Sohio Petroleum Co. v. Miller

• Decision Date: 01 June 1959
• Docket Number: No. 43810,43810
• Parties: SOHIO PETROLEUM COMPANY and Sun Oil Company, v. Dr. Martin O. MILLER.
• Court: Louisiana Supreme Court

Page 695

112 So.2d 695

237 La. 1015

SOHIO PETROLEUM COMPANY and Sun Oil Company, v. Dr. Martin O. MILLER.

No. 43810.

Supreme Court of Louisiana.

June 1, 1959.

James Wilkinson, III, New Orleans, Jennings B. Jones, Jr., Cameron, Lestage & Arnette, Jennings, for appellant.

Liskow & Lewis, Lake Charles, Joiner Cartwright, Henry Lastrapes, Jr., Beaumont, for plaintiffs-appellees.

HAMITER, Justice.

By an instrument dated July 18, 1945 Dr. Martin O. Miller granted an oil, gas and mineral lease to the Sun Oil Company covering seven separate tracts of land owned by him and situated in Cameron Parish. The tracts, containing a total of 3,408 acres (more or less), were numerically designated in the lease as follows:

No. 1. 2,100 acres (comprising Section 15 and parts of Sections 10, 11, 14 and 23, Township 15 South, Range 6 West).

No. 2. 240 acres (in Section 1, Township 15 South, Range 5 West).

No. 3. 530 acres (in Section 11, Township 15 South, Range 5 West).

No. 4. 162 acres (in Section 12, Township 15 South, Range 5 West).

No. 5. 38 acres (in Section 14, Township 15 South, Range 5 West).

No. 6. 160 acres (in Section 14, Township 15 South, Range 5 West).

No. 7. 178 acres (in Section 23, Township 15 South, Range 5 West).

The leased lands included three pairs of contiguous tracts, these being Numbers 2 and 4, Numbers 3 and 5, and Numbers 6 and 7. Number 1 is not contiguous to any other tract.

The lease, having a primary term of six years and ten days from its date and in which a one-half interest was assigned by Sun Oil Company to the Sohio Petroleum Company, contained in its paragraph 9 the following pertinent provisions: '* * * In the event that Lessor considers that operations are not at any time being conducted in compliance with this lease, Lessor shall notify Lessee in writing of the fact relied upon as constituting a breach hereof, and Lessee, if in default, shall have sixty (60) days after receipt of such notice in which to commence the compliance with the obligations imposed by virtue of this instrument. * * * After discovery of oil, gas or other mineral in paying quantities on said premises, Lessee shall reasonably develop the acreage retained hereunder, * * *.'

In 1946 the lessees commenced the drilling of a well on property owned by one Charles Richard at a point about one-half mile west of Dr. Miller's tract Number 2. At a depth of 11,020 feet a porous Cristellaria sand was found, but it was not commercially productive. The well, known as Charles Richard Number 1, was completed in March 1947 as a gas producer from the Amphistegina sand at a depth of some 8,000 feet. Immediately thereafter it was shut in because of the lack of facilities for transporting the gas.

In March of 1950 the lessees completed a successful gas well on tract Number 4 belonging to Dr. Miller (adjoining and being south of his tract Number 2), it producing from the Amphistegina sand and being known as Miller B--1. This well was likewise shut in on completion.

During the latter part of 1950 an order by the Louisiana Conservation Commissioner created what was designated as the Richard and the Miller units (they were adjacent and included the major portions of Dr. Miller's tracts Numbers 2 and 4), each of which contained one of the mentioned wells. The wells were then placed on production; and since such time they have continuously produced in commercial quantities.

In June, 1951 and numerous times thereafter Dr. Miller demanded in writing of the Sun Oil Company and the Sohio Petroleum Company that they either develop those portions of his lands which were not within the units established by the Department of Conservation or execute written releases respecting them. Ultimately, specifically on November 5, 1953, such lessees granted a formal release and relinquishment of their rights under the lease insofar as it covered tract Number 1 which contained 2,100 acres, more or less.

In a letter dated November 24, 1953, addressed to lessees, Dr. Miller acknowledged the release of tract Number 1. Also, therein he stated, among other things, as follows: 'This letter is intended as the required 60 days' notice as provided for in our contract, calling upon you to resume development operations within such period, or be considered in default of your lease obligation.'

The lessees did not undertake the commencement of drilling on any portion of lessor's lands within the specified 60 day period. Instead, on January 7, 1954, or approximately 44 days after the date of lessor's last mentioned letter, they began this litigation by instituting a suit, pursuant to the provisions of the Uniform Declaratory Judgments Act (LSA-R.S. 13:4231 to 4246, inclusive), seeking a determination of their rights under the lease. Mainly, they prayed for a judgment declaring that 'the said letter of November 24, 1953, directed to Plaintiffs by said Defendant * * * does not allege fact or facts constituting a breach of said lease and did not and could not serve as a demand or notice of default in accordance with or pursuant to paragraph 9 of said lease contract'. In the alternative they prayed that the judgment to be rendered declare that (1) 'on November 24, 1953, Plaintiffs had * * *reasonably and properly developed the lands held under said lease in full compliance with all the express and implied requirements thereof' and (2) if additional drilling be required 'Petitioners have a reasonable time, to be fixed by this Court, from and after final judgment herein, within which to commence such operations'.

Answering, the defendant denied plaintiffs' right to the relief sought. In reconvention, he demanded (1) cancellation of plaintiffs' lease in its entirety and (2) in the alternative, that the lease be cancelled insofar as it bears upon nonproducing property.

The district court first considered plaintiffs' attack on defendant's letter of November 24, 1953, and it rendered a judgment declaring such communication to be ineffective and not constituting notice to lessees pursuant to paragraph 9 of the lease agreement. However, that judgment, on an appeal to this court by the defendant, was reversed and set aside, and the cause was remanded to the district court for a trial of the merits. See 229 La. 581, 86 So.2d 201.

Immediately following the remand the defendant filed a supplemental reconventional demand praying that he be awarded attorneys' fees of $15,000 and damages of $300,000. Later, he dismissed his damage claim as of nonsuit.

After a trial of the merits the district court decreed and declared that plaintiffs have a good, valid and existing lease as to tracts Numbers 2 and 4. The court further decreed that within a period of 90 days from the finality of its judgment (either by affirmance on appeal or by the lapse of all delays for appeal) the plaintiffs shall commence the drilling of a well to explore the Cristellaria sand (11,000 foot level) on some portion of tracts Numbers 3 and 5 and of another well for the same purpose on the area embraced in tracts Numbers 6 and 7; and that in default of those operations the lease as to such respective pairs of tracts shall be forfeited.

From the judgment defendant is prosecuting this appeal. Plaintiffs have neither appealed nor answered the appeal of the defendant.

Primarily, this litigation presents for determination the question of whether or not there was reasonable development of tracts Numbers 2 and 4, Numbers 3 and 5, and Numbers 6 and 7 (required by the expressed provisions of paragraph 9 of the lease agreement and by an implied condition of the contract) as of November 24, 1953--the date of Dr. Miller's formal demand for a resumption of drilling operations.

With reference to tracts Numbers 2 and 4 (containing a total of 402 acres, more or less) we are of the opinion, just as was the trial judge, that such question must be answered in the affirmative. As pointed out above lessees' wells designated as Charles Richard No. 1 and Miller B--1, located within the two Department of Conservation units that embraced the major portion of those tracts, began producing gas in commercial quantities from the Amphistegina sand during the latter part of 1950, and such production was continuous to the time of the trial. Also, it is noted that between 1950 and 1952, inclusive, the lessees participated in the drilling and completion of three unproductive wells to the 8,000 foot level outside (but in close proximity to) the Miller and Richard units. Again, in 1953 lessees drilled on defendant's tract Number 2, at a point immediately north of the Richard unit, to the Amphistegina sand (8,000 foot level). That well was similarly unproductive, and lessees abandoned it on August 5, 1953 (only three and one-half months prior to defendant's formal demand).

Directing attention to the above described drilling on and near tracts Numbers 2 and 4 lessees contend that such operations alone constituted full compliance with the express and implied development obligation assumed under their agreement, and were amply sufficient to maintain the lease in full force and effect, as to the remainder of the acreage (in this connection, as aforeshown, neither the remaining tracts Numbers 3 and 5 nor Numbers 6 and 7 are contiguous to tracts 2 and 4--they are situated from one-half mile to two and one-quarter miles away). Our present jurisprudence does not support this contention.

In the comparatively recent case of Carter v. Arkansas Louisiana Gas Company, 213 La. 1028, 36 So.2d 26, 28, this court said:

'The law of this state is well settled that the main consideration of a mineral lease is the development of the leased premises for minerals, and that the lessee must develop with reasonable diligence or give up the contract; further, that as to what constitutes development and reasonable diligence on the part of the lessee must conform to, and be governed by, what is expected of persons of ordinary prudence under similar circumstances...