Smith v. Rogers

• Decision Date: 16 January 1986
• Docket Number: No. 84-SC-247-DG,84-SC-247-DG
• Parties: John SMITH, A Single Person, Ray Keown, and Claudine Keown, Movants, v. Gregory P. ROGERS, Petroleum and Exploration, Inc., Respondents.
• Court: United States State Supreme Court — District of Kentucky

Page 425

702 S.W.2d 425

John SMITH, A Single Person, Ray Keown, and Claudine Keown, Movants, v. Gregory P. ROGERS, Petroleum and Exploration, Inc.,

Respondents.

No. 84-SC-247-DG

Supreme Court of Kentucky.

Jan. 16, 1986.

Robert D. Simmons, Bowling Green, for movants.

Ray B. White, Bowling Green, Patrick A. Ross, Horse Cave, for respondents.

STEPHENSON, Justice.

In this appeal we consider a decision of the Court of Appeals which reversed the judgment of the trial court. The subject of the decision is a controversy over a voluntary pooling provision in an oil and gas lease. We granted discretionary review and, after hearing oral argument and considering the case, affirm the decision of the Court of Appeals and adopt the opinion of Judge Dunn, which is as follows:

"In a declaratory judgment action brought by the appellees, the Warren Circuit Court without jury adjudged that oil leases from the appellee, John Smith, now a single person, and his wife, and from the appellees, Ray and Claudine Keown, to Louisiana Crude Oil and Gas Co., Inc., assignor of the appellant, Gregory P. Rogers Petroleum and Exploration, Inc., also called ROGPEX, had expired and were of no further force and effect. The cardinal issue relates to the validity of and compliance with the 'pooling' clause 13 contained in the leases prepared on the 'standard 88' oil and gas lease form. We reverse.

"Clause 13 is as follows:

Lessee, at its option, is hereby given the right and power to pool or combine the acreage covered by this Lease or any portion thereof with other land, lease or leases in the immediate vicinity thereof, when in Lessee's judgment, it is necessary or advisable to do so in order to properly develop and operate said leased premises so as to promote the conservation of oil and gas or other minerals in and under and that may be produced from said premises, such pooling to be of tracts contiguous to one another and to be into a unit or units not exceeding 80 acres each in the event of an oil well or into a unit or units not exceeding 640 acres each in the event of a gas well. The Lessee shall execute in writing and record in the conveyance records of the County in which the land herein leased is situated an instrument identifying and describing the pooled acreage. The entire acreage so pooled into a tract or unit shall be treated, for all purposes except the payment of royalties on production from the pooled unit, as if it were included in this Lease. If production is found on the pooled acreage, it shall be treated as if production is had from this Lease, whether the well or wells be located on the premises covered by this Lease or not. In lieu of the royalties elsewhere herein specified, Lessor shall receive on production from a unit so pooled only such portion of the royalty stipulated herein as the amount of his acreage placed in the unit or his royalty interest therein on an acreage basis, bears to the total acreage so pooled in the particular unit involved. (Emphasis added.)

"The term of the leases was provided for in clause 5 as follows:

5. If no well be commenced on said premises on or before the 14th day of Feb., 1974 this lease shall terminate as to both parties, unless the Lessee on or before the said date shall pay or tender, in the manner hereinafter provided, a rental of one dollar $1.00 per acre per annum, payable quarterly in advance, which payments shall confer the privilege of successively deferring the commencement of a well for the periods for which such rental shall be paid....

"The Smiths and the Keowns entered these separate oil and gas leases with Louisiana Crude on February 14, 1973. The terms of the leases were identical. Others in the same neighborhood entered into identical leases on various dates about that same time. As quoted above, the primary term for the commencement of a well under the leases was 10 years, the last 9 of which were prolongations by payment of delayed rentals after failure to commence a well in the first year. Louisiana Crude on January 4, 1983, assigned the leases to ROGPEX, who in turn assigned an interest in them to Allied Coal, Oil and Gas Corporation on February 8, 1983, six days prior to the expiration date of the primary term.

"On February 11, 1983, ROGPEX filed in the Warren County Clerk's office a notice of pooling affecting the Smiths' and the Keowns' land along with that of B.B. Young under which ROGPEX undertook to pool or unitize 66 acres for purposes of an oil well. On February 14, 1983 it filed a similar notice for purposes of a gas well affecting the Smiths,' Keowns' and B.B. Young's land. The land of other lessors with leases identical to those in question was also affected by both notices.

"A well was commenced by ROGPEX and Allied on B.B. Young's land on February 12, 1983, pursuant to verbal permission to commence drilling given on February 11, 1983, by Robert C. Price of the Commonwealth's Department of Mines and Minerals. His duties included issuance of drilling permits.

"The Keowns and John Smith filed a complaint for declaratory judgment against ROGPEX on April 3, 1983, seeking to have their leases to be declared null and void and expired, to have the notice of pooling of February 14, 1983, to be declared a nullity, to have the right to lease the minerals under their property to be declared theirs, and further seeking that ROGPEX be restrained from entering upon their property for any purpose whatsoever.

"The case was advanced on the docket and an evidentiary hearing without jury was had on July 25, 1983. In a scholarly opinion the trial judge entered the trial...