Court Opinion

ID: 9442935
Source: CourtListenerOpinion
Date Created: 2023-08-03 19:04:46.184024+00
Date Added: 2024-06-11T17:29:17.621448
License: Public Domain

PHILLIPS, Chief Judge
(dissenting).
On January 31, 1939, The Carter Oil Company,1 was the owner of oil and gas mining leases covering the following described lands in Grady County, Oklahoma:
Tract 1: Northwest Quarter of Northeast Quarter of Southwest Quarter (NW/4) of NE/4 of SW/4-) of Section 8, Township 3 North, Range 5 West.
Tract 2: Southeast Quarter of Southeast Quarter (SE/4 of SE/4) of Section 8, and North half of North half of Northeast Quarter (N/2 of N/2 of NE/4) and Northeast Quarter of Northeast Quarter of Northwest Quarter (NE/4 of NE/4 of NW/4) of Section 17, Township 3 North, Range 5 West.
Tract 3: South half of North half of Northeast Quarter (S/2 of N/2 of NE/4) of Section 17, Township 3 North, Range 5 West, and was the owner of an undivided % interest in an oil and gas mining lease covering the following described lands in Grady County, Oklahoma:
Tract 4: West half of Southeast Quarter (W/2 of SE/4) and East half of East 'half of Southwest Quarter (E/2 of E/2 of SW/4) of Section 8, Township 3 North, Range 5 West.
This action involves an agreement by Carter to assign an interest in such leases to T. H. McCasland, and the assignment made pursuant to such agreement, which was expressly made subject to- the terms and conditions of the agreement. The material portions of the agreement read as follows:
“* * * whereas, the parties hereto have arrived at an agreement whereby Carter is to assign to McCasland its rights in and to said leases insofar as they cover the properties described above, and insofar as they cover producing horizons above the depth of 4,000 feet, subject to the terms and provisions of this agreement: * * *.
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“Upon demand after approval of titles and commencement of the actual drilling of the test well hereinafter provided for, Carter agrees to make, execute and deliver to McCasland assignments in writing on Carter’s usual form, and without warranty of title, assigning to McCasland the oil and *894gas leasehold estates on the properties heretofore described, above the depth of four thousand (4000) feet, * * *. (Italics mine.)
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“It is understood that Carter, either alone, or in conjunction with Continental Oil Company, is at this time producing oil and gas from wells heretofore drilled on the lands above described. Carter, or Carter and Continental Oil Company, as the case may be, shall retain full title to said wells, with the right to continue to operate and produce the same from their present producing horizon, * * *. McCasland, in drilling any wells on the premises to be assigned hereunder, shall do so in such a manner as not to interfere with Carter’s and Continental Oil Company’s continued operation of said producing wells, or with respect to wells which may hereafter be drilled and operated on said premises, below the depth of four (4000) thousand feet.” (Italics mine.)
By the assignment dated May 8, 1939, Carter assigned its right, title and interest in and to the leases referred to above “Insofar as said leases cover producing horizons above the depth of 4,000 feet.” It expressly provided: “Assignor further expressly retains, saves and reserves from the operation of the within Assignment and unto itself, its successors and assigns, all right, title and interest in and to Tracts 1, 2, 3 and 4, above, insofar as they cover producing horizons below the depth of 4,000 feet, together with the right of ingress and egress for the purpose of exploring for and producing oil, gas and casinghead gas therefrom.”
The assignment provided that it was subject: “* * * to all rights and interests reserved by and to all of the terms, covenants and provisions contained in a certain Agreement entered into' under date of January 31st, 1939, by and between the parties hereto pertaining to the aforesaid leases and the development thereof.”
At the time the contract was entered into, and until the early part of 1947, neither of the parties knew of the existence of the Woods Sand formation. In February, 1947, McCasland drilled a well to the south of the acreage covered by such leases, in the NW/4 of the SE/4 of the NE/4 of S 17, T 3 N, R 5 W, into the Woods Sand formation. That was the first well to reach that formation. It produced gas, but no oil, and since there was no market for the gas it has been shut down since its completion. In April, 1947, the Ohio Oil Company completed a well at the depth of 3,941 feet in the Woods Sand formation on the NE/4 of the SW/4 of the NE/4 of S 17, T 3 N, R S W. It had an initial oil production of 798 barrels per day. The drilling of further wells to the Woods Sand formation by operators in the area, including Carter and McCasland, revealed that it is an unorthodox formation, in that it is a slanting one, the dip averaging 58 degrees. The other formations in the field are comparatively level. Such drilling also demonstrated that the Woods Sand formation is a long, narrow one, extending several miles from northwest to southeast and being 1,000 to 1,200 feet in width; that the thickness of the sand is approximately 109 feet; and that a substantial portion thereof lies above, and a substantial portion below the 4,000 foot level.
McCasland and his associates completed the well, McCasland No. 4, on the SE/4 of the NW/4 of the NE/4 of S 17 in July, 1947, at a depth of 3,702 feet. It produced gas, but no oil. In September, 1947, they completed a well, McCasland No. 5, on the SW/4 of the NW/4 of the NE/4 of S 17 in the Woods Sand formation at a depth of 3,954 feet. It produced oil in paying quantities. In September, 1948, they completed a well, McCasland No. 7, on the SE/4 of the NW/4 of the NE/4 of S. 17 in the Woods Sand formation at a depth of 3,560 feet. It produced some oil, but later was shut in to gas. In December, 1947, they completed a well, McCasland-B. A. Horton No. 3, in the NW/4 of the NW/4 of the NE/4 of S 17 in the Woods Sand formation at a depth of 3,684 feet. It produced oil in paying quantities.
Before Carter drilled any wells to the Woods Sand formation it opened negotiations with McCasland to the end that they might drill wells in the Woods Sand formation as partnership wells to avoid unnecessary drilling expenses. These negotiations *895failed. In December, 1947, Carter commenced a well which it completed in June, 1948, in the Woods Sand formation. That well, Carter-B. A. Horton No. 8, was located on the NE/4 of the NE/4 of the NW/4 of S 17, being the 10 acres immediately west of the McCasland-B. A. Horton No. 3. McCasland had full knowledge of the commencement and of the drilling thereof. It was drilled to a depth of 4,487 feet, where it missed the Woods Sand formation. Carter, believing that the formation could be found a short distance east, applied to the Oklahoma Corporation Commission for permission to whipstock it to the east so as to drill into the Woods Sand formation at a depth below 4,000 feet. The Commission’s permission was given and Carter whip-stocked the well 220 feet east to a depth of 4,314 feet. In September, 1948, Carter completed a well, Carter-W. E. Woods No. 4, on the SW/4 of the NW/4 of the NE/4 of S 17 in the Woods Sand formation at a depth of 4,200 feet.
All of the wells drilled by McCasland and his associates drilled through that part of the Woods Sand formation lying above the depth of 4,000 feet. All the wells drilled by Carter first entered the Woods Sand formation below the depth of 4,000 feet and produced oil in paying quantities.
On July 19, 1949, McCasland and his associates, the appellees, commenced this action against Carter for a declaratory judgment adjudging that Carter had no interest in the Woods Sand formation and decreeing, fixing and determining the rights of the appellees and Carter under the contract and assignment.
The trial court found that all of the recoverable oil and gas in the Woods Sand formation under the leases in question, under normal operation methods and conditions, can be recovered by the McCasland wells.
By its decree the trial court adjudged that the appellees were entitled to produce all the oil and gas contained in the Woods Sand formation in the SE/4 of the SE/4 of S 8; the N/2 of the N/2 of the NE/4, and the NE/4 of the NE/4 of the NW/4 of S 17, and the S/2 of the N/2 of the NE/4 of S 17 from wells drilled or to be drilled to a depth of not greater than 4,000 feet, subject to the right of Carter to receive its royalty interest reserved by its assignment to Mc-Casland; that Carter, to the extent that it has or may produce oil or gas from the Woods Sand formation on such land, has been and will be guilty of conversion and is liable to account to appellees therefor. It retained jurisdiction for the purpose of the accounting. Carter has appealed.
Chambers’ Technical Dictionary, Rev. Ed., defines “'horizon, geological,” as “synonymous with stratigraphical level, and has reference to the systemic position of a stratum on the geological time-sctile.” Webster’s New International Dictionary, 2d Edition, defines it as “The deposit of a particular time, usually identified by distinctive fossils, * * As used in the contract and assignment I think it means a producing oil or gas sand. The trial court construed the phrase “producing horizons above the depth of 4,000 feet” as including any producing sand, a portion, or a substantial portion of which is above the depth of 4,000 feet and that it precludes Carter from producing oil from such a sand through wells drilled into that part of the formation which lies below the 4,000 foot level, although the wells enter the upper surface level of the sand below 4,000 feet. I cannot agree with that construction of the phrase. The language of the granting clause and of the reservation in the assignment makes it perfectly clear that Carter reserved all of its right, title and interest in producing horizons below the depth of 4,000 feet to the same extent that it granted all its right, title and interest in producing horizons above the depth of 4,000 feet. The wording of the grant is identical with the wording of the reservation, except one refers to producing horizons above and one refers to producing horizons below the 4,000 foot level. A substantial portion of the Woods Sand formation lies above and a substantial portion thereof below the 4,000 foot level. It would be as logical to say that such producing horizon lies below the 4,000 foot level and that Carter, under the reservation in its assignment, is entitled to produce all the oil from such formation *896if it can do so by wells drilled into the formation below the 4,000 foot level as it is to say that such formation lies above the 4,000 foot level and that McCasland, under the assignment, is entitled to produce all the oil from such formation if it can do so through wells drilled into the formation to a depth of not greater than 4,000 feet. The fact is that the formation lies partly above and partly below. The contract expressly provided that Carter should have the right in the future to drill and operate wells on the leases below the depth of 4,000 feet. At the time the contract was entered into and the assignment made, the Woods Sand formation was unknown, and it may be doubted that the parties contemplated that such an unorthodox sand would be encountered. However, since no wells had been drilled in the area to a depth of 4,000 feet, the parties must have contemplated the possibility that a sand might be discovered lying partly above and partly below 4,000 feet. It seems to me that it was the intent of the parties to assign to Mc-Casland all producing horizons lying above 4.000 feet and to reserve to' Carter all producing horizons lying below 4,000 feet, and if a producing horizon was discovered lying partly above and partly below 4,000 feet, McCasland should take the portion above and Carter retain the portion below 4.000 feet. It seems to me that any doubt that such was the intention of the parties is removed by the provision expressly reserving to Carter the right to drill and operate wells below the depth of 4,000 feet.
Carter only asserted the right to drill and operate wells which entered that sand below the 4,000 foot level. Clearly, such wells produced oil from a producing sand below the 4,000 foot level.
Even if the sand was approximately level and the entire upper surface thereof was above the 4,000 foot level, if a substantial portion of the same were below the 4,000 foot level, I think Carter could drill and operate wells from below the 4,000 foot level, so long as it did not permit oil to enter its well above the 4,000 foot level. See Palmer Oil Corp. v. Phillips Petroleum Co., Okl. Sup., 231 P.2d 997, 1012-1013.
The notion that the parties did not intend that both Carter and McCasland should produce oil from the same producing horizon is refuted by the very terms of the agreement. At the time the agreement was entered into Carter had drilled and was producing oil from formations above the 4.000 foot level. McCasland was author^ ized to drill wells into and produce oil from such formations, subject only to the limitation that he 'would not drill upon any 10-acre tract upon which Carter had a producing well.
The fact that the wells of McCasland and his associates, drilled to a depth of less than 4.000 feet, will extract oil from the sand below 4,000 feet, and that Carter’s wells, drilled into the sand, the upper surface of which lies below the 4,000 foot level, may extract oil from that part of the sand which lies above the 4,000 foot level, is immaterial. To give force to that fact would be to apply the law of discovery rather than the law of capture. The law of discovery does not apply to oil and gas wells. On the contrary, the rule of capture applies in Oklahoma. Gruger v. Phillips Petroleum Co., 192 Okl. 259, 135 P.2d 485.
I would remand, with instructions to vacate the judgment, and to construe the contract in accordance with the above views, and enter judgment accordingly.

. Hereinafter called Carter.