Opinion ID: 1428878
Heading Depth: 1
Heading Rank: 3

Heading: alternative remedy from implied covenants

Text: 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. 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. 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. 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.    [R]elease 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). 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. 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 `Oklahome Rule,' XXII Land and Water L.Rev. 141 (1987). 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.