Court Opinion

ID: 9536573
Source: CourtListenerOpinion
Date Created: 2023-08-07 07:02:45.635928+00
Date Added: 2024-06-11T14:54:47.134602
License: Public Domain

Schroeder, J.,
dissenting: The court by its decision has completely nullified paragraph 9 of the lease assignment agreement between Wilford L. Cline and R. Leona Cline, assignor, and George A. Angle, assignee. The record discloses the parties were knowledgeable with gas in the Reichel gas field, knew its helium content and entered into a contract dealing with the helium content of the gas.
The impact of the court’s decision is to recognize a subterfuge by Angle to defeat the overriding royalty provision for helium separately sold and accounted for, and for a separate price stated and paid. Here the ingenious subterfuge employed to defeat the provision of the lease in question is a sale by the lessor-producer Angle to Kansas-Nebraska, and a sale back to Angle as purchaser and processor of the helium.
On the court’s theory of sale at the wellhead there could never be a reservation of helium separately marketed and paid for at the wellhead, because the helium is mixed with other gases and requires separation and processing before it can be separately marketed for a price stated and paid. The cost of separating and processing must be deducted to determine the market value of the helium at the wellhead. The helium overriding clause did not specify, nor was it by its terms otherwise contingent upon, the place where such sale occurred or title passed.
The Supreme Court has heretofore refused to give recognition to an ingenious subterfuge designed to free the owners of the leasehold estate of the burden of mechanic’s and materialmen’s hens against a block of oil and gas leases in Adair v. Transcontinental Oil Co., 184 Kan. 454, 338 P. 2d 79.
*338Here the precise circumstances of the parties agreed upon have come to pass by the separation of helium which was separately sold.
The appellant contends the decision in this case hinges upon the definition of an overriding royalty, and the court has adopted the appellant’s theory.
The trial court’s findings of particular significance on the issues herein are:
“3. After the execution of the Agreement .and in accordance therewith, Plaintiffs from time to time made, executed and delivered various assignments of their interests in certain oil and gas leases to and as required by Defendant. Thereafter, Defendant drilled producing gas wells on various of the leases thus assigned.
“In April, 1966, Defendant commenced operation of a helium extraction plant. No gas produced from the leases which Plaintiffs assigned as aforesaid was processed in Defendant’s helium extraction plant until 1968. From time to time and continuing to date, substantially all of the gas produced from said leases has been gathered in Kansas-Nebraska Natural Gas Company’s system and thereafter delivered to Defendant for processing in his helium extraction plant, under the terms of a contract between Defendant and Kansas-Nebraska. The helium, extracted from said gas in Defendant's plant is sold by Defendant to private parties under separate agreements and for a price unrelated to the ■wellhead price of the gas.
“4. By Paragraph No. 9 of their Agreement, the parties agreed, in effect and in law, that if Defendant were to profit from the sale of the helium contained in the gas produced from the aforesaid leases by Defendant’s making a separate sale thereof in accordance with the conditions specified therein, then in such event Plaintiffs were to receive the additional overriding royalty provided by that paragraph.
“The concluding lines of said paragraph of the Agreement, commencing after the semicolon with otherwise’ to the end, are not limitations upon the foregoing portions of that paragraph. Those concluding lines, and specifically their reference to ‘the price of gas at the wellhead’ have no significance in connection with the interpretation of the foregoing provisions of that paragraph. The foregoing provisions of Paragraph No. 9, which control the instant case, provide that if the producers in the field should be able to sell, advantageously, the helium gas by a separate sale, separately accounted for and for a separate price stated and paid, then Plaintiffs were to receive the additional overriding royalty therein reserved unto them. Defendant is a ‘producer within the meaning of the foregoing language. By Defendant’s sales to third parties of helium extracted at his plant from gas produced from the aforesaid leases, Defendant is doing indirectly exactly what Paragraph No.. 9 of the Agreement contemplated, i. e., selling advantageously the helium gas by a separate sale separately accounted for and for a separate price stated and paid. Plaintiffs are to be compensated under Paragraph No. 9 of the Agreement just the same, when Defendant acts indirectly in a manner contemplated thereby, as aforesaid, as if he were acting directly.
*339“5. Plaintiffs’ Motion for Pretrial Summary Judgment is granted and Plaintiffs are entitled to judgment on the issue of Defendant’s liability to Plaintiffs pursuant to Paragraph No. 9 of the Agreement as a matter of law. Accordingly, Plaintiffs are granted judgment against Defendant for an accounting on all helium sold from gas produced from the aforesaid leases, and to payment in the principal amount calculated in accordance with Paragraph No. 9 of the Agreement.” (Emphasis added.)
It is respectfully submitted the judgment of the learned trial judge should be affirmed.