Felmont Oil Corp. v. Pan Am. Petroleum Corp.

Decision Date30 March 1960
Docket NumberNo. 5378,5378
Citation334 S.W.2d 449
PartiesFELMONT OIL CORPORATION et al., Appellants, v. PAN AMERICAN PETROLEUM CORPORATION et al., Appellees.
CourtTexas Court of Appeals

Henry Russell, Pecos, John R. Lee, Kermit, Barrow, Bland & Rehmet, George T. Barrow, Sidney Farr, Houston, for appellants.

Carlton R. Winn, Jerry N. Jordan, Turner, Rodgers, Winn, Scurlock & Terry, Dallas, Edward R. Hudson, Fort Worth, Robert B. Whitehead, Midland, and L. A. Thompson, Tulsa, Okla., J. K. Smith, Charles L. Morgan, Fort Worth, of counsel, for appellees.

LANGDON, Chief Justice.

This is a suit brought by appellants, Felmont Oil Corporation and others, owners of certain undivided interests in the surface and minerals in and under the Hendrick Banch in Winkler County, for cancellation, either outright or conditionally, of certain portions of two oil and gas leases on the Hendrick Ranch.

The two leases involved in this litigation are each dated March 27, 1925; each was executed by T. G. Hendrick and wife, Ida Hendrick, as lessors, to J. W. Grant, as lessee; and together the two leases cover forty-nine sections, or an aggregate of 31,260 acres of land in Winkler County. The T. G. Hendrick lease, so-called because his name appears first as lessor (sometimes referred to in this opinion as 'Lease A'), covers sixteen sections, or a total of 10,240 acres. The Ida M. Hendrick lease, so-called because her name appears before that of her husband as lessor (sometimes referred to in this opinion as 'Lease B'), covers thirty-three sections of land, or a total of 21,120 acres in Winkler County.

Appellants' suit for cancellation of portions of the two leases is based on the alleged ground that the defendant-lessees and their predecessors in title had breached the implied covenant in the leases to explore particular areas of these two leases held by Pan American Petroleum Corporation and Westbrook-Thompson Holding Corporation, appellees, referred to in the court below as the 'Leaseholding Defendants'. This suit by appellants is also brought against a large number of other defendants, who are identified as the 'Mineral Owning Defendants', of which group John R. Thompson and thirty-two mineral and royalty owners, as appellees, have filed their brief herein, and have adopted the briefs filed by appellees Pan American and Westbrook-Thompson.

Each of the two leases was for a primary term of twenty years, from March 27, 1925, and as long thereafter as oil or gas, potash or other minerals, or either of them, is produced from the said land. It is undisputed that on or about February 10, 1929 a well, producing oil in paying quantities, was completed on Lease 'A', and since that date oil in paying quantities has been continuously produced from portions of the land covered by Lease 'A'. It is also undisputed that on or about November 6, 1926 a well, producing oil in paying quantities was completed on Lease 'B'; and since that date oil in paying quantities has been continuously produced from portions of the land covered by Lease 'B'. Thus, oil in paying quantities was obtained from each lease within the primary term thereof.

Appellees Pan American and Westbrook-Thompson, the 'leaseholding defendants', together own approximately 5,685 acres of the original 10,240 acres covered by Lease 'A', and approximately 13,325 acres of the original 21,120 acres covered by Lease 'B', or a total of approximately 19,010 acres of the 31,360 acres covered by the two leases. Of the remaining 12,350 acres covered by the original base leases, certain portions thereof have been released from the oil and gas leases. Certain other portions of the remaining 12,350 acres remain subject to one or the other of the two leases, but are owned by operators other than Pan American and Westbrook-Thompson; however, these other lessees are not parties to this suit.

Of the 5,685 leasehold acres owned by appellees under Lease 'A', appellants seek to cancel, in some manner, 4,630 acres, or all but 1,055 acres of appellees' leasehold interest in Lease 'A'. The 1,055 acres upon which no cancellation is sought is apparently that portion of Lease 'A' owned by appellees in Section 46, Block 26, P.S.L., and Sections 35 and 40, Block B-5, P.S.L., under which appellants own no interest of any character. As to Lease 'A', appellants seek cancellation to all depths, on 3,730 acres, and cancellation below the depth of 3,200 feet on 900 acres.

It is appellants' position that they seek cancellation only upon those portions of the two base leases owned by appellees Pan American and Westbrook-Thompson. Appellees claim to own only 13,325 acres out of Lease 'B', but appellants seek cancellation of 13,570 acres out of this lease. Cancellation as to all depths on 8,780 acres and cancellation below the depth of 3,200 feet on 4,790 acres is sought.

It is appellants' contention that the appellees Pan American and Westbrook-Thompson have only partially explored some of the acreage, and have wholly failed to explore the remainder of the acreage on which they seek cancellation; that 900 acres under Lease 'A', and 4,790 acres under Lease 'B', are 'partially unexplored', and cancellation of such land below 3,200 feet is sought because of the alleged failure of appellees to explore this acreage below depths of 3,200 feet. There is no contention by appellants that appellees have failed to explore the shallower depths above 3,200 feet below the surface.

With respect to the remainder of the acreage sought to be canceled under the two leases, appellants contend that the implied covenant of exploration has been broken to all depths, shallow and deep, and seek cancellation of the leases on such acreage to all depths.

After trial to a jury, a take-nothing judgment was rendered on the verdict, in favor of appellees. This is an appeal from that judgment.

This appeal is predicated upon fifteen points of error. Appellants have divided these points into five main groups for purposes of argument, and they will be discussed by us in the same manner.

I. By Points 1, 2 and 3, appellants maintain that, since plaintiffs sought cancellation of only certain portions of the two leases for inadequate exploration as to such certain portions, the trial court erred in asking the jury about exploratory operations by appellees on all portions of the two leases held by said appellees; that the trial court erred in asking the jury, in Question No. 1, about exploratory activities on all the Ida Hendrick Lease (Lease 'B'), owned by these two appellees; and in Question No. 6 in asking the jury about exploratory activities on all the T. G. Hendrick Lease (Lease 'A'), owned by these two appellees.

In answering Questions 1 and 6, the jury found that appellees Pan American and Westbrook-Thompson, or their predecessors in title, had drilled or caused to be drilled, on Lease 'A' and Lease 'B', respectively, as many exploratory well or wells below the depth of 3,200 feet on those portions of the leases owned by them as a reasonable, prudent operator would have done under the same or similar circumstances.

On the date that the two basic leases were executed and delivered, the lessee, therein, J. W. Grant, owed to the lessor, T. G. and Ida Hendrick, only the obligations contained in the two leases, either expressly or by implication. The implied obligations of development and exploration owed by the lessee in each of these two leases was a single unified obligation affecting each lease as a whole. We believe the law of Texas is well settled that the lessor may not subdivide or separate the single unified obligation, and thus impose a subsequent burden on his lessee greater than the burden assumed by such lessee when he accepted the lease. Since the lessor may not, himself, arbitrarily separate or subdivide the express or implied obligations imposed on the lessee by the terms of the lease, it follows that such lessor would not be permitted to accomplish this indirectly, by the sale of the minerals to numerous parties in segregated tracts and parcels, and thus subdivide what was theretofore a single unified obligation affecting the lease as a whole, into countless separate obligations, each of which would be subject to further fractionization or division in the event of further sales by the purchasers thereof.

We think it is equally well settled that the express and implied covenants contained in the lease are covenants running with the land and are imposed upon each taker of any part of the lease as a consideration of his holding it. In this respect, the express and implied covenants of the lease are severable, and impose upon the holder of each segregated part the obligation to reasonably explore and develop such segregated portions after production has been obtained on the lease. Cowden v. General Crude Oil Co., Tex.Civ.App., 217 S.W.2d 109; Cosden Oil Company v. Scarborough, 5 Cir., 55 F.2d 634; Cox v. Sinclair Gulf Oil Co., Tex.Civ.App., 265 S.W. 196.

Appellants concede that they have been unable to find any Texas authority in support of their contention that the lessees' development and exploratory obligations are divisible with respect to various portions of the lease. However, appellants have cited Perkins v. Mitchell, 153 Tex. 368, 268 S.W.2d 907, by our Supreme Court, which we think does no more than apply the rule announced above, to the effect that the express and implied covenants of the lease are severable, not at the option or election of the lessor or his assigns, but as a result of the subdivision of the lease by the lessee or his assigns into two or more segregated tracts or parcels. The covenants contained in the lease follow every part and parcel of the lease, and impose upon each holder a single unified obligation to reasonably explore and develop that portion of the lease held by him. In the Perkins case (supra), the original 203.4-acre lease had been divided by...

To continue reading

Request your trial
17 cases
  • United States v. Buras
    • United States
    • U.S. Court of Appeals — Fifth Circuit
    • December 26, 1972
    ...(notes 11, 12, 13 and 14 infra), I do not repeat the cases documented in Delaney. 11. See, e. g., Felmont Oil Corp. v. Pan American Pet. Corp., Tex.Civ. App., 1960, 334 S.W.2d 449, error ref'd n. r. e., which expressly refuses to follow Sinclair Oil & Gas Co. v. Masterson, 5 Cir., 1959, 271......
  • Weymouth v. Colorado Interstate Gas Company
    • United States
    • U.S. Court of Appeals — Fifth Circuit
    • September 20, 1966
    ...Civil Appeals, "the first writing Texas court," Ford Motor Co. v. Mathis, 5 Cir., 1963, 322 F.2d 267, 269, in Felmont Oil Corp. v. Pan American Petroleum Corp., 334 S.W.2d 449, Tex.Civ.App., 1960, error refused n. r. e., because, that Court stated, we had ignored Clifton v. Koontz, 160 Tex.......
  • Young v. Amoco Production Co.
    • United States
    • U.S. District Court — Eastern District of Texas
    • June 11, 1985
    ...the lessor, but also to the lessee. Clifton, supra at 695; Edgar, supra at 228-29; Felmont Oil Co. v. Pan American Petroleum Corporation, 334 S.W.2d 449, 455 (Tex.Civ.App.—El Paso 1960, writ ref'd n.r.e.). Ron Hinn, an Amoco engineer, testified that the initial development of this formation......
  • WS Ranch Company v. Kaiser Steel Corporation, 9295.
    • United States
    • U.S. Court of Appeals — Tenth Circuit
    • February 1, 1968
    ...follows (notes 11, 12, 13 and 14 infra), I do not repeat the cases documented in Delaney. 11 See, e. g., Felmont Oil Corp. v. PanAmerican Pet. Corp., Tex.Civ.App., 1960, 334 S.W.2d 449, error ref'd n. r. e., which expressly refuses to follow Sinclair Oil & Gas Co. v. Masterson, 5 Cir., 1959......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT