Court Opinion

ID: 9832983
Source: CourtListenerOpinion
Date Created: 2023-09-01 22:21:11.251916+00
Date Added: 2024-06-11T07:43:56.998999
License: Public Domain

On Motion for Rehearing.
In the usual lease for oil and gas a definite period of time is fixed for the exploration of the land by the lessee for the purpose of determining whether or not it contains oil or gas in sufficient quantities for profitable production. Since that period is for exploration only, it follows necessarily that production of oil or gas within that period is not required of the lessee. The primary meaning of the word “discover” does not include production, it merely means to find; and necessarily that is the meaning of the term when used in connection with exploratory operations, since such operations are designed solely for the purpose of determining whether or not the land contains oil or gas in sufficient quantities for profitable production. Following the provisions for the exploration of the land, the lease usually contains the stipulation to the effect that, if during the exploratory period oil or gas is found or discovered in paying quantities “thereafter,” the lease shall continue in full force and effect as long as oil or gas is “found” or “produced” in paying quantities. Those provisions relate to production only, and not to exploratory operations; and necessarily such stipulations, to the effect that, when oil or gas is found in paying quantities as the result of exploratory operations, and within the fixed time for such operations, then the lease shall continue “thereafter” as long as oil or gas is found or discovered in paying quantities, necessarily means as long as oil and gas is “produced” in paying quantities, since production is then the only object within the contemplation of the parties.
*1024Appellant lias cited Union Gas & Oil Co. v. Adkins (C. C. A.) 278 F. 854. In that case the lease was for “three years or as long as gas or oil is found in paying quantities on said premises.” It was held that the failure of the lessee to complete a well producing oil in paying quantities within the three-year period terminated the lease. That case is clearly distinguishable from the present suit Iby reason of the further provision contained in the lease that “in ease no paying well is drilled on said premises within three years from date, this grant shall be null and void.” That provision in specific terms required the lessee to complete a well producing oil in paying quantities within the fixed period. The opinion in that case cites in support of its conclusion the following decisions: Murdock-West Co. v. Logan, 69 Ohio St. 514, 69 N. E. 984; Deltor v. Holland, 57 Ohio St. 492, 49 N. E. 690, 40 L. R. A. 266; Gas Co. v. Tiffin, 59 Ohio St. 420, 54 N. E. 77; Cassell v. Crothers, 193 Pa. 359, 44 A. 446. And in Summers Oil & Gas, p. 293, also cited by appellant, those decisions are cited as holding that the words “found” and “discovered” in paying quantities mean the same as “obtained” and “produced” in such quantities.
In Murdock-West Co. v. Logan, supra, the lease provided that it should run “for and during the term of 60 days from the date thereof ‘and as much longer thereafter as oil or gas shall be found in paying quantities.’ ” By agreement of the parties the term was extended for an additional 60 days. The court has this to say:
“In order to continue their lease beyond the stipulated time it was necessary for the lessees to find oil in paying quantities. Bor this purpose it was not sufficient to complete a well having some indications of oil, or a well which might be developed into a well, producing oil in paying quantities, but the lessees must actually find oil in paying quantities and this is the same as obtaining and producing it in paying quantities.”
It was further held that the failure to complete a well producing oil in paying quantities ■within the fixed term resulted in a termination of the lease.
In the other decisions cited from Ohio and also in Cassell v. Crothers, 193 Pa. 359, 44 A. 446, the leases were in terms substantially in the same form as that involved in Murdock-West Co. v. Logan, supra.
It is to be noted that in the leases involved in those decisions there is an absence of any provision to the effect that, “if oil or gas in paying quantities is found or discovered” during the fixed period, then the lease should continue thereafter as long as oil or gas in paying quantities is produced. Apparently the conclusion reached was based upon the theory that necessarily there must be a producing well on the land at the expiration of the fixed period in order for the lease to con-tinue “thereafter as long as oil or gas is produced in paying quantities,” and that therefore the stipulation that oil must be produced in paying quantities during the fixed period is necessarily implied, since the extension period, if effective, began immediately upon expiration of the fixed period, and since the requirement that, as a condition necessary to the life of such extension, oil must be produced in paying quantities was applicable at the beginning of the extension period as well as thereafter.
However, the terms of the lease may be such as to' negative the implied provision mentioned above', and we believe that such is the result when the condition for the extension of the lease beyond the fixed period is expressed as the “discovery” or the “finding” of oil in paying quantities during the term fixed for exploration and not for production of oil in such quantities during the term. Indeed, the lease in this suit showed on its face that the fixed term was for the purpose of testing the land for oil and gas. That could not be said of the leases involved in the cited cases from Ohio and Pennsylvania.
In the recent work of Mills and Willingham on the Law of Oil and Gas, p. 119, par. 73, the holding of the Supreme Court of Ohio in Murdock-West Co. v. Logan is noted. Then follows paragraph 74 on the same page, which reads as follows:
■ “The states of Oklahoma and West Virginia, however, seem definitely committed to the rule that the discovery of oil or gas although neither is produced during the term, vests in the lessee a right to proceed with operations for the production of those minerals as long as they are capable of being produced; provided he exercises diligence in continuing operations until the oil or gas discovered is produced. This result is reached whether the lease requires that oil or gas be found, or produced, during the term. It is predicated upon the doctrine that a lessee has no estate, under an oil and gas lease, until oil or gas be discovered,.in which event his right to produce from the premises becomes vested for further operations under the terms of the lease, and is based u.pon the case of Eastern Oil Co. v. Coulehan [65 W. Va. 531, 64 S. E. 836.].
“Accordingly, it has been held that the discovery of oil or gas in an upper sand, during the term', although neither was actually produced, and operations were continued with the intent of returning and producing from such stratum, in case no further production was discovered at a lower level, vested in the lessee the right to produce from a sand discovered after the expiration of the term.”
Numerous decisions of the Supreme Court of Oklahoma and West Virginia are cited by the author in support of what is stated in the text, including the leading case of Eastern Oil Co. v. Coulehan, 65 W. Va. 531, 64 S. E. 836; also South Penn Oil Co. v. Snodgrass, 71 W. Va. 438, 76 S. E. 961, 43 L. R. A. (N. S.) 848; Ohio Fuel Co. v. Greenleaf, 84 W. Va. 67, 99 S. E. 274; Roach v. Junction Oil *1025& Gas Co., 72 Okl. 213, 179 P. 934; Hennessy v. Junction Oil & Gas Co., 75 Okl. 220, 182 P. 666; Parks v. Sinai Oil & Gas Co., 83 Okl. 295, 201 P. 517, 5 O. & G. 52; Strange v. Hicks, 78 Okl. 1, 188 P. 347. To the same effect was the decision oí this court in the case of T. P. C. & O. Co. v. Bratton, 239 S. W. 688, which is also cited by the author. And it is our conclusion that that rule of decision is logically sound, and should be followed.
Motion for rehearing is overruled.