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Puckett v. Oelze

OPINION FILED JULY 12, 1985.

R.E. PUCKETT ET AL., PLAINTIFFS-APPELLEES,

v.

ELMER OELZE, JR., DEFENDANT-APPELLANT (ASHLAND OIL, INC., DEFENDANT).



Appeal from the Circuit Court of Jefferson County; the Hon. Robert S. Hill, Judge, presiding.

PRESIDING JUSTICE JONES DELIVERED THE OPINION OF THE COURT:

In this appeal we are asked by defendant-appellant Oelze to construe a farmout agreement of an oil and gas lease. Defendant contends here, as he did before the trial court, that State-mandated oil well spacing requirements create a latent ambiguity in the agreement that calls for evidence to show the true intention of the parties. The trial court found no such latent ambiguity and entered a final order for the plaintiffs. We affirm.

The plaintiffs are three brothers, R.E. Puckett, Thomas Puckett and Ferrell Puckett. Prior to October 28, 1980, the parents of the plaintiffs, Leo and Ruth Puckett, owned one-fourth of the oil, gas and other mineral rights underlying 50 acres of land in Jefferson County that included 10 acres described as the south one-half of the south one-half of the northwest quarter of the southeast quarter of section 23, township 3 south, range 2 east of the 3d P.M. On October 28, 1980, the plaintiffs' parents, as lessors, executed an oil and gas lease upon the 50 acres in favor of plaintiff R.E. Puckett. The lease provided for a royalty of one-eighth. The next day, October 29, 1980, plaintiffs' parents, as grantors, executed a quit-claim deed whereby they conveyed to the three plaintiffs, in equal portions, their one-fourth interest in the oil, gas and other minerals in the 50 acres. We note parenthetically that neither plaintiffs nor defendant raise any question or pose any issue that might arise because of the doctrine of merger of title; consequently, we give no consideration to it.

On October 30, 1980, plaintiff R.E. Puckett, then the lessee and sole owner of the oil and gas lease of October 28, 1980, prepared, dated, signed and forwarded to Oelze the farmout agreement on the oil and gas lease. It provided that:

"Oelze agrees that on or before January 29, 1981, he will commence or cause to be commenced, the actual drilling of a Test Well, for oil and gas, at a location in the S 1/2 S 1/2 NW 1/4 S.E. 1/4 of Section 23, Township 3 South, Range 2 East, 3rd P.M., Jefferson County, Illinois, which said Test Well shall thereafter be drilled in a good and workmanlike manner to a depth of 2800 feet or a depth sufficient to adequately test the McClosky Formation, whichever is lesser, herein called `Contract Depth,' also sometimes herein called `Casing Point,' Said Test Well shall be drilled to Contract Depth, plugged and abandoned if dry, at the sole cost, risk and expense of Oelze."

Section II of the agreement provided as follows:

"At such time as said Test Well reaches Contract Depth or Casing Point and is not plugged and abandoned as a dry hole:

A. Puckett shall assign to Oelze an undivided one-half of his right, title and interest in and to said Lease, but only as to those depths, zones and Formations from the surface of the ground to the base of the McClosky Formation.

B. Simultaneously with the assignment in A above, it is understood that Puckett is the owner of an undivided 1/8 Working Interest in said Test Well, the spacing unit on which said Test Well is located, leases, lands and equipment connected therewith." (Emphasis added.)

At the time R.E. Puckett executed the farmout agreement, Oelze held oil and gas leases on the remaining three-fourths interest in the oil and gas underlying the Puckett 50 acres as well as an oil and gas lease to all of the interest in the north one-half of the south one-half of the northwest quarter of the southeast quarter of section 23, 10 acres. This latter 10-acre tract combined with the 10-acre tract from the Puckett 50 acres to comprise the south one-half of the northwest quarter of the southeast quarter of section 23, 20 acres.

On November 5, 1980, the State issued a drilling permit to Oelze entitling him to drill a well 330 feet north and 330 feet east of the southwest corner of the northwest quarter of the southeast quarter of section 23. The well required a 20-acre spacing unit, and that 20-acre spacing unit was comprised of the described 10 acres from the Puckett lease and the described 10 acres held by Oelze. Shortly after the permit was issued, Oelze drilled a well and it proved to be commercially productive. The production was sold to the defendant Ashland Oil, Inc., which appears in this case as a mere stakeholder and will not be further mentioned.

On November 14, 1980, R.E. Puckett assigned to each of his two brothers, Thomas and Ferrell Puckett, a one-third interest in the oil and gas lease dated October 28, 1980. The assignment noted that it was subject to the terms of the October 30, 1980, farmout agreement with Oelze. On November 28, 1980, after drilling operations had been completed, Oelze signed the farmout agreement. Apprised that the well was a producing one, the plaintiffs, on December 19, 1980, assigned to Oelze an undivided one-half interest in the oil and gas lease dated October 28, 1980, from Leo and Ruth Puckett,

"[b]ut only as to those depths, zones and Formations from the surface of the ground down to the base of the McClosky Formation, as provided in Section II, A of Farmout Agreement between R.E. Puckett and Elmer Oelze, Jr. dated October 30, 198[0.] This Assignment is also made pursuant to and subject to the provisions of Section II, B and Section II, C of said Farmout Agreement."

A dispute arose concerning the fractional working interest share the plaintiffs were to receive pursuant to the farmout agreement. Apparently a proposed division order from Ashland Oil, Inc., had indicated that the plaintiffs were entitled to receive only an undivided one-sixteenth working interest in the test well, whereas the plaintiffs claimed that they were to receive an undivided one-eighth working interest in it as stated expressly in the agreement between Oelze and R.E. Puckett. In November of 1981 the plaintiffs brought suit by filing a two-count complaint. The first count addressed the matter of their working interest in the well. The second count addressed their royalty interest, which they alleged to be one-quarter of the one-eighth royalty interest in crude oil proceeds. The dispute concerning the amount of the plaintiffs' royalty interest appears, likewise, to have arisen with the submission by Ashland Oil, Inc., of the proposed division order, which indicated that the plaintiffs were entitled not to one-fourth but to one-eighth of the one-eighth royalty interest. The plaintiffs alleged further that they, as owners of one-half of the lessee interest in ...


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