Cities Service Oil Co. v. Pubco Petroleum Corp., 4051

• Decision Date: 15 June 1972
• Docket Number: No. 4051,4051
• Citation: 497 P.2d 1368
• Parties: CITIES SERVICE OIL COMPANY, a corporation, Appellant (Defendant below), v. PUBCO PETROLEUM CORPORATION, Appellee (Plaintiff below).
• Court: Wyoming Supreme Court

Page 1368

497 P.2d 1368

CITIES SERVICE OIL COMPANY, a corporation, Appellant (Defendant below), v. PUBCO PETROLEUM CORPORATION, Appellee (Plaintiff below).

No. 4051.

Supreme Court of Wyoming.

June 15, 1972.

W. F. Drew, of Brown, Drew, Apostolos, Barton & Massey, Casper, for appellant.

Houston G. Williams, of Wehrli & Williams, Casper, for appellee.

Before McINTYRE, C. J., and PARKER and McEWAN, JJ.

McINTYRE, Chief Justice.

This case involves the right of a company which has drilled an oil well to claim a lien for unpaid drilling costs against the royalty interest of a company which holds an overriding royalty interest.

Cities Service Oil Company entered into a farmout contract with The Colorado Corporation pertaining to acreage in the Kitty Field, a known producing oil field in Campbell County, Wyoming. The acreage covered by the farmout agreement was the SE 1/4 SE 1/4 of Section 4, Township 51 North, Range 73 West.

According to its contract, Cities Service was to assign certain earned leases to Colorado when a well had been completed on the SE 1/4 SE 1/4 of Section 4. It was agreed, however, that Cities Service would reserve unto itself an overriding royalty of 25%.

By order of the Wyoming Conservation Commission, the E 1/2 SE 1/4 of Section 4 was unitized into a single drilling and spacing unit. Pubco Petroleum Corporation held the lease on the NE 1/4 SE 1/4 of Section 4. Thus, it had an interest in seeing that a well was drilled at the site fixed by the Conservation Commission for the drilling unit involved. This site happened to be in the center of the SE 1/4 SE 1/4 of Section 4.

Pubco and Colorado resolved the problem of who was to drill and who was to operate their drilling unit by entering into an operating agreement. According to this agreement, Pubco and Colorado each had an undivided 50% interest. Pubco was designated as the operator. It agreed to drill the well and Colorado agreed to pay its share of the costs.

It should be mentioned that the operating agreement expressly gave the operator a first and preferred lien on the interest of 'each party covered by this contract.' There was no attempt, as far as the operating agreement is concermed, to suggest the right of a lien on the interest of third parties. Cities Service was not a party to the operating agreement.

Upon the failure of Colorado to pay its share of drilling costs, Pubco sought to enforce a lien not only against the interest of Colorado but also against the royalty interest of Cities Service. The district court held Pubco could do so and Cities Service has appealed.

The farmout contract between Cities and Colorado was dated March 16, 1970. Under such contract, the Colorado company agreed to drill a well in the approximate center of SE 1/4 SE 1/4 of Section 4. By performance, it was agreed, Colorado would acquire rights in lands described in Exhibit 'A'; and it was specified such rights 'shall be subject to overriding royalty as provided in Exhibit 'A'.' Upon completion of the well, Cities was obligated to assign to Colorado 'in form and in language as is set forth in Exhibit 'A" leases, insofar as they cover the lands described in such exhibit.

The assignment form to be used, when Colorado had completed its well, was attached as Exhibit 'A.' It was not executed. It contained this provision:

'There is excepted and reserved unto Assignor from the leases and lands assigned herein * * * an overriding royalty of an undivided twenty-five percent (25%) of eight-eigths (8/8) of all oil, gas, casinghead gas and other minerals produced from lands assigned herein under said leases.'

On April 1, 1970 (16 days after Colorado obtained its farmout contract), Pubco and Colorado entered into their operating agreement. It was recited that the parties were owners of oil and gas leases covering tracts of land described in Exhibit 'A'; and that such parties had reached an agreement to explore and develop these leases and interests for oil and gas.

In the Exhibit 'A' which was attached to that instrument was a list of the leasehold interests contributed by the parties under such agreement. It listed certain leases as leases 'contributed by The Colorado Corporation, successors in interest herein to Cities Service Oil Company by agreement dated _ _, 1970.'

After the well had been completed in the center of SE 1/4 SE 1/4 of Section 4, Cities did in fact execute and deliver an assignment to Colorado. This was in compliance with its farmout contract; and the assignment was in the form and language previously agreed upon. The executed assignment was dated July 28, 1970.

The appellant states the question for our consideration on appeal is whether, under the provisions of §§ 29-27 and 29-29, W.S.1957, C.1967, the overriding royalty interest of Cities Service is subject to the operator's lien claim asserted by Pubco. The appellee, in its brief however, says Pubco's claim has two facets: (1) a lien claim under the driller's lien laws of Wyoming; and (2) a lien claim under the operating agreement.

During oral argument, we understood counsel for appellee to say Pubco claims a lien by virtue of statute-not by contract. He then added, however, that an operator's lien probably applies also. We think we are correct in assuming counsel is not seriously contending Pubco has a lien on the interest of Cities Service by virtue of any contract. If he is so contending, the record does not bear him out.

There was no contract between Pubco and Cities Service under which a lien could be claimed. Moreover, no cogent authority has been cited for the proposition that Pubco has a lien against the interest of Cities Service by virtue of Pubco's operating agreement with Colorado. The only lien contracted for was a lien against the interest of Colorado. We will therefore confine ourselves to a consideration of whether, under the circumstances of this case, a lien is given by statute on the royalty interest of Cities Service.

Section 29-27, W.S.1957, C.1967, defines an owner, part-owner or lessee, for purpose of oil well liens. There can be no question about the description including Colorado in the case we are concerned with. The section then deals with situations where a lien provided for in the act attaches to an estate less than the fee. Thus, recognition is given to the fact that the lien may attach to an estate less than the fee.

Section 29-29, W.S.1957, C.1967, provides that every person (including a corporation) who drills an oil well, 'by virtue of a contract * * * with the owner, part-owner or lessee of any interest in real estate,' shall have a lien. Of course Pubco drilled by virtue of a contract with Colorado and not by virtue of a contract with Cities Service. However, this section continues by providing that the lien shall be 'upon the whole of the land or leasehold.' (Emphasis supplied.)

If the section ended at this point, it might be debatable as to whether the lien in this instance attached to the whole of the fee or (since the disjunctive is used and a leasehold is less than the whole of the land) whether the lien attached only to the leasehold interest of Colorado, the contracting party.

But, inasmuch as a proviso is added to § 29-29, we need not decide what the effect would be without the proviso. Neither need we speculate as to the purpose the legislature had in inserting the proviso. The language of this pertinent clause is clear, unambiguous and determinative of tne issue here involved. It states:

'* * * and provided, however, that if such labor is performed for, or materials or services are furnished to, the owner, part-owner or lessee of an estate less than a fee, the lien granted by this act (§§ 29-27 to 29-32, 29-34, 29-39) shall not extend to the underlying fee or royalty interest unless expressly provided by contract with the owner of the underlying fee royalty interest * * *.'

There can be no doubt about the services in this case having been furnished to an owner, part-owner or lessee of 'an estate less than a fee,' i. e., The Colorado Corporation. Therefore, as expressly stated in the proviso, the lien shall not extend to the underlying fee or royalty interest-unless expressly provided by contract. There was, however, no such contract.

Counsel for appellee seeks to argue that the term 'royalty interest' means 'landowner's royalty interest.' Of course, that adds something to the statute which simply is not there. We have no right or power to rewrite an act of the legislature by adding words to language which is already clear and unambiguous. Moreover, the argument of counsel overlooks the fact that the lien in such a case as the one dealt with does not extend to the underlying fee itself.

It would not be consonant to say the legislature intended to exclude only certain royalty interests from the lien when it excluded the entire underlying fee and royalty interest. Indeed, it appears the intent of the legislature was to restrict the lien in case of an oil well to the leasehold estate of the party who contracts for the drilling. Such a conclusion is consonant with the fact that the proviso under consideration applies where services are furnished to an owner, part-owner or lessee of 'an estate less than a fee.'

The appellee in the case we are concerned with relies primarily on the case of Adair v. Transcontinental Oil Company (1959), 184 Kan. 454, 338 P.2d 79. Counsel for appellee has submitted that this case is directly in point with the instant case before our court. He says the reasoning of the Kansas court is commended to the Wyoming Supreme Court.

We fail, however, to see wherein the Adair case is helpful in deciding the extent of the lien under our statute. It had to do with the matter of agency and not with the issue before us. Moreover, it is distinguishable because it involved a Kansas lien statute which had no provision comparable to the proviso contained in our § 29-29. In other words, there was no provision that the...