Celsius Energy Co. v. Mid America Petroleum, Inc.

• Decision Date: 31 January 1990
• Docket Number: No. 87-2675,87-2675
• Parties: CELSIUS ENERGY COMPANY, a Nevada corporation, Joseph K. Morford II, a California resident, Paul M. Shaver and Jack L. Stanford, Oklahoma residents, Plaintiffs-Appellants, v. MID AMERICA PETROLEUM, INC., a Colorado corporation, MAP 1981-3 Drilling Partnership, a Texas Limited Partnership, MAP 1982-3 Drilling Partnership, a Texas Limited Partnership, MAP 1983-1 Drilling Partnership, a Texas Limited Partnership, MAP 1983-2 Drilling Partnership, a Texas Limited Partnership, MAP 1983-3 Drilling Partnership, a Texas Limited Partnership, Knox Industries, Inc., a Texas corporation, Carodyne Energy 1981 B Ltd., a Texas Limited Partnership, Carodyne Energy 1982 B Ltd., a Texas Limited Partnership, Dynasty 1981-1 LTD., a Texas Limited Partnership, Dynasty Oil Corporation, a Delaware corporation, Kaztex Joint Venture, a division of Kaztex Financial Inc., a Wisconsin corporation, Ted Woods, Jess Edwards, Gordon Knox and R. Charles Northington, Texas residents, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1238

894 F.2d 1238

CELSIUS ENERGY COMPANY, a Nevada corporation, Joseph K.

Morford II, a California resident, Paul M. Shaver

and Jack L. Stanford, Oklahoma

residents, Plaintiffs-Appellants, v. MID AMERICA PETROLEUM, INC., a Colorado corporation, MAP

1981-3 Drilling Partnership, a Texas Limited Partnership,

MAP 1982-3 Drilling Partnership, a Texas Limited

Partnership, MAP 1983-1 Drilling Partnership, a Texas

Limited Partnership, MAP 1983-2 Drilling Partnership, a

Texas Limited Partnership, MAP 1983-3 Drilling Partnership,

a Texas Limited Partnership, Knox Industries, Inc., a Texas

corporation, Carodyne Energy 1981 B Ltd., a Texas Limited

Partnership, Carodyne Energy 1982 B Ltd., a Texas Limited

Partnership, Dynasty 1981-1 LTD., a Texas Limited

Partnership, Dynasty Oil Corporation, a Delaware

corporation, Kaztex Joint Venture, a division of Kaztex

Financial Inc., a Wisconsin corporation, Ted Woods, Jess

Edwards, Gordon Knox and R. Charles Northington, Texas

residents, Defendants-Appellees.

No. 87-2675.

United States Court of Appeals, Tenth Circuit.

Jan. 31, 1990.

Robert J. Emery, Oklahoma City, Okl., for plaintiffs-appellants.

Andrew J. Moore, Oklahoma City, Okl., for defendants-appellees.

Before ANDERSON, SETH and BRORBY, Circuit Judges.

SETH, Circuit Judge.

After examining the briefs and appellate record, this panel has determined unanimously that oral argument would not materially assist the determination of this appeal. See Fed.R.App.P. 34(a); Tenth Cir.R. 34.1.9. The cause is therefore ordered submitted without oral argument.

This is a diversity action in which the appellants, Celsius, et al., seek to cancel oil and gas leases of appellees, Mid America Petroleum, et al., located in Alfalfa County, Oklahoma. The trial court denied summary judgment for the plaintiffs and granted judgment for defendants. The case was presented on stipulated facts.

On appeal the issue is whether the trial court erred in finding that the appellees' declaration of pooling was authorized under pooling clauses contained in the oil and gas leases to thereby extend the leases. We affirm the trial court and hold that the appellees' exercise of the pooling power was authorized, effective, and did extend the primary terms of the oil and gas leases in question.

We review an order granting summary judgment under the same standard employed by the trial court under Rule 56(c) of the Federal Rules of Civil Procedure. Osgood v. State Farm Mut. Auto. Ins. Co., 848 F.2d 141, 143 (10th Cir.). Summary judgment should be affirmed if the record before the court shows that there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

As mentioned, the parties stipulated to all the underlying facts giving rise to this action. On February 26, 1981, the appellants' predecessor in interest executed two oil and gas leases with appellee, Mid America Petroleum, Inc., for a primary term of three years. The leases covered an 80-acre tract comprising of the South half of the Southeast quarter of Section 22, Township 28 North, Range 9 West, Alfalfa County, Oklahoma (the subject premises). Subsequently, the appellants were assigned the lessor's interest in the lease. Mid America Petroleum, Inc., as lessee, assigned its entire working interest in the lease to the appellees. MAP 1981-2 Drilling Partnership acquired a 62.5% interest in the total leasehold and later assigned this interest to MAP 1981-3 Drilling Partnership.

On February 24, 1984, the original assignees executed and filed the declaration of pooling here in issue in which MAP 1981-3 Drilling Partnership was not a party. The declaration thus pooled a part interest of the subject premises with leases on an adjoining tract on which production had been effected. No production had been obtained on the subject premises. The declaration of pooling resulted in a pooling of 37.5% of the total mineral leasehold estate in the subject premises with the outside acreage.

The appellees contend that the pooling was authorized and thus, the production on the adjoining tract is attributable to the subject premises and operates to extend their leases beyond the primary terms. Appellants dispute this urging that the pooling was unauthorized and invalid when filed. Therefore, since no production was attributable to the subject premises before the primary terms of lessees' lease expired, appellees' leases should be canceled and title should be quieted in appellants' favor.

The appellants urge that in determining whether a lease grants pooling authority, we should consider the lessor's interest in developing the mineral estate and whether there is a valid legal or scientific reason for pooling. The appellants assert that the pooling had the effect of diluting the lessor's interest. Thus the appellants' position is that, when so examined, the pooling was not in their interests, the declaration of pooling was unauthorized and was invalid.

Effective March 26, 1984, the Oklahoma Corporation Commission in response to an application by Mid America filed February 24, 1984, established a 160-acre spacing for a common source of supply of gas under Section 22 and held that one well would efficiently drain 160 acres. The parties had stipulated that "good faith" was not an issue since the pooling was done in good faith. So, with a geological basis for the pooling shown to exist, and no good faith issue, there remains only a consideration of the bare language of the pooling clause.

Whether the pooling was authorized is determined by the provisions of the lease as a whole and, of course, by the pooling clause. Heath v. Fellows, 526 F.Supp. 723, 725 (W.D.Okla.) (citing 5 Summers, Oil and Gas Sec. 967 at 104-105 (1966); 4 Williams & Meyer, Oil and Gas Law Sec. 668 at 1 (1981)). The language governs if it is clear and explicit, and does not involve an absurdity. Okla.Stat. tit. 15, Sec. 154 (1966); Martens v. Kaiser-Francis Oil...