Case ID: ky_221/html/0786-01.html
Source: Caselaw Access Project
Author: {"author": "Commissioner Hobson", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Hurst v. Petroleum Exploration, Inc.
    (Decided November 15, 1927.)
    Appeal from Breathitt Circuit Court.
    Mines and Minerals. — Under oil and gas lease providing a certain semiannual rental during such time as there was no producing well or lessee was not engaged in drilling or had not for a six months’ period been engaged in drilling, held, that a gas well drilled on premises was a “productive” well within the lease, precluding the necessity of general rental payments, although the gas was not being taken and marketed, where lessor was being paid the same flat rate as he would have received if gas were marketed.
    W. L. KASH for appellant.
    EDWARD O’REAR and ALLEN PREWITT for appellee.
   Opinion of the Court by

Commissioner Hobson

Affirming.

On Aprill 29, 1922, S. H. Hurst, leased to the Petroleum Exploration, a corporation, 2,000 acres of land for oil and gas. The lease contained the following provisions:

“To have and to hold unto and for the use of the lessee for the term of 5 years from the date hereof and as much longer as oil, gas, or gasoline is produced, yielding to the lessor the one-eighth part of all the oil produced and saved from the premises, delivered free of expense to the lessor’s credit into tanks of pipe lines and, before such delivery, un-. affected by any subsequent division or partition of tbe premises.
“Should gasoline be manufactured from casing-head gas produced from oil wells on the .premises hereby leased, the lessor shall receive in full payment for suchjgas, one-eighth of the surplus gasoline thus manufactured and saved, delivered in tanks provided by the lessee on the premises, free of expense, or one-eighth of the proceeds, less the cost of marketing_the same, payable to the lessor semiannually. The gasoline manufactured from casing-head gas produced on the premises hereby leased may be apportioned among several farms, according .to the number of wells on each producing and supplying gas to the gasoline plant or plants. •
“Should a well be found producing gas only, then the lessor shall be paid for the gas produced from each such well at the rate of $200 for each year so long as the gas is used or sold therefrom, payable quarterly while so marketed or used.
“Lessee agrees to commence well on said premises within one month from the date of release of all leases in said premises hereof and pay the lessor $500 each six months in advance from the 29th day of October, .1922, until said well is commenced, or this lease surrendered. The drilling of a nonprodutive well shall be accepted by the lessor in- lieu of delay rental for a period of six months from the date of its completion, at the expiration of which time the lessee shall commence another well or resume the payment of delay rental.
“The above rents and royalties are reserved on account of all of the oil and gas and include all outstanding interests, rents, and royalties, and, in the event that the lessor owns but an undivided interest, they shall be apportioned accordingly.”

On May 19, 1925, Hurst brought this suit against the corporation, alleging that the defendant entered upon the land and commenced the drilling of a well and continued so to drill- until it completed two or more nonproductive wells; that the last well was completed before April 29, 1923, and since that date no further drilling had been done and no delay rentals had been paid. He prayed judgment for $500 a year for the two years that bad so passed, amounting' to $1,000. Tbe. company answered controverting tbe allegations of tbe petition. Tbe case was beard before a jury, and- at tbe conclusion of tbe evidence the court peremptorily instructed tbe .jury to find for tbe defendant. Hurst appeals. Tbe uncontroverted facts shown by tbe proof are these:

. Immediately after tbe lease was made, tbe defendant went to work drilling. Tbe first well was commenced in May, 1922, and was completed on July 8,1922, at a cost- of $4,997.30. This well produced from 2 to 5 barrel^ of oil a day. Tbe defendant then went to work and drilled a' second well, which was commenced on August 18, 1922, and was completed on October 4 at a cost of $4,301.32. This well produced 2 barrels of oil per day. Tbe defendant constructed a 250 barrel oil tank and pumped tbe oil into tbe tank, but there was no way to deliver tbe oil, and tbe pumping operations' soon stopped. It commenced drilling a third well on February 22,1923, and completed it on March 26,1923, at a cost of $4,727.86. This was a gas well. It produced 450,000 cubic feet of gas every 24 hours. There was no pipe line to deliver tbe gas and so this well was closed in so as to prevent tbe gas from escaping, but after this tbe .defendant paid Hurst $200 a year on.this gas well, as provided by the contract.

Hurst claims that tbe wells were not productive, because none of tbe oil or gas produced from tbe wells was sold. But, if tbe gas bad been sold, be would only have been entitled to tbe $200 a year, and this be got; so be cannot complain that tbe gas was not sold. Tbe fact was this was a new field, and tbe company was simply waiting to get pipe lines in to deliver tbe product. 'Such a delay must reasonably have been anticipated by tbe parties when tbe contract was made. For tbe gas plainly could not be delivered until a pipe line was built, to tbe well. It cannot be said that a gas well which produces 450,000 cubic feet of gas a day is a nonproductive well, and certainly Hurst cannot maintain that it is a .nonproductive well when it is paying him $200 a year.

Though tbe two oil wells might be considered nonproductive under the rule laid down in Kies v. Williams, 190 Ky. 596, 228 S. W. 40, and Enfield v. Woods, 198 Ky. 328, 248 S. W. 842, this cannot apply to.the gas well; for the ruling in -.those cases rests on tbe ground that a- productive well is one that yields a royalty to the-landowner because otherwise be gets.no royalty, and tbe,-well is therefore nonproductive to him. But Hurst got $200 a year for the gas well. He got no part of the gas or its proceeds if sold. He was not affected by the fact that the gas was not piped away.

Judgment affirmed.