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Briggs v. Gaddis

OPINION FILED APRIL 12, 1985.

GRANT L. BRIGGS ET AL., PLAINTIFFS-APPELLEES,

v.

DALE ALLEN GADDIS ET AL., DEFENDANTS-APPELLANTS (MARATHON OIL COMPANY, DEFENDANT-APPELLEE).



Appeal from the Circuit Court of Crawford County; the Hon. A. Hanby Jones, Judge, presiding.

JUSTICE WELCH DELIVERED THE OPINION OF THE COURT:

Plaintiffs Grant and Davana Briggs brought this action for a declaratory judgment that they were entitled to one-half of the royalties from an oil and gas lease covering a 13-acre tract of land owned by the Briggs and a 40-acre tract adjacent to it. The Briggs also sought payment by defendant Marathon Oil and Gas Company (Marathon) for their share of royalties due and owing. Defendants Dale and Ann Gaddis are the owners of the adjacent 40-acre tract; defendant Virginia Walker is a partial assignee of the mineral rights as to the tract owned by the Gaddises. After a bench trial, the circuit court of Crawford County granted the relief sought by Briggs. Mr. and Mrs. Gaddis and Ms. Walker appeal. We affirm.

In 1907, lessors Marion D. Eaton et al. executed an oil and gas lease to the lessee, the Ohio Oil Company, of 53 acres in Crawford County. The minerals under the entire 53-acre tract were owned by the same people until September 9, 1931, when the ownership became divided, with Rosa Coffman becoming the owner of the minerals under the east 40 acres and Elizabeth Eaton becoming the owner of the minerals under the west 13 acres. The lease contained no entireties clause. Instead, an oral agreement was made between the two owners that they would each receive one-half of the royalties for all oil produced from the entire lease, regardless of whether such oil was produced from the 13-acre tract or from the 40-acre tract. All the oil was collected in a single tank battery.

The arrangement continued through the various subsequent owners of the two tracts, with such owners signing various "division orders" (i.e., agreements) setting out the agreed arrangement. The last division order was on July 21, 1955, when there was one producing well on the 40-acre tract and one on the 13-acre tract. The division order provided that, by agreement, the royalty from oil produced would be split equally by the owners of the tracts and their successors in title "until such time as secondary recovery methods may be put in operation on the premises." Sometime thereafter Marathon succeeded the Ohio Oil Company and began paying out the royalties. The Briggs acquired the minerals under the 13-acre tract in 1960. Mr. and Mrs. Gaddis acquired one-half of the minerals under the 40-acre tract in 1972, and Ms. Walker acquired another one-half of the minerals under the 40-acre tract in 1977. From October 1971 until May 1974, there was no production from the 40-acre tract. The operator of the lease during most of 1975 was Henry Halley. Halley notified Gaddis that he was going to begin waterflood operations. He obtained an easement from Gaddis for the power source for the waterflood system, began construction of a new tank battery, and plugged the well on the 13-acre tract. Halley informed Gaddis that he would have his attorney prepare the necessary agreement and documents for the waterflood. Before the documents were prepared, Halley's attorney died, and Halley sold out to a new operator, C.E. Billingsley. No papers for the waterflood were ever prepared, submitted, or signed, and the area of the waterflood was never defined.

In early 1975, Briggs approached Gaddis to propose exchanging royalties so that each would own all the royalty for their respective tracts, but Gaddis was not interested in exchanging royalties at this time. Later, Gaddis observed the setting of stakes on the tract "on pattern" and, believing a waterflood was imminent, went to Briggs to discuss exchanging royalty interests, but at this time Briggs was not interested in proceeding with the exchange. Gaddis then notified Marathon Oil Company, the oil purchaser, by letter that the contract had terminated because the sole producing well on the 13-acre tract was plugged. In the letter, he failed to mention that he believed secondary recovery methods had commenced. Marathon started withholding royalty payments from the Briggs.

During 1977 and 1978, the operator, Billingsley, drilled new wells on the 40-acre tract. Billingsley also applied for and received a permit to drill a salt water input well. He then had the salt water input well drilled in the center of the 40-acre tract.

In 1978, Billingsley started injecting water into the subsurface through an input well on the 40-acre tract on gravity alone. In 1982, he started injecting water under pressure. Billingsley testified at trial that he injected the water into the same formation from which the oil was produced because that was the only good body of sand that would take the water. He testified that the 53-acre lease was not desirable to be used in a waterflood by itself because the geological structure was bigger than the 53-acre tract. He also stated that he had allowed two other operators to dump "a load or two" of salt water left from leases that they operated into his well and that all the salt water from his other leases was not going into the input well. He further testified that he drilled two new wells on the 13-acre tract in 1983. The oil production of the well started increasing 2 1/2 years after he started disposing of the salt water in the input well.

On March 30, 1983, Briggs filed a complaint asking (1) for a declaration that he was entitled to one-half of the proceeds from royalties from the 53-acre tract pursuant to the 1955 division order and (2) for an order directing Marathon to pay the proceeds it had withheld. The amended complaint was based on contract, waiver, and estoppel. The trial court granted the relief sought under the contract and waiver theories. A motion to reconsider was denied Mr. and Mrs. Gaddis and Ms. Walker, and they subsequently filed their notice of appeal.

• 1 The sole issue raised on appeal is whether the trial court's finding that no secondary recovery methods had been put in operation on the lease was against the manifest weight of the evidence.

It is well settled that a judgment is against the manifest weight of the evidence only when an opposite conclusion is apparent or when findings appear to be unreasonable, arbitrary, or not based on evidence. Duffek v. Vanderhei (1980), 81 Ill. App.3d 1078, 1088-89, 401 N.E.2d 1145, 1153.

In the case at hand, the permit for drilling a "water input" well and the application for the permit were introduced into evidence. No "waterflood" permit was issued by the Department of Mines and Minerals. Mr. Briggs testified that as far as he knew the 13-acre tract he owned had not been placed into any kind of waterflood unit. Mrs. Briggs testified that she never discussed a waterflood with Halley or Billingsley.

The operator, Billingsley, stated under oath that he injected the water into the same formation from which the oil was produced because that was the only good body of sand that would take the water. He testified he was familiar with a waterflood, with what it took to put one together, with the permits you would have to obtain before you started to put one together, and with the publication requirements. He also testified that he wouldn't try to put in a big waterflood with that small amount of acreage. He further stated that for a waterflood he would "get acreage and drill and put around the outside," thus driving the oil to a central well.

In response to a question on redirect as to whether or not the well was part or all of a waterflood unit, the operator answered: "It has helped production, yes, sir." When he was asked if it was a waterflood in accordance with the rules and regulations of the Department of Oil and Gas and if it is a "secondary recovery unit," he equivocally stated: "Well, it has helped so I guess you could say partially, in a way."

Mr. and Mrs. Gaddis and Ms. Walker contend that the aforementioned testimony at trial showed that the well in question was much more than a mere salt water disposal well. They claim instead that it was a waterflood operation. Therefore, because secondary recovery methods were being employed, they contend the agreement terminated. Their argument is centered on the fact that oil ...


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