Crawford v. Hrabe
| Decision Date | 19 April 2002 |
| Docket Number | No. 87,624.,87,624. |
| Citation | 273 Kan. 565,44 P.3d 442 |
| Parties | STEVE CRAWFORD, d/b/a S & M OIL COMPANY, Appellee, v. MARVIN HRABE, BRUCE KROB, LUCILLE ROGERS, and PATRICIA IREY, Appellants. |
| Court | Kansas Supreme Court |
Terry L. Cikanek, of Cikanek Law Office, of Stockton, argued the cause and was on the brief for appellants.
Ross J. Wichman, of Anderson & Wichman, of Hays, argued the cause and was on the brief for appellee.
The opinion of the court was delivered by
This appeal raises the conflict between a lessor (Marvin Hrabe, et al, herein called Hrabe or lessor) and a lessee (Steve Crawford, d/b/a S & M Oil Co., herein called Crawford, lessee, or operator) over whether the implied covenants and rights under an oil and gas lease executed in 1962 between the present parties' predecessors in interest allow the lessee to bring off-lease water on the leased premises to be used for injection purposes in a Kansas Corporation Commission (KCC) approved secondary recovery project without the lessor's consent or agreement.
Background of the case
The oil and gas lease in issue is a Form 88 (Producers) 1-48 B+, which grants usage of Hrabe's land "for the sole and only purpose of mining and operating for oil and gas, and laying pipe lines, and building tanks, power stations and structures thereon to produce, save and take care of said products." An additional granting clause gives the lessee "the right to use, free of cost, gas, oil, and water produced on said land for its operation thereon, except water from wells of lessor."
The history of operations on the property disclose a disposal agreement permitting the lessee to dispose of salt water from off-lease property, a pipeline right of way, complaints concerning salt water related to faulty operations, and the plugging and abandonment of the salt water disposal well in 1988.
The present controversy appears to have its beginnings in the spring and early summer of 1996. Crawford began injecting water from other leases he operated into one of the Hrabe wells. Crawford filed an application with the KCC to inject salt water from the Hrabe "B" lease, the Hrabe "C" lease, and the Baxa lease into the G-2 well on the Hrabe property. A hearing was held on this application on April 18, 1996, with Hrabe protesting the application, contending the only benefit would be to the Baxa lease and that pollution could be caused by poorly plugged wells.
The KCC order dated June 5, 1996, but not mailed until June 10, 1996, found (1) permitting the injection would prevent waste and likely allow additional oil to be recovered from the Hrabe lease, (2) correlative rights would not be violated, and (3) usable water would be protected. The order acknowledged it could not be certain which direction the water flood would drive the oil but it was more likely the oil would be driven to the higher structure G-1 and C-1 wells on the Hrabe property.
The KCC conditioned its order by requiring Crawford to pay fines levied for injecting water without a permit and in a later writing stated the issue of the right to use off-lease water in the Hrabe G-2 well was a "civil matter between the operator and mineral/or surface owner which is outside the jurisdiction of the Commission."
On June 7, 1996, Hrabe stopped the off-site water from coming on his land by severing the pipeline running to the Hrabe G-2 well. Shortly thereafter, Crawford commenced this action by asking for a temporary restraining order to prevent Hrabe from damaging pipelines used to transport and inject salt water into the Hrabe 2 well. The trial court initially denied the request.
In response to Hrabe's summary judgment motion, the court found that Crawford did not have a right to dispose of salt water by injecting it in the G-2 well, either in law, under the lease, or by the right of way agreement. Hrabe asked for the trial court's decision to be clarified to hold that Crawford could not bring off-lease salt water onto his property for any purpose, whether for disposal, or secondary recovery purposes. Additional briefs were requested and the parties entered into the following stipulation of facts:
1. Crawford has the authority from the KCC to operate a secondary recovery operation on the Hrabe lease.
2. Crawford's secondary recovery operation consists of the injection of Kansas City sourced brine, from off Hrabe lease sources, into the Kansas City oil producing formation in the Hrabe lease wells.
3. Crawford's secondary recovery operations on the Hrabe lease have increased the production of oil from the Hrabe lease wells.
4. The increased oil production is economically beneficial to interested parties.
5. The KCC approved Crawford's utilization of off-lease brine for secondary recovery operations on the Hrabe lease, but the KCC's position is that whether the water can be brought in is a civil matter between the landlord and the tenant.
6. The oil and gas lease in this case gives the tenant the right to use, free of charge, water produced on the premises for its operations.
7. A geologist has stated that the Hrabe lease oil wells produce insufficient salt water with which to adequately complete and continue ongoing secondary recovery operations by means of salt water injection.
8. Crawford produced salt water from other oil wells in the area (not on the Hrabe lease) sufficient to complete and continue secondary recovery operations by means of salt water injection on the Hrabe lease wells.
9. If Crawford did not have the off-lease brine available from off-lease sources, and if he was to continue utilization of secondary recovery operations by means of salt water injections into the Hrabe lease wells, he would have to drill a supply well to obtain water.
10. That supply well would produce Dakota water.
11. It is more economical for Crawford to use off-lease Kansas City brine in the Kansas City formation on the Hrabe lease wells than to undertake the cost to drill and maintain a supply well or to convert an abandoned hole on the Hrabe lease as a supply well.
12. A number of operators in the area pay the landowner to bring off-lease water onto the landowner's property for injection purposes.
13. A number of operators in the area bring off-lease brine onto the premises under the assumption that they have an implied right to do so as a prudent operator.
14. Not all operators utilize secondary recovery operations.
15. A geologist's testimony would indicate that a prudent operator would use secondary recovery operations to improve production from the Hrabe lease.
16. Dakota water, or water from any source, would serve the same purposes as off-lease Kansas City water injected into the Hrabe lease's Kansas City formations.
17. A geologist would testify that for production purposes it is more beneficial that Kansas City formation generated water be injected into Kansas City oil producing formation.
The decision of the trial court confirmed that Hrabe concedes Crawford's right to engage in secondary recovery operations but that Hrabe contended the lease itself prohibits the usage of off-lease water. The trial court's decision discounted the lessor's argument that the standard clause in the Producer's Form 88 lease which states: "Lessee shall have the right to use, free of cost, gas, oil, and water produced on said land for its operations thereon, except for water from wells of lessor," constituted a limitation on water usage to on-site water. The court held this provision is a grant of a right and not a restriction. In that the lease language does not prohibit or permit usage of off-lease water, the trial court held the lease offered little guidance.
The trial court concluded there was nothing in the lease or in the law implying that the right to engage in secondary recovery is limited to injection of water obtained on the lease. The trial court pointed out that the parties had stipulated that production increased from the use of off-lease water injection and to drill a supply well on the property would not be as economical or reasonable as using the off-lease water, and from this concluded that Crawford was not prohibited from using off-lease water in his secondary recovery operations. From this decision, Hrabe appeals.
Our standard of review is as set forth in Heiman v. Parrish, 262 Kan. 926, 927, 942 P.2d 631 (1997), where we said:
The limited issue presented to us is whether a lessee/oil operator has the right without the lessor/landowner's consent to bring off-lease salt water upon the leased premises for purpose of injecting it into the producing formation in a secondary recovery project.
Although some of the authority we quote relates to an operator's usage of the leased property in its production operations, both parties to this appeal are in agreement that Crawford has the right to conduct secondary recovery operations under the oil and gas lease.
Several courts and treatises have alluded to a potential duty upon the operator and lessee to engage in secondary recovery. See Williams, Problems in the Conservation of Gas, Second Annual Rocky Mountain Mineral Law Institute, 295, 338 (1956) (quoting Merrill, Implied Covenants and Secondary Recovery, 4 Okla. L. Rev. 177, 181 [1951], which states that "since [secondary recovery methods]...
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