Court Opinion

ID: 5109996
Source: CourtListenerOpinion
Date Created: 2021-10-02 13:43:09.454494+00
Date Added: 2024-06-11T08:21:00.156227
License: Public Domain

WILLS, J., dissenting in part and concurring in part. This case turns upon the application of Arkansas Code Annotated section 15-73-201 (Repl.2009). The majority considers the statute to be unambiguous and interprets it so that the exception in section 15-73-201(b) applies anytime drilling is commenced on any part of the lands under the lease — including, in this ease, on lands in Section 29. The majority also interprets subsection (b) so as to continue the lease as to all leased lands as long as the lessee completes one well a year anywhere on the leased premises, including, in this case, in Section 29. I disagree with this interpretation and agree with the Snowdens that subsection (b) addresses the commencement of drilling in sections of land other than those in Section 29. The majority’s _[j4 conclusion renders section 15-73-201(a) a nullity. In addition, although I agree with the majority’s resolution of the issue on cross-appeal (regarding Chesapeake’s request for suspension of its drilling obligations during the pendency of this litigation), I fail to understand why the majority needs to address that issue in light of its resolution of the statutory issue. I therefore respectfully dissent in part and concur in part. As the majority notes, this case presents a question of statutory construction and our review is therefore de novo, as it is for this court to determine the meaning of a statute. Osborn v. Bryant, 2009 Ark. 358, 324 S.W.3d 687; City of Little Rock v. Rhee, 375 Ark. 491, 292 S.W.3d 292 (2009). The basic rule of statutory construction is to give effect to the intent of the legislature. Rhee, supra. Where the language of a statute is plain and unambiguous, we determine legislative intent from the ordinary meaning of the language used. In considering the meaning of a statute, we construe it just as it reads, giving the words their ordinary and usually accepted meaning in common language. We construe the statute so that no word is left void, superfluous, or insignificant, and we give meaning and effect to every word in the statute, if possible; Rhee, 375 Ark. at 495, 292 S.W.3d at 294 (quoting Great Lakes Chem. Corp. v. Bruner, 368 Ark. 74, 82, 243 S.W.3d 285, 291 (2006) (citations omitted)). If a statute is ambiguous, we must interpret it according to the legislative intent, and our review becomes an examination of the whole act. Woodrome v. Daniels, 2010 Ark. 244, 370 S.W.3d 190. When the meaning is not clear, we look to the language of the statute, the subject matter, the object to be accomplished, the purpose to be served, the remedy provided, |1sand other appropriate means that shed light on the subject. Potter v. City of Tontitown, 371 Ark. 200, 264 S.W.3d 473 (2007). As a guide in ascertaining legislative intent, we often examine statutory history as well as conditions contemporaneous with the time of the enactment, the consequences of interpretation, and all other matters of common knowledge within the court’s jurisdiction. Lawhon Farm Servs. v. Brown, 335 Ark. 272, 984 S.W.2d 1 (1998); Citizens to Establish a Reform Party v. Priest, 325 Ark. 257, 926 S.W.2d 432 (1996). In construing statutes, we will not presume the legislature to have done a vain and useless thing. Phillips Petroleum Co. v. Heath, 254 Ark. 847, 497 S.W.2d 30 (1973). Finally, we reconcile provisions to make them consistent, harmonious, and sensible. Woodrome, supra. In my view subsection (a) of the statute is unambiguous. It states that [t]he term of an oil and gas, or oil or gas, lease extended by production in quantities in lands in one (1) section or pooling unit in which there is production shall not be extended in lands in sections or pooling units under the lease where there has been no production or exploration. This provision has been referred to as a “statutory Pugh clause.” Patrick H. Martin, Implied Covenants in Oil and Gas Leases — Past, Present and Future, 33 Washburn L.J. 639 (Summer 1994). We discussed the origin of such clauses in Bibler Bros. Timber Corp. v. Tojac Minerals, Inc., 281 Ark. 431, 664 S.W.2d 472 (1984): In 1947, Lawrence G. Pugh, a lawyer in Crowley, Louisiana recognized that a lease was normally held to be indivisible. He drafted a clause calculated to prevent the holding of non-pooled acreage in his clients’ leases while other portions were being held under pooled arrangements. These clauses were termed “Pugh clauses”.... Williams and Meyers’ Oil and Gas Terms, p. 602 defines a Pugh clause as “a type of pooling clause which provides that drilling operations on or production from a pooled unit or units shall maintain the lease in force only as to lands included within such unit or units.” Bibler Bros., 281 Ark. at 435, 664 S.W.2d at 474. The facts in Bibler Bros, were quite similar to the facts in this case. In Bibler Bros., the lessor of oil and gas rights sought to cancel part of a lease by asking a court of equity to “vertically sever” the lessees’ oil and gas rights in lands lying outside a producing unit from the lessees’ oil and gas rights in lands located within the producing unit. The lease at issue in Bibler Bros, encompassed some 1766 acres in six different sections of land and provided for a primary term of ten years. Drilling was commenced in one section— Section 1 — about three weeks before the primary term of the lease expired. The lands in Section 1 had been pooled by compulsory order of the Arkansas Oil and Gas Commission. Bibler Bros., 281 Ark. at 432, 664 S.W.2d at 473. The lessors filed suit to cancel the lease on the other five sections of land, comprising 1406 acres, which were not included in the producing unit. In doing so, they relied upon the provisions of the lease.1 The applicable provisions of the lease gave the lessee the right to pool or unitize its estate in order to create a drilling or production unit. It also included the standard provision that production from a well on the drilling unit would have the same effect as if the well were drilled on land embraced by the lease. Id. at 432-33, 664 S.W.2d at 473. It also included the statement that: “In the event however that only part of the lands embraced by the lease are included in a unit created hereunder, then the remaining portion |17of the lands embraced by this lease shall be subject to delay rental payments as provided in Paragraph 4.” Id. at 433, 664 S.W.2d at 473. The lessors contended that this sentence created a “vertical severance” of the lease, arguing that: only a part of the lands embraced by this lease were included in a pooling agreement, that is 360 of the 1766 acres. Thus, the remaining portion of lands embraced by the lease was still subject to the delay rental payments and since no delay rental payments were required to be paid after the primary term of the lease, the lease could only be extended to unitized or pooled areas that were actively drilling for oil or gas. Id. ' This court disagreed, however, concluding that the lease provision was only applicable to voluntary pooling by the lessee, and not where a particular unit had been pooled by compulsory order of the Oil and Gas Commission. Id. at 433-34, 664 5.W.2d at 474. The language in the applicable provision applied only to “unit[s] created hereunder,” meaning units created by virtue of the lessee’s rights under the lease. Id. at 434, 664 S.W.2d at 474. This court also disagreed with the lessors that the provision operated as a “Pugh clause,” stating “[t]he lease before us does not state the lease will be in effect only as to unitized lands. Instead, it states that the lands outside the unit are subject to delay rentals.... Since ... delay rentals are not owing after the lessee commences drilling or after the primary term of the lease, the language fails as a Pugh clause and also fails to impose delay rentals.” Id. at 435, 664 S.W.2d at 474. In making its conclusion, this court noted the “strong mandate” found in case law that an “oil and gas lease is an indivisible obligation in the absence of express provision to the contrary.” Id. at 434, 664 S.W.2d at 474. As pointed out above in footnote 1, Act 330 of 1983 was introduced and adopted 11Rduring the pendency of the Bibler Bros. litigation. The Bibler Bros, litigation is thus a circumstance contemporaneous to the adoption of Act 330 that may be considered in determining the proper construction of section 15-73-201. Subsection (a) of that statute unambiguously provides a statutory Pugh clause — that “[t]he term of an oil and gas, or oil or gas, lease extended by production in quantities in lands in one (1) section or pooling unit in which there is production shall not be extended in lands in sections or pooling units under the lease where there has been no production or exploration.” Subsection (a) of the statute thus creates, by operation of law, the same result typically negotiated by the parties in a “Pugh clause.” The purpose of subsection (a) is to create a “severance” of the nonproducing units from a producing unit. The difficulty in this case is not the proper construction of subsection (a). All parties agree on its effect. The difficulty is the proper construction of subsection (b), which creates an exception to subsection (a). The parties, the trial court, and the justices of this court differ as to whether subsection (b) is ambiguous. The Snowdens’ argued at the hearing that it was “very ambiguous”; Chesapeake maintains that it is unambiguous; and the circuit court found it unambiguous, as apparently does the majority. The parties, the circuit court, and this court, however, each read the subsection as leading to different results. In my view, subsection (b) is ambiguous. See Koch v. Adams, 2010 Ark. 131, 361 S.W.3d 817 (A statute is ambiguous only where it is open to two or more constructions, or where it is of such obscure and doubtful meaning that reasonable minds might disagree or be uncertain as to its meaning.). As such, this court must engage in a search for the legislative intention. We must harmonize |iathe two subsections, giving effect to each, in an effort to read them as a whole. See Ark. Beverage Retailers Ass’n v. Langley, 2009 Ark. 187, 305 S.W.3d 427 (“We reconcile provisions to make them consistent, harmonious, and sensible in an effort to give effect to every part.”). Subsection (a) of the statute is the operative portion. Subsection (b) then creates an exception to subsection (a). The operative effect or purpose of subsection (a) is to create — by operation of law and despite any contrary lease language — a severance. It severs non-producing sections or units from producing units or sections, despite the historical treatment of such leased lands as indivisible. Subsection (b) then states that “[tjhis section shall not apply” in certain circumstances. The original Act 330 of 1983, section 3, states that “[tjhis Act shall not apply when drilling operations have commenced on any part of lands under the lease ... within one year.... ” The effect of this exception is to provide that the severance provided for in subsection (a) does not apply where drilling operations have commenced within the applicable time period. The lease remains indivisible as to any such lands. “This section,” as used in subsection (b), refers to the operative effect of subsection (a). The phrase “[tjhis section shall not apply” means that the severance provided in subsection (a) does not apply “when drilling operations have commenced on any part of lands in sections or pooling units under the lease” within the applicable time period. Those parts of land will not be severed from the original portion where drilling has commenced. The “severance” created by subsection (a), however, has no relation in the first place to lands like those in Section 29. Subsection (a) does not purport to sever those lands from anything. Drilling operations have unquestionably already commenced in that Section. Section 29 is the portion |2oof lands from which other portions might be severed. Thus, reading the two subsections together and with their purpose in mind, it becomes clear that subsection (a) has no operative effect on Section 29 and it is therefore not embraced within the exception language of subsection (b). Subsection (b), as the Snowdens argue, applies only to Sections other than those in Section 29. This is the argument the appellants made below, wherein they stated that subsection (b) “would give an extension of one year basically after the lease expired that they have to initiate drilling in these other eight sections.” They continue to make this argument on appeal, and they are correct. The majority’s conclusion that the drilling in Section 29 extends the term of the lease . in other sections of land renders subsection (a) a nullity. There will always be drilling in the original section — in this case, Section 29 — and to construe the exception as including drilling in that section would swallow the rule. There would never be a severance of any of the other sections from the original section because drilling will have always been commenced in the original section. We will not presume the legislature to have done a vain and useless thing. Phillips Petroleum Co. v. Heath, supra. The majority agrees with the argument put forth by Chesapeake to keep its construction of the statute from being a nullity. Chesapeake focuses on the latter language of subsection (b), which defeats the severance where drilling operations have commenced “within one year of the primary term, or within one year after the completion of a well.” Chesapeake argues, and the circuit court apparently agreed, that this provision applies to drilling in Section 29, and “the lease is continued in effect as to all the leased property for one 12iyear from the completion of the last well drilled” and that “the statute’s apparent intent is to require the lessee to drill at least one well per year after the expiration of the primary term ... to avoid the effect of subsection (a).” This argument and the trial court’s conclusion in this regard are erroneous. Although this latter clause in subsection (b) is the most ambiguous portion of the statute, in my view, it relates only to the timing of the lessee’s obligation to commence drilling in the other sections. As concluded above, under the first clause of subsection (b), the lessee has one year from the expiration of the primary term to commence “drilling operations” in the other sections, or else they are severed from the lease. The reference to the completion of a well, in my view, extends the time period within which the lessee must commence drilling operations in those sections. Where the lessee has not yet commenced drilling in another section within the one-year deadline, but has nonetheless completed a well in that section within that one-year period, this clause of subsection (b) gives the lessee a year from the completion of the well to actually commence drilling in that section. In my view, this clause of subsection (b) does not refer to the completion of any wells in Section 29. This court characterized the operation of subsection (b) in this fashion in Davis v. Ross Production Co., 322 Ark. 532, 910 S.W.2d 209 (1995), stating: [In] Ark.Code Ann. § 15-73-201 (Repl.1994) ... the General Assembly has provided that one year beyond the primary term of the lease or one year within completion of a well is a maximum time the lessee can hold by production, lands outside a unit or pool in which there has been no production or exploration. Davis, 322 Ark. at 541-42, 910 S.W.2d at 214 (emphasis added). This court described section [2215-73-201 as creating a “maximum time” that the lessee can hold non-producing lands — either one year beyond the primary term or one year within completion of a well. Under the majority’s reasoning, there would be no “maximum time” that non-producing lands could be held. They could be held from year to year ad infinitum upon the completion of a well in any one section under the lease. In my view, this reading of subsection (b) renders subsection (a) a nullity. The majority’s reading of the statute continues the traditional notion of an indivisible lease, despite the General Assembly’s efforts to modify that notion in section 15-73-201(a). I therefore respectfully dissent from the majority opinion. Because it is clear that no activity of any kind has commenced in any section other than Section 29, I would reverse the circuit court on this point. I agree with the majority’s conclusion on the cross-appeal, regarding whether Chesapeake’s drilling obligations should have been suspended during the pendency of this litigation. I do not understand, however, why it is necessary for the majority to reach that issue in light of its conclusion regarding the effect of the statute. Because the majority concludes that the lease extends to all sections of the Snowdens’ land and continues for as long as Chesapeake complies with the lease terms, the logical result under that construction of the statute would render Chesapeake’s cross-appeal moot. Under my construction of the statute, however, the issue on cross-appeal is still very much alive. In this case, the primary term of the lease expired on February 11, 2008. The Snowdens filed suit on May 19, 2008. As of that date, the one-year period for commencing | ^drilling operations in sections other than Section 29 had not yet expired. This lawsuit was, like the case of Winn v. Collins, 207 Ark. 946, 183 S.W.2d 593 (1944), “prematurely filed.” In Winn, the Winns entered into a mineral lease with Collins on January 29, 1943; under the terms of the lease, Collins had ninety days to begin active mining operations on the leased land and was required to remove a minimum of 12,000 tons of bauxite per year. Winn, 207 Ark. at 948, 183 S.W.2d at 595. On January 31, 1944, the Winns filed suit to cancel the lease, contending that Collins had failed to begin active mining operations within the required time and had failed to market the minimum tonnage from the land. Id. at 949, 183 S.W.2d at 595. The chancery court, however, determined that the Winns were not entitled to cancel the lease. Id. at 950, 183 S.W.2d at 596. On appeal, this court rejected the Winns’ argument that Collins had failed to remove the required 12,000 tons of bauxite within one year of the signing of the lease. The court cited the language of the lease, which provided that, if active mining operations had begun within ninety days from the date of the lease, then the lease would remain in full force and effect “so long as active mining operations are conducted therein, with this provision, that a minimum tonnage of 12,000 tons per annum is removed from said lands annually.” Id. at 951, 183 S.W.2d at 596. The court construed this language as meaning that Collins had one year from the date that active mining operations, commenced to produce the required tonnage; because active mining operations did not commence until April 28, 1944, the Winns had no cause of action on the minimum tonnage requirement when the suit was filed on January 31, 1944. Id. at 952, 183 S.W.2d at 597. Their suit having been filed prematurely, the | ^period of time in which the suit was pending could not count against Collins’s time in which to produce the tonnage. Id. at 953, 183 S.W.2d at 597. The Winns were estopped from claiming any forfeiture that might have occurred during the pendency of the suit, and the time from the filing of the suit until its final disposition would not count against Collins as part of the one-year period for mining the minimum tonnage. Id. at 954, 183 S.W.2d at 598. Similarly, in the present case, the Snow-dens’ suit was filed prematurely. As noted above, as of the date they filed their complaint, the one-year period for commencing drilling operations in sections other than Section 29 had not yet expired. Chesapeake was understandably concerned about its continuing obligation to drill and was understandably reluctant to begin any drilling operations in other sections of land where the outcome of this litigation might determine that those sections had been severed from its leasehold. Accordingly, I agree with the majority that the circuit court should have tolled Chesapeake’s drilling obligations during the pendency of the litigation and therefore concur on this point.  . Act 330 of 1983, which is the source of section 15-73-201, had not yet been enacted. It was introduced and adopted during the pendency of the litigation in Bibler Bros, and applies to all leases entered into on or after its effective date.