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Shelton v. Andres

OPINION FILED MARCH 2, 1984.

FREDERICK F. SHELTON ET AL., PLAINTIFFS-APPELLEES,

v.

HELEN ANDRES, DEFENDANT-APPELLANT.



Appeal from the Circuit Court of Wayne County; the Hon. Robert W. Whitmer, Judge, presiding.

JUSTICE JONES DELIVERED THE OPINION OF THE COURT:

Rehearing denied April 6, 1984.

Defendant appeals from a judgment of the circuit court of Wayne County that quieted title in the plaintiffs to seven-twelfths interest in the oil, gas and other minerals underlying an 80-acre tract of land. The seven-twelfths interest in the oil, gas and other minerals had been the subject of a reservation in a deed of the surface of the 80 acres to the plaintiffs from defendant's predecessor. The judgment in question terminated the reservation because of the court's finding that the production of oil and gas from the 80-acre tract had ceased. Although the 80-acre tract was included in a unit organized for the secondary recovery of oil and unit operations and production had continued throughout the pertinent time-span, the court found that production of oil and gas from the 80 acres had ceased when the pump and other equipment used for primary production of oil and gas were removed from the 80 acres so that the actual lifting of oil to the surface no longer occurred on the 80-acres tract. The issue presented in this appeal is whether, where unit production was from wells off the tract, the secondary recovery of oil and gas from the unitized pool constituted production from the 80-acre tract so as to extend the reservation of the seven-twelfths interest as continuous production. We hold that it did and reverse.

The facts are furnished in a stipulation of the parties and a deposition of the unit operator that was submitted as evidence by agreement. S.D. Broyles was the owner of the surface and seven-twelfths interest in the oil, gas and other minerals in the 80-acre tract on July 16, 1962. On that date he and his wife conveyed the tract to the plaintiffs. The deed contained the following habendum clause:

"The Grantor, S.D. Broyles expressly reverses from this conveyance and unto himself, his heirs and assigns, all of his undivided interest in and to all of the oil, gas and other minerals lying in, on and under, and that may be produced from said described real estate as long as there is production on said described real estate. When said production of oil on said described real estate ceases production, said interest owned by the said Grantor in the above described real estate reverts to the said grantees herein."

At the time the deed was executed and delivered there was a producing oil well on the land. The well continued in production, and S.D. Broyles received his portion of the royalty payments from it, until on or about June 1, 1964, when the 80-acre tract became a part of the Sycamore Unit, organized for the secondary recovery of oil by waterflood. The participation factor assigned to the 80-acre tract was 13.70745% of the oil produced from the unit. S.D. Broyles, as a royalty owner, signed the unitization agreement, but the plaintiffs did not. Following the unitization, S.D. Broyles continued to receive royalty checks, but they were paid to him by virtue of participation in the unit operation and were not based upon the oil lifted to the surface through the pump and other production equipment located on the 80-acre tract. The unit operator continued to utilize the well located on the 80 acres in question for production from the unitized pool until on or about May 1, 1973. At that time further production through that well became impractical, presumably because of the encroachment of water being injected into the formation to generate the secondary recovery.

By deed dated December 9, 1971, S.D. Broyles placed the seven-twelfths interest in the oil, gas and other minerals in the 80-acre tract in joint tenancy with himself and Helen Andres. S.D. Broyles subsequently died, leaving Helen Andres the sole owner of the seven-twelfths interest that was the subject of the reservation.

Plaintiffs filed a complaint on May 31, 1978, to quiet title in themselves to the seven-twelfths interest in the oil, gas and other minerals. The essential allegations of the complaint were that at the time of the deed to the plaintiffs there was one producing oil well on the land. Sometime prior to September 1973, production of oil from that well permanently ceased, and by virtue of the condition expressed in the deed from S.D. Broyles to themselves, the seven-twelfths interest in the oil, gas and other minerals "reverted" to them. Defendant filed an answer and affirmative defenses that, in essence, asserted that at all times relevant to the complaint there was continuous production from the 80-acre tract because it was a constituent part of the Sycamore Unit and that so long as production from the unit continued, the reservation of oil, gas and other minerals in the deed to plaintiffs remained in effect. Upon motion by plaintiffs, the court entered an order on November 25, 1981, striking defendant's affirmative defenses. The order included a finding pursuant to Supreme Court Rule 304(a) (87 Ill.2d R. 304(a)) that there was no just reason for delaying an appeal of the order.

The case was subsequently submitted to the court for decision upon the stipulation of facts and the unit operator's deposition. They show, in addition to other facts already related, that during 1974, 1975 and 1976, no oil or gas was produced from any well located on the 80-acre tract although oil was continuously produced from wells located on other tracts within the Sycamore Unit and that defendant regularly received royalty payments by reason of the unit production allocated to the 80-acre tract. Further, on or about May 8, 1977, a new well drilled on the 80-acre tract commenced production, and on or about February 8, 1978, production was resumed from the original well on the 80-acre tract, but such resumed production was from a new, deeper formation that had been reached by additional drilling and was not being subjected to secondary recovery. Thus, from about May 1, 1973, until May 8, 1977, no oil or gas was physically brought to the surface from any location on the 80-acre tract.

In rendering its judgment quieting title to the seven-twelfths interest in the oil, gas and other minerals in the plaintiffs, the court found that from approximately three to four months prior to September 1973 to on or about May 8, 1977, there was no production of oil, gas or other minerals from the 80-acre tract and that any former production of oil, gas or other minerals had permanently ceased. By virtue of the cessation of production of oil, gas or other minerals from the 80 acres, the seven-twelfths interest formerly owned by defendant terminated and, pursuant to the deed in question, that interest was vested in plaintiffs as of September 1, 1973. The court further found that plaintiffs were entitled to the proceeds of any oil and gas produced and sold after May 8, 1977, but not before, including such proceeds held by a trustee pendente lite. The dispositional portion of the judgment was in accord with the court's findings as related.

• 1 We initially consider plaintiffs' contention that we are without jurisdiction to consider the issues raised by defendant's affirmative defenses. Those issues relate to the extension of the reservation of the seven-twelfths interest by the continued production of oil and gas from the Sycamore Unit and, plaintiffs argue, were foreclosed from further consideration when defendant did not appeal the order striking affirmative defenses. We find, however, that plaintiffs' argument regarding the issues raised by defendant's affirmative defenses is not well taken. The order striking the affirmative defenses was not final because it did not determine the litigation on its merits so that, if affirmed, the only thing remaining would be to proceed with execution on the order. (Flores v. Dugan (1982), 91 Ill.2d 108, 435 N.E.2d 480.) The order striking the affirmative defenses was interim in nature. The fact that the trial court made a finding pursuant to Supreme Court Rule 304(a) that "there is no just reason for delaying appeal of this order" does not confer finality upon an order that is otherwise not final. (Crane Paper Stock Co. v. Chicago & Northwestern Ry. Co. (1976), 63 Ill.2d 61, 344 N.E.2d 461; Petruchius v. Don Roth Restaurants, Inc. (1979), 79 Ill. App.3d 1071, 398 N.E.2d 1228.) Accordingly, the appeal from the judgment draws into consideration all prior interim orders and rulings that produced the judgment. Burtell v. First Charter Service Corp. (1979), 76 Ill.2d 427, 394 N.E.2d 380.

We would note parenthetically that we have been cited authority that relates to unitization or pooling of tracts for the purpose of creating a drilling or spacing unit for primary production. Although, strictly speaking, "pooling" refers to the consolidation of multiple tracts for purposes of forming a drilling or spacing unit, and "unitization" refers to a consolidation of tracts for joint operation of all or part of a reservoir, the terms often are used interchangeably. (5 W. Summers, Oil & Gas sec. 951 (1966); compare 1 W. Summers, Oil & Gas sec. 76 (1954).) The rules that attend the formation and operation of units formed for drilling or spacing purposes may or may not pertain to the consequences that flow from unitization of tracts for secondary recovery purposes. We make note of the distinction between the purposes attending unitization so as to be aware of the different applications that might pertain.

As regards the principal issue in the case, there is no direct Illinois precedent. The parties cite and discuss the application of four cases of this court: Ego Oil Co. v. Garner (1983), 115 Ill. App.3d 82, 450 N.E.2d 375, Belden v. Tri-Star Producing Co. (1982), 106 Ill. App.3d 192, 435 N.E.2d 927, Bi-County Properties v. Wampler (1978), 61 Ill. App.3d 799, 378 N.E.2d 311, and Morris v. Mayden (1976), 35 Ill. App.3d 338, 341 N.E.2d 428. We have re-examined those cases with the issue presented by the instant case in mind and have determined that they strongly indicate the conclusion that production of oil and gas from the 80-acre tract in question has not ceased, that the defendant continues to be the owner of the seven-twelfths interest in the oil, gas and other minerals underlying the tract, and that the plaintiffs' interest continues to be executory in nature and unrealized. Not cited, but nevertheless somewhat pertinent, is the supreme court case of Dickerson v. Ray (1960), 20 Ill.2d 107, 169 N.E.2d 341. In that case a conveyance of one-half interest in the oil and gas under two separate tracts was made in one deed. The conveyance was for a stated term and "as long thereafter as oil or gas or both shall be produced therefrom." Within the stated term, both tracts yielded production. After the expiration of the stated term production ceased on one tract but continued on the other. The case considered the issue of whether the continuous production on the second tract served to extend the ownership of the grantee of the deed on one-half interest of the oil and gas in the first tract. The supreme court held that it did:

"Arising first in decisions relating to oil-and-gas leases, it is the rule of the vast majority that where a number of land owners demise their lands in a single lease, where contiguous or not, and provide that after a designated period the interest covered by the said instrument will continue for as long as there is production upon said land, production which is sufficient to continue the interest as to any of the land described is sufficient to continue ...


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