Steinkuehler v. Hawkins Oil and Gas, Inc.
| Decision Date | 20 May 1986 |
| Docket Number | No. 4,No. 63553,63553,4 |
| Citation | 728 P.2d 520,1986 OK CIV APP 9 |
| Parties | 1986 OK CIV APP 9 Marvin W. STEINKUEHLER, Marilyn Steinkuehler, M. Dwain Steinkuehler and W. Pearl Steinkuehler, husband and wife, and Linda Coward and Jack Coward, wife and husband, Appellees, v. HAWKINS OIL AND GAS, INC., Appellant. Court of Appeals of Oklahoma, Division |
| Court | United States State Court of Criminal Appeals of Oklahoma. Court of Civil Appeals of Oklahoma |
John Board, Guymon, for appellees Marvin W. Steinkuehler and Marilyn Steinkuehler.
Richard K. Books, Donna N. Blakley, Watson & McKenzie, Oklahoma City, for appellees M. Dwain Steinkuehler, W. Pearl Steinkuehler, Linda Coward and Jack Coward.
J. Douglas Mann, Lloyd S. Markind, Rosenstein, Fist & Ringold, Tulsa, for appellant.
Plaintiffs, Marvin and Marilyn Steinkuehler, and intervenors, M. Dwain and Pearl Steinkuehler and Linda and Jack Coward (Lessors), are record title owners of undivided surface interests and mineral rights of the following real estate:
The Southeast quarter (SE/4) of section fifteen (15), township five (5) North, range eleven (11) E.C.M., Texas County, Oklahoma.
Lessors brought this action against Cities Service Oil Company and Hawkins Oil and Gas, Inc., seeking judgment that the oil and gas leases granted by them to Cities Service had terminated and to quiet their title against any claim of Cities Service and/or Hawkins.
Lessors had granted oil and gas leases for a term of three years to Cities Service, which farmed out the leases to defendant Hawkins. The expiration date of the primary term was December 27, 1982.
On November 11, 1982, Hawkins filed with the Oklahoma Corporation Commission a notice of intention to drill a well designated as Steinkuehler No. 1-15. Hawkins commenced operations on December 18, 1982, and the initial hole was spudded on December 21, 1982, with the target depth being the Chester formation at an approximate total depth of 6,100 feet. However, circulation in the well was lost between 4,839 feet and 4,988 feet, and the drill pipe became stuck. When attempts were made to free the drill pipe, the washover pipe also became lodged in the same zone. All efforts to correct the situation were unsuccessful. Hawkins filed with the Corporation Commission a required form which classified Steinkuehler No. 1-15 as "P & A'd--Lost Circ.," and which indicated that drilling was finished on January 2, 1983. A plugging record indicated that the "Character of Well" was "Dry (lost circ.)" and, according to the daily drilling reports, plugging was completed on January 4, 1983.
Hawkins paid additional monies to Lessors as compensation for surface damages caused by expansion of the perimeter of the drilling site and filed with the Corporation Commission a second notice of intention to drill what was designated as Steinkuehler No. 1-15A, at an "AMENDED LOCATION DUE TO JUNKING & ABANDONMENT," on January 4, 1983. On that same date, Hawkins skidded the rig approximately fifty feet from the initial hole and drilling was continued on January 5, 1983. This new hole, Steinkuehler No. 1-15A, was completed as a "commercial producer of oil and gas" at a depth of 5,943 feet in the Morrow Purdy formation. The drilling rig was released on January 19, 1983, a completion rig moved in on January 20, 1983, and the completion rig released on February 3, 1983.
After Hawkins had been informed that Lessors were planning to file an action to cancel the lease, it filed what it terms a "curative" pooling action with the Corporation Commission for the purpose of acquiring all potentially unleased interests in and to the subject property. Although the well produced oil for seven days near the end of January and first of February and a pipeline corporation picked up oil production on February 16, 1983, Hawkins ceased final well-completion operations and oil production until Lessors had made their election. Oil production was recommenced on a regular basis on May 12, 1983.
On March 7, 1983, Lessors filed this action against Cities Service and Hawkins to cancel the leases and to quiet Lessors' title in the mineral interest, alleging that the leases had terminated under their express terms when Hawkins plugged and abandoned Steinkuehler No. 1-15 after the expiration of the primary term of the leases.
Hawkins maintained that commencement of drilling on Steinkuehler No. 1-15 was accomplished within the primary term of the leases; the initial hole had not been drilled to completion because technical difficulties beyond its control were encountered during drilling operations; the skidding of the rig and completion of a well through a second bore hole constituted the completion of a single well; and the terms of the leases provided that it had "the right to drill such well to completion with reasonable diligence and dispatch." Therefore, Hawkins moved for summary judgment upon the basis that, as a matter of law, the leases were extended and preserved by its commencement of a well within the primary term and its completion of the well in a prudent manner without delay.
Lessors subsequently dismissed with prejudice their claim against Cities Service and moved for summary judgment against Hawkins. The trial court overruled Hawkins' motion for summary judgment and granted summary judgment to Lessors, and it is from this order that Hawkins appeals.
On appeal Hawkins complains of the trial court's characterization of the leases as completion rather than commencement leases. The disputed lease provision reads:
This lease may be maintained during the primary term hereof without further payment or drilling operations. If the lessee shall commence to drill a well within the term of this lease or any extension thereof, the lessee shall have the right to drill such well to completion with reasonable diligence and dispatch, and if oil or gas, or either of them, be found in paying quantities, this lease shall continue and be in force with like effect as if such well had been completed within the term of years first mentioned. (Emphasis added.)
The trial court's characterization of the leases executed by Lessors as "completion type" does seem directly contrary to the clear language of the instruments. A completion type drilling clause mandates that a well must be completed, as opposed to commenced, during the primary term in order to keep the lease alive into the secondary term. State ex rel. Commissioners of Land Office v. Carter Oil Co., 336 P.2d 1086, 1090 (Okla.1958). See also, Moncreif v. Pasotex Petroleum Co., 280 F.2d 235 (10th Cir.1960); 8 H. Williams & C. Meyers, Oil and Gas Law 146 (1984). On the other hand, a commencement type drilling clause in an oil and gas lease provides that the lease will not terminate during the diligent continuation of drilling operations which were commenced within the primary term. Carter Oil Co., 336 P.2d at 1090; Moncreif, 280 F.2d at 235; 2 E. Kuntz, The Law of Oil and Gas § 26.13 at 314 (1964).
Here the clear unambiguous language of the leases provides that commencement of a well within the primary term, the completion of the well with reasonable diligence and dispatch, and production in paying quantities would hold the lease. The parties, in fact, agree that a well commenced during the primary term could have been drilled to completion after the expiration of the primary term.
Thus, the finding of the trial court that the leases represent "completion type oil and gas leases" is contrary to the clear provisions of the lease, as well as the parties' own characterization. We hold that the leases under the provisions of which Hawkins was operating are commencement leases, and that the commencement of a well during the primary term was sufficient to keep the leases alive into the secondary term so long as drilling operations were prosecuted with reasonable diligence, and oil thence produced in paying quantities.
The paramount issue is whether a second penetration of the surface, after the initial bore hole has been damaged beyond reclamation and the rig skidded, constitutes continuous drilling operations of a single well or commencement of a new well after "completion" of the first well.
"[A] well is not regarded as completed until it has been drilled to the depth at which oil and gas is usually discovered in the vicinity." 8 H. Williams & C. Meyers Oil and Gas Law 143 (1984). When used in a lease requiring commencement, "the word 'completion' means a well drilled to the specified sand or depth, and such means known to the industry have been employed to produce oil 'to the extent that a reasonably experienced driller would use' to make a producing well of a...
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