Cooper v. Ohio Oil Co.

• Decision Date: 12 November 1938
• Docket Number: No. 2603.,2603.
• Citation: 25 F. Supp. 304
• Parties: COOPER et al. v. OHIO OIL CO.
• Court: U.S. District Court — District of Wyoming

25 F. Supp. 304

COOPER et al. v. OHIO OIL CO.

No. 2603.

District Court, D. Wyoming.

November 12, 1938.

John D. Clark, of Cheyenne, Wyo., for plaintiffs.

A. M. Gee, of Findlay, Ohio, Harold H. Healy, of Casper, Wyo., and C. R. Ellery, of Cheyenne, Wyo., for defendant.

KENNEDY, District Judge.

This is a suit projected on the equity side of the court for an accounting and the recovery of damages alleged to have grown out of the improper operation of oil properties held under lease by the defendant from the plaintiffs, by which operation the defendant fraudulently permitted oil to be drained from the plaintiffs' lands to adjacent lands of other owners on the same structure which the defendant was likewise operating. After preliminary motions to dismiss were ruled against the defendant, an answer was filed controverting the general issues tendered by the bill of complaint together with affirmative defenses involving the application of the Statute of Limitations and the doctrine of laches. The defendant has also made the oft-asserted contention before and throughout the trial that a court of equity had no jurisdiction of the cause.

It would be impracticable in a memorandum of this character to discuss in detail all of the contentions set forth in the pleadings which finally brought the case at issue. Suffice it to say that the bill of complaint purports to set forth a cause of action based upon a lease from the plaintiffs or their predecessors in interest to the defendant, of certain specified oil lands situated in the so-called Rock River Oil Field in the State of Wyoming. It is averred that the lease was executed in October, 1917, for a period of twenty years and that at about the same time the defendant began the development of said lands for oil. It is alleged that in executing said lease the plaintiffs were relying upon the experience, skill, integrity and resources of the defendant to assure the efficient exploitation of the oil and gas resources and to protect the oil and gas therein from drainage. Substantially the terms of the complaint concerning the protection of the lands from drainage are set forth in the lease, a copy of which is attached to the bill of complaint. It is averred that an oil field was developed by defendant in which through drilling of numerous wells completed in the early periods of the leasehold the defendant acquired knowledge which enabled it to determine with accuracy the more important characteristics of the oil field and especially the fact that the highest part of the structure being an area most susceptible to drainage was within the plaintiffs' lands and that it became the duty of the defendant in order to prevent drainage to drill at least as many wells upon said lands in proportion of their drainage area as it proposed to drill in the remainder of the field. The bill alleges that the defendant acquired leases upon other lands within the producing area of the field and thereby placed itself in a position which was not harmonious with the position of the plaintiffs. It is then stated that at a certain period the defendant concentrated its efforts upon lands other than plaintiffs' lands, leaving the interior of plaintiffs' lands undeveloped within the proven area; that it delayed the drilling of off-set wells which was necessary to prevent drainage; completed twice as many wells upon the lands other than the plaintiffs' lands although said lands contained at least one-half of the area which was productive in the field; produced a great many more barrels of oil from the outside lands than from the plaintiffs' lands although the latter lands contained more recoverable oil than was originally contained in the outside lands, and as a result that 4,000,000 barrels of oil was caused to migrate from plaintiffs' lands to other lands where the defendant produced the same without paying any royalty thereon to the plaintiffs, thereby making for itself a profit by saving the cost of drilling and operating additional wells on plaintiffs' lands. The bill states that in this respect the defendant acted fraudulently and in reckless disregard of the rights of the plaintiffs and of the confidence and trust imposed in it by them and in violation of its covenant in the lease to use due care to see that oil and gas in plaintiffs' lands were produced from wells within the limits thereof and was not drained away through wells on neighboring lands. The plaintiffs then plead that until less than three years before the commencement of the action the plaintiffs had no knowledge that the development program of the defendant was contrary to the accepted practice in the petroleum industry and had no knowledge that any drainage of oil was occurring, as the plaintiffs were relying upon the good faith and skill of the defendant that it would act and was acting in a prudent and customary manner to protect said lands and ultimately to produce the original oil contained therein. Further, that drainage had occurred first came to the knowledge of the plaintiffs in the year 1935 and that they then caused an investigation to be made from which the misconduct and fraudulent action of the defendant and the violation of its covenant to protect the plaintiffs' lands from drainage first came to their knowledge upon which they immediately made demand upon the defendant for an accounting and settlement, which defendant has refused to make. The prayer is that an accounting be had of the losses suffered by the plaintiffs on account of the wrongful and fraudulent acts of the defendant and for its failure to perform its obligations under the lease, and the plaintiffs be awarded judgment against the defendant for the oil originally contained in the plaintiffs' lands but drained away by the defendant through wells on neighboring lands.

The trial of the case consumed a period of nearly three weeks in which the evidence consisted of documents, records, logs, maps, reports and correspondence between the parties and their agents, together with the introduction of drill cores, and principally the testimony of a large number of expert geologists and petroleum engineers who expounded their various theories and doctrines to the extent that there was danger of both Court and counsel becoming lost in the labyrinth of technical theory and expression. No attempt will be made to outline even in condensed form a running sketch of this testimony. A brief mention of the high spots of the controversy as revealed by the evidence must suffice for the purposes of this memorandum in considering the principal points involved. Counsel have been most helpful in supplying the Court with exhaustive briefs.

The original discovery in the field was made upon plaintiffs' lands and following this wells were drilled around the presumed exterior lines of the structure to determine its area. In some places water was encountered. Other wells were from time to time drilled upon plaintiffs' acreage and likewise upon the acreage of adjacent lands also operated by the defendant. At the time off-set wells were drilled upon the Cooper lands and in some instances it would seem that the off-set wells upon plaintiffs' lands preceded those upon the adjacent lands. The program of the defendant seemed to follow the ordinary course of development until sometime about the year 1922, when what is known as well No. 10, upon the S.E.¼ of Section 35, T. 20, R. 78, was brought in as a gas well. The opening of this well according to the records immediately affected the flow of other wells on the Cooper lands within the immediate area which resulted in shutting in the well and in the determination of the defendant to drill no more wells on the crestal area, where it was previously supposed that the content was oil and not gas. This was followed by the drilling of other wells on the Cooper areas, perhaps largely of an off-set character. The evidence shows that from 7,000,000 to 8,000,000 barrels of oil was produced from the plaintiffs' lands and about 10,000,000 barrels from the wells on the other lands within the structure.

The theory of plaintiffs' geologists and engineers is, that by the failure to develop the interior of plaintiffs' lands in adequate form the oil therein was drained to adjacent lands, this theory being based upon a two-fold operation of nature, to wit: The development and spread of a secondary gas cap upon the apex of the structure which with the drilling of wells farther down the flanks, pushed or caused the oil content to recede to the lower contours and therefore into the adjacent lands, and that at a certain intermediate and indeterminate period the movement was taken up by gravity drainage, which two operating agencies caused the disappearance of oil in plaintiffs' lands to the adjacent areas, with a resultant loss to the plaintiffs. On the other hand, it is the theory of the defendant's geologists and engineers that the gas cap at the crest of the structure was an original gas cap in which there was little or no oil content and that the continued drilling in that area would not only produce no oil but would tend to reduce the recovery of oil upon plaintiffs' lands farther down the slopes, together with the firmly maintained belief that there was, nor could there be little or any damage sustained by a force designated as gravity drainage, except within a very limited area of no consequence in solving the issues in this case. In addition, the defendant offered testimony of many experienced oil operators and drillers, including geologists and petroleum engineers, to the effect that under the existing circumstances and the science known to the industry at the time the operations on plaintiffs' lands were conducted, the development was carried on in the customary and approved manner.

As has been stated at the outset, the question as to whether this case is brought within the equity jurisdiction of a Federal Court had been accentuated and reiterated...