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Shelton v. Andres

OPINION FILED MARCH 22, 1985.

FREDERICK F. SHELTON ET AL., APPELLANTS,

v.

HELEN ANDRES, APPELLEE.



Appeal from the Appellate Court of the Fifth District; heard in that court on appeal from the Circuit Court of Wayne County, the Hon. Robert W. Whitmer, Judge, presiding.

JUSTICE MORAN DELIVERED THE OPINION OF THE COURT.

Rehearing denied May 31, 1985.

Plaintiffs, Frederick and Shirley Shelton, brought this action to quiet title to a seven-twelfths interest in the oil, gas and other minerals underneath an 80-acre tract of land in Wayne County. The defendant, Helen Andres, also claims title to the mineral interest. Her predecessor, S.D. Broyles, conveyed the 80-acre parcel to plaintiffs in 1962, but he reserved the mineral interest to himself, his heirs, and assigns. The interest was reserved "as long as there is production on said described real estate." Thereafter, he and other mineral owners entered into an agreement with an oil company whereby several tracts of land, including the subject parcel, were consolidated into a unit, referred to as the Sycamore Consolidated Unit (Unit), for the secondary recovery of oil.

The circuit court of Wayne County quieted title in plaintiffs, holding that defendant's mineral interest had terminated when the only oil well on the property ceased production in 1973. The trial court further determined that plaintiffs were entitled to the proceeds from the sale or production of oil, gas or other minerals produced from the tract since May 8, 1977. The court ordered that funds held by a trustee pursuant to an earlier order be paid to plaintiffs. A majority of the appellate court reversed, concluding that the production of oil from wells on other parcels in the Unit constituted production from the subject parcel, so as to preserve defendant's mineral interest. (122 Ill. App.3d 1089, 1097.) We granted plaintiffs' leave to appeal (87 Ill.2d R. 315). The sole issue concerns the construction of the 1962 deed from defendant's predecessor in interest to plaintiffs.

Plaintiffs contend that "production on said described real estate" as required by the deed ceased when the only oil well on the property stopped production in 1973. As such, they argue that, under the terms of the deed, the defendant's mineral interest terminated. Defendant asserts, however, that the production of oil from wells on other tracts in the Unit constituted production on the 80-acre tract under the deed. She contends that such unit production preserved her mineral interest during the more than three years when no wells were operating on the 80-acre parcel.

The evidence in this case consists of a stipulation of the parties, the deposition of the unit operator entered into evidence by agreement, and various exhibits considered by the trial court. The record reveals that immediately prior to July 16, 1962, S.D. Broyles owned the surface of the 80-acre parcel in question as well as an undivided seven-twelfths interest in the oil, gas and other minerals on and under the parcel. On that day, Broyles and his wife conveyed the tract to plaintiffs by warranty deed. The habendum clause in the deed provided:

"The Grantor, S.D. Broyles expressly reserves 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 of the conveyance, there was one producing oil well on the property.

On or about June 1, 1964, Broyles entered into a royalty owners' unitization agreement for the Unit. The agreement was between the Pure Oil Corporation and various persons who owned the rights to the oil, gas, and other minerals in several adjacent tracts of land. The agreement provided that the oil company would use a secondary recovery method known as water flooding to recover oil from the common pool underlying the tracts in the Unit. Each tract of land was allocated a percentage of the production from the Unit. The participation factor assigned to the 80-acre tract was approximately 13.7 percent of the oil produced from the Unit. All royalty payments were based on this participation factor irrespective if more, less or any oil was actually removed from a well or wells on a particular tract. The plaintiffs did not sign the unitization agreement. Broyles, on December 9, 1971, conveyed the seven-twelfths mineral interest by deed to himself and defendant, as joint tenants. Subsequently, Broyles died.

In May or June of 1973, the well on the tract was shut down and it ceased to operate. At that time no other wells were located on the property. Then on September 1, 1973, Hubert W. Rose purchased the oil and gas leases to the properties comprising the Unit including the lease to the 80-acre tract. Rose attempted to rework the well on the 80-acre tract, but his efforts were unsuccessful. Later that year, Rose removed all oil-producing equipment from that well, except the casing.

Subsequently, no oil-producing operations were conducted on plaintiffs' land until April 22, 1977, when Rose drilled a new well on the 80-acre tract. Production of oil from that well commenced May 8, 1977. Thereafter Rose deepened the original well on the property, and production of oil from that well resumed on February 18, 1978.

From late 1973 to May 8, 1977, when no oil was produced from a well located on the 80-acre tract, production from wells located on other lands comprising the Unit continued. During that time, the defendant was a party to the Unit agreement, and she regularly received royalty payments based on the percentage of Unit production allocated to the 80-acre tract.

The deed reserves to defendant a seven-twelfths interest in the oil, gas, and other minerals underneath the 80-acre tract "as long as there is production on said described real estate." The deed further provides that "[w]hen said production of oil on said described real estate ceases production, said interest owned by the said Grantor * * * reverts to the said grantees herein." Thus, the deed created in the grantor, and ultimately the defendant, an interest in the minerals which was capable of enduring indefinitely, but which also was capable of being terminated upon the cessation of oil, or gas production "on said described real estate." In the latter situation, the plaintiffs' corresponding executory interest in the minerals would become possessory. Morris v. Mayden (1976), 35 Ill. App.3d 338, 341. See generally 1 E. Kuntz, Oil and Gas sec. 15.8, at 354-55 (1962).

The appellate court majority concluded that off-tract production, from a unit which includes the 80-acre parcel, constituted "production on said described real estate" so as to extend defendant's mineral interest. It determined that the issue here was controlled by a provision found in "An Act in relation to oil, gas, coal and other surface and underground resources * * *." (Ill. Rev. Stat. 1961, ch. 104, par. ...


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