Phillips Petroleum Co. v. Taylor

• Decision Date: 14 January 1941
• Docket Number: No. 9421.,9421.
• Citation: 115 F.2d 726
• Parties: PHILLIPS PETROLEUM CO. v. TAYLOR et al.
• Court: U.S. Court of Appeals — Fifth Circuit

115 F.2d 726 (1940)

PHILLIPS PETROLEUM CO. v. TAYLOR et al.

No. 9421.

Circuit Court of Appeals, Fifth Circuit.

November 29, 1940.

Rehearing Denied January 14, 1941.

T. L. Dyer, of Austin, Tex., for appellant.

Fred B. Wagner, of Brownsville, Tex., and Howell Ward, of Corpus Christi, Tex., for appellees.

Before FOSTER, HOLMES, and McCORD, Circuit Judges.

Rehearing Denied January 14, 1941. See 116 F.2d 994.

HOLMES, Circuit Judge.

Mrs. Volney W. Taylor and the Sabine Royalty Corporation each owned 1/64 of the minerals reserved, when a mineral lease was executed, under 37½ acres of land in Hidalgo County, Texas. J. R. Gray owned 14/64 of the minerals which were reserved by him under an assignment to the Phillips Petroleum Company of the mineral lease. On adjacent property which was under lease to Harrison and Danvers, two producing oil wells were drilled which were 230 and 250 feet, respectively, from the dividing line between the properties. Appellees, who were plaintiffs below, sued the appellant for breach of an implied covenant under the lease to protect the lessors from drainage of oil and gas and to drill and capture the oil thereunder. Damages were asked in the sum of $20,500, and the jury gave judgment for $4,000, from which the lessor appealed.

In Texas, the lessee of an ordinary oil and gas lease impliedly covenants to protect the premises against drainage by drilling offset wells. Grubb v. McAfee, 109 Tex. 527, 212 S.W. 464; Texas Co. v. Ramsower, Tex.Com.App., 7 S.W.2d 872. The assignor of a mineral lease who retains an interest therein is also granted the protection of the implied covenant. American Sulphur Royalty Co. v. Freeport Sulphur Co., Tex.Civ.App., 276 S.W. 448; Freeport Sulphur Co. v. American Sulphur Royalty Co., 117 Tex. 439, 6 S.W.2d 1039, 60 A.L.R. 890. The Phillips Petroleum Company refused to drill any offset wells on the property, and also declined to surrender its lease to permit others to drill the wells. It denies that it breached its implied covenant in so doing, claiming that any offset wells would not have produced in a quantity sufficient to pay the expenses attendant upon the drilling; that, for this reason, no reasonably prudent operator would have drilled the wells.

The record is replete with evidence concerning the volume of oil produced by the Harrison and Danvers wells, the amount and value of the drainage from under appellees' land, and the cost of drilling and operating offset wells. Appellee Gray, who had been scouting wells and dealing in oil and gas leases for several years, testified that the Guerra wells, which were the two wells on the Harrison and Danvers lease, drained oil from under appellees' property; that, in his opinion, if offset wells had been drilled at the time the Guerra wells were brought in, such offset wells would have produced oil in sufficient quantities to pay the cost of drilling and operation and to return a profit; and that a reasonably prudent operator would have drilled offset wells. M. E. Morton, who for fifteen years had been an independent contract driller of oil wells, gave substantially identical testimony, and further testified that he was ready and willing to undertake the risk of drilling the wells, but was prevented therefrom by appellant's refusal to surrender its lease. Plaintiffs below also introduced evidence by disinterested witnesses to show the amount and value of the oil captured from the Guerra wells.

The Phillips Petroleum Company met this evidence by showing by several witnesses that, although some oil was drained from its leased premises by the Guerra wells, the oil to be captured by drilling offset wells was not sufficient in quantity and value to pay the expenses of drilling; that reasonably prudent operators would not have drilled them.

It is not necessary, for the purposes of this opinion, to detail more of the abundant evidence adduced at this trial. We have narrated enough to show clearly the conflicting nature of the testimony on the material issues in the case. The ultimate questions were largely answerable only by inferences from the uncontradicted facts. Conflicting inferences might fairly and reasonably have been drawn by different men. The opinion evidence concerned matters about which reasonable men might differ. In such circumstances, submission of the case to the jury was proper, and its verdict must stand.

Appellant also contends that the court lacked jurisdiction of the cause, at least as to Mrs. Taylor and the Sabine Royalty Co., because each of them failed to allege an amount in controversy within the jurisdiction of the trial court. It is argued that Mrs. Taylor owned 1/64 of the total oil, Sabine Royalty Co. 1/64, and Gray 14/64; that the total owned by them was 16/64, on which they placed a value of $20,500; that, by the...