Case ID: sw_283/html/0608-01.html
Source: Caselaw Access Project
Author: {"author": "■ PANNILL, C. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

GRIFFITH v. JOHNSON.
    (No. 114.)
    (Court of Civil Appeals of Texas. Eastland.
    March 26, 1926.
    Rehearing Denied April 30, 1926.)
    1. Mines and minerals <®=»l 09 — Whether oil or gas is found in paying quantities is dteter-minable by good faith and honest judgment of operator.
    Whether oil or gas is found in paying quantities within meaning of lease is to be determined by good faith and honest judgment of operator, applying sound business principles.
    2. Mines and minerals ¡3=>I09 — Evidence held to warrant inference that well driller elected to decide that wells contained gas in paying quantities, so as to render him liable to> landowner for stipulated sum.
    Evidence held to warrant inference that one contracting to drill wells to stated depth, unless oil or gas in paying quantities were sooner discovered, and to pay landowner certain sum if discovered in such quantities, elected to decide, when wells were drilled to less than such depth, that they contained gas in paying quantities, so as to render him liable to landowner for stipulated payment.
    Error from District Court, Taylor County; W. R. Ely, Judge.
    Suit by J. E. Johnson against A. A. Griffith. Judgment for plaintiff, and defendant brings error.
    Affirmed on rehearing.
    Mack & Mack and McLean, Scott & McLean, all of Fort Worth, and R. W. Haynie, of Abilene, for plaintiff in error.
    B. L. Russell, of Baird, and Dallas Scarborough, of Abilene, for defendant in error.
   ■ PANNILL, C. J.

Plaintiff in error will be designated as appellant, and defendant in error as appellee.

On the original consideration of this appeal, the judgment in appellee’s favor was reversed and the cause remanded. At the time no brief was filed for appellee. On motion for rebearing it bas been shown tbat tbe failure to file briefs was not due to any fault on appellee’s part. Upon consideration of tbe entire case it appears tbat tbe judgment should be affirmed, and tbe reasons will be briefly stated.

Appellant drilled three wells under a contract requiring tbat a well for oil or gas be drilled to a depth of 600 feet, unless oil or gas in “paying quantities” was discovered at a less depth, and payment to appellee of a certain sum, if oil or gas in “paying quantities” was discovered on premises of ap-pellee. Each of tbe wells was drilled to a depth of approximately 300 feet. In tbe first well a small flow of gas was found. • Appellant then moved bis machinery to another location, and drilled to tbe same sand and discovered a flow of gas of approximately 1,750,000 cubic feet. No effort was made to drill deeper. Tbe well was capped and another drilled to tbe same stratum, and a gas well with a volume of 2,370,000 cubic feet was found. Tbe rock pressure in each was about 90 pounds. After appellant learned tbat be could not market tbe gas, appellee made demand on appellant for payment of tbe sum agreed on. Appellant replied in substance tbat there was no agreement as to tbe time payment should be made, and tbat appellant could not pay all tbe amount demanded, but if appellee needed tbe money appellant would pay as much as $50 or $100 on tbe 1st of tbe nest month. Thereafter appellant moved bis drilling machinery to work elsewhere.

The evidence shows that all tbe towns in tbe territory contiguous to tbe wells in question were being supplied with gas, and tbat tbe only pipe line for such product was tbat of tbe Texas Company, in which the pressure’ ranged from 175 pounds in summer to 200 in winter; that on account of tbe greater pressure in such pipe line the gas from tbe wells in question would not enter such line, i but on account of having a lower pressure tbe gas from tbe wells in question would be “kicked back.”

Therefore tbe only possible method by which tbe gas from appellee’s wells could be utilized would require tbe building of a pipe line to Moran some five miles away and the installation of compressor pumps commonly called a booster plant. A test of tbe well was bad by tbe Texas Company’s agents, and such agents informed appellee tbat tbe gas was not sufficient either in volume or pressure for use by tbat company. Appellant then sought to secure an agreement from tbe Texas Company to use tbe gas, appellant offering to buy and operate tbe necessary plant, which offer tbe Texas Company refused on tbe ground tbat it was not practical to do so with the wells in question. Tbe cost of constructing tbe necessary plant and pipe line was estimated by appellee’s witness to exceed $20,000. Tbe cost of operating such a plant was estimated by appellee’s witness at $200 per month or more, and by tbe Texas Company’s representatives to be from 2 to 3 cents per thousand cubic feet. It is further uncontradicted tbat tbe gas in question being produced from a shallow sand tbat tbe life of such wells is uncertain. Tbe rules of tbe railroad commission do not permit ¡the taking of more than 50 per cent, of tbe gas produced from gas wells on account of tbe fact tbat when the gas pressure is reduced to a certain stage, salt water will enter the gas stratum and ruin all the wells being operated from tbat sand. Tbe price being paid by the Texas Company for gas delivered to its pipe line is not shown.

Appellant introduced several witnesses, experienced oil men, and one of them tbe Texas Company’s engineer, who testified that in tbe judgment of such witnesses, tbe wells in question did not produce, under tbe facts and evidence, gas in “paying quantities.” No witness testified for appellee that tbe gqs from such wells was being produced in “paying quantities.”

Appellee brought this suit in two counts: One for tbe sum stipulated to be paid, alleging tbat gas bad been found in “paying quantities,” and, in the alternative, if it was determined tbat gas iq “paying quantities” bad not been found, for cancellation for failure to pay the rentals provided for in tbe lease and for failure to drill to tbe required depth. Upon tbe trial, the court found in appellee’s favor on the first count.

Tbe appellant seeks to apply tbe general rule:

“That whether oil or gas is found in ‘paying quantities’ is to be determined by tbe operator acting in good faith and upon Ms honest judgment, not an arbitrary judgment nor one springing from an ulterior purpose or to obtain some unfair advantage of-the land owner, but a judgment arrived at by the exercise of good faith, and by applying sound business principles.” T., P. C. & O. Co. v. Bruce (Tex. Civ. App.) 233 S. W. 535; T., P. C. & O. Co. v. Bratton (Tex. Civ. App.) 239 S. W. 688; Masterson v. Amarillo Oil Co. (Tex. Civ. App.) 253 S. W. 908; Aycock v. Paraffine Oil Co. (Tex. Civ. App.) 210 S. W. 851; Manhattan Oil Co. v. Carrell, 73 N. E. 1084, 164 Ind. 526.

The rule above quoted, which was appnect in tbe cases cited, is generally applied in cases where tbe continuance or termination of tbe lease is contingent upon whether oil and gas is being produced in “paying quantities,” and where tbe lessee is producing and marketing tbe gas, in such case tbe question as to whether such product is being produced in “paying quantities” is left to bis judgment under the rule stated. This rule bas been further applied to cases where oil and gas bas been discovered and it is sought to impose upon lessee tbe duty of drilling additional wells, as shown in Aycock v. Par-affine Oil Co., supra, in which case the matter is viewed from a different angle not material here.

It appears that the application of the rule as contended for by appellant must lead to .an affirmance.' When appellant tested the wells in question, he had the option to declare either that he had discovered gas in “paying quantities” and pay the sum stipulated, or that the gas found would not pay and drill to the required depth. It iá believed that the conclusion of the court that gas in “paying.quantities” was found is supported by the testimony quoted, from which it, can he reasonably inferred that appellant elected to decide that the wells contained gas in “paying quantities,” and, having made that election, he is bound. The former opinion is withdrawn.

Appellee’s motion for rehearing granted, and the judgment affirmed. 
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