Court Opinion

ID: 9550629
Source: CourtListenerOpinion
Date Created: 2023-08-07 18:39:03.855662+00
Date Added: 2024-06-11T15:22:02.274272
License: Public Domain

HALLEY, J.
(dissenting). The majority opinion is based upon the case of Doss Oil Royalty Co. v. Texas Co., 192 Okla. 359, 137 P. 2d 934, decided by this court in 1943. For approximately thirty years prior to that decision, this court had adhered to what is generally referred to as the “reasonably prudent operator rule” in determining whether or not a lessee forfeited his leasehold rights, after initial production in paying quantities had been obtained, by failure to further develop by drilling additional wells. Until the Doss decision in 1943, the prevailing rule was that to justify cancellation of all, or all except the. portion where producing well was located, depended upon whether or not, under the facts and circumstances of each case, a reasonably prudent operator would have drilled additional wells with reasonable expectation of profit; and that if such operator would not have developed further, then there was no breach of the implied covenant to fully develop, and no cancellation of the lease, or the undeveloped portion thereof, was justified. The prior ruling of this court is aptly expressed in Ramsey Petroleum Corp. v. Davis, 184 Okla. 155, 85 P. 2d 427, handed down in 1938. In the second syllabus of that opinion it is said:
“The test for determining whether there is a breach of implied covenants to drill additional oil and gas wells to protect the lease premises from drainage by wells on adjoining land is the ‘ordinary prudent operator test.’ ”
In the body of the opinion, it was said:
“In view of the nature of the factors to be considered, it may be said, generally speaking, that the lessor, in order to prove the breach of a covenant to drill additional wells, must show that the additional well would probably produce sufficient to repay the expense of drilling, equipping and operating such well and also produce a reasonable profit on the entire outlay.”
The reasonably prudent operator rule is recognized and followed in Kansas and Texas, two oil-producing states adjoining Oklahoma, and since the decision of this court in the Doss Oil Royalty Co. case, supra, in 1943, that rule has been ignored in a number of decisions by this court. In the Doss case it was stated that there are three theories upon which courts of equity base their justification of the cancellation of the undeveloped portions of an oil and gas lease, leaving the lease in effect as to the portion where a producing well is located. These theories are: abandonment; breach of an implied covenant, without requiring proof that additional wells may be drilled with reasonable expectation of profit to the lessee; and broad equitable grounds, without naming any theory. The abandonment theory where the lessee has not relinquished physical control of the undeveloped portion of the lease was discounted. The lessors in the Doss case had sought relief upon the ground of abandonment, but relief was granted upon the ground of implied covenants to diligently develop. In the body of the opinion it was said:
“To permit the lessee to hold the lease for an unreasonable length of time for merely speculative purposes, is to allow him to protect his own interest and to disregard the interest of the lessor. If conditions do not indicate to him that further development will be profitable, it is but fair that, after a reasonable time has expired, he surrender the undeveloped portions of the lease and allow the lessor to procure development by others Qr assume the burden of showing why in equity and good conscience the undeveloped portion should not be cancelled so that the owner may, if possible, get it developed by others.”
The foregoing statement clearly puts upon the lessee the burden of proving that additional wells should not be drilled, if a number of years have elapsed since the drilling of a producing *295well or wells, and relieves the lessor of proving that additional wells maybe drilled with a reasonable expectation of profit to the- lessee and lessor. In other words, after the lapse of a reasonable time after a producing well has been drilled, and regardless of a reasonable expectation that profitable production will result from further drilling, the lessee must surrender the undeveloped portion of the lease and give the lessor an opportunity to find a lessee who will agree to drill without regard to the “reasonably prudent operator rule,” under which the great oil fields of the nation have been developed. It is a generally accepted rule that the location and number of wells to be drilled under the usual oil and gas lease have been left to the judgment of the lessee, in the absence of an express agreement to the contrary. Since 1926 the producing well in the case at bar has produced slightly over $81,000 worth of oil and gas. The cost to the lessee is not shown, but the lessors admitted that it was not a very profitable well. In 1938 one of the lessors wrote to the lessee and said: “I realize the well is not a profitable one, as I own one two locations from you.” The attorneys for the lessors wrote the lessee, Colpitt, and said: “A number of years ago you drilled a well on this land which has been producing up to the present time and is now producing probably a little more than enough to cover the cost of pumping and maintaining the well.” Production from this well was very low in the early part of 1941, but had gradually increased since that date, as had the price of oil, and shortly before the trial a producing offset well had been drilled. These facts led the lessee to offer to drill at least one more well, but this offer was denied and his lease canceled as to 70 acres, leaving only ten acres around the one producing well.
While it is a well established rule that courts of equity have the power, authority and jurisdiction to cancel contracts, it is equally as well settled that where a contract has been fairly entered into, and is free from fraud, accident, mistake, or any other circumstance recognized as a ground for equitable relief, a court of equity must give full force and effect to such contract. In 30 C.J.S., Equity, §62, it is said:
“A court 0-f equity cannot, as appears in Sec. 296 of the title Contracts, make a contract for the parties, nor vary the terms of one made, nor substitute another one therefor, nor can it remedy a wrong by making it effect a contract between the parties with reference to the subject matter. The mere fact that for one of the parties the contract was unwise or improvident, or that its enforcement is harsh, when it was so intended to be, does not alter the rule . . . .”
In Plains Petroleum Corp. v. Fine, 174 Okla. 570, 51 P. 2d 284, this court said:
“Wherever the rights of parties to an action are clearly defined and established by law, equity has no power to change or unsettle such rights, but in all such instances the maxim ‘equitas sequitur legem’ applies.”
The same rule was announced by the Supreme Court of the United States, in Magniac v. Thomason, 15 How. 281, 56 U. S. 299, 14 L. Ed. 696, wherein it is said:
“That wherever the rights of the situation of the parties are clearly defined and established by law, equity has no power to change or unsettle those rights or that situation, but in all such instances the maxim ‘equitas sequitur legem’ is strictly applicable.”
An “implied covenant”, such as is relied upon by the plaintiffs in this action, is defined in 21 C.J.S., Covenants, §9, p. 888, as follows:
“An implied covenant is one inferred or implied in law from the words used and is based on the presumed intention of the parties. Such covenants are not favored.”
The oil and gas lease sought to be canceled, and canceled by the judgment *296of the trial court, except as to ten acres, clearly provides that it shall remain in effect as long as oil and gas or either of them is produced in paying quantities. It was admitted that this cleaily stated provision was being met by production. We should not approve cancellation of any part of such lease, under existing conditions, in the absence of proof that additional wells could be drilled with reasonable expectation of profit.
I am of the opinion that the “reasonably prudent operator” rule, as announced in numerous decisions of this court prior to the rule set forth in the Doss Oil Royalty Co. case, supra, in 1943, is more just and equitable than the rule announced in that case, and that no lessee should be required to surrender the undeveloped portion of a producing lease on the ground of the breach of an implied covenant to fully or diligently develop, until the lessor pleads and proves that further development may be reasonably expected to result in additional profitable production, or that a reasonably prudent operator would develop further with reasonable expectation of profit to himself and the lessor. Our decision in the Doss Oil Royalty Co. case should be overruled, along with all subsequent decisions in accord therewith, in so far as they affect the cancellation of oil and gas leases, or a part thereof, where production in paying quantities was secured during the primary term of the lease, and is continuing, without the requirement of proof by the lessor that further development may be reasonably expected to result in profitable production.
I also disagree with the majority opinion wherein it says:
“No direct specific demand for additional development of an oil and gas lease is necessary . . . .”
This is contrary to our holding in Hudspeth v. Schmelzer, 182 Okla. 416, 77 P. 2d 1123, wherein it was held:
“It is a settled rule in the law of oil and gas that in a case of a breach of an implied covenant to properly develop an oil and gas lease the lessor must demand that the implied covenant of the lease be complied with, and a reasonable time thereafter be given, before a court of equity will grant a forfeiture. Wapa Oil & Development v. McBride, 1921, 84 Okla. 184, 201 P. 984; Papoose Oil Co. v. Rainey, 1923, 89 Okla. 110, 213 P. 882; Farmers’ Mutual Oil Leasing Co. v. Bonneau, 1925, 110 Okla. 168, 237 P. 83; Utilities Producing Corp. v. Riddle, 1932, 161 Okla. 99, 16 P. 2d 1092; Gypsy Oil Co. v. Champlin, 1933, 163 Okla. 226, 22 P. 2d 102.”
I submit that the evidence in this case does not reveal any specific demand for additional development of the oil and gas lease in question; and I am definitely of the opinion that the letters which were written by Tull to Colpitt did not contain a specific demand for additional development.
I respectfully dissent.
I am authorized to say that Justices WELCH and GIBSON join in these views.