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Carter Oil Co. v. Dees





Appeal by plaintiff from the Circuit Court of Fayette county; the Hon. FRANKLIN R. DOVE, Judge, presiding. Heard in this court at the October term, 1949. Reversed and remanded. Opinion filed April 29, 1950. Released for publication May 29, 1950.

MR. JUSTICE SCHEINEMAN DELIVERED THE OPINION OF THE COURT. This is an appeal from a judgment of the circuit court of Fayette county, in favor of appellees, Clara Dees, George W. Durbin, Newell Mabry, C.J. Metzger and Will P. Welker (hereinafter called defendants), and against appellant, the Carter Oil Company, a corporation (hereinafter called plaintiff).

The action was filed by plaintiff and against the named defendants under the Declaratory Judgment Act. The plaintiff alleged that it, as lessee, and defendants as lessors, have a certain oil and gas mining lease in force as to certain premises containing 40 acres. That plaintiff has drilled four producing wells on said premises, in 1939 and 1940, with an initial production from about 100 to 200 barrels per day at each well. That the production has steadily declined until, when suit was filed, the rate was six barrels per day at well No. 3, and but ten or eleven at the others. That the decline would continue until economically productive limits would be reached and the wells would be plugged and abandoned.

It is further alleged that the decline in production is not because of substantial depletion of the oil reserves under the tract, but rather is the result of depletion and exhaustion of the gas energy originally in solution in the reservoir. That there is now an approved, established and accepted procedure in general use in the oil producing industry, whereby dry gas is injected into the producing formations through wells conditioned for that purpose, reactivating the reservoir, thereby prolonging its productive life, and substantially increasing the amount of oil recovered.

Plaintiff desires to adopt this procedure, and at its own expense, to convert the said No. 3 well into a gas input well, and asserts this is in accord with approved operating practices, and would be the plan adopted by a prudent operator having in mind the best interests of the lessors (mineral owners) as well as the lessee.

The defendants answered admitting that a controversy exists between the parties "involving the construction of a certain oil and gas lease and the respective rights and privileges of the parties thereunder, and . . . is properly the subject of an action under the declaratory judgment act."

The answer admitted the curtailment in production as alleged in the complaint, but denied that this would continue at the same or an accelerated rate, and alleged the No. 3 well would continue in production until about 1960, while the proposal of plaintiff would result in driving off substantial quantities of oil belonging to defendants. It is not denied that the total oil recovered would be substantially greater under the proposal, but it is still denied that a prudent operator would adopt such a plan. A replication was filed which did not substantially enlarge the factual questions.

No evidence was introduced upon the trial, but it was stipulated the following are the facts:

The plaintiff has correctly stated the general situation, the dates and production of the various wells, and that they will continue to decline. No. 3's present maximum rate of six barrels per day will also decline, but it will be commercially productive until at least 1959. The decline in all the wells is the result of exhaustion of gas pressure, rather than actual depletion of oil reserves. If the proposed repressure plan is put into effect, it will result in the ultimate recovery of a considerably greater quantity of oil from the remaining three wells than can be obtained from all four under primary production operations.

The plaintiff has leases on other lands adjacent to defendants' in which the latter have no interest. The No. 3 well is an off-set, opposite wells to the west and south operated by plaintiff.

It is agreed that a prudent operator, planning a repressuring program, must select wells for gas input in such fashion as to accomplish substantial equality of benefits as between owners of mineral rights within the limits of the project, and have in mind their as well as his own best interests. This principle was given consideration in selecting defendants' No. 3 well.

As part of its repressuring program in this area, the plaintiff has converted one of its producing wells on lands not owned by defendants but near the northeast corner of defendants' tract, into a gas input well, and has injected gas therein; this has caused and will continue to cause oil to migrate onto defendants' forty acres, from the north, east and northeast.

If the No. 3 well is converted to gas input, as proposed, the resulting pressure will cause all the recoverable oil under five of defendants' forty acres to migrate onto adjoining lands in which they have no interest. The aggregate amount will be not less than 5199 nor more than 7025 barrels. The oil migrating onto defendants' property from the other direction will be substantially equal to that which is so displaced. The total oil recovered from this leasehold will be increased not less than 14,437 barrels, and may be as much as 34,800 barrels. At current prices for oil, this program assures defendants of a net cash gain at a minimum of $4,999 and a maximum of $12,050. This is over and above all that they can obtain by continued primary operations. There is no known practical method of repressuring which will not cause migration of oil in substantial quantities.

It was further stipulated that, upon the basis of the above facts, fair, credible and fully qualified expert witnesses would testify under oath that a reasonably prudent, competent and experienced operator, having in mind the best interest of both the lessor and the lessee, would convert the said well No. 3 into a gas input well as proposed by the plaintiff. It is agreed the case shall be considered as if such witnesses had so testified, with no testimony to the contrary, but that the decision of ultimate facts or conclusions of law remains for the court.

The trial court, in declining to enter a declaratory judgment in favor of plaintiff, found that the plaintiff has no right, over the objections of defendants, to convert a well on their premises to a gas input service well; that, as was stipulated, said well, if not converted will continue to be commercially productive until at least 1959; and if so converted, a substantial ...

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