Christmas v. Raley, 75--377

• Decision Date: 06 July 1976
• Docket Number: No. 75--377,75--377
• Citation: 539 S.W.2d 405,260 Ark. 150
• Parties: G. B. CHRISTMAS et al., Appellants, v. Mary Shelton RALEY et al., Appellees, Murphy Oil Corporation et al., Intervenor-Appellees.
• Court: Arkansas Supreme Court

Page 405

539 S.W.2d 405

260 Ark. 150

G. B. CHRISTMAS et al., Appellants, v. Mary Shelton RALEY et al., Appellees Murphy Oil Corporation et al., Intervenor-Appellees.

No. 75--377.

Supreme Court of Arkansas.

July 6, 1976.

Rehearing Denied Sept. 13, 1976.

Oliver M. Clegg of Keith, Clegg & Eckert, Magnolia, Ned A. Stewart, Jr., Texarkana, for appellants.

Smith, Stroud, McClerkin, Conway & Dunn by Hayes C. McClerkin, Texarkana, for appellees.

ROY, Justice.

Appellees Mary Shelton Raley, et al. and intervenor-appellees (intervenors) Murphy Oil Corporation and American Petrofina Company of Texas (Petrofina) sought a declaratory judgment that two oil fields, unitized on a field-wide basis by order of the Arkansas Oil and Gas Commission (Commission), consonant with Ark.Stat.Ann. §§ 53--115, subd. C--1 et seq., had terminated as units. Appellees and intervenors requested an order cancelling as clouds on their title the oil and gas leases upon which the units were created.

Appellees are the owners and lessors of the mineral acreage in the units here involved, known as the Genoa and Genoa-Tokio Units. Intervenors are lessees of this mineral acreage who acquired their leases in 1973 and 1974 subsequent to creation of the units by the Commission. Appellants G. B. Christmas, et al. are either lessees or the assigns of lessees of the acreage upon which the units are based, and had acquired the original mineral leases to the land. The Genoa Unit was created by the Commission on February 16, 1962, and the Genoa-Tokio Unit on October 17, 1963. Both fields are devoted to the extraction of hydrocarbon compounds by a water injection secondary recovery technique and both may, for practical purposes, be treated as one field.

Concurrently with the creation of the units by the Commission agreements were drafted which stipulated the rights of the respective parties in relation to the unit operations. Appellees and intervenors rely upon Article 18.1 of the unit agreements (UA) to support their termination claims. It provides:

The term of this agreement shall be for the time that Unitized Substances are produced in paying quantities and as long thereafter as Unit Operations are conducted without a cessation of more than ninety (90) consecutive days, unless sooner terminated by Working Interest Owners in the manner herein provided.

Appellants denied that the units and/or the leases on which the units were based terminated; questioned the chancellor's jurisdiction to act in this case; pled estoppel, waiver, laches and limitations; affirmatively sought an order cancelling the leases of intervenors as clouds on their title to the unit and sought damages against both groups for disturbing their peaceful possession of the units.

The chancellor held that the Genoa-Tokio Unit was terminated on November 1, 1967; that the Genoa Unit was terminated on April 1, 1973; that the leases were terminated on April 1, 1973; that jurisdiction was present. He granted the cancellation order sought by appellees and intervenors removing the cloud on their titles. He denied the cancellation order sought by appellants and also denied the damages sought by appellants. From the rulings adverse to them appellants have appealed.

Appellants first urge that the chancellor lacked jurisdiction, contending that jurisdiction was exclusively in the Commission. We find no merit in this contention. The nature of the relief requested by appellees and intervenors was in the main equitable in nature.

In Spartan Drilling Company v. Bull, 221 Ark. 168, 252 S.W.2d 408 (1952), the issue of chancery jurisdiction was raised, and we held:

. . . (T)hat the jurisdiction granted to the Oil and Gas Commission in its supervisory capacity over oil and gas production is not exclusive, and that appellees had the right to maintain the instant suit.

We also stated in Spartan:

It is not infrequent that a dual remedy, one in the judicial and another in the administrative forum, may be available to the same party for the enforcement of the same right. 42 Am.Jur., Public Administrative Law, § 252.

Furthermore, appellants waived any objection to chancery court jurisdiction by affirmatively seeking relief, i.e. cancellation of the leases of the intervenors and damages from both appellees and intervenors. See Nichols v. Lea, 216 Ark. 388, 225 S.W.2d 684 (1950).

Appellants also contend that the chancellor erred in holding that the Genoa Unit ¹ terminated on April 1, 1973, and in holding that the leases on which the unit was based likewise terminated on April 1, 1973.

It is the duty of the court to construe a contract according to its unambiguous language without enlarging or extending its term. New York Life Insurance Company v. Dandridge, 202 Ark. 112, 149 S.W.2d 45 (1941); American National Insurance Company v. Hamilton, 192 Ark. 765, 94 S.W.2d 710 (1936).

In addition thereto, the contract must be construed against the party who had same drafted, in this instance appellant Christmas. Yellow Cab Company of Texarkana v. Texarkana Municipal Airport, 230 Ark. 401, 322 S.W.2d 688 (1959); W. T. Rawleigh Company v. Wilkes, 197 Ark. 6, 121 S.W.2d 886 (1938). In light of these authorities we review the record herein.

The Commission's records indicate that water commenced being injected into the Paluxy Formation, Young Sand, Genoa Unit in the month of July, 1962, and that by September of 1963 maximum production had been obtained from the unit which was in excess of 25,000 barrels of oil per month. From June of 1968, the production records indicate a sharp decline in production from the unit. Commencing in June of 1968, there was no production for a period of nine months, in 1969 very little production. Since December, 1971, no water has been injected into the formation and from June, 1972, through May of 1973, there was no production from the Genoa Unit.

Landowners holding approximately 600 acres of the mineral ownership of the units testified as to the present status of the various wells indicating little or no production on their property for approximately the last five years. The following testimony is illustrative of that found throughout the extensive record of the trial.

School officials of Genoa Central School District testified that none of their wells had been operative for several years and that there had been a period of five years in which they have received no royalty payments. The testimony of Mr. and Mrs. Bassett clearly indicates there had been no production under their leases since the year 1971. The testimony of Cole Young indicated there had been no production on his property since 1971, and for this reason and others he had attempted to notify Christmas to vacate the premises and had contacted an attorney and the Commission regarding termination of his lease. The Commission advised him that it could not do anything about it--that he would have to go to court.

An expert independent consulting engineer, Tom G. Calhoun, II, testified that production in paying quantities in the Genoa Unit ceased in June, 1968. Calhoun's testimony further reflected that initially the Genoa Unit water flood project was successful but that its economic life ended in 1968; though resumed to a limited extent in the latter part of 1969, operations were not profitable after the 1968 date. His expert opinion was that due to the nature of the Paluxy Formation, the Genoa Field can no longer be operated as a water flood secondary recovery program. Since the testimony of Mr. Calhoun is unrefuted, his testimony must be given strong weight by the court. Blair v. Clear Creek Oil and Gas Company, 148 Ark. 301, 230 S.W. 286 (1921).

Jack Denson, petroleum engineer for Petrofina, testified that the Genoa Unit was not capable of a secondary recovery program as it existed in March, 1975.

The unrefuted testimony is that production in 'paying quantities' from the Genoa Unit ceased in 1968 and that subsequent thereto there have been two periods of cessation well in excess of 'ninety days.' The Commission's records of the Genoa-Tokio Unit indicate that a period of approximately six years existed in which there was no production of unitized substances from the unit.

There was no evidence introduced which would show that the nonproduction is temporary; nor is there any evidence to indicate that Christmas, as the operator of the unit, was using reasonable diligence to maintain production in the units, or in connection with any individual lease. The lessors are being injured substantially, and it must be presumed from the facts and circumstances presented at trial and contained within the record that the lessee abandoned the units and the individual leases during the periods of nonproduction.

A lessee must act for the mutual benefit of both lessor and lessee; Smart v. Crow, 220 Ark. 141, 246 S.W.2d 432 (1952); Ezzell v. Oil Associates, Inc., 180 Ark. 802, 22 S.W.2d 1015 (1930); and if such is not evident, the involved leases should be cancelled.

The UA also contains the following language in paragraph 3.5:

Nothing herein shall be construed to result in the transfer of title to the Oil and Gas rights by any party hereto to any other party or to Unit Operator. The intention is to provide for the cooperative development and operation of the Tracts and for the sharing of Unitized substances as herein provided. (Italics supplied.)

Consequently an analogy can be made with the implied covenant to develop as it applies to oil and gas leases. We recognized the implied covenant to develop in Ezzell v. Oil Associates, Inc., supra. In Zappia v. Garner, 259 Ark. 794, 536 S.W.2d 714 (1976), we quoted from Millar v. Mauney, 150 Ark. 161, 234 S.W. 498 (1921), as follows:

. . . In the construction of mineral leases such as is involved in this case, the authorities uniformly hold that there is an implied obligation on the part of the lessee to proceed with the search and also with the development of the land with...