Grimes v. La Gloria Corp.

• Decision Date: 17 September 1952
• Docket Number: No. 12429,12429
• Citation: Grimes v. La Gloria Corp., 251 S.W.2d 755 (Tex. Ct. App. 1952)
• Parties: GRIMES v. LA GLORIA CORP. et al.
• Court: Texas Civil Court of Appeals

Page 755

251 S.W.2d 755

GRIMES v.LA GLORIA CORP. et al.

No. 12429.

Court of Civil Appeals of Texas, San Antonio.

Sept. 17, 1952.

Grimes & Owen, Taylor, for appellant.

Barksdale Stevens, Houston, Binford Arney, Corpus Christi, Lloyd & Lloyd, Alice, for appellees.

POPE, Justice.

This case concerns the interpretation of an oil and gas unitization agreement as embodied in an oil and gas lease and two subsequent amendments to the lease.After a unit was validly created, did the unit operator under the agreement possess the power to exclude certain lands from the unit?That is the point in this controversy.Appellant, E. M. Grimes, a royalty owner, steadfastly refused to agree to the exclusion of lands from the unit, and has here sued for royalty payments based on the original unit.AppelleeLa Gloria Corporation asserts the power under the agreement to change and alter the original unit even to the point of excluding certain lands from the original unit.The controlling facts are these:

Appellant, Grimes, is the successor of F. A. Bottenfield who executed an oil and gas lease on May 5, 1938.That lease, known as the Bottenfield lease, contained no provisions for pooling, and was for a primary term of five years 'and as long thereafter as oil, gas, sulphur or any other mineral is produced from said land by lessee, or drilling operations are prosecuted, as herein provided.'

The lease also included a release or surrender clause that stated: 'Lessee may, at any time and from time to time, execute and deliver to lessor, or place of record, a release or releases covering any portion or portions of the above described premises, or any mineral thereunder, and thereby surrender this lease as to such portion or portions, or as to such mineral, and be relieved of all obligations and rentals as to the acreage or mineral, surrendered.'

The right to unitize the Bottenfield lands arose on March 23, 1942, when the Bottenfield lease was amended as follows:

'17.(a) Lessee is hereby granted the right, power and option at any time or from time to time while this lease is in force, to pool and combine the lands covered by this lease or any portion or portions thereof as to all or any mineral or stratum thereunder, with other lands, lease or leases or portion or portions thereof or mineral or stratum thereunder so as to create units of such size in surface acres as lessee may desire but containing not more than 45 surface acres; provided, if at any time the size specified for the drilling completion or producing of a well at a regular location under the then effective orders or regulations of any governmental authority applicable to the area of the lands covered by this lease, requires a unit larger than 45 surface acres or larger than a unit theretofore created or of a different shape, then lessee may create a unit, or enlarge or change the shape of an existing unit, to such different size or shape as lessee may desire, but not to a size substantially exceeding the size specified in such orders or regulations for a regular location.

'(c) Any well drilled or operations conducted on that part of a unit created hereunder not included in the land described in this lease, at depths down to and including the stratum or depth unitized if so limited, shall be considered a well drilled or operations conducted under this lease and production from any such well of a unitized mineral or from a unitized stratum shall be considered, except as to the amount of royalty payable thereon, as production under this lease.Any well drilled or operations conducted on that part of lands described in this lease and included in such unit shall have the same effect, except as to the amount of royalty payable on production therefrom of a unitized mineral or from a unitized stratum, as though such unit had not been created. * * *

'(f) Nothing herein shall impair the right of lessee to release this lease as to all or any portion of the lands covered hereby except that lessee may not so release this lease as to lands within a unit during any period that a well is drilling on the unit or production of a unitized mineral or from a unitized stratum is being obtained on the unit, unless all leases subject to the pool as to lands within the unit are released as to said lands.

'(g) A unit created hereunder shall remain in force, subject to termination by release of leases as above provided, for so long as any lease subject thereto shall remain in force; provided, whenever the primary term of any lease subject thereto expires and when such lease is no longer continued in force by operations or production or force majeure in accordance with its provisions, then the entire unit shall ipso facto terminate.'

Before the Bottenfield lands were included within any unit, minerals were discovered on a nearby tract, which we shall call the Stewart-Jones 40-acre tract.Though minerals were discovered, the record shows that in March of 1943'same are not being produced for various reasons.'It was at this point that a second amendment to the Bottenfield lease was executed that permitted a unit of 700 acres rather than one of only 45 acres, as provided in the earlier amendment.That second amendment to the Bottenfield lease was executed on March 13, 1943, and its significant clause provided:

'Paragraph 17 of said lease first hereinbefore described, as amended, * * * is amended by giving lessee, in addition to the right, power and option to create units as therein provided and to enlarge or change the shape of existing units to such different size or shape as lessee may desire but not to a size substantially exceeding the size specified in the then effective orders or regulations of any governmental authority applicable to the area of the lands covered by said lease, the right, power and option at any time and from time to time while said lease is in force, to pool and combine the lands covered by said lease or any portion or portions thereof as to all or any mineral or stratum thereunder, with other lands, lease or leases or portion or portions thereof or mineral or stratum thereunder so as to create a unit of such size in surface acres as lessee may desire but not containing more than 700 acres, or to enlarge or change the shape of an existing unit to such different size or shape as lessee may desire, but not to a size in excess of 700 acres; provided, however, that any unit created under the provisions of this amendment rather than the original provisions of said paragraph 17 shall include the lands covered by the Stewart-Jones Unit hereinbefore mentioned.'

After the execution of the second amendment to the Bottenfield lease, a unit was validly formed on April 12, 1943, and was designated as 'Shell's1943 Unit.'It included 682 acres of land and among those lands was the Bottenfield lease in which the plaintiff owns royalty.Also included within the boundaries of the unit was the Stewart-Jones 40-acre tract, where there were at that time known discovered minerals.At the time the unit was created and continuously since then, there has been production of oil or gas in commercial quantities from the lands pooled and unitized by 'Shell's1943 Unit.'The general outline of that unit is illustrated by Figure One in the attached exhibit.Appellant claims that unit as the one which fixes his rights under his agreements.

On May 15, 1947, more than four years later, the appelleeLa Gloria Corporation created two new units and destroyed the Shell's1943 Unit.One of those units was called Stewart-Jones UnitNo. 2, and it included the appellant's Bottenfield lands, but the new unit did not include the Stewart-Jones 40-acre tract, where oil and gas originally had been discovered, and which was originally within the same unit as the Bottenfield land.Other large tracts of land were excluded from the new unit.The new unit is illustrated by Figure Two in the attached exhibit.

Appellant, Grimes, takes the position that the Shell 1943 Unit, created on the authority of the original lease and its amendments, is the only unit that measures his rights.He continuously protested the right and power on the part of La Gloria...