Court Opinion

ID: 9766909
Source: CourtListenerOpinion
Date Created: 2023-08-29 05:02:30.857843+00
Date Added: 2024-06-11T07:30:27.146908
License: Public Domain

Ed. F. McFaddin, Associate Justice (dissenting). I would affirm the Chancery decree on all points. As to the .cost, of transporting the raw brine from the well to the point of ¡$ale, I agree with the Majority that the case at bar is ruled by Clear Creek Oil & Gas Co. v. Bushmaier, 165 Ark. 303, 264 S. W. 830. But I disagree with the Majority as to charging against the landowner the cost of the 'disposal of the refuse fluid after the brine has been extracted at the plant of the purchaser. The cost of the disposal of the said refuse fluid was a business expense, to be paid by Parnell from the %ths working interest, just like advertising, salaries, telephone, and such other items are business expenses and not to be charged against the royalty interest. The present case was tried on a stipulation as to the facts, which showed: 1. That Giller executed the lease to Kin-Ark Oil Company. • 2. That Kin-Ark Oil Company assigned the lease to Parnell. 3. That Jett Drilling Company entered into a contract with Arkansas Chemicals, Inc., in which contract Jett agreed: “Article 3—Delivery and Disposal, (a) SELLER shall deliver Raw Brine via pipeline to the storage facilities of the plant of BUYER upon request of BUYER, (b) SELLER shall receive all of BUYER’S Spent Brine at the plant of BUYER via BUYER’S effluent júpeline and dispose of it in a manner which will not adversely affect the Raw Brine being supplied to BUYER. ’ ’ 4. That Jett Drilling Company assigned its rights under the contract to Parnell; so Parnell is now operating with Ai’kansas Chemicals, Inc. under the above quoted provision. In the stipulation there is no showing that this disposal clause above copied was necessary to the sale of the raw brine. There is no showing that it is the usual and customary clause in such an instrument. Until Parnell made some such showing, I think the expense of the disposal of the refuse fluid should be held to be a business expense, and the landowner should not be required to pay from his %tk royalty a portion of a business expense incurred by the holder of the %ths working interest. Since the Bushmaier case, involving gas, was used as a precedent on the first point-—transportation of the raw brine to the point of sale—-I have searched various oil and gas cases for one with a factual situation similar to the one here; but my search has been fruitless. In Summers on Oil & Gas Permanent Ed. Yol. 3A, § 589 et seq., there is a discussion of Royalties; and in § 590 there is a discussion of the expenses of removing water and other foreign substances from crude oil; but the cited cases contain language different from that in the lease here involved. There is an annotation in 73 A. L. R. 2d 1056 entitled, “Expenses and taxes deductible by lessee in computing lessor’s oil and gas royalty or other return.” The annotation states that each case depends on the particular terms of the lease involved (e.g., “net costs” is distinguishable from “costs”); and the annotation says of operational expenses: “Notwithstanding the fact that a lessor’s royalty is ordinarily to be paid or rendered free of all the expenses of operating the lease, that is, the expenses of exploring and drilling and bringing the products to the surface and delivering the same into tanks or pipelines, a particular lease may of course entitle the lessee or operator to deduct such expenses.” Under the lease and the sales agreement with Arkansas Chemicals, Inc., here involved, the disposal of the refuse fluid after the brine has been removed at the Purchaser’s plant appears to me to be an operational or business expense that should be borne by appellant as the operator or the owner of the %ths working interest. The Buslimaier case limits the expenses that may be charged against the landowner to transportation and distribution;1 but here, the Court is allowing the lessee to add another expense, that is, a disposal expense. The disposal clause here involved should certainly be construed most strongly against Parnell, who accepted and operated under the Arkansas Chemicals, Inc. agreement, rather than against Giller, who had no part whatsoever in framing the Arkansas Chemicals, Inc. agreement, and who never operated under it. I would affirm the Chancery decree in its entirety.   Here is the language: “The prices prevailing at the nearest place where the product can he sold, less transportation and distributing charges, show the value of such product at the place of delivery as nearly as it is possible to show such value.”