Layton v. Pan Am. Petroleum Corp.

• Decision Date: 11 June 1963
• Docket Number: No. 40098,40098
• Citation: 383 P.2d 624
• Parties: Howard F. LAYTON, Dorothy Mae Layton and Oil Incorporated, a corporation, Plaintiffs in Error, v. PAN AMERICAN PETROLEUM CORPORATION, a corporation, Calvert Petroleum Company, a corporation, Gulf Oil Corporation, a corporation, and King Stevenson Oil Company, Inc., a corporation, Defendants in Error.
• Court: Oklahoma Supreme Court

Page 624

383 P.2d 624

1963 OK 140

Howard F. LAYTON, Dorothy Mae Layton and Oil Incorporated, a corporation, Plaintiffs in Error, v.PAN AMERICAN PETROLEUM CORPORATION, a corporation, Calvert Petroleum Company, a corporation, Gulf Oil Corporation, a corporation, and King Stevenson Oil Company, Inc., a corporation, Defendants in Error.

No. 40098.

Supreme Court of Oklahoma.

June 11, 1963.

Rehearing Denied July 16, 1963.

Syllabus by the Court.

1.By virtue of 52 O.S.1961, Sec. 87.1, subsection d, the 'thereafter' clause and the legal effect of the pooling order of the Corporation Commission of Oklahoma combine to result in an extension of the primary term fixed in an oil and gas lease if the well on any portion of the pooled acreage satisfies the requirements of the clause.

2.The right of the Legislature to act under the police power of the state is a part of the existing law at the time of the execution of every contract, and as such becomes in contemplation of law a part of that contract.

Appeal from the District Court of Kingfisher County; F. B. H. Spellman, Judge.

Action to cancel oil and gas lease for non-production during primary term of lease.From a judgment for defendants, plaintiffs appeal.Affirmed.

Murphy & Evans, Shutler, Shutler & Baker, Kingfisher, for plaintiffs in error.

Monnet, Hayes, Bullis, Grubb & Thompson, Norton Standeven, Richard R. Linn, Oklahoma City, for defendants in error.

JOHNSON, Justice.

The plaintiffs in error, hereafter referred to as plaintiffs, are the owners of 273 acres of land in Kingfisher County, Oklahoma.On June 1, 1954, they executed an oil and gas lease to one W. A. Burton, Jr. for a primary term of five years.This land is located in a gas spacing unit of 640 acres created by the Corporation Commission.No well has ever been drilled upon the land of plaintiffs.This suit was brought against the defendants, the owners of the 1954 lease, to cancel same.From an adverse judgment, the plaintiffs appeal.

There had been a previous suit brought by one Gazin to cancel his lease in this same 640 acre spacing because of alleged violation of the marketing clause.It was held by this court that although the primary time on the Gazin lease had expired, that a producing gas well had been brought in, and, although shut in, that diligent efforts had been made to market the gas, and therefore said lease was still in effect.SeeGazin v. Pan American Petroleum Corporation, Okl., 367 P.2d 1010.

We are therefore confronted at the outset with the adjudication of this court that there was a valid, subsisting, producing lease in the 640 acre spacing established by the Corporation Commission at the date of such opinion, to-wit: January 16, 1962.And so long as such Gazin lease continues as a valid, producing lease, the term of the lease under consideration here is likewise in existence under the 'thereafter' clause.

The facts thus reduce themselves to the simple query that where the land under an oil and gas lease, the primary term of which has expired, is located in a 640 acre gas spacing unit of the Corporation Commission, and a producing gas well has been brought in during the primary term of such lease upon another tract of land included in such 640 acre spacing order, is the term of such lease extended under the 'thereafter' clause?

This is no longer an open question in this jurisdiction.In the case of State ex rel. Commissioners of Land Office v. Carter Oil Company of West Virginia, Okl., 336 P.2d 1086, this precise question was presented and answered.The second paragraph of the syllabus reads:

'By virtue of 52 O.S.1951 § 87.1, subsection d the 'thereafter' clause and the legal effect of the pooling order of the Corporation Commission of Oklahoma combine to result in an extension of the primary term fixed in an oil and gas lease if the well on any portion of the pooled acreage satisfies the requirements of the clause.'

In the body of the opinion we said:

'Under these circumstanceswe look to the Conservation Act, 52 O.S.1951 § 87.1, subsection d of which provides in part as follows:

"* * *. The portion of the production allocated to the owner of each tract or interests included in a well spacing unit formed by a pooling order shall, when produced, be considered as if produced by such owner from the separately owned tract or interest by a well drilled thereon. * * *'

'By virtue thereof the portion of the production attributable to an owner by reason of a tract pooled with another tract, when produced, is considered as if produced from said separately owned tract and thereby complies with the terms and covenants of such separate lease.Of necessity it follows that legislative intent in the use of the words 'when produced' must be determined to enable us to arrive at a conclusion in this case.

'Section 87.1, supra, was enacted in 1947.It would appear logical that for the purposes of extending the primary term, and complying with the 'thereafter' clause fixed by the lease, the legislature intended the words 'when produced' as used, should mean that which this court had theretofore held the word 'is produced' to mean in such a case.In other words the purpose of the Act was the conservation of the oil and gas with particular attention directed to the protection of private lease contracts and the correlative rights of all parties in interest.

'SeePanhandle Eastern Pipe Line Co. v. Isaacson, 10 Cir., 255 F.2d 669, wherein it was concluded that a reasonable interpretation of the 'thereafter' clause and the legal effect of an order of the Corporation Commission of Oklahoma combine to result in an extension beyond the primary term of a mineral deed if the well on the other portion of the pooled acreage satisfies the requirements of that clause.'

It is obvious if one producing gas well has been drilled on the 640 acre spacing that no other gas well can be drilled thereon except in violation of the order of the Corporation Commission.This opinion has been cited with approval and followed in the Federal case of Whitaker v. Texaco, Inc., 10 Cir., 283 F.2d 169.In that case the statement of facts begins:

'In this quiet title action appellants-plaintiffs, herein referred to jointly as the Whitakers, sued to obtain a declaration that an oil and gas lease given by them had terminated because of non-development within the primary term of the lease.The trial court held that the term had been extended by a well drilled off the leased land but within a spacing unit which had been established by the Oklahoma Corporation Commission and which included a part of the leased premises. * * *'

The Circuit Court affirmed the...