INEXCO OIL COMPANY v. CRUTCHER-TUFTS CORPORATION
| Citation | 389 F. Supp. 1032 |
| Decision Date | 07 February 1975 |
| Docket Number | Civ. A. No. 17458. |
| Parties | INEXCO OIL COMPANY v. CRUTCHER-TUFTS CORPORATION et al. |
| Court | U.S. District Court — Western District of Louisiana |
Blake G. Arata and John M. McCollam, Gordon, Arata & McCollam & Watters, New Orleans, La., for plaintiff.
Claude E. Hall and John C. Christian, Milling, Saal, Benson, Woodward & Hillyer, New Orleans, La., for defendants.
OPINION
Plaintiff, Inexco Oil Company, (hereinafter referred to as "INEXCO"), seeks to compel specific performance of two Farmout Agreements executed by them with defendant, Crutcher-Tufts Corporation, and defendants, Albert B. Crutcher, Jr. and J. D. Tufts, II, (hereinafter collectively referred to as "CRUTCHER-TUFTS"), respectively, on July 30, 1970, affecting oil, gas and mineral leases held by the assignors and covering lands in the Reddell Field in Evangeline Parish, Louisiana, and more specifically to compel the assignment of certain mineral leasehold interests allegedly earned by plaintiff by the drilling of the Inexco-Pardee Company No. 2 well to a total depth at which it encountered domal material in accordance with provisions of the Farmout Agreements.
Plaintiff, Inexco, is a Delaware corporation, with its principal place of business in Houston, Texas. Defendant, Crutcher-Tufts, is a Louisiana corporation, with its principal place of business in New Orleans, Louisiana; defendants, Albert B. Crutcher, Jr. and J. D. Tufts, II, are citizens of the State of Louisiana. The matter of controversy exceeds the sum or value of $10,000.00, exclusive of interest and costs.
By two instruments, each dated July 30, 1970, Inexco and Crutcher-Tufts entered into Farmout Agreements affecting oil, gas and mineral leases held by Crutcher-Tufts and covering lands in the Reddell Field in Evangeline Parish, Louisiana, within the jurisdiction of this Court.
Inexco sought the Farmout Agreements and suggested the objective depths stipulated therein.
Crutcher-Tufts owned leases covering adjoining and offsetting acreage which were not made subject to the Farmout Agreements.
The two Farmout Agreements (except for identification of the respective parties and leases subject thereto) were identical. Each Agreement provided that if Inexco:
all within 240 days from July 30, 1970 (that is March 29, 1971), Crutcher-Tufts would assign to Inexco the leases affected thereby, insofar as same covered lands included within such unit, and insofar as same applied to all depths below the top of the Wilcox Formation and above the stratigraphic equivalent of 100 feet below the total depth drilled in the test well, reserving to Crutcher-Tufts an overriding royalty of 5% of 8/8 of all oil, gas and other minerals produced and saved and allocable to that portion of the leased lands included within such unit.
Each Farmout Agreement provided that any assignment of interests thereunder shall provide that upon the recovery of the costs out of the proceeds from production, as set forth in paragraph 4 of the agreement, or at the assignor's option, 35% of the leasehold interests previously assigned to Inexco would revert to the assignor, free and clear of costs and other burdens, and the reserved overriding royalty would simultaneously terminate.
Under the terms of each Agreement, if the test well was drilled, completed and committed to a unit which included a portion of the acreage subject to the agreement, as therein provided, Inexco then had the right to drill subsequent wells to the same objective depth as required for the test well and, if productive in paying quantities below the top of the Wilcox Formation, the right to cause units to be formed for such wells by the Commissioner of Conservation; and, if not more than 180 days elapsed between the creation of successive units including acreage subject to the Agreeent, Inexco would earn the right to an assignment of those portions of the leases affected by each unit or units, subject to the same conditions, reservations and depth limitations as provided for the test well.
In August of 1970, Inexco commenced drilling the Inexco-Pardee Company No. 1 Well in the Northeast quarter of Section 20, T4S, R1W on acreage other than the leased acreage subjected to the Farmout Agreements.
The Pardee Company No. 1 Well reached its total depth of 12,946 feet on or about October 12, 1970.
After completing the Pardee Company No. 1 Well, but before a unit was created, Inexco drilled the Pardee Company No. 2 Well, which was also located on acreage other than the leased acreage subject to the Farmout Agreements.
The Inexco-Pardee No. 2 Well reached its total depth of 13,687 feet on or about 1:00 A.M. on February 12, 1971.
On February 15, the hole was cemented and plugged back to 12,895 feet. Inexco's decision to plug back and complete the well at shallower depths, rather than to continue drilling below 13,687 feet, was purely an economic decision, based in part upon an unwillingness to make the expenditures necessary to maintain control of the well while drilling below 13,687 feet.
At the time of plugging back the Pardee Company No. 2 Well, neither that well nor the Pardee Company No. 1 Well had earned the assignment of any interest in the lease ssubject to the Farmout Agreements because neither of the wells had been unitized.
On March 10, 1971, prior to any application for units for the Pardee Company Nos. 1 and 2 Wells, the Farmout Agreements were amended so as to extend the time for performance with respect to the test well to May 1, 1971 and to provide that Inexco need only to have made application to the Commissioner of Conservation for a unit for the test well which included acreage subject to the Agreements, rather than having to cause such unit to be created by that time. With respect to wells drilled subsequent to the test well, the amendments lengthened the 180-day limitation to 240 days.
On March 29, 1971, Inexco made application to the Commissioner of Conservation to create a pattern of ten 640 acre units for each of the sands identified as the Upper Wilcox "B" Sand, the Middle Wilcox "F" Sand and the Lower Wilcox "D" Sand. A hearing was held, and as a result the Commissioner of Conservation issued Order Nos. 98-L, 98-M and 98-N, all dated June 3, 1971, creating nine 460 acre units for each of said sands.1 The Pardee Company No. 2 Well was designated as the unit well for the Unit "B" created by each of said orders.
Each order provides that, in accordance with Section 10, Title 30 of the Louisiana Revised Statutes of 1950, each separately owned tract of land shares in unit production in the proportion that the surface area of such tract bears to the entire surface area of the unit in which such tract is situated.
The Pardee Company No. 1 Well and the Pardee Company No. 2 Well each drained and produced from separately owned tracts and it was necessary for Inexco to unitize both wells. The amendments mentioned above allowed Inexco time in which to unitize the Pardee No. 1 Well but the delay for the commencement and completion of the Pardee No. 2 Well had not begun. The delay allowed for drilling a well following the test well (or a substitute) began with the date on which Inexco applied to the Commissioner of Conservation for its unit around the Pardee No. 1 Well.
The Unit "B" created by Orders Nos. 98-L, 98-M and 98-N, issued by the Louisiana Department of Conservation, is comprised of 460.0015 surface acres. The Crutcher-Tufts Corporation acreage included within the unit comprises 23.9718 acres entitled to 5.2113% of all unit production. The Albert B. Crutcher, Jr. and J. D. Tufts, II acreage included within the unit comprises 89.2770 acres entitled to 19.4080% of all unit production. This suit therefore affects 24.6193% of the unit.
Inexco had Farmout Agreements with other parties owning leases under Units "A" and "B": and covering lands other than Pardee Company lands. Each of these agreements contained identical conditions for earning interests by the drilling of the Pardee No. 1 Well. The Crutcher-Tufts Farmouts differed from the other Farmout Agreements held by Inexco in that wells drilled subsequent to the completion of a test well had to comply with the same earning conditions as the test well and both the test well and subsequent wells earned only that leased interest which was included in any Unit. Thus, as to all interest except the Crutcher-Tufts interest in the Pardee No. 2 Well, Inexco had already earned its interests by the drilling of the test well. The Crutcher-Tufts agreements were different and unique. Under the Crutcher-Tufts Farmout Agreements Inexco had to earn its interests in the Pardee Company No. 2 Well by drilling that well to the same requirements including objective depths, as were required in the test well and could earn only that portion of the Crutcher-Tufts interests which finally was included in the Pardee No. 2 Well Unit (Unit B).
When Inexco completed the Pardee No. 2 Well, it was completely unaware of the conditions, obligations and requirements of the Crutcher-Tufts Farmout Agreements...
To continue reading
Request your trial
-
Exchange Oil & Gas Corp. v. Great American Exploration Corp.
...we affirm the district court's judgment. AFFIRMED. 1 Great American relies on the following cases: Inexco Oil Co. v. Crutcher-Tufts Corp., 389 F.Supp. 1032, 1039 (W.D.La.1975); Hayes v. Muller, 245 La. 356, 158 So.2d 191, 198 (1963) (on rehearing); Blevins v. Manufacturers Record Publishing......