United Petroleum Exploration v. Premier Resources, CIV-79-423-T.

• Citation: 511 F. Supp. 127
• Decision Date: 29 December 1980
• Docket Number: No. CIV-79-423-T.,CIV-79-423-T.
• Parties: UNITED PETROLEUM EXPLORATION, INC., a corporation, Rita Goldstein Leinfuss, John Gianacopolos, Mary Gianacopolos, Pauline McKinnon, Nelson H. Wilhelm, Fred A. Mayer, Frances M. Pappas, William J. Pappas, and Joan A. Royce, Plaintiffs, v. PREMIER RESOURCES, LTD., a Colorado limited partnership, and Northern Natural Gas Company, a corporation, Defendants.
• Court: U.S. District Court — Western District of Oklahoma

511 F. Supp. 127

UNITED PETROLEUM EXPLORATION, INC., a corporation, Rita Goldstein Leinfuss, John Gianacopolos, Mary Gianacopolos, Pauline McKinnon, Nelson H. Wilhelm, Fred A. Mayer, Frances M. Pappas, William J. Pappas, and Joan A. Royce, Plaintiffs, v. PREMIER RESOURCES, LTD., a Colorado limited partnership, and Northern Natural Gas Company, a corporation, Defendants.

No. CIV-79-423-T.

United States District Court, W. D. Oklahoma.

December 29, 1980.

Richard K. Books, H. B. Watson, Oklahoma City, Okl., for plaintiffs.

Charles Nesbitt, Oklahoma City, Okl., for defendants.

MEMORANDUM OPINION

RALPH G. THOMPSON, District Judge.

Plaintiffs (hereafter referred to as "plaintiffs" or "United") commenced this action alleging two claims for relief against the defendants. The first claim seeks an accounting from the defendants for alleged over-production of gas and gas condensate by the defendants from the Barth G015 well located in Section 9, Township 24 North, Range 26 West, Ellis County, Oklahoma, which produces from the Morrow Sand. Plaintiffs' second claim for relief seeks the appointment of a permanent receiver to replace defendant Premier Resources, Ltd. (hereafter referred to as "Premier") as the operator of this well. This action is now before the Court for consideration of cross motions for summary judgment as to plaintiffs' first claim for relief. The parties have filed briefs in support of their respective positions and have jointly submitted a stipulation of facts.

Defendant Premier is the owner of 28.4458% leasehold interest in the Barth well. Defendant Northern Natural Gas Company (hereafter referred to as "Northern") owns no interest in the Barth well but is the contractual purchaser of Premier's share of the production therefrom. Plaintiffs are the owners of 45.4369% leasehold interest in the Barth well. 26.1173% of the leasehold interest in the Barth well is owned by persons not parties to this action but whose interests were acquired through investment in plaintiff United Petroleum Exploration, Inc.

On December 9, 1976, the production of gas from the Barth well was brought into balance by a judgment from the District Court of Ellis County, Oklahoma. From that date until June 9, 1977, Premier sold the entire production of gas from the Barth well to its purchaser Northern. On June 10, 1977, plaintiffs provided a pipeline connection to the Barth well with Michigan Wisconsin Pipe Line Company and began selling their proportionate share of production to Michigan Wisconsin Pipe Line Company. From June 10, 1977, to the present, the production from the Barth well has been effectively in balance but for the overproduction by Premier from December 9, 1976, through June 9, 1977.

In support of their motion for summary judgment, plaintiffs contend that Premier's overproduction from the Barth well has caused damage to United's correlative rights. United asserts that the proper remedy to protect its correlative rights is an order balancing the production from the Barth Well. To this end, United asserts it is entitled to bring the Barth well into overall balance by either a taking of gas in kind, or an accounting from Premier for a current cash balancing of the gas volume for which the Barth well is out of balance. United relies primarily upon the case of Beren v. Harper Oil Co., 546 P.2d 1356 (Okl.App.1975).

In opposition to plaintiffs' motion, and in support of its own motion for summary judgment, Premier asserts that United had the right to take gas in kind from the Barth well but that right was contingent upon Premier's purchaser making a physical connection to the well. Premier argues that it sold all the production of the Barth well to its contractual purchaser for the period from December 10, 1976, through June 9, 1977 and received the proceeds of those sales. Premier claims that it currently holds that portion of the proceeds received which is not attributable to its own interest, but that it has not been paid due to United's refusal to accept. Premier's position is that it had the right to sell the entire production from the Barth well and account to United for United's share of the proceeds until such time as United was capable of taking gas in kind. Premier argues that the unitization of the Barth well required it, as the operator, to produce and market the gas from the Barth well for the benefit of all owners of an interest in the unit pool. In support of this position, Premier cites Earp v. Midcontinent Petroleum Corp., 167 Okl. 86, 27 P.2d 855 (1933); Barton v. Cleary Petroleum Corp., 566 P.2d 462 (Okl. App.1977); and Dilworth v. Fortier, 405 P.2d 38 (Okl.1974) among others. Premier asserts that correlative rights are not involved in this dispute and that Beren v. Harper Oil Corp., supra is not supportive of United's position. Finally, Premier contends it is entitled to a reasonable attorney's fee due to United's refusal to accept Premier's tender of United's proportionate share of the gas sale proceeds.

In opposition to Premier's motion for summary judgment, United asserts that the creation of the drilling and spacing unit upon which the Barth well is located did not result in the creation of a co-tenancy among those lessees covered by the order of the Corporation Commission. As authority United cites Wakefield v. State, 306 P.2d 305 (Okl.1957); Anderson v. Corporation Commission, 327 P.2d 699 (Okl.1957); appeal dismissed, 358 U.S. 642, 79 S.Ct. 536, 3 L.Ed.2d 567 (1959); and Amis v. Bryan Petroleum Corp., 90 P.2d 936 (Okl.1939). Moreover, United asserts, even if a co-tenancy was created, requiring a party to provide appropriate facilities for capture, as a precondition to the actual taking of gas in kind, places owners of oil and gas interests at the mercy of third parties such as pipeline purchasers. Further, United reasserts that its correlative rights have been injured and argues that Premier is not entitled to an award of attorney's fees.

The threshold issue presented here is whether Premier's unbalanced production of gas from the Barth well from December 10, 1976 through June 9, 1977 constitutes an infringement upon the correlative rights of United. To determine this, it is necessary to understand what correlative rights are. In Kingwood Oil Co. v. Corporation Commission, 396 P.2d 1008 (Okl.1964), the Oklahoma Supreme Court stated:

"The term `correlative rights' has been defined as a convenient method of indicating that each owner of land in a common source of supply of oil and gas has legal privileges as against other owners of land therein to take oil and gas therefrom by lawful operations conducted on his own land, limited, however, by duties to other owners not to injure the source of supply and by duties not to take an undue proportion of the oil and gas. Summers, Oil and Gas, Vol. 1, Sec. 63." 396 P.2d at 1010.

From this it can be seen that correlative rights are those rights which one owner possesses in a common source of supply in relation to those rights possessed by other owners in the same common source of supply. At this point, it must be emphasized that a common source of supply in which the owners of mineral interests possess correlative rights is the underlying geological strata from which the oil and gas is produced, rather than the well through which the oil and gas is reduced to possession. See, 52 Okla.Stat.1971 § 86.1(c).

United asserts that Premier's overproduction of gas from the Barth well has damaged United's correlative right to production. In support of this assertion, United has cited Professor Kuntz as follows:

"The right to a fair opportunity to extract oil or gas from a common source of supply has been clearly recognized as a correlative right which must be protected when conservation regulations are imposed which limit the operation of the law of capture. When the right to produce oil and gas is denied or curtailed by conservation regulation, measures must be taken to assure owners equal opportunity to enjoy their fair share of production, and a denial of such equal opportunity would amount to confiscation." 1 Kuntz, Oil and Gas, § 47, page 102 (1962.)

However, the denial of the correlative right to extract oil or gas, which is referred to by Professor Kuntz, does not mean that the operator of an oil and gas well violates the correlative rights of other interest owners when it obtains a disproportionate share of the production. What Professor Kuntz has stated is that a governmental entity, such as a state, cannot restrict the right of a mineral interest owner from obtaining its fair share of the actual production from a pooled well when the amount of oil or gas permitted to be reduced to possession through that well is restricted for conservation purposes.

The dispute between these parties is not that Premier's actions in reducing to possession a quantity of gas has resulted in a hampering of United's ability to conduct its own operation to obtain possession of a quantity of gas from the same supply source. Rather, this dispute is over whether a part owner of a producing gas well can disclaim title to that portion of the production occurring while it is physically unable to take possession of its fair share, and assert instead an absolute ownership over a mathematically balanced volume of production after possession capability is provided.

While the Beren case, relied upon by United, does not reflect precedential authority concerning Oklahoma law, 20 Okla. Stat.1971 § 30.5; Russell v. Atlas Van Lines, Inc., 411 F.Supp. 111 (E.D.Okl.1976), the case does represent persuasive authority. This...