Pelham Petroleum Co. v. North
| Decision Date | 09 March 1920 |
| Docket Number | Case Number: 10437 |
| Citation | 188 P. 1069,1920 OK 105,78 Okla. 39 |
| Parties | PELHAM PETROLEUM CO. v. NORTH. |
| Court | Oklahoma Supreme Court |
¶0 1. Appeal and Error -- Review -- Equity Cases.
In an equitable action this court will weigh the evidence, and if the judgment of the trial court is clearly against the weight thereof, will render, or cause to be rendered, such judgment as said court should have rendered.
2. Oil and Gas--Failure to Develop Lease--Forfeiture--Evidence.
Although a court of equity will decree a forfeiture of an oil and gas lease on account of a breach of an implied covenant to diligently operate and develop the property, when such forfeiture will effectuate justice, the granting of such relief depends upon the facts and circumstances surrounding the particular case.
3. Same--Decree--Conformity to Circumstances.
A court of equity has the power to conform its decrees to the varying circumstances of each particular case, and if the evidence shows that a part of the leased premises under an oil and gas lease have been properly developed with reasonable diligence by the lessee, and other parts have not, the court may cancel the lease as to the undeveloped portion and permit the lessee to continue to operate the developed part thereof.
4. Oil and Gas--Lease--Duty to Develop--Construction.
Where the object of the operations contemplated by an oil and gas lease is to obtain a benefit or profit for both lessor and lessee, neither is, in the absence of a stipulation to that effect, the arbiter of the extent to which, or the diligence with which, the operations shall proceed; but both are bound by the standard of what, in the circumstances, would be reasonably expected of operators of ordinary prudence, having regard to the interests of both.
5. Same--"Protecting Side Lines."
A stipulation in an oil and gas lease whereby the lessee obligates itself "to protect the side lines in case oil is found in paying quantities" imposes upon the lessee the same obligation to protect the lessor's land from actual or threatened drainage that the courts universally hold to be upon it in the absence of express stipulation to that effect.
6. Same--Drilling Offset Wells.
The provision means that the lessee is required to drill an offset well in case oil is found on adjacent lands near the boundary line of lessor's land in sufficient quantities to pay a reasonable profit on the whole sum required to be expended, including the cost of drilling, equipping, and operating the well.
Error from District Court, Tulsa County; Conn Linn, Judge.
Action for forfeiture of oil and gas lease by W. L. North against the Pelham Petroleum Company. Judgment for plaintiff, and defendant brings error. Reversed and remanded.
Rice & Lyons, for plaintiff in error.
Luther James and R. F. Morley, for defendant in error.
¶1 This action was instituted in the district court of Tulsa county by W. L. North, plaintiff, against the Pelham Petroleum company, a corporation, defendant, to declare a forfeiture of a certain oil and gas lease executed by the former in the year 1907 to the Arena Oil Company, and which, by intermediate assignments, had been transferred to the defendant several years prior to the institution of the action. The lease covered the northwest quarter of the northwest quarter and the south half of the northwest quarter of section 33, township 19 north, range 13 east, and its provisions, in general, were similar to those usually found in leases of this character, but the drilling clause was somewhat different. It reads:
"To commence a well on said premises within thirty days from the date hereof * * * One well to be completed each year until three wells have been completed, or pay one dollar per acre a year rental on each forty not drilled upon, and to protect all side lines in case oil is found in paying quantities."
¶2 Plaintiff seeks to forfeit all of the leased premises except that part thereof necessary to operate the wells already drilled, on the ground that the defendant by failing to drill any additional wells for four successive years abandoned all other parts of the lease and breached the covenants to develop the premises, and on the further ground that defendant company has breached the express covenant in the lease to drill offset wells.
¶3 After issue was joined, the cause was tried to the court, resulting in a finding that the defendant had not developed the northwest quarter of the northwest quarter of said section in the manner contemplated by the lease and the rules governing the development and operation of oil and gas leases in this state, and that said defendant had not protected the west line of said forty-acre tract by drilling offset wells as contemplated. The court also found that the defendant had not developed the southeast quarter of the northwest quarter of said section, as required by the lease and law governing the development of oil and gas mining leases, and had, therefore, abandoned and forfeited the same. Judgment was entered accordingly, to reverse which this proceeding in error was commenced.
¶4 This being a case of equitable cognizance, it is our duty to weigh the evidence, and if after weighing the same we find the judgment of the trial court to be clearly against the weight thereof, to render, or cause to be rendered, such judgment as the trial court should have rendered. Schock v. Fish, 45 Okla. 12, 144 P. 584; Crump v. Lanham, 67 Okla. 33, 168 P. 43.
¶5 But before entering upon a consideration of the evidence it is proper here, we think, to dispose of plaintiff's contention that he is entitled to a cancellation of the lease on the southeast quarter of the northwest quarter and the northwest quarter of the northwest quarter of section 33, on account of nonpayment of rentals for the years 1914, 1915, 1916 and 1917, alleged to be due him by the defendant company under the drilling clause of the lease. Under the undisputed evidence it conclusively appears that this provision of the lease has not been breached. Under this clause the lessee had the option either to complete a well each year until three wells had been completed or to pay one dollar per acre a year rental on each forty-acre tract not drilled upon. Although the evidence shows that one well was not completed each year until three wells were completed, it does show that rentals were paid upon the southwest forty not drilled upon until it was developed, and further shows that the two forty-acre tracts sought to be cancelled had been drilled upon prior to 1914, although the drilling operations on the southeast forty resulted in a dry hole. Moreover, the payment of rentals was not an issue raised by the pleadings, and the court did not make any finding thereon.
¶6 Preliminary to a consideration of the evidence we will advert to the law applicable to cases of this character, where it is sought to forfeit an oil and gas lease for failure of the lessee to exercise reasonable diligence in prosecuting the work of production and development after oil and gas have first been found within the time granted by the lease for prospecting the premises. It is now well settled that a court of equity will declare a forfeiture of an oil and gas lease because of the breach of an implied covenant to diligently operate and develop the property when such forfeiture will effectuate justice, but the granting of such relief depends upon the facts and circumstances surrounding the particular case. Indiana Oil, Gas & Development Co. v. McCrory, 42 Okla. 136, 140 P. 610; Brewster v. Lanyon Zinc Co., 140 F. 801, 72 C. C. A. 213.
[SEE ILLUSTRATION IN ORIGINAL]
¶7 The material evidence in this case may be stated as follows: The 120-acre tract of land covered by the lease, which comprises three 40-acre subdivisions, is situated in what .is commonly denominated by oil men as "spotted field," which is evidenced by the fact that it is not uncommon to get a dry hole a location away from a producing well. The production where found is light, and the quantity of oil decreases rapidly from the initial production. In order to have a clearer and more vivid conception of the development upon the lease in controversy than can be had from narration only, we here insert a plat showing the development upon plaintiff's lands and other lands contiguous thereto. O represents a producing well, x a dry hole, and * an abandoned well.
¶8 The wells on plaintiff's lease are numbered from 1 to 9, in the order in which they were drilled. It will be noted that two dry holes have been drilled on the southeast forty; one in 1907, and the other in 1913; five producing wells on the southwest forty, all of which were completed in 1912 and 1913; and that a well and a dry hole were drilled in the northwest forty. The wells in the southwest forty had an average initial production of about fifteen barrels per day, but this production rapidly decreased until some of them were making only from one to two barrels per day within a month. One of the wells came in at ninety barrels per day and decreased to fifteen barrels per day within a month. At the time of the trial the total production from the five wells was about seven barrels per day. The well on the northwest quarter marked 1-A was drilled in the winter of 1907-08. According to Mr. North's testimony the initial production of, this well was about twelve barrels per day, but this production rapidly diminished, and before the lease was assigned to the defendant company the well had been abandoned. On Mr. North's insistence that it was a good well, and to satisfy him, the defendant company, in 1913, drilled another well within a few feet of this abandoned well, the same being No. 7 on the plat. The last well had an initial production of twelve barrels per day, but within a month it was only making about one and one-half barrels per day, and at the time of the trial was making from one-fourth to one-half barrels per day. It will also be...
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