Atwood v. Humble Oil & Refining Company
| Decision Date | 26 January 1965 |
| Docket Number | No. 21606.,21606. |
| Citation | 338 F.2d 502 |
| Court | U.S. Court of Appeals — Fifth Circuit |
| Parties | Edwin K. ATWOOD, Alice B. Atwood, Richard W. Atwood, N.C.M., by Alice B. Atwood as his next friend and conservatrix, and Alice B. Atwood, as conservatrix of the Estate of Richard W. Atwood, N.C.M., Thomas H. Fisher and Ruth P. Fisher, Appellants, v. HUMBLE OIL & REFINING COMPANY, Appellee. |
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Sidney Farr, Houston, Tex., Thomas H. Fisher, Chicago, Ill., Barrow, Bland, Rehmet & Singleton, Houston, Tex., of counsel, for appellants.
Walter B. Morgan, Houston, Tex., Dillard Baker, Houston, Tex., of counsel, for appellee.
Before HUTCHESON, RIVES and BROWN, Circuit Judges.
This case arose out of a dispute concerning the proper construction of a mineral lease and contemporaneous contracts executed on September 26, 1933, by the independent executors and trustees under the will of Mrs. Henrietta M. King, wife of the founder of the King Ranch, and Humble Oil & Refining Company. Mrs. King died in 1925, leaving the ranch in trust for a term of ten years to named trustees, three of whom were also named independent executors of her estate, whose duties included partitioning the estate among the persons designated in Mrs. King's will. The lease involved here was executed to Humble, Defendant-Appellee,1 prior to the partition of Mrs. King's estate and is known as the King Ranch lease. Contemporaneously the trustees borrowed $3,500,000 from Humble, executing a contract which recited the details of the loan agreement. The parties also entered a "non-exploration agreement", some provisions of which we will mention below.
Subject to the lease, the trustees on March 30, 1935, partitioned to the Atwood branch of the King family 10,809.9 acres in Jim Hogg County and certain acreage in Willacy and Kenedy Counties known as the Sauz Ranch. These tracts, together with two small tracts in Willacy County called the Bell and Bell B tracts are collectively known as the Atwood properties and all lie within the bounds of the Humble lease. In the partition deed the trustees also apportioned a part of the debts owed Humble to the lands partitioned to the Atwoods. The Atwood plaintiffs sue as successors to the original lessor's interest in that portion of the King Ranch partitioned to them. It was stipulated for purposes of this suit that plaintiffs Thomas H. Fisher and his wife, Ruth P. Fisher, have acquired 45 percent of the Atwood title.
The lease had a primary term of twenty years, ending on September 26, 1953. It provided that promptly after the end of the primary term Humble should designate "the area or areas on which oil, gas and/or other minerals are then being produced * * *" and that the lease would continue in effect for the designated areas, but terminate as to all others. When the primary term ended there was production on the Atwood properties from the Willamar oil pools and the Tenerias gas pool on the Sauz Ranch and the Colorado oil pool in Jim Hogg County. Therefore Humble executed two instruments designating for retention those portions of the Atwood properties which it deemed to be "producing areas" as of the end of the primary term. This included 50,476.6 acres on the Sauz Ranch, 480 acres of the Atwood acreage in Jim Hogg County, and the Bell and Bell B tracts in Willacy County.
In 1954 plaintiffs filed this suit to construe the lease and contemporaneous contracts, to recover damages for alleged breaches of the lease minimum production formula and reasonable development covenant, to secure their royalty interest in kind rather than money, to recover Humble's profits from refining oil alleged to belong to plaintiffs, to declare two large payments made to plaintiffs by Humble to have been for sale of specific oil rather than payment of royalty under the lease, to recover interest on money allegedly owed by Humble, and to secure certain production and reserve data from Humble concerning the entire King Ranch.
This is the latest, and should be the last, in a long series of protracted litigations concerning the King Ranch and the King Ranch lease.2 The district court held for the defendant on all issues presented and entered judgment that plaintiffs take nothing. The record fully supports the findings, conclusions and judgment of the district court, and we could, without more, order the judgment affirmed. However, by way of explanation, we shall deal with each of the plaintiffs' contentions in turn, designating them by letter as they were presented to this court.
In their Contention A, plaintiffs argue that the area Humble designated as that portion upon which the lease should remain in force after the primary term of twenty years should be reduced so as to include only the pools of hydrocarbons actually in production at the end of the primary term. This portion of the case turns upon construction of the following lease provision:
"at the expiration of said twenty years if oil, gas or other mineral is then being produced from said land, the lessee shall promptly designate and define in writing the area or areas on which oil, gas and/or other minerals are then being produced, it being contemplated that lessee shall have the right to retain under the terms of this lease the area or areas included within the geologic structures or formations proven to be productive at the end of said twenty year period; and in determining what area or areas are proven to be productive only the area or areas shall be designated from which there are being produced oil, gas and/or other minerals at the end of such twenty year period, and in determining the extent of such productive area or areas consideration shall be given to geologic information obtained from all wells, including dry holes, if any, in the vicinity and from the surface geology and from investigation with geophysical instruments or methods and/or from other methods which then may be in use in the industry; and as to said area or areas the lease shall continue as long thereafter as oil, gas, or other mineral is produced therefrom."
Plaintiffs do not attack Humble's designation of the Colorado Field in Jim Hogg County, but they contend that the designation on the Sauz Ranch property, including the Willamar oil pools and the Tenerias gas pool, was not properly made. Humble designated the area to be retained by a metes and bounds description, including the pools in one tract, on the theory that the designated area represented the surface above one geologic structure which Humble identified as a large anticline.
Plaintiffs first contend that the lease provision quoted above does not entitle Humble to retain an entire geologic structure but only the subterranean pools of hydrocarbons from which minerals are actually being produced. Their argument is that the "area" is not to be designated by a metes and bounds description on the surface, but rather by delimiting the pools themselves, drawing their horizontal and vertical bounds. Under this three-dimensional designation theory Humble would be required to treat each pool of hydrocarbons as a separate "producing area" so that the lease would remain in force beyond the primary term only on the pools themselves, and terminate as to the sands above and below the producing pools and in the remainder of what Humble contends is one geologic structure. In the alternative, plaintiffs argue that even if the lease does entitle Humble to retain an entire geologic structure the area designated by Humble is still too large, both horizontally and vertically. The plaintiffs contend that the horizontal designation is too large on the theory that there is not one geologic structure under this area, but rather two separate structures which should be separately designated. They contend that the lease calls for the designation to set vertical limitations because Humble is only entitled to retain the geologic structures and not the areas which lie above or below them.
The district court, sitting without a jury, made a finding of fact that the area designated by Humble is included in a single geologic structure, proven to be productive at the end of the primary term. The court construed the lease as authorizing Humble to designate the producing area by defining the boundaries of the tract or area of land overlying the geologic structure within which the producing pools occur. The court concluded that since the production is occurring from a geologic structure, the lessee is not limited in designating the area to the pools or reservoirs, but rather is authorized to designate the surface above the entire geologic structure. The district court held that the designation made by Humble was authorized by the terms of the lease.
There is a wealth of geological evidence, including maps and exhibits, generally accepted by both parties as accurate but the geologists testifying for the respective parties differ in their opinions as to the proper interpretation of that evidence. A careful review of the record convinces us that the evidence fully supports the district court's findings of fact on the geologic conditions in the disputed area. We also find the lease unambiguous and agree with the construction placed upon it by the district court. Plaintiffs' argument that the lease requires Humble to make a three-dimensional designation calls for a strained and artificial construction more calculated to ascertain the plaintiffs' present desires than the actual intent of the parties when they executed this lease. "Area" was the basic term for that which was to be designated and is clearly more appropriate for surface measurement than three-dimensional measurements when used in the context of an oil and gas lease. As this Court said in Fleming v. Farmers Peanut Co., 128 F.2d 404 (5th Cir. 1942), "The word area means a surface, a territory, a region * * *." We are of the opinion that...
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