Skelly Oil Co. v. Wickham

• Citation: 202 F.2d 442
• Decision Date: 09 February 1953
• Docket Number: No. 4545.,4545.
• Parties: SKELLY OIL CO. v. WICKHAM et al.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

202 F.2d 442 (1953)

SKELLY OIL CO. v. WICKHAM et al.

No. 4545.

United States Court of Appeals Tenth Circuit.

February 9, 1953.

Hawley C. Kerr, Tulsa, Okl. (James E. Hara and Gayle M. Pickens, Tulsa, Okl., on the brief), for appellant.

Fisher Ames, Oklahoma City, Okl. (Edward Bynum and Ames, Dauguerty, Bynum & Black, Oklahoma City, Okl., of counsel, on the brief), for appellees.

Before PHILLIPS, Chief Judge, and BRATTON and PICKETT, Circuit Judges.

PHILLIPS, Chief Judge.

Midwest Oil Corporation,¹ Wickham, McAfee and Voorhees,² the owners of undivided interests, aggregating 3/8ths, in the oil, gas and other minerals and mineral rights in and under 120 acres of land situated in Stephens County, Oklahoma, brought this action against Skelly Oil Company³ seeking a decree adjudging that they were the owners of such undivided interests and that the oil and gas lease, hereinafter referred to, had terminated as to their interests, and quieting their title as against the claims of Skelly under such oil and gas lease.

On September 3, 1946, A. W. Pettigrew and Willie D. Pettigrew executed and delivered to L. A. Edwards an oil and gas lease covering such 120 acre tract of land. The lease was what is commonly known as an "unless" lease and the provisions thereof, pertinent to the questions here presented, read as follows:

"It is agreed that this lease shall remain in force for a term of Five years from date, and as long thereafter as oil or gas, or either of them, is produced from said land by the lessee.

* * * * * *

"If no well be commenced on said land on or before the 3rd day of September, 1947, this lease shall terminate as to both parties, unless the lessee on or before that date shall pay or tender to the lessor or to the lessor's credit in the First National Bank at Marlow, Okla., or its successors, * * * the sum of One hundred twenty Dollars, which shall operate as rental and cover the privilege of deferring the commencement of a well for 12 months from said date. * * * In like manner and upon like payments or tenders the commencement of a well may be further deferred for periods of the same number of months successively. * * *.

* * * * * *

"If the lessee shall commence to drill a well within the term of this lease or any extension thereof, the lessee shall have the right to drill such well to completion with reasonable diligence and dispatch, and if oil or gas, or either of them, be found in paying quantities, this lease shall continue and be in force with like effect as if such well had been completed within the term of years herein first mentioned."

On September 4, 1946, Edwards and Martha Edwards, his wife, duly executed and delivered to Skelly an assignment of such lease.

At the time of the execution of such lease, A. W. Pettigrew was the sole owner of the minerals and mineral rights in such land. Subsequent to September 3, 1951, and during the five year term of the lease,⁴ the plaintiffs below acquired, through the execution and delivery to them of mineral deeds, undivided interests in and to the oil and gas and other minerals and mineral rights in and under said land as follows: Wickham — 1/10th; McAfee — 1/24th; Voorhees — 1/12th; and Midwest — 1/12th. In November, 1951, Midwest acquired an undivided 1/15th interest.

Skelly is the owner of an undivided 3/16ths interest in and to the oil, gas and other minerals and mineral rights in such land.

On June 30, 1951, Skelly commenced the drilling of a well on the land, known as Pettigrew Well No. 1. It continued the drilling of such well with due diligence until it was completed as a dry hole. The drilling reached a depth of 5,796 feet on September 18, 1951. Drilling was suspended at that depth and a Schlumberger electrical well log was made. After the log was completed, the drilling contractor maintained circulation of the drilling fluid in the well and awaited further orders. By comparing and correlating the information obtained through such an electrical log with samples taken from the well and with logs of other wells in the vicinity, a geologist is able to determine with reasonable certainty what formations have been encountered in the well, their relative location, depth and thickness, and what, if any, of such formations is likely to contain oil and gas or either of them. The drilling contractor maintained the hole in condition so that further drilling could be carried on until about 4:00 p. m., September 19, 1951, when Skelly, acting on the recommendation of its geologist, instructed the drilling contractor to abandon the well as a dry hole.

On September 17, 1951, Skelly instructed its District Superintendent to commence the drilling of Pettigrew Well No. 2 on another location on such land. Pursuant to instructions given September 18, 1951, a surveyor staked the location of Pettigrew Well No. 2 during the morning of September 19, 1951. At 1:00 p. m. on September 19, 1951, defendant commenced the construction of roads to be used in connection with the drilling of Pettigrew Well No. 2, and commenced the clearing and leveling of the location. On September 20, 1951, gas and water lines were being laid to the new location. On September 21, 1951, the drilling contractor commenced the work of rigging up tools at, and the moving of equipment to the new location. This work continued on September 22, 1951, and on September 23, 1951, the drilling contractor spudded in Pettigrew Well No. 2. Thereafter the drilling of Pettigrew Well No. 2 was continued with due diligence until November 1, 1951, when it was completed to a depth of 3,877 feet. It was plugged back to a depth of from 2,220 to 2,260 feet, where oil was encountered in paying quantities. Since November 1, 1951, Pettigrew Well No. 2 has been producing oil in paying quantities.

Upon learning that Pettigrew Well No. 1 had been completed as a dry hole and on October 25, 1951, Wickham, McAfee and Voorhees notified Skelly in writing that they considered the lease as having expired upon the completion of Pettigrew Well No. 1 as a dry hole. Midwest gave written notice to the same effect to Skelly on November 15, 1951.

The trial court held, with respect to the undivided interests of the plaintiffs, that when Pettigrew Well No. 1 was completed as a dry hole, all of Skelly's rights under the oil and gas lease terminated, and that Pettigrew Well No. 2 was drilled by Skelly as a co-tenant and not under any valid, existing oil and gas lease. Judgment was entered accordingly and Skelly has appealed.

We shall assume, without deciding, that Pettigrew Well No. 2 was commenced before the completion of Pettigrew Well No. 1.

Skelly contends that the drilling of Pettigrew Well No. 1, commenced during the primary term of the lease, extended the lease until Pettigrew Well No. 1 was completed; that the drilling of Pettigrew Well No. 2 was commenced within an extension of the primary term of the lease; and that when Pettigrew Well No. 2 was drilled with diligence and completed as a commercial producer, the lease was continued in force and will remain in force so long as oil and gas are produced therefrom in paying quantities.

Simons v. McDaniel, 154 Okl. 168, 7 P. 2d 419, involved an "unless" oil and gas lease. It contained no express provision, as does the lease involved in the instant case, with respect to the effect of a well commenced during the primary term and completed after the expiration of the primary term. In the opinion in that case the court said, 7 P.2d at page 420:

"The drilling clause of lessee plaintiffs\' lease conferred upon them the right to commence a well (by complying with the conditions of the instrument, i. e., exercising the option of paying rentals and thus continuing the lease in force) on the very last day of the term specified in the duration clause. Since lessee had such an agreed right, can we with reason say the parties to the lease contract contemplated that right a barren or worthless privilege? To do so is to convict the parties of an absurdity. To the contrary, `in every private grant there passes by implication that which is reasonably necessary to the enjoyment of the thing granted.\' * * *

"Therefore we hold that the grant to lessee plaintiff of the right to commence a well at any time within the term fixed by the lease contract, by necessary legal implication, carried with it the right to complete the well after the period fixed for commencement had expired, subject, however, to abandonment of that right by failure to proceed in good faith and with diligence."

After referring to early decisions the court further said:

"These cases are kindred to our present holding that, regardless of non-production during the duration

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