Odom v. Union Producing Co.

• Decision Date: 10 March 1961
• Docket Number: No. 9440,9440
• Citation: 129 So.2d 530
• Parties: J. Holbert ODOM, Plaintiff-Appellant, v. UNION PRODUCING COMPANY et al., Defendant-Appellee.
• Court: Court of Appeal of Louisiana — District of US

Page 530

129 So.2d 530

J. Holbert ODOM, Plaintiff-Appellant, v. UNION PRODUCING COMPANY et al., Defendant-Appellee.

No. 9440.

Court of Appeal of Louisiana, Second Circuit.

March 10, 1961.

Rehearing Denied April 12, 1961.

Certiorari Granted May 30, 1961.

Meadors, Shaw & Meadors, Homer, for appellant.

Wilkinson, Lewis, Wilkinson & Madison, Shreveport, for appellee.

Before HARDY, AYRES and BOLIN, JJ.

AYRES, Judge.

This is an action for the cancellation of an oil, gas and mineral lease, because of the expiration of its primary term without drilling or other operations having been conducted on, or production secured from, the leased premises or on lands in a unit of which the leased lands comprised a part.

The principal defense is that, during the primary term of the lease, and while it was maintained in full force and effect by the payment of delay rentals, the Commissioner of Conservation, by an appropriate order, established a drilling and production unit in which was included a portion of plaintiffs' property covered by defendant's lease; that pursuant to that order, a well had been drilled on lands in the unit although not on lands covered by this particular lease; and that said well was completed as a producer of gas and condensate during the primary term. From these facts it was contended by the lessee that the lease was maintained in full force and effect beyond its primary term as to the lands covered by the lease outside, as well as inside, the unit.

From an adverse judgment, plaintiffs appealed.

A brief re sume of the facts as relate to this particular defense is essential to an understanding and prerequisite to a discussion of the proposition submitted. On March 10, 1947, plaintiffs' ancestors in title, J. Holbert Odom and A. B. Greer, and the defendant, Union Producing Company, entered into an oil, gas and mineral lease, whereby Odom and Greer leased to the defendant the following-described property, to-wit:

South half of southeast quarter (S 1/2 of SE 1/4) less ten (10) acres off the west end; south half of northeast quarter of southeast quarter (S 1/2 of NE 1/4 of SE 1/4) and eight (8) acres described as commencing at the northwest corner of the southeast quarter of the southeast quarter (SE 1/4 of SE 1/4), Section 32, thence run west 170 yards, thence north 220 yards, thence east 170 yards, thence south 220 yards to the starting point, all in Section 32; and southwest quarter of southwest quarter (SW 1/4 of SW 1/4), Section 33; all in Township 23 north, Range 6 west, Claiborne Parish, Louisiana, consisting of 138 acres, more or less,

for a primary term of ten years from May 26, 1947, '* * * and as long thereafter as oil, gas, sulphur or other minerals or any of them is produced from said land by Lessee or the obligations in lieu of production are fulfilled.'

Odom subsequently acquired the interest of Greer in the leased lands. After the institution of this action, Odom died and his heirs were made and substituted parties plaintiffs in his stead.

These lands were in the area and vicinity of Colquitt Field of Claiborne Parish. One of the sands found to be productive in that field was known as the Taylor Sand. A drilling unit of 320 acres, known as the 'Tigner Unit,' comprising the

South half (S 1/2) of Section 33, Township 23 north, Range 6 west,

was created by an order of the Commissioner of Conservation, bearing No. 291--A, dated December 31, 1956, and effective January 1, 1957, which pooled and unitized the separately-owned tracts and other property interests in the unit. Included in the unit was the

Southwest quarter of southwest quarter (SW 1/4 of SW 1/4) of said Section 33,

owned by plaintiffs and covered by defendant's lease.

Pursuant to, and consistent with, the aforesaid order of the Commissioner, defendant made preparations for and spudded in a well on the northeast quarter of the southwest quarter (NE 1/4 of SW 1/4) of said unit on March 4, 1957. This well was completed May 6, 1957, as a producer of gas and condensate from the Taylor Sand and was immediately shut in for lack of pipeline facilities, and remained shut in until July 27, 1957, when it was placed in production.

The rule is well established in the jurisprudence of this State that the drilling and production of oil from a unitized area constitute an exercise and user of the mineral rights throughout the entire unit and operate as a substitute for performance of drilling obligations contained in a mineral lease covering any property or tract located in the unit. Delatte v. Woods, 232 La. 341, 94 So.2d 281; LeBlanc v. Haynesville Mercantile Company, Inc., 230 La. 299, 88 So.2d 377; Union Oil Company of California v. Touchet, 229 La. 316, 86 So.2d 50.

In view of the holding in the Delatte case that a shut-in well on a unit established by the Department of Conservation constituted development of the unit, plaintiffs concede that the lease, so far as it affected the southwest quarter of the southwest quarter (SW 1/4 of SW 1/4) of Section 33, was preserved by the operations conducted on the unit.

A general rule is moreover established in the jurisprudence that the obligation of a lessee under an oil and gas lease to drill a well is indivisible in its nature and that, likewise, the lessor's corresponding obligation to deliver the land is also indivisible; and that, where the obligation of one of the parties is to be fulfilled entirely, the obligation of the other must be also fulfilled in whole. Such was the observation of the Supreme Court in Hunter Co. v. Shell Oil Co., 211 La. 893, 31 So.2d 10, wherein it was held that, where an oil, gas and mineral lease covers land both within and without an integrated, consolidated, and force-pooled unit established by the Commissioner of Conservation during the primary term of the lease, and, where production in paying quantities is secured, while the lease is in effect by the payment of delay rentals, from a well within the pooled unit, but not on any portion of the leased land, such production maintains the lease in effect beyond its primary term as to that part of the land leased which lies outside the unit. See, also, LeBlanc v. Danciger Oil & Refining Co., 218 La. 463, 49 So.2d 855; Crown Central Petroleum Corporation v. Barousse, 238 La. 1013, 1022, 117 So.2d 575, 578; Smith v. Carter Oil Co., D.C., 104 F.Supp. 463.

Plaintiffs, however, contend that the aforesaid general principles are inapplicable to the facts of the instant case by reason of the language employed in the lease to the effect That any pooling or unitization of only a portion of the property leased results in a division of the lease and of its obligations.

The provisions of the lease relied upon by plaintiffs, contained in paragraph 14, read as follows:

'Lessee is hereby granted the power and right, at its option and without Lessors' joinder or further consent, at any time while this lease is in force, either before or after production, to combine and pool the lease, mineral and royalty rights in all the lands covered by this lease or any portion thereof with any other land, lands, lease, leases, mineral and royalty rights or any of them, adjacent, adjoining or located within the immediate vicinity of this lease, whether owned by Lessee or some other person, firm or corporation so as to create by such combination and pooling one or more drilling or production units. It is further agreed that Lessee may limit such pooling and unitization to any one or more producing horizons, and as to any one or more products, and, if limited, may extend the same from time to time as Lessee may deem advisable so as to make any such pooling and unitization apply and extend to any other formation or formations, product or products, in addition to the formation or formations, product or products, originally designated, and Lessee may also declare any unit or units so as to conform to any valid rule or regulations of the Department of Conservation of the State of Louisiana touching upon or regulating that subject. Each such drilling or production unit shall not exceed 640 acres plus a tolerance not to exceed 10% Of 640 acres when created for the purpose of drilling for or producing gas, distillate or condensate, or any combination of such products therefrom, and 40 acres, plus a tolerance not to exceed 10% Of 40 acres when created for the purpose of drilling for or producing oil therefrom, unless the same shall be larger or smaller than the maximum drilling or production unit fixed as a basis for the development or operation of the field by the Conservation Department of the State of Louisiana, or other regulatory body, Federal or State, having jurisdiction in the premises, in which event each such unit created hereunder shall not exceed the maximum so prescribed for An in force in the field at the time such unit is created. Lessee shall execute in writing and record in the Conveyance Records of the parish or parishes in which each unit created hereunder is located an instrument identifying and describing each such unit. As between the parties hereto the entire acreage so pooled into a drilling or production unit or units shall be treated, for all purposes except the payment of royalties and the lieu royalties on the production from the pooled unit or units, as if it were included in this lease. In lieu of the royalties and the lieu royalties elsewhere herein specified, Lessors shall receive, on the production from each unit created hereunder, only such proportion of the royalties stipulated herein as the amount of Lessors' acreage (mineral or royalty rights) placed in the unit bears to the total acreage included in the particular unit involved. Drilling or reworking operations on or the production of oil, gas, sulphur or other minerals from any portion of the land covered hereby shall continue this lease in force and effect during or after the primary term as to all the lands covered hereby, subject to the exceptions...