Summary
stating there can be no production in paying quantities if there is no production at all
Summary of this case from Rudolph v. Viking Int'l Res. Co.Opinion
No. 34098
Decided March 9, 1955.
Oil and gas — Lease for five years — Or as long as production in paying quantities — Term extended beyond five-year period, when — No production in paying quantities, when — Pleading and proof.
1. Where an owner of land leases all the oil and gas and their constituents in and under that land for a period of five years and so much longer thereafter as oil, gas or their constituents are produced from said land in paying quantities and where such period of five years has expired, the lessee, who contends that the term of such lease extended beyond the end of such five-year period, must allege and prove either (a) some express or implied agreement for the extension of such term beyond said five-year period or (b) that oil, gas or their constituents were produced in paying quantities from said land within and beyond said five-year period or (c) that they could have been so produced if the acts of the lessor had not prevented or interfered with such production.
2. Allegations, that a small amount of oil was produced, that it was difficult to bring out to the road and that it did not warrant building a line, do not amount to allegations that oil, gas or their constituents were produced in paying quantities.
APPEAL from the Court of Appeals for Ashland County.
Plaintiffs filed in the Common Pleas Court of Ashland County an application for a declaratory judgment. This application, which was treated by the parties and the court as a petition, alleges that plaintiff Worst, who is herein referred to as plaintiff, was the owner in fee simple of certain land in Ashland County; that, on July 30, 1947, defendant Shorts leased from plaintiff "all the oil and gas rights to" that land; that the lease was for a term of five years and so much longer thereafter as oil, gas or their constituents are produced in paying quantities thereon; and that defendant's lease had expired and terminated, but that defendant moved onto the land in October, 1952, after his lease had terminated, and was in the process of drilling a well thereon. The prayer is for a declaratory judgment determining, among other things, that defendant's lease had expired by its terms.
A copy of the foregoing lease is attached as an exhibit to the so-called "application" and discloses that it was "for a term of five years and so much longer thereafter as oil, gas or their constituents are produced in paying quantities, thereon." The lease further provided:
"Lessee to drill a well producing oil or gas in paying quantities on said premises within six months from this date or pay to lessor * * * $26.50 each three months thereafter until such well is drilled or this lease becomes null and void and no longer binding to all parties. If a gas well be completed before the end of the term for which rental has been paid for delay, the unearned portion of said rental shall be a credit on the gas well royalty. If all the wells drilled under this agreement shall become exhausted and abandoned then lessee shall resume the payment of the land rentals provided for herein and continue the same until a well producing oil or gas in paying quantities shall be drilled or this lease surrendered as provided herein, lessee given one year after exhaustion and abandonment to commence payment of rental or further development of said lease."
Thereafter defendant filed an answer and cross-petition which reads so far as material:
"Now comes the defendant * * * and admits that J.O. Worst is the owner of lands described in plaintiff's petition.
"* * * defendant * * * denies each and every allegation in said petition.
"Further answering, defendant * * * alleges that he is the owner of a certain lease executed by J.O. Worst July 30, 1947, wherein all of the oil and gas and their constituents in and to the lands of the said J.O. Worst were granted to this answering defendant, said lease being for a term of five years and so much longer thereafter as oil, gas or their constituents are produced in paying quantities thereon. That on or about the 28th day of October 1950, he completed a well thereon to the depth of 812 feet. That said well produced a small amount of oil, which oil well was located in the southwest corner of plaintiff J.O. Worst's farm. Thereafter, answering defendant finding that such oil, was difficult to bring out to the road and did not warrant building a line, therefor, started paying royalty payments to the plaintiff J.O. Worst, which royalty payments were accepted by him, amounting in all to the sum of $559.50.
"Answering defendant further alleges that on or about the 10th day of November, 1952, he completed a second well upon said premises, which well was a dry-hole.
"Answering defendant alleges that by the terms and conditions of his lease * * * his lease rights have not been extinguished in said premises."
Plaintiffs thereupon filed a reply denying each and every allegation in the cross-petition.
On hearing, the Common Pleas Court found "that the lease * * * from * * * Worst to * * * Shorts * * * has expired by its terms and is no longer a good and valid lease on the premises described in the petition."
The defendant appealed to the Court of Appeals on questions of law and fact. That court appointed a referee "with instructions to hear the evidence, reduce the same to writing and return it to this court, together with his separate finding of facts and conclusions of law."
Thereafter, the referee made a report to the Court of Appeals finding that plaintiff was the owner of the land in question; that, on July 30, 1947, plaintiff leased said land to the defendant; that, on October 28, 1950, defendant drilled a well on said premises; that payments in the sum of $559.50 were paid plaintiff by defendant over a five-year period; "that on June 19, 1952" defendant "tendered quarterly payment of $26.50 which" plaintiff "refused by note returned August 2, 1952, marked refused"; that defendant "moved equipment on to the leased premises in July of 1952; that from the middle of July to the 29th, he withdrew between 12 and 20 barrels of oil from the well which had been drilled in October of 1950"; that "said oil was placed in a storage tank provided by" defendant "and located upon the premises"; "that from the first bailing, production of the 1950 well was one barrel a day or more"; that "no pump was installed upon the premises"; and that "all oil was bailed and stored upon the premises."
In his opinion the referee stated:
"As between lessor and lessee construction of the phrase `paying quantities' must be from the standpoint of the lessee and his good faith judgment that the production (in this case a barrel a day or more) is `paying' must prevail. * * *
"In the instant case the lessee * * * considered the 1950 well to be producing in paying quantities and treated the well as a paying well prior to expiration of the lease. There being no evidence of bad faith, lessee complied with renewal requirements of the July 30, 1947, lease."
So far as material, the judgment of the Court of Appeals reads:
"The court * * * finds and holds that the finding and conclusions of the referee are proper and correct, and in accordance with the facts and the law.
"It is therefore ordered that the report of the referee be, and it is hereby confirmed, and judgment is rendered for the defendant-appellant."
The cause is now before this court on appeal from the judgment of the Court of Appeals, pursuant to allowance of plaintiff's motion to certify the record.
Mr. Hugh I. Troth, for appellants.
Mr. Winston C. Allen and Mr. Robert R. Henderson, for appellee.
From the allegations of the pleadings, it is apparent that all parties concede that the lease from plaintiff to defendant was dated July 30, 1947, and was for a term of five years and so much longer thereafter as oil, gas or their constituents were produced in paying quantities from the land.
The five years expired on July 30, 1952. The only allegations in the pleadings, which could possibly support a conclusion that the term of the lease had not expired on that date, are the allegations with respect to royalty payments by defendant to plaintiff and their acceptance by plaintiff. However, there is no allegation that plaintiff accepted any royalty payment for a period extending beyond July 30, 1952; and the finding of the referee, confirmed by the Court of Appeals, negatives any such acceptance.
There is no allegation in defendant's answer and cross-petition or in any other pleading that oil, gas or their constituents were ever produced in paying quantities from this land. The allegations, that a small amount of oil was produced, that it was difficult to bring out to the road and that it did not warrant building a line, certainly do not amount to allegations that oil, gas or their constituents were produced in paying quantities. Murdock-West Co. v. Logan, 69 Ohio St. 514, 69 N.E. 984. See annotations, 48 A.L.R., 887, and 84 A.L.R., 761.
Even though no bill of exceptions was allowed by the Court of Appeals, it is our conclusion that the pleadings cannot support the judgment of the Court of Appeals.
Furthermore, it may be observed that the only findings by the Court of Appeals or its referee of any production were findings of production of 12 to 20 barrels of oil in 1952 "from the middle of July to the 29th." Thus, there is no allegation in the pleadings and, although the referee's report states that testimony was heard by him as late as November 12, 1953, there is no finding by the Court of Appeals or its referee that there was any production of oil, gas or their constituents at any time after the five-year period specified in the lease had elapsed. If we assume that there was production in paying quantities during the five-year period specified in the lease as the Court of Appeals apparently found, it does not follow that the lease continued beyond that five-year period. By its terms, it was to do so only "so much longer thereafter as oil, gas, or their constituents are produced in paying quantities." Even if, as the Court of Appeals apparently held, the lessee's "good faith judgment that the production * * * is `paying' must prevail" in determining whether there is production in paying quantities, there can be no such production if there is no production at all.
The judgment of the Court of Appeals must be and is reversed, and the cause is remanded to that court for further proceedings.
Judgment reversed.
WEYGANDT, C.J., MATTHIAS, HART, ZIMMERMAN, STEWART and BELL, JJ., concur.