Young v. Amoco Production Co.

• Decision Date: 11 June 1985
• Docket Number: No. TY-82-390-CA.,TY-82-390-CA.
• Citation: 610 F. Supp. 1479
• Parties: M.G. YOUNG, et al., v. AMOCO PRODUCTION COMPANY.
• Court: U.S. District Court — Eastern District of Texas

610 F. Supp. 1479

M.G. YOUNG, et al., v. AMOCO PRODUCTION COMPANY.

No. TY-82-390-CA.

United States District Court, E.D. Texas, Tyler Division.

June 11, 1985.

COPYRIGHT MATERIAL OMITTED

James N. Phenix, John R. Phenix, Henderson, Tex., for plaintiffs.

Rodney H. Lawson, Carrington, Coleman, Sloman & Blumenthal, Dallas, Tex., Howard Coghlan, Kenley, Boyland & Coghlan, Longview, Tex., for defendant.

STEGER, District Judge.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

On November 13, 1984, came on for trial before the Court the above-entitled and numbered cause. Having heard the evidence presented and having duly considered all testimony, exhibits and arguments before it, the Court hereby enters these its Findings of Fact and Conclusions of Law in conformity with Fed.R.Civ.P. 52(a). Any finding of fact which constitutes a conclusion of law shall be deemed a conclusion of law. Any conclusion of law which constitutes a finding of fact shall be deemed a finding of fact.

FINDINGS OF FACT

1. The Plaintiffs in this action are M.G. Young, Agnes Menefee, Mary Effie Smith, Margaret Ann Murray, Helen Griffin, James K. Young, Jack E. Young, Effie Downs, and Katherine Gray.

2. The Defendant herein is Amoco Production Company ("Amoco").

3. On May 4, 1950, Plaintiffs and/or their predecessors in title executed an oil, gas, and mineral lease (hereinafter referred to as "Lease # 1") in favor of Jack H. Meeks. Plaintiffs' Exhibit No. 2. This lease was for a primary term of ten (10) years and included six separate tracts. See Defendant's Exhibit No. 1. On that same day, Lease # 1 was assigned to the Defendant's predecessor, Pan American Production Company. Plaintiffs' Exhibit No. 3. Delay rentals were paid and received for Lease # 1 effective through May 23, 1957. Defendant's Exhibit No. 2. In April of 1956, the Carthage Unit No. V was established and included acreage covered by Lease # 1. See Plaintiffs' Exhibit No. 6. The Carthage Unit No. V produced until July 26, 1963, at which time the well in this unit was plugged and abandoned. Plaintiffs' Exhibit No. 7. In July of 1956, the Carthage Unit No. VI was established and also included acreage covered by Lease # 1. See Plaintiffs' Exhibit No. 4. The Carthage Unit No. VI produced until June 12, 1963, at which time the well in this unit was plugged and abandoned. In March of 1960, the Mattie Horton Unit No. 1 was established. Plaintiffs' Exhibit No. 8. In April of 1960, the A.O. Menefee Estate Unit No. 1 was established. Plaintiffs' Exhibit No. 12. Both the Mattie Horton Unit No. 1 and the A.O. Menefee Estate Unit No. 1 included acreage covered by Lease # 1 and produced until January 1, 1962, at which time both of these units were absorbed into the Tatum Crane Water Flood Unit (hereinafter referred to as "Tatum Crane Unit"). Plaintiffs' Exhibit Nos. 9, 10, and 13. The Tatum Crane Unit continued to include acreage covered by Lease # 1. See Plaintiffs' Exhibit No. 10.

4. On May 4, 1950, Plaintiffs and/or their predecessors in title executed a second oil, gas, and mineral lease (hereinafter referred to as "Lease # 2") in favor of Jack H. Meeks. Plaintiffs' Exhibit # 14. This lease was also for a primary term of ten (10) years and included two separate tracts. See Defendant's Exhibit No. 1. Lease # 2 was also assigned to Amoco's predecessor, Pan American Production Company, on May 6, 1950. Plaintiffs' Exhibit No. 15. The proper delay rentals were paid and received for Lease # 2 effective through May 4, 1960. See Defendant's Exhibit No. 3. As previously noted, the A.O. Menefee Estate Unit No. 1 was established in April of 1960 and began production. Acreage covered by Lease # 2 was included in this unit and was later absorbed into the Tatum Crane Unit. See Plaintiffs' Exhibit Nos. 12 and 13. All of the acreage covered by Lease # 2 is within the Tatum Crane Unit.

5. On April 23, 1953, Plaintiffs and/or their predecessors in title executed a third oil, gas, and mineral lease (hereinafter referred to as "Lease # 3") in favor of W.D. Morrow. Plaintiffs' Exhibit No. 16. This lease was also for a primary term of ten (10) years and contained only one tract. See Defendant's Exhibit No. 1. Lease # 3 was also assigned to Amoco's predecessor, Pan American Production Company, on May 11, 1953 and delay rentals were paid and received effective through April 23, 1961. See Plaintiffs' Exhibit No. 17 and Defendant's Exhibit No. 4. From February of 1961 until January 1, 1962, Lease # 3 was producing by means of the Minnie Bell Young Well No. 1. Plaintiffs' Exhibit No. 18. On January 1, 1962, this lease, along with the Minnie Bell Young Well No. 1 was absorbed into the Tatum Crane Unit. Plaintiffs' Exhibit No. 10. All of the acreage covered by Lease # 3 is within the Tatum Crane Unit. Id.

6. As noted above, the Tatum Crane Unit was established in January of 1961 and became effective on January 1, 1962. Plaintiffs' Exhibit Nos. 10 and 11. Subsequently, on April 26, 1961, Plaintiffs and/or their predecessors in title executed a Ratification of Unit Agreement regarding the Tatum Crane Unit. Plaintiffs' Exhibit No. 11. This ratification was made effective as of December 1, 1960. Id. The production, expense and revenue records indicate, as the parties have stipulated, that, at all material times, the Tatum Crane Unit has been commercially productive and that there has never been a cessation of commercial production from such Unit. See Defendant's Exhibit Nos. 6 and 7.

7. Each of the three leases in question contained a pooling provision which states as follows:

16. (a) Lessee is hereby granted the right and power, exercisable at any time and from time to time while this lease is in force and within 20 years from the date hereof, but not thereafter, to pool and combine the land covered by this lease, or any portion or portions thereof, as to all or any minerals or strata thereunder, situated in the same general area as the land covered hereby, so as to create a unit or units of such size in surface acres as Lessee may desire, and prior to obtaining production from the pooled area to dissolve a pool theretofore created and to create a new pool or pools.

8. As is evident from the findings of the Court above, there appears to be little question that the production history on various tracts covered by the three leases in question has been extensive. However, Plaintiffs contend that Amoco has failed in its covenant to reasonably develop, explore and produce the Cotton Valley Sand gas formation apparently located under these tracts. As early as 1981, Amoco had already begun reviewing the development of that particular strata in the area covered by the leases in question. Under its plan for the proposed development of the Cotton Valley Sand under the tracts in question, Amoco authorized two proposed units. At that time Amoco was of the opinion that the three leases in question were being held by production from the Tatum Crane Unit. However, Amoco determined that, because of the twenty-year pooling provisions in these leases, additional pooling authority would be necessary to develop the Cotton Valley Sand. In an effort to gain the necessary pooling authority, Dudley Baskett, on behalf of Amoco, contacted the Plaintiffs in January of 1982 about executing lease amendments giving the additional pooling authority. The Plaintiffs were offered the same terms as all other landowners in the area, but refused to authorize additional pooling. Again, in April of 1982, the Plaintiffs were contacted by Mr. Baskett and by John Studdard, an Amoco landman, about giving the additional pooling authority to allow the development of the Cotton Valley Sand. Again, the Plaintiffs refused. Although the actual development of the leases in question has been abated pending the outcome of this action, Amoco has continued to negotiate with the Plaintiffs in an effort to obtain this additional pooling authority.

9. The proposed development by Amoco of the leases in question will be pursuant to the Dirgin Field Rules adopted by the Texas Railroad Commission for the development of the Cotton Valley Sand. See Defendant's Exhibit No. 8. These Rules provide for proration units of 160 to 704 acres. Id. Although the current plan is to drill two wells on the acreage covered by the leases in question, there is a possibility that, once production has begun, two additional wells might be drilled. Furthermore, pursuant to its plan for development of these leases, Amoco has entered into three contracts for the sale of the gas produced from the tracts in question.

10. Despite their claims that the leases in question have terminated and that Amoco has failed to reasonably develop the acreage in question, Plaintiffs have continued to receive and accept royalty payments from the Tatum Crane Unit.

11. The parties having stipulated to the following facts, the Court hereby adopts them as the Court's findings of fact:

a. There was commercial production attributable to each of the three leases made the basis of this action at the end of the primary term of each lease.

b. The Tatum Crane Unit has at all material times been commercially productive and there has never been a cessation of commercial production from said Unit.

c. There has never been a cessation of production attributable to any of the three leases in question.

d. The Plaintiffs have not suffered any monetary damages as a result of the allegations made the basis of this action.

CONCLUSIONS OF LAW

1. The Court has jurisdiction of the subject matter and the parties in this action.

2. As noted above, there is no dispute among the parties that, at the end of their respective primary terms, there was commercial production attributable to each of the leases in question and that, therefore, each lease was, by its own terms, being held by production.

3. However, although Plaintiffs admit that they and/or their predecessors

in title did execute the Ratification of Unit Agreement regarding the...