Superior Oil Co. v. Devon Corp.
| Decision Date | 22 September 1978 |
| Docket Number | Civ. No. 77-0-201. |
| Citation | 458 F. Supp. 1063 |
| Parties | The SUPERIOR OIL COMPANY, a Nevada Corporation, et al., Plaintiffs, v. DEVON CORPORATION, an Oklahoma Corporation, et al., Defendants. |
| Court | U.S. District Court — District of Nebraska |
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Robert C. Hawley, Gretchen A. Vander-Werf, Kirk B. Holleyman, Denver, Colo., for plaintiffs.
Louis O. Satterfield, Jr., Houston, Tex., for plaintiff Superior Oil.
R. D. Randall, Wichita, Kan., for plaintiff, Petroleum, Inc.
Judson S. Woodruff, Philip D. Hart, Oklahoma City, Okl., for defendants, Devon Corp., The Miller-Christensen Partnership, Gear Drilling Co., Falco, Inc., of Delaware, Camberly Corp. and Chris L. Christensen, Jr.
Thomas C. McKee, David C. Knowlton, Denver, Colo., for defendants, Schuler-Olsen Ranches, Inc., Arthur F. Olsen, Sharon Olsen, Mary Louise Schuler, Darrel D. Schuler, Harold C. Olsen, Grace L. Olsen and the Estate of Velma Olsen Crampton, Deceased, by and through its Executrix, Mary Louise Schuler.
On August 1, 1949, Harlen C. Olsen and his wife, Velma, executed an oil and gas lease in favor of the Superior Oil Company. The instrument had a ten year primary term, with a provision for an extension for "as long thereafter as oil, gas, . . . or any of the products covered by this lease is or can be produced." Encompassing 3440 acres, the leased land consisted of two insular tracts covering portions of eight sections in Banner County, Nebraska. The precise legal description was as follows:
Within the primary term, oil was discovered and produced upon the SE ½ of Section 8 of the leased acreage by virtue of Superior's farmout agreement with the British-American Oil Producing Company. Despite the discovery, neither Superior nor British-American filed an affidavit of production with the register of deeds within the lease's primary term as permitted by Neb.Rev.Stat. § 57-208 (Reissue 1974).
Production on the Superior leasehold was continuous2 until July 1, 1961, when a agreement covering certain lands to be located within the Willson Ranch Field "J" Sand Unit was executed. This unit, which included 440 acres of land covered by the Superior lease, has consistently produced oil since its creation.
In February of 1976, the successors in interest to Harlan and Velma Olsen hereinafter referred to as the Schuler-Olsen defendants3 granted a total of six oil and gas leases on portions of Section 26 Township 17N, Range 53W, to Chris L. Christensen. Drilling upon this land, which was part of the acreage covered by the 1949 lease, resulted in the discovery of oil. The well, which has been named the No. 1 Schuler, is located upon the SE ¼ of the NW ¼ of Section 26.
John Pruit, an exploration manager for Petroleum, Inc., an assignee of Superior's Section 26 interest, found out about the drilling of Schuler No. 1 from a daily oil and gas newspaper. Pruit telephoned Christensen and learned of the new leases. Superior and its assignees subsequently received notice that the Schuler-Olsen defendants intended to declare a forfeiture of the 1949 lease, as provided by Neb.Rev.Stat. § 57-202 (Reissue 1974), insofar as it covered lands adjacent to the new well. Superior responded by denying the existence of a forfeiture and filing this diversity action in an attempt to vindicate its perceived rights to the petroleum produced.
Alleging that the Superior lease is still in full force and effect, the plaintiffs seek relief in this Court as to the Schuler-Olsen defendants under four different legal theories: breach of contract, breach of the covenant of quiet enjoyment, slander of title and clouding of title. Superior and its assignee, Petroleum, Inc., seek further redress in the form of a finding that the working interest defendants4 are liable for trespass to land and creating a cloud on title. The plaintiffs urge that such a finding is supported by evidence that these lessees had actual, inquiry and constructive notice of the continued validity of the 1949 lease.
The Schuler-Olsen defendants claim, inter alia, that the plaintiffs breached various express terms of the lease. Breach of the implied covenant to further develop has also been asserted in a counterclaim filed by the Schuler-Olsens.
A nonjury trial on the issue of liability has been held before this Court. At the time of trial, the Court took the plaintiffs' motion for partial summary judgment as to the liability of the Schuler-Olsen defendants under advisement. Due to the existence of numerous issues of fact, the Court will deny the motion and render a decision on the merits.
During the trial, both the working interest defendants and the Schuler-Olsen defendants moved for dismissal of the plaintiffs' case pursuant to Rule 41(b) of the Federal Rules of Civil Procedure. The Court denies the 41(b) motion of the Schuler-Olsens and will address the issues on the merits. As a decision in favor of the Schuler-Olsens might make a consideration of the plaintiffs' claims against the working interest defendants unnecessary, the Court will defer ruling upon the 41(b) motion of the working interest defendants until the claims of the Schuler-Olsens and the plaintiffs have been resolved.
None of the parties to this litigation suggest that the 1949 Superior lease became invalid during its primary term for failure to pay bonus or delay rental. Nor is it disputed that production in paying quantities was gained by British-American on a portion of the Superior leasehold prior to the expiration of the primary term. As a general rule, timely production of oil in paying quantities by an assignee of a lessee is sufficient to perpetuate the life of this type of lease. Berry v. Tide Water Associated Oil Co., 188 F.2d 820 (5th Cir. 1951).
The Schuler-Olsen defendants argue that this general principle is inapplicable in Nebraska when the discovery of hydrocarbons is unaccompanied by the filing of an affidavit of production with the register of deeds before the expiration of the primary term of the lease. The applicable statute provides as follows:
57-208. Lease; filing with register of deeds; effect; contingent extension provision; affidavit of happening of contingency; filing; effect. When an oil, gas or mineral lease is given on land situated within the State of Nebraska, the recording thereof in the office of the register of deeds of the county in which the land is located shall impart notice to the public of the validity and continuance of such lease for the definite term therein expressed, but no longer; Provided, that if such lease contains the statement of any contingency upon the happening of which the term of any such lease may be extended, such as and as much longer as oil and gas or either is produced in paying quantities, the owner of such lease may at any time before the expiration of the definite term of the lease file with the register of deeds an affidavit setting forth the description of the lease, that the affiant is the owner thereof and the facts showing that the required contingency has happened. This affidavit shall be recorded in full by the register of deeds, and such record together with that of the lease shall be due notice to the public of the existence and continuing validity of such lease, until the same shall be forfeited, canceled, set aside or surrendered according to law.
Neb.Rev.Stat. § 57-208 (Reissue 1974).
The Court holds that this statutory provision does not alter a contractual relationship between the parties to an oil and gas lease. By its own terms, the law refers to notice to the general public. Signatories to a contract already have notice of the instrument's existence.5 The Supreme Court of Kansas has agreed with this analysis in its construction of a similar statute enacted by the legislature of that state. Storm v. Barbara Oil Co., 177 Kan. 589, 282 P.2d 417, 425 (1955). Accord, Davis v. Cities Service Oil Co., 338 F.2d 70, 73 (10th Cir. 1964). No absolute duty to file an affidavit of production exists under Nebraska law. Cf. Davis v. Cities Service Oil Co., supra, 338 F.2d at 73. Failure to observe Neb.Rev.Stat. § 57-208 does not extinguish the obligations appurtenant to a contractual relationship. Nor does the leasing of the oil and gas rights on a particular tract to a subsequent bona fide lessee obviate this conclusion. The passage of a recording statute does not act to cut off any legal remedies that a prior lessee might have against a breaching lessor. The Court declines to adopt the argument by the Schuler-Olsen defendants that a second lease to a hypothetical bona fide lessee renders unenforceable any express obligations defined in a prior lease.
The Schuler-Olsen defendants further challenge the present validity of the Superior instrument by pointing to various alleged breaches by the plaintiffs in connection with the unitization of a portion of the 1949 lease. Most of the arguments center around the interpretation of paragraph 16 of the Superior lease, which provides in pertinent part as follows:
The unitization of this lease or any portion thereof with any other lease or leases or portions thereof shall be accomplished by the execution and filing by lesses sic in the recording office of said county of an instrument declaring its purpose to unitize and describing the leases and land unitized, which unitization shall cover the gas rights only and comprise an area not exceeding approximately 640 acres. . .
The Schuler-Olsens take the position that the terms of the 1949 lease prohibited the unitization of oil rights, and that the...
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Superior Oil Co. v. Devon Corp.
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