Gannon v. Mobil Oil Co.

• Decision Date: 08 May 1978
• Docket Number: No. 76-1945,76-1945
• Citation: 573 F.2d 1158
• Parties: Fayetta Gilbough GANNON, Individually, and as Executrix and Trustee of the Estate of Clair H. Gannon, Deceased, Plaintiff-Appellant, v. MOBIL OIL COMPANY, a Division of Socony Oil Company, Inc., a corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1158

573 F.2d 1158

Fayetta Gilbough GANNON, Individually, and as Executrix and Trustee of the Estate of Clair H. Gannon Deceased, Plaintiff-Appellant, v. MOBIL OIL COMPANY, a Division of Socony Oil Company, Inc., a corporation, Defendant-Appellee.

No. 76-1945.

United States Court of Appeals Tenth Circuit.

Submitted Jan. 26, 1978.

Decided March 30, 1978.

Rehearing Denied May 8, 1978.

Andrew Wilcoxen, Muskogee, Okl. (Fred G. Gannon, Dallas, Tex., on the brief), for plaintiff-appellant.

Max H. Lawrence, of Walker, Lawrence & Walker, Oklahoma City, Okl., and Sid M. Groom, Jr., Edmond, Okl. (David R. Latchford, Mobil Oil Corp., Denver, Colo., on the brief), for defendant-appellee.

Before SETH, Chief Judge, and BARRETT and McKAY, Circuit Judges.

BARRETT, Circuit Judge.

Appellant, plaintiff below, Fayetta Gilbough Gannon, individually and as Executrix and Trustee of the Estate of Clair H. Gannon, Deceased (Gannon), appeals from a Directed Verdict awarded appellee, defendant below, Mobil Oil Company, a Division of Socony Oil Company, Inc., a corporation (Mobil). Jurisdiction is based on diversity.

Gannon sued Mobil for both compensatory and exemplary damages predicated upon Mobil's alleged torts of trespass and intentional interference with Gannon's contractual rights under an oil and gas lease granted January 7, 1972, arising by reason of the plugging of certain abandoned oil wells on the Gannon property by Mobil. The trial court entered a detailed memorandum of findings and conclusions concurrent with the judgment granting the directed verdict.

On October 14, 1959, Gannon executed an oil and gas lease to Mobil covering 570 acres situate in Murray County, Oklahoma, for a primary term of ten years or so long as oil, gas or other hydrocarbons were produced therefrom. There were six nonproducing oil wells located on the lands at that time, completed in the Second Bromide Sand. Mobil or its assignee-agent re-entered five of the six wells and, in addition, drilled and completed one more well to the Bromide Sand. Mobil also undertook an extensive "fireflood" operation in an effort to obtain commercial production of the low gravity oil in the reservoir, but terminated the uneconomic operation in October, 1966. On August 3, 1967, Mobil "farmed out" the wells by partial assignment of its leasehold rights for a term of three (3) years to Nelson I. Geyer (Geyer), d/b/a Thermo-Dyne, Inc. Geyer undertook an injection of oil condensate commencing in April of 1968 in an effort to revive production from the lease at a total cost of about $200,000.00. His efforts, just as those of Mobil, were unsuccessful in terms of realizing commercial production. Geyer produced a total of 9,982.35 barrels of oil and condensate, most of which, however, had been injected in the wells. Geyer's right under the partial assignment expired December 24, 1970, at which time he terminated all efforts to obtain commercial or "economic" production. Thus, the basic lease also terminated, at the latest possible date, on December 24, 1970.

Mobil determined to abandon the Gannon lease and to plug the wells. Thereafter, it commenced plugging and abandonment operations in July, 1971. Geyer by letter of August, 1971, offered to relieve Mobil of any obligations relating to the plugging of the wells. Geyer informed Mobil of his desire to assume the responsibility of plugging the wells and purchasing Mobil's equipment at a "nominal" fee and then pursuing attempts to obtain a new oil and gas lease from Gannon. Mobil, however, declined the Geyer offer both because Mobil had been advised that it could not make any assurances as to whether its lease from Gannon was then valid and because ". . . it would be difficult for Thermo-Dyne (Geyer) to indemnify Mobil against all liability as the result of sale of equipment and assumption of plugging and abandoning the wells." (Pl. Exh. # 11, R., Vol. III, p. 513.) Mobil continued with the plugging process and notified Geyer to remove the equipment from the wells which belonged to him.

On November 1, 1971, Gannon wrote to Mobil inquiring about Mobil's intentions relative to the property. Mobil informed Gannon that it was then in the process of plugging (and abandoning) the wells. Gannon's attorney then spoke by telephone with a Mobil representative, advising that Gannon was then negotiating with Geyer for a new oil and gas lease on the property and that Gannon was the owner of the wells rather than Mobil. He demanded that Mobil not plug the wells. (R., Vol. I, pp. 36-38.)

Mobil's landman, one C. H. Bland, did receive a telephone call from Gannon's attorney relative to the plugging operation. Bland did not recollect the specifics of the conversation except that it did deal with the plugging operation. Bland testified that he informed Gannon's attorney that he was not familiar with well plugging matters. Gannon's attorney, however, testified that Bland (whom he seems to equate as Mobil) stated that the wells would not be plugged. In any event, the record reflects that even though Mobil proceeded with the plugging operations by pouring hundreds of sacks of cement into the oil producing formation, cementing steel tubing and iron into each well and filling each well from top to bottom with cement that neither Gannon, her attorney or any person on her behalf undertook action, steps or threats to prevent Mobil from proceeding with the plugging operations until the instant lawsuit was filed on October 11, 1973.

Mobil filed its Notice of Intention to Plug the subject wells with the Oklahoma Corporation Commission prior to commencement of the plugging operations in July, 1971. The record reflects that Geyer's efforts under the three year partial assignment of December 29, 1967, realized only limited production from the wells for April, 1968, through February, 1969. Some production was last sold from the lease by Geyer in September, 1971. Mobil had, of course, assigned only the right to production from the Second Bromide Sand to Geyer for the three (3) year term, reserving all other leasehold rights, together with all of the attendant duties, obligations and responsibilities imposed by virtue of such ownership.

Mobil completed the plugging operations on December 8, 1971. Geyer, who had obtained a new oil and gas lease from Gannon on the property for a three-year term commencing January 7, 1972, attempted to re-enter one of the wells plugged by Mobil but was unable to drill out the steel and iron which had been cemented into the hole. Geyer also completed a new well in the Second Bromide Sand in August, 1974, and thereafter re-entered one of the wells plugged by Mobil, but gave up that effort. Geyer testified that in his opinion it would cost between $40,000.00 and $50,000.00 to re-enter the plugged wells because of the tail pipe and iron in the holes but that a prudent operator would prefer to spend $100,000.00 per well in drilling new wells rather than attempting to overcome the hazards of re-entry of the abandoned wells. (R., Vol. I, pp. 137, 141-144.)

Gannon acknowledges that it was not economically feasible for Mobil to produce the low gravity oil in 1966. However she contends that when Mobil commenced the plugging operation in 1971 the oil from the wells could have been produced in paying quantities because of the rapid increase in the price of crude oil. The trial court excluded evidence of the economics prevailing at the time of trial in June of 1976.

On appeal, Gannon contends that the trial court erred in granting the directed verdict by finding that: (1), (2) and (3), Gannon could not amend her complaint and the pre-trial order; Gannon had to plead and prove affirmative defenses to justify torts; Mobil's lease did not terminate until December 8, 1971, (4) Mobil was the "owner" and "operator" of the subject wells at the time it plugged same as such terms are defined by the rules and regulations of the Oklahoma Corporation Commission, (5) the wells were not prospect holes and the law applicable to the destruction of same did not apply, (6) the wells could not be produced in paying quantities at the time of the plugging operations, and thus erred in excluding evidence of the economics of producing the wells subsequent thereto and up to the time of trial, (7) the assignment of the wells and lease insofar as it covered the oil sand in which the wells were completed did not relieve Mobil of whatever duty, if any, it may ever have had to plug the wells, (8) Mobil had a duty to plug the wells in view of the facts prevailing at the time of plugging and Rule 3-401(c), (9) certain facts controlled, (10) certain conclusions of law applied, (11) evidence pertinent to exemplary damages be excluded, and (12) Gannon's motion for directed verdict should be denied.

Guyer's testimony was most pertinent to the trial court's decision. He stated that in October or November of 1971 the type of sour crude being produced from the Gannon lease would sell for about $2.50 per barrel, after blending; that in order to render it marketable it would have cost much more than the sale price; and that his company lost about $400,000.00 in the process of the two operations conducted on the Gannon property. Even so, Geyer said that he was " . . . ready to lose a couple of hundred (thousand) more." (R., Vol. I Supp., pp. 134-136.) As to the question of the validity of Mobil's lease after Geyer's unsuccessful efforts, Geyer acknowledged that on August 23, 1971, his efforts had been unsuccessful in producing from the Gannon lease "to the point of economics." He further stated that while he would like to continue "with a research program" on the property, his attorneys advised that there was a question about the validity of the Mobil lease in that although Geyer had produced a "limited amount" of oil during 1970 and 1971, still this was "perhaps not enough to hold the lease by production." (R., Pl. Ex. # 10, Vol. III, p. 512.)

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