Oil Co v. Kieffer, KINNEY-COASTAL

• Decision Date: 04 June 1928
• Docket Number: KINNEY-COASTAL,No. 64,64
• Citation: 72 L.Ed. 961,277 U.S. 488,48 S.Ct. 580
• Parties: OIL CO. et al. v. KIEFFER et al
• Court: U.S. Supreme Court

277 U.S. 488

48 S.Ct. 580

72 L.Ed. 961

KINNEY-COASTAL OIL CO. et al.

v KIEFFER et al.

No. 64.

Argued Oct. 25, 1928.

Decided June 4, 1928.

[Syllabus from pages 488-490 intentionally omitted] This case presents a controversy over the relative rights conferred by an oil and gas lease and by a homestead patent for the same lands-both issued by the United States and each containing a reservation of the rights conferred by the other.

The lands in question are two adjoining 40-acre tracts within the Salt Creek oil field, in Natrona county, Wyoming, which became a producing field, widely known as such, before any step was taken to secure either the lease or the patent.

By executive order issued July 2, 1910, under the Act of June 25, 1910, c. 421, 36 Stat. 847 (43 USCA § 141) these lands-being then public lands of the United States-were withdrawn from settlement, location, sale, or entry under the existing public land laws and were reserved as being valuable for oil to await further legislation respecting the disposal of lands of that character. The contemplated legislation came in part in the Act of July 17, 1914, c. 142, 38 Stat. 509 (30 USCA § 122), and in part in the Act of February 25, 1920, c. 85, 41 Stat. 437 (30 USCA § 181).

The act of 1914 looks to the severance and separate disposal of the surface and the underlying minerals. It provides that lands of the United States withdrawn, classified, or reported as valuable for oil, gas, or other designated mineral deposits shall be subject to disposal under the nonmineral land laws, but that the disposal shall be with 'a reservation to the United States of the deposits on account of which the lands were withdrawn or classified or reported as valuable, together with the right to prospect for, mine, and remove the same,' and that such deposits shall be 'subject to disposal by the United States only as shall be hereafter expressly directed by law.' The act further provides:

'Any person qualified to acquire the reserved deposits may enter upon said lands with a view of prospecting for the same upon the approval by the Secretary of the Interior of a bond or undertaking to be filed with him as security for the payment of all damages to the crops and improvements on such lands by reason of such prospecting, the measure of any such damage to be fixed by agreement of parties or by a court of competent jurisdiction. Any person who has acquired from the United Stated the title to or the right to mine and remove the reserved deposits, should the United States dispose of the mineral deposits in lands, may re-enter and occupy so much of the surface thereof as may be required for all purposes reasonably incident to the mining and removal of the minerals therefrom, and mine and remove such minerals, upon payment of damages caused thereby to the owner of the land, or upon giving a good and sufficient bond or undertaking therefor in an action instituted in any competent court to ascertain and fix said damages.'

The act of 1920 relates particularly to the disposal of oil, gas and other designated mineral deposits in the lands of the United States, including those specified in the act of 1914. In the main it provides that the disposal of such deposits shall be through leases entitling the lessees to extract and remove the deposits and to make such use of the surface as may be necessary for that purpose, and requiring the lessees to pay fixed royalties, and in some instances a further compensation, to the United States. The parts of the act having a present bearing are as follows:

'Sec. 17. That all unappropriated deposits of oil or gas situated within the known geologic structure of a pro- ducing oil or gas field, * * * not subject to preferential lease, may be leased by the Secretary of the Interior to the highest responsible bidder by competitive bidding, * * * such leases to be conditioned upon the payment by the lessee of such bonus as may be accepted and of such royalty as may be fixed in the lease. * * * Leases shall be for a period of twenty years, with the preferential right in the lessee to renew the same for successive periods of ten years upon such reasonable terms and conditions as may be prescribed by the Secretary of the Interior, unless otherwise provided by law at the time of the expiration of such periods. * * *' 30 USCA § 226.

'Sec. 29. * * * Provided, that said Secretary, in his discretion, in making any lease under this act, may reserve to the United States the right to lease, sell, or otherwise dispose of the surface of the lands embraced within such lease under existing law or laws hereafter enacted, in so far as said surface is not necessary for use of the lessee in extracting and removing the deposits therein: Provided further, that if such reservation is made it shall be so determined before the offering of such lease. * * *' 30 USCA § 186.

'Sec. 32. That the Secretary of the Interior is authorized to prescribe necessary and proper rules and regulations and to do any and all things necessary to carry out and accomplish the purposes of this act, also to fix and determine the boundary lines of any structure, or oil or gas field, for the purposes of this act. * * *' 30 USCA § 189.

'Sec. 34. That the provisions of this act shall also apply to all deposits of coal, phosphate, sodium, oil, oil shale, or gas in the lands of the United States, which lands may have been or may be disposed of under laws reserving to the United States such deposits, with the right to prospect for, mine, and remove the same, subject to such conditions as are or may hereafter be provided by such laws reserving such deposits.' 30 USCA § 182.

April 2, 1920, the Secretary of the Interior, pursuant to section 32 of the act of 1920, determined the boundary lines of the known oil structure or deposit in the Salt Creek field. The lines so determined included the two 40 acre tracts in question.

December 29, 1921, as a result of competitive bidding invited under section 17 of that Act, and in consideration of a bonus of $51,750 paid to the United States, the Secretary of the Interior, conformably to existing regulations, ¹ awarded and issued to Oscar W. Rohn a lease of the oil and gas in these tracts and in another 40-acre tract in the same field. The lease was given for a term of 20 years, with a conditional privilege of renewal under section 17, and granted to the lessee the exclusive right to drill for, extract and remove the oil and gas deposits in the three tracts, together with the right to construct and maintain on the surface 'all works, buildings, plants, waterways, roads, telegraph or telephone lines, pipe lines, reservoirs, tanks, pumping stations or other structures' needed in such mining operations. It required the lessee to exercise reasonable diligence in drilling and operating wells for oil and gas and to pay to the United States a royalty of 25 per cent. on the oil produced and a royalty varying from 12 1/2 per cent. to 16 2/3 per cent. on the gas; and it reserved to the United States the right to dispose of 'the surface of the lands' under existing or future laws 'in so far as said surface is not necessary for the use of the lessee in the extraction and removal of the oil and gas.' It also required the lessee—

'to comply with all statutory requirements and regulations thereunder, if the lands embraced herein have been or shall hereafter be disposed of under the laws reserving to the United States the deposits of oil and gas therein, subject to such conditions as are or may hereafter be provided by the laws reserving such oil or gas.'

At the time the lease was issued the lessee, pursuant to the existing regulations,² executed, with approved surety, a bond to the United States in the amount of $5,000-'for the use and benefit of the United States and of any entryman or patentee of any portion of the land * * * heretofore entered or patented with a reservation of the oil and gas deposits to the United States'-conditioned on the lessee's faithful compliance with 'all the provisions' of the lease.

August 9, 1922, that lease was consolidated with others into a new lease of like character and tenor issued by the Secretary of the Interior to the Kinney-Coastal Oil Company, and a bond like that above described was gived by the company, with approved surety, to secure its faithful compliance with all the provisions of the consolidated lease.

In 1918 Michael F. Kieffer made application at the local land office to make a preliminary homestead entry of the two 40-acre tracts in question and other contiguous lands. He knew the lands were within the executive withdrawal of July 2, 1910, and the Salt Creek oil field, and he assented that, if his application was granted, the oil and gas deposits should be reserved by the United States for disposal under future laws as contemplated in the act of 1914. The preliminary homestead entry was allowed with that reservation (see Regulations of March 20, 1915, paragraphs 5-8, 44 L. D. 32, 34) and in due course was carried to a final entry, on which a homestead patent was issued to Kieffer October 12, 1923. The patent was for 320 acres, including the two 40-acre tracts in question, and contained the following exception and reservation:

'Also excepting and reserving to the United States all the oil and gas in the lands so patented, and to it, or persons authorized by it, the right to prospect for, mine and remove such deposits from the same upon compliance with the conditions and subject to the provisions and limitations of the Act of July 17, 1914.'

After his preliminary homestead entry was allowed, Kieffer constructed a residence and several outbuildings on part of the lands included therein other than the tracts in question, and resided there with his family. He inclosed the tracts in question with a barbed wire fence and in each of two years planted and harvested about 7 acres of oats thereon; but in no other way did he improve...