Reid v. Gulf Oil Corp.

• Decision Date: 05 February 1959
• Docket Number: No. 6144,6144
• Citation: 323 S.W.2d 107
• Parties: E. L. REID, Appellant, v. GULF OIL CORPORATION, Appellee.
• Court: Texas Court of Appeals

Page 107

323 S.W.2d 107

E. L. REID, Appellant, v. GULF OIL CORPORATION, Appellee.

No. 6144.

Court of Civil Appeals of Texas, Beaumont.

Feb. 5, 1959.

Amended Motion for Rehearing Denied April 15, 1959.

E. L. Reid, S. P. Dunn, Orange, for appellant.

John E. Bailey and Fred A. Lange, Houston, for appellee.

ANDERSON, Chief Justice.

We are called upon to construe an oil, gas and mineral lease and to determine whether it lapsed for want of production after expiration of its primary term or is still in force as a result of drilling operations, and discovery of gas in paying quantities, a tender of 'shut-in' gas royalties, and the commercial production of gas, commenced after an interim of several months during which the gas well was shut in.

In pertinent part, the lease--one of the 'unless' type--is as follows:

'2. Subject to the other provisions herein contained, this lease shall be for a term of Five (5) years from this date (called primary term) and as long thereafter as oil, gas or other mineral is produced from said land hereunder, or as long as drilling or reworking operations are being conducted on said land as is hereinafter provided.

'3. The royalties to be paid by Lessee are: (a) on oil, * * *; (b) on gas * * * produced from said land and sold or used off the premises or in manufacture of gasoline or other product therefrom, the market value * * * of one-eighth of the gas sold or used, * * *; where gas from a well producing gas only is not sold or used, Lessee may pay as royalty Fifty Dollars ($50.00) per well per year, and upon such payment it will be considered that gas is being produced within the meaning of Paragraph 2 hereof; * * *.

* * *

* * *

'5. If, during the primary term and prior to the discovery of any mineral on said land, Lessee should drill a dry hole thereon, this Lease shall not terminate if Lessee * * *. If a dry hole is completed and abandoned during the last period of the primary term, Lessee's rights * * *. After the discovery of any mineral in paying quantities on the land, all of Lessee's rights shall remain in effect as long as any mineral is produced therefrom; and if, during the primary term, the production of all minerals therefrom should cease from any cause, this lease shall not terminate if Lessee * * *. If cessation of production occurs at any time after the expiration of the primary term, then this lease shall not terminate if Lessee, until production is again procured, does not allow more than sixty (60) days to elapse between the cessation of production and the commencement of additional drilling or reworking operations in a bona fide effort to again obtain production, and successive attempts may be made so long as not more than sixty (60) days are allowed to elapse between the completion or abandonment of one well and the commencement of operations on another until production is again obtained. If at the expiration of the primary term, oil, gas or other mineral is not being produced from the land then covered hereby, but Lessee is then engaged in operations for drilling or reworking operations on some part of the land hereunder, this lease shall not terminate if Lessee does not allow more than sixty (60) days to elapse between the abandonment of one well and the commencement of drilling or reworking operations on another until production is obtained.'

The lease was executed by appellant Reid in favor of appellee under date of December 9, 1943, and covered one-eighth of the minerals in two tracts of land in Orange County. It was kept in force during its primary term by payment of delay rentals, but no mining operations of any kind were conducted under it until November 29, 1948, which was but a few days before its primary term was to expire with December 9, 1948.

On November 29, 1948, in search of oil or gas, appellee began drilling a well on land covered by the lease. Drilling continued until December 23, 1948, when a depth of 8700 feet had been reached. Perforations were then made at a depth between 8360 and 8382 feet, and gas was discovered. The task of cementing and casing the well was completed December 30, 1948, and the drilling rig was thereupon released. Testing equipment was moved in and testing began January 9, 1949. Between then and January 15, 1949, from 1,500,000 to 5,000,000 cubic feet of gas flowed from the well. The gas was run through a portable separator on the premises and was then flared. An undisclosed quantity of condensate was extracted from the gas, but the disposition that was made of it is not reflected by the record. On January 15, 1949, the well was shut in as a well capable of producting gas in paying quantities. On January 18, 1949, to comply with a rule of the Railroad Commission, the well's bottom-hole pressure was tested. Thereafter, until November 22, 1949, the well was kept shut in continuously. On the latter date, which appellee claims was the first time at which there was an available market for gas from the well, the well was put into commercial production and it was still producing gas in paying quantities when the case was tried.

Nothing by way of drilling or reworking, nor anything else of a manual nature, was done relative to the well between January 18, 1949, and the time at which the well was connected to the gathering system on or just prior to November 22, 1949. But on February 15, 1949, appellee delivered to appellant a check for $25 (the correct amount) as payment of shut-in royalty on the well for one year from January 15, 1949, the date on which the well was shut in preceding the bottom-hole-pressure test. Appellant did not cash the check but did keep it until April 13, 1949. He mailed the check back to appellee on the latter date but made no express claim in his letter of transmittal that the lease had terminated. The same check was again delivered to appellant by appellee on May 23, 1949, and was again returned by appellant to appellee the following day. Even then, however, appellant did not expressly represent to appellee that the lease had terminated. And it was not until March 29, 1950, that he did so, following submission to him by appellee of a division order which he declined to sign. But his failure to assert his true position earlier is of no real importance, since neither waiver nor estoppel is an issue in the case.

Letters that were exchanged by the parties are likewise of no importance, and for the same reason; but it is not amiss to state that appellant was rather fully advised about the nature and potential of the well, the prospects for marketing gas from the well, and the steps appellee had taken and was taking to market such gas. He was given such information before he returned the check the first time and he thereafter was kept advised of developments.

Sales of gas from the well on and after November 22, 1949, were to United Gas Pipe Line Company. They were made under a written contract bearing date of June 7, 1949. But the contract appears to have been the culmination of negotiations begun late in 1948 and of oral agreements reached prior to February 22, 1949. It covered sales of gas from the entire field in which the subject well was situated; and after it had been entered into, it was necessary for United to install a gathering system for the field.

Appellant instituted this suit in 1953, seeking to have it decreed that the lease terminated under its own provisions not later than January 18, 1949. He also prayed for recovery of title to and possession of an undivided one-eighth interest in the minerals in the lands described in the lease, for an accounting, and for recovery of one-eighth of the net value of the well's production--a value of $624,156.60 as of September 30, 1956. Alternatively he prayed for recovery of royalties due him under the lease.

The case was tried before the court, without the intervention of a jury. Trial began on October 30, 1956. Judgment was rendered on April 9, 1957. The lease was adjudged to be still in force, and appellant was awarded judgment for only the royalties due him under the lease, computed as of September 30, 1956--an aggregate of $9,752.53.

Findings of fact and conclusions of law were filed at the instance of appellant.

The fact findings have been rather fully paraphrased already, but we think it well to state with certainty that there were specific findings: that the well 'produced gas' between January 9 and 18, 1949; that the well 'is a well producing gas only'; that gas from the well 'was not sold or used by lessee until November 22, 1949.' There was also a finding that from prior to the time at which it began drilling the well until it entered into the sales contract on June 7, 1949, appellee 'was at all times acting in good faith and was at all times diligent and active in attempting to secure a purchaser for the gas it had discovered in the North Port Neches Field in which the subject well is located.' There was the further finding that 'the only available market for the gas from the subject well when it was completed was with United Gas Pipe Line Company in the North Port Neches Field in which said well is located.' And then there were these findings which we think it best to set out in their entirety:

'(11) In the North Port Neches Field where the subject well is situated, the marketing of gas is done by the field and not by the well, and gas could not be marketed and produced from the subject lease until United Gas Pipe Line Company had completed its field gathering system to take deliveries of the gas from the wells in the field, including the subject well, and Gulf exercised good faith and due diligence in finding a market for the gas and in expediting the completion of United's facilities as early as possible in order that deliveries could commence.

'(12) The time interval between January 15, 1949, when the subject well was finally completed as a well capable of producing gas in paying quantities, and November 22, 1949,...