Opinion ID: 1739549
Heading Depth: 1
Heading Rank: 3

Heading: Application of the Contributions Clause if Unambiguous

Text: If the contributions clause is read as if it is clear and specific in its meaning, we note that the only contribution covered by the paragraph is a contribution received by a party while the agreement is in force,  toward the drilling of a well.  That is, if the contributions clause is clear and unambiguous, it only purports to cover acreage acquired as an incentive toward, or compensation for, drilling a well. Since Cox's right to an interest in the blue leases never matured until they were included in the production units, it is difficult to state without serious doubt that Cox received the interest in the blue leases as either an incentive for drilling the Pellerin well, or compensation for drilling the well. The hope for the acquisition of blue leases was surely present, but depended ultimately upon the decision of the conservation commissioner in establishing units along geological, not geographical, lines. Cox's acquisition of the blue leases has no more effect on the relative rights of Superior, Midwest and Belco than would have been the case if Midwest and Belco had conveyed interests in blue leases to third parties, not a party to the joint operating agreement. For the alienation of the leases, Midwest and Belco received the consideration for which they had contracted. Their rights to participate in the production unit were diminished, not because of a side deal between Cox and some person not a party to the agreement, but because of their own arrangement, freely made. At this point we can note that promptly after Midwest and Belco assigned the blue leases to Cox, they demanded from Cox an adjustment, and received from Cox a return of part of the costs of drilling which Midwest and Belco had previously paid, based on the ownership interests set out in the joint operating agreement. When Cox received the blue leases, he made an adjustment, assuming for himself a greater portion of the costs of drilling. The adjustment of the ownership interests in the blue leases between Cox on the one hand and Midwest and Belco on the other hand did not in any way affect Superior's percentage participation in the production of the unit. Superior's percentage of the production in the Pellerin unit was the same before Midwest and Belco conveyed Cox's interest in the blue leases to him as it was afterwards. Cox's percentage of production was increased, not at the expense of Superior, but at the expense of Midwest and Belco, who had contracted to assign the blue leases long before the formation of the joint operating agreement. If the contributions clause is to protect the participants of a joint operating agreement against the possibility that one of them might obtain an undue advantage from an outsider at the expense of those paying for the operations, it has a function. No reason has been advanced, however, why the participants might suffer if two or more of them, but not all, rearrange the proportion of their ownership between or among themselves. The joint operating agreement listed all the leases it covered. All of them were yellow leases. All of them in the Pellerin unit are in Section 19 (except for small yellow acreage in the eastern edge of Section 24 and small acreage in Section 24 lying west of the blue leases). There was no change in ownership of the yellow leases. The proportionate ownership and proportionate sharing in production from the yellow leasesthe only leases covered by the joint operating agreementwere not changed by Cox's acquisition of the blue leases. The blue leases were outside the joint area covered by the joint operating agreement, and are important only because they were included in the production unit. The interests of Superior, Midwest and Belco are no more prejudiced or diminished than if the blue leases had been sold to an outsider. Therefore, even if the contributions clause is clear and unambiguous, it does not apply here for two reasons: (1) the blue leases were not acquired by Cox as a contribution . . . toward drilling a well; (2) Cox's acquisition of the blue leases did not affect Superior's proportionate interest in the production of the unit, and only affected Midwest's and Belco's because of their prior contract to assign.