Brixey v. Union Oil Company of California

• Decision Date: 24 April 1968
• Docket Number: Civ. A. No. 2098.
• Citation: 283 F. Supp. 353
• Parties: Frank M. BRIXEY and Lyda M. Brixey, Plaintiffs, v. UNION OIL COMPANY OF CALIFORNIA (Successor to the Pure Oil Corp.), Defendant, Gulf Oil Corporation, Intervenor.
• Court: U.S. District Court — Western District of Arkansas

283 F. Supp. 353

Frank M. BRIXEY and Lyda M. Brixey, Plaintiffs, v. UNION OIL COMPANY OF CALIFORNIA (Successor to the Pure Oil Corp.), Defendant Gulf Oil Corporation, Intervenor.

Civ. A. No. 2098.

United States District Court W. D. Arkansas, Fort Smith Division.

April 24, 1968.

Sam Sexton, Jr., Fort Smith, Ark., Wayland Parker, Greenwood, Ark., for plaintiff.

Roger K. Allen, Oklahoma City, Okl., Hardin, Barton, Hardin & Jesson, Ft. Smith, Ark., for Gulf Oil.

Vinson, Elkins, Weems & Searls, Houston, Tex., Warner, Warner, Ragon & Smith, Ft. Smith, Ark., for Union Oil.

OPINION

JOHN E. MILLER, Senior District Judge.

This is an action for ejectment and damages.

The case was tried to the court, without the intervention of a jury, on February 27, and 28, 1968. At the conclusion of the plaintiffs' evidence in chief, the intervenor, Gulf Oil Corporation, submitted a motion for judgment in its favor. Ruling on the motion was deferred, and at the conclusion of all the evidence the court denied the motion. The case was submitted, and the parties have submitted voluminous briefs in support of their contentions.

Notwithstanding the length of the briefs, the material issues are few and not difficult of resolution.

For a better understanding of the issues the court believes that an abstract of the oil and gas lease, under which the defendant purportedly holds, and the pleadings should be set forth.

Lease

On March 6, 1957, plaintiffs executed and delivered to The Pure Oil Corporation (which later became Union Oil Company of California) an oil and gas lease on the following described lands:

Counties of Logan and Sebastian, Arkansas T 6 N, R 28 W—Section 6, SW¼ Section 7, NW¼ NE¼ and N½ NW¼ T 6 N, R 29 W—That part of the NE¼ NE¼ lying East of a Line 100 feet East of the Center Line of Rattle Snake Canyon Road in Section 12, in Sebastian County, Arkansas.

The lease was for a period of ten years "and as long thereafter as oil, gas, casinghead gas, casinghead gasoline, or either of them is produced from said land, or from lands with which said land is pooled * * *." (Emphasis added.)

The pooling clause of the lease reads as follows:

"Lessee, at its option, is hereby given the right and power to pool or combine the acreage covered by this lease or any portion thereof with other land, lease or leases in the immediate vicinity thereof, when in Lessee's judgment it is necessary or advisable to do so in order to properly develop and operate said lease premises so as to promote the conservation of oil, gas or other minerals in and under and that may be produced from said premises, such pooling to be of tracts contiguous to one another and to be into a unit or units not exceeding 45 acres each in the event of an oil well, or into a unit or units not exceeding 660 acres each in the event of a gas well; or Lessee may, at its option and without Lessor's joinder, pool or combine the acreage covered hereby, or any portion thereof, with other land, lease or leases so as to establish a cooperative or unit plan, or plans, of development which would include land owned by the United States, regardless of size of such unit, following certification of such plan or plans by the Secretary of the Interior. Lessee shall execute in writing and record in the conveyance records of the county in which the land herein leased is situated an instrument identifying and describing the pooled acreage. The entire acreage so pooled into a tract or unit shall be treated, for all purposes except the payment of royalties on production from the pooled unit, as if it were included in this lease. If production is found on the pooled acreage, it shall be treated as if production is had from this lease, whether the well or wells be located on the premises covered by this lease or not. In lieu of the royalties elsewhere herein specified, lessor shall receive on production from a unit so pooled only such portion of the royalty stipulated herein as the amount of his acreage placed in the unit or his royalty interest therein on an acreage basis bears to the total acreage so pooled in the particular unit involved." (Emphasis added.)

The lease further provided:

"Should any well drilled on the above described land, or on acreage pooled therewith during the primary term and prior to production being obtained, be a dry hole, or if, after production is obtained, the same should cease from any cause during the primary term, then if a further well is not commenced on said land, or on acreage pooled therewith or reworking operations to restore such production have not been commenced, prior to the next ensuing rental paying date, this lease shall terminate as to both parties, unless the lessee on or before such rental date shall resume the payment of rentals, in the same amount and in the same manner as hereinbefore provided. And it is agreed that upon the resumption of the payment of rentals as above provided, that the provisions hereof governing the payment of rentals and the effect thereof, shall continue in force just as though there had been no interruption in the rental payments, and if the lessee shall commence to drill a well within the primary term of this lease on the land above described, or on acreage pooled therewith, the lessee shall have the right to drill such well to completion with reasonable diligence and dispatch, and if oil, gas, casinghead gas, casinghead gasoline, or either of them, be found in paying quantities, this lease shall continue and be in force with like effect as if such well had been completed within the primary term. Should production from the above described land, or from acreage pooled therewith, cease from any cause after the expiration of the primary term this lease shall not terminate provided lessee succeeds in bringing back such production within six (6) months from such cessation, or within such six (6) month period commences drilling another well on the above described land or on land pooled therewith, and prosecutes the drilling thereof with due diligence to completion, and if such production is restored through any such operations this lease shall continue with the like effect as if there had been no cessation thereof." (Emphasis added.)

Pleadings

On October 29, 1966, the plaintiffs commenced an action, No. 3427, in the Chancery Court of South Logan County, Arkansas, by filing their "Complaint in Equity" against The Pure Oil Corporation. In their complaint they alleged that they had executed and delivered to The Pure Oil Corporation the lease heretofore referred to, which lease had been placed of record in the Lease Records of South Logan County, Arkansas; that on some date prior to March 1963, the Gulf Oil Corporation caused a gas well to be drilled and placed in production, the same being referred to as the Peacock Unit and composed of all of Section 7, Township 6 North, Range 28 West, containing 698.72 acres; that the lands belonging to the plaintiffs located in said section were included in that unit, and royalty on the gas produced from said unit had been and was being paid to the plaintiffs.

Plaintiffs alleged that the defendant has refused and failed to drill offsets to the producing gas well and has refused to explore or develop plaintiffs' lands and has refused to pay delay rentals on said lands; that the plaintiff Frank M. Brixey "notified the defendant that no payment was being made on any lands except those in Section 7, Township 6 North, Range 28 West and demanded that the leases be forfeited or delay rentals be paid; that the defendant, The Pure Oil Corporation, replied by mail stating it was holding all of the lands covered by the above described lease by the production in Section 7, Township 6 North, Range 28 West and refused to either pay delay rental or to commence operation; that more than a reasonable time has elapsed without operations having been commenced and plaintiffs allege they are entitled to have the lease cancelled and all other instruments that constitutes a cloud on plaintiffs' title either cancelled or held to be subsequent and subservient to the rights of the plaintiffs herein."

The defendant Union filed its answer in which it denied each and every material allegation contained in plaintiffs' complaint. A copy of the answer was served upon Karl D. Glass, Booneville, Arkansas, the attorney of record for plaintiffs.

On August 10, 1967, the intervenor, Gulf, with permission of the Chancery Court, filed its intervention, in which it alleged:

"II.

"The intervenor at all times herein material is and was the owner of interests in oil and gas leasehold estates situated in Section 6, Township 6 North, Range 28 West, Logan County, Arkansas. On or about the 24th day of January, 1967, the intervenor entered into negotiations with the defendant for a farm-out of defendant's lease from the plaintiffs covering the Southwest Quarter, Section 6, Township 6 North, Range 28 West, Logan County, Arkansas. Intervenor sought its interest in the leases covered by said farm-out agreement for the purpose of creating a drilling unit consisting of all of said Section 6 for the drilling and operation of a gas well in the Atoka Formation as permitted by the oil and gas leases covering said section including the lease described in plaintiffs' complaint. * * *

"III.

"That during the period of the negotiations with the defendant the existence of the present lawsuit was discovered by the intervenor. Both the defendant and the attorneys of record for the plaintiff were advised that the intervenor was seeking a farm-out of the lease in question on the Southwest Quarter of said Section 6, but that it would not accept such a farm-out until the instant litigation had been settled or otherwise disposed of. * * *"

In paragraph IV of the intervention, Gulf alleged:

"* * * That by virtue of the farm-out agreement and the work undertaken pursuant thereto, the intervenor has an equitable interest in the lease

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