R. A. Bristol and Ralph A. Bristol, Trustee v. Colorado Oil and Gas Corporation, a Corporation, and Colorado Interstate Gas Company, a Corporation
225 F.2d 894
10th Cir.
1955
Check Treatment

*2 HUXMAN, Before MURRAH and Judges. PICKETT, Circuit Judge. MURRAH, Circuit appellants, lessors- of undivided mineral interests in lands in Cimarron County, brought Oklahoma, this suit to quiet cancel the oil and lease and title their to their fractional mineral in- terests, contending expired own terms for failure of the les- sees to oil or therefrom in paying quantities within its appeal judg- term. This from a denying validating ment cancellation and the lease. The suit is between citizens of different states req- and involves the controversy. uisite amount The “unless” lease was for a term of years five and as thereafter as oil or or either of them was During the said land. the definite term of the lease well was drilled and com- pleted capable producing gas pay- ing quantities, but because of the un- quality bumable and the ab- any pipe facilities, sence line the well capped and no sold therefrom un- til seven and two-thirds after the During of the definite term. appellants the co-tenants of royalty agree- executed annual shut-in accepted stipulated ments “rental royalty”. appellants While the refused they agreements, to execute the shut-in accept pro rata share of the ren- royalties tals or seven without year protest until the before a line made, refused P. connection was Strange payments Hicks, accept proffered brought cancel the Parks v. Sinai Oil & Gas this suit later *3 517; Eggleson McCasland, quiet 201 D. title. P. lease v. their C., F.Supp. Skelly 98 693. Cf. Oil Co. v. Following gеneral announced rule the Wickham, Cir., 10 202 F.2d 442 Refining Champlin v. in Christians on Drilling Corp., Bain v. Portable 200 Cir., Co., court 10 169 F.2d the 569, 198 P.2d 207. original suc and its lessee found the diligence extraordinary accepting stated, While the rule as cessors exercised appellants question the the state the de- efforts to market for term, discovery primary and cision as whether the was marketed within finally succeed, relying up- time, they within reasonable language continued on literal but ‍​​​‌‌​​‌‌‌‌‌​‌‌​‌‌‌‌​​​‌‌‌​​‌‌‌​​​​​‌‌​​‌‌‌‌​‌​​‍of the Christian- had not terminаted lease case, supra, effect, min to and that the son is said in full force and appellants sub be not were whether the lessees exercised due interests of eral diligence implied ject Oil Bristol v. Colorado under an to thereto. covenant See F.Supp. market, D.C., reasoned, Corp., as the trial 126 487. court & Gas discharged “an absolute case we stat the Christianson duty to within market time reasonable general rule to the effect ed the prevent termination.” Otherwise drilling production results where language appellants, stated operator operations is unable and the “not how hard Oil Pure immediately on production to market the Company tried to market sell market available account lack lease, but whether it succeeded connections, no forfeiture line marketing within a reasonable diligence due if the exercise results time.” operator part the well market obtained with equipped and a necessary corollary aAs time. That case involved reasonable in a protects beneficent rule lessees lease, has subse and Kansas a Kansas from termination or forfeiture for fail repudiated expressly quently the notion actually produce ure to and market discovery ac without of oil or term, discovered within the operate to extend would implied tual Oklahoma courts have cove beyond its term. Sеe definite operate lease nant validated lease Co., Kan. Oil & 172 Gas v. Stanolind prudent Tate manner and with reasonable dil Royalty Home 465 and igence. Strange supra; Hicks, v. Indi Cir., Stone, Inc., F.2d 199 Ass'n, 10 v. Development ana Oil Gas & Co. Mc Magnolia Petrole Freeman v. Cf. Crory, 610; 42 140 Newell Co., 141 Tex. 171 S.W.2d um Phillips Cir., Petroleum 10 144 by Pro been criticized rule has also 338; Saulsbury Phillips F.2d Oil Co. v. application of as an Summers fessor Petroleum F.2d equities” a new con to write “fireside Co., Cir., Wolfe Texas F.2d Summers, pаrties. See tract Summers, Gas, Oil and Vol. § Pages Gas, 157-8. Vol. § exploration implied covenants for Like development, operate is an Oklahoma covenant But this lease. prudently upon apparently diligently contract, is based and the having fairness, purposes re agree, for of this considerations at least rights gard law, actual for the mutual and duties of case, under Oklahoma pri parties. And term the sole of definite where within precedent mary cоnsideration the lease is is not a condition beyond royalties produc payment of defi its extension term; tion, is incumbent has a reasona the lessee nite conflicting sure that after discov make interests to market ble time against weighted expiration the lessor. See ery definite Implied Merrill, Covenants Oil and Roach v. Junction lease. see Edition, premise Leases, Sec. We start Second with the that nine ' elapsed and one-half cases cited. sinсe operate neces The covenant the well and seven and pro sarily duty to market the two-thirds embraces since the advantage During both the mutual definite term of duction to the the lease. Merrill, parties. since this Sec. 84. But See the lessors have not received absolutely operate is not to the “covenant consideration for reasonably operate face, very dili the lease. On but to and in the component gence”, Merrill, things, рeriod nature of Sec. of time *4 long tempered by inordinately duty undoubtedly the places market must be to upon prudence. follows the burden rule of reason and It the lessees to the excuse rights delay. adjustment of of the that They contract, parties par come the under the forward with these determining large ticularly im facts. in whether The was drilled on a territory plied kept, deal block of in covenants have been we leases “wildcat” twenty gas more pipe than miles not in absolutes but in facts and circum from a stances, flexi line. There was no with rules or criteria demand for exigencies duction, bly practical adaptable hence no available market. Chicago gas Moreover of the case. Trust Co. unsuited for do- Corp., Cir., blending 192. mestic use without Samedan Oil 192 F.2d or treat- diligence light, ment. In in this its effort to find Considered or create a original lessee, in market the related reasonable time becоme terms Oil Pure Company, promulgation companies of conduct contacted all of a rule might ap taking upon equitable be interested in based plicable considerations assuming obliga- particular facts ad with for the rights justment to tions. It drilled a total of of the fourteen wells impli block, speaks only by it three of which a contract where were wells, wells, dry five oil cation. five holes. original The well drilled within the term due While reasonable time and aрproximately meaning $126,000. diligence cost Each of do not same have the reason, approximately $50,- the other wells cost application in the they of the rule of Company expended ingredients Pure are both essential $100,000 seismographic measured, another in ex- rule. For reasonable time is ploration. degree diligence least, by There were no other wells in some vicinity pipe in this attempts connected to a line. with which the lessee to secure drainage. There was ‍​​​‌‌​​‌‌‌‌‌​‌‌​‌‌‌‌​​​‌‌‌​​‌‌‌​​​​​‌‌​​‌‌‌‌​‌​​‍no conversely, Pure Neither the reason market. any nor its received return on successors ableness of the time influence the diligence. pipe until their investment line con- This does not however, After mean, nection assigned the leases were that reasonable time is diligent to the Colorado Oil and Gas unlimited the face of effort. Corporation, Indeed, five additional wells we do understand the learned judge wеre and there is drilled some to infer would intimation that the lease if Pure had as the drilled additional endure so lessee can show dil resulting reserves, igent wells with production. to market the avail- efforts ability bring of the market would The rule of will have been the term reason regardless time, hastened. an end some of inten determining sity But In the facts are that the effort. market was not available until Colorado the lease has been for breach Interstate forfeited markеt, Company twenty- equity of the covenant to “will Gas constructed its rigid impose good inch line from Texas to Denver standard faith on part lessee”, measured in each from which it extended a ten-inch line only by lapse time, acquir- case not the wells it had diligence acreage including operator producing as well. Cf. ed the Phillips Peterson, Petroleum Co. v. oil wells. When connections were finally 218 F.2d made and Interstate Colorado brings paying taking lor in casеs of this kind us to commenced judgment. price royalties, affirmance of his market per mcf had increased 3%0 Judge HUXMAN, (dissent- Circuit per per mcf mcf in 8%0 7%0 ing) . the base of the trial and at course, agree I, answer yielded price wells from these sought problem our found must be per royalty mcf. owners' 120 rea- the Oklahoma decisions. For think, significant, only And it is .[6] to Okla- son reference agree however, lessors I, the attitude of the

note cannot homa cases. delay. pеriod my record the Oklahoma Associates lessees compel demands barren decisions the conclusions reached develop, re by fact, majority. find market in- to further to me say ques- It fair precise seems lease the leases. dicate if and pipe line connec not until the that was court1 tion comes before that it will the lessors my tions were imminent Were do hold Associates herein. *5 sought ac view, Meanwhile cancellation. I dissent. I of would not prorata protest cepted view, their without Because I am of that a somewhat part payments analysis shut-in of the of the Oklahoma extended cases development royalties upon by majority in lieu of further nec- will be relied acceptance of essary. while sale. signing payments Oil, Development without these v.Co. Indiana agreements may operate 610, 1914, McCrory, 136, shut-in 140 P. strictly estoppel of their or waiver “as 15 involved a lease of with an prop breach, rights a it is were thereaftér” clause. Wells insist light think, er, during primary to consider it Dur- term. drilled circum ing facts and of the other primary of all was term an action grounds ulti brought of the in the determination stances of im- on the to cancel operation prudent question negligent drilling of prudent, careless, mate (cid:127) light management Stano property. of and effort. See time That of Kimmel, 10 lind Oil & Gas Co. did not of involve McCasland, Eggleson expira- F.2d 520 and of lease after extension recog courts, supra. Furthermore, primary court of term. All tion problems nizing of implied insurmountable was that under covenants said ground transport storing gas management development above for the line, been property it without a neither the lessor nor “uphold prone extensions where lease lessee is the sole arbiter but a court ex equity and determined to discovered the matter from the view paying quantities standpoint in marketаble of both. ist interests cannot be pronouncement or another reason for one With that we are all readily Town produced and marketed.” accord. Ringle Grant, Inc., De Land of Tome In Roach v. Junction Oil & Gas 101, 240 P.2d velopment 213, 934, N.M. 1919, 936, a 2, Gas, 850, primary Vol. Summers Oil well was drilled expired The Janu- term. § 299. ary practical October consid 1916. On All these into was commenced. On November which enter and determine well erations depth a three will be at of 730 feet flow of fоrfeiture was encoun- It these considerations million cubic feet was decreed. deny prompted the trial This was cased off and Novem- court tered. rightful regard depth 1,400 forfeiture, a flow of at a feet ber 28 eight findings to ten million cubic feet conclusions of the chancel- precise question find no Oklahoma case been decided I can which the has Supreme . Court was significant found. This cased off not was likewise been found. It also drilling operations On thаt continued. in that case were which would facts 1,900 depth estoppel against December 21 at a feet a work an the lessors approximately attempt against flow of cubic quiet three million their title feet was was This likewise the ‍​​​‌‌​​‌‌‌‌‌​‌‌​‌‌‌‌​​​‌‌‌​​‌‌‌​​​​​‌‌​​‌‌‌‌​‌​​‍encountered. lessee. drilling operations cased off and contin- Drilling Corp., In Bain v. Portable Drilling operations ued. were contin- 1948, days January 18, ued until nine year was involved a one oil and term, after the addition, dated October In depth 2,600 a flow at a feet separate lessee also bound in a itself twelve million feet was encountered. The drilling contract to commence provided payment lessor days prosecute well within 120 it producing well. Aft- each $100 the Hunton com- Lime. Defendant well, sum er the menced this well within and drilled was An action tendered refused. approximately 4,490 Hun- feet to the brought. cancel was The court based Lime, ton where no was judgment refusing upon the cancellation drilling found. been had she fact that the lessor tendered all depth, encountered lesser production. was entitled to from the failure from the Hunton said, received court “So as she September 9, 1946, Lime on well was payment per had annum and $100 gas. shot and then some *6 gas purposes she the use of for domestic spent days washing lessee the several or was entitled to claim no other revenue using ef- sands or other methods in an considerаtion from lessee on account gas production fort to increase the question.” inwell makes the The court in not that time obtain significant these “It was statements: quantities. commercial ef- No further right precedent de- condition the gas produce fort was made to ruary, 1947, until Feb- beyond operations fendant continue gas at which time suc- was gas period or that oil and five cessfully produced. The was contention upon either the of them should be fоund produce that the lessee failed to within gas premises paying quantities, in or in primary the term. This case did enough large transport quantities turn whether the would have five should found be thereon within expiration a reasonable time after the years.” January “if taken 9th be primary complete be- term to a well gas lease, in as the date of the correct gun during primary and term market paying quantities quan- in and sufficient products therefrom, lease because thе transport tities to was found before providing provision that contained the expiration years.” of five The factual “ ‘if shall drill a the lessee commence to in situation that case was so different any well within the term of this lease or clearly distinguishable that is thereof, extension shall have the lessee problem before us. right to drill such well to diligence dispatch, with reasonable Strange Hicks, 1920, 1, In gas, if or or either of be oil them 347, 349, 188 P. the court concluded paying quantities, in least: found this long “unless” or “as thereafter” like shall continue and be force with ambiguous was clause completed if well had as been effect parties sense in which the used it in the term herein first clear; was, within was contract and it ” Obviously, pro- mentioned.’ therefore, up judiciously to the court to held vision the court had the lessee construe the sense in which used right complete well. treating phrase. phrase, So parties that the court concluded did not Co., 1921, In Parks v. Siani Oil Gas 295, 517, lease intend should terminate 201 P. in- Okl. a lease was primary expired at the end if the term volved which its terms June 17, been drilled had but a had well market well was 1947. The on commenced gas completed an oil ises from June or 5 as which oil- can be duced.”2 June 19. The being produced gas was whether was 1930, Brady, In Woodruff v. during term. Ok- 72 P.2d 113 A.L.R. findings general de- of fact court made lahoma an oil Court held that “Where gas nying oil cancellation of and. gas mining lease for a is executed affirming Supreme lease. The Court given oil term and as thereafter was conflict- there decision held that produced prem- leased ing be- was evidence as to produced ises, subsequent if the lessee at primary, or to the general that under that status given, term, oil or fail to being findings of was the court that paying except produc- quantities, where produced disturbed. would not be by reason of a bona tion be lessened overruled, attempt exactly later fide in ex- increase the same While not isting Supreme wells, expire by its the lease will Oklahoma decisions holding in own terms.” Court make it clear Strange “so case, “unless” the long Day, And in late case of Owens v. of an oil clause thereafter” 711, the ju susceptible ambiguous Supreme a number Court reviewed sense dicial construction as stated, cases and “In cases these contracting it, used which the was held that where an oil and longer An no law Oklahoma. specific for a term and as thereafter Co., 1922, 83 this v. Sullivan Oil & ex- oil or the lease as pired upon 203 P. termination of said, “The speaking this clause Court produce, stated the failure to unless unambiguous. language plain used Brady, supra, was due in Woodruff v. language parties, which cannot attempt produc- increase a bona fide *7 misconstrued, provide the lease that existing speak- And in tion' well.” year, force for one remain full should con- of thе in the lease clause under gas, long or as oil or thereafter as in that sideration them, produced therefrom. of is either language clear, plain said, “This is Court ambiguous when it is sus is A contract ceptible upon the cessation and unmistakable meaning. than one of more of withdrawal de- land the interest from the lessees long phrase thereafter ‘as “If may not The court fendants terminated. them, produced gas, is oil or therefrom,’ or either conveyanсe stipulations read into the ambiguous, sus- must it be is by placed therein not meaning. wore it If ceptible than more one grantors, it evident that is 'since except susceptible construction is grantors when, was that intention of says, inform- exactly we are not it what term after con- know no it is. We to what ed as produce, grant, the land ceased Upon placed can be that struction - grantees right terminated.”3 parties except failed to phrase, when'the uncertainty as to aft- is there produce said lands Neither oil “produced” meaning There under year the term the lease terminated. er one decisions, Court. might of the Oklahoma arise be some case, supra, the court said producing Oil Ponder or with- the lessee was produced meaning lease, “produced” means terms of the ,may controversy ques- receive the lessor on this so that no marketed there can be prem- royalty is no well on the his therefrom. there tion when 206, 964, 1930, Gypsy 72 A.L.R. effect see Oil Co. 288 the same 2. To 357; Brady, Marsh, 1926, 121 181 v. 248 P. Woodruff Okl. 876; Gypsy A.L.R. 72 P.2d 113 Owens A.L.R. Co. 48 Day, Ponder, 218 P. supplied. Helms, Emphasis Land Oil & Co. v. States Western decisions, long Summarizing ed the “unless” or “so thereafter” the Oklahoma they hold that oil clause therein. seem to me to brought is must be —that hardship If such a construction works pri- during surface sold — by upon the lessee it comes about reason mary an end term or the be at of the contract it and the courts made long under “unlеss” or “so thereaft- give must nonetheless effect thereto only er” of their contract. clause though the harsh “even contract contains court in which the cases as I review them imposes that duties on terms burdensome holding departed cases has from that parties.” one or more during being produced where a is tem- is term but long long? My How too is Associates interrupted purpose of porarily say 9% exploration. make The cases additional lоng of the well is too a time. Is explorations it clear must be years, years, long or 25 a too delay. diligently prosecuted and without say? May time? Who shall under we ulti- Whether the Oklahoma Court will equitable jurisdiction exercise of mately unable hold that a lessee is ‍​​​‌‌​​‌‌‌‌‌​‌‌​‌‌‌‌​​​‌‌‌​​‌‌‌​​​​​‌‌​​‌‌‌‌​‌​​‍where determine It ourselves? pipeline because of lack of connections say seems to we me what in effect produce pri- a well drilled territory because this was wildcat a con- mаry term, the lease will be extended to pipeline siderable distance from enable a market to obtain contemplated must have conjecture. matter From time, considerable least as as 9% nouncements, interpret them, I am as I might years, required produce only if convinced it does so hold I well. This do not think our is within given say. reasonable time will be province to Such is not the contract extending the well and that on and they de- the Oklahoma year yеar on from fail- may because cisions we rewrite their con- though market, dili- ure to find a even though tract, con- even feel that gence seeking struing exercised such a mar- it leads harsh it wrote ket, within unreasonable and is not results. purview language clear being territory, This wildcat “unless” “so thereafter” clause. being only pipe- known that available away Court, producing As stated the Oklahoma in line miles and that *8 construing “produced” depended up- the word from this well we must also keep in mind a the interest of as on considerable amount of the lessor additional purpose wells, well as the lessee. The from other the lessees give lease is to the lessor must have realized a considerable the benefit would so he his time element be involved in have ducing production presently interest the well. It should taken future, perhaps in the distant after into when these factors account gone only he is his heirs was made. cаn receive contract There was in use containing of a benefit for his time a form of lease a contract made “produced” bring- payment royalty provision own If benefit. for means shut-in marketing the surface and time as the lessees the such were unable products although well, exercising produce mineral so that in- the lessor’s due presently him, diligence, terest available to not see fit to being produced incorporate provision or oil is not con- *when well kept capped so, is shut in and Had done be- this case would tract. cause the lessee can find no market. Where situation fore- not be here. parties contemplat- provision That is not what the and no made in the seeable signed inability ed therefor, the lease and insert- Gypsy Ponder, 1923, Co. v. 92 Old. primary term expiration of the contract.5

not extend inconsistent views these Neither anything in Christianson we said with Refining Co., Champlin held In that case 169 F.2d 207. bring towell required 15 months production after the unreasonable. was not good beside law is Whether that factors that two point. stressed We -diligence, and (1) present, due must be time. reasonable (2) production within a peculiar facts under We held that an un- was not months of that case authority for no It is time.

reasonable the facts holding all that 9% time. reasonable this case is ‍​​​‌‌​​‌‌‌‌‌​‌‌​‌‌‌‌​​​‌‌‌​​‌‌‌​​​​​‌‌​​‌‌‌‌​‌​​‍to con- I unable am For these reasons therefore, and, my Associates

cur

respectfully dissent. Appellant, NELSON,

Paul H. America,

UNITED STATES Appellee.

No. Appeals Court of States

United Circuit. Tenth 19, 1955.

Aug. *9 Waldschmidt, 1945, Smith Sun Oil 159 Kan. S.W.2d 5. Berline La. So. Stanolind Oil Barnhill, Tex.Civ.App.1937, Co.