Court Opinion

ID: 9532571
Source: CourtListenerOpinion
Date Created: 2023-08-07 04:22:37.323698+00
Date Added: 2024-06-11T13:28:47.013779
License: Public Domain

PRESIDING JUSTICE JONES, dissenting: I must respectfully dissent. In determining that the operator of the leases in issue here, Billingsley, had not instituted a “secondary recovery method,” the trial court and the majority obviously placed great reliance upon the fact that the State of Illinois had not issued a permit for a waterflood (a secondary recovery method). It might be facetiously said that oil-producing formations are not flooded with State permits, they are flooded with water. Some further reliance was seemingly placed upon the fact that the input-recovery method utilized by Billingsley on the Gaddis 40 acres was not that generally followed in permit-authorized secondary recovery operations. The record contains an order on pretrial conference signed by all the parties. One of its provisions was that the division order containing the special clause in question “constituted a legal and binding Contract between the parties who signed it, including the Plaintiffs and the Defendants, Dale Allen Gaddis, Anna Lee Gaddis, and Virginia R. Walker.” The special clause of the division order dated July 21, 1955, read: “This supplemental division order is filed to evidence the fact that it is mutually satisfactory to all the undersigned parties that payment be made to them and/or their successors in title as hereinabove set out for the entire Ve R.I. in this 53-acre lease, effective with all oil run on and after July 1, 1955, until such time as secondary recovery methods may be put in operation on the above described premises ***.” This same special clause was also inserted into the division order dated August 30, 1951. This is important to note, since it evidences an agreement of long standing among the royalty owners of the 53 acres regarding the consequences of the institution of secondary recovery methods. What Billingsley did on the Gaddis lease was, without question, a method of secondary recovery of oil from that lease, and Billingsley admitted that it was. Moreover, the Billingsley operation on the Gaddis 40 acres constituted waste and was contrary to Illinois statutes prohibiting waste. The consequence of the decision of the trial court and the majority is that the defendant royalty owners have been deprived of their rights under their contract and have lost a full one-half of the royalty payments assured them by the contract. In considering whether the Gaddis lease was being subjected to secondary recovery methods by Billingsley, it would be advisable to keep in mind that he had, by his own testimony, over 40 years’ experience in the oil business, consisting of drilling, producing and flooding. He obviously knew that he was installing a secondary recovery by waterflood, and that is plainly shown by both his actions on the Gaddis 40 acres and his admissions in his testimony. At the time Billingsley acquired the Gaddis lease it had one producing well in a corner location. In due course he drilled three additional producing wells to the same producing formation in the remaining corner locations on the Gaddis 40 acres. He then drilled the “saltwater disposal” well in the middle of the 40 acres and began injecting water into the producing formation, at first by gravity flow but later under pressure. The very natural, and known, consequence was that the injected water drove the oil from the injection well to the four producing wells on corners of the 40 acres. The resulting great increase in the production of oil from the Gaddis 40 acres is detailed in the record and candidly attributed to the “saltwater disposal” well. Aside from the admissions of Billingsley, there is a sure indication that a secondary recovery by waterflood was knowingly installed by him, and that indication is found in the fact that three additional, and presumably very expensive, production wells were drilled by Billingsley contemporaneously with the drilling of the disposal well. If Billingsley, or any other operator, was drilling a well solely for saltwater disposal, it would not be either necessary or desirable to drill any additional production wells. If further confirmation of secondary recovery from the Gaddis 40 acres should be needed, it is to be found in the testimony of Billingsley himself, given on fcross-examination: “Q. And that water input well does exactly the same thing, absolutely and completely the same thing as a waterflood well on the same place for the same purpose, doesn’t it? A. Yes. Q. Absolutely no difference except the name? A. Right.” In closely related testimony, Billingsley related that the greatly increased production from the Gaddis 40 acres was directly attributable to the injection of water. His further testimony indicated that he was familiar with the requirements to be fulfilled in getting a State permit for a secondary recovery operation and that he was also familiar with the traditional methods of secondary recovery by waterflood whereby water is injected into the periphery of an oil-bearing formation to drive the oil to production wells at the center of the formation. It is obvious in this case that Billingsley conducted the somewhat unorthodox, but nevertheless effective, waterflood operation on the Gaddis lease because it was easy, relatively cheap and did not require that he become involved with any other persons or production companies. He did not make application to the State for a permit to conduct secondary recovery by waterflood because he knew it would not be granted. His chosen method of waterflooding of a single 40-acre tract was inefficient, could not be confined in its effect upon the producing formation to the 40-acre tract, and would be wasteful of the oil reserves in the formation. Each of these factors is contrary to State policy to protect oil reserves, prevent waste and protect owners of royalty and oil and gas leasehold interests. It is true that Billingsley had a State permit for a water injection well on the Gaddis 40 acres. However, the application and representations submitted to the State Department of Mines and Minerals are not in the record. The permit is suspect, since it authorizes injection of water for disposal purposes that is squarely contrary to statutory provisions and prohibited as waste. Section 1 of “An Act in relation to oil, gas, coal and other surface and underground resources ***” (Ill. Rev. Stat. 1977, ch. 961/2, par. 5401) defines waste, as related to this case, as: “ ‘Waste’ means ‘physical waste’ as that term is generally understood in the oil and gas industry, and further includes: * * * (3) the drowning with water of any stratum or part thereof capable of producing oil or gas, except for secondary recovery purposes.” (Emphasis added.) Section 1.1 of the same Act (Ill. Rev. Stat. 1977, ch. 961/2, par. 5402) provides: “Waste as defined by this Act is prohibited.” In conclusion, it should be noted that the owners of the royalty under the Gaddis 40 acres will never be able to collect the bargained-for royalties that would arise from installation of secondary recovery methods on their lands. Secondary recovery has already been instituted and can never be reversed, or repeated. I would reverse.