 May 1966
• Docket Number: No. 44444,44444
• Parties: Pete G. VONFELDT, Appellee, v. Charles L. HANES, Appellant.
• Court: United States State Supreme Court of Kansas

Page 7

414 P.2d 7

196 Kan. 719

Pete G. VONFELDT, Appellee, v. Charles L. HANES, Appellant.

No. 44444.

Supreme Court of Kansas.

May 7, 1966.

Syllabus by the Court

The record in an action to cancel an oil and gas lease upon the ground that the owner of the lease violated the implied covenant to reasonably develop the lease by drilling additional wells after discovery, is examined, and it is held: (1) There was substantial evidence to support the district court's finding that the defendant did not fully or adequately develop the noth 40 acres of the 80-acre oil and gas lease in the manner of a reasonable and prudent operator, and (2) the district court did not err in entering judgment for the plaintiff cancelling the north 40 acres of defendant's 80-acre oil and gas lease, unless within 60 days from the date of judgment the defendant commenced the drilling of a well for oil and gas purposes.

Jan. G. Banker, Russell, argued the cause, and Harold W. McCombs, Russell, was with him on the briefs, for appellant.

Clifford R. Holland, Jr., Russell, argued he cause, and Marvin E. Thompson, George W. Holland and Mark Arthur, Jr., Russell, were with him on the briefs, for appellee.

FATZER, Justice.

This was an action by the landowner to cancel an oil and gas lease for violation of the implied covenant to reasonably develop the lease. Trial was by the court which made findings of fact and conclusions of law and rendered judgment in favor of the plaintiff. A decree was entered cancelling the north 40 acres of the defendant's 80-acre oil and gas lease unless the defendant commenced operation for the drilling of a well upon the 40-acre tract within 60 days from January 25, 1965. In lieu of performance the defendant gave a supersedeas bond to stay the judgment, and perfected this appeal.

The plaintiff, Pete G. Vonfeldt, is the owner of the northwest quarter of Sec. 6, Township 15 South, Range 14 West, of the 6th principal meridian, Russell County, Kansas. The original oil and gas lease covering the entire quarter section was for a term of 10 years from August 24, 1929, and as long thereafter as oil and gas was produced. A well was drilled on the west 80 acres within the primary term of the lease and there has been continuous production somewhere on the lease since that time, but not necessarily from the same well or wells.

In 1949, the defendant, Charles L. Hanes, purchased the oil and gas lease covering the east 80 acres of the quarter section, hereafter referred to as the Hanes lease or the east 80 acres. At that time, three wells had been drilled on the property and were producting oil. Well No. 1 was drilled in the northeast 10-acre location of the south 40 acres, and is still producing; well No. 2 was drilled in the northwest 10-acre location of the south 40 acres, and produced oil for a number of years, but was abandoned in 1960. In reworking the well, the pipe collapsed as the result of a Dakota leak, and workmen were never able to get tools back into the well. Well No. 3 was drilled in the northeast location of the north 40 acres, and produced nineteen barrels of oil a day for a few days and then started falling off. Hanes tried to rework the Arbuckle formation and could get nothing but water; he then plugged the Arbuckle and opened up all Lansing-Kansas City zones which had not previously been opened, but he was never able to make well No. 3 produce. Nothing further was done with the well except occasional testing until 1955 when it was plugged.

In 1954 Hanes drilled well No. 4 in the southwest 10-acre location of the south 40 acres. The well was acidized and at first made nine barrels of oil per day but thereafter it dropped down to four barrels per day and has since been producing approximately that amount. Hanes does his own pumping and roustabout work, and at the time of trial, wells Nos. 1 and 4 were the only producing wells on the east 80-acre lease.

During the 24 years oil has been produced from the Hanes lease, total production has amounted to approximately 120,000 barrels of oil. As previously indicated, well No. 3 produced very little and the three remaining wells produced most of the oil, making a well-average of almost 40,000 barrels. If a new well reached the average of 40,000 barrels, it would recover in excess of $112,000 at the current price of crude oil and would be economically feasible. At the present time, the two wells on the Hanes lease produce approximately six barrels of oil per day and make approximately fifteen barrels of water per day. All production is from the Lansing-Kansas City formation.

Approximately ten years prior to this litigation, the plaintiff purchased the oil and gas lease covering the west 80 acres of the quarter section and he owns and operates that lease. Four wells have been drilled on that lease, but the record is silent as to when they were drilled. The plaintiff testified that since he has owned the lease he has drilled no wells. A well was drilled on the northwest 10-acre location of the north 40 acres, which produced oil for several years, and has since been abandoned. A well was drilled on the northeast 10-acre location and was dry; a well was drilled in the center of the south half of the north 40 acres and was dry; a fourth well was drilled on the southeast 10-acre location of the south 40 acres, and it is still producing oil. The plaintiff testified he would drill a well on the north 40 acres of the Hanes lease but did not specify a particular location.

Plaintiff's Exhibit No. 1, prepared by R. P. Nixon, a petroleum geologist and oil producer who resides in Russell, Kansas, showed the locations of all wells drilled on the Vonfeldt quarter section and all wells drilled on surrounding land, and showed the minus elevation of each well. A minus figure indicates distance in feet below sea level. A low minus figure indicates a high structure, and a high minus figure indicates a low structure. The higher structures or lower minuses are the most likely to produce oil. Nixon testified that he was of the opinion a well drilled on the south half of the north 40 acres of the Hanes lease would encounter the Lansing-Kansas City at a favorable datum and he recommended that a well be drilled at the southwest corner of that 40 acres or a half location north, to a depth sufficient to test the Gorham Sand and Arbuckle, and that if a well were drilled it would recover sufficient oil to be a commercial well.

The district court found that the south 40 acres of the Hanes lease had been adequately developed and that no part of the south 40 acres should be cancelled. However, it found that the north 40 acres of the Hanes lease had not been fully developed and that the entire 40 acres should be cancelled unless the defendant commenced the drilling of a well thereon within 60 days.

The district court's judgment cancelling the north 40 acres of the lease included the northeast 10-acre location of well No. 3 which had been drilled and plugged, and which fully tested all known producing zones.

The defendant first contends the district court erred in ordering cancellation of the north 40 acres of the Hanes lease unless drilling operations were commenced within 60 days. The rules relating to the cancelling of oil and gas leases for violations of implied covenants have been stated in numerous decisions. Recent cases applying those rules are Temple v. Continental Oil Co., 182 Kan. 213, 320 P.2d 1039, rehearing denied 183 Kan. 471, 328 P.2d 358; Renner v. Monsanto Chemical Co., 187 Kan. 158, 354 P.2d 326, and Stamper v. Jones, 188 Kan. 626, 364 P.2d 972. In the Renner case it was said:

'In evolving the doctrine of implied covenants courts have placed great emphasis on individual property rights and construed oil and gas leases 'to promote development and prevent delay' upon the theory that the lessor had the right to have his land developed as rapidly as possible (Temple v. Continental Oil Co., 182 Kan. 213, 320 P.2d 1039, opinion denying rehearing, 183 Kan. 471, 328 P.2d 358; 2 Summers, Oil and Gas, § 371, p. 484; Merrill, Covenants Implied in Oil and Gas Leases, 2d ed., §§ 1, 6 and 7, pp. 15, 26 and 27). To that end, where the lease itself does not contain express provisions creating duties in the lessee to drill exploratory wells; to drill additional wells after discovery; to operate with diligence and market the product if oil and gas are discovered in paying quantities, and to protect the premises against drainage by wells on adjoining leases, the law imposes such duties upon the lessee under the doctrine of implied covenants (Howerton v. Kansas Natural Gas Co., 81 Kan. 553, 106 P. 47, 34 L.R.A.,N.S., 34; Culbertson v. Iola Portland Cement Co. (87 Kan. 529, 125 P. 81), supra, Ann.Cas.1914A, 610; Alford v. Dennis, 102 Kan. 403, 170 P. 1005; Webb v. Croft, supra (120 Kan. 654, 244 P. 1033); Thiessen v. Weber, supra (128 Kan. 556, 278 P. 770); Christiansen v. Virginia Drilling Co., supra (170 Kan. 355, 226 P.2d 263); Berry v. Wondra, supra (173 Kan. 273, 246 P.2d 282); Merrill, op. cit., supra, § 4, p. 23; Summers, op. cit., supra, § 395, p. 526). And, there are many other decisions to the same effect.'

It was further said:

'Generally speaking, the rule of the implied covenants to drill additional wells after...