Whelan v. Placid Oil Co.

• Decision Date: 11 November 1954
• Docket Number: No. 6763,6763
• Citation: 274 S.W.2d 125
• Parties: D. E. WHELAN et al., Appellants, v. PLACID OIL COMPANY et al., Appellees.
• Court: Texas Court of Appeals

Page 125

274 S.W.2d 125

D. E. WHELAN et al., Appellants, v. PLACID OIL COMPANY et al., Appellees.

No. 6763.

Court of Civil Appeals of Texas, Texarkana.

Nov. 11, 1954.

Rehearing Denied Dec. 30, 1954.

John E. Taylor, Marshall, Morton Taylor, Sinton, for appellants.

Shank, Dedman, & Payne, Dallas, B. B. Barber, Shreveport, La., Walter Clemons, Houston, J. K. Smith, Fort Worth, Smith & Hall, Marshall, for appellees.

WILLIAMS, Justice.

W. N. Peal, a widower, and his four children, the owners of the fee simple title to the 146-acre tract out of the Betty Humphries Survey in Harrison County, Texas, involved in this litigation, on August 18, 1937, executed and delivered to W. W. Blocker as lessee a valid mineral lease covering the tract, styled herein the Peal-Blocker lease. The lease was for a primary term of 10 years from July 29, 1937, and 'as long thereafter as oil, gas or other minerals are produced from said land.' Blocker assigned the lease to Gulf Oil Corporation in October 1937. The latter assigned in September 1945 an undivided one-half interest in the gas and oil rights in the lease to Placid Oil Company. The annual delay rentals provided for therein were properly paid each year so as to maintain the lease in its entirety in full force and effect during its primary term (the 10-year period).

W. N. Peal, who owned an undivided one-half interest in fee at the time of the execution of above lease, died September 12, 1937. His four children, who will herein be called the Peals, inherited their father's interest and thus became the owners of the full 8/8 mineral estate subject to above Peal-Blocker lease. On August 12, 1945 the four Reals conveyed to one Harry Crawford an undivided one-half interest in the oil, gas and other minerals in and under six tracts of land which included the 146-acre tract. A clause in the mineral deed to Crawford reads: 'Said land being not under an oil and gas lease executed in favor of any valid lease, it is understood and agreed that this sale is made subject to the terms of said lease and/or any other valid lease covering the same, but covers and includes one-half of all of the oil royalty and gas rental or royalty due to be paid under the terms of said lease, in so far as it covers the above described land.'

Thereafter, on March 4, 1947, and within the primary term of the Peal-Blocker lease, the Peals, the owners of the then remaining one-half of the mineral fee, also subject to the Peal-Blocker lease, executed and delivered to Placid Oil Company a 'pooling amendment to oil, gas and mineral lease,' and on March 12, 1947, they executed a 'unit declaration' tendered to them by the same company. The terms of the 'pooling amendment' and the 'unit declaration' will be later herein detailed. The proof is undisputed that Harry Crawford owned an undivided one-half interest in the minerals under the tract subject to the Peal-Blocker lease on above dates when the 'pooling amendment' and the 'unit declaration' were executed by the Peals. It is further undisputed that Crawford refused to and did not execute either.

On February 12, 1949, Crawford and the Peals executed and delivered an oil and gas and mineral lease to R. J. Whelan which describes the 146-acre tract. This lease was for a primary term of ten years and provided for the payment of delayed rentals. On the basis of the asserted rights granted under this lease, R. J. Whelan joined by D. E. Whelan entered upon the 146-acre tract and drilled a producing gas well which will herein be called 'Peal A well.' This well was completed in December 1949, and at all times since has been producing gas and other liquid hydrocarbons.

No provision in the Peal-Blocker lease authorized the pooling or unitization of the leasehold estate or the royalty estate of the lessors, but the pooling agreement or amendment of March 1947 executed by the Peals to Placid Oil Company authorized the lessee to form drilling or production units and in the case of gas, distillate or condensate the units were not to exceed 704 acres in size. This amendment further provided, 'The commencement, drilling, completion of or production from a well on any portion of the unit created hereunder shall have the same effect upon the terms of said lease as if a well were commenced, drilled, completed or producing on the land embraced by said lease.'

The Blocker lease is expressly referred to in above amendment and it is recited therein that the parties 'desire to supplement and amend said lease.' Its final paragraph reads: 'It is agreed that the hereinabove described lease shall remain unchanged by this instrument except as provided herein, and we, the undersigned, hereby lease, demise and let unto Lessee, its successors and assigns, the land described in said lease subject to and in accordance with all of the terms and provisions thereof, as hereby supplemented and amended and we hereby adopt, ratify and confirm said lease as supplemented and amended hereby and acknowledge the same to be a valid and subsisting oil, gas and mineral lease on the land described therein.' The Peal-Blocker lease covering the 146-acre tract was included in a unit designated as Placid Oil Company-Dee Knox unit No. 1, which unit area specified 696.82 acres of land. It provided 'that the commencement, drilling, completion of or production from a well on any portion of said unit shall have the same effect upon the terms of each lease covering the lands in the unit as if a well were commenced, drilled, completed or producing on the land embraced by each lease in the unit * * *.' A consideration for this agreement was the agreement that Placid Oil Company would commence drilling operations in the search of oil or gas at a location on the unit within 45 days from March 12, 1947 (the date of the unitization agreement).

Placid Oil Company drilled a well within the unit area and completed a gas well in June 1947, within the terms and time of above agreement and within the primary term of the Peal-blocker lease. This well has been producing in paying quantities since its completion. This well is not located within the boundaries of the 146-acre tract, but is within the above unitized 696.82-care block. The Peals together with others executed an agreement on February 16, 1948, which authorized Placid to extract gasoline or other liquid products from the gas produced from the unit under the specifications therein detailed. This written agreement forthwith filed for record in Harrison County deed records is known in the oil circles as a processing agreement. This agreement refers to the Dee Knox unitization agreement as to its date and deed recordation of volume and page. It appears that Placid, as the operator, drilled this well pursuant to a joint venture agreement it had with Gulf Oil Corporation and Stanolind Gas Company, the terms of which agreement is not disclosed in the record.

Placid Oil Company, Gulf Corporation and Standolind Oil & Gas Company, the plaintiffs below, in a trial to the court in this trespass to try title action and for an accounting against R. J. and D. E. Whelan, and the Peals, were awarded judgment for title and possession of a one-half undivided interest in and to the mineral leasehold estate on the 146-acre tract. They also recovered a money judgment against the Whelans, being the ascertained amount of one-half of the minerals produced, less one-half of the development and operating costs. Many owners and asserted owners of mineral rights under the two asserted leasehold estates were parties to the suit but do not appeal. The court also decreed that the Dee Knox unitization agreement, hereinabove mentioned as a 'unit declaration,' was valid. The judgment details the interest of the royalty owners as well as...