Opinion ID: 1739549
Heading Depth: 1
Heading Rank: 2

Heading: The Acquisition by Cox (the Contribution)

Text: The Pellerin well was a joint operation, and was drilled on yellow leases. The Cox interests owned about half the yellow leases, Cox having received an assignment of a half interest in the yellow leases from Superior, Midwest and Belco as a result of drilling the Broussard well under the yellow and blue farmouts. As to Midwest and Belco, owners of the blue leases, under the blue farmout, Cox had earned the right to drill another well after the completion of the Broussard well. The blue farmout also gave Cox the right to receive certain interests in the blue leases if they were included in conservation units with producing wells. Superior, not an owner of blue leases, was not a party to the blue farmout. Cox's obligation under the blue farmout was different from that under the yellow farmout; Cox's obligation to drill a well was mandatory under the blue farmout, but only potestative under the yellow farmout. Consequently, as far as Superior was concerned, the right to drill the Pellerin well arose under the yellow farmout; as far as Midwest and Belco were concerned, the right to drill the second well arose under the blue farmout. Nevertheless, the Pellerin well was also drilled under the terms and conditions of the joint operating agreement of October 1. This joint operating agreement set out the proportionate ownership of the yellow leases, and provided that the expenses of exploration were to be borne by the parties in the proportion of their ownership. It was not until the formation of the conservation department unit that it was known whether any blue leases would be included in the Pellerin unit. At the hearing before the conservation commissioner, Superior, Midwest and Belco attempted to exclude all the blue leases from the Pellerin unit. The record does not disclose the factual explanation, but these parties had agreed to delay the formation of the Broussard unit until after the completion of the Pellerin well. The Broussard well had been drilled in the eastern portion of Section 19, as specified in the blue farmout. The Pellerin well had been drilled in the western portion of Section 19. All the blue leases lay in Section 24, adjoining Section 19 to the west. Cox proposed a geological unit; Superior, Midwest and Belco proposed geographical units. Geographical units would have excluded blue leases from participation in the two wells drilled by Cox. The commissioner's order of May 13, effective May 1, established units based on geological evidence which did not follow geographical lines. Consequently, relatively small blue acreage was included in the Broussard unit and relatively large blue acreage was included in the Pellerin unit. It was only after unitization, and the inclusion of blue acreage in the units, that Cox, for the first time, was entitled to assignments of interests in the blue leases. No one could have known, prior to the formation of the units, that Cox would own any interest in any blue leases. The inclusion of the blue leases in the production unit was also a condition to Cox's acquisition of the right to have blue leases assigned to him. This is the transactionthe assignment of interests in blue leases from Midwest and Belco to Coxwhich Superior (followed by Midwest and Belco when they were brought into the suit) claims is an acreage contribution.