Court Opinion

ID: 9665627
Source: CourtListenerOpinion
Date Created: 2023-08-24 00:53:21.812083+00
Date Added: 2024-06-11T18:15:17.143792
License: Public Domain

DISSENTING- OPINION
McElroy, J.
With deference, I am compelled to dissent. After a careful reading of the opinion in this case- I believe it *20is an attempt to overrule the Millette cases, or at least to circumvent them.
The facts are accurately stated in the majority opinion, so I will not repeat except to say that Monsanto obtained 9,375 barrels of oil at $2.70 per barrel, and Andreae obtained 585.9 barrels at the same price. The record, therefore, shows that Monsanto is enriched by $25,327.50, and Andreae is poorer by $1,581.93. The majority opinion states: “In the oil business, and in determining the rights of people, there must be some guide by which to go. The guide developed through the decades is the prudent operator rule. It is essential as a standard, just as the conduct of a reasonably prudent man is essential in negligence cases. It is shown without doubt that a prudent operator would not have drilled on Andreae’s forty.”
The drainage of the Andreae land was from the Ains-worth well located on the forty just north. The test well drilled by Reeves was on the west forty, next to Andreae’s forty. In other words, no test well was drilled on Andreae ’s acreage, and no well was attempted to be drilled because no one was willing to drill there — not even Andreae. They said Andreae. smiled when offered the chance to drill. It might have been because Andreae did not have the amount of money necessary to drill a well. Monsanto held his lease, and had not given it up as far as Andreae was concerned. As I understand it, appellant requests this Court to overrule the cases of Millette v. Phillips Petroleum Co., 209 Miss. 687, 48 So. 2d 344 (1950), and Phillips Petroleum Co. v. Millette, 221 Miss. 1, 72 So. 2d 176 (1954). These cases repeat the rule of law that there is an implied covenant in oil and gas leases that the lessee will “refrain from depleting the lessor’s mineral interests by an affirmative act of the lessee.” In the first Millette case, the Court said:
*21“ There is an implied covenant in a lease of oil property tliat the lessee will do nothing to impair the value of the lease, and mnst nse reasonable care to protect lessor from damages or loss by the affirmative act of such lessee.” See Wells v. Continental Oil Co., (Miss.), 142 So. 2d 215.
The Conrt also said: “This implied obligation has been extended to include, in the absence of express stipulation, a duty to drill offset wells if practicable and profitable.This responsibility is separable from a duty to drill offset wells, and an express covenant which absolves the lessee from this method of development does not relieve the lessee of liability for substantial drainage by him.By these he purchases the right to delay actual development, but not an acquittal of such obligations as are read into the lease by mutual understanding, equitable necessity or public policy.”
In the second Millette case, the Court said: “It is contrary to every concept of equity and justice to hold that a lessee may drill on adjoining land and through such a well drain dry the land on which it refuses to drill and thereby deplete the resources of its lessor and enrich itself to that extent without the expenditure of one dime in developing the lessor’s land and then refuse to pay the lessor the royalty for his oil which it has talcen from him. It is not only contrary to equity and justice but is contrary to the express royalty provision in the lease here involved that appellant would pay the one-eighth royalty on the oil ‘produced and saved from said land’.” (Emphasis supplied).
They hold that the acceptance of delay rentals does not per se estop the appellants to claim damage by way of waste caused by drainage through the affirmative action of the lessee. They emphasize that the option to defer actual drilling by the payment of annual delay rentals affects only the specific right which such rentals *22are designed to purchase. The acceptance of such rentals is relevant solely to the duty to drill,, and does not compensate for waste or depletion. Under this form of lease, the lessor may drill a well or pay rentals, hnt on the other hand, he must prevent drainage or pay the lessor damages.
The second Millette case, as to the so-called prudent operator rule, points out”. ... that the duty to drill offset wells, as expressly stipulated and limited in the lease, is separable from the implied covenant to compensate for drainage and that the latter survives unimpaired. . . . . . . The so-called ‘prudent operator’ rule has no application to a state of facts such as here presented. . . . . The ‘prudent operator’ rule has its place in those cases involving the duty to drill an offset well under an implied covenant where not expressly provided for in an oil and gas lease, and it is usually inserted in leases where the duty to drill offset wells is spelled out in the lease, such as the lease in the present case. But notwithstanding the fact that the rule has no place in a suit for recovery for compensation for drainage by a common lessee from one tract of land through a well drilled on an adjoining tract, the duty to drill offset wells and the, duty to compensate for drainage being entirely separate, some courts have extended the rule to apply to suits for drainage. "VVe decline to follow the. rule as laid down, by such courts. It is contrary to every, concept of equity and justice to hold that a lessee may drill on adjoining land and through such a well drain dry the land on which it refuses to drill and thereby deplete the resources of its lessor and enrich itself to that extent without the expenditure of one dime in developing the lessor’s land cmd then refuse to pay the lessor the royalty for his oil tvhich.it has taken from him. It is not only contrary to equity and justice but is contrary to the express royalty, provision in the lease here- involved that appellant would pay the one-eighth royalty on the *23oil ‘produced and saved from said land.’ It is wholly beside the point to . argue that appellant might have to pay to the lessor of the adjoining land a one-eighth royalty on all the oil which is produced from the well located on his land. Assuming, but without deciding, such to he true, and assuming, but without deciding, that appellant might thereby have to pay a double royalty on a part of the oil produced from the well located on the adjoining land, the appellant is certainly in no position to complain of our holding, since it has saved unto itself the cost of drilling on appellees’ land, and that saying is considerably more than the additional royalty which it might be required to pay.” (Emphasis supplied).
Therefore, in the Millette cases, we may ask the question: Is there anything inconsistent in the trial court’s finding that there was not a substantial quantity of oil underlying the lessor’s land to justify the drilling of an offset well, and then award damages for the drainage complained off My understanding is that under the opinion of the Court drainage which is not considered a “sufficient quantity of drainage” measured by the prudent operator’s test to justify the drilling of an offset well under the express covenants so to do is considered substantial drainage; and in order to justify an award under a breach of the implied covenant to compensate for drainage, the drainage must be caused by an affirmative act of the lessee.
My conclusion is that the Mississippi decisions dealing with implied covenants establishes the fact that there exists in oil and gas leases an implied covenant for development of the leased premises; that the remedy for failure to develop is forfeiture after lessee has had notice and a reasonable time in which to develop; to compensate for drainage where the drainage has been caused by an affirmative act of the lessee; and that the implied covenant to compensate for drainage is entirely separate from the express covenant to drill offset wells *24under the prudent operator’s test. The appropriate remedy in such a suit is damages. See Miss. Law Journal, Vol. 26, p. 28, Interpretation of Oil and Gras Leases, by Arthur B. Custy.
Chap. 256, Sec. 1, Laws 1948, is as follows: “It is the intent and purpose of this law to permit each and every oil and gas pool in Mississippi to he produced up to its maximum efficient rate of production, subject to the prohibition of waste as herein defined, and subject further to the enforcement and protection of the co-equal and correlative rights of the owners of a common source of oil and gas, so that each common owner may obtain his just and equitable share of production therefrom.” (Emphasis supplied).
Quoting from the majority opinion in the case at bar, it is said:“.... the drainag'e must be substantial, and the question is, what is a substantial drainage? Substantial is a relative term and the meaning of it is to be determined with regard to all of the surrounding* facts and circumstances. In this case, it is shown beyond question that to recover the oil under Andreae’s lease would have cost more than it was worth. Suppose Monsanto had surrendered the lease to Andreae on first contact. Andreae could not have done anything with it. If he had drilled to recover the amount of oil there he would have lost money. Under this circumstance, we do not think there was any substantial drainage.”
In answer to this, we might say that Andreae’s total of $1,581.93 to he recovered, that is, 585.9 barrels at $2.70’ per barrel, may not be considered substantial. However, we must remember that Monsanto drained 9,375 barrels fi'om this pool of oil on Andreae’s property. This amounts to $25,327.50, in which Monsanto was the richer, and $1,581.93, in which Andreae was the poorer. The facts in this case show that Monsanto did not spend one dime in trying to develop the lands of Andreae. It is true that he farmed out for a test well to *25Beeves on the adjoining property, bnt this proved to be a dry hole. The lower court held that Andreae was entitled to $1,581.93, and showed that Monsanto recovered $25,327.50, which was much less than a well would have cost on Andreae’s property. Therefore, to have paid Andreae the amount to which he was entitled, although it may not appear to be substantial, it was certainly substantial as far as saving Monsanto money in having to drill a very expensive well in which to help him; and since we are under the equitable rule that he must not drain without due compensation, and there is proof of drainage from Andreae’s property, I believe the case should be affirmed.