Morgan v. Mobil Oil Corp., s. 83-1263

• Citation: 726 F.2d 1474
• Decision Date: 23 January 1984
• Docket Number: 82-1615 and 82-1620,Nos. 83-1263,s. 83-1263
• Parties: Langdon L. MORGAN and Reece D. Morgan, Plaintiffs/Appellants, v. MOBIL OIL CORPORATION, Defendant/Appellee. ANADARKO PRODUCTION COMPANY, Plaintiff/Appellant, v. Fern Kelley HUFFMAN, a/k/a Mildred Fern Huffman; Marjorie Fay Huffman Culmer; John Hubert Huffman; Dr. Alan Leslie Huffman; Kenneth K. Derrick; Ralph O. Chapline; Talma Chapline; Martell L. Sidwell; W.L. Sidwell III; Howard Sidwell; Donald W. Sidwell, Defendants/Appellants, Ross E. Taylor; Bertha J. Taylor; E.L. Butler; Maxine Smith Herbel; Lamont Rowland; Gertha Phifer; Harper Rowland; Frederick M. Butler; Alice Wheaton; Alice Wheaton Magro; Caroline B. Cauldwell; J.B. Bradford; Herbert G. Bradford; J.B. Wheaton; Stephen E. Coulter; Blanche Webb; June Phillips; Harold Coulter; Gilbert Coulter; Eula Mae Peterson; Donald K. Coulter; Rita Anne Ubelhart; Larry E. French; and Texaco, Inc., Defendants/Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1474

726 F.2d 1474

Langdon L. MORGAN and Reece D. Morgan, Plaintiffs/Appellants, v. MOBIL OIL CORPORATION, Defendant/Appellee.

ANADARKO PRODUCTION COMPANY, Plaintiff/Appellant, v. Fern Kelley HUFFMAN, a/k/a Mildred Fern Huffman; Marjorie

Fay Huffman Culmer; John Hubert Huffman; Dr. Alan Leslie

Huffman; Kenneth K. Derrick; Ralph O. Chapline; Talma

Chapline; Martell L. Sidwell; W.L. Sidwell III; Howard

Sidwell; Donald W. Sidwell, Defendants/Appellants,

Ross E. Taylor; Bertha J. Taylor; E.L. Butler; Maxine

Smith Herbel; Lamont Rowland; Gertha Phifer; Harper

Rowland; Frederick M. Butler; Alice Wheaton; Alice

Wheaton Magro; Caroline B. Cauldwell; J.B. Bradford;

Herbert G. Bradford; J.B. Wheaton; Stephen E. Coulter;

Blanche Webb; June Phillips; Harold Coulter; Gilbert

Coulter; Eula Mae Peterson; Donald K. Coulter; Rita Anne

Ubelhart; Larry E. French; and Texaco, Inc., Defendants/Appellees.

Nos. 83-1263, 82-1615 and 82-1620.

United States Court of Appeals, Tenth Circuit.

Jan. 23, 1984.

Ted R. Morgan, Lakin, Kan., for plaintiffs/appellants Langdon L. and Reece D. Morgan.

Jerome E. Jones, Hershberger, Patterson, Jones & Roth, Wichita, Kan., for defendant/appellee Mobil Oil Corp.

Jerome E. Jones, Hershberger, Patterson, Jones & Roth, Wichita, Kan. (Richard Jones and Robert J. Roth, Hershberger, Patterson, Jones & Roth, Wichita, Kan., with him on the brief), for plaintiff/appellant Anadarko Production Co.

Mark H. Adams, II, R. Douglas Reagan and Dale M. Stucky, Wichita, Kan. (John W. Sumi, Wichita, Kan., with them on the brief), for defendants/appellants Sidwell, Huffman and Chapline.

Dale M. Stucky and Gregory J. Stucky, Fleeson, Gooing, Coulson & Kitch, Wichita, Kan. (Bernard E. Nordling and Leland E. Nordling, Kramer, Nordling & Nordling, Hugoton, Kan., of counsel), for defendants/appellees Coulter and Taylor.

Charles J. Woodin and R. Douglas Reagan, Foulston, Siefkin, Powers & Eberhardt, Wichita, Kan., for defendant/appellee Texaco, Inc.

Before SETH, Chief Judge, and DOYLE and LOGAN, Circuit Judges.

WILLIAM E. DOYLE, Circuit Judge.

In the primary case the parties are Langdon L. and Reece D. Morgan against Mobil Oil Corporation, whereas in No. 82-1615 the caption is Anadarko Production Company v. Taylor, et al. These cases, because of their similarity, were consolidated for the appeals. Apparently there was a good deal of primary preparation in both instances, and indeed, the facts are not in dispute and the cases were disposed of by the trial court on motions for summary judgment.

The question which is involved in each of these cases is the interpretation to be given to a number of agreements between the parties concerning oil and gas rights. We must decide whether unitization agreements were limited to certain geological formations and, if so, the consequences of such limitations. In other words, we must decide whether in the case of the Morgans the rights of the lease are governed by the surface identification or description, or whether the rights to the ownership of the lease are limited to the geological formation mentioned in the unitization agreement. The issue in Anadarko is similar to that of Morgan except in emphasis. The arguments deal with Anadarko's contention that ownership or having rights on the surface

do not grant rights below the certain formations which have been worked previously.

THE MORGAN CONTROVERSY

The Facts

The facts in Morgan, as in the Anadarko case, are undisputed. The history of this problem reaches back to January 1930, on which date appellants' predecessors in interest executed three oil and gas leases to Mobil's predecessors in interest. These pertained to properties described as the Southeast Quarter (SE/4) of Section Six (6), the Northeast Quarter (NE/4) of Section Six (6) and the Northwest Quarter (NW/4) of Section Eight (8). All of the Sections are in Township 33 South, Range 39 West, Morton County, Kansas. All three leases provided a primary term of ten years. A commercial producing gas well was completed on the SE/4 of Section 6 on July 7, 1930. This well continues to produce at the present time. No other wells were completed on the land covered by the other leases for over 30 years.

The Kansas Corporation Commission entered an order regarding unitization in 1938 which grew out of the Hugoton field, and limited itself to the Hugoton formation. Mobil's predecessor in interest prepared an instrument entitled "Unit Operating Agreement" which was dated November 28, 1938, signed by all of the mineral and fee owners.

The Unit Operating Agreement referred to was amended on March 11, 1974 as it related to production from the Panoma-Council Grove formation. Approximately one month later, a well was completed on the NW/4 of Section 8 which was capable of producing from the Panoma-Council Grove formation.

On June 20, 1980, a second well was completed on the NW/4 of Section 8. This was producing from another formation known as the Morrow formation. The Morrow formation is located below the base of the Panoma-Council Grove formation. Also it is to be noted that the Morrow formation is not regulated by the Kansas Corporation Commission.

The appellants, the Morgans, and Mobil were not able to agree at the time (in 1981) on a division order to allocate payment of royalties. Due to the disagreement appellants commenced an action in the district court in Morton County, Kansas. This action was removed to the United States District Court for the District of Kansas pursuant to 28 U.S.C. Sec. 1441. Both parties agreed that there were no material facts remaining and both made motions for summary judgment. The trial court granted Mobil's motion and this appeal by the Morgans followed.

The appellants maintain that their leases with Mobil's predecessors in interest terminated at the end of their primary term as to production from all geological formations below the Panoma-Council Grove formation. The argument of appellants is that two of these leases would have expired at the end of their primary terms due to non-production were it not for the 1938 Unit Operating Agreement and the 1974 amendment. The argument of appellants is that these instruments limited the horizontal extent of the leases. The appellants construe the Unit Operating Agreement to limit Mobil's rights to the Hugoton formation. Appellants also interpret the 1974 amendment as extending Mobil's rights to include the Panoma-Council Grove formation. Thus, appellants contend that Mobil has no rights to production in the Morrow formation which lies beneath the base of the Panoma-Council Grove formation.

The appellees take a contrary stand with respect to these documents. It is Mobil's position that absent specific language in the documents which limit the rights of the lessees to certain horizons, its rights extend from the surface to the center of the earth. Thus, according to the appellees, the Unit Operating Agreement unitized the entire area and was not limited to the Hugoton formation, as the appellants contend.

The district court rejected the appellants' argument and found that Mobil's rights were perpetuated as to all horizons.

This court, of course, reviews the case de novo, and does so by examining and considering the summary judgment and other proceedings. We must determine whether the standard set forth in Rule 56 has been met. Exnicious v. United States, 563 F.2d 418, 423 (10th Cir.1977). This standard as it pertains to this case is in agreement with the de novo standard of review of contract interpretations in Kansas. Klema v. Soukup, 175 Kan. 775, 267 P.2d 501, 505 (1954) (" * * * the contract being in writing, we have the same duty as did the trial court to determine the question").

In ruling on the case we consider the same laws as considered by the trial court, that is, the law of Kansas, for guidance in interpreting the relevant oil and gas documents. The Kansas Supreme Court has held that documents must be interpreted as a whole and not by analysis of isolated provisions. Jackson v. Farmer, 225 Kan. 732, 594 P.2d 177 (1979). The law presumes that the parties understand their contract and that they had the intent that its terms suggest. Quenzer v. Quenzer, 225 Kan. 83, 587 P.2d 880 (1978). The court will not, under the guise of interpretation, write a new contract for the parties to achieve some equitable result. Martin v. Edwards, 219 Kan. 466, 548 P.2d 779 (1976); Cline v. Angle, 216 Kan. 328, 532 P.2d 1093 (1975); Endicott v. DeBarbieri, 189 Kan. 301, 369 P.2d 241 (1962).

In addition to considering the Kansas rules for contract interpretation we must consider also the basic legal principles regarding unitization. Indeed, the law in this latter area may be more likely to dictate the result than the contract interpretation principles regarding unitization.

"The legal results of unitization may be roughly summarized as follows:

(1) the life of the lease is extended as to all included tracts beyond the primary term and for as long as oil, gas or other minerals are produced from any one of the tracts included;

(2) the commencement of a well on any one of the tracts operates to excuse the payment of delay rentals on all included tracts for the period stated in the respective leases;

(3) production from a well on any one of the tracts relieves the obligation to pay delay rentals, during production, on all included tracts;

(4) the lessee is relieved of the usual obligation of an implied covenant for reasonable development of each tract separately;

(5) wells may be located without reference to property lines; and

(6) the lessee is relieved of the obligation to drill off-set wells on other included tracts to prevent drainage by a well on any included tract.

(See Hoffman, Voluntary Pooling and Unitization, pp. 135-36, and South Royalty Co. v. Humble Oil and Ref. Co., 151 Tex. 324, 249 S.W.2d 914)."

Klippel v. Beinar, 222 Kan. 681, 685, 567 P.2d 867 (1977).

We must be mindful of the above...