Harris v. Stephens Production Co.

• Decision Date: 29 June 1992
• Docket Number: No. 92-269,92-269
• Citation: 832 S.W.2d 837,310 Ark. 67
• Parties: Joe Wayne HARRIS and Elena Harris, Appellants, v. STEPHENS PRODUCTION COMPANY, et al., Appellees.
• Court: Arkansas Supreme Court

Page 837

832 S.W.2d 837

310 Ark. 67

Joe Wayne HARRIS and Elena Harris, Appellants, v. STEPHENS PRODUCTION COMPANY, et al., Appellees.

No. 92-269.

Supreme Court of Arkansas.

June 29, 1992.

Ray Edwards, Charles "Chuck" Dyer, Fines F. Batchelor, Jr., Van Buren, for appellants.

Michael C. Carter, Janice West Whitt, Fort Smith, for appellees.

DUDLEY, Justice.

The plaintiffs, Joe and Elena Harris, filed this suit claiming a 100% working interest ownership of the oil, gas, and mineral rights in a 40-acre tract and the concomitant rights to the proceeds from a nearby commercially producing well that is located in the same drilling unit. The chancellor found the plaintiffs' claims to be without merit, and they appeal. The ruling of the chancellor was correct, and we affirm.

In 1961, Bert Tankersley leased his oil, gas, and mineral interest in 100 acres to Gulf Oil Corporation. The lease included the 40 acres at issue in the north half of section 8, plus 60 acres in section 9. Stephens Production Co., the defendant, and appellee, subsequently acquired the leasehold working interest of the 40-acre tract in section 8 and then pooled and unitized for drilling the north half of section 8 and the south half of section 5. Stephens owned 100% of the oil and gas leases in the 640-acre drilling unit. In 1970-71, Stephens drilled a gas well, the Harris-Chitwood No. 1, on the 40 acres in section 8. The well produced for six years, but ceased commercial production in 1977. When commercial production ceased, 70% of Stephens' leases in the unit lapsed due to non-production. Stephens held the remaining 30% by production since those leases contained acreage that was in other producing units. Earlier, in June 1968, Chevron had drilled the Chevron-Whitlock No. 1 Well in the section 9 drilling unit that contained the other 60 acres of the Tankersley lease. The Chevron-Whitlock No. 1 Well has produced in paying quantities since 1968 and so, unless otherwise terminated, Stephens holds the 40-acre tract by virtue of production on the 60 acres.

Plaintiffs, Joe and Elena Harris, through the years purchased four tracts of land, comprising about 500 acres, all located in the immediate area. One of the tracts, which was apparently purchased in 1974, is the 40-acre tract in section 8. The Harris-Chitwood No. 1 is located 2,000 feet north of plaintiffs' house.

After the Harris-Chitwood No. 1 ceased commercial production, Stephens attempted without success to interest other production companies in drilling in the unit and, in 1980, decided to cap the well. When Stephens sent a crew to cap the well, plaintiff Joe Harris met them and asked them not to cap it, but instead to let the Harrises use the gas from the well for their home. A Stephens vice-president told Harris that he would have to get the approval of the Oil and Gas Commission. With the help of his attorney, Harris drafted a letter to the Commission asking it to allow him to assume the responsibility and the liability for the well and for the future expense of capping of it. The Commission responded by letter telling Harris what he would have to do in order to be allowed to use the well for his personal use. About a year later, Stephens wrote the Harrises and told them that it would cap the well if it did not hear from them in forty-five days. There was additional correspondence and then, in October of 1982, Stephens mailed to the Harrises a "Conveyance and Bill of Sale," with a copy to the Commission and to the plaintiffs' attorney. The Harrises paid nothing for the conveyance. In 1983, the Commission gave the Harrises the right to use the well for household purposes.

In 1986, TXO Production Corp. became interested in drilling another well in the same unit in which the Harris-Chitwood No. 1 is located and, to that end, leased some of the Harrises' other property, but not the 40 acres at issue. TXO declined to take a lease from the plaintiffs on the 40 acres at issue because it concluded that was held by Stephens as a result of production. Stephens participated in the drilling of the well, the Wamock No. 1, which was successfully completed in December of 1986. The well is in commercial production, and Stephens has paid royalties to the plaintiffs since production began. Over two years after the completion of the Wamock No. 1, the plaintiffs filed this suit claiming a 100% working interest ownership in the 40-acre tract because of the 1982 "Conveyance and Bill of Sale." Stephens counters that the conveyance shows on its face that it conveyed only the well, while the plaintiffs contend that it conveyed the entire unit. The chancellor ruled that some of the language in the instrument was ambiguous and allowed parol evidence to determine the true intent of the parties. The plaintiffs assign this ruling as error. The nature of the case itself tends to show the correctness of the chancellor's ruling. The Harrises contend that the instrument conveyed the gas leases in the unit, while Stephens contends that it conveyed only the well. The instrument provides:

That in consideration of the sum on ONE DOLLAR ($1.00), the receipt of which is hereby acknowledged, and the further release of all liability and responsibility, STEPHENS PRODUCTION COMPANY does hereby SELL, DELIVER and TRANSFER unto JOE HARRIS, Route 1, Alma, Arkansas 72921, all of its interest in and to the physical equipment, Oil and Gas Leases, and all other property rights owned, used or held by it in connection with the Harris-Chitwood # 1 Well located 850 feet East and 530 feet South of the Northwest corner of the Northwest Quarter of...