Court Opinion

ID: 9694030
Source: CourtListenerOpinion
Date Created: 2023-08-25 17:19:15.74126+00
Date Added: 2024-06-11T18:19:54.615109
License: Public Domain

*23Opinion in Chief.
Lee, J.
B. C. Griffith and others, as royalty owners of 90 acres in a 250 acre unit in the Gwinville Field, by this suit, seek to recover from Gulf Refining Company and others a pro rata share of gas produced from the unit.
Their bill of complaint alleged these facts: The Federal Land Bank of New Orleans deeded to T. B. Slater and Bill Booth 530 acres of land, as therein described, reserving one-half of the mineral rights. Thereafter on June 28, 1937, Slater and Booth executed to Gulf Refining Company a ten year mineral lease of their one-half interest. Subsequently Gulf released of record 280 acres of this land, retaining only 250 acres. On August *2426, 1939, Slater and Booth divided this 250 acre tract and sold to Reggie and Lurleen Lee the north 90 acres and to Hollie and Myrtle Lee the south 160 acres, in each instance without reservation. On April 23, 1940, the Federal Land Bank executed a lease of its reserved mineral interest to I. P. LaRue; and he, in turn, on May 2, 1940, assigned his lease to Magnolia Petroleum Company. Gulf applied for and on January 25, 1947, obtained a permit to drill on the 250 acres; and on August 27, 1947, filed with the State Oil and Gas Board a map of the Slater, et al. gas unit, composing that acreage. A gas well was completed in 1947 on the south 160 acres, or the Hollie Lee part of the unit. The gas allowable for the well was, at the instance of Gulf, fixed on the basis of 250 acres and such allowable has been subsequently produced from the well. Royalty has been paid to the holders of interests in the 160 acres, but no part thereof has been paid to the holders of interests in the 90 acre tract. Complainants alleged that $1,800.00 had already accrued to them on account of royalty at the time of the filing of the suit, and they prayed for discovery as to the exact amount, and for an accounting as between the defendants.
A general demurrer by the defendants that “there is no equity on the face of the bill” was sustained, and the complainant, B. C. Griffith, appeals.
The question for determination is whether the present owners of royalty in the 90 acre tract are entitled to share in the production from the 250 acre unit, when the well is actually located on the 160 acre tract.
Appellees contend that royalties are payable only to those with interests in the land on whiclwthe well is producing, and that no apportionment of royalties can be made in the absence of contracts or provisions to that effect. They cite a number of cases on this point. It is not necessary to list the authorities from other jurisdictions, inasmuch as Merrill Engineering Co. v. Capital National Bank, 192 Miss. 378, 5 So. 2d 666, recognized the *25well settled rule to be that (Hn 1) “where the owner of a tract of land leases the same as a whole for oil and gas and thereafter subdivides the land into several tracts and conveys the same without reserving the royalty interest therein, the purchasers of each of such several tracts will only acquire the right to receive the royalty in any oil or gas produced from a well on his individual property.”
While the above case, which recognized the common law rule, was decided in 1942, the rights there under consideration had their inception in 1931, prior to the enactment of Chapter 117, Laws of 1932, and prior to the adoption and promulgation by the State Oil and-Gas Board of spacing and other conservation regulations, which the legislature, in the exercise of the state’s police power, authorized by said Chapter. (Hn 2) Consequently, the common law rule is now limited and circumscribed by the conservation rules and regulations of .the Board, which were in effect at the time of the accrual of the rights of the parties here.
So the question here must be viewed in the light of the statutes and the orders of the State Oil and Gas Board which were in effect prior to this operation, and the acts and conduct of the appellees. Secs. 6141 and 6142, Code 1942, required that notice of the intention to drill a gas well should be given to the State Oil and Gas Supervisor and he, in turn, should collect the requisite fee before granting a permit.
By paragraph (b), Sec. 6140, Code 1942, it was made the duty of the State Oil and Gas Board to prorate and regulate the gas well production from each common source of supply “for the protection of public and private interests, and to adjust the correlative rights and opportunities of each owner of gas in a common source of supply to produce, use or sell such gas”. And by paragraph (d) of said section, the Board, in determining the allowable production of each well, was required to “take into account equally the acreage of the tract on *26which the well is located and the open flow capacity of the well”.
The above statutes were forerunners of Chapter 256, Laws of 1948, and amendments thereto. It will be seen that the same general idea permeates the declaration of public policy in Sec. 1 of said Chapter as follows: “To protect the public and private interests against the evils of waste in the production and utilization of oil and gas, by prohibiting waste as herein defined; to safeguard, protect and enforce the co-equal and correlative rights of owners in a common source or pool of oil and gas to the end that each such owner in a common pool or source of supply of oil and gas may obtain his just and equitable share of production therefrom; . . .”.
In California Company v. State Oil & Gas Board, 200 Miss. 824, 27 So. 2d 542, it was held that the legislature had the power to prescribe the general rule and regulation as to the spacing of gas wells; that it could delegate this power to an administrative agency; and that it did so by Sec. 5, Chapter 117, Laws 1932, Sec. 6136, Code 1942.
The State Oil and Gas Board, by orders dated August 30, 1945, August 28, 1946, August 11, 1947, and September 11, 1947, provided that drilling units in the Gwinville Field should consist of 320 contiguous acres for one gas well. Green et al. v. Superior Oil Co., et al., 59 So. 2d 100; Superior Oil Co. v. Foote, et al., 59 So. 2d 85. The limitation of one gas well to 320 acres was conceived to be in aid of the legislative purpose and such spacing has been in force and effect since 1945.
(Hn 3) Since Slater and Booth made no reservations in the deeds to the 90 and 160 acre tracts, the Lees, in each instance, acquired a l/16th royalty interest in their respective tracts. Gulf and Magnolia, as lessees, owned the exclusive right to drill for and produce gas on this acreage ; and in the spacing and drilling of a well, they represented the royalty owners. Superior Oil Co. v. Foote, *27et - al., supra. They were not licensed to commit waste or impair the property rights of the royalty' owners. Millette v. Phillips Petroleum Co., 209 Miss. 687, 48 So. 2d 344. They were not required to consult the Lees as to where the well should be drilled. Of their own accord, they chose to merge both tracts together as one drilling-unit. They applied for and obtained a permit to drill on this unit. The map which they filed designated it as the T. B. Slater et al gas unit, and as composing the two tracts. They drilled and completed the well on the 160 acre part of the unit. They applied for and obtained a gas allowable for the entire 250 acres in the unit. Although the spacing pattern was 320 acres, the Board had the power to make exceptions, and it did so in this instance. Appellees have been producing and selling gas from 250 acres of land. Thus they have evidently been draining- gas from the 90 acres also. To all intents and purposes, they have built a fence around the lands in which appellants are interested. Neither production nor utilization of gas in which they have an interest can be had by the appellants. On the contrary, appellees have taken it for their own use and have paid nothing- therefor. It is unthinkable that the 90 acres can be utilized, as alleged by the complainants in this case, and its royalty owners receive nothing- while the owners of the 160 acres receive all of the benefits.
On account of the fact that the well is evidently draining the 90 acre tract and that the owners of such acreage are thereby contributing to the production, actually the owners of the 160 acres must be getting more than they are entitled to, and this at a time, when those on the 90 acre part of the unit are receiving nothing. When these two parcels of land were merged into one drilling unit, the imaginary line between them was obliterated insofar as the production of gas was concerned.
In Placid Oil Co. v. North Central Texas Oil Co., Inc., et al., 19 So. 2d 616, 206 La. 693, in the order of the Commission provision was made for the establishment *28of drilling units of 80 acres, to be composed of any two adjacent 40s. Tbe oil company procured a permit to combine two 40s into one unit and drill in the center of one of these. Parten owned a 3/32ds royalty interest in the 40 on which the well was drilled, but only a l/64th interest in the other. The Louisiana Court held that the two 40 acre tracts were in fact unitized, and that Parten was entitled to receive only in the proportion that his interest in the two 40s bore to the whole unit.
If instead of the course followed in the present case, the oil companies had made their distribution pro rata for the whole unit, the foregoing Louisiana case would have been a complete answer to a claim by the royalty owners of the 160 acres for all of the production.
It is not necessary for us to say generally how far the rights of parties are affected by integration. In this case, however, the appellees, through their conduct, received certain benefits which normally accrue from integration. When they procured and accepted such benefits, it follows that, in like manner, they assumed the burdens incident thereto.
The allegations of the bill of complaint, as against the demurrer, are taken to be true. (Hn 4) Under such circumstances, therefore, the denial of a remedy to the appellants would be contrary to certain maxims of equity:
“Equity regards and treats as done that which in good conscience ought to be done.” Yol. 1, par. 364, p. 675, Pomeroy’s Equity Jurisprudence, 4th Ed.
“Equality is equity, or equity delighteth in equality”. Par. 405, p. 762, id.
“Equity will not suffer a wrong without a remedy.” Sec. X, page 790, id.
(Hn 5) Since Gulf and Magnolia pooled their leasehold interests without the consent of these royalty holders, they were, therefore, under the duty to preserve the property rights of such royalty owners. Superior Oil Co. v. Foote, et al., supra. Since they failed in the performance of *29this duty, the appellants are entitled to a remedy, that is, to share in the production from this unit. Moreover, discovery should be available to ascertain and determine the amount; and too an accounting between the several appellees may be necessary in the attainment of justice.
These observations dispose of appellees’ contention that, if appellants have a remedy, it is in the circuit court in their Cause No. 38511.
Appellees also argue further that, when the permit was granted, there was no existing authority which could compel the integration of separately owned properties to create a unit for the drilling of a gas well which would compel the royalty owners to participate in the proportion that their ownership bore to the whole.
However, in Superior Oil Company v. Foote, et al., supra, the application to drill a gas well on Unit 32 therein was filed with the board on April 23, 1948, and the permit was issued on April 28, 1948, prior to the effective date of Chapter 256, Laws of 1948, and, of course, prior to the enactment of Chapter 220, Laws of 1950. Yet, on application of the oil company, the interests of the royalty ownérs in that instance were integrated by the Board, and that action was affirmed here,' although the determination of the exact interest was not before this Court, and for that reason, was not made.
In justice to the Magnolia Petroleum Company, it should be stated that the bill of complaint specifically alleges that this defendant has paid its royalties on the proper basis. Relief is sought against it only for discovery and for an accounting.
From what has been said it follows that the demurrer was improperly sustained, and on that account, the cause should be, and is, reversed and remanded.
Reversed and remanded.
All Justices concur.