Bristol v. Colorado Oil and Gas Corporation

• Decision Date: 01 June 1954
• Docket Number: 6057.,Civ. No. 5991
• Citation: 126 F. Supp. 487
• Parties: R. A. BRISTOL and Ralph A. Bristol, Trustee, Plaintiffs, v. COLORADO OIL AND GAS CORPORATION, a corporation, and Colorado Interstate Gas Company, a corporation, Defendants. COLORADO OIL AND GAS CORPORATION, a corporation, and Colorado Interstate Gas Company, a corporation, Plaintiffs, v. Quintin LITTLE, Defendant.
• Court: U.S. District Court — Western District of Oklahoma

126 F. Supp. 487

R. A. BRISTOL and Ralph A. Bristol, Trustee, Plaintiffs, v. COLORADO OIL AND GAS CORPORATION, a corporation, and Colorado Interstate Gas Company, a corporation, Defendants.

COLORADO OIL AND GAS CORPORATION, a corporation, and Colorado Interstate Gas Company, a corporation, Plaintiffs, v. Quintin LITTLE, Defendant.

Civ. Nos. 5991, 6057.

United States District Court W. D. Oklahoma.

June 1, 1954.

Donley C. Wertz, Dallas, Tex., Fisher Ames, Oklahoma City, Okl., for R. A. Bristol and another.

Lewis M. Poe, Colorado Springs, Colo., Lynn Adams, Oklahoma City, Okl., for Colorado Oil & Gas Corp. and another.

J. I. Goins, Ardmore, Okl., for Quintin Little.

VAUGHT, Chief Judge.

In Cause Number 5991, plaintiffs seek to cancel an oil and gas lease and to quiet title to an undivided 6/32nds interest in the mineral in and under the following described lands in Cimarron County, Oklahoma: South Half of Section 16, Township 5 North, Range 8 East of the Cimarron Meridian, and for an accounting for the gas taken therefrom.

In Cause Number 6057, the plaintiffs file a declaratory judgment action against Quintin Little, who owns an undivided 1/16 interest in the minerals in and under the lands above-described, to determine the validity of the oil and gas lease.

Both cases will be determined by the same applicable facts and the principal question involved is whether or not the lease in question is now in full force and effect, or whether it lapsed or was forfeited because of the failure of the lessee to market gas from said premises.

On March 11, 1940, Robert E. Cox executed a five-year oil and gas lease covering the land above described. The lease was shortly thereafter assigned to The Pure Oil Company (hereinafter referred to as Pure Oil). During the year 1942, R. A. Bristol, Ralph A. Bristol, Trustee, and Quintin Little acquired interests in and to the minerals lying in and under said lands which minerals were subject to said oil and gas lease. On December 13, 1942, Pure Oil commenced drilling of a well on the above described land and continued drilling operations until said well was completed as a commercial gas producer on May 9, 1943, having a potential capacity of 19,000,000 cubic feet of gas per day. Upon the completion of the well it was found there was no market for the gas and the well was shut in. Throughout the primary five-year term of said lease, the delay rentals were paid annually to and accepted by all the mineral owners.

On December 22, 1944, all record owners of minerals in and under the captioned land were requested by Pure Oil to sign a certain agreement providing for shut-in royalties on the non-utilized gas, and again on February 1, 1946, a similar request was made to all mineral owners. All mineral owners of record, except the Bristols and Little, executed said agreement. Pure Oil continued to pay delay rentals to all parties including the Bristols and Little. The Bristols received and retained said rentals until February 15, 1952, when they returned said checks. Little returned his checks for the payments made in 1951 and 1952.

On July 2, 1952, Pure Oil sold and transferred said oil and gas lease to the Colorado Oil and Gas Corporation (hereinafter referred to as Colorado Oil), which connected a gas transmission line to said well on November 1, 1952, and produced gas therefrom during the months of November and December, 1952. On January 1, 1953, Colorado Oil sold the lease to the Colorado Interstate Gas Company (hereinafter referred to as Colorado Interstate), which is now the owner and holder thereof and is producing gas therefrom.

When the well was brought in, an analysis of the gas showed it had a high nitrogen content — 28% or 29%, and a low B.T.U. content of 800 B.T.U. The well was a wildcat well and was the first one drilled in the Keyes Field. Pure Oil continued to drill in the area, and by June, 1946, had three other gas wells on nearby acreage.

The contention of the Bristols and Little is that the operator failed to exercise due diligence in finding a market for said gas. The contention of Colorado Interstate and its predecessors in ownership is that they exercised all reasonable diligence in attempting to find a market for the gas. The testimony of the gas company is to the effect that it contacted various prospective purchasers of gas, both in an effort to sell the gas or even to sell the lease if a proper purchaser could be found, but to no avail.

In 1951 Colorado Interstate built a large 20-inch transmission line from the Texas Panhandle to Colorado, which supplied natural gas to Denver. This line was six and one-half miles from the Cox lease. In July, 1952, Colorado Interstate secured permission to build a 10-inch line from its large 20-inch line to the Cox well. This 10-inch line was completed and the Cox well was placed on production in November, 1952.

There were no transmission lines into the Keyes Field (on which the Cox well was located), prior to the construction of the Colorado Interstate line in 1951, and under the evidence there was no drainage of gas from the field. At that time the Hugoton Field more than twenty miles away was the nearest gas field from which gas was being sold commercially, and gas was then selling from 3½¢ to 4¢ per MCF. For the months of November and December, 1952, Colorado Oil settled with the mineral owners for their royalty on a basis of 7½¢ per MCF. In 1953, Colorado Interstate settled with the mineral owners for their royalty on a basis of approximately 8¢ per MCF. At the present time Colorado Interstate is settling with the mineral owners for their royalty on the basis of 15¢ per MCF, adjusted for the B.T.U. content, which nets the mineral owners under the Cox well 12¢ per MCF.

There were two reasons given by Colorado Interstate and its predecessors for their failure to find a purchaser for the gas from the Cox well. One, was the inaccessibility of the well. To have constructed a pipe line would have been an expensive operation, not justified by the production from the well. Second, was the peculiar content of this gas. It could not be utilized in its natural form, and the reason why Colorado Interstate could utilize it, was, it mixed it with gas produced from other fields and carried through its 20-inch pipe line to Denver.

The question here is whether or not Pure Oil exercised reasonable diligence and judgment in attempting to find a purchaser. Under the evidence the following companies were contacted in an effort to dispose of this gas: Peerless Oil and Gas Company; Ohio Fuel Supply Company; W. C. Taggart; Great Lakes Carbon Corporation; Colorado Interstate Gas Company; Sunflower Natural Gas Company; Permanente Metals Corporation; Husky Refining Company; Ideal Cement Company; Emby Kaye; ...