White v. Conoco, Inc.

• Decision Date: 22 June 1983
• Docket Number: No. 81-1969,81-1969
• Citation: 710 F.2d 1442
• Parties: Wilbur R. WHITE d/b/a Wilbur R. White Oil Enterprises, Wayne Clark, John Rankin d/b/a Rankin Production Co., Joe H. Cunningham, Dan Cunningham and Richard K. Goodwin, Plaintiffs-Appellees, v. CONOCO, INC., a Delaware corporation, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1442

710 F.2d 1442

Wilbur R. WHITE d/b/a Wilbur R. White Oil Enterprises, Wayne Clark, John Rankin d/b/a Rankin Production Co. Joe H. Cunningham, Dan Cunningham and Richard K. Goodwin, Plaintiffs-Appellees, v. CONOCO, INC., a Delaware corporation, Defendant-Appellant.

No. 81-1969.

United States Court of Appeals Tenth Circuit.

June 22, 1983.

Kenneth I. Jones, Jr., Oklahoma City, Okl. (James S. Matthews, Jr., Oklahoma City, Okl., with him on the brief) of Eagleton, Nicholson, Jones & Blaney, Oklahoma City, Okl., for plaintiffs-appellees.

C. Harold Thweatt, Oklahoma City, Okl. (Steven L. Barghols, Oklahoma City, Okl., with him on the brief) of Crowe & Dunlevy, Oklahoma City, Okl., for defendant-appellant.

Before BARRETT, DOYLE and SEYMOUR, Circuit Judges.

BARRETT, Circuit Judge.

Conoco, Inc. (Conoco) appeals from the final judgment of the trial court, following a jury verdict, awarding Wilbur R. White, et al. (White) compensatory damages of $400,000 and punitive damages of $50,000 for trespass to real property and deprivation of White's right to explore for oil and gas and/or breach of an implied or quasi-contract. This appeal was taken after the court denied Conoco's motion for judgment notwithstanding the verdict or, in the alternative, for new trial. We will affirm.

We undertake our review of the evidence in the record in the light most favorable to the prevailing party, White, with the rules firmly in mind that the appellate court does not retry the facts and that the party seeking to set aside a jury verdict must demonstrate trial errors which constitute prejudicial error or that the verdict is not based on substantial evidence. Rasmussen Drilling, Inc. v. Kerr-McGee Nuclear Corp., 571 F.2d 1144 (10th Cir.), cert. denied, 439 U.S. 862, 99 S.Ct. 183, 58 L.Ed.2d 171 (1978). Jury findings on sharply conflicting evidence are conclusively binding on appeal inasmuch as jurors are charged with the exclusive duty of assessing the credibility of witnesses and determining the weight to be given to their testimony. Id.

In 1961 the Oklahoma Corporation Commission created the West Short Junction Unit as a secondary recovery project for the recovery of oil from the Hunton Lime-Bartlesville (Hunton) formation by waterflooding. This was a very large unit with many participating leases and owners. A plan of unitization was entered into among all of those having interests in the oil and gas underlying the unit. The plan called for a waterflooding operation, created an operating committee, designated Conoco as unit operator, and provided for marketing and accounting and abandonment of wells. Article 23.1 of the plan dealt with the authority of the unit operating committee to sell leases and wells owned by the unit. It provides:

ABANDONMENT OF WELLS: If the Operating Committee at any time desires to abandon any well completed in the Hunton Lime-Bartlesville Sand and salvage the casing and other equipment that is part of the well, the Lessee or Lessees of the Separately Owned Tract on which such well is located shall be notified in writing of such decision and shall be granted thirty (30) days from the receipt of such notice within which to elect to take over such well for the purpose of completing the same in some other formation not a part of the Unit Area. Any such Lessee electing to take over such a well shall pay the net salvage value of the casing and other equipment in and on the well, as determined by the Operating Committee and shall agree to assume full responsibility for the proper plugging and abandonment thereof at such time as the well is ultimately abandoned. No such well shall be operated or used for the production of Oil and Gas from the Unit Area and to that end the Lessee taking over such well shall immediately cause the Hunton Lime-Bartlesville Sand in such well to be sealed off in a manner satisfactory to the Operating Committee, it being understood that such Separately Owned Tract shall continue to participate in Unit Production despite the cessation of production from such well. In the event the Lessee of such a Separately Owned Tract does not elect to take over such well, the Unit Operator shall proceed properly to plug and abandon the same and salvage as much of the casing and other equipment therefrom as can economically and reasonably be salvaged.

Defendant's Exhibit 7, p. 31 (Emphasis supplied).

The oil and gas lease involved in this controversy is a part of the unit and is a 40-acre tract known as the Smith Lease. In 1971, Conoco, as unit operator, drilled a well on the Smith Lease known as Smith No. 1 or No. 138. The well was drilled into the Hunton formation at a depth of about 7,900 feet. This well produced oil in paying quantities until July of 1973. The Smith Lease was owned by Union Texas Petroleum and Texas Pacific Oil Company, Inc., both of which were members of the unit operating committee. For convenience they shall jointly be hereafter referred to as Union Texas. Union Texas, when notified by Conoco, on behalf of the operating committee, that Smith No. 1 well was no longer productive in paying quantities, determined to purchase the well and shut it in because they intended to drill down and test the Viola formation--which is below the Hunton formation.

On July 13, 1973, Conoco, as unit operator, released, sold and transferred the Smith No. 1 well to Union Texas for about $545.00. The purchase agreement required Union Texas to comply with all terms of Article 23.1 of the unit plan, supra. Smith No. 1 was one of three wells in the unit purchased by Union Texas, as lessee, from Conoco on July 13, 1973. Union Texas intended to employ these wells to test the Viola formation. For reasons unexplained in this record, the Smith No. 1 well and some six other wells acquired by Union Texas from the unit were "shut in" at the surface, i.e., the valves on the wellheads at the top of the casing were closed, and no drilling was undertaken by Union Texas.

The testimony of Mr. Ralph Moore, a division manager of production for the Oklahoma City division of Conoco who held a degree in engineering, was consistent with that of other witnesses relative to the facts. He testified that: there were some 200 wells in the West Short Junction Unit; Conoco, as unit operator, had released about 13 wells to lessees; the operating committee had not met for the two year period he had served as division manager in Oklahoma City; when the Smith No. 1 well became uneconomical in the early 1970's, Conoco determined to release it, together with other wells in the unit; in late 1978, Conoco noticed that the wellhead on Smith No. 1 was leaking, and after Union Texas had been notified, its representatives removed the wellhead valve and installed a new one; during the process of replacing the wellhead valve, some 200 barrels of oil were "bled" off the well, which was the first indication to Conoco that there was oil in the Smith No. 1 wellbore; about a year later, in August of 1979, another leak developed in the Smith No. 1 wellhead and in the process of installing a new valve Conoco lifted out by tank truck some 40 barrels of oil; Conoco discovered soon thereafter that the Smith No. 1 well had in excess of 2,000 pounds of pressure on it; Conoco had known since 1973 that Smith No. 1 had been "shut in" at the surface by Union Texas and no demand had been made to inform Union Texas to plug and abandon the well; at no time prior to 1978 had Conoco attempted to reacquire the Smith No. 1 well; after it discovered the oil in Smith No. 1 well borehole and pressure in excess of 2,000 pounds, Conoco decided to attempt to reacquire the well; Conoco, in October, 1979, wrote to Union Texas offering to reacquire the Smith No. 1 well; Union Texas notified Conoco that it had assigned and sold the Smith No. 1 well and all rights under the subject lease except those depths, zones and formations included in and a part of the West Short Junction Unit to White, whereby White assumed the obligation to hold Union Texas harmless from any claims arising with regard to the unitized zones and to plug and abandon the well in accord with Oklahoma law; on November 9, 1979, Conoco wrote White and offered to purchase the Smith No. 1 well from him; White responded on December 3, 1979 that he believed that there was some potential of commercial production of oil from the Prue formation but that he would entertain an offer; on March 12, 1980, Conoco offered White $10,000 for an assignment of the Smith No. 1 well, having been authorized to offer as much as $20,000 for the well, notwithstanding company counsel's advice that Conoco could, as unit operator, use Smith No. 1 well to recover oil from the unitized formation because of the failure of White or Union Texas to "seal off" the unitized formation pursuant to Article 23.1 of the plan of unitization, which constituted abandonment of the well; on March 18, 1980, White wrote Conoco that he would sell Smith No. 1 well for $50,000.00, demanded that Conoco immediately cease and desist from using the well (Conoco had connected a flow line to Smith No. 1 well on October 22, 1979), and warned that any further use of the well by Conoco would be considered an intentional, willful and wanton action, contrary to White's ownership; on March 21, 1980, Conoco did shut-in the well and it disconnected the flow line because of the threatened lawsuit; upon advice of counsel, Conoco reconnected the flow line to the well and resumed production therefrom on May 14, 1980; White filed this suit on July 15, 1980; from approximately October, 1979, to February, 1981, Conoco produced some 6,911 barrels of oil, with a value of $258,178.33, from the Hunton formation through the Smith No. 1 well; Conoco did not request or demand that Union Texas or White "plug off" the Hunton formation or otherwise plug and abandon the Smith No. 1 well. [R., Vol. VI, pp. 131-161.]

White, who holds a degree in petroleum engineering,...