Case Title: Wolff v. Belco Development Corp.

Citation: 

Docket Number: 86-201

State: wyoming

Court: Wyoming Supreme Court

Date: 1987-05-06T00:00:00Z

Document:
Wolff v. Belco Development Corp.1987 WY 57736 P.2d 730Case Number: 86-201Decided: 05/06/1987Supreme Court of Wyoming
James 
A. WOLFF, Appellant (Plaintiff),

 
 
v.

 
 
BELCO 
DEVELOPMENT CORPORATION, Gulf Oil Exploration & Production Company, a 
division of Gulf Oil Corporation, Chevron, U.S.A., Inc., All Minerals, Inc., and 
Pendleton Land & Exploration Inc., Appellees 
(Defendants)

 
 
Neil 
J. Short of Ross & Short, Casper, for Appellant.

 
 
Thomas 
Reese of Brown, Drew, Apostolos, Massey & Sullivan, Casper, for 
Appellees.  

 
 
Before 
Brown, C.J., and Thomas, Cardine, Urbigkit, and Macy, JJ.  Urbigkit, Justice, dissenting, with whom 
Macy, Justice, joins.  

 
 
CARDINE, 
Justice.

 
 
[¶1.]     This is a quiet title 
action in which appellant, who owns two-thirds of the mineral estate underlying 
a tract of land in Campbell County, Wyoming, sought a judicial declaration that 
appellees' oil and gas leasehold interests in a portion of those lands had 
expired. The district court found that, under the terms of the oil and gas lease 
and a subsequent communitization agreement, production on a communitized area 
which included part of the leased area kept the entire lease in force. The 
single issue before us on appeal is whether the district court erred in reaching 
this conclusion and granting summary judgment for 
appellees.

 
 
[¶2.]     We 
affirm.

 
 
[¶3.]     Appellant is the owner 
of the mineral estate underlying approximately 803 acres of Campbell County 
land. By an oil and gas lease executed January 5, 1967, appellant's predecessor 
in interest leased the lands to appellees' predecessor in interest. The lease 
contained a standard habendum clause which provided that "it is agreed that this 
lease shall remain in force for a term of Ten years from date, and as long 
thereafter as oil or gas, or either of them, is produced from said land by the 
lessee, its successors and assigns." A pooling clause was stricken from the 
lease.

 
 
[¶4.]     On November 12, 1971, 
appellant and his predecessor in interest executed a communitization agreement 
which committed 40 acres of the leased land to an 80-acre communitized area.1 The remaining 40 acres of the 
communitized area consisted of federal mineral acreage. The communitization 
agreement contained the following provisions:

 

"WHEREAS, 
the Act of February 25, 1920, 41 Stat. 437, as amended by the Act of August 8, 
1946, 60 Stat. 950, 30 U.S.C. Secs. 181 et seq., authorizes communitization or 
drilling agreements communitizing or pooling a Federal oil and gas lease, or any 
portion thereof, with other lands, whether or not owned by the United States, 
when separate tracts under such Federal lease cannot be independently developed 
and operated in conformity with an established well-spaced program for the field 
or area and such communitization or pooling is determined to be in the public 
interest; and

 

"WHEREAS, 
the parties hereto own working, royalty or other leasehold interests, or 
operating rights under the oil and gas leases and lands subject to this 
agreement which cannot be independently developed and operated in conformity 
with the well-spacing program established for the field or area in which said 
lands are located; and

 

"WHEREAS, 
the parties hereto desire to communitize and pool their respective mineral 
interests in lands subject to this agreement for the purpose of developing and 
producing communitized substances in accordance with the terms and conditions of 
this agreement:

 

"NOW, 
THEREFORE, in consideration of the premises and the mutual advantages to the 
parties hereto, it is mutually covenanted and agreed by and between the parties 
hereto as follows:

 

"1. 
The lands covered by this agreement (hereinafter referred to as 'communitized 
area') are described as follows: W 1/ 2 SE 1/4 of Section 6, Township 54 North, 
Range 73 West, Campbell County, Wyoming

 

"Containing 
80.00 acres, more or less, and this agreement shall include only the Muddy 
formation underlying said lands and the crude oil and associated gaseous 
hydrocarbons, hereinafter referred to as 'communitized substances' * * * 
*.

"2. 
Attached hereto, and made a part of this agreement for all purposes, is Exhibit 
A designating the operator of the communitized area and showing the acreage, 
percentage and ownership of oil and gas interests in all lands within the 
communitized area, and the authorization if any, for communitizing or pooling 
any patented or fee lands within the communitized area."

 
 
 The communitization agreement further 
provided:

 
 
 "6.(a) The royalties payable on 
communitized substances allocated to the individual leases comprising the 
committed area and the rentals provided for in said leases shall be determined 
and paid on the basis prescribed in each of the individual leases. Payment of 
rentals under the terms of leases subject to this agreement shall not be 
affected by this agreement except as provided for under the terms and provisions 
of said leases or as may herein be otherwise provided. Except as herein modified 
and changed, the oil and gas leases subject to this agreement shall remain in 
full force and effect as originally made and issued. 

* 
* *

"8. 
The commencement, completion, continued operation or production of a well or 
wells for communitized substances on the communitized area shall be construed 
and considered as the commencement, completion, continued operation or 
production on each and all of the lands within and comprising said communitized 
area, and operations or production pursuant to this agreement shall be deemed to 
be operations or production as to each lease committed 
hereto."

 

[¶5.]     After this 
communitization agreement had been executed, commercial production was obtained 
from a well located on the 40 acres of federal mineral acreage committed to the 
agreement. Appellant received royalties as a result of production from that 
well.

 
 
[¶6.]     In March, 1986, 
appellant initiated the present action seeking to quiet title to that portion of 
his lands included in the lease but not committed to the communitization 
agreement. Appellant contended that production on the communitized area should 
not be considered to be production on the remainder of the leased acreage and 
therefore, with respect to that remaining acreage, the lease had expired. The 
district court rejected appellant's contentions and granted summary judgment in 
favor of appellees.

 
 
[¶7.]     The parties agree that 
the disposition of this case is governed by principles of contract 
law.

 

"'Our 
basic purpose in construing or interpreting a contract is to determine the 
intention and understanding of the parties. If the contract is in writing and 
the language is clear and unambiguous, the intention is to be secured from the 
words of the contract.'" (Citations omitted.) Rouse v. Munroe, Wyo., 658 P.2d 74, 77 (1983) (quoting Amoco Production Company v. Stauffer Chemical 
Company of Wyoming, Wyo., 612 P.2d 463 (1980)).

 
 
[¶8.]     Appellant presents two 
alternative theories. The first is that the lease and unitization agreement form 
a contractual scheme that is clear and unambiguous and that "principles of 
common sense and good faith require a finding that only forty acres * * * * 
included in the Oil and Gas Lease are held by production under the 
Communitization Agreement." Appellant's second theory is that if the contractual 
scheme is ambiguous, any ambiguity must be resolved against appellees, the 
drafters of the communitization agreement.

 
 
[¶9.]     We agree with the 
proposition that both documents must be read together as forming the contract 
between the parties. See Busch Development, Inc. v. City of Cheyenne, 
Wyo., 645 P.2d 65, 68, 70 (1982). According to appellant, ambiguity arises from 
the fact that the pooling clause was stricken from the 1967 lease. Appellant 
suggests that the striking of that clause indicates "that the Lessors would not 
take great pains to strike the Pooling Clause in the Lease only to completely 
reverse their position approximately four years later." The clear terms of the 
communitization agreement, however, demonstrate that the lessors did reverse 
their position. Paragraph 6(a) provides that "except as herein modified and 
changed, the oil and gas leases subject to this agreement shall remain in 
full force and effect as originally made and issued." (Emphasis added.) 
Paragraph 8 of the agreement states that production on the communitized area 
"shall be construed and considered as * * * * production on each and all of the 
lands within and comprising said communitized area" and that "production 
pursuant to this agreement shall be deemed to be * * * * production as to 
each lease committed hereto." (Emphasis added.) Attached to the 
communitization agreement is "Exhibit A" which is entitled "Description of 
Leases Committed." This document identifies the 1967 lease as a lease committed 
to the agreement.

 
 
[¶10.]  Once the communitization agreement was 
executed, the striking of the pooling clause in the 1967 lease became 
irrelevant. The written terms of the contract and specifically paragraph 8 
constitute a clear and unambiguous expression of the parties' intent that 
production on the communitized area would hold the entire leased 
acreage.

 
 
[¶11.]  Appellant further contends that since the 
communitization agreement describes only the 40-acre tract of appellant's land, 
only those 40 acres are affected by the agreement. In support of this argument, 
appellant cites Hartman v. Potter, Utah, 596 P.2d 653 (1979), a case 
which addresses the problem of ascertaining the intent of the grantor of a deed. 
In that case, the court said: "the description of the property in a deed is 
prima facie an expression of the intention of the grantor." Id. at 656. In this 
case, however, the communitization agreement, by its terms, affects both the 
lands described as being committed to the communitization area and each 
lease committed to the agreement.

 
 
[¶12.]  This case was presented to both the trial 
court and this court upon the parties' agreement that upon undisputed facts the 
only issue was one of interpretation of the parties' contract. There was no 
claim that the leased area might be drained by production from the communitized 
area. If such claim is ever made, appellant is amply protected by the implied 
covenant of reasonable development and the implied covenant against drainage. 
See Clovis v. Pacific Northwest Pipeline Corporation, 140 Colo. 552, 345 P.2d 729, 731 (1959). The fact that in two cases cited the party claiming 
drainage did not prevail is of no import. In all cases one party prevails, the 
other loses, usually because they simply did not satisfy the burden of 
persuasion. 

 
 
[¶13.]  Affirmed.

 
 
FOOTNOTES

 
 

1Rocky 
Mountain Mineral Law Foundation, Law of Federal Oil and Gas Leases (1986), 
defines "communitization" as:

 

"Communitization, or 
pooling as it is usually called where nonfederal lands are involved, is the 
agreement to combine small tracts for the purpose of committing enough acreage 
to form the spacing and proration unit necessary to comply with the applicable 
state conservation requirements." Id. at § 18.01[2].

 
 

Urbigkit, 
J., filed a dissenting opinion in which Macy, J., joined.

 
 
URBIGKIT, 
Justice, dissenting, with whom MACY, Justice, joins.

 
 
[¶14.]  By appeal, this court now considers a 
1967 fee oil and gas lease of 803.24 acres, of which 40 acres was pooled with an 
adjoining 40-acre federal lease to establish a drilling unit. The well was 
drilled on the federal lease component in 1971, and since 1972 has been a 
producing well. No demonstrated explanation or production effort under the lease 
was ever made on any of the leased premises during the 20-year period, now 10 
years past the stated expiration date.

 
 
[¶15.]  The original lessor was appellant's 
father, and appellant is the present owner of a two-thirds mineral interest. The 
lease included lands located in both Townships 54 and 55, approximately divided 
with a portion of the lease in Section 6, Range 73 West, Township 54 North, and 
the balance in Township 55 North. The drilling site was under a federal lease in 
the W 1/ 2 NE 1/4, Section 6, and the portion of the remaining lease in that 
section is still in contest and is subject to the 1967 lease under claims of 
defendants Belco Development Corporation, Gulf Oil Exploration & Production 
Company, and Chevron, U.S.A., Inc. The lands in Township 55 North had been 
abandoned or released. Consequently at issue is the present validity of the 1967 
lease as to the NW 1/4, Lots 3, 4, and 5, and the SE NW, Lots 1 and 2, (N 1/ 2 
NE 1/4) S 1/ 2 NE 1/ 4 NE 1/ 4 SE 1/ 4 NE 1/ 4 SW 1/4, Section 6, Township 54 
North, Range 73 West.

 
 
[¶16.]  The original fee oil and gas lease 
document, in typical oil-patch printed form, included a pooling clause which 
was expressly deleted in execution.1 Neither the 
resulting lease after deletion of the pooling clause, nor the subsequently 
executed pooling agreement for the well site included a Pugh clause. 4 Kuntz, 
Law of Oil and Gas, § 48.4 at 225 (1972); Comment, The Effect of Unitization 
on the Duration and Extent of Mineral Interests in Louisiana, 36 Tul. L. 
Rev. 769 (1962); Moses, Some Comments on the 'Pugh' Clause in Louisiana Oil 
and Gas Leases, 37 Tul. L. Rev. 269 (1963). Obviously, the clause was not 
necessary with deletion of the lease term, and it was not considered in the 
pooling agreement when the agreement was tendered to the uninformed lessor by 
the oil company representative.

 
 
INTENT 
OF THE PARTIES

 
 
[¶17.]  In 1971, the agreement, which is 
designated by loose terminology as a communitization agreement and is in fact a 
pooling agreement2 for well site, was 
executed. It is from the pooling agreement terminology that the first issue is 
developed.

 

[¶18.]  That decision encompasses consideration 
whether the language of the pooling agreement is sufficiently clear or subject 
to a sufficiently clear understanding by the layman landowner to fairly 
communicate an intended burden upon his land, or conversely, is the language 
ambiguous or subject to fraudulent criteria so that an issue of fact upon oral 
evidence is presented as a defense to summary judgment? In a recent case this 
court examined the relationship between parol evidence and written-agreement 
provisions.  Cordova v. 
Gosar, Wyo., 719 P.2d 625 (1986).

 
 
[¶19.]  The 1971 80-acre pooling agreement, para. 
6 in part provided:

 

"6. 
(a) The royalties payable on communitized substances allocated to the individual 
leases comprising the communitized area and the rentals provided for in said 
leases shall be determined and paid on the basis prescribed in each of the 
individual leases. Payment of rentals under the terms of leases subject to this 
agreement shall not be affected by this agreement except as provided for under 
the terms and provisions of said leases or as may herein be otherwise provided. 
Except as herein modified and changed, the oil and gas leases subject to this 
agreement shall remain in full force and effect as originally made and 
issued."

 

Thereafter, 
para. 8 provided:

 
 
"8. 
The commencement, completion, continued operation or production of a well or 
wells for communitized substances on the communitized area shall be construed 
and considered as the commencement, completion, continued operation or 
production on each and all of the lands within and comprising said communitized 
area, and operations or production pursuant to this agreement shall be deemed to 
be operations or production as to each lease committed 
hereto."

 
 
 I do not find this language to be so 
clear and definite that the landowner is not entitled to rely on what he was 
told in explanation by the oil company representative when tender for execution 
was made. Compare McGinnis v. General Petroleum Corp., Wyo., 385 P.2d 198 
(1963), where both a lease pooling clause and a subsequent confirmation 
agreement were executed.

 
 
[¶20.]  Utilization of the case law rules on 
off-site attribution of pooled production for nonincluded acreage as later to be 
discussed under the logic of "attribution of off-site production" in this case, 
as a status-of-the-law inquiry, should be differentiated from a decision derived 
from an interpretation of the agreement of the parties in definition of the 
actual language of the written documents. One would be pressed as a layman to 
know that the off-premises production by the pooling agreement terminology meant 
that the lessee would be protected for the next 15 years by external production 
sufficient to internally extend the lease beyond its stated term even if the 
lessee never pursued any development work on any of the lease. 
Meuse-Rhine-Ijssel Cattle Breeders of Canada Ltd. v. Y Tex Corp., Wyo., 
590 P.2d 1306 (1979). Certainly it is not clearly said like it was otherwise 
provided for in the stricken lease clause quoted in fn. 1, where the provisions 
did not include the limitation clause language of "on each" and 
"within."

 
 
[¶21.]  We have a factual case where the 
attribution clause as a pooling provision has been expressly deleted from the 
lease, and the pooling agreement now says: 

 

"Payment 
of rental under the terms of leases subject to this agreement shall not be 
affected by this agreement except as provided for under the terms and provisions 
of said leases or as may herein be otherwise provided."

 
 
[¶22.]  Having recognized that the lease remains 
unaffected in para. 6, we examine para. 8 to unearth an exception which would 
amend para. 6 of the pooling agreement and reinstate the stricken clause of 
the lease itself. The language provided to do this dirty work, if done, 
is:

 

"* 
* * * Shall be construed and considered as the commencement, completion, 
continued operation or production on each and all of the lands within and 
comprising said communitized area." (Emphasis added).

 
 
I 
do not think the job got done.

 
 
[¶23.]  The majority have determined that 
off-premises production is somehow, in the face of para. 6, to be considered by 
clear interpretation to be premises production for the purpose of continuation 
of the lease beyond a term, and then state that the construction is clearly 
expressed as the intention of the parties. Again, I do not agree. The parties' 
original intention was clear from the deletion of the lease pooling clause. 
Production as defined in the lease would not be attributable by off-site 
development. A contrary specificity cannot be found in the subsequent pooling 
agreement. Furthermore, I would find that exclusion of parol evidence of what 
the oil company representative told the owner as to the meaning of the 
terminology is patent error.  
Rouse v. Munroe, Wyo., 658 P.2d 74 (1983). If, as now interpreted, 
it was then to be intended, it was at best to be described as a misstatement, 
and at worst to be an intentional lie.3 

 

"4. 
In 1971 our family was approached by the oil companies about pooling forty acres 
of the lands in the Lease (Exhibit 1) with forty acres of minerals owned by the 
Federal Government to form a spacing unit for a well drilled on the Federal 
minerals. After quite a bit of talk about this, we agreed to allow forty acres 
of our minerals to be pooled with the Federal minerals with the understanding 
that only that forty acre tract would be tied up in the agreement that the 
balance of the lands in the Lease (Exhibit 1) would not be held by the pooling. 
The lands which we agreed could be pooled are described as 
follows:

 

" 
Township 54 North, Range 73 West, 6th P.M.

Section 
6: NW 1/ 4 SE 1/4"

Affidavit 
of James A. Wolff.

 

A 
summary-judgment disposition pursuant to the parol-evidence rule is not 
justified in any reasoned evaluation of these oil-company prepared documents or 
this summary-judgment record. Cordova v. Gosar, supra; 
Meuse-Rhine-Ijssel Breeders of Canada Ltd. v. Y Tex Corp., 
supra.

 
 
ATTRIBUTION 
OF OFF-SITE PRODUCTION ON POOLED ACREAGE

 
 
[¶24.]  With this court's refusal to recognize 
the significance of the original deletion of the lease pooling clause, the 
remaining major issue of this appeal is whether a legal presumption is applied 
to the contractual effect as a principle of administration and interpretation. 
Two lines of authority on the issue have developed. What could be characterized 
as the Louisiana rule, more recently found in Colorado in Clovis v. Pacific 
Northwest Pipeline Corp., 140 Colo. 552, 345 P.2d 729 (1959), holds that 
pooled or unitized production, where only a portion of a lease is committed, 
will serve under the lease terminology to hold the entire lease beyond term.4 The other rule, which 
can be described as the Mississippi principle, although clearly a minority 
position, is contrary in denying retention of noncommitted acreage beyond term 
unless compliance with the production or development requirements of the lease 
actually occur on-premises.  
Texas Gulf Producing Co. v. Griffith, 218 Miss. 109, 65 So. 2d 447 
(1953). See Rebman, Continuation of the Oil and Gas Lease on Production 
Within the Unit, 35 Texas L.Rev. 833 (1957). Many text writers support this 
rule with persuasive logic. See Comment, Production From Compulsory Pooled 
Unit Extends Lease on Outside Acreage?, 33 Rocky Mt. L. Rev. 184 (1960); See 
also 30 U.S.C. 226J, reflecting congressional attitude on federal 
leases.

 

"If 
only a portion of the leasehold is included in the unit, the lease is extended 
as to the segregated portion included in the unit by unit production and the 
lease as to the segregated nonunitized portion will continue in effect for the 
term of the base or parent lease but for not less than two years from the date 
of segregation." 6 H. Williams and C. Meyers, Oil and Gas Law, § 953 at 
726.11

 

See 
also Williams and Meyers, The Effect of Pooling and Unitization Upon 
Oil and Gas Leases, 45 Calif. L. Rev. 411 (1957).

 

[¶25.]  In this case of federal leases which 
segregate the lands into separate leases when only a portion of the land is 
included within a unit, production or the nonunitized portion does not 
"attribute" to the unit as production or to the unitized lands. 6 H. Williams 
and C. Meyers, supra.

 

"Our 
position is based on the fact that * * * * the lessor realizes no benefit from 
the lease on the excluded acreage by virtue of production from the unit; his 
share of production is limited to a pro rata distribution based on the amount of 
the acreage included within the unit or upon some other participation formula 
which gives no weight to the excluded acreage. The lessee, on the other hand, is 
able to retain the excluded acreage for speculative purposes without operations 
thereon and without making any payment for retaining the excluded land." 6 H. 
Williams and C. Meyers, supra, at 725.

 

[¶26.]  Oklahoma has adopted a modified Pugh 
clause by statute.  Siniard v. 
Davis, Okla.App., 678 P.2d 1197 (1984). Lacking legislative attention in 
Wyoming, I would follow the logic, economic justification, and reasoned 
persuasion of the Mississippi rule so that uninformed landowners, in absence of 
Pugh-clause knowledge, are properly protected.

 
 
ALTERNATIVE 
REMEDY FROM IMPLIED COVENANTS

 
 
[¶27.]  The second and even more disturbing 
aspect of the court's decision is the cavalier statement:

 

"This 
case was presented to both the trial court and this court upon the parties' 
agreement that upon undisputed facts the only issue was one of interpretation of 
the parties' contract. There was no claim that the leased area might be drained 
by production from the communitized area. If such claim is ever made, appellant 
is amply protected by the implied covenant of reasonable development and 
the implied covenant against drainage." (Emphasis added.)

 

I 
do not agree either factually or practically. It is this court that creates the 
ill-chosen standard. The stated justification totally ignores the clear 
desecration of any actual remedy of implied covenant of reasonable development, 
or against drainage by virtue of the decision of this court in Kuehne v. 
Samedan Oil Corp., Wyo., 626 P.2d 1035 (1981). See also Sonat Exploration 
Co. v. Superior Oil Co., Wyo., 710 P.2d 221 (1985); Brewster v. Lanyon 
Zinc Co., 140 F. 801 (8th Cir. 1905), approved by this court in 
Sonat, supra.

 
 
[¶28.]  The industry cannot assume an implied 
withdrawal from Kuehne by the comment of the majority in this case, even though 
the "amply protected" designation is sheer nonsense in actual result. That fact 
is clearly evident in the instant case; although the lease was executed in 1967 
for a stated term of ten years, there has never been any development or 
production on the leased lands for nearly 20 years, and a retained claim to 
undeveloped acreage continues.

 
 
[¶29.]  We can find witness in Louisiana where, 
contrary to Kuehne, a realistic leasehold extinguishment can be secured for 
undeveloped acreage when the stated term ends if factually no action is 
demonstrable of oil company development for attribution to the claimed lease 
acreage. Nunley v. Shell Oil Co., La.App., 76 So. 2d 111 (1954), aff'd 229 
La. 349, 86 So. 2d 62 (1956); Vetter v. Morrow, La.App., 361 So. 2d 898 
(1978). Actually, this corollary for the Louisiana rule reaches very nearly the 
same practical result as the Mississippi standard for rejection of offpremises 
pooling attribution.

 

"It 
should be noted that in Louisiana, the Hunter case does not have the same effect 
as it will be accorded in Colorado. Under the Louisiana law a mineral grant or 
reservation is considered a servitude and is subject to loss by prescription 
when not used for ten years. Recent cases in Louisiana have held that the 
prescriptive period is not interrupted on the outside acreage when a part of the 
leasehold is included in a unit created voluntarily or under forced pooling. 
Thus if the identical fact situation as found in Clovis arose in Louisiana 
today, the Louisiana court would find that the outside acreage was no longer 
under lease having been freed by prescription." Comment, 33 Rocky Mountain L. 
Rev., supra at 196.

 
 
 [¶30.] 
Colorado, if it has applied the Louisiana principle on drainage and 
nondevelopment to Clovis v. Pacific Northwest Pipeline Corp., supra, 
would not be substantially dissimilar but, unfortunately, Wyoming does not have 
the Louisiana corollary which could otherwise abrogate the harshness of the 
attribution rule now adopted by this court. An extension of the Louisiana 
corollary is recently discussed in the federal courts construing Alabama 
law:

 

"Determining 
that the lease continues beyond the primary term does not conclude our inquiry. 
We must examine the inherent rights of lessors to reasonable development of 
their property when they grant an OGM lease. In a case in which it applied the 
majority rule above (that drilling anywhere within the unit extends the lease on 
land both within and without the unit), one court stated, 'The rationale of the 
majority rule is recognition by the courts that the implied covenants for 
reasonable development and protection against drainage apply to leased lands 
outside of pooled units . . . .' Clovis v. Pacific Northwest Pipeline 
Corp., 140 Colo. 552, 556, 345 P.2d 729, 730 (1959). The rule imposing a 
duty of reasonable development is widely recognized. The obligation of 
reasonable development is imposed upon lessees 'because the failure further to 
drill might leave untapped oil which could be produced, or result in permanent 
loss of otherwise recoverable oil or a slower rate of production, thus depriving 
the lessor of the use of the capital represented by the unproduced royalty oil.' 
* * *

 
 
"The 
essential question before us is whether the implied covenant of reasonable 
development, which would otherwise pervade the performance of an OGM lease, is 
somehow muted or abated by the presence of a unitization 
order.

 
 
We 
hold that the lessee's obligation to develop reasonably exists whether or not 
there is a pooling or unitization order.

 
 
"* 
* * * Release from the obligations to develop 'each tract separately' and to 
'prevent drainage' does not extend to acreage outside the revenue sharing unit 
or, as it is referred to in this case, the productive limit. Presumptively, the 
very purpose of unitization, whether voluntary or enforced, is to determine and 
place within a productive unit the area to be drained. The exclusion of land 
from within a unit is, necessarily, a determination that it will not be drained 
by a well or wells on the adjacent properties. Therefore, in the usual 
situation, development inside the unit is insulated from, if indeed not the 
antithesis of, development outside the unit.

 
 
"* 
* * * Exxon has the obligation under both the Unit Agreement and venerable 
precedents to develop reasonably the subject property. Whether Exxon has done so 
is a fact question which must be resolved, very probably with the aid of 
experts. It is the kind of factual determination which is seldom carried by the 
summary judgment vehicle. It will be the Mizes' burden to establish that Exxon 
was deficient in its efforts to develop reasonably the 39 acres it declines to 
release from the lease." Mize v. Exxon Corporation, 640 F.2d 637, 641-642 
(5th Cir. 1981).

 

[¶31.]  Magnolia Petroleum Co. v. 
Rockhold, 192 Okla. 628, 138 P.2d 809, 810 (1943):

 

"* 
* * * Where production is obtained during the primary term of a lease, and it is 
disclosed that the lessee has failed and refused to fully develop the leasehold 
within a reasonable length of time and there has been unreasonable delay in 
development a prima facie case is made in an action by the lessor to cancel the 
undeveloped portions thereof and the burden is upon the defendant lessee to show 
that the lease has been developed in the manner reasonably to be expected of an 
operator of ordinary prudence."

 

See 
Buchanan v. Sinclair Oil & Gas Company, 218 F.2d 436, 441 (5th Cir. 
1955); Gregg v. Harper-Turner Oil Co., 199 F.2d 1 (10th Cir. 1952); 
Arkansas Oil and Gas, Inc. v. Diamond Shamrock, 281 Ark. 207, 662 S.W.2d 824 (1984); Byrd v. Bradham, 280 Ark. 11, 655 S.W.2d 366 (1983); Doss 
Oil Royalty Co. v. Texas Co., 192 Okl. 359, 137 P.2d 934 (1943); Williams 
and Meyers, 45 Calif. L.Rev., supra, at 449; Rebman, 35 Texas L. Rev., supra, at 
838.

 
 
[¶32.]  A policy decision should be acknowledged, 
if not accommodated. The theory of statutes of limitation and statutes of 
repose, as well as the rule against perpetuities, arise from the same 
governmental philosophy of deterring indefinite nonaction by controlling finite 
resources. Philosophers and historians have recognized the characteristic of the 
State of Wyoming throughout territorial days and century-long statehood to be an 
abused territory of external economic interests. A state's self-interest 
direction of use and development contrasted with shelf storage is demonstrably 
indicated. Twenty years is a long time to sit on leased lands without turning a 
drill bit. The unfortunately adverse aspects of Kuehne and Sonat Exploration, 
detrimental to the welfare of the intrinsic interests of the State of Wyoming, 
are now exacerbated by this present nonaction protection decision. I would agree 
with the philosophy denominated by cases from Louisiana and Arkansas that after 
so long it is time to say so long. See criticism of Sonat Exploration Co. v. 
Superior Oil Co., supra, in Note, The Burden of Proof in Implied Covenant 
to Develop Cases: Wyoming Rejects the 'Oklahoma Rule,' XXII Land and Water 
L. Rev. 141 (1987).

 
 
[¶33.]  I would reverse the summary judgment, and 
adopt the Mississippi rule. In any event the trial court should determine 
"intent" to provide the litigant with "ample protection" through both the 
implied covenant of reasonable development and the implied covenant against 
drainage.

 
 
FOOTNOTES

 
 

1

"Lessee is 
hereby granted the right and power to pool or combine the acreage covered by 
this lease, or any portion thereof, with other land, lease or leases in the 
vicinity thereof at any time and from time to time, whether before or after 
production, when in Lessee's judgment it is necessary or advisable to do so for 
the prevention of waste and the conservation and greatest ultimate recovery of 
oil or gas. Such pooling shall be into a unit or units not exceeding in area the 
acreage prescribed or required in any Federal or State law, order, rule or 
regulation for the drilling or operation of one well, or for obtaining the 
maximum allowable production from one well, or 40 acres each for the production 
of oil, or 6-10 acres each for the production of gas, whichever is the larger, 
plus a tolerance over the maximum area of 40 acres for the production of oil or 
6-10 acres for the production of gas to include additional acreage in any 
irregular governmental subdivision or lot or portion thereof. Such pooling shall 
be effected by Lessee's executing and filing in the office where this lease is 
recorded an instrument identifying and describing the pooled acreage. The 
production of pooled substances and development and operation on any portion of 
a unit so pooled, including the commencement, drilling, completion and operation 
of a well thereon, shall be considered and construed, and shall have the same 
effect, except for the payment of royalty, as production, development and 
operation on the leased premises under the terms of this lease. The royalties 
herein provided shall accrue and be paid to Lessor on pooled substances produced 
from any unit in the proportion, but only in the proportion, that Lessor's 
acreage interest in the land covered hereby and placed in the unit bears to the 
total acreage in the land placed in such unit."

 
 

2Mischaracterization is frequently found in text and cases as to the 
terminology of pooling and unitization. Knowledgeable authorities define 
unitization to invoke the producing area as for example, the field encompassing 
the producing zones. Contrarily, a pooling agreement involves the lands 
necessary to secure a drilling site within acreage limitations in field 
allocations. It is not unusual to have pooling agreements which later become 
part of a unitized area. Communitization as a term not normally used is somewhat 
similar to pooling as derived from 30 U.S.C. 226J, and there used in the 
disjunctive as "communitization or drilling agreements." A drilling agreement 
may be but sometimes is not the same as a pooling 
agreement:

 

"The terms 
'pooling' and 'unitization' are not words of art. In many of the statutes, court 
decisions, and other legal articles on this subject, the reader will find 
references to such terms as pooling, unitization, communitization, integration, 
consolidation, etc. All of these terms refer to a single legal result where the 
interests of the parties are consolidated into a single unit for cooperative 
development and production so that all parties will share, in proportion to 
their respective interests, in all oil or gas produced from the unit, regardless 
of the particular tract within the unit from which the production might be 
obtained. For convenience, the terms used in this article to describe such legal 
result will be confined to the terms 'pooling' and 'unitization.' Where 
appropriate, the pooling or unitization under discussion will be identified as 
being either 'voluntary' or 'compulsory.'

"Pooling -- 
Unitization

"The term 
'pooling' will be used in this article to refer to the consolidation of royalty 
interests, or working interest, or both, into a small unit for the drilling of a 
single well or a limited number of wells. The term 'unitization' will be used to 
refer to the consolidation of royalty interests, or working interests, or both, 
into a large unit that may cover an entire pool or a substantial portion of a 
pool." Twenty-Third Annual Institute on Oil and Gas Law and Taxation at 146-147 
(1972).

 
 

3For the 
purposes of present summary-judgment disposition, we assume it to be true, with 
the future to determine if the facts stated in the affidavit of appellant can be 
proven at trial.

 
 

4This rule 
is defined in Hunter Co., Inc. v. Shell Oil, 211 La. 893, 31 So. 2d 10 
(1947); Williams and Meyers, The Effect of Pooling and Unitization Upon Oil 
and Gas Leases, 45 Calif. L. Rev. 411, 448-449 
(1957):

 

"It is 
further our position that in a jurisdiction which has treated the lease as 
non-divisible, the court should be willing to find that there is a duty of 
further exploration as to the excluded acreage. Failure of the courts to enforce 
a rigid duty of exploration will permit lessees to retain acreage indefinitely 
without any compensation to lessors for holding such land and without any 
obligation to search the land for new mineral deposits. Moreover, it precludes 
exploration by others who are thus unable to obtain a 
lease.

 
 
"The 
decision in the Hunter case has had and will continue to have a generally 
unfortunate effect. It has caused lessors to oppose the enactment of compulsory 
pooling and unitization statutes and to resist participation in voluntary 
agreements. It is fair to say that pooling and unitization serve the public 
policy of preventing physical and economic waste and that rules which discourage 
lessors from consenting to pooling and unitization defeat that public policy; 
the rule of Hunter clearly has that effect. That this is recognized is perhaps 
evidenced by the recent pattern of decisions in Louisiana on prescription 
liberandi causa. Recent cases have treated a servitude as divisible 
between the included and excluded acreage where pooling or unitization is 
involved and have held that prescription liberandi causa is not 
interrupted or suspended in the case of excluded acreage by production from or 
operations on the unit in which a part of the leasehold is 
included."