Pohlemann v. Stephens Petroleum Co.
| Decision Date | 07 May 1952 |
| Docket Number | No. 4412.,4412. |
| Citation | 197 F.2d 134 |
| Parties | POHLEMANN et al. v. STEPHENS PETROLEUM CO. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Owen Vaughn, Chickasha, Okl. (Clarence McElroy and Melton, McElroy & Vaughn, Chickasha, Okl., were with him on the brief) for appellants.
J. H. Hewett and James D. Fellers, Oklahoma City, (Mosteller, McElroy & Fellers, L. Karlton Mosteller and John C. Andrews, Oklahoma City, Okl., were with them on the brief) for appellees.
Before PHILLIPS, Chief Judge, and BRATTON and PICKETT, Circuit Judges.
On August 3, 1940, Frank Pohlemann, as lessor, entered into an oil and gas lease with Stephens Petroleum Company,1 as lessee, covering the NW ¼ of S 33 T 6 N R 10 W, Caddo County, Oklahoma. The lease was for a primary term of five years and as long thereafter as either oil or gas should be produced from the land.
Frank Pohlemann and Kathryne H. Pohlemann brought this action to cancel the undeveloped portions of the lease on the alleged grounds of breach of the implied covenant to develop and abandonment.
On June 4, 1941, Stephens drilled Pohlemann Well No. 1 on the land covered by the lease to a depth of 3369 feet in the Noble-Olson formation. Initial production from the well was 14.15 barrels per day, but the production rapidly declined. Because of the decline in production, Stephens continued drilling of the well to a depth of 6012 feet in the Medrano formation. The well was completed in the Medrano formation on November 12, 1943, and thereafter continued to be a commercial producer.
On September 5, 1947, all production from the Medrano sand was unitized. The area unitized was known as the West Cement Medrano Unit. The northeast ¼ of the northwest ¼ and the northeast ¼ of the northwest ¼ of the northwest ¼ and the northeast ¼ of the southeast ¼ of the northwest ¼ of Section 33, on which Pohlemann No. 1 is located, was included in the unit and Pohlemann is still receiving royalties from the production allocated to Pohlemann No. 1.
On September 21, 1948, Stephens began the drilling, on the non-unitized portion of the lease, of Pohlemann Well No. 2. That well was completed at a depth of 3360 feet in the Noble-Olson formation on October 9, 1948. Salt water was encountered and the well was abandoned as a dry hole on January 3, 1949. Stephens has not drilled any other wells on the lease.
In February, 1949, the Pohlemanns made written demand on Stephens for further development of the lease and advised Stephens that unless it commenced further drilling operations on or before March 10, 1949, they would treat the lease as surrendered and cancelled as to the undeveloped portion thereof.
In answer to the demand and notice of cancellation Stephens advised the Pohlemanns that it had no intention to abandon the lease, but that geological information then available made it imprudent to immediately spend large sums of money in further development. The Pohlemanns then commenced this action to cancel the lease as to the undeveloped portion.
Geological non-conformities on the lease make it extremely difficult to forecast the probable results of further drilling on the undeveloped portion of the lease. Stephens had compiled all the available geological information with respect to the West Cement Field, in which the Pohlemann lease is situated, and was constantly engaged in gathering further geoligical information from drilling operations in such field. A geologist for Stephens, who had considerable experience in the West Cement Field, testified that, in his opinion, known geological information showed it would not be economically prudent to immediately drill additional wells on the lease, but that new information was constantly being obtained and that other wells being drilled in the vicinity of the lease might change the picture and warrant further drilling on the lease. Waldo Stephens, vice president of Stephens, testified to the same effect and stated that Stephens had no present intention of abandoning the undeveloped portion of the lease. He further testified that another operator had drilled a well to a depth of 8000 feet, located to the northwest of the lease; that he had conferred with the geologist for such operator and other operators who were interested in drilling another well for the purpose of testing the deep formations lying below the Medrano in order to determine the best location for such a deep test, either on the Pohlemann or adjacent leases; that such a deep test, even if not drilled on the lease, would afford valuable information with respect to future developments on the lease; that Stephens had received authorization from P. A. D., a Federal authority, to purchase 10,000 feet of pipe for a deep test and that it intended to drill such deep well within a year. He admitted that Stephens did not intend to immediately drill additional wells on the lease and stated it would proceed with further drilling on the lease if and when additional geological information made it prudent so to do.
The developments on the lease of the Noble-Olson sand have resulted in a substantial loss to Stephens. Its net return from the lease, to and including August, 1950, was $89,141.28. The royalties received by Pohlemann, to and including August, 1950, were $68,875.01.
The trial court found that the lease is located on the edge of the West Cement Field; that nearby wells to the north and east of the lease producing from the Noble-Olson formation are small producers; that there are no producing wells adjoining the lease to the south or west; that, as found by the Oklahoma Corporation Commission, it was not practical to include in the unitization unit that portion of the lease not embraced in such unit; that Stephens had compiled available geological information and was continuing to acquire such information, bearing on the feasibility of further drilling on the lease; that in reliance on the lease and other leases which it held, Stephens was proceeding, in cooperation with other operators, to obtain a deep test in the West Cement Field and had obtained an allocation of steel pipe for a 10,000 foot well in such field.
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