Myers v. Shell Petroleum Corporation
| Decision Date | 08 March 1941 |
| Docket Number | 34559. |
| Citation | 153 Kan. 287,110 P.2d 810 |
| Parties | MYERS et al. v. SHELL PETROLEUM CORPORATION et al. |
| Court | Kansas Supreme Court |
Rehearing Denied April 18, 1941.
Syllabus by the Court.
In ruling on a demurrer to evidence, all competent evidence must be accepted as true, and reasonable inferences to be drawn therefrom must be indulged in favor of the party adducing it.
In action for breach of implied covenant in an oil and gas lease to explore, develop, and produce oil from each of two alleged oil-bearing formations between certain dates, evidence was insufficient to warrant submission to the jury of question of breach of implied covenant to explore and develop so far as the deeper formation was concerned.
The lessee of an oil and gas well has no implied duty to offset a nonpaying well where the offset probably would result in a loss to the lessee.
Where the object of an oil and gas lease is production, neither the lessor nor the lessee, in absence of stipulation, is the sole arbiter of what constitutes diligent exploration or development.
A lessee or assignee of an oil and gas lease under an implied covenant to diligently develop the property must do what is reasonably expected of operators of ordinary prudence under the same or similar circumstances, and that means that he must do what a reasonably prudent operator would have done under the circumstances existing at the particular period of the alleged breach of the implied covenant and not what hindsight indicates he possibly might have done.
Where an oil and gas lease has concededly been fully developed as a gas property, or revenue to lessors is equivalent to full development, lessors thereafter demand that lessee also explore and develop lease as an oil property, and evidence discloses that exploration and development of a certain alleged oil-bearing formation probably would have been unprofitable to lessee though it might have resulted in some profit to lessors, lessee is not liable for failure to explore and develop that formation, since reasonable diligence is required in exploration and development only to the end of mutual benefit.
The admission of expert testimony is for the court and the weight thereof is for the jury, but the facts on which an expert relies for his opinion should afford a reasonably accurate basis for his conclusions as distinguished from mere guess or conjecture.
Where the facts on which the opinion of an expert witness is based are highly speculative and conjectural, his testimony cannot be permitted to form the basis of a verdict.
To render expert opinion testimony sufficient when tested by demurrer, it is necessary that the opinion be based on facts sufficiently definite and certain to relieve the jury from reaching an arbitrary conclusion.
In action for breach of implied covenant in an oil and gas lease to explore, develop, and produce oil from each of two alleged oil-bearing formations between certain dates, evidence showed that exploration and development of deeper formation and deepening of a gas well in shallower formation and conversion of such a well into a combination oil and gas well would not have been profitable to lessee, or that profitable operation would have been highly speculative, and that, if any damage resulted from failure to explore and develop shallower formation more seasonably, extent of such damage was too speculative to afford a reasonable basis for measurement.
1. Where the object of an oil and gas lease is production, in the absence of stipulation, neither the lessor nor the lessee is the sole arbiter of what constitutes diligent exploration and development, under the implied covenant of a lease.
2. The lessee of an oil and gas lease, under the implied covenant to diligently explore and develop, is required to do what reasonably would be expected of operators of ordinary prudence under the same or similar circumstances, existing during the period of an alleged breach to explore and develop, and not what hindsight indicates he possibly might have done.
3. No implied duty rests upon a lessee to offset a nonpaying well where the offset probably would result in a loss to him.
4. Where it is conceded an oil and gas lease has been fully developed as a gas property, or the revenue to lessors is equivalent to full development, and lessors thereafter demand the lessee also explore and develop the lease as an oil property, the lessee will not be held liable in damages for failure to explore and develop a certain alleged oil-bearing formation when the evidence discloses exploration and development of that particular formation probably would have been unprofitable to him, although it might have resulted in some profit to lessors. It is only to the end of mutual profit and benefit to both lessor and lessee that reasonable diligence is required.
5. In ruling on a demurrer to evidence, all competent evidence must be accepted as true and reasonable inferences to be drawn therefrom must be indulged in favor of the party adducing it.
6. While the admission of expert testimony is for the court, and its weight is for the jury, it is nevertheless necessary that the facts upon which an expert opinion is based should afford a reasonably accurate basis for the conclusions reached, as distinguished from mere guess or conjecture.
7. In order to render expert opinion testimony sufficient, when tested by demurrer, it is necessary that the opinion be based upon facts sufficiently definite and certain to relieve the jury from reaching an arbitrary conclusion.
8. In an action to recover damages alleged to have resulted from failure to seasonably explore and develop an oil and gas lease as an oil property, as well as a gas property, the record examined and held: The evidence discloses (a) that exploration and development of the deeper oil-bearing formation and the deepening of a gas well in the shallower oil-bearing formation, and the conversion of such gas well into a combination oil and gas well, would not have been profitable to the lessee, or that profitable operation would have been highly speculative; (b) that if any damage resulted from failure to more seasonably explore and develop the shallower oil-bearing formation, the extent of such damage was too speculative and conjectural to afford a reasonable basis for measurement.
Appeal from District Court, Cowley County; Stewart S. Bloss, Judge.
Action by Ward V. Myers and others against the Shell Petroleum Corporation and another, for breach of an implied covenant in an oil and gas lease. From an order sustaining a general demurrer to plaintiffs' evidence, plaintiffs appeal.
Ezra Branine, Alden E. Branine, and Fred Ice, all of Newton, James L. Galle, of McPherson, W. L. Cunningham, D. Arthur Walker and Wm. E. Cunningham, all of Arkansas City, R. O. Mason, of Bartlesville, Okl., and Kenneth L. Hodge, of Kansas City Mo., for appellants.
Albert Faulconer, Kirke W. Dale, and C. L. Swarts, all of Arkansas City, Clayton E. Kline, M. F. Cosgrove, Balfour S. Jeffrey, and Robert E. Russell, all of Topeka, and Geo. W. Cunningham, Paxton Howard, and Ralph J. May, all of Tulsa, Okl., for appellees.
This was an action by the owners of an 80 acre tract of land to recover damages from the defendants, Shell Petroleum Corporation and McPherson Oil & Gas Development Company, for breach of the implied covenant in an oil and gas lease to explore, develop and produce oil from each of two alleged oil-bearing sands between certain dates. A general demurrer to plaintiffs' evidence was sustained upon the ground the evidence was so speculative as to constitute merely guesswork. From that ruling plaintiffs appeal.
We shall refer to the Shell Petroleum Corporation as the "Shell," to the McPherson Oil & Gas Development Company as the "McPherson," and to the lease involved as the "Myers 80."
The Myers 80 was located in what is known among oil men as the Galva Sector of the Ritz-Canton field of McPherson county. The Myers 80 was leased for both oil and gas by plaintiffs, five owners of undivided interests, under three separate leases of the same character, namely, a regular Kansas producer 88 form. The leases were executed February 3, 1926, and November 26, 1927, to the Roxana Petroleum Corporation. The name of that company was later changed to Shell Petroleum Corporation. We shall refer to the leases as one lease. The basic, or primary, term of the lease was five years. Under the terms of the lease the lessee was permitted to pay rentals in lieu of drilling during the primary term. From production lessors were entitled to one-eighth of the oil and one-eighth of the revenue from the gas produced. The lease was assignable. Rentals were regularly paid until February 1931. In January 1931, a commercial gas well was completed in the center of the north half of the 80 at a depth of 2,939 feet. Shortly thereafter, and in 1931, the McPherson entered into a contract with appellants whereby it paid them stipulated sums of money in lieu of drilling a second gas well in the south part of the Myers 80. The payments were determined upon the basis of royalties from gas wells in the neighboring territory. This contract did not pertain to development of oil interests. It is claimed the McPherson, as well as the Shell, was liable to appellants by reason of contractual relations between the Shell and the McPherson.
The two oil-bearing formations which appellants contend should have been explored and developed are the shallower formation encountered at approximately 2,900 feet, known as the Mississippi limestone and referred to by the parties as the Chat formation. The second or deeper formation involved, and encountered at...
To continue reading
Request your trial
-
Kansas Baptist Convention v. Mesa Operating Ltd. Partnership
...Fischer v. Magnolia Petroleum Co., 156 Kan. 367, 133 P.2d 95, aff'd 156 Kan. 722, 137 P.2d 139 (1943); and Myers v. Shell Petroleum Corp., 153 Kan. 287, 110 P.2d 810 (1941). Brewster and the later Kansas cases applying its standard involved underachieving lessees. The present case involves ......
-
Williams v. Humble Oil & Refining Company
...Co. v. Brunk, 160 Ark. 574, 255 S.W. 7 (1923); Powers v. Bridgeport Oil Co., 238 Ill. 397, 87 N.E. 381 (1909); Myers v. Shell Petroleum Corp., 153 Kan. 287, 110 P.2d 810 (1941); Leeper Oil Co. v. Rowland, 239 Ky. 295, 39 S.W. 2d 486 (1931); Hood v. Southern Prod. Co., 206 La. 642, 19 So.2d ......
-
Phillips Petroleum Co. v. Millette
...Therefore, plaintiffs were not entitled to recover.' Kansas and Illinois both apply the prudent operator test. Myers v. Shell Petroleum Corp., 1941, 153 Kan. 287, 110 P.2d 810, especially at page 816; Carter Oil Co. v. Dees, 1950, 340 Ill.App. 449, 92 N.E.2d 519, 523. In the Dees case the a......
-
Palmer Oil Corp. v. Phillips Petroleum Co.
...under such tracts based on the wells drilled elsewhere is mere conjecture. As supporting the latter contention Myers v. Shell Petroleum Corp., 153 Kan. 287, 110 P.2d 810, is cited as holding that the opinion evidence of an expert geologist on geological conditions at a point one-half mile d......
-
CHAPTER 10 THE NEXT NEW THING: THE DUTY TO DEVELOP AND COMPELLED CAPITAL EXPENDITURE IN A TIME OF FISCAL RETRENCHMENT
...of gas from the gas cap." WILLIAMS & MEYERS, § 831, at 214.3-15. In the case they cite on this point, Myers v. Shell Petroleum Co., 110 P.2d 810 (Kan. 1941), Shell had failed to drill into two oil zones, one shallower and one deeper, than the gas zone from which Shell was producing gas. Id.......