Statex Petroleum v. Petroleum, Inc.
| Citation | 308 F.2d 815 |
| Decision Date | 12 October 1962 |
| Docket Number | No. 6888.,6888. |
| Parties | STATEX PETROLEUM, a corporation; Cosden Petroleum Corporation, a corporation; Caldarko Gas Company, a limited partnership; and Joseph C. Kimble, sole General Partner in said Caldarko Gas Company, a limited partnership, Appellants, v. PETROLEUM, INC., a corporation; Leota L. Alkire, Zella M. Boyle, Charles Boyle, H. B. Fink, Ruth G. Fink, James S. Garvey, Olive W. Garvey, Shirley F. Garvey, Willard W. Garvey and Olivia G. Lincoln, Appellees. |
| Court | United States Courts of Appeals. United States Court of Appeals (10th Circuit) |
Wallace E. Robertson, Oklahoma City, Okl. (Robinson, Robertson & Barnes, Oklahoma City, Okl., were with him on the brief), for appellants.
William J. Holloway, Jr., Oklahoma City, Okl. (Crowe, Boxley, Dunlevy, Thweatt, Swinford & Johnson, Vivian Diffendaffer, Oklahoma City, Okl., and R. D. Randall, Wichita, Kan., were with him on the brief), for appellees.
Before PICKETT, HILL and SETH, Circuit Judges.
This is a diversity action to quiet title to an oil and gas leasehold estate on a tract of land located in Beaver County, Oklahoma, and referred to as the Alkire tract. The appeal is from the order and judgment of the court below quieting appellees' title to such oil and gas leasehold estate and perpetually enjoining appellants from asserting or claiming any right, title or interest therein.
The material and undisputed facts, as disclosed by the record, are as follows:
On November 29, 1954, the owners (Defendants-appellees Leota L. Alkire, Zella M. Boyle and Charles Boyle) of the tract of land in question executed and delivered to The Pure Oil Company (hereafter referred to as Pure Oil) an oil and gas lease on such tract for a primary term of five years from the date thereof. The habendum clause provided as follows:
"It is agreed that this lease shall remain in full force for a term of five years from this date, and as long thereafter as oil or gas, or either of them is produced from said land by the lessee, or the premises are being developed or operated."
The lease further expressly provided that either party thereto could transfer his or its interest therein.
The tract contains 154.48 acres and is located within an area subject to orders of the Oklahoma Corporation Commission establishing 640 acre drilling and spacing units for the production of natural gas from a common source of supply which in this particular area is the Morrow Sand formation. This tract was unitized with the remainder of the section in which it is located for the production of natural gas from the Morrow Sand.
In June, 1959, Pure Oil entered into a farmout agreement with the appellant, Statex Petroleum (hereafter referred to as Statex), under the terms of which Statex was entitled to an assignment of the November 29, 1954, lease on the Alkire tract upon the drilling of a Morrow Sand gas well in the unit. Thereafter, Statex entered into an operating agreement with Cabot Carbon Company (hereafter referred to as Cabot), the owner of the oil and gas leases on the remaining acreage in the section unit, under which Cabot became the "Operator" of such unit. On that same date, a test well for oil and gas was commenced on land in the section unit other than the Alkire Tract and was completed on July 22, 1959. The completed well, referred to as the "Barby well," was capable of producing natural gas in commercial quantities from the Morrow Sand formation. Upon its completion, the well was shut in and remained shut in until it was connected and commenced delivery of gas to the pipeline of Panhandle Eastern Pipeline Company on May 23, 1960.
After the well was completed, Pure Oil proceeded to assign the November 29, 1954, lease to Statex and it, in turn, assigned certain undivided interests therein to the appellants, Cosden Petroleum Corporation and Caldarko Gas Company, a limited partnership.
The Barby well produced a total of 30,418 m. c. f. of gas from May, 1960, to September, 1960, with production generally decreasing throughout that period of time as a result of water intrusion which developed and came from the pay zone in the Morrow Sand. The Barby well ceased to produce on September 15, 1960. Work-over or remedial operations on the well were commenced on September 19, 1960, which were unsuccessful and production was not restored. On October 24, 1960, all such operations ceased. Cabot's work-over report showed the following notation as having been made on October 24, 1960: According to the expert testimony, with the release of the pulling unit the workover was completed, the operation was concluded and "that is the normal final entry into the well completion record, `released tools.'"
During the week following October 24, several meetings were had in which representatives of appellants and Cabot discussed the possibilities of "whipstocking" or a "major fracking operation" in the Barby well in an effort to restore production but determined that no further operations should be attempted on the well. By about November 2, 1960, appellants and Cabot had decided that a new well should be drilled in the approximate center of the section unit and that the owners of the leases involved should not undertake the expense of drilling such well but a farmout arrangement should be attempted.
However, about this same time Cabot's attorneys pointed out to Statex that the November 29, 1954, lease did not have a clause permitting the resumption of drilling operations for a new well within 60 days after loss of production in the Barby well and discussed with Statex's representatives the necessity of obtaining an extension or ratification of such lease before making arrangements for the drilling of a new well. Cabot's leases did contain such a 60-day clause and it was necessary for the new well to be commenced by November 15, 1960, to come within this 60-day period.
On November 7, 1960, Dawson, a land man for Statex, telephoned to an agent of the owners of the Alkire tract concerning a ratification of the lease in connection with the drilling of the new well. On November 8, he wrote a letter to the agent enclosing a "ratification of and amendment to the oil and gas lease," and requested that such instrument be executed by the owners and returned to Statex.
On November 11, 1960, Dawson wrote a memorandum to the other appellants referring to a "tentative farmout agreement" with Crest Exploration Company and stated:
On the same date, Cabot wrote to appellants requesting a release of the farmout agreement on the Barby well which was executed on November 14, 1960.
On November 11, 1960, and without replying to Dawson's letter requesting the ratification, the owners of the Alkire tract executed and delivered an oil and gas lease on such tract to appellee, Petroleum, Inc., (hereafter referred to as Petroleum). Thereafter, Petroleum assigned certain undivided interests in this lease to the other appellees. (Defendants, H. B. Fink, Ruth G. Fink, James S. Garvey, Olive W. Garvey, Willard W. Garvey, and Olivia G. Lincoln).
Statex learned of the execution of the lease to Petroleum on or about November 12, 1960, and did not thereafter contact Petroleum concerning the lease or assert any rights contrary to such lease until this action was commenced on March 10, 1961.
In the meantime, and on November 14, 1960, Petroleum joined in the drilling of a new well under its lease at approximately the same location previously considered by Statex and Cabot. This well, known as the "Eisner well," was completed on December 21, 1960, and production in commercial quantities achieved from the same Morrow Sand formation.
Upon these facts, the trial court found against appellants on all controverted issues and concluded the November 29, 1954, lease to Pure Oil had been construed and interpreted by the parties thereto as not entitling appellants to commence additional drilling operations on the section unit after abandonment of the Barby well, and that:
"Under all the circumstances including the terms of the November 29, 1954, lease, the construction placed thereon by the parties and the abandonment of the Barby Well after permanent loss of its production, plaintiffs are entitled to assert no rights under said lease which expired prior...
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