Court Opinion

ID: 8887847
Source: CourtListenerOpinion
Date Created: 2022-11-26 22:22:55.591931+00
Date Added: 2024-06-11T17:07:01.520250
License: Public Domain

BARRETT, Circuit Judge.
This is a consolidated action arising out of condemnation proceedings brought by the United States relating to several tracts of land in Rogers and No-wata counties, Oklahoma. On July 23, 1969, the United States filed several declarations of taking and complaints in connection with the Oologah Lake Project on the Verdigris River. The interests taken include the working and royalty interests in oil and gas leases which existed on the lands in issue here. The Plaintiff waived jury trial. A panel of three commissioners was then appointed under Rule 71A(h), Fed.R.Civ.P. to hear evidence and to determine the just compensation to be paid for each interest taken, and to report to the Court as provided by Rule 53(e) (2), Fed.R.Civ.P.1 International Equipment Leasing Corporation, a working interest owner, appeals from the lower court judgment which adopted the Commission’s determination on just compensation. The United States cross-appeals from the lower court’s instruction to the Commission that it was not to consider the cost of plugging the existing unplugged oil, gas or water injection wells on the leases in considering just compensation. The effect was to cast the burden of any plugging costs on the United States.
International Equipment Leasing Corp., (International), became the reluctant operating owner of several tracts of land which included the Wilburn Water Flood project, a part of the Talala Project in Rogers County. The properties were acquired from Midland Oil and Gas Company as a result of foreclosure pro*187ceedings. International took operating possession of the properties on June 3, 1966. International first learned of the proposed taking in October of 1967 when government surveyors commenced work on the properties.
The Wilburn Water Flood project consists of seven leases which total about 350 acres. The unit is in secondary recovery under a water flood program initiated in 1953. There are 100 producing oil wells and 97 water injection wells on the properties. The Government condemned 179.60 acres of International’s interest in the unit which included 61 producing oil wells and 44 injection wells.

Fair Market Value

The Commission found that the fair market value of the International oil reserves taken was $464.00 and that the lease equipment was of the fair market value of $13,875.00. International was awarded $14,339.00 for its combined interest. The court below entered judgment for International in accordance with the Commission’s award.
International alleges error in exclusion of the testimony of H. B. Gutelius, Jr., President of International, relating to acquisition costs of the properties. The general rule is that evidence of the purchase price may be admitted in a condemnation suit if the sale is not too remote. 29A C.J.S. Eminent Domain § 273(5). However, a foreclosure sale is not an arms length transaction involving a willing buyer and a willing seller. The amount of money one has “invested”, i. e., paid, in the acquisition of property by foreclosure is not relevant in a condemnation suit. It is not evidence of fair market value. United States v. 5,139.5 Acres of Land, In Aiken and Barnwell Counties, S. C., 200 F. 2d 659 (4th Cir. 1952).
International complains that the testimony of its expert, G. L. Howse, was ignored in favor of the testimony of the Government’s expert witnesses. Howse is a petroleum engineer. His estimate of the recoverable oil reserves in the Wilburn Water Flood project and the undeveloped acreage was much greater than the estimates of the Government’s expert witnesses. Upon review we do not retry the facts, and a finding based on sharply conflicting evidence is binding here. Buena Vista Homes, Inc. v. United States, 281 F.2d 476 (10th Cir. 1960). The test of whether the trial court has committed reversible error in adopting the award ,of a Commission is whether the award is clearly erroneous, based upon misapplication of law, unsupported by the evidence or contrary to the clear weight of the evidence. Thetford v. United States, 404 F.2d 301 (10th Cir. 1968); Wilson v. United States, 350 F.2d 901 (10th Cir. 1965); United States v. Waymire, 202 F.2d 550 (10th Cir. 1953).
International strenuously argues that the judgment is predicated upon inaccurate testimony given by the Government’s experts in the field of petroleum engineering relating to the value of oil reserves. Their opinions were based upon the declining curve of production. They assumed normal operating procedures. International argues that this data was faulty in light of the fact that the properties were allowed to deteriorate after International learned of the taking in October of 1967. There was substantial evidence that before International had notice of the taking that the production curve was on a sharp decline. Whether one uses 500 barrels or 1,200 barrels annual production as the “break even” point, the producing leases were at or near their economic limits. International contends that the undeveloped acreage had a certain value for oil reserves and that it is common in the industry to hold undeveloped acreage future development. While this is tru; the record reflects that four other opf ators preceded International over a s' of years and that none had under! any exploration or development tions on the subject properties. j indicative that the properties / worth developing. A Governor *188who examined cores taken from three wells drilled on the undeveloped properties testified that there was no oil underlying these lands. We appreciate the fact that there can be no absolutes in the speculative area of oil reserves. Reliance must necessarily be placed on expert testimony. There is substantial evidence supporting the awards relating to the fair market value of the oil reserves.

Plugging Costs

The trial court instructed the Commission to disregard plugging costs in fixing just compensation. The Government claims that in determining fair market value plugging costs must be considered. International is joined by several other lease operators whose interests were taken under the same condemnation project in challenging the Government’s contention.
The laws of the State of Oklahoma in force at the date of taking provided that the owner or operator of an oil well is responsible for plugging in accordance with the rules of the Corporation Commission. 17 Okla.Stat.Ann. § 53 (1951). Corporation Commission Regulation No. 609 was promulgated thereunder. 52 Okla.Stat.Ann. §§ 309 and 310 declare that it is in the public interest that all wells must be plugged which have been abandoned. Here the oil wells were producing when condemned. Nothing in this record indicates that the wells were leaking salt water, oil, gas or other deleterious substances.
In Bryan v. State ex rel. Shefts Supply Co., 133 Okl. 213, 271 P. 1020 (1928), the order of the Oklahoma Corporation Commission requiring plugging m “abandoned” oil well was af-1. There the owner had terminating operations on the well. He before the Commission that he ' resume operations after us-'ijg tools upon another lease, ‘on granted the owner a 'thin which to commence 'tion or plug the well. When he failed to resume the drilling operation, the Commission ordered that the well be plugged. On appeal, the owner contended that he intended to continue operations on the well. Every witness testified that the well was in such condition that drilling might be continued. The Court applied the maxim that “actions speak louder than words” in holding that the owner had abandoned the well, noting that intention to abandon may be established by acts rather than from possibilities of future use.
 Applying those tests here we note that the acts of International were affirmative at the time of the taking, regardless of the nebulous life of production or the economics of continuing operations. In regard to International’s “intention”, we see real merit in its contention that it was justified in its determination not to expend further funds on the waterflood project in respect to upkeep or replacement of equipment after notice of the Government’s intention to take the properties in October, 1967. The properties were in fact operated by International at the date of taking. The wells had not been abandoned. Accordingly the statutory obligation to plug the wells had not come about at the date of taking. Any willing purchaser of these interests would have been required to relieve the seller of the obligation to plug. The Government thus “purchased” the leases in question by its taking. It succeeded to the interest of the owner. Richland Irrigation District v. United States, 222 F.2d 112 (9th Cir. 1955), cert. denied 350 U.S. 967, 76 S.Ct. 437, 100 L.Ed. 840 (1956). While the Government’s experts’ testimony that producing reserves of most of the leases were minimal was adopted in determining just compensation for oil reserves, that does not alter the fact that the wells were not abandoned; they were still producing. Wood v. Arkansas Fuel Oil Co., 40 F.Supp. 42 (W.D.Ark.1941); Magnolia Petroleum Co. v. St. Louis-San Francisco Ry. Co., 194 Okl. 435, 152 P. *1892d 367 (1944). We concur with the trial court in holding that the Government is liable for any plugging costs.
The condemnees were compensated for the loss of recoverable reserves and salvageable equipment. This is what they lost. Any inherent future liabilities running with the land became the obligation of the Government. The fact that the United States may determine that it is necessary to plug the wells immediately in order to adapt the properties to their intended use is of no consequence.
Affirmed.

. In an action to be tried without a jury the court shall accept the master’s findings of fact unless clearly erroneous The court after hearing may adopt the report or may modify it or may reject it in whole or in part or may receive further evidence or may recommit it with instructions.