Indian Territory Illuminating Oil Co. v. Haynes Drilling Co.

• Decision Date: 13 April 1937
• Docket Number: Case Number: 24422
• Citation: 1937 OK 253,180 Okla. 419,69 P.2d 624
• Parties: INDIAN TERRITORY ILLUMINATING OIL CO. v. HAYNES DRILLING CO. et al.
• Court: Oklahoma Supreme Court

1937 OK 253

69 P.2d 624

180 Okla. 419

INDIAN TERRITORY ILLUMINATING OIL CO. v. HAYNES DRILLING CO. et al.

Case Number: 24422

Supreme Court of Oklahoma

Decided: April 13, 1937

Syllabus

¶0 1. OIL AND GAS - Action by Claimant of Entire Royalty Interest to Cancel Lease for Failure to Properly Develop - Other Claimants of Royalty Interest Properly Made Defendants Along With Lessee.

In a case where plaintiff claims to own the entire royalty interest under a tract of land on which he seeks to cancel an oil and gas lease for failure to properly develop, and where other persons claim certain interests in the royalty adverse to plaintiff's claim, plaintiff may sue to cancel said lease by making the other royalty claimants defendants in the case along with the lessee.

2. SAME - Action to Cancel Lease for Failure to Drill Offset Wells - Demand for Compliance With Covenants not Prerequisite to Suit Where Evident That Demand Would be Refused.

Before a court of equity will cancel an oil and gas lease for failure to comply with covenants to drill offset wells, notice must be served upon the lessee that a failure to properly protect the property line against drainage within a reasonable time will be considered grounds for forfeiture in an action instituted accordingly. Under a state of facts, however, where it is clear that lessee would not have complied with such demand until a judicial determination of the necessity therefor had been had, and where the lessee manifests a positive and definite intention not to comply with such demand, the lessor may immediately commence action against the lessee for cancellation of the lease without further notice.

3. SAME - In Absence of Stipulation Neither Lessor nor Lessee Is Arbiter of Extent to Which Operations Shall Proceed.

Where the object of the operations contemplated by an oil and gas lease is to obtain a benefit or profit for both lessor and lessee, neither is, in the absence of a stipulation to that effect, the arbiter of the extent to which, or the diligence with which, the operations shall proceed; but both are bound by the standard of what, in the circumstances, would be reasonably expected of operators of ordinary prudence, having regard to the interests of both. Pelham Petro. Co. v. North, 78 Okla. 39, 188 P. 1069; Broswood Oil & Gas Co. v. Mary Oil & Gas Co., 164 Okla. 200, 23 P.2d 387.

4. EQUITY - Jurisdiction to Adjust Rights of Parties Upon Allowance of Monetary Compensation Without Relegating Parties to New Action Strictly Legal in Nature.

When in a civil action the equitable jurisdiction of a court is invoked and purely equitable relief sought, it becomes apparent at the trial by reason of facts not known to the plaintiff at the time of its institution that the rights of the parties can best be adjusted upon allowance of monetary compensation, the court may, in its discretion, grant such relief without relegating the parties to a new action strictly legal in nature.

5. APPEAL AND ERROR - Oil and Gas - Disposition of Cause Where Forfeiture of Portion of Lease for Breach of Implied Covenant to Drill Would Work Manifest Injustice to Lessee.

In an equity case, this court will not decree the forfeiture of a portion of an oil and gas lease for breach of an implied covenant to drill where to grant such forfeiture will work a manifest injustice to the lessee, but this court will weigh all the equities between the parties, consider all the facts and circumstances in the case, and will grant such relief as seems most consonant with right and justice between the parties.

6. SAME - Action to Cancel Portion of Lease Subjected to Drainage by Offset Well - Award of Damages to Royalty Owner in Lieu of Cancellation Where Lessee Drilled in Good Faith.

In an action brought to cancel that portion of an oil and gas lease being subjected to drainage by an offset well, such portions of the lease as are being properly developed and are not being subjected to drainage will not be canceled. However, in an equitable action where lessee has drilled in good faith, but its well is shown not to have protected the whole from drainage by offsets, the court may refuse to cancel that portion of the lease not properly drained, but may award the royalty owner proper damages in lieu thereof.

Appeal from District Court, Oklahoma County; Hal Johnson, Assigned Judge.

Action by the Haynes Drilling Company against the Indian Territory Illuminating Oil Company and others. From the judgment, defendant named appeals. Reversed with directions.

Fred M. Carter, W.P. McGinnis, R.M. Williams, Archibald Bonds, Donald Prentice, Samuel H. Riggs, and Darrall G. Hawk, for plaintiff in error.

Hayes, Richardson, Shartel, Gilliland & Jordan, Harry O. Glasser, and W.M. Phillips, for defendant in error Haynes Drilling Company.

Victor C. Mieher, M.D. Kirk, William. H. Zwick, W.F. Semple, James B. Diggs, Ben B. Blakeney, E.H. Chandler, Summers Hardy, Y.P. Broome, R.H. Hudson, R.B.F. Hummer, Joe T. Dickerson, Geo. W. Cunningham, W.P.Z. German, Clay Tallman, Guy Woodward, John Rogers, Jess H. Hill, George Bowen, Ross C. Gwilliam, James C. Denton, R.H. Wills, Hayes McCoy, Alvin Richardson, James A. Veasey, and Lloyd G. Owen, amici curiae (brief in support of plaintiff in error).

BUSBY, J.

¶1 This is an equity case, which, stripped down to the basic question actually involved, presents the simple question of whether or not the Indian Territory Illuminating Oil Company, defendant in the trial court and plaintiff in error here, has reasonably and properly protected from drainage an 80-acre community oil and gas lease in the Oklahoma City field. Subsequent to the execution of the community lease and subject thereto, the Haynes Drilling Company, plaintiff in the trial court, and defendant in error here, purchased the fee of the northeast 10 acres out of the 80. After the cancellation by the judgment of the trial court of the lease as affecting the east 3 1/3 acres of the Haynes' 10-acre tract, and pending appeal from such judgment, the Haynes Drilling Company drilled a producing well on such canceled portion. A number of questions other than proper protection from drainage are raised by the parties, but most of these questions are entitled to little consideration. They more or less cloud the real issue and tend to confuse. However, since they are raised and earnestly argued, they will be considered hereafter in this opinion.

¶2 Under the facts in this case as hereinafter detailed, there was a duty upon the part of the plaintiff in error, Indian Territory Illuminating Oil Company, hereinafter referred to as the Indian Territory Illuminating Oil Company, to drill and properly protect from drainage the 80-acre oil and gas lease. Three wells were spotted and drilled across the north end of the tract, and it is the contention of the Indian Territory Illuminating Oil Company that these wells were drilled at such points as would reasonably be expected of an operator of ordinary prudence under the circumstances with regard to the interest of both lessors and lessee. The basis for the Oklahoma rule was well stated in the case of Brewster v. Lanyon Zinc Co. (C. C. A.) 140 Fed. 801, decided in 1905, and followed by subsequent cases in this jurisdiction.

¶3 The case at bar simply presents a fact situation to which this rule should be applied for a proper disposition of the case. We adhere to our former decisions on this point and will adjust the differences between the parties as measured by that yardstick. As stated in the above-styled cause:

"The object of the operations contemplated by an oil and gas lease is to obtain a benefit or profit for both lessor and lessee, and neither is, in the absence of a stipulation to that effect, the arbiter of the extent to which or the diligence with which the operations shall proceed; but both are bound by the standard of what, in the circumstances, would be reasonably expected of operators of ordinary prudence, having regard to the interest of both."

¶4 The above rule was quoted and approved by this court in the case of Pelham Petroleum Co. v. North, 78 Okla. 39, 188 P. 1069, and was reiterated in Broswood Oil & Gas Co. v. Mary Oil & Gas Co., 164 Okla. 200, 23 P.2d 387, and Wilcox v. Ryndak, 174 Okla. 24, 49 P.2d 733, and cases cited therein. See, also, Merrill's Covenants Implied in Oil & Gas Leases, p. 189. We reaffirm this rule as the law applying to differences between lessors and lessees with reference to offset drainage on oil and gas leases in Oklahoma. Having announced the rule of law applicable, we now proceed to a statement of the facts.

¶5 On November 3, 1927, H.G. Little and wife, R.C. Welch and wife, and Robert H. Jensen and wife, executed an oil and gas lease covering 80 acres of land, being the E. 1/2 N.E. 1/4 section 27, township 11 N., range 3 W., in Oklahoma county, to Charles C. Duncan. Little owned 70 acres and the other lessors owned ten acres. This lease was subsequently transferred to plaintiff in error, Indian Territory Illuminating Oil Company.

¶6 On July 9, 1930, H.G. Little, being the owner of the northeast ten acres of said tract of land, conveyed same to the Haynes Drilling Company, in which deed there is the following clause:

"Subject to oil and gas lease dated November 3, 1927, to Chas. C. Duncan, subsequently assigned to Indian Territory Illuminating Oil Company."

¶7 This action was commenced October 13, 1931, against Indian Territory Illuminating Oil Company by the plaintiff, Haynes Drilling Company, complaining that the Indian Territory Illuminating Oil Company had not properly developed the northeast ten acres of the lease belonging to plaintiff, in that a well had been located and drilled by another company 166 feet cast and 300 feet north of the northeast corner of plaintiff's land, another 165 feet west and 325 feet north of the northeast corner, and defendant was drilling its well in the center of said ten-acre tract. It was alleged that the result of so spacing the...