Court Opinion

ID: 9527293
Source: CourtListenerOpinion
Date Created: 2023-08-07 03:29:20.263498+00
Date Added: 2024-06-11T13:25:41.713276
License: Public Domain

*13Hall, J.
This is the second appearance of this case in this Court. On the original appeal we had for consideration the sufficiency of the bill of complaint as stating a cause of action as against a demurrer, and we reversed the action of the chancellor in sustaining a demurrer to the bill and remanded the case for trial on one issue, viz., the liability of appellant for drainage of oil underlying appellees-’ land through wells owned and operated by it on adjoining land. See Millette v. Phillips Petroleum Company, 209 Miss. 687, 48 So. 2d 344. On that appeal we settled the law governing the trial upon remand. On the trial the chancellor awarded a judgment for drainage from appellees’ land in the amount of $12,500.00 from which this appeal is prosecuted.
The principal point now argued by appellant, and the only point as to which there is any disagreement among us, is that the trial court erred in awarding any damages to appellees because of a finding by him that there was not a sufficient quantity of oil underlying the Millette land to justify the drilling of an offset well thereon. Specifically it is argued that Phillips would not be liable for drainage from appellees’ land unless there was a sufficient quantity of oil thereunder to require a prudent operator to drill an offset well. We think this question was settled on the former appeal and we adhere to what was there said and to make our position clear we shall quote excerpts therefrom and summarize some portions thereof. It must be borne in mind that we are here dealing with a case where the oil company holds a lease on *14the Millette land and lias failed and refused to develop the same by drilling" but is draining the oil from its subsurface through a well or wells owned and operated by the company on adjoining land.
In the former opinion we held (1) that the Millettes are not entitled to a cancellation of the lease on their land for failure to drill an offset well because “The subject of offset wells is expressly provided for in the lease” which of course supersedes any implied covenant as to offset drilling, and (2) that nevertheless “The equitable duty, existing as well under implication, to conserve the mineral resources of lessors or to refrain from depletory acts survives unimpaired. * * * Such an obligation gains equitable recognition when substantial drainage is caused by the lessee himself. This responsibility is separable from a duty to drill offset wells, and an express covenant which absolves the lessee from this method of development does not relieve the lessee of liability for substantial drainage by him.” Numerous authorities were cited and a quotation given from one of them to support the above pronouncement, after which we said “We hold therefore that the bill states a cause for equitable relief by way of compensation for oil drained by lessee from lands leased to it by appellants.” It seems crystal clear that we have already held as the law of this case that appellant is liable by way of compensation for oil drained by it from the land of appellees, at least where such drainage is substantial. And we may divert at this point to say that the lowest estimate of the value of the oil so drained, according to the witnesses for appellees, was $105,000.00  According to the lease the appellees were entitled to a royalty of one-eighth of the oil “produced and saved from said land.” It does not limit their royalty to one-eighth of the oil produced and saved from said land through wells drilled on said land, but obligates appellant to pay them the royalty on the oil produced and saved from said land regardless of how *15it may be produced or where it may be drawn to the surface. The chancellor, in fixing the amount of royalty to which appellees are entitled, evidently scaled down the value of the drainage to $100,000.00 since he allowed recovery at one-eighth of that amount. It could hardly be seriously contended that this amount of drainage was not substantial.
Reverting to appellant’s principal contention as hereinabove stated, the former opinion did not state and did not hold that to authorize a recovery of compensation for drainage there must be a showing that the amount of oil underlying appellees ’ land must be of such quantity that a prudent operator would drill a well thereon.  On the contrary, it pointed out that the duty to drill offset wells, as expressly stipulated and limited in the lease, is separable from the implied covenant to compensate for drainage and that the latter survives unimpaired.  Cases were cited in the opinion which hold that the so-called “prudent operator” rule has no application to a state of facts such as here presented, and we shall presently refer to some of them. The “prudent operator” rule has its place in those cases involving the duty to drill an offset well under an implied covenant where not expressly provided for in an oil and gas lease, and it is usually inserted in leases where the duty to drill offset wells is spelled out in the lease, such as the lease in the present case. But notwithstanding the fact that the rule has no place in a suit for recovery of compensation for drainage by a common lessee from one tract of land through a well drilled on an adjoining tract, the duty to drill offset wells and the duty to compensate for drainage being entirely separate, some courts have extended the rule to apply to suits for drainage. We decline to follow the rule as laid down by such courts. It is contrary to every concept of equity and justice to hold that a lessee may drill on adjoining land and through such a well drain dry the land on which it refuses to drill and *16thereby deplete the resources of its lessor and enrich itself to that extent without the expenditure of one dime in developing the lessor’s land and then refuse to pay the lessor the royalty for his oil which it has taken from him. It is not only contrary to equity and justice hut is contrary to the express royalty provision in the lease here involved that appellant would pay the one-eighth royalty on the oil “produced and saved from said land.” It is wholly beside the point to argue that appellant might have to pay to the lessor of the adjoining land a one-eighth royalty on all the oil which is produced from the well located on his land. Assuming, but without deciding such to be true, and assuming, but without deciding, that appellant might thereby have to pay a double royalty on a part of the oil produced from the well located on the adjoining land, the appellant is certainly in no position to complain of our holding, since it has saved unto itself the cost of drilling on appellees ’ land, and that saving is considerably more than the additional royalty which it might be required to pay.
Appellant’s position is entitled to scant consideration in a court of equity. It refused to drill a well on appellees ’ land, contending that no oil could be produced from it. Thereupon appellees requested a cancellation of the lease so that it might undertake to induce some other operator to drill. This request was refused. Then appellees offered appellant a substantial consideration for cancellation of the lease, which it refused. Its position was and is that it had the right to prevent drilling on appellees’ land and at the same time drain the oil underlying it without expense to itself and without compensating by way of royalty for the oil so drained.  The obligation was upon appellant as lessee not to deplete the resources of its lessor. It violated that obligation and duty and claims that it is entitled to do so with impunity. Appellees were the owners in place of the oil beneath their land and were entitled to have it remain in place and not *17drained away by their lessee without compensation. Our conservation law, Chapter 117, Laws of 1932, abolished at least in part the rule of capture which existed in this State under- the common law. Griffith v. Gulf Refining Co., 215 Miss. 15, 25, 60 So. 2d 518 and 61 So. 2d 306. By amendment to the conservation law, Chapter 256, Laws of 1948, the'public policy of the State was declared to be, among other things, “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.” Appellant’s position is contrary to this declared public policy of Mississippi. It contends that appellees have no rights in this common pool under their land. What we said in Griffith v. Gulf Refining Co., supra, is particularly applicable here: “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 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 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. ’ ’
We turn now to some of the authorities from other jurisdictions which sustain our view on the point under consideration. In Blair v. Clear Creek Oil & Gas Co., 148 Ark. 301, 230 S. W. 286, 19 A. L. R. 430, the Supreme Court of Arkansas quoted with approval from Carper v. *18United Fuel Co., 78 W. Va. 433, 89 S. E. 12, L. R. A. 1917 A, 171, and concluded with its own view as follows: “ ‘To say the lessor intended to permit the oil and gas in his land to be withdrawn from it otherwise than through wells drilled on it under the lease, and thus to let it go to other persons, for nothing, as an incident of his procurement of a small money rental for two, five, or ten years, would be inconsistent with reason, and contrary to the legal principles governing the relation of landlord and tenant or licensor and licensee. For the rental reserved, he is neither selling his oil or gas, nor relinquishing his ownership thereof, nor consenting to severance or abstraction thereof. He expects it to remain in the land until the rental period ends, whether it ceases by the drilling of a well or expiration of the term. Nor can it be doubted that the lessee contemplated the same result. Neither could have intended that he should take out the mineral through wells on other lands. The words of his lease contemplate his extraction of the oil and gas through wells to be drilled by him on the land, and so emphatically deny any such intent on his part. The rental is for delay, not destruction. If, by the negligence or misfeasance of a tenant, the demised property is materially injured, he is liable for the resultant damages, and the landlord may recover the amount thereof from him within the term, notwithstanding he has paid the rent or is bound to pay it. Moses v. Old Dominion Iron & Nail Works Co., 75 Va. 95, 102. If a tenant commit waste, an action lies against him. The landlord is not limited to his rent as compensation. In these cases there need not be an express covenant against waste, or au express agreement to pay the resulting damages. They are implied, if not expressed.’
“The contract is a lease of the land for the purpose of drilling for oil and gas for the period of time designated therein, and the lessee has a vested right to the possession of the land to the extent reasonably necessary to *19perform the term» of the agreement on his part. Therefore there is an implied covenant on the part of the lessee to protect the lessor against drainage, and in default thereof the lessor may recover damages.
“We think this view is supported by the authorities cited below, and, in any event, that it is in accord with the better reasoning on the question. J. M. Guffey Petroleum Co. v. Jeff Chaison Townsite Co., 48 Tex. Civ. App. 555, 107 S. W. 609; Powers v. Bridgeport Oil Co., 238 Ill. 397, 87 N. E. 381; Kleppner v. Lemon, 176 Pa. 502, 35 Atl. 109, 18 Mor. Min. Rep. 404; Culbertson v. Iola Portland Cement Co., 87 Kan. 529, 125 Pac. 81, Ann. Cas. 1914A, 610; Harris v. Ohio Oil Co., 57 Ohio 118, 48 N. E. 502, 19 Mor. Min. Rep. 157; Kelley v. Ohio Oil Co., 57 Ohio St. 317, 39 L. R. A. 765, 63 Am. St. Rep. 721, 49 N. E. 399; Kellar v. Craig, 61 C. C. A. 366, 126 Fed. 630; and Thornton, Oil & Gas, 3d Ed., Vol. 1, Par. 109, and Vol. 2, Par. 882.”
Following the report of this case in 19 A. L. R.- there is an annotation beginning on page 437, and after numerous eases are reviewed it is said on page 443: “The foregoing rule requiring the lessor to show in effect that as an ordinary business proposition common prudence requires the lessee to drill offset wells has been applied in cases where the wells upon adjoining premises are operated by a stranger to the lease. If such wells are operated by the lessee, it would seem clear that, at least, he would be required to account to the lessor for the latter’s share of the oil secured through the adjoining wells.”
In the former opinion in this case we cited R. R. Bush Oil Co. v. Beverly-Lincoln Land Co., 69 Cal. App. 2d 246, 158 P. 2d 754, and quoted therefrom only a portion of a quotation therein contained from Geary v. Adams Oil & Gas Co., 31 F. Supp. 830. It has been suggested in conference that the Bush case is from an inferior appellate court, viz., the District Court of Appeal of California. That decision was founded, however, not only on numer*20ous authorities from other states, but also on a prior decision of the Supreme Court of California in the case, of Hartman Ranch Co. v. Associated Oil Co., 10 Cal. 2d 232, 73 P. 2d 1163, and it was subsequently cited with approval by the Supreme Court of California in Federal Oil Co. v. Brower, 224 P. 2d 4. As supporting our holding we quote further from the Bush case as follows: “In Kleppner v. Lemon, 1900, 197 Pa. 430, 47 A. 353, the defendant was the lessee of plaintiff’s land and of the adjoining tract of Stotler. In May, 1895, defendant brought in a well on the Stotler tract, 157 feet from the line of plaintiff’s land. When defendant began to sink that well, plaintiff requested defendant to place it further from his line since it might drain the oil from his land; and, after it had come in a good well, plaintiff requested defendant to sink a well on his land adjoining the Stotler property. Defendant refused to comply with either request. In August, 1895, the Stotler well produced 2,358 barrels of oil, but dropped to only 379 barrels in August, 1896, when the oil was substantially exhausted. The well did drain oil from plaintiff’s land. He was therefore allowed damages equivalent to the royalty on the oil that was drained from his land. See opinion modifying judgment in Kleppner v. Lemon, 1901, 198 Pa. 483, 48 A. 483. The opinion of the trial judge is incorporated in the court’s opinion, 47 A. 353. It is there pointed out that ‘If ho (defendant) designedly placed the Stotler well so near plaintiff’s land as to drain it, and thus save the expense of sinking a well on plaintiff’s land, it was had faith, and a manifest, intentional injury to plaintiff. It was taking his oil without paying the royalty. ’  In a later Pennsylvania case (Barnard v. Monongahela Natural Gas Co., 1907, 216 Pa. 362, 65 A. 801, 803), the court said a lessee ‘cannot take advantage of the fact that he has leases on adjoining farms so as to fraudulently deprive either of his lessors of his royalty or annual gas rental. ’
*21“This problem was considered in Hughes v. Bussey-ville Oil & Gas Co., 1918, 180 Ky. 545, 203 S. W. 515, 518. Defendant had leases on adjacent lands. It had drilled on plaintiff’s land within the specified time all the wells required under the lease. The court held there was no obligation to drill other wells in so far as development of the property was concerned but that the express covenant in the lease did not relate to drainage; that ‘it would be a manifest injustice’ to the lessor if the lessee ‘were permitted to stand upon the terms of his contract,’ and ‘ at the same time destroy the life and substance of it by permanently taking’ through operations on adjoining land the income which the lessor had the right to enjoy. This case is summarized by our Supreme Court and cited Avith approval on this point in Hartman Ranch Co. v. Associated Oil Co., supra, 10 Cal. 2d at page 240, 73 P. 2d 1163. See, also, Carper v. United Fuel Gas Co., 1916, 78 W. Va. 433, 439, 89 S. E. 12, L. R. A. 1917A, 171, and Indian Territory Illuminating Oil Co. v. Haynes Drilling Co., 1937, 180 Okl. 419, 69 P. 2d 624, 636.
 ‘ ‘ From these authorities we conclude there is an implied obligation on the part of an oil and gas lessee to refrain from taking any affirmative course of action Avhich will result in draining a substantial quantity of the oil and gas from the lessor’s property and producing the same through the lessee’s well on adjacent premises belonging to a different lessor. For a breach of this obligation the lessee is liable and is accountable for the royalty on the portion of the oil and gas which he drains from beneath the leased premises.
“Appellant earnestly contends that it is not liable for the drainage of respondent’s land through its Zanetti No. 1 well, because the evidence does not establish that an ordinarily prudent operator would have drilled an offset well on respondent’s property. Appellant’s proposition is generally applicable where the drainage well is drilled by a third person, for obviously a lessee should *22not be required, in tbe absence of an express provision in tbe lease, to drill an offset well to protect his lessor’s land from drainage caused by one over whom be bas no control unless an ordinarily prudent operator would drill sucb a well. That, however, is not tbe problem we bave here. Tbe drainage well in this case was drilled by tbe appellant. By appellant’s affirmative course of conduct respondent is losing its oil and gas and tbe royalty ciiereon. It is not a question of whether a prudent operator should drill an offset well to protect bis lessor against drainage caused by tbe acts of some third person but rather whether tbe lessee itself may drain tbe oil and gas from its lessor’s land through a well on adjacent property without paying royalty to the owner of the drained land.”
We are impressed with and adopt tbe soundness of tbe reasoning in tbe Bush case notwithstanding tbe fact that some other jurisdictions bave adopted a contrary view. Appellant relies in part on a decision of a Court of Civil Appeals of Texas in tbe case of Hutchins v. Humble Oil & Refining Co., 161 S. W. 2d 571, and it bas been suggested in our conference that we bave heretofore adopted tbe policy of following tbe Texas courts in cases involving oil and gas law. A typical case in which we declined to follow tbe Texas decisions is Griffith v. Gulf Refining Co., supra, wherein we said that we will follow them only if we are satisfied of tbe soundness of tbe reasoning by which they are supported. As a matter of fact Hutchins lost bis case on tbe facts in tbe lower court and much that is said in tbe opinion of tbe Court of Civil Appeals therein is pure dictum, not necessary for tbe decision, and, in our opinion is not supported by tbe weight of authority elsewhere nor by sound reasoning.
In Hartman Ranch Co. v. Associated Oil Co., supra, tbe Supreme Court of California reviewed numerous cases, and said: “Where express covenants” (sucb as the limited covenant in tbe case at bar with reference to *23the drilling of offset wells) “do not cover completely all phases of the lessee’s obligation in regard to exploration, development, and protection, implied covenants may coexist with express covenants. Since the consideration for such leases is entirely or in large part the oil royalty payments to be made to the lessor, such covenants must be implied to protect the lessor and carry out the purpose of the lease. * * * In the instant case the drainage of the Hartman property in possession of defendant, Associated Oil Company, is alleged to arise from the operations of said defendant on the adjoining Lloyd property to the south. We need not decide herein whether the express covenant requiring 10 wells would exclude an implied covenant generally to drill further wells to protect from drainage, due to drilling by other operators than defendant. It certainly should not be held to have been within the contemplation of the parties that one who is in possession of the Hartman leasehold, and who, as we shall hereinafter discuss, has assumed the obligations of the Hartman lease, should by its own affirmative operations on adjoining land drain oil from beneath the Hartman property. The express covenant cannot be construed as an authorization for so doing.”
In Ramsey v. Carter Oil Co., 74 F. Supp. 481, the District Court for the Eastern District of Illinois said: “To permit defendant to direct developments in the manner adapted only to the promotion of his gain and effectually to the impoverishment of the lessor’s estate in oil and gas cannot in reason be deemed as even remotely contemplated by either party at the inception of the lease. Jennings v. Southern Carbon Co., 73 W. Va. 215, 80 S. E. 368, 19 A. L. R. 438. Daughetee v. Ohio Oil Co., supra (263 Ill. 518, 105 N. E. 308). It is not a question of whether oil can otherwise be taken from the soil. Plaintiffs own the oil and they have a right to have it kept in place and to be removed only by methods which will not deprive them of it. Any conversion of the oil by the *24lessee by driving it away or otherwise is a clear invasion of plaintiffs’ rights.” The above case was affirmed on appeal, 172 F. 2d 622, and certiorari denied 93 L. Ed. 1757.
In Carper v. United Fuel Gas Co., 78 W. Va. 433, 89 S. E. 12, L. R. A. 1917A, 171, it is said: “To say the lessor intended to permit the oil and gas in his land to be withdrawn from it otherwise than through wells drilled on it under the lease, and thus to let it go to other persons, for nothing, as an incident of his procurement of a small money rental for two, five, or ten years, would be inconsistent with reason, and contrary to the legal principles governing the relation of landlord and tenant or licensor and licensee. For the rental reserved, he is neither selling his oil or gas, nor relinquishing his ownership thereof, nor consenting to severance or abstraction thereof. He expects it to remain in the land until the rental period ends, whether it ceases by the drilling of a well or expiration of the term. Nor can it be doubted that the lessee contemplated the same result. Neither could have intended that he should take out the mineral through wells on other land. The words of his lease contemplate his extraction of the oil and gas through wells to be drilled by him on the land, and so emphatically deny any such intent on his part. The rental is for delay, not destruction. If, by the negligence or misfeasance of a tenant, the demised property is materially injured, he is liable for the resultant damages, and the landlord may recover the amount thereof from him within the term, notwithstanding he has paid the rent or is bound to pay it. Moses v. Old Dominion Iron Co., 75 Va. 95, 102. If a tenant commit waste, an action lies against him. The landlord is not limited to his rent as compensation. In these cases, there need not be an express covenant against waste, nor an express agreement to pay the resulting damages. They are implied if not expressed.”
*25In Culbertson v. Iola Portland Cement Co., 87 Kan. 529, 125 P. 81, Ann. Cas. 1914A, 610, the Supreme Court of Kansas said: “Appellants cannot escape liability for tbe gas extracted from appellee’s land through the wells sunk by them on the adjoining land. In Thornton on Oil and Gras, Sec. 101, it is said that: ‘A lessee must act in good faith in the operation of the leased premises. He cannot, under the guise of ownership of the. adjoining premises, drain the lands he has leased by sinking wells on such premises, under the claim of a right to do so, and not put down a sufficient number of wells on the leased territory as will protect it from the wells operated on such adjoining territory, when the lessor, at least, receives his compensation by a royalty on or a part of the oil produced, or by a rental of so much per producing well. ’ Since the number of wells to be drilled on the land was not specified, there was an implied obligation on appellants to fully develop the land and put down as many wells as were necessary to secure to appellee his proportionate share of the pool of gas. Kleppner v. Lemon, 176 Pa. 502, 35 Atl. 109; Thornton on Oil and Gras, Sec. 91. According to the findings, appellants failed to develop the land in such a way as to give appellee his proportionate share of the gas produced from the pool, and that to have done so would have required the sinking of at least another well. Having failed in this respect, the appellee is entitled to recover his share of the gas actually taken from the land, without regard to which side of the line the wells through which it was taken were sunk. ’ ’
In the cases from which we have quoted and in the original opinion in this case numerous other authorities are cited which support our holding. To quote from all of them would prolong this opinion to undue lengths. The rule which we adopt is that the so-called “prudent operator” test has no place in a suit of this nature. According to the evidence for appellees the appellant *26has drained from their land between $105,000.00 and $147,000.00 worth of oil. This amount is substantial and that is all that is required to authorize a recovery for appellant’s wrongful act. Appellant’s proof is that it would have cost about $70,000.00 to have drilled and completed a producing well on the Millette land. These figures bring the case close to a decision that a prudent operator would have drilled it, but we pretermit such a decision on that point since it is our view that appellant is liable regardless of the “prudent operator” rule.  The proof is ample to support a decree for the amount awarded by the chancellor, and his decree is accordingly affirmed.
Affirmed.
Roberds,P. J., and Lee, Kyle and Arrington, JJ., concur. McGehee, C. J., took no part.