Beene v. Midstates Oil Corporation

169 F.2d 901, 1948 U.S. App. LEXIS 3352
CourtCourt of Appeals for the Eighth Circuit
DecidedSeptember 13, 1948
Docket13696
StatusPublished
Cited by2 cases

This text of 169 F.2d 901 (Beene v. Midstates Oil Corporation) is published on Counsel Stack Legal Research, covering Court of Appeals for the Eighth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Beene v. Midstates Oil Corporation, 169 F.2d 901, 1948 U.S. App. LEXIS 3352 (8th Cir. 1948).

Opinion

WOODROUGH, Circuit Judge.

This civil action was brought by S. J. Beene, the owner of oil bearing lands in Columbia County, Arkansas, against Mid-states Oil Corporation, to obtain cancellation for fraud of a lease executed by plaintiff to defendant and to recover amounts alleged to be due the plaintiff under those terms of the lease which provide for the payment of royalty on production of oil and gas called overriding royalty addi *902 tional to the one-eighth royalty required by the lease. The lease provided that the overriding royalty should be calculated on each well separately, and be fixed at one-eighth, but should be reduced to one-sixteenth when the well was “not capable of producing 50 barrels of oil per day when operated by a competent operator utilizing efficient and practicable methods and equipment for producing oil and gas.” Plaintiff claimed to be entitled to the full one-eighth overriding royalty up to the time of suit and that he had been paid only one-sixteenth over a certain period. He charged that defendant had fraudulently caused the other one-sixteenth to be withheld from him and had itself fraudulently obtained and appropriated it. The defendant pleaded that the lease, including its overriding royalty provision, had been amended and modified by a contract entered into by the plaintiff, the defendant and a large number of other persons subsequent to the execution of the lease, identified as the “Haynes-ville Unitization and Pressure Maintenance Agreement.” That by said Agreement the productive area which included plaintiff’s leased lands, was to be exploited as a unit and the plaintiff agreed with the defendant that if and when the part of the gross production of oil from the unitized area of the zone allocated to any one of the wells within plaintiff’s lease should be less than 50 barrels of oil per day during any accounting period, the maximum one-eighth overriding royalty to which the plaintiff is entitled with respect to oil and gas produced from any one of said wells should be reduced by one-half for that accounting period. It alleged that plaintiff had been paid and tendered payment of all overriding royalties due him in accordance with the lease -as so amended and that it was not indebted to plaintiff. It denied fraud.

The plaintiff did not deny executing the Unitization and Pressure Maintenance Agreement subsequently to the lease or that he was fully bound by it or that it effected substantial changes in the obligations of the lease, including the obligations evidenced by the overriding royalty provisions thereof, but he stood on his allegation that he remained entitled to the full one-eighth overriding royalty notwithstanding the Agreement. There was federal jurisdiction because of diversity of citizenship and requisite amount involved.

The case was tried to the court without a jury, and upon the facts found the court concluded:

“2. The Unitization and Pressure Maintenance Agreement modified and amended the terms of the lease with reference to the payment -of the overriding royalty by changing the monthly basis thereof from the amount of oil and gas a well was capable of producing, when operated by a competent operator utilizing efficient and practicable methods and equipment, as set forth in the lease, to the amount allocated at the end of the month to the unit upon which the well was situated, derived from the operation of the entire unitized area in accordance with the participation formula set forth in the agreement.

“3. The amount allocated to each production unit determines the fraction or rate of the payment of the overriding royalty. In those months where the allocated amount averages less than 50 barrels of oil per day, the overriding royalty due the plaintiff is reduced from 1/8 of 8/8ths to 1/16th of 8/8ths.

“4. The amount of production allocated to each unit in which the plaintiff is interested fairly represents the amount due him from the operation of the unitized area, and the payments paid or tendered to him for his overriding royalty were calculated in accordance with the allocation and rate of the payment of the overriding royalty fixed by such allocation.”

Pursuant to the findings of fact and conclusions of law arrived at by -the court it entered judgment of dismissal of plaintiff’s case at his costs and he takes this appeal. He states that if the foregoing conclusions of law numbered 2 and 3 of the trial court were correct, “then the Lower Court was correct in dismissing the suit,” and the record so shows. The primary question in the case therefore is whether or not the plaintiff remained entitled to one-eighth overriding royalty in respect to a well covered by his lease when unitized operation of the zone under the Agreement resulted in allocation pursuant *903 to its formula, of less than 50 barrels of oil per day to such well.

The Facts.

The appellant has not assigned as error any iof the findings of fact made by the court and we find them supported by the stipulation and evidence, and that they constitute a fair presentation thereof. We set them out as follows:

“2. On October 2, 1942, the plaintiff, for good and valuable consideration, executed, and delivered to the defendant the oil and gas lease involved herein.

Inter alia the lease provides:

“ ‘In addition to the royalty hereinabove provided for, Lessee covenants and agrees to deliver to the credit of Lessor the equal of 1/8 of 8/8th part of .all oil produced and saved from the leased premises and 1/8 of 8/8ths of gas produced from said leased premises, calculated in the same manner as provided hereinabove for the regular one-eighth (1/8) royalty on oil and on gas. With respect to any well situated on the leased premises (or situated on an adjoining tract with which a part of the land covered by this lease may be unitized or merged under the authority hereinabove given) it is understood that the overriding royalty shall reduce to l/16th of 8/8ths for such period or periods of time as such well is not capable of producing 50 barrels of oil per day when operated by a oompetent operator utilizing efficient and practicable methods and equipment for producing oil and gas. The overriding royalty herein provided for shall be calculated on each well separately.’

“3. The Pettit Zone of the Haynesville Field was developed on a well spacing pattern of one well to a rectangular 80-acre tract, the tracts being elongated North and South. That spacing pattern was fixed by the Conservation Commissioner of Louisiana for the Louisiana portion of the field and by the Arkansas Oil & Gas Commission for the Arkansas portion of the field. In each case where an 80-acre drilling unit was owned in severalty by two or more land owners, the designated 80-acre tract and the oil and gas lease covering it were unitized to form the specified drilling unit. Each lease owner and royalty owner under such agreement was entitled to receive from the unitized 80-acre tract as royalty or leasehold interest a portion of the production from the' unitized 80-acre tract in accordance with his property right in the parcel of land contributed to the formation of the 80-acre unit.

“Pursuant to the lease the defendant formed eight drilling units composed in whole or in part of the land covered by the lease and upon each a well was drilled. Two were dry holes and six were producers, as follows:

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Cite This Page — Counsel Stack

Bluebook (online)
169 F.2d 901, 1948 U.S. App. LEXIS 3352, Counsel Stack Legal Research, https://law.counselstack.com/opinion/beene-v-midstates-oil-corporation-ca8-1948.