Edwin M. Jones Oil Co. v. Pend Oreille Oil & Gas Co.

• Decision Date: 31 May 1990
• Docket Number: No. 13-89-481-CV,13-89-481-CV
• Citation: 794 S.W.2d 442
• Parties: EDWIN M. JONES OIL COMPANY, Appellant, v. PEND OREILLE OIL & GAS COMPANY, Appellee.
• Court: Texas Court of Appeals

Page 442

794 S.W.2d 442

EDWIN M. JONES OIL COMPANY, Appellant, v. PEND OREILLE OIL & GAS COMPANY, Appellee.

No. 13-89-481-CV.

Court of Appeals of Texas Corpus Christi.

May 31, 1990.

Rehearing Overruled June 29, 1990.

Second Motion for Rehearing Overruled Aug. 31, 1990.

Benjamin F. Youngblood, III, San Antonio, Harry Schulz, Jr., Schulz & Schulz, Three Rivers, for appellant.

Dean Patton, Morrill & Patton, Beeville, William L. Hardwick, George West, Shirley Selz, William D. Granberry, Valerie Fogleman, Gary, Thomasson, Hall & Marks, Corpus Christi, for appellee.

Before NYE, C.J., and BENAVIDES and KEYS, JJ.

OPINION

NYE, Chief Justice.

Appellant, Edwin M. Jones Oil Company sued appellee, Pend Oreille Oil & Gas Company seeking a declaratory judgment that Jones owned a working interest share in the Geffert Gas Unit which included the Geffert No. 1 Well and the Geffert No. 2 Well. Jones also sought an accounting and recovery for its share of the natural gas production from these two wells, together with its costs and attorneys fees. Pend Oreille counterclaimed, alleging that it erroneously paid Jones royalties on unit production from the Geffert Gas Unit. The jury found that Jones owned a one-third working interest in the Geffert No. 1 Well and awarded Jones $98,862.64 for its share of this well's production. The jury further found that Jones did not own a working interest in the Geffert No. 2 Well. The jury awarded Jones $25,000.00 in attorneys fees.

On appeal, Jones challenges the trial court's judgment in three points of error. Pend Oreille, as cross-appellant, challenges the trial court's judgment by four points of error. We affirm the trial court's judgment.

According to a "FARMOUT AGREEMENT" dated November 6, 1979, Jones, Frost National Bank, trustee, d/b/a Peet Oil Co., and the Estate of Gilbert M. Denman, deceased, represented to Pend Oreille that they owned the minerals in eighty acres of land in Live Oak County, Texas (herein called the Jones Tract). ¹ The farmout agreement indicates that Pend Oreille agreed to drill a test well on or offsetting the Jones Tract, and if the well resulted in a commercial gas well, Jones would deliver to Pend Oreille an oil and gas lease. Upon receipt of the lease, Pend Oreille was required to form a gas unit to include all of the lease in accordance with the pooling provisions contained in the lease.

If Pend Oreille earned the lease and made a commercial well, Jones had the option to convert the one-eighth of eight-eighths override added to the royalty in the lease to a one-third working interest in the well and the acreage allocated to the well. The farmout agreement also provided that "[o]n unit production we [Jones] will participate to the extent of one-third ( 1/3) of the working interest under our lease on a surface acreage basis; that is, in the production allocated to our lease acreage."

Pend Oreille earned the lease by drilling a well on the Jones Tract. The lease, dated June 1, 1980, covered the Jones Tract. This well, known as the Peet Well, produced natural gas from the Fant Field. In proceedings before the Texas Railroad Commission, Pend Oreille introduced geological maps showing that approximately one-half of the Jones Tract fell within the Fant Field.

Section three of the lease required Pend Oreille to pay a one-eighth royalty on oil, gas and casinghead gas produced from the Jones Tract. With regard to pooling, section four provides, in relevant part:

4. Lessee, at its option, is hereby given the right and power to pool or combine the acreage covered by this lease or any portion thereof as to oil and gas, or either of them, with any other land covered by this lease, and/or with any other land, lease or leases in the immediate vicinity thereof to the extent hereinafter stipulated, when in Lessee's judgment it is necessary or advisable to do so in order properly to explore, or to develop and operate said leased premises in compliance with the spacing rules of the Railroad Commission of Texas, or other lawful authority, or when to do so would, in the judgment of Lessee, promote the conservation of oil and gas in and under and that may be produced from said premises.

. . . . .

The pooling in one or more instances shall not exhaust the rights of the Lessee hereunder to pool this lease or portions thereof into other units. Lessee shall file for record in the appropriate records of the county in which the leased premises are situated an instrument describing and designating the pooled acreage as a pooled unit; and upon such recordation the unit shall be effective as to all parties hereto, their heirs, successors, and assigns, irrespective of whether or not the unit is likewise effective as to all other owners of surface, mineral, royalty, or other rights in land included in such unit.

. . . . .

For the purpose of computing the royalties to which owners of royalties and payments out of production and each of them shall be entitled on production of oil and gas, or either of them, from the pooled unit, there shall be allocated to the land covered by this lease and included in said unit (or to each separate tract within the unit if this lease covers separate tracts within the unit) a pro rata portion of the oil and gas, or either of them, produced from the pooled unit after deducting that used for operations on the pooled unit.

On December 12, 1980, Pend Oreille executed a document establishing the 320 acre Peet Gas Unit. The Peet Gas Unit included the entire Jones Tract. On December 13, 1982, Pend Oreille advised Jones that payout on the Peet Well occurred. On January 4, 1983, Jones converted its one-eighth of eight-eighths overriding royalty to a one-third working interest in the well and farmout acreage allocated to the well. After this conversion, the Peet Well ceased production, and Pend Oreille drilled a replacement well, the Geffert No. 1. This well was drilled in the Peet Gas Unit, but it did not fall on the Jones Tract.

On May 16, 1983, Pend Oreille executed a document establishing the 352 acre Geffert Gas Unit. The Geffert Gas Unit included the entire Jones Tract. Jones did not sign the document designating the Geffert Gas Unit. On this same date, Pend Oreille filed a "CERTIFICATE OF POOLING AUTHORITY" with the Texas Railroad Commission. Paragraph one states that the Geffert Gas Unit is the acreage claimed for the purpose of establishing a pooled drilling or proration unit. Paragraphs two and three state:

(2) That the pooled unit described in the preceding paragraph is made up of and contains the hereafter described individual tracts of land no part of which is embraced within any other pooled unit in the same field and which, by virtue of the pooling agreements referred to in the preceding paragraph, are now contained within the pooled unit herein described.

(3) That where a non-pooled undivided interest exists in any of the individual tracts pooled, that certain non-pooled interest is noted in the margin of this instrument beside the tract description to identify the existence of the non-pooled interests in that tract:

The pooling certificate indicates that Pend Oreille pooled the Jones Tract into the Geffert Gas Unit. The certificate indicates that a non-pooled interest does not exist in the Jones Tract.

Pend Oreille dissolved the Peet Gas Unit effective June 9, 1983. After the Geffert No. 1 Well ceased production, Pend Oreille drilled the Geffert No. 2 Well. Pend Oreille drilled the Geffert No. 2 Well in the Geffert Gas Unit on a tract that had not been included in the Peet Gas Unit. The Peet Well and both Geffert wells, however, were drilled into the Fant Field.

In its first point of error, Jones complains that the trial court erred in failing to grant its motion for judgment n.o.v. concerning Special Question No. 2. This question asked, "What percentage, if any, do you find by a preponderance of the credible evidence does the Edwin M. Jones Oil Company own in the mineral working interest in the Geffert No. 2 Well?" The jury answered that Jones owned no mineral working interest. By five sub-points, Jones contends: that Pend Oreille is estopped from claiming it owned no working interest in the Geffert No. 2 Well, or, alternatively, that it waived this claim; that the jury finding that it owned a working interest in the Geffert No. 1 Well establishes, as a matter of law, that it owns a working interest in the Geffert No. 2 Well; and that the evidence is factually and legally insufficient to support the jury's finding.

In considering "no evidence" and "insufficient evidence" points of error, we will follow the well-established test set forth in Calvert, No Evidence and Insufficient Evidence Points of Error, 38 Texas L.Rev. 361 (1960). The evidence shows that the Geffert No. 2 Well was drilled in the Geffert Gas Unit. The subject well was not drilled on acreage lying within the Peet Gas Unit; rather, it was drilled in acreage lying outside of the Peet Gas Unit. Jones did not execute the document designating the Geffert Gas Unit. Neither the 1980 oil and gas lease nor the 1979 farmout agreement purport to grant Jones or Pend Oreille the authority to pool a working interest owned by another. Moreover, nothing in the lease or the farmout agreement purports to grant Pend Oreille the authority to pool any interest of Jones except its royalty interest. Absent the express authority to do so, a lessee has no right to pool the mineral interest in the estate retained by the lessor with those of other lessors. Jones v. Killingsworth, 403 S.W.2d 325, 328 (Tex.1965). In the instant case, Jones, as lessor, authorized Pend Oreille, as lessee, under the 1980 lease to pool its royalty interest. Jones never authorized Pend Oreille to pool its working interest. We conclude there is no evidence to show that Jones had a contractual relationship with Pend Oreille concerning a mineral working interest in the Geffert No. 2 Well. We hold, therefore,...