Renner v. Monsanto Chemical Co.

• Decision Date: 04 August 1960
• Docket Number: No. 41785,41785
• Citation: 354 P.2d 326,187 Kan. 158
• Parties: H. L. RENNER and Wilma Renner, his wife, and M. J. Renner, Appellees, v. MONSANTO CHEMICAL COMPANY, a Corporation, and Lion Oil Company, a Corporation, Appellants.
• Court: Kansas Supreme Court

Page 326

354 P.2d 326

187 Kan. 158

H. L. RENNER and Wilma Renner, his wife and M. J. Renner, Appellees, v. MONSANTO CHEMICAL COMPANY, a Corporation, and Lion Oil Company, a Corporation, Appellants.

No. 41785.

Supreme Court of Kansas.

Aug. 4, 1960.

Rehearing Denied Aug. 22, 1960.

Syllabus by the Court

1. Broadly speaking, our oil conservation statute (G.S.1949, 55-601 et seq., as amended), was enacted to prevent physical or economic waste; to protect correlative rights of producers; to assure rateable taking within a common pool; to prevent discrimination among pools, and the legal device selected to accomplish those purposes is 'proration.'

2. In its simplist form, proration is the restriction of production of oil by allocating the current market demand among the pools of the state and between wells of each pool in proportion to their potential production to secure to each producer his fair share of the oil produced from a common reservoir (G.S.1957, Supp., 55-604 [since amended]).

3. G.S.1949, 55-601 et seq., as amended, provides no basis for the supersession of the lessee's obligation under the implied covenant of an oil and gas lease to protect the premises against drainage, and affords no inference that a landowner must submit to uncompensated drainage without the possibility of exacting protection from his lessee.

4. Valid orders of the State Corporation Commission issued pursuant to G.S.1957, Supp., 55-604 [since amended] attributing acreage of an owner which is reasonably attributable to each of his producting oil wells do not constitute a finding that such wells will adequately and effectively extract the oil underlying the specific acreage attributed to each, or preclude judicial inquiry into a landowner's claim of a breach of the implied covenant to protect the premises against drainage.

5. Generally speaking, the remedy by alternative decree for development or cancellation of an oil and gas lease is equitable in nature, requiring the application of equitable principles.

6. The record in an action to cancel a portion of an oil and gas lease upon the ground that the lessee violated implied covenants, examined and it is held: (1) there was substantial evidence to support the district court's findings that drainage had occurred and was occurring in a substantial amount, and that an ordinary prudent operator would have drilled a well on the tract in question, and (2) the district court did not err in entering judgment for the plaintiffs or in overruling the defendants' motion for a new trial.

Gerald Sawatzky and George B. Powers, Wichita, argues the cause, and Carl T. Smith, John F. Eberhardt, Stuart R. Carter, Robert C. Foulston, Malcolm Miller, Robert N. Partridge, Robert M. Siefkin, Richard C. Harris, Anthony T. Dealy, Donald L. Cordes and Robert L. Howard, Wichita, and Wayne McCaslin, Stockton, were with them on the briefs for appellants.

D. A. Hindman, Stockton, argued the cause, and Stanley Krysl, Stockton, was with him on the briefs for appellees.

FATZER, Justice.

This was an action by the landowners to cancel an oil and gas lease on a 20-acre tract of a quarter section leasehold for violation of the implied covenants to fully develop the premises and to protect it against drainage by wells on adjoining land. Trial was by the court which found in favor of the plaintiffs. An alternative decree was entered giving the defendants, Monsanto Chemical Company, a Corporation, and Lion Oil Company, a Corporation, the right to file with the clerk of the district court their intention to comply with the decree within 30 days, and to drill, complete and equip a well within 120 days from the date of the decree, or, in default of performance, the oil and gas lease covering the 20-acre tract stand as canceled. In lieu of performance, the defendants appealed from the decree and the order overruling their motion for a new trial.

Plaintiff H. L. Renner owns the Northwest Quarter of Section 5, Township 10 South, Range 20 West, Rooks County, Kansas, hereafter referred to as the Renner quarter or lease. Plaintiff M. J. Renner owns 1/16 of the oil, gas and other minerals in and under the property. Plaintiff Wilma Renner has an inchoate interest in the land as the wife of H. L. Renner.

On September 2, 1946, the plaintiffs executed an oil and gas lease covering the Renner quarter to A. M. Jennings who assigned it to the defendants. The instrument was a standard form commercial lease designated as Producers 88 4-43 B (Kansas), and was duly recorded. Among other provisions it contained the following:

'All express and implied covenants of this lease, both before and after production is obtained upon the leased premises, shall be subject to all Federal and State laws, executive orders, rules and regulations * * *.'

In September 1948 the defendants drilled a test well, Renner No. 1, and completed it as a commercial oil producer on October 26, 1948. Within the next three months six more wells were drilled, one being a dry hole. An eighth well, a producer, was drilled in August 1951. The eight wells were drilled on locations selected by the defendants.

W. E. Baldwin owns the Southwest Quarter of Section 5 lying immediately south of the Renner quarter, which is leased to the Sinclair Oil & Gas Company. In November 1948, approximately two months after Renner No. 1 was completed, Sinclair completed an offset well, Baldwin No. 1, located 660 feet south of Renner No. 1. In February 1949 Sinclair completed Baldwin No. 2 located 330 feet south of the south line of the Renner quarter and is the well which plaintiffs contend has drained crude oil from under the tract in question and from which they seek protection. In developing the Baldwin lease Sinclair selected the locations, and drilled a total of eight wells, two being dry.

Section 5 is in the Cooper Field and the following map of that section is set out to assist the reader to more clearly understand the factual situation of this controversy. The 20-acre tract in question is located in the south-center of the south 80 acres of the Renner lease and was described in plaintiffs' petition as the Southwest Quarter of the Southeast Quarter and the Southeast Quarter of the Southwest Quarter of the Northwest Quarter of Section 5. Black dots indicate producing wells and the well numbers assigned by lessee-operators, dry holes are indicated by circles with four short marks and are numbered, and the subsea level elevation where each well topped the oil-bearing zone is also shown. The broken lines indicate the location of acreage attributed to each producing well by the State Corporation Commission pursuant to our oil conservation statute (G.S.1949, 55-601 et seq., as amended). As indicated, the acreage of the east half of the Renner quarter was attributed on 'triangular' 20-acre spacings and the remaining acreage of both leases was attributed on 'rectangular' 20-acre spacings. The solid line in the north half of the northeast quarter of the Renner lease indicates a 20-acre tract 'farmed out' by the defendants after this action was commenced in 1958 to the Kaiser-Francis Oil & Gas Company which drilled well No. C-1 in the center of the tract and obtained a 160-barrel per day well in the early part of 1959.

NOTE: OPINION CONTAINS TABLE OR OTHER DATA THAT IS NOT VIEWABLE

Natural gas is not encountered in the Cooper Field and oil is produced from the Arbuckle Formation which has an erosional surface and channels with sharp features. Contour maps of both parties indicate that the formation underlies a part of the west half of Section 5. It traverses the Renner quarter in a north-south direction but veers in a southwesterly direction across a part of the Baldwin quarter, making 101.4 productive acres on the Renner lease and 94.4 acres on the Baldwin lease, or a total of 195.8 productive acres in the half section. For all practical purposes, with slight variations, 1600 feet subsea level is considered the bottom plane of the formation and the productive section of the oil-bearing zone is the difference between 1600 feet subsea level and the top of the formation at each well location as shown on the map. The high point of the structure tends to center under the tract in question as indicated by the following: proceeding easterly from Renner Nos. 6 and 2 and Baldwin No. 2 the formation slopes slightly downward to Renner No. 1 and Baldwin No. 1 where it continues to slope downward and dissipates on the adjoining property immediately east of the offset locations of those two wells. It also dissipates a short distance east of Renner No. 8, making Renner No. 4 a dry whole. Northward from Renner Nos. 6, 5 and 2 the formation slopes downward until a short distance south of No. C-1, the 'farm-out' well, where it is higher than Renner Nos. 7, 3 and 8. Immediately west of Renner Nos. 6 and 7 and Baldwin Nos. 2 and 5 the formation drops sharply as evidenced by datum from completion information on three dry holes--Baldwin No. 8 and two wells on adjoining property offsetting Renner Nos. 6 and 7. The Arbuckle Formation was not reached at Baldwin No. 8, one location west of Baldwin No. 2. In the short distance between Renner No. 6 and the offset location to the west, the formation drops 143 feet, evidencing the sharpness of its features. North from that offset location to the offset location west of Renner No. 7 the severity of the erosional situation is further evidenced because, again, no Arbuckle depth was reached. While the expert testimony was conflicting, the district court found that, 'The arbuckle lime underlaying said 20 acre tract is structurally as high, and in all probability higher, than any part of the Renner or Baldwin property.'

The reservoir energy of the Cooper Field is essentially 'water drive.' That term simply means that when a barrel of oil is taken out of the oil-bearing portion of the reservoir a barrel of water moves in to replace the oil and no drop in...