Michigan Oil Co. v. Black

455 So. 2d 824, 84 Oil & Gas Rep. 1, 1984 Ala. LEXIS 4296
CourtSupreme Court of Alabama
DecidedJuly 16, 1984
Docket82-1181 to 82-1184
StatusPublished

This text of 455 So. 2d 824 (Michigan Oil Co. v. Black) is published on Counsel Stack Legal Research, covering Supreme Court of Alabama primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Michigan Oil Co. v. Black, 455 So. 2d 824, 84 Oil & Gas Rep. 1, 1984 Ala. LEXIS 4296 (Ala. 1984).

Opinions

JONES, Justice.

This is an oil and gas case. The Defendants appeal following an adverse ruling in a declaratory judgment action declaring that leases on two tracts of land had expired at the end of the primary term. We affirm.

FACTS

The west half of Section 33, Township 13 South, Range 14 West, in Lamar County, Alabama, is owned as follows: The Blacks own the west half of the southwest quarter of the section; the Bomans own the west half of the northwest quarter of the section, less 9 acres; the Sorrells own the remaining 9 acres; I.V. Smith owns the east half of the northwest quarter of the section; and Perkins owns the east half of the southwest quarter of the section.

On July 25, 1979, Cherry and Associates, Inc., obtained oil, gas, and mineral leases covering the Black and Boman property. Each lease had a primary term of three years. Subsequently, Cherry assigned 85% of its rights under the leases to Michigan. In addition to the rights held by Cherry and Michigan on the Black and Boman property, they own oil, gas, and mineral rights to the Perkins property. The oil, gas, and mineral rights to the Smith property are held by W.E. Sistrunk and Phillips Petroleum Company. The oil, gas, and mineral rights to the Sorrells’ property are held by Pruit Production Company.

By the terms of the leases held by Cherry and Michigan, expiration would occur on July 25, 1982, at midnight, unless validly extended by the lessees. Extension could be accomplished in one of two ways: either the lessees could conduct operations on either the Black or Boman property before expiration of the lease; or the lessees could conduct operations on property which had been joined or “pooled” with the Black or Boman property in a valid unit. In order to “pool” or “unitize” leases, the lessee must obtain a force-pooling order from the Oil and Gas Board or the owners of the other leases must agree to pool. Code 1975, § 9-17-13. The parties agreed that operations had not been conducted on the Black or Boman property prior to the expiration of the lease. The parties also agreed that the lessees did not attempt to obtain a force-pooling order from the State Oil and Gas Board. Rather, Michigan and Cherry maintain that they conducted operations on property (namely, the Perkins property) that had been voluntarily joined with the Black and Boman property in a unit. Michigan “believed” that it had obtained permission from Sistrunk and Phillips to unitize the entire west half of Section 33. Alternatively, Appellants contend that agreement as to the 320 acres was not necessary, but that the unit formed consisted of lands (of less acreage) whose owners had agreed to unitize. Appellees, of course, disputed [826]*826this; and Michigan’s factual contentions on this point were rejected by the trial court.

In keeping with its contention that a voluntary unit was formed, Michigan filed, on July 20, 1981, a “Declaration of Unit” with the Probate Office of Lamar County. The Declaration purported to “pool” or “unitize” all of the leases existing on property in the west half of Section 33.

On June 15, 1982, Michigan wrote Sis-trunk a letter by which Michigan proposed to form voluntarily a unit consisting of the 320 acres in the W 1/2 of Section 33 for the purpose of drilling a gas well at a location on the Perkins property. Michigan requested that Sistrunk voluntarily pool the Smith property with the unit. The letter included an “Authorization for Expenditure” requiring Sistrunk’s signature if Sis-trunk agreed. Michigan sent the same documents to Phillips Petroleum Company on the same day. Neither Sistrunk nor Phillips ever signed and returned the “Authorization for Expenditure.”

After drilling was commenced on the Perkins property, Sistrunk wrote Michigan a letter by which he specifically declined to participate in the formation of the proposed unit. He also wrote a letter to the Oil and Gas Board setting out his objections to the formation of the unit. On August 3, 1982, Sistrunk filed an emergency petition with the board seeking to reform the unit for the Perkins drilling to forty acres instead of the original 320 acres. The petition alleged that Michigan did not have control of the full 320 acres in that it did not have Sistrunk’s permission, and, therefore, asked the board to reform the unit. The petition was initially denied without a hearing and was appealed to the trial court. The court ordered the board to have a hearing on the petition, which was held on September 17, 1982. At the conclusion of the hearing, because the issue then before the board had been rendered moot,, Sis-trunk withdrew his petition.

At trial of these actions, the court found Michigan did not have authority to include the Smith property in the “Declaration of Unit” filed on July 20, 1982, and that the declaration therefore was ineffective to create a valid unit. Because the unit was not voluntarily formed, and neither Michigan nor Cherry received a force-pooling order from the board, the trial court held that the Black and Boman leases had expired at the end of their primary term. Therefore, the Plaintiffs/Appellees were entitled to the cancellation of their leases. From this order, Defendants appeal.

ISSUES

The primary issue presented is whether the “Declaration of Unit” filed by Michigan on June 20, 1982, served to pool the unit so that the leases held by Michigan and Cherry on the Black and Boman properties were extended past their primary term of three years.

Michigan and Cherry also contend that the trial court was without jurisdiction to hear this case because the Plaintiffs did not exhaust their administrative remedies before the Oil and Gas Board before coming before the trial court.

DECISION

Code 1975, § 9-17-13(a), establishes the procedures by which a unit may be formed. That section provides:

“(a) When any mineral or other related interests deriving from two or more separately owned tracts of land are embraced within an established or a proposed drilling or production unit, or when there are separately owned interests in all or a part of an established or proposed drilling or production unit, or any combination of such, the persons owning such interests therein may validly agree to integrate or pool such interests and to develop such interests and associated lands as a drilling or production unit. Where, however, such owners have not agreed to so integrate or pool such interests, the board shall, for the prevention of waste or to avoid the drilling of unnecessary wells, require such persons owning such interests to do so and to develop [827]*827their interests and the associated lands as a drilling or production unit.”

Appellees contend, and the trial court agreed, that the “proposed drilling or production unit” in the present case is the 320-acre west half of Section 33 described in Michigan’s “Declaration of Unit” filed on July 20, 1982. No other unit was “proposed” by declaration or otherwise prior to July 26, 1982. Because all the parties did not agree to form the unit, Michigan and Cherry had but one alternative by which to form a valid unit, i.e., obtain a force-pooling order from the Oil and Gas Board. The parties agree that neither Michigan nor Cherry did this.

The trial court found that Michigan and Cherry’s attempt to validate the leases after the expiration date by filing an Amended “Declaration of Unit” is without force or effect.

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Bluebook (online)
455 So. 2d 824, 84 Oil & Gas Rep. 1, 1984 Ala. LEXIS 4296, Counsel Stack Legal Research, https://law.counselstack.com/opinion/michigan-oil-co-v-black-ala-1984.