Millette v. Phillips Petroleum Co., 37584

• Decision Date: 06 November 1950
• Docket Number: No. 37584,37584
• Citation: 48 So.2d 344,209 Miss. 687
• Parties: MILLETTE et ux. v. PHILLIPS PETROLEUM CO.
• Court: Mississippi Supreme Court

Page 344

48 So.2d 344

209 Miss. 687

MILLETTE et ux. v. PHILLIPS PETROLEUM CO.

No. 37584.

Supreme Court of Mississippi, in Banc.

Nov. 6, 1950.

Berger & Callon, Robert L. Netterville, and L. A. Whittington, all of Natchez, for appellants.

Laub, Adams, Forman & Truly, Natchez, for appellee.

ALEXANDER, Justice.

Appellants executed on May 18, 1941, a mineral lease containing the following provision: 'In the event a well or wells producing oil or gas in paying quantities should be brought in on adjacent land and within one hundred fifty (150) feet of and draining the leased premises, or acreage pooled therewith, lessee agrees to drill such offset wells as a prudent operator would drill under the same or similar circumstances.' The lease is what is known as an 'unless lease', and provides for a primary term of ten years, and by mesne conveyances was assigned to appellee on August 27, 1945.

In September 1948, appellee, as lessee, drilled a producing oil well on an adjoining tract known as the Artmann tract, which well is about 570 feet from appellant's land. Likewise, producing wells were brought in by appellee on other lands leased by it from others, to wit: on the Oliver Hence tract and the Carter tract, which wells are respectively 1,300 feet and 580 feet from the lands leased to appellee by appellants.

On January 8, 1949, appellants notified appellee that their lands were being drained of oil by production on the adjoining tracts and demanded protection against such depletion. The lessee disclaimed responsibility and refused, in reply to a letter from lessors dated February 25, 1949, to surrender the lease. Delay rentals were accepted by lessors in May 1949.

The foregoing facts were alleged in a bill filed by the lessors September 8, 1949, praying for cancellation of the lease and for damages from the drainage of oil beneath their lands. An amendment added a charge of fraud in the payment of the delay rental in May 1949, at which time, it is alleged, the lessee knew of the fact of such drainage. A duty in the lessee to drill an offset well on the lands in suit was asserted. A demurrer to the bill was filed and sustained, and the complainants having refused to plead further, the bill was dismissed, whence this appeal.

The facts, as for our present purposes admitted by the demurrer, raise the question whether drainage of a lessor's lands by a lessee of an adjoining tract is such a deviation from the requirements of good husbandry as to require of the lessee, common to both tracts, a development of the drained acreage at the risk of liability for a failure so to act.

We first encounter the application of the quoted obligation which requires the drilling of an offset well or wells. The provision is specific and limits such obligation to cases where a producing well or wells have been completed in paying quantities within 150 feet of and are draining appellant's lands.

We need not piece out the extent of lessee's duty in this respect by sheer reasoning. The subject of offset wells is expressly provided for in the lease, and there are evidences in the lease itself that its contents were examined and substantial corrections made in the printed form. The parties were competent to contract with regard thereto, and there is no room for an interpretation of its unambiguous provisions, much less of its nullification by supposed contrary implications. The producing well closest to appellants lands is 570 feet. The limitation of such duty on the part of the lessee to such wells as are within 150 feet precludes resort to an implied covenant in respect of a development by the drilling of an offset well on the lands of appellant. Lloyd's Estate v. Mullen Tractor & Equipment Co., 192 Miss. 62, 69, 4 So.2d 282; Hutchins v. Humble Oil & Refining Co., Tex.Civ.App., 161 S.W.2d 571; Brimmer v. Union Oil Co., 10 Cir., 81 F.2d 437, 105 A.L.R. 454, certiorari denied 298 U.S. 668, 56 S.Ct. 833, 80 L.Ed. 1391; 24 Am.Jur., Gas & Oil, Sec. 42; Summers, Oil & Gas, Vol. 2, pp. 300, 319; Merrill, The Law Relating to Covenants Implied on Oil & Gas Leases, Sec. 27, p. 81; Glassmire, Oil & Gas Leases & Royalties, (2nd Ed.), Chap. XIII, p. 243; Texas Law Rev., Vol. 11, pp. 399, 435. As to this obligation, the payment, of the rentals by the lessee and their acceptance by the lessor preserves the option of the lessee to develop the lands in suit by actual drilling.

We conclude therefore that the bill stated no ground for equitable relief insofar as a duty to drill offset wells is concerned.

We proceed next to a consideration whether there exists a duty in a lessee to protect the interests of his lessor against a depletion of the lessor's lands by the affirmative act of the lessee upon adjacent property.The public policy of our State with regard to the development of its mineral resources is expressed in Sec. 1, Chap. 256 of the Laws of 1948: 'It is hereby declared to be in the public interests * * * to safeguard, protect and enforce the coequal and correlative rights of owners in a common source or pool of oil and gas to the end that each such owner in a common pool or source of supply of oil and gas may obtain his just and equitable share of production therefrom; and to obtain, as soon as practicable, consistent with the prohibition of waste, the full development by progressive drilling of other wells in all producing pools of oil and gas or of all pools which may hereafter be brought into production of such, within the state, until such pool is fully defined.'

It is elemental that parties may not contract contrary to expressed public policy so that while the express provision regarding the drilling of offset wells may be upheld, there remains a fundamental principle founded as well in equity as in policy that an owner or lessor is entitled to reasonable protection against the loss of mineral resources in his lands. The express provision here involved absolved the lessee from meeting his duty to the lessee by capturing lessor's oil in situ through wells drilled on lessor's lands. The equitable duty, existing as well under implication, to conserve the mineral resources of lessors or to refrain from depletory acts survives unimpaired. Hughes v. Busseyville Oil & Gas Co., 180 Ky. 545, 203 S.W. 515, 518.

For the purposes of this appeal, we accept as a fact that the appellee, by the drilling of these producing wells, has been and is now draining the oil from the adjoining lands of appellee. So that there is presented for decision the question whether the implied duty of a mineral lessee to conserve the interests of its lessor extends to protection against, or a duty to compensate for, its own act of drainage.

There is an implied covenant in a lease of oil property that the lessee will do nothing to impair the value of the lease, and must use reasonable care to protect lessor from damage or loss by the affirmative act of such lessee. This implied obligation has been extended to include, in the absence of express stipulation, a duty to drill offset wells if practicable and profitable. Indian Territory Illuminating Oil Co. v. Haynes Drilling Co., 180 Okl. 419, 69 P.2d 624; Humphreys Oil Company v. Tatum, 5 Cir., 26 F.2d 882; Indian Territory Illuminating Co. v. Rosamond, 190 Okl. 46, 120 P.2d 349, 138 A.L.R. 246; Steels v. American Oil Development Co., 80 W.Va. 206, 92 S.E. 410; Texas Pac. Coal & Oil Co. v. Barker, 117 Tex. 418, 6 S.W.2d 1031; Carper v. United Fuel & Gas Company, 78 W.Va. 433, 89 S.E. 12, L.R.A.1917A, 171; Trimble v. Hope Natural Gas Co., 113 W.Va. 839, 169 S.E. 529; Orr v. Comar Oil Co., 10 Cir., 46 F.2d 59.

We cite these typical cases merely as stepping stones to the conclusion that protection by some feasible means is requisite. Such relief in the instant case may not be...