Opinion ID: 1274053
Heading Depth: 1
Heading Rank: 2

Heading: True's Intent

Text: In addition to the question as to whether True had a leasehold interest in the tract on which the Cook well was to be drilled, there is the further question as to whether drilling operations were timely commenced, with an unqualified and bona fide intention to complete such well. The most that is claimed in the way of drilling operations during the primary term of the lease is the performance of these activities: The ordering of an abstract of title and obtaining of a title opinion; the survey of a location; the partial grading of a location; the making of an arrangement for surface damages and for the purchase of drilling water; the hauling of a load of line pipe for water to the location; and the commencement of the moving of a drilling rig from the State of Montana. According to the testimony of True's attorney and landman, Dobos, such activities as were performed while negotiations were proceeding with Sinclair were performed knowingly on a gamble by True against the prospect that True would get a deal made with Sinclair acceptable to both sides. The trial court having found, as we assume it did, that no deal was completed with Sinclair until September 18, it could not, in the face of Dobos' admission, avoid finding as a matter of fact that True's gamble continued to September 18. Hence, it follows that True up to that time did not have a bona fide and unconditional good-faith intention to complete the well. It intended to complete the well only in case negotiations with Sinclair turned out satisfactorily. That was not enough. Preliminary activities such as are claimed here will be considered as a timely commencement of drilling operations only when there is present at the time of these preliminary activities a good-faith intention to complete the performance. Muth v. Aetna Oil Co., 7 Cir., 188 F.2d 844, 848-849, vacated 342 U.S. 844, 72 S.Ct. 73, 96 L.Ed. 638, Id. reinstated 7 Cir., 192 F.2d 1014, certiorari denied 342 U.S. 954, 72 S.Ct. 626, 96 L.Ed. 709; Butler v. Nepple, 54 Cal.2d 589, 6 Cal. Rptr. 767, 354 P.2d 239, 242-243; Illinois Mid-Continent Co. v. Tennis, 122 Ind. App. 17, 102 N.E.2d 390, 394; Durbin v. Osborne, 292 Ky. 464, 166 S.W.2d 841, 843. See also 2 Summers, Oil and Gas, Ch. 11, § 349, pp. 461-466 (Perm.Ed.). In Geier-Jackson, Inc., v. James, D.C. Tex., 160 F. Supp. 524, 530, the court said a lessee's intent to drill must be unqualified. An intent to drill on the happening of certain contingencies, the court pointed out, such as favorable information gained from the drilling of another well or the making of favorable financial arrangements, would not be sufficient. In the case before us, by its own admission True's intentions of completing a well on the Cook location were qualified and contingent upon the success of its negotiations with Sinclair, and we have already made it clear that such negotiations carried past the primary term of the lease. Courts have consistently refused to allow a lease to be held beyond its primary term where the evidence, as in this case, shows that preliminary activities toward the commencement of drilling operations are no more than a pretense and holding device to retain possession of the lease for speculative or other purposes. Butler v. Nepple, supra, at 354 P.2d 242-243; Illinois Mid-Continent Co. v. Tennis, supra, at 102 N.E.2d 394; Hughes v. Ford, 406 Ill. 171, 92 N.E.2d 747, 751; Muth v. Aetna Oil Co., supra, at 188 F.2d 849. See Robinson v. Gordon Oil Co., 258 Mich. 643, 242 N.W. 795, 797, where the lessee was considered to be in good faith on an affirmative finding that he was not holding the land for speculative purposes. For cases which hold that a lessee cannot fail in the prosecution of drilling operations and hold an oil and gas lease for speculative or other purposes, unless the contract expressly grants such right and sufficient consideration has been paid therefor, see the following: Gregg v. Harper-Turner Oil Co., 10 Cir., 199 F.2d 1, 3; Baldwin v. Kubetz, 148 Cal. App.2d 937, 307 P.2d 1005, 1012; Town of Tome Land Grant v. Ringle Development Co., 56 N.M. 101, 240 P.2d 850, 852-853; Banks v. Calstar Petroleum Co., 82 Cal. App.2d 789, 187 P.2d 127, 128; Rice v. Lee, 44 Cal. App.2d 909, 113 P.2d 235, 236-237. In the lease before us, there is no express provision for the delay of drilling operations after expiration of the primary term, and no money or other consideration was paid or payable for such delay. Also there was evidence that True went immediately from the Cook location to a diagonal offset and drilled a test well on another lease. In the meantime, four oil companies which had agreed to support the Cook well with dry-hole contributions withdrew their commitments for such well and gave substantially the same commitments for the offset well. From such evidence, the trial court would be entitled to believe that even after the Cook well was discontinued, True and its associates sought to hold the Cook land for speculative purposes, pending the outcome of the substitute well. Appellants place much reliance on Fast v. Whitney, 26 Wyo. 433, 187 P. 192, 198. In that case, however, this court said specifically it could not be held as a matter of law that acts of a lessee, if done in good faith and intending diligently to prosecute the work to completion, do not amount to the commencement of drilling operations. That is the same as saying the question as to whether lessee has acted in good faith, with a bona fide intention to diligently prosecute the work to completion, is one of fact for the trier. In the case at bar Dobos admitted True was merely gambling on the hope of getting a farmout from Sinclair in time to save the lease. On that basis, the trial court was entitled to find there was not an unqualified and good-faith intention to prosecute the work to completion. True tries to claim the gamble ended with the obtaining of a farmout on September 13, but the evidence was such that the trial court was warranted in finding that True's gamble continued to September 18  Sinclair's acceptance date. It appearing, therefore, that the trial court was justified in finding True had no farmout from Sinclair when the lease expired at midnight on September 14; and further justified in finding the Cook well was not timely commenced because True's preliminary activities were performed on a gamble and not with a good-faith intention of completing the performance, the judgment entered should be affirmed. Affirmed.