Wagner v. Sunray Mid-Continent Oil Co.

• Decision Date: 07 December 1957
• Docket Number: No. 40671,MID-CONTINENT,40671
• Citation: 182 Kan. 81,318 P.2d 1039
• Parties: Emma WAGNER, Arlyn R. Miller, Howard Wagner, and Phillip Dale Wagner, Appellees, v. SUNRAYOIL COMPANY, Successor to Mid-Continent Petroleum Corporation; L. W. Schneider, and H. R. Woodward, Appellants.
• Court: Kansas Supreme Court

Page 1039

318 P.2d 1039

182 Kan. 81

Emma WAGNER, Arlyn R. Miller, Howard Wagner, and Phillip

Dale Wagner, Appellees, v. SUNRAY MID-CONTINENT OIL COMPANY, Successor to Mid-Continent

Petroleum Corporation; L. W. Schneider, and H. R.

Woodward, Appellants.

No. 40671.

Supreme Court of Kansas.

Dec. 7, 1957.

Syllabus by the Court.

1. When a mineral deed has terminated because of failure to produce oil or gas, the court will not extend the term or revive rights which the parties themselves have definitely fixed by their contract; and when a mineral deed has terminated because of cessation of production, it is not revived by subsequent production of oil even though it be in the same well, following Wilson v. Holm, 164 Kan. 229, 188 P.2d 899.

2. When the primary term of term mineral interests has expired, the term mineral interests revert to the reversionary owners upon a permanent cessation of production.

3. The execution of division orders by the owners of reversionary mineral interest to the purchaser of the oil produced, following a permanent cessation of production, which erroneously recognized the existence of expired term mineral interests does not estop the owners of the reversionary interest to maintain an action to cancel the term mineral interests under the facts and circumstances disclosed, the elements of legal or equitable estoppel being not present, all as more fully set forth in the opinion.

4. The record in an action by the owners of the reversionary mineral interest to quiet title against two mineral deeds conveying oil, gas and other minerals in and under the property described for a primary term of years and so long thereafter as oil and/or gas is produced from the premises or the property is developed or operated, as more fully set forth in the opinion, examined and held: (a) The finding of the district court that a permanent cessation of production occurred September 30, 1953, following the expiration of the primary term of the term mineral interests conveyed, was supported by substantial competent evidence; (b) under the facts and circumstances the defendants, following cessation of production, took no action to establish that the cessation of production was temporary, not permanent; hence, production as contemplated by the parties following the expiration of the primary term had ceased and their conveyances were terminated by reason thereof, which reverted to the plaintiffs as the owners of the reversionary mineral interest; and (c) other alleged errors examined and held, to not warrant a reversal of the judgment.

John F. Curran, Tulsa, Okl., and Hugh P. Quinn, Wichita, argued the cause, and M. Darwin Kirk, Tulsa, Okl., Vincent G. Fleming, Larned, W. Getto McDonald, William Tinker, Arthur W. Skaer, Jr., William Porter and John Lancelot, Wichita, were with them on the briefs for appellants.

Harry E. Robbins, Jr., Wichita, argued the cause, and Ora D. McClellan, Gerald L. Michaud, Carol V. Creitz, John B. Wooley, Dan J. Skubitz, Wichita, and Ray McCombs, Ness City, were with him on the briefs for appellees.

FATZER, Justice.

This was an action to quiet title to real estate in Rush County, Kansas. The question presented is whether the cessation of production of oil from the property on September 30, 1953, following the expiration of the primary term of the mineral interests involved, was a permanent cessation of production causing a reversion of those interests to the original grantors pursuant to the terms of two mineral deeds conveying such interests for fifteen and twenty years, respectively, and 'as long thereafter as oil and/or gas is produced from the premises or the property is being developed or operated.' The trial court quieted title in the plaintiffs, and the defendants have appealed.

On January 12, 1932, Phillip H. Wagner and Emma Wagner, being the owners of the full mineral interest in the northwest quarter of section 28, township 18 south, range 16 west, conveyed an undivided one-half interest in the oil, gas and other minerals in and under and that may be produced from the quarter section, for a period of twenty years and as long thereafter as oil and gas is produced from the premises. By mesne conveyance that undivided one-half interest was acquired by the defendant (appellant) Sunray Mid-Continent Oil Company, hereafter referred to as Mid-Continent, the successor to Mid-Continent Petroleum Corporation.

On February 24, 1937, Phillip H. and Emma Wagner conveyed to defendant (appellant) L. W. Schneider an undivided one-eighth interest in and to all oil, gas and other minerals in and under and that may be produced from the same quarter section for a term of fifteen years and as long thereafter as oil and gas is produced from the premises or the property is developed or operated. Later and on March 12, 1938, Schneider and his wife Alma conveyed to defendant (appellant) H. R. Woodward an undivided one-sixteenth interest in the oil, gas and other minerals in and under the property involved for a term of fifteen years from February 24, 1937, and as long thereafter as oil or gas is produced from the premises or the property is being developed or operated.

On November 29, 1945, Phillip H. and Emma Wagner together with Woodward and his wife Dora, and Schneider and his wife Alma, executed and delivered an oil and gas lease covering the quarter section to J. F. Mergen. On January 4, 1946, Mid-Continent executed an oil and gas lease in favor of Mergen covering the property involved.

On February 25, 1946, Mergen assigned the Wagner oil and gas leases to Darby & Bothwell, Inc. reserving a production payment of one-sixteenth of seven-eighths of all oil and gas produced until the sum of $16,000 had been paid.

On May 22, 1946, Darby & Bothwell, Inc., completed an oil well known as Wagner A-1 capable of producing oil in commercial quantities from a location in the northeast quarter of the northeast quarter of the quarter section, which production ceased on September 30, 1953, as hereafter set forth. Wagner A-1 was the only well drilled by Darby & Bothwell on the Wagner lease.

In July 1953, J. F. Darby Oil Company, hereafter referred to as Darby, successor to Darby & Bothwell, Inc., operator of the leases covering the quarter section, reworked Wagner A-1 by fracturing the well with sand and oil, resulting in the production of large quantities of water and no oil. On September 29, 1953, the well was again reworked and when tested the following day, produced 40 barrels of fluid per hour, 95 percent water and 5 percent oil, resulting in Darby's shutting the well in.

During October, 1953, Vernon W. Weber, the owner of an offset well adjoining the Wagner quarter section, upon learning that Darby intended to abandon the well and remove its equipment, called Darby's office in Tulsa, Oklahoma, and offered to purchase the leases with the casing in the well at salvage value. On October 19, 1953, Darby wrote Weber the following letter:

'Our Mr. W. V. Kent has advised us that you called him inquiring as to our plans regarding the above lease. We have now had word from both of our partners in the lease and have determined that we will abandon it.

'If you are interested in purchasing the well for use as a salt water disposal well, we will be glad to assign the lease to you at a cost to you of $3,300.00.

'We intend to remove all surface equipment and you would be purchasing only the hole was 3623' of 5 1/2"' J-55 casing as it now stands.

'This tract is covered by several part-interest leases and, if you are interested, we suggest that you check these on the records there at LaCrosse.

'Please give us an answer as soon as possible so that, if you are not interested in this purchase, we may proceed with the plugging and abandonment of the well.'

Following receipt of the letter, Weber and his associates, hereafter referred to as Weber, purchased the leases with the casing in the well for $3,300, and Darby assigned them to him. On November 25, 1953, Weber filed those assignments of record in Rush County, and on December 21, 1953, obtained a top oil and gas lease from the plaintiffs covering the quarter section.

When Weber purchased the Wagner leases from Darby there was no oil production from the property and there was no equipment on the property for that purpose; there was only a concrete foundation, pipe in the hole, which was capped but not plugged, and a small pond.

In April, 1954, Weber commenced reworking Wagner A-1 with the idea of making it a commercial well. About 60 days later they obtained production and oil was first sold from the property in August, 1954.

In July, 1954, after Weber commenced reworking Wagner A-1, he made partial assignments of undivided interests in the original oil and gas leases from Wagner, Schneider, Woodward and Mid-Continent and the 1953 Wagner top oil and gas lease, to numerous parties. At the time of the trial Weber was operating the quarter section under the original leases and the 1953 Wagner top lease.

In August, 1954, the Stanolind Oil Purchasing Company, which has purchased the oil produced from the quarter section prior to 1953, circulated two new division orders for the purchase of crude oil; one, from the east half of the quarter section designated as Wagner 'A'; the second, from the west half of the quarter section designated as Wagner 'B,' since different ownerships of the working interests in the leases of those two tracts required that separate records be kept of oil purchased from them. The division orders were signed by the plaintiffs (Phillip H. Wagner having died, the reversionary rights, including his interest in the minerals in the quarter section, passed to and became vested in plaintiffs as his sole heirs), and by Mid-Continent, Schneider and Woodward, together with other persons not involved in this controversy, as the owners of the one-eighth royalty interest, and authorized Stanolind to make payment of oil purchased from each...