Kahm v. The Arkansas River Gas Company

• Decision Date: 12 February 1927
• Docket Number: 27,160
• Citation: 122 Kan. 786,253 P. 563
• Parties: J. D. KAHM and MARY E. KAHM, Appellees, v. THE ARKANSAS RIVER GAS COMPANY, Appellant
• Court: Kansas Supreme Court

253 P. 563

122 Kan. 786

J. D. KAHM and MARY E. KAHM, Appellees, v. THE ARKANSAS RIVER GAS COMPANY, Appellant

No. 27,160

Supreme Court of Kansas

February 12, 1927

Decided January, 1927.

Appeal from Sumner district court; OLIVER P. FULLER, judge.

Judgment affirmed.

SYLLABUS

SYLLABUS BY THE COURT.

1. MINES AND MINERALS--Oil and Gas Lease--Cancellation After Expiration of Term for Nonuse--Right to Jury Trial. Where a gas and oil lease on a quarter section of land was to endure "for a term of one year from its date, and as long thereafter as oil or gas, or either of them, is produced from said land by the lessee," a suit to cancel the lease and to quiet the title of lessors in possession on the ground that the year had expired and gas production had ceased was not an action where a jury trial was demandable as a matter of right.

2. SAME--Oil and Gas Lease--Cancellation After Expiration of Term for Nonuse. Under a lease for the term set out in syllabus 1, where a gas well drilled by lessee produced a large volume of gas which was marketed through a pipe-line nearby, but where the gas production and gas pressure of the well gradually declined until the gas would no longer flow into the pipe-line which was the only available outlet for the gas and furnished the only existing market, and where all production of gas on the leased premises wholly ceased with no immediate prospect of its restoration, and where the lessee's only prospect of resumption of gas production depended upon the successful coordination of various prospective but insured projects and possibilities, the lessors were entitled to a decree of cancellation of the lease in accordance with its specified terms and pertinent equitable relief.

3. SAME--Oil and Gas Lease--Cancellation After Expiration of Term for Nonuse--Authority of Court of Equity. A court of equity has no power to extend a gas and oil lease beyond the term specified in the written contract of the parties, nor are the lessors required to content themselves with damages neither pleaded nor tendered, in lieu of their right to a judgment ordering that the lease be canceled and the lessors' title quieted.

4. SAME--Trial Generally. Other objections to the judgment considered and not sustained.

W. L Cunningham, D. Arthur Walker, both of Arkansas City, Joseph S. Clark, Percy H. Clark, Henry A. McCarthy, Paul C. Wagner, and Andrew B. McGinnis, all of Philadelphia, Pa., of counsel.

Albert Faulconer, Kirke W. Dale and C. L. Swarts, all of Arkansas City, for the appellees.

OPINION

DAWSON, J.:

Plaintiffs brought this action to cancel an oil and gas lease on a quarter section of land and to quiet their title thereto against the Arkansas River Gas Company, defendant, to whom plaintiffs on February 7, 1922, had leased the premises and other lands--

"For a term of one year from its date, and as long thereafter as oil or gas, or either of them, is produced from said land by the lessee."

Defendant relinquished its rights to the other lands covered by this lease, and in October, 1922, on the land in question it drilled and brought in a gas well of large production, with the result that plaintiffs received very substantial royalties therefrom for a number of months. The gas flow from the well gradually declined, however, and eventually it ceased altogether, and in May, 1925, it was disconnected from the pipe-line through which its product had found a market.

Some six months after production ceased, in October, 1925, this action was begun. Plaintiffs' petition recited the foregoing facts and alleged that defendant had refused their demand that the lease be canceled of record. Plaintiffs prayed for a decree of cancellation, quiet title, and general relief.

Defendant answered at length, admitting plaintiff's ownership of the land, the execution of the lease, its drilling of a gas producing well in 1922, and defendant's cancellation of so much of the lease as affected plaintiffs' other lands on which no drilling had been done. The answer traversed certain other allegations of the petition, and pleaded that gas production from defendant's well totally ceased in May, 1925, because the only pipe-line in the locality where it could market its gas had become a high-pressure line to take care of newly-discovered gas wells of such high rock pressure that--

"The Kahm well on the lease in controversy, being weakened by depletion, the gas did not have sufficient pressure, and could not be forced to feed into the pipe-line against the higher pressure from the other fields, and in May, 1925, it stopped producing entirely owing to this fact, and has not had sufficient pressure to feed anything into the pipe-line during the months of June, July, August, September and October, 1925."

Defendant further alleged that as soon as it discovered that the depleted gas pressure of the Kahm well prevented it from feeding into the pipe-line, it set about the work of finding a new customer to whom it might market its gas, and considered the problem of installing an auxiliary compressing device to make delivery of gas from defendant's well into the pipe-line, but at the time of filing defendant's answer it had not been able to obtain or install such a device; that defendant had also sought another outlet for its gas, and had considered the feasibility of building a pipe-line into Arkansas City some miles from the well, but to render that project practical, owing to the capital investment required, it would be necessary to cooperate with other parties and drill additional wells and defendant had prosecuted many such negotiations and endeavors in good faith, but its efforts to find or make another outlet and market for the potential production of defendant's gas had been hindered and practically stopped by the bringing of this action. Defendant alleged that it had expended about $ 30,000 in drilling this gas well, and defendant had no way to recoup such expenditure except--

"By finding and establishing a new market for gas different from that now existing, and by discovering, developing and producing an additional supply of gas from the Kahm lease and other leases in that neighborhood owned by this defendant, and by cancellation of this lease this defendant's investment therein would be wholly lost and destroyed, and plaintiffs would have and recover full benefits of said well without any expenditure therefor whatever."

Defendant further alleged:

"At this time the defendant is working on the Kahm well to see if there is any way to rehabilitate it, and get it in a producing condition once more, and of sufficient force to deliver the gas into the present pipeline connection. . . . That at all times this defendant has attempted, in good faith and with all reasonable diligence, to develop said lease and keep and maintain the same as producing property."

On the issues thus joined the cause was tried. Defendant's demand for a jury trial was denied. The evidence developed no sharply controverted matters of fact. Plaintiff testified that in the first twelve months of production his royalties aggregated $ 2,000 to $ 2,500. After that time--

"The well began to go down the latter part of '23. It continued to go down on through '24. I got $ 7 one month. I think I got $ 12 in January, kept going down until May, $ 2.50. . . . The gas just quit about May, 1925; I didn't get any more royalty. They haven't done anything about the well so far as I know. It was open part of the time. . . . I sent the Arkansas River Gas Company a release [September 11, 1925] with a return envelope, they never answered. . . . The Arkansas River Gas Company's man came down and disconnected the well about three months ago, after this suit was brought. There is no meter or register at the well. . . . I have an opportunity to lease this property if it wasn't for this suit."

In its appeal to the discretionary powers of the trial court in matters of equity, defendant's evidence covered the history of the well's development, that defendant had spent $ 23,356.70 in drilling it and $ 4,000 in incidental expenses; that the well would probably produce 1,500,000 cubic feet of gas per day, open flow, which would put into a pipe-line for marketable purposes from 500,000 feet to 700,000 feet per day; that such amounts had been fed into the pipe line before it became a line of such high pressure that gas from this well would not flow into it. Defendant's vice president also testified as to his company's efforts to develop another market for the gas in the Kahm well, and that the only chance for a market would be by getting a franchise to supply gas to some town like Geuda Springs, Wellington, Winfield or Arkansas City at varying distances of 8 to 25 miles away. He further testified.

"The cost of constructing a pipe-line to Arkansas City was $ 75,000 to $ 80,000, which of course could not be done on the gas from this well. An additional supply must be obtained. The defendant entered into a contract with Mr. Ricketts, who had a franchise from Geuda Springs, but a pipe-line had to be built from the well to Geuda Springs, before the gas could be used. The...