Smith v. Carter Oil Co.

• Decision Date: 10 April 1952
• Docket Number: Civ. A. No. 2934.
• Citation: 104 F. Supp. 463
• Parties: SMITH v. CARTER OIL CO. et al.
• Court: U.S. District Court — Western District of Louisiana

104 F. Supp. 463

SMITH v. CARTER OIL CO. et al.

Civ. A. No. 2934.

United States District Court W. D. Louisiana, Shreveport Division.

April 10, 1952.

Tooke & Tooke, Shreveport, La., for plaintiff.

Blanchard, Goldstein, Walker & O'Quin, Shreveport, La., for defendant.

PORTERIE, District Judge.

In this suit the plaintiff seeks cancellation of an oil, gas and mineral lease affecting lands in Bienville parish, Louisiana, insofar only as such lease affects a segregated portion of the land originally subject to such lease, and also prays for damages and attorney's fees for the refusal of the lessee to execute a release of the lease as to such portion of the lands within ten days after the plaintiff's demand therefor. Jurisdiction is based upon diversity of citizenship and the allegation that the amount involved exceeds three thousand dollars, neither of which has been questioned nor is at issue. The original defendant, The Carter Oil Company, filed a motion to dismiss for failure to state a claim upon which relief can be granted, and also a motion to strike the plaintiff's demand for trial by jury. The former was sustained and an order of dismissal entered, but leave granted to the plaintiff to amend. A further supplemental complaint was then filed making Hope Producing Company a party defendant, and it was met with a further motion to dismiss for failure to state a claim upon which relief can be granted. This motion is the issue now before the Court.

We add later detailed and itemized Findings of Fact and Conclusions of Law, but the central issues can be more briefly expressed and more easily understood in narrative form.

Upon a motion to dismiss for failure to state a claim upon which relief can be granted, the well pleaded facts alleged in the complaint are considered admitted, but the motion does not admit conclusions of law or inferences or conclusions of fact not supported by allegations of specific facts; and no evidence is admissible. Huntley v. Gunn Furniture Co., D.C., 79 F.Supp. 110; Flanigan v. Security-First National Bank, D.C., 41 F.Supp. 77; State of Oklahoma ex rel. Phillips v. Guy F. Atkinson Co., D.C., 37 F.Supp. 93, affirmed on other points, 313 U.S. 508, 61 S.Ct. 1050, 85 L.Ed. 1487; 2 Moore's Federal Practice (2d Ed.) 2244, par. 12.08. The facts stated in this opinion are taken from the plaintiff's complaint and two supplemental complaints and the exhibits attached thereto, in accordance with the foregoing rule.

On March 28, 1947, the plaintiff executed in favor of G. G. Nesbitt, Jr., an oil, gas and mineral lease upon a fairly common printed form, covering a contiguous tract of 428 acres of land.

On April 23, 1947, the original lessee assigned the lease in its entirety to the defendant, The Carter Oil Company; and, on October 27, 1947, the latter assigned to the defendant, Hope Producing Company, the "natural gas rights" in the lease in its entirety, reserving a small overriding royalty interest.

On March 25, 1948, after due notice and hearing, the Commissioner of Conservation of the state of Louisiana issued Order No. 99-13, pooling and unitizing a portion of this land with adjoining land to form a unit of 594.565 acres for production from the Davis Zone of the Ada Field, this order providing that "* * * drilling operations, drilling and production on any of the tracts included within said unit shall constitute drilling operations, drilling, and production under the terms of each and every one of said lease and sublease contracts affecting the property within said unit."

On March 2, 1949, after due notice and hearing, the Commissioner of Conservation issued Orders Nos. 99-14 and 99-D-2, the former pooling the same quarter section of plaintiff's land affected by the 1948 Order to form a new unit of approximately 640 acres for production from the Davis sand, and the latter pooling approximately 80 additional acres subject to the lease with other lands to establish a unit of similar size for production from the Pettit Zone. Each of these pooling orders provided that "production on any one of the tracts included within the drilling unit shall constitute production under the terms of each and every one of said lease or sublease contracts affecting the property included within the drilling unit."

Producing wells were drilled upon these units, but none of the unit wells was located upon the land subject to the lease. All of these orders were secured upon application of Hope Producing Company, which was designated the Operator; and royalties have been paid upon the basis provided in the Orders of the Commissioner. It is alleged that "The Carter Oil Company was officially represented, took part in, presented evidence in the course of, then acquiesced in the proceedings before the Commissioner of Conservation looking to and seeking the entry of the respective Orders hereinabove referred to and the promulgation thereof for the profit, benefit and advantage of The Carter Oil Company."

Plaintiff seeks cancellation of the lease as to the 188 acres remaining outside the units described, alleging that the "delay rental" of $188.00 tendered in 1949 was not timely and was refused, and that the lease could be maintained as to the then nonproductive acreage only by timely payment or tender of rental upon that portion of the land.

Under Louisiana law an oil and gas lease is an indivisible obligation; Darphin v. Continental Oil Co., D.C., 22 F.Supp. 274; Murray v. Barnhart, 117 La. 1023, 42 So. 489; Cochran v. Gulf Refining Co. of Louisiana, 139 La. 1010, 72 So. 718; Nabors v. Producers' Oil Co., 140 La. 985, 74 So. 527, L.R.A.1917D, 1115; Hunter Co., Inc., v. Shell Oil Co., Inc., 211 La. 893, 31 So.2d 10; LeBlanc v. Danciger Oil & Refining Co., 218 La. 463, 49 So.2d 855; and the lessor has "no right to demand that the lease be forfeited and canceled as to only a part of the land and left in force as to another part of it." Smith v. Sun Oil Co., 165 La. 907, 922, 116 So. 379, 384.

Issuance of a pooling order by the Commissioner of Conservation of the state of Louisiana does not constitute a "division" of the indivisible obligation of the lease, and the lessor may not sue to cancel the portion of the leased premises lying outside the unit. Hunter Co., Inc. v. Shell Oil Co., Inc., supra; LeBlanc v. Danciger Oil & Refining Co., supra. Cf. Scott v. Pure Oil Company, 5 Cir., 194 F.2d 393. The plaintiff contends, however, that these decisions are not controlling because there has been an exercise of paragraph 6 of the lease contract with consequences specified in that paragraph.

Excerpts from this paragraph are likely to be misleading when taken out of context, so we quote it in full:

"If at any time while this lease is in force and effect lessee in its opinion deems it advisable and expedient, in order to form a drilling unit or units to conform to regular or special spacing rules issued by the Commissioner of Conservation of the State of Louisiana, or by any other State or Federal authority having control of such matters, or in order to conform to conditions imposed upon the issuance of drilling permits, lessee shall have the right, at its option, to pool or combine the lands covered by this lease, or any portion or part thereof, with other land, lease or leases in the immediate vicinity thereof, whether such land, lease or leases are held by lessee or by others, such pooling to be into a unit or units not exceeding the number of acres, or the land subdivision, whichever may be the larger, allocated to one well by the above mentioned authority or authorities, and to be applicable only to such sands, horizons or strata as are covered by such regulations. Lessee shall execute in writing and record in the conveyance records of the parish in which the land herein leased is situated an instrument identifying and describing the pooled acreage, and shall mail to the named lessor herein at his last known post office address, by registered mail, a certified copy of such instrument. As between the parties hereto and except as herein otherwise specifically provided, the entire acreage so pooled into a tract or unit shall be treated for all purposes as if it were included in this lease. In lieu of the royalties elsewhere herein specified, lessor shall receive, on the production from the unit so pooled, only such proportion of the royalties stipulated herein as the amount of his acreage (mineral rights) placed in the unit bears to the total acreage so pooled in the particular unit involved. Drilling operations on or production of oil, gas, sulphur or other minerals from any portion of the land covered hereby shall continue this lease in force and effect during or after the primary term as to all of the lands covered hereby, irrespective of whether any portion thereof has been pooled. If operations be conducted on or production be secured from land in such pooled unit other than land covered by this lease, it shall have the same effect as to maintaining lessee's rights in force hereunder as if such operations were on or such production from land covered hereby, except that its effect shall be limited to the land covered hereby which is included in such pooled unit. This lease, during any period in which it is being so maintained as to part of the land covered hereby, may be maintained as to the remainder in any manner elsewhere provided for herein; provided, that if it be maintained by rental payment, the rentals may be reduced in proportion to the number of acres in such unit or units as to which this lease is being maintained by drilling operations or production." (Emphasis ours.)

The question is not whether the lessee could have "divided" the lease, but whether the lessee did the act which the lease specifies should result in division. Practically every modern oil and gas lease has several provisions under which the lessee, at its option, may "divide" the lease; perhaps the oldest and most common is the...