Baumgartner v. Gulf Oil Corporation

168 N.W.2d 510, 184 Neb. 384, 34 Oil & Gas Rep. 235, 1969 Neb. LEXIS 558
CourtNebraska Supreme Court
DecidedMay 9, 1969
Docket37092
StatusPublished
Cited by8 cases

This text of 168 N.W.2d 510 (Baumgartner v. Gulf Oil Corporation) is published on Counsel Stack Legal Research, covering Nebraska Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Baumgartner v. Gulf Oil Corporation, 168 N.W.2d 510, 184 Neb. 384, 34 Oil & Gas Rep. 235, 1969 Neb. LEXIS 558 (Neb. 1969).

Opinions

Spencer, J.

This is an action at law for willful trespass and conversion. Plaintiff sued for the value of oil claimed to have been displaced and swept from land under lease to him by defendant into its waterflood unit recovery wells.

Plaintiff was the holder of an oil and gas lease granted by the State of Nebraska, the owner of the minerals underlying Section 16, Township 18 North, Range 53 West of the 6th P.M., Banner County, Nebraska. Plaintiff acquired the lease June 13, 1960, and allowed it to lapse June 13, 1965.

Defendant is the owner of the Kenmac “J” Sand Unit, Banner County, Nebraska, hereinafter referred to as Kenmac, which was formed to increase the ultimate recovery of oil and to prevent waste. In consequence of the depletion of the field the lessees thereon had, before plaintiff obtained his lease, commenced studies as to the feasibility of unitizing the field. This involved the merger of all of the interests in the oil pool and the designation of an operator for the unit. Defendant was so designated for Kenmac. Except for Kenmac there would have been no recovery of secondary oil. The Nebraska Oil and Gas Conservation Commission, hereinafter called the commission, entered an order April 24, 1961, approving the unit agreement, which provided for the secondary recovery of the oil by waterflooding. It was signed by all of the working-interest owners in the field except the plaintiff, and by the owners of more than 80 percent of the royalty interests, including the plaintiff’s lessor, the Nebraska Board of Educational Lands and Funds. When the plaintiff refused to- join the unit, Section 16 was excluded from it and plaintiff’s lessor withdrew its consent.

[387]*387Kenmac offsets plaintiff’s lease on the east and the north. Exhibit 2, which is reproduced herewith, shows, the boundaries of Kenmac as well as the outline of the, oil-bearing stratum involved herein:

Waterflooding is the controlled introduction of water into an oil-producing stratum or oil reservoir for the [388]*388purpose of recovering oil which cannot be produced by normal primary methods. Water is injected into selected wells to create pressure to force the oil toward producing wells. In this instance' water was injected on the north into wells 1 and 2, and on the south into wells 3 and 4. These wells forced the oil toward wells 10, 11, and 12, the final point of recovery. In November 1964, it was necessary to convert well 7 to an injection well. The introduction of water into an oil reservoir causes oil and water to migrate across .lease lines and it is impossible to restrict the advance of the water to lease lines. Because of this encroachment it is necessary to unitize a field to protect the correlative rights of all those holding interests in the field. ' ;

A prior lessee of Section 16 had drilled a dry hole in the northeast quarter of the section. This dry hole and other wells on the adjoining sections had established that the oil-bearing sands under plaintiff’s lease were in the northeast quarter of the northeast quarter of the northeast quarter, hereinafter referred to as NENENE, with a thin and narrow strip along the east edge of the section.

Plaintiff’s engineer testified that prior to the formation of the unit, oil had been drained from Section 16 by the off-setting wells to the north and the east. The 23 producing wells shown on the plat had so depleted the field that the nearest well offsetting plaintiff’s lease bad been temporarily abandoned because of insufficient production.: The parties stipulated that as of June 6, 1961, there were only 2,254.2 barrels of recoverable primary oil, worth $6,063, under the plaintiff's lease. The amount of oil underlying Section 16 for recovery , by secondary methods was stipulated to be 36,624.1 barrels., while the recovery from the entire reservoir was 1,658,955 barrels. It is undisputed that the cost of drilling a well to recover the primary oil on Section 16 was far in excess of $6,063.

Plaintiff’s engineer also testified that in the absence of Kenmac there would not have been any secondary [389]*389oil recovered on Section 16. Plaintiff refused to join- the unit, and after it was approved he applied for a permit to drill a well in the NENENE. This permit was refused by the commission because plaintiff was able to include his section in Kenmac, but its order was subsequently reversed by the district court. No well was drilled because the recoverable oil by this time had been swept from the section. Plaintiff’s engineer conceded that if plaintiff had been permitted to drill a well on the NENENE it would have resulted in the drainage of oil from Kenmac. The testimony clearly would indicate that plaintiff could not have profitably developed his lease. In the absence of Kenmac no secondary oil could have been recovered from Section 16 so the independent development of Section 16 would have resulted in an economic loss except for the waterflooding by Kenmac.

Plaintiff’s manager of operations, who was his principal witness, actually had been instrumental in setting, up the unit agreement and the operator’s agreement for Kenmac. This was before he entered plaintiff’s employment in June 1962. He admitted that Kenmac was properly formed; that a common-assessment formula was used for all undeveloped acreages; and that the assessment formula and the amount allocated to plaintiff’s; tract were fair and equitable. Plaintiff refused to join the unit unless this assessment was waived as to his section. This the other parties to the agreement would not do, and plaintiff’s section was excluded from the unit.

' If the plaintiff had joined Kenmac and borne his share of the development and operating costs, his profit would have been $27,455, and the State of Nebraska would have received $7,377 for royalties. The evidence would indicate that if plaintiff had drilled his own well, the highest estimate of his profit would be $12,224:

The trial court applied the common law doctrine of willful trespass, and entered judgment against the defendant in the amount of $89,933 for the value of the [390]*390oil drained from Section 16, without the deduction of any development or operating costs necessary to produce that oil. Defendant perfected an appeal to this court.

This is a case of first impression in this state. However, in view of the objectives of the Nebraska Oil and Gas Conservation Act, hereinafter referred to as act, and the apparent public policy inherent therein, as well as the nature of oil and gas, we cannot accept the premise on which judgment was rendered by the trial court.

Section 57-901, R. R. S. 1943, provides as follows: “It is hereby declared to be in the public interest to foster, to encourage and to promote the development, production and utilization of natural resources of oil and gas in the state in such a manner as will prevent waste; to authorize and to provide for the operation and development of oil and gas properties in such a manner that the greatest ultimate recovery of oil and gas be had; and that the correlative rights of all owners be fully protected; and to encourage and to authorize cycling, recycling, pressure maintenance and secondary recovery operations in order that the greatest possible economic recovery of oil and gas be obtained within the state to the end that the landowners, the royalty owners, the producers and the general public realize and enjoy the greatest possible good from these vital irreplaceable natural resources.

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Baumgartner v. Gulf Oil Corporation
168 N.W.2d 510 (Nebraska Supreme Court, 1969)

Cite This Page — Counsel Stack

Bluebook (online)
168 N.W.2d 510, 184 Neb. 384, 34 Oil & Gas Rep. 235, 1969 Neb. LEXIS 558, Counsel Stack Legal Research, https://law.counselstack.com/opinion/baumgartner-v-gulf-oil-corporation-neb-1969.