Newell v. Phillips Petroleum Co., 2778.

• Decision Date: 14 August 1944
• Docket Number: No. 2778.,2778.
• Parties: NEWELL et al. v. PHILLIPS PETROLEUM CO. et al.
• Court: U.S. Court of Appeals — Tenth Circuit

144 F.2d 338 (1944)

NEWELL et al. v. PHILLIPS PETROLEUM CO. et al.

No. 2778.

Circuit Court of Appeals, Tenth Circuit.

August 14, 1944.

Harry O. Glasser, of Enid, Okl., and Henry S. Johnston, of Percy, Okl., for appellants.

Rayburn L. Foster, of Bartlesville, Okl. (Don Emery and D. E. Hodges, both of Bartlesville, Okl., and E. G. DeParade, of Oklahoma City, Okl., on the brief), for appellees.

Before PHILLIPS, BRATTON, and HUXMAN, Circuit Judges.

BRATTON, Circuit Judge.

A. Mae Newell owned 22 lots in Armourdale Addition to Oklahoma City, Oklahoma. She executed an oil and gas lease covering the premises which contained the conventional royalty provision of 1/8th of the oil and gas produced. By various assignments, Phillips Petroleum Company acquired lease; and it was consolidated or communitized for oil and gas purposes, which had the effect of limiting the royalty rights of A. Mae Newell in the entire area to 11/12ths of 1/8th royalty interest. In December, 1930, Phillips completed a producing well on the premises. A. Mae Newell sold and conveyed to a third person her royalty interest in the well, effective January 1, 1935. A. Mae Newell joined by her husband John Q. Newell, instituted this action against Phillips and Standish Pipe Line Company. The purposes of the action were an accounting for oil and gas produced from the well, damages for the wrongful conversion of oil and gas taken from the well, and damages against Phillips for failure diligently and prudently to operate the well. Defendants prevailed, and plaintiffs appealed.

The issues tendered by the amended complaint on which the case was tried were broad in scope, but the case here falls within a relatively narrow compass. The primary contention advanced for reversal of the judgment is that Phillips failed to operate the well in a prudent manner prior to April 10, 1933, resulting in damage to A. Mae Newell. Beginning in 1931, the Corporation Commission of Oklahoma entered certain proration orders from time to time in which it fixed the maximum quantities of oil which could be taken from the wells, respectively, in the Oklahoma City field, but all of the orders entered prior to April 10, 1933, were determined to be void. H. F. Wilcox Oil & Gas Co. v. Walker, 168 Okl. 355, 356, 32 P.2d 1044. Though subsequently determined to be void, about ninety per cent of the operators in the field, including Phillips, complied with the orders of proration. It was conceded in the trial court that the orders entered after April 10, 1933, were valid and effective and that there was no basis for recovery of any oil produced during that time. The well in question was high on the structure. Phillips drilled more than thirty wells in the field. Twenty-two in the general vicinity of this well were below it on the structure. They averaged more in production than did this well. This well was operated intermittently. It was closed down part of the time. It was the duty of Phillips to operate this well prudently and with reasonable diligence. The relationship of the parties created an implied obligation to do so. Its duty in that respect was not affected in any manner by its ownership of other wells in the vicinity. And its failure to discharge that duty, whether motivated by its interest in wells located lower on the structure, or otherwise, would render it liable in damages for any injury suffered by the owner of the royalty interest. Operating a well prudently and with reasonable diligence means the doing of that which an experienced operator of ordinary care and prudence would do in the same or similar circumstances, or the failure to do that which such an operator would not do in the same or similar circumstances, having due regard for the rights, interests, and advantages of both lessor and lessee. Much evidence, including...