Niles v. Luttrell

• Decision Date: 12 July 1945
• Docket Number: No. 125.,125.
• Citation: 61 F. Supp. 778
• Parties: NILES et al. v. LUTTRELL et al.
• Court: U.S. District Court — Western District of Kentucky

61 F. Supp. 778

NILES et al. v. LUTTRELL et al.

No. 125.

District Court, W. D. Kentucky, Bowling Green.

July 12, 1945.

Norton L. Goldsmith, and E. J. Wells, both of Louisville, Ky., for plaintiffs.

Laurence B. Finn, of Bowling Green, Ky., and J. G. Smith, of Albany, Ky., for defendants.

SWINFORD, District Judge.

This is an action to enjoin a trespass.

On October 15, 1940, R. I. Luttrell and Clora Luttrell executed a writing, whereby they leased the oil and gas rights in their farm containing 450 acres to C. F. Lowther. The lease was shortly thereafter assigned and transferred to the plaintiffs.

The lease contained the following provision: "And further, to locate and commence a well on said premises within 30 days from the date hereof, or pay at the rate of 25 cents per acre annually, payable quarterly in advance, for each additional three months such location and commencement is delayed from time above mentioned for the location and commencement of such well until a well is commenced or this lease surrendered. Such payment shall be made direct to the Lessor or by check mailed to R. I. Luttrell at Seventy-Six P. O. Clinton County, Kentucky. The drilling of a non-productive well shall be accepted by the Lessor in lieu of delay rental for a period of one year from the date of its completion, at the expiration of which time the Lessee shall commence another well or resume the payment of delay rental. And the drilling of a second well, productive or otherwise, shall be full consideration to the Lessor for the grant hereby made to Lessee with exclusive right to drill one or more additional wells on the premises during the term of this lease."

On December 28, 1940, the plaintiffs moved machinery upon the leasehold and in the early part of January, 1941, began to drill an oil well. This was the only well drilled upon the leasehold and will be referred to as "Luttrel No. 1". The well was dug to a depth of 815 feet, without striking oil in commercial quantities. On May 25, 1941, the drilling ceased and the well was never sunk to any greater depth than 815 feet. On June 4, in an effort to bring the well into production, it was shot three times with nitroglycerin but without satisfactory results. Later on in the summer of 1941, August or September, the well was acidized. Notwithstanding these efforts on the part of the plaintiffs, the well did not produce oil in paying or commercial quantities. In fact, throughout the whole time covered by the record in this case, that is from May 1941, until the latter part of 1943 or early part of 1944, the oil produced only netted in royalties the sum of $8. Throughout this period the plaintiffs, at intervals, attempted to bring the well into production by various methods and employed one Parker, who testifies that he continued to attempt to pump oil until the last of 1943 or the first part of 1944.

R. I. Luttrell died on September 3, 1942. The date of the death of C. F. Lowther is not clear from the record but it is stated by one of the witnesses that he died sometime shortly after May 26, 1942. Another witness states that he died in 1941. The date of his death, however, is not important to the determination of any question raised in this law suit.

The defendant, Clora Luttrell, who was the wife of R. I. Luttrell, is now the owner of the property on which the lease was given. On April 3, 1944, she leased to her codefendant, S. B. Jarvis, all of the oil and mineral rights in the property. This action is to enjoin the defendants from interfering with the plaintiffs in the enjoyment of their property rights under the lease of October 15, 1940.

The first thing to be considered and determined is when was Luttrell No. 1 completed within the meaning of the law. On this question I must conclude that Luttrell No. 1 was completed after it had been acidized without results. The exact date of this is not definite from the proof but it may be fixed as of sometime in August or September of 1941. This is the closest date I can fix from the rather vague testimony of the plaintiffs. If September is established as the date of the completion, then it was the duty of the plaintiffs under the terms, of the lease to either pay the rental of 25 cents per acre, in advance, or to begin the drilling of a second well within twelve months after September, 1941. It is agreed that no rental was paid and that no second well was ever drilled.

In determining that the well was completed in September, 1941, I believe that I have given a reasonable interpretation to the facts as developed. Most of these facts are undisputed. The well had been sunk to a depth of 815 feet, through the upper Sunnybrook and lower Sunnybrook sand and into the pencil cave sand. It had been shot with nitroglycerin and had been acidized with what was thought to be approved chemicals and with the proper processes. Pumping had been applied and so far as the record discloses the plaintiffs had done everything known to the art to bring the well into production. None of these conventional methods were successful. While there may be a difference of opinion as to the best methods to be employed, under the circumstances prevailing in this particular well, as is indicated by the testimony of the defendant, Jarvis, the plaintiffs certainly did what, in their judgment, experience and under the advice of others experienced in the business, they deemed proper and sufficient.

Nevertheless I must conclude from all the evidence that after August, 1941, Luttrell No. 1 had reached the experimental stage and could not be considered a producing well, within the meaning of the terms of the lease. It is true that the plaintiffs continued to make efforts to bring this well into production until December, 1943, and apparently tried almost everything and anything that was suggested to them. It is also true that, according to the testimony of some of the witnesses, the well may yet be made productive but after August, 1941, when the drilling through the upper and lower Sunnybrook sands and through the pencil cave strata had been completed without satisfactory results, it would be extreme to hold that this well did not present a dry hole, within the understanding of the parties and the meaning of the lease at the time it was executed. It was the duty of the plaintiffs, under the terms of the lease and such reasonable implications as the law permits to be drawn from the terms of the lease, to prosecute the operation of this venture to recover oil on the defendants' premises, diligently and prudently. The real purpose of the lease and the interests of both the lessors and lessees was to recover oil in paying quantities. The mere formality of drilling a well and the interest aroused in the minds of the parties in this operation meant nothing unless oil was recovered. The plaintiffs could have extended the terms of their lease by paying the relatively nominal sum as rental. Instead of that they continued to dillydally with this dry hole. The smallness of the rental indicates that the lessors looked for their consideration for the lease to the early development of the leasehold and the production of oil. This is a circumstance to be considered in determining the implied conditions of the lease and what was in the minds of the parties at the time of its execution. Benedum-Trees Oil Co. v. Davis et al., 6 Cir., 107 F.2d 981.

In the leading case of Warfield Natural Gas Co. v. Allen et al., 248 Ky. 646, 59 S.W.2d 534, 536, 91 A.L.R. 890, the court, in this connection, made the following pertinent statement and cites authorities directly on the question of the relative responsibilities of the parties:

"It is a familiar principle in the law of contracts that, in the absence of specification of duties and obligations intended to be assumed, the law will imply an agreement to do and perform those things that according to reason and justice the parties should do in order to carry out the purpose for which the contract was made. Humphreys v. Central Kentucky Natural Gas Company, 190 Ky. 733, 229 S.W. 117, 21 A.L.R. 664. Though not expressed in the instrument, the law wrote into it as by implication certain covenants in order to manifest the purpose of the parties. They are just as effectual and binding as if specified. Among them is the obligation that the lessee would test and develop the property in good faith, and with reasonable diligence, to obtain production, and that it would prosecute operations diligently and prudently. Willis' Thornton on Oil and Gas, § 503, 40 C.J. 1064; Flanigan v. Stern, 204 Ky. 814, 265 S.W. 324; Union Gas & Oil Co. v. Diles, 200 Ky. 188, 254 S. W. 205; Bay State Petroleum Company v. Penn Lubricating Company, 121 Ky. 637, 87 S.W. 1102; Dinsmoor v. Combs, 177 Ky. 740, 198 S.W. 58, 59. These implied obligations include that of exercising good faith and the sound discretion of a prudent operator to drill to a depth that is reasonably necessary to test the land. Texas & Pacific Coal & Oil Co. v. Stuard, Tex.Civ.App., 269 S.W. 482; Kies v. Williams, 190 Ky. 596, 228 S.W. 40; Bradshaw v. Hurt, 198 Ky. 38, 247 S.W. 1113; Sugg v. Williams, 191 Ky. 188, 229 S.W. 72.

"This broad implied provision or covenant contemplates that, if oil is discovered in paying quantities, or it reasonably appears to be there in paying quantities, the lessee will proceed with the operations and development so as to obtain full production in order that the lessor may receive his royalty. It likewise contemplates that the lessee will protect the premises against loss or drainage of the oil. Lawrence Oil Corporation v. Metcalfe, 241 Ky. 353, 43 S.W.2d 986.

"The reasonableness of the diligence and course of conduct with respect to the extent of the prosecution of the operations is to be measured by what would be done under the same or similar circumstances by operators of ordinary prudence and diligence having regard for the common rights and mutual advantages of...