Stamper v. Jones, Shelburne & Farmer, Inc.

• Citation: 364 P.2d 972,188 Kan. 626
• Decision Date: 18 September 1961
• Docket Number: No. 42227,42227
• Parties: Forrest A. STAMPER et al., Appellees and Cross Appellants, v. JONES, SHELBURNE & FARMER, INC. et al., Appellants and Cross Appellees.
• Court: United States State Supreme Court of Kansas

Page 972

364 P.2d 972

188 Kan. 626

Forrest A. STAMPER et al., Appellees and Cross Appellants, v. JONES, SHELBURNE & FARMER, INC. et al., Appellants and Cross

Appellees.

No. 42227.

Supreme Court of Kansas.

Sept. 18, 1961.

Syllabus by the Court

1. The record in an action to cancel portions of six oil and gas leases upon the ground that the lessees violated the implied covenants is examined, and it is held: (a) There was substantial evidence to support the specific 'Findings of Fact' made by the trial court to the effect that the existence of oil in paying quantities was made apparent on the undeveloped portion of each tract under lease, and that the lessees had failed to comply with their obligation to continue the development of each tract, and use diligence in doing what would be expected of an operator of ordinary prudence, in the furtherance of the interests of both the lessors and the lessees; and (b) the judgment, except as to the Third cause of action granting alternative relief, was inconsistent with the specific findings of the trial court and therefore erroneous.

2. Where the common owners of mineral interests divide their property into separate eighty-acre tracts and make each the subject of an independent oil and gas lease, the rights and obligations of the parties are fixed by the individual leases, and the obligations of the lessors under the implied covenant to develop a tract under one lease cannot be made dependent upon the development of another tract.

Marvin E. Thompson, Russell, argued the cause, and George W. Holland and Clifford R. Holland, Jr., Russell, and R. W. Tesch, Jr., Ft. Worth, Tex., were with him on the briefs, for appellants and cross appellees.

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

SCHROEDER, Justice.

This is an action to cancel oil and gas leases as to the undeveloped portions thereof for breach of the implied covenants to develop in such leases.

The principal questions presented are whether the evidence supports the findings of the trial court, and whether the findings support the judgment entered.

The plaintiffs (appellees and cross appellants) are owners of the oil, gas and mineral rights under six separate eighty-acre tracts upon which they, as lessors, executed oil and gas leases to the defendants (appellants), making them the working interest-owners. The petition sets forth each lease in a separate cause of action.

Each oil and gas lease is on Form 88 (Producers) 1-43B, a form in common use in the Mid-Continent area, and none of the leases contain any express covenant relating to the issues in this case. In each lease the lessors reserved the usual 1/8th royalty, plus an overriding royalty of 1/32nd of the 7/8ths of the production. The one-year primary term of each lease has expired, and each lease subsists by reason of the continuation of production.

The leaseholds are located in the Dopita East Pool in Rooks County, Kansas, principally comprising Sections 28, 29, 32 and 33, Township 8, Range 17 West. Three possible producing formations underline each of the leases in question, the Arbuckle Dolomite, the Marmaton Sand, and the Lansing-Kansas City Lime.

To assist in clarification of the factual situation, somewhat complicated by the existence of six separate leases between the same parties with production from three different formations in the Dopita East Pool, a sketch map, with Legend, is reproduced. Each eighty-acre tract is numbered in Roman numerals and it corresponds with the number of the cause of action to assist in identification. (To illustrate: The lease which is the subject of the first cause of action is on the eighty-acre tract numbered 'I', etc.) The wells drilled on the Stamper leases are numbered in Arabic numerals immediately above the well location.

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

The parties concede drainage from the tracts covered by these leases to other property is not a factor involved in this lawsuit, and production in this area is not controlled by proration.

After hearing all the evidence and taking the case under advisement upon submission of briefs, the trial court made findings of fact and conclusions of law.

The findings, after preliminary recitations heretofore indicated, read as follows:

'3. Six oil and gas test wells have been completed as producers on the retained acreage, and each of said wells is producing oil in paying quantities at the present time, said wells were drilled and completed as producers on the following dates and locations:

                Cause of             Date of
                 Action   Well No.  Completion          Location
                --------  --------  ----------  -------------------------
                  1st        1      5-17-1953   SW/4 SW/4 SW/4 of Sec. 28
                   2d        3      12-21-1953  SW/4 SW/4 NW/4 of Sec. 33
                   3d        4      12-16-1953  SE/4 SE/4 NE/4 of Sec. 32
                  4th        5      2-24-1954   SE/4 NE/4 NE/4 of Sec. 32
                  5th        7      3-22-1954   NW/4 NE/4 SW/4 of Sec. 28
                  6th        9      9-27-1954   NW/4 SW/4 SE/4 of Sec. 28
                

'Well No. 1 produces from the Arbuckle formation; Well No. 7 produces from the Marmaton; and Wells No. 3, 4, 5, and 9 produce from the Kansas City Lime formation.

'4. All of the six retained leases are being produced into one common tank battery which is located on the S/2 SW/4 of Section 28, with the oral consent of the mineral owners.

'5. Well No. 6 was drilled as a disposal well and Well No. 2 was a dry hole, but neither of these two wells are located on the retained leases.

'6. The only dry hole drilled on the retained leases was Well No. 8, which was a dry hole completed on the S/2 SW/4 of Section 28.

'7. The average monthly production from said leases between 1954 and 1958, when this action was commenced, was in excess of 2500 barrels of oil per month, and that the average monthly production since commencement of this action, and up to and including October of 1959, is 2400 barrels of oil per month.

'8. The six leases have produced, up to and including October, 1959, a gross total of 202,827.03 barrels of crude oil. The six existing producing wells have produced in excess of 33,600 barrels each of oil, to date, on the average. That it is impossible to determine the exact amount each well has produced, as all wells are being produced into one tank battery, and since monthly barrel tests on each well were not commenced until about time suit was commenced.

'9. The value of the gross production of oil from said leases, up to and including October 1959, is $553,653.00.

'10. At the end of the year 1962, said leases and the producing wells now located thereon will still, in all probability, be producing 2000 barrels of oil per month.

'11. Defendants recovered their original investment in said leases on or about April, 1957, or shortly thereafter.

'12. Defendants have realized a profit of in excess of $160,000.00 in the operation of said leases to date.

'13. The present wells, as now located on each of said leases, will not adequately drain the acreage covered by each of said leases.

'14. There are some proven or semiproven locations on each of the retained leases, which should have been drilled by the defendants long prior hereto.

'15. The proven or semi-proven locations which should have been drilled by defendants are in all probability, capable of producing a minimum of 30,000 barrels of oil each.

'16. Demands for additional development or release of undeveloped acreage was made upon defendant operator.

'17. It would cost from $35,000.00 to $40,000.00 to drill and equip a well to be drilled on each of the proven or semi-proven locations, and the Court finds that, in all probability, sufficient oil could be produced by each of such wells to return the operator his cost of drilling, the operation thereof, all miscellaneous expenses and provide a substantial profit for the operator in addition to paying the landowner the usual 1/8th royalty and the 1/32 of 7/8th overriding royalty retained in each of said leases to the landowners. This profit would at least amount to, or exceed, the original investment of said operator in drilling and equipping each of said wells.' (Emphasis added.)

The appellants upon the evidence concede in their brief all production was collected in and delivered from one tank battery, at an average gravity of 29.1 for which purchase was made at $2.69 per barrel.

The trial court in its memorandum opinion, which incorporated the findings and conclusions, said:

'The plaintiffs have asked that all leases be canceled. The Court has decided that that is an unreasonable request. The defendants have asked that no action be taken. This, too, the Court finds is unreasonable. This Court feels and finds that the defendants should have the right to drill additional wells, and is confronted with the question of whether or not in the case where the plaintiff elected to try the cases as separate causes of action; that one cause of action can be in any way dependent upon the other. The Court has reached the conclusion that because that is strictly an equitable matter, and that justice cannot be rendered except by basing its decision on one cause of action upon the other, that it has that power.'

Upon the foregoing assumption of power the trial court made the following conclusions of law: clusions of law:

'1. The above facts do not justify cancellation of any of the leases as set out in Finding of Fact No. 1.

'2. The Court finds that the defendants shall have six months to drill on the lease on the South Half of the Northeast Quarter of Section 32-8-17, as set out in plaintiffs' third cause of action. If the defendants shall file an intention to drill within thirty days after date of this judgment and shall drill and complete a well thereon within six months, plaintiffs' cause of action will be denied. Should the defendants fail to file such intention to drill such a...