Empire Oil & Refining Co. v. Hoyt

• Decision Date: 07 June 1940
• Docket Number: No. 8181.,8181.
• Citation: 112 F.2d 356
• Parties: EMPIRE OIL & REFINING CO. v. HOYT.
• Court: U.S. Court of Appeals — Sixth Circuit

112 F.2d 356 (1940)

EMPIRE OIL & REFINING CO. v. HOYT.

No. 8181.

Circuit Court of Appeals, Sixth Circuit.

June 7, 1940.

COPYRIGHT MATERIAL OMITTED

Gilbert W. Hand, of Bay City, Mich., and Frank H. Bacon, of Bartlesville, Okl. (Gilbert W. Hand, Harold J. Hand, and Frank H. Bacon, all of Bay City, Mich., on the brief), for appellant.

O. L. Smith, of Detroit, Mich. (Cook, Smith, Jacobs & Beake, of Detroit, Mich., on the brief), for appellee.

Before HICKS, ALLEN, and HAMILTON, Circuit Judges.

HAMILTON, Circuit Judge.

Appellant, Empire Oil and Refining Company, appeals from a judgment of $8,092.00 in damages against it in favor of the appellee, Mabel Finch Hoyt. In 1930, appellee made a lease to the appellant on a royalty basis of one-eighth of the oil produced on forty acres of land located in proven oil territory in Porter Township, Midland County, Michigan, for the drilling, removal and sale of oil, under the terms of which appellant was authorized to drill wells and operate them at its risk and expense including the right to use contiguous surface land for that purpose. Appellant assigned its rights in the south half of the lease to the Dokenva Gas Corporation, which acreage is not involved in this action.

Appellant drilled two wells in the north twenty acres of the tract. Oil in quantities was found in each, which later disappeared as the result of water encroachment, which appellee claims was let in because of negligent acidization by appellant. The cause was submitted to a jury which found for appellee.

At the close of the evidence, appellant moved for a directed verdict, to the refusal of which error is assigned. It insists (1) that there was no substantial evidence of negligence, (2) that there was no substantial evidence that appellee sustained any damage, and (3) that the acidizing was under the supervision and control of an independent contractor.

In 1934 appellant began the drilling of one well on the east ten acres of the north twenty acres of the tract, which was completed April 29, 1934, and which is referred to in the record as "Finch No. 1." It began the drilling of the second well April 4, 1934, which was completed May 30, 1934, and is referred to in the record as "Finch No. 2." Finch No. 1 had an oil-bearing strata from 3,408 to 3,411 feet and then a structural interference of 14½ feet, with a resumption of producing strata of 1½ feet. Finch No. 2 had a producing strata beginning at 3,408 feet, extending to 3,411½ feet.

Appellant concluded that Finch No. 1 at a depth of 3,427 feet did not produce oil in paying quantities and it employed the Dow Chemical Company to acidize it on May 9, 1934, which increased production from 115 to 1,400 barrels daily. The same treatment of Finch No. 2 on June 4, 1934, increased production from 50 to 1,930 barrels daily. Salt water shortly impregnated the wells and they were abandoned in September, 1935, after production of 36,000 barrels of oil together with large quantities of salt water which were mechanically separated. Appellee received in royalties $4,483.63 and appellant sustained a net loss of approximately $22,000.

Appellee claims that when appellant acidized the wells it negligently failed to take into consideration the underlying proximity of salt water, the known characteristics and quality of the oil-bearing strata, the limestone texture out of which the oil drained, which resulted in its using an improper quantity of acid at an inaccurate pressure without an underlying blanket. She claims that as a proximate result, the oil-bearing strata under her property became so impregnated with salt water as to make it worthless for oil production.

In order to dispose of the problem presented it is well to bear in mind some of the well-known conditions essential to the occurrence of oil in the earth's strata, which are: presence of rocks of sedimentary origin or in some instances proximity to rocks of such origin; absence of intense metamorphism; presence of sandstones, limestones, sand or other strata sufficiently porous to hold oil; some source from which the oil may have been formed and absence of water so that the oil is permitted to accumulate into pools, also suitable cover to prevent the oil from seeping away or being pushed to the surface of the earth or into adjoining strata by underground waters; suitable structure or attitude of the strata to cause oil to be collected locally into pools with the assistance of such other factors as water gravitation or rock pressure. Where beds have been folded, as in most of the known oil fields of the world, the gas, oil and water separate and seek their respective levels according to their relative specific gravity. Whatever material cause may account for the movement of gas, oil and water, the law of gravitation being ever operative, the accumulation is in the order of the densities of the subject; hence, on an anticlinal, monoclinal or quaquaversal structure, gas lies nearest the crest, oil lower down and water still lower on the flanks of the uplift.

The area in question is known as the "Porter Field" with oil-bearing lime strata being from 90 to 90½% pure sodium, magnesium or calcium carbonate. Appellee's land was near the edge of the oil structure with large producing wells to the north, medium wells to the east and west, and small wells to the south, tapering off into salt water wells or dry holes. Underground water pressure was menacing the oil, constantly forcing it upward through the well hole and, from other wells drilled in the field, the approximate water level into which it was dangerous to sink a well was known.

The Dowell method for increasing the flow of oil from a well is the use of hydrochloric acid, a liquid chemical reagent, strong and of extreme activity, which enlarges and reopens pores in oil-bearing limestone formations. The mechanics of the process are to first fill the well with oil, using inhibited acid to prevent corrosion of the tubing, applying pressure to force the hydrochloric acid into the rock channels and pores, which causes their softer parts to become soluble. After a predetermined time, the acid is flowed or pumped out, leaving enlarged pores in the oil-bearing strata. The hydrochloric acid attacks the limestone formation in all directions and, amenable to the law of gravitation, the pressure downward is greater than lateral assuming equal density of strata.

Appellee insists that to correctly acidize the wells in question, a blanket of calcium chloride or some other heavy inert liquid at the bottom of the well was required to arrest the penetration of the hydrochloric acid to the salt water level. Appellant admits the corrosive acid was used without a blanket and the real issue in the case turns on whether its non-use constituted negligence. Before using the Dowell method, it is essential that the operator give consideration to the texture of the strata as shown from the cuttings of the drill and also the water level as shown from the drilling of contiguous wells or any other available source of information. The evidence shows appellant furnished to Dow for analysis the cuttings from each of the wells and there is substantial evidence in the record that the operator for Dow, in determining the method of acidizing, assumed there was a thickness of twenty-five feet in the oil-producing limestone. He testified this data was furnished him by appellant's Supervisor of Operations....