Case Name: ROGERS et al. v. OSBORN et al.
Court: Supreme Court of Texas
Jurisdiction: Texas
Decision Date: 1953-04-29
Citations: 261 S.W.2d 311
Docket Number: No. A-3824
Parties: ROGERS et al. v. OSBORN et al.
Judges: GARWOOD, J., joins in this dissent.
Reporter: South Western Reporter Second Series
Volume: 261
Pages: 311–316

Head Matter:
ROGERS et al. v. OSBORN et al.
No. A-3824.
Supreme Court of Texas.
April 29, 1953.
Rehearing Denied Oct. 28, 1953.
Strickland, Wilkins, Hall '& ' Mills and J. M. Burnett, Mission, John A. Pope, Rio Grande City, Lewright, Dyer, Sor-rell & Redford, Corpus Christi, C. F. Davis, Alice, for petitioners.
A. J. Vale and H. P. Guerra, Jr., Rio Grande City, Lloyd & Lloyd and E. G. Lloyd, Jr., Alice, for respondents.

Opinion:
WILSON, Justice.
This is a suit to termináte an oil and gas lease. The principal questions are: Whether work done upon a first well in an unsuccessful effort to make it produce at and after the expiration of the primary term kept alive the lease; and if so, whether the drilling of and production from a second well commenced after the expiration of the primary term will support the lease. Our answer to the first is "Yes" and to the second "No". .
For a detailed statement of the facts see the opinion of the Court of Civil Appeals at 250 S.W.2d 296.
Before the primary term expired on September 21, 1947, Well No. 1 had been commenced on May 15. The derrick was torn down and drilling tools removed on July 30th. From then until November 12th the well was subjected to "periodic flowing". This was an effort to clean bároid and drilling mud out of the well by allowing it to build up a head of gas and then opening the flow'valve into the pits. The head of gas was followed by a flow of oily mud. After the flow ceased it would be shut in to accumulate more pressure. At first- this procedure was followed almost every day but it soon slowed down to once a week.
The uncontroverted evidence established that all cutting'of new'hole on Well No. 1 had been completed, all pipe cemented, and all' flowing arrangements completed when the primary term expired on September 21st.
At that time there was no production from the lease. The word "production" means marketable oil or gas. Garcia v. King, 139 Tex. 578, 164 S.W.2d 509. There is positive testimony from lessees' witnesses that there was never any production from Well No. 1. The well was allowed to blow itself out a number of times in an effort to- clean it, but neither party claims this as production. There was no "shut-in" royalty tendered for Well No. I. We hold as a matter of law that there was no production from Well No. 1. Freeman v. Magnolia Petroleum Co., 141 Tex. 274, 171 S.W.2d 339.
The lease terminated on September 21, 1947 unless some provision other than the primary term kept it alive. To accomplish this, lessees rely (first) upon reworking operations upon Well No. 1 and (second) upon the drilling of and production from Well No. 2.
Paragraph No. 5 of the lease is as follows :
. "If prior to.discovery of oil or gas on said land Lessee should drill a dry hole or holes thereon, or . if after discovery of oil or gas, the production thereof should cease from any cqjise, this lease shall not terminate if lessee commences additional drilling .or • reworking operations within sixty ,.(£>0) days thereafter or. (if it be within,the primary term) commences or resumes the payment"or tender of rentals on or before the rental paying date next .ensuing after the expiration of three months from date of completion of dry hole, or cessation of production. If at the expiration of the primary term oil, gas or other;mineral is not being produced on said land but lessee . is then engaged in drilling or re-working operations thereon, this lease shall remain in force so long as operations are prosecuted with no cessation of more than thirty (30) consecutive days, and if they result in the production of oil, gas or other mineral so long thereafter as oil, gas or other mineral is. produced from said land "* , *
We will first consider the first sentence of paragraph 5. If, prior to discovery of gas, lessees drilled a dry hole, they had 60 days in which to commence additional drilling or reworking operations. Lessees plead that oil and gas were discovered in the first well. They offered opinion evidence upon which the jury found that gas in paying quantities was discovered "prior to September 21, 1947." Since lessees sought and obtained a finding that Well No. 1 was not dry, the dry hole clause' had no application. We do not reach the question in St. Louis Royalty Co. v. Continental Oil Co., 5 Cir., 193 F.2d 778.
This presents a situation where gas was discovered in paying quantities in Well No. 1 but never produced. The second alternative in this first sentence of paragraph S is: "or if after the discovery of oil and .gas the production should cease from any cause'" the lessee had 60 days to commence additional - drilling or reworking operations. If'production never began, it could not "cease" and by- ceasing give the lessee 60 days in which to commence additional drilling. Clearly, the first' sentence of paragraph 5 did not provide for discovering but not producing gas. Our construction is supported by the fact jrhat the royalty provision quoted .in Footnote 1, supra, did provide for just this situation and required the payment of a specific shut-in royalty. And we. have held that where the "year" of this shut-in gas royalty clause straddles the date for the expiration of the primary term, the. "shut-in" payment must be made during the primary term, or the lease expires. Freeman v. Magnolia Petroleum Co., supra. Therefore the .first sentence of paragraph 5 cannot Be used to prolong the life of the lease. Morrison v. Swaim, Tex.Civ.App.1949, 220 S.W.2d 493, wr. er. ref., n. r. e.; Producers Oil & Gas Co., Inc., v. Continental Securities Corp., 188 La. 564, 177 So. 668.
We pass now to the second sentence.
. The two conditions of the opening prepositional phrase are: (1) if "at the expiration ,of- the primary term" gas was not being "produced on' -said lease," and (2) the lessee was "then engaged in drilling or reworking operations thereon". It is úncontroverted that no gas was being produced and the lessees were not "then engaged" in drilling hole. The second word "operations" ("so long as operations are prosecuted with no cessation of more than thirty (30) consecutive days"), undoubtedly means both "drilling" and "reworking operations". It is not necessary to determine whether this lessee's efforts to clean out the well be defined as "drilling" or "reworking" because without objection the trial court used almost the samé definition for both drilling and reworking. It would include almost any type of work. Since it was not objected to it is part of the jury's finding. It was:
"Yo.u áre instructed that the term 're-working operations,' as used herein, means actual work or operations which have theretofore been done, being done over, and being done in good faith endeavor to cause a well to produce oil and gas or oil or gas in paying quantities as an ordinarily competent operator would do in the same or similar circumstances."
The jury found in response to Special Issues Nos. 1 and 2 that on the expiration date (September 21st) lessees were then engaged in both drilling and reworking operations. For convenience we will discuss lessees' efforts as "reworking". Is there evidence to support this?
There is conflicting testimony by experts on whether the lessees' attempts to complete Well No. 1 were a method by which an ordinarily competent operator would have completed Well No. 1. Under the charge used in this case, we cannot hold as a matter of law that periodic flowing or "bleeding" of a well for a limited period is not included within either the term "reworking operations" or the term "drilling" as defined in this charge. An actual reworking did occur during November 1947. We hold that there is some evidence supporting this finding but do not. pass upon the trial court's definition of the words drilling and reworking.
There is no finding as to how long reworking operations continued or when they ceased. John Gun, an independent well-servicing contractor employed by lessees, testified that he moved his rig to Well No. 1 on November 12, 1947 for the purpose of "working over the well". He ceased work and-moved his rig away on November 29, 1947. After that there is no testimony of any specific and tangible acts done on reworking Well No. 1 although there are general references to further work done on the. well.
As we understand Special Issue No. 3, it is a finding that the lessees were engaged in drilling operations for a period of 30 consecutive day's between' September 21, 1947 and January 2, 1948. This issue as worded does not fall' within the second sentence 1 of paragraph ' 5 because it is not a- finding that there was "no cessation" of drilling operations for "more than 30 consecutive days". Also the issue as worded does not limit the "drilling operations" to those upon Well No. 1. Since it is uncontroverted that Well No. 2 was drilled during this period and Well No. 1 was not, except for periodic flowing, we presume that the jury based their answer to this issue upon the drilling of Well-No. 2. It might possibly refer to the John Gun reworking of Well No. 1, but it is un-controverted that this did not last 30 days. Therefore we have concluded that Special Issue No. 3 offers no support to the trial court's judgment.
Lessees offered opinion evidence that they still thought at the time of trial that Well Nó. 1 could be made into a producer. They testified that with the filing of this case on January 2, 1948 they ceased all efforts to make it produce. If the lessees had continued to work upon Well No. 1 it is' possible that they might have made it into a producer, but there is no certainty that they would. And the record conclusively establishes that their total effort expended on Well No. 1 had not at the time of trial (January 17, 1951) resulted in production from it..
Lessees were upon notice when they drilled Well No. 2 that lessors then contended the lease had terminated. Under, the facts of this case the lessees cannot tack the period qf the drilling of and production from Well No. 2 to the period of reworking Well No. 1. In order to do that the lessees would have to borrow the words commences additional drilling from the first sentence of paragraph 5 and transpose them to the second sentence. The conditions contained in the two separate sentences should not be jumbled. See note in Oil and Gas Reporter, Vol. 1, No. 2, p. 1592. The second use of the word operations might be given the very broad con; struction used by the Court of Civil Appeals. This construction would allow, a lessee to prolong a lease indefinitely and would take from the primary term much of its significance. The first two sentences apply to different factual situations. Since the first provides for "additional drilling" and the second does not, we hold that the second word operates as used in the second sentence does not include additional wells commenced after the expiration of the primary term. This sentence means that if production results from the continuous prosecution of -the very operations being engaged in by the lessees upon the expiration of the primary term, the lease is good. This is not to be confused with the lessees' rights to drill additional wells under the "dry hole" and "if production ceases" sentence.
To sum up, this case reaches us with the lessees unable to avail themselves of the dry hole clause because Well No. 1 was not dry, with the lessees unable to avail themselves of the "if production ceases" clause because there was never any production, with the lessees keeping theit lease alive through November 29, 1947 by the "reworking" clause, but with no finding on the date of termination and no definite evidence of reworking after November 29th, and with no production resulting from the reworking of Well No. 1.
Accordingly the judgments of the trial court and of the Court of Civil Appeals are reversed and judgment is here rendered for petitioners terminating the oil and gas lease on November 29, 1947 without prejudice to. such salvage and other rights as lessees may have upon termination. Costs are taxed against respondents.
. The lease provided for a royalty on gas as follows: " * ⅜ * (b) on gas, including casinghead gas or other gaseous substance, produced from said land and sold or used oil the premises or in the manufacture of gasoline or other product' therefrom, the market value at the well of one-eighth of the gas so sold or used, provided that on gas sold at the wells the royalty shall be one-eighth of the amount realized from such sale; where gas from one or more wells producing gas is not sold or used, lessee may pay as royalty $500.00 per year, and upon such payment it will be considered that" gas is being produced within the meaning of Paragraph 2 hereof; * ⅜ *»
. "Special Issue Number Three:
"Do you find from a preponderance of the evidence that the defendants W. B. Osborn and Jewel Osborn and Mid-Continent Petroleum Corporation, were not engaged in drilling operations on the Clopton land in question for more then thirty consecutive days for any period of time from and including September 21, 1947, to January 2, 1948?
"Answer: 'They were not,' Or 'They were.'
"We, the jury, answer: 'Yes, They were.' "