Kuehne v. Samedan Oil Corp., 5428

• Decision Date: 17 April 1981
• Docket Number: No. 5428,5428
• Citation: 626 P.2d 1035
• Parties: Herman J. KUEHNE and Esther J. Kuehne, Appellants (Plaintiffs), v. SAMEDAN OIL CORPORATION, Samedan Associates, Inc., Jack C. Vaughn, R. D. Poindexter, Albert Sklar, Curtis E. Calder, Jr., Leonard W. Phillips, Atlantic Richfield Company, Union Oil Company of California, Grady H. Vaughn, III, Jack C. Vaughn, Trustee, E. H. Gunter, Trustee, Mary Jo Vaughn, Trustee, John S. Nichols, Trustee, Davis Oil Company, Sinclair Oil and Gas Company, Marathon Oil Company, Paul Messinger and Company, Don Mettler, Raymond Chorney, Richard C. Boyd, Guy C. Burton and First National Bank of Casper, Appellees (Defendants).
• Court: Wyoming Supreme Court

Page 1035

626 P.2d 1035

Herman J. KUEHNE and Esther J. Kuehne, Appellants (Plaintiffs), v. SAMEDAN OIL CORPORATION, Samedan Associates, Inc., Jack C. Vaughn, R. D. Poindexter, Albert Sklar, Curtis E. Calder, Jr., Leonard W. Phillips, Atlantic Richfield Company, Union Oil Company of California, Grady H. Vaughn, III, Jack C. Vaughn, Trustee, E. H. Gunter, Trustee, Mary Jo Vaughn, Trustee, John S. Nichols, Trustee, Davis Oil Company, Sinclair Oil and Gas Company, Marathon Oil Company, Paul Messinger and Company, Don Mettler, Raymond Chorney, Richard C. Boyd, Guy C. Burton and First National Bank of Casper, Appellees (Defendants).

No. 5428.

Supreme Court of Wyoming.

April 17, 1981.

Paul J. Drew, Lubnau & Drew, Gillette (argued), for appellants (plaintiffs).

W. Thomas Sullins, II, Brown, Drew, Apostolos, Massey & Sullivan, Casper (argued), for appellees (defendants).

Before ROSE, C. J., and RAPER, THOMAS, ROONEY and BROWN ^*, JJ.

RAPER, Justice.

Appellants brought an action against appellees for cancellation of an oil and gas lease as it applied to a portion of the lands included in the leasehold. They alleged that the interest holders failed to comply with implied covenants for further exploration and reasonable development. Appellees moved for summary judgment. The motion was granted, the district judge finding there was no issue of material fact and that appellees were entitled to judgment as a matter of law, and judgment was rendered forthwith pursuant to Rule 56, W.R.C.P.

On appeal appellants present as questions:

"Whether the district court erred in granting summary judgment for appellees because there is a genuine issue of material fact whether the appellees have breached the implied covenants of the lease of reasonable development and further exploration.

"Whether the district court erred in granting summary judgment against appellant(s) based on the relief sought in their complaint."

We will affirm.

I

On September 11, 1956, appellants entered into an oil and gas lease with The Ohio Oil Company ¹ covering 711.05 acres more or less ² in Campbell County, Wyoming for a primary term of ten years. The lease appears on a standard producers printed form which was in common use at that time. While it contains some 15 numbered sections, the following provisions appear to be those pertinent to a disposition of this case:

"2. This lease shall remain in force for a term of ten (10) years from this date and as long thereafter as oil or gas is (word blotted out) produced from said lands by the lessee. * * *

"11. If lessee at any time should include all or any part of the lands covered by this lease in a unit for cooperative operating agreement, lessee shall have the right to include lessor's royalty interest in said agreement and thereupon said agreement shall exclusively control the drilling, operating, and producing of such lands, anything to the contrary in this lease notwithstanding. The commencement and conduct of drilling operations on any part of the lands included in such agreement shall be deemed to comply with and satisfy all provisions of this lease relative to commencement and conduct of drilling operations. If oil, gas or other hydrocarbon is found in paying quantities on any of the tracts of land included in such agreement, whether or not on lands included in this lease, the royalty payments, provided by Section 3 hereof, shall be paid only upon the portion of such production which is allocated under said agreement to lands covered by this lease; and this lease shall remain in force as long as oil, gas or other hydrocarbon is (word blotted out) produced from such tracts, or any of them. Any agreement made by lessee under this paragraph shall be in writing, and lessee shall furnish lessor with a copy of the signed agreement.

"12. This lease shall not be terminated, forfeited or cancelled for failure by lessee to perform in whole or in part any of its implied covenants, conditions, or stipulations until it shall have been first finally and judicially determined that such failure or default exists, and thereupon lessee shall be given a reasonable time thereafter to correct any default so determined, or at lessee's election it may surrender the lease with option of reserving under the terms of this lease each producing well and ten (10) acres surrounding it as selected by lessee, together with the right of ingress and egress thereto. Lessee shall not be liable in damages for breach of any implied covenant or obligation."

Production was obtained within the ten-year term upon a portion of the leasehold lands which later was included in what is known as the Kuehne Ranch Unit Agreement dated November 7, 1968. That portion of the leasehold lying outside the boundaries of the Kuehne Ranch Unit ³ is described as follows:

Township 51 North, Range 69 West, 6th P.M. Section 7: Lot 2, SE1/4 NW1/4, NE1/4 SW1/4, S1/2 SW1/4,

and is the subject of this litigation.

II

The relief which appellants have consistently not only prayed for in their complaint but unvaryingly sought at all stages during the district court proceedings leading to and during the course of this appeal is that the lease be partially cancelled as to that part of the leased lands not included in the Kuehne Ranch Unit, or as they have stated it, that the "gas lease as it applies to the lands lying outside the Kuehne Ranch Unit be cancelled * * *." (Emphasis added.) Their claim is based upon a theory that the leasehold owners have breached implied covenants of reasonable development and further exploration, in that a prudent operator would drill additional wells which would probably produce oil or gas in paying quantities. They further argue that even though wells have been drilled upon the land in question, exploration has been unreasonably insufficient.

III

Appellees, following a pretrial conference and order of the trial court setting the case for trial, filed a motion for summary judgment relying on the pleadings, an affidavit and the answers to interrogatories. The affidavit was that of the Division Manager of the appellee Samedan Oil Corporation. It told of the 1965 discovery wells on appellants' lands and subsequent development of the Kuehne Unit. In addition, in 1972 upon demand by appellants, a well was drilled in the SE1/4 SW1/4 of Sec. 7, T.51N., R.69W., outside the Unit, which resulted in a dry hole. Other drilling in the vicinity of the lands sought to be released has resulted in dry holes.

Appellants filed opposing affidavits. One by Billie J. Alpine, a petroleum geologist, stated that he had reviewed and evaluated the electrical logs, electrical surveys, production records and drill stem tests of wells described in the Samedan affidavit. As a result, he was satisfied that the Kuehne Ranch Unit was draining oil from lands sought to be released from the lease. He further indicated that if the lands were released, he intended to drill oil wells on the SW1/4 SW1/4 and the NE1/4 SW1/4 of Sec. 7, T.51N., R.69W., 6th P.M. and a greater production of petroleum would be recovered from the producing reservoirs.

Another affidavit produced by appellants showed there to be an agreement for an oil and gas lease between the appellants and Philip Freeman of the 193.44 acres covering those lands sought to be released from the lease now before the court. Of course this agreement by its terms was contingent upon the release being granted.

The parties submitted memoranda of law and orally argued the motion for summary judgment to the trial judge. At the close of argument, in sustaining the motion for summary judgment by appellees, the judge made the following statement:

"THE COURT: From the terms of the oil and gas lease it's the Court's opinion that the remedy of the plaintiff would be to complain to the Court that their lands are being drained by reason that certain wells are not drilled on the lands in question for the Court to judicially determine that is the situation and also probably to determine what should be done to adequately drain the lands and then to give the lessee a time to do that. At least that's the way I interpret Paragraph 12. It does seem to give the plaintiffs a remedy, but it doesn't give them the remedy of asking that the lease be cancelled in the face of the other provision, particularly, Paragraph 11."

We substantially agree with the analysis of the trial judge. With brevity he went directly to the heart of the problem but we must go through a more detailed exercise to reach the same result.

IV

First, we should summarize by way of a refresher some of the many applicable rules pertaining to summary judgment, though we do so many times. It is ordinarily a valuable judicial tool for prompt disposition of litigation, but in this case because of the stubbornness of appellants, it may have been a means of requiring them to initiate a different form of action to conform to the contract terms. An oil and gas lease is a contract and is construed under the doctrines applicable to contracts. Everett, Wyoming Decisions Relative to the Law of Oil and Gas and Comments with Respect to Form "88" Leases, 6 Wyo.L.J. 223, 224 (1951). In Everett's able treatise on Form 88 Leases, as is that before us, he cites Hammett Oil Co. v. Gypsy Oil Co., 1921, 95 Okl. 235, 218 P. 501, 34 A.L.R. 275, where the court treated the lease as a contract in its disposition using contract construction rules. See also 2 Summers, The Law of Oil and Gas (1959), Ch. 12 covering construction of oil and gas leases, beginning at p. 484 where it is explained and the theme is that with some exceptions generally the usual rules of instrument and contract construction apply.

Whether a summary judgment is proper depends upon the correctness of the district court's accuracy in finding that there is no genuine issue as to any material fact and that the appellees as prevailing parties are entitled to judgment as a matter of law. Weaver v. Blue Cross-Blue...