Town of Tome Land Grant v. Ringle Development Co.

• Decision Date: 11 February 1952
• Docket Number: No. 5413,5413
• Parties: TOWN OF TOME LAND GRANT, Inc. v. RINGLE DEVELOPMENT CO.
• Court: New Mexico Supreme Court

Page 850

240 P.2d 850

56 N.M. 101

TOWN OF TOME LAND GRANT, Inc. v. RINGLE DEVELOPMENT CO.

No. 5413.

Supreme Court of New Mexico.

Feb. 11, 1952.

J. Ernest Corey, Albuquerque, for appellant.

Gilberto Espinosa, Paul Keefe, Albuquerque, for appellee.

BONEM, District Judge.

This is a suit by plaintiff (appellee), a community land grant, seeking a declaratory judgment against the defendant (appellant), adjudging that an oil and gas lease on the common lands of Tome Grant from plaintiff to defendant was terminated by the terms thereof, and for possession of the leased premises. The primary term of the lease was for a period of five (5) years from July 1, 1942, and the original lessee was the Ringle Development Corporation. The lease provides it shall remain in force for a term of five (5) years from date and as long thereafter as oil and gas, or either of them, is produced from said land by lessee. As a result of litigation had in Cause No. 5150, District Court of Valencia County, entitled Ringle Development Company, a Corporation, v. The Town of Tome Land Grant, Incorporated, said lease was extended by judgment of the Court, dated September 1, 1948, to and including the 31st day of August, 1949, for the reason that certain litigation had deprived defendant of a period of its lease. In this action the plaintiff alleges that none of the conditions precedent contained in said lease which would have extended it beyond August 31, 1949, have been performed and that said lease is now terminated.

The case went to trial upon the issues and upon a stipulation that the only well which is capable of production without further development is one located in the Northwest quarter of Section thirty-four (34) in Township six (6) North of Range four (4) East N.M.P.M. The defendant claims the well in question is a commercially productive well, and that is the testimony of its president and general manager. The well referred to as Tome No. 1 was drilled to the depth of 827 feet and capped back to 655 feet. The last work done upon the well was the plugging on April 27, 1947. At that time the president and general manager stated the well was plugged after a showing of gas, and sufficient gas was obtained to burn 20 or 25 feet on top of the pipe. The well was not developed according to the testimony introduced by the Ringle Corporation and was not producing, but could be made to produce.

The cause was tried to the court without a jury and it found the defendant had failed to establish the existence of a producing oil and gas well and, further, that it failed to produce oil or gas from the property as required by the terms of the lease in order to perpetuate the same and that the defendant had been holding possession of the land described in the complaint without authority or permission of the plaintiff and as a trespasser. The court found judgment in favor of the plaintiff and concluded that the lease be terminated as of August 31, 1949, and that the plaintiff was entitled to possession of all the lands and property covered by said lease and that the defendant should be required to surrender possession of the premises to the plaintiff and remove all of his equipment and property therefrom. This appeal is from the judgment of the lower court.

The defendant assigns as error the finding by the lower court that the defendant had failed to establish it has a producing oil and gas well and that, in fact, it had failed to produce oil or gas from the property described, as required by the terms of the lease in order to perpetuate it, and, further, that the court erred in refusing to find there was no immediate market for the products of said well.

The question involved in this appeal is whether or not the facts of the case justify the validation and extension of the lease. In the opinion of the defendant the gas well is a paying well and the depth to which production is secured, the cost of drilling and accessibility to market are material elements affecting the question of whether or not the well is a paying well. Admittedly, these elements are relevant to the general problem raised by this appeal.

Chiefly because gas cannot be stored save in the natural stratum where it is found, the courts have sought to uphold lease extensions where gas is discovered and determined to exist in marketable or paying quantities but for one reason or another cannot be readily produced and marketed. Significantly, until recent years, the remuneration of the lessor for the operation of a producing gas well was provided by leasing agreements to be a set yearly sum paid for each gas well, which sum was neither variable with nor depend upon the amount of gas actually produced or marketed. (See Vol. 2, Summers on Oil and Gas, (Perm.Ed.) Sec. 299, P. 138, et seq.) For these reasons a doctrine has arisen that the question of whether or not the well is capable of producing in paying quantities is solely the concern of the lessee as the amount of money received by the lessor remains static whether the gas is actually produced or not. Summers, op. cit. Vol. 2, P. 140; 58 C.J.S., Mines and Minerals, Sec. 202, P. 469; Union Gas & Oil Company v. Adkins, 6 Cir., 278 F. 854. But the lease in question does not fall within this rule. It provides:

'In consideration of the premises the said lessee covenants and agrees:

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'2nd. To pay the...