Young v. West Edmond Hunton Lime Unit, 35316

• Decision Date: 15 June 1954
• Docket Number: No. 35316,35316
• Parties: J. M. YOUNG and Kate Young, Plaintiffs in Error, v. WEST EDMOND HUNTON LIME UNIT, a body politic and corporate, Defendant in Error.
• Court: Oklahoma Supreme Court

Page 304

275 P.2d 304

1954 OK 195

J. M. YOUNG and Kate Young, Plaintiffs in Error, v. WEST EDMOND HUNTON LIME UNIT, a body politic and corporate,

Defendant in Error.

No. 35316.

Supreme Court of Oklahoma.

June 15, 1954.

Rehearing Denied Sept. 28, 1954.

Application for Leave to File Second Petition for Rehearing

Denied Oct. 19, 1954.

Dissenting Opinion Oct. 30, 1954.

Syllabus by the Court.

1. When the Corporation Commission of Oklahoma, under authority of 52 O.S.Supp.1949 § 286.1 et seq. entered its order unitizing a designated land area for oil production, it thereby created a corporate body with the duty and the exclusive authority to develop and produce the entire designated area as a single unit for the benefit jointly and severally of the various persons interested in oil production in the aggregate area, and with the duty to distribute the oil produced from the area to and among the various owners of mineral rights and interests in the land of the unit, according to the percentage of aggregate production allocated to each such owner out of such production. It is the duty of the unit organization to distribute such allocated percentage to each such owner in oil if desired, or the proceeds thereof determined at the highest market price available, in the absence of an agreement with any such respective owner for other disposition of his respective percentage share in the unit production.

2. Prior to unitization the lessor and lessee of any productive tract of land owned the specific oil produced therefrom and had the exclusive right to produce and dispose of oil from that tract for their own benefit to the exclusion of their neighbors who then had no rights or interests therein, but after unitization the exclusive right to manage such tract for oil purposes and the exclusive right to drill new wells and to produce new wells and old wells on that tract passed from the original tract lessor and lessee to the unit organization, and the management and the handling of production from such tract passed to the unit organization in trust for the persons entitled thereto percentage wise, subject of course to the duty of the unit organization to properly make accounting and delivery of percentages as allocated.

3. Unit operation of a producing oil field under unitization created or organized pursuant to state statute, 52 O.S.Supp.1949 § 286.1 et seq., is in the nature of an operation by a trustee and there is required a high degree of fidelity to all those entitled to receive fixed and stated percentages of the production or its proceeds.

4. A division order signed by a royalty owner before the unit was created referring to his own oil from his individual acreage then producing oil, is insufficient and ineffective to authorize the subsequently created unit to dispose of the royalty owner's percentage share of the oil in the unit production, or of any of the unit oil, to a purchaser not paying the highest price available in the field.

5. A suit by a royalty owner against a unit for a loss sustained in the failure of the unit and its operator, during a certain period, to take or deliver unit production at the highest sale or market price available, presents a question of common or general interest to the other numerous owners of royalty interests in the separately-owned tracts of the unit and who in said period have not received their share of the unit production in kind, or the proceeds thereof measured by the highest properly available price. In such reason one or more of such royalty owners may sue for the benefit of all. 12 O.S.1951 § 233.

John Barry, La Jolla, Cal., Wayne W. Bayless, Oklahoma City, for plaintiffs in error.

Robinson, Shipp, Robertson & Barnes, Oklahoma City, and George Hazlett, Cleveland, Ohio, for defendant in error.

WELCH, Justice.

The facts are not in dispute.

The plaintiffs owned the mineral interest and rights in a certain one-half section and a one-quarter section of land (total 480 acres). The mineral interests in these lands, in respective separate tracts, were leased to Sohio Petroleum Company, Stanolind Oil and Gas Company, and Peppers Refining Company. The said lands became productive of oil and gas, and adjoining lands also became productive of oil and gas. The whole area of proven productivity (several thousand acres) thereafter became designated as the West Edmond Hunton Lime Field, and was ordered unitized by the Corporation Commission, and to be operated and produced as a single unit, by the unit organization, in accordance with a plan of unitization submitted by the lessees of the various tracts in the field. Under the order of the Corporation Commission, and the 'unitization statutes' then existing, 52 O.S.Supp.1949, § 286.1, et seq., the West Edmond Hunton Lime Unit, a body politic and corporate, was created as such unit organization. A committee, composed of the oil and gas lessees of the various separate tracts comprising the unitized area, and acting for the body corporate, selected Sohio Petroleum Company to operate and develop and produce the unitized area for the unit. This deprived the various lessees of any further right or authority or duty to operate their respective leased premises, or to produce oil therefrom.

Under the unitization plan, and according to law, a calculation was made of the potential productivity of each separate leasehold tract of land, and to each such tract there was allocated a stated per centage of all the oil to be produced by the unit organization from the whole area included in the unitization. That percentage was then divided seven-eighths to the respective tract lessee, and one-eighth to the respective tract lessor and thus a specified per centage of the overall production of the entire unitized area was thereby allocated to each lessor and lessee in the area, without regard to where the oil was produced in the area.

Sohio Petroleum Company, Champlin Refining Company, Continental Oil Company and Phillips Petroleum Company were all purchasers of oil from the area at the beginning price of $2.65 per barrel. In the second year of the unit operation of the field, and during a period from September 28th to December 17th, the Phillips Petroleum Company, which had oil pipe lines or gathering lines throughout the unit area, posted a price of $3 per barrel for oil from the area, and continuously during said period offered to buy and bought from the unit and its operator a substantial portion of the oil produced from the unit area at such posted price. During such time, however, there was sale of some oil produced from the unit area to other purchasing companies and some of the unit oil was taken by the unit operator himself at and for the price of $2.65 per barrel. During such period of time the percentage of production of the unit operation allocated to the royalty interest of the plaintiffs amounted to 3,438 barrels, and the plaintiffs received the proceeds from such an amount of oil at a price of $2.65 per barrel.

The plaintiffs, in pleading, alleged, in substance, the foregoing state of facts and averred that the defendant, as agent and trustee of the plaintiffs, and others similarly situated, violated a duty owed to the plaintiffs, and others similarly situated, in that it failed to obtain $3 per barrel for such oil as was produced from the unit and allocated to the plaintiffs, and such others, in the certain period from September 28th to December 17th, and that plaintiffs thereby suffered a loss, damage and detriment in a sum equal to 35cents per barrel alleged in pleading to be applied to 3,620 barrels of oil, or a total sum of $1,367, (in evidence by stipulation the above figure corrected to be 3,438 barrels), and it was alleged that the others similarly situated as the plaintiffs suffered loss of 35cents per barrel accordingly, as to their respective interests in the production of the unit in such period.

The plaintiffs prayed that they have money judgment against the defendant and that the court enter judgment directing the defendant to account to and pay to all persons similarly situated as plaintiffs, owning royalty interests in the oil produced from the unit, the sum equal to 35cents per barrel applied to their respective percentage interests in the total barrelage of oil produced from the unit during the said period from September 28th to December 17th.

The defendant, by answer, averred that it never at any time was authorized to market any unit production; that the manner and method of sale and disposition of the plaintiffs' part of the production from the lands within the unit was governed and controlled by the terms of oil and gas leases and division orders executed by the plaintiffs prior to unitization, and that plaintiffs have been paid for all production purchased from them under the terms of said leases and previous division orders; that the rights of other owners of mineral interests within the unit are not identical, and plaintiffs were without right to maintain the action as a class action.

In the oil and gas leases executed by the plaintiffs prior to unitization the lessees covenanted:

'To deliver to the credit of lessor, free of cost, in the pipe line to which lessee may connect wells on said land, the equal one-eighth part of all oil produced and saved from the leased premises.'

Prior to unitization the plaintiffs and their lessees, and assigns of their lessees, signed division orders addressed to an oil purchasing company wherein they each warranted their ownership in respective proportions of all of the oil produced from the said certain described lands, and wherein they authorized the oil purchaser company, until further notice, to receive their individual oil from the said certain premises for purchase from the said parties severally in the proportions named. The plaintiffs were named as owners of a one-eighth of the total production from the described lands.

At the close of all the evidence in...