Toomey v. State Board of Land Commissioners

81 P.2d 407, 106 Mont. 547, 1938 Mont. LEXIS 44

• Court: Montana Supreme Court
• Decided: May 7, 1938
• Docket: No. 7,809.
• Status: Published

Opinions

MR. JUSTICE ANGSTMAN

delivered the opinion of the court.

Plaintiff, a taxpayer, brought this proceeding originally in this court to enjoin the defendants from entering into an agreement designated as a “ Consolidated Lease and Operating Agreement,” which purports to pool state school lands with others in private ownership for unit operations for the production of natural gas and the apportionment of gas royalties on an acreage basis. By appropriate pleadings these facts are admitted or otherwise made to appear:

On March 27, 1930, defendants executed and delivered an oil and gas lease to P. E. Benedict covering 80 acres of state school land. On March 20, 1930, defendants executed and delivered a lease to Adelaide Williams covering 320 acres of such lands, and on the same day gave to J. E. O’Day a lease on 320 acres. Each lease was identical in terms, and each was for a term of five years and as long thereafter as oil or gas in commercial quantities shall be produced, not exceeding the total of fifteen years. Each required royalty payments to the state of 12y2 per cent, of the gas produced, ‘ ‘ exclusive of gas used for light, fuel or operating purposes in connection with the work on the lands.” Other terms of the leases will be alluded to later herein.

Thereafter the leases were modified by changing the term from five years to ten, and the period within Avhich the state could accept delay drilling penalties in lieu of drilling was changed from five years, as in the original lease, to ten years.

The lessees assigned their interests in the leases to the Glacier Production Company, a New Jersey corporation admitted and qualified to do business in this state, which is now the holder thereof. No wells have been drilled on any of the lands coA^ered by the leases, but delay penalties have been paid to the state extending the time for drilling on the lands covered by the O’Day and Williams leases until March 20, 1939, and by the Benedict lease until March 29, 1939. In the vicinity of these lands are lands in private ownership on which the Glacier Pro duetion Company holds oil and gas leases, each reserving to the land owner a 12% per cent, royalty of the oil and gas produced.

Defendants adopted a resolution approving a proposed consolidated lease and operating agreement whereby the 720 acres of state school lands in the above mentioned leases were to be pooled with 1,200 acres of privately owned lands on which the Glacier Production Company held leases. The 1,920 acres embraced in the area constitute three contiguous sections of land lying in a direct line extending from north to south, being sections 24, 25 and 36, Township 36 North, Range 5 West. This proceeding is to enjoin the execution of that proposed agreement.

The land is situated in the Cut Bank oil and gas field. In this field the gas producing sands, where they have been tested by drilling, have not been uniform in thickness and porosity, nor has gas been found in commercial quantities in all of the tested land. None of the acreage sought to be pooled has been tested for gas by drilling wells to the gas producing horizon, and hence it is not known whether all or any part of the land is capable of producing gas in commercial quantities, or whether the thickness and porosity of the gas producing sands, if any, are uniform, or whether there will be uniformity in the quantity of gas recoverable therefrom.

Under the proposed consolidated lease and operating agreement the lessee agrees to pay as royalty one-eighth of the market price of all gas produced at the well. When gasoline is extracted, manufactured or recovered by the lessee from natural gas or casinghead gas produced from land in the unit, the market value at the well of one-eighth of the gasoline content of the gas is also paid as royalty. It provides that each of the lessors shall have gas free of cost from any gas wells in the unit for his reasonable domestic use by making his own connections at the wells at his own risk and expense, and the lessee has the right to use, free of cost, gas produced on the lands in the unit for operations thereon, and on such gas used either by the lessors or lessee no royalty is paid. The one-eighth royalty is apportioned among the lessors in proportion to the acreage held by each. The state will receive 720/1920ths thereof, and the other lessors collec tively will receive the balance. The duration of the agreement is limited to fifteen years from the date of the original leases. Under the proposed agreement the lessee is not obligated to protect the school lands by offset wells from drainage by wells drilled on other lands in the unit. Under the proposed agreement the lessee will not be required to pay delay drilling penalties until a well is drilled on the school lands, but will be released from so doing upon the drilling of two wells upon the unified area. Other features of the proposed consolidated lease and agreement will be discussed more at length in considering the several contentions urged in support of the claim that its execution should be enjoined.

The proposed agreement is attacked here as being unauthorized under section 1882.2, Revised Codes, for several reasons which we shall later discuss. The further contention is made that if section 1882.2 authorizes the proposed agreement and lease, then it is in conflict with constitutional provisions and the Enabling Act.

The first point raised is that the proposed agreement is not authorized by section 1882.2, for the reason that it embraces more than 640 acres. The section in part provides: “No oil or gas lease issued on state lands shall embrace more than six hundred forty (640) acres, * * . Nothing herein contained, or in Chapter 108 of the session laws of the state of Montana of 1927 (sections 1882.1 to 1882.24), or elsewhere, shall prevent or be so construed as to prevent the state board of land commissioners from entering into agreements for the pooling of acreage with others for unit operations for the production of gas and the apportionment of gas royalties on an acreage or other equitable basis, and from modifying existing leases and leases hereafter entered into with respect to delay rentals, delay drilling penalties and royalties in accordance with such pooling agreements and such unit plans of operation; provided, however, that such agreements shall not change the percentages of royalties to be paid to the state from the percentages as fixed in its leases.”

The paragraph in the statute authorizing pooling of acreage by its very terms provides that pooling agreements are not to be prevented because of other provisions of sections 1882.1 to 1882.24. In effect, this is a declaration of the legislature that pooling agreements are not to be restricted by the acreage limitation of 640 acres. The legislature must have realized that such a restriction is inconsistent with the principles of a unit operation and, hence, excepted them from the operation of the restriction as to acreage.

Contention is made that section 1882.2 authorizes the pooling of acreage for gas production, only in case the entire geologic structure is included in such an agreement. This contention cannot be sustained. The purpose of pooling agreements is to conserve the natural resources of an area, to promote its development in an orderly and economical manner to meet market conditions, to avoid waste and to insure a more equitable distribution of the proceeds of production. (1 Thornton on Oil & Gas, sec. 218, p. 380, and cases there cited, including Marrs v. City of Oxford, 32 Fed. (2d) 134; C. C. Julian Oil & Royalties Co. v. Capshaw, 145 Okl. 237, 292 Pac. 841; People v. Associated Oil Co., 211 Cal. 93, 294 Pac. 717; and see Patterson v. Stanolind Oil & Gas Co., (Okl.) 77 Pac. (2d) 83, and United States v. Standard Oil Company of California, 21 Fed. Supp. 645.).

It is true that to accomplish the maximum beneficial results sought in a pooling agreement the entire structure should be included, but there are practical reasons why this cannot always be done. In the first place, it is impossible to know in advance of drilling the exact boundaries of a structure. In the second place, there is in most eases such a diversity of ownership in the lands and royalties that it is not always possible to secure the consent of all concerned were it known in advance just what acreage constituted the entire structure. The mere fact that a pooling of less than the total area of a structure does not secure all the benefits which would flow from an inclusion of the entire area is no reason why the legislature may not authorize the acceptance of the partial benefits; in other words,' part of the benefits is better than none at all.

The plan of unit operation is of comparatively recent origin. When section 1,882.2 was amended in 1933 to authorize pooling agreements, it cannot be said that the legislature had any particular pooling method in mind. At that time there were different conceptions of unit operations. Mr. G-lassmire in his treatise on Oil & Gas Leases and Royalties, in section 6, page 31, published in 1935, said-: “Three slightly different conceptions of ‘unit operation’ have been evolved. The first, or broad definition, contemplates the merging of individual lease ownership into a common property with operation thereof as a single lease; the second implies ‘cooperative development and operation,’ wherein each lessee operates his lease in accordance with an agreed plan respecting the whole pool; the third would effect a merging of the operating interest only, title to respective interest remaining in the individual owners. Under the latter plan, which is now more generally favored, the area is developed and operated as a single property, at the proportional expense and for the proportional benefit of the several parties in interest.” Hence it is seen that in 1935 there was more than one plan of unit operation in vogue.

Section 1882.2 does not assume to restrict the board as to the kind of pooling agreement that it might make. So long as it pools -state lands in a recognized plan of unit operation, it is acting within its rights though the plan does not undertake to embrace the entire geologic structure. There is nothing in section 1882.2 to suggest that the board was to be restricted to such pooling agreements as purported to cover the entire structure only.

Plaintiff contends that the proposed agreement is a new and joint leasing of state school lands, and that it modifies existing leases otherwise than as authorized by section 1882.2. His contention is that the authorized modifications are confined by this section to those relating to delay rentals, delay drilling penalties and royalties. The first modification complained of is that under the original leases the royalty was calculated upon the total amount of gas saved and produced, exclusive of oil or gas used for light, fuel or operating purposes in connection with work on the lands under the lease. The proposed consolidated agreement requires payment of royalty “on gas produced from said lands and sold or used off the premises,” and contains these provisions: “lessee shall have the right to use free of cost gas, oil and water produced on said lands for all operations thereon,” and “each of the lessors shall have gas free of cost from any gas well on said premises for his reasonable domestic use,” by making its or his own connections at the well. It is conceded here that the state cannot avail itself of the right to free gas by making its own connections at the well; hence, to the extent that the other lessors exercise their right to do so the amount of royalty fixed in the original leases is altered.

Section 1882.4 expressly provides that in all oil and gas leases royalty shall be paid “in all oil and gas produced and saved from all lands covered thereby, and not used for light, fuel and operation purposes on the leased premises.” The consolidated agreement did alter the original leases in the respect contended for by plaintiff, but since the alteration made the lease conform to terms expressly authorized by statute, we think it cannot be assailed on this ground. It should be remembered, too, that the consolidated agreement adopted sections 1882.2 to 1882.19 so far as applicable and not inconsistent with the consolidated lease and agreement as a part of it as if actually written into the agreement.

The next modification complained of is that relating to the drilling obligations. The original leases provided that the lessees shall within two years after the date of the lease, drill at least one well on the leased premises not less than 6 inches in diameter to the depth of at least 1,000 feet, unless oil or gas in commercial quantities shall be encountered at a shallower depth, and that if oil or gas in commercial quantities is not found at the depth of 1,000 feet or less, the lessee shall continue drilling with diligence to such depth as may be reasonably necessary to make a reasonable test for oil or gas, and the board is given the right in its discretion to extend the time for the commencement or completion of the drilling obligation from year to year, not exceeding ten years.

The leases also provide that upon completion of a productive gas well the lessee shall proceed with reasonable diligence to drill such additional wells as may be necessary economically to test the lands. The consolidated agreement binds the operator to commence a well within one year from the date of the last acknowledgment on the agreement and to complete it with reasonable diligence to the gas or oil producing horizon. It further provides that if the first well is dry, the lessee may either commence a second well within eighteen months from the date of the agreement or. cancel the agreement, and in this event the original leases shall become reinstated.

The agreement also provides that if the first well be on other than state lands, the second shall be on state lands.

The purpose of unit operation being to operate the combined area as a unit, these changes were within the contemplation of the legislature when it authorized pooling agreements.

Section 1882.2 specifically authorizes modifications with respect to delay drilling penalties. Drilling requirements and obligations are so interwoven with delay drilling penalties that modification of the one contemplates modification of the other.

The next modification complained of arises from the fact that the original leases provided that the State Land Board might curtail production upon such terms as appears to it to be just and equitable, whereas the consolidated agreement provides that after gas is produced and sold from wells producing gas only, the lessee, if he deems it inadvisable or inexpedient to produce or sell gas from any such well, may discontinue the production of gas by paying $200 per year for each well shut down. It is well known that gas cannot be stored. (Severson v. Barstow, 103 Mont. 526, 63 Pac. (2d) 1022.) The record here discloses that the Glacier Production Company is the only operator in the field marketing gas to any great extent. Local needs are already being supplied by others. Obviously, if there is no market for the gas, a condition best known by the lessee, there is nothing left to do but discontinue production. Abuse of this right by the lessee gives the state a cause of action for breach of the implied covenant to use reasonable diligence to provide a market for the products. (Severson v. Barstow, supra.) So far as the record before us is concerned, the state cannot be injured by this course because, when the production in discontinued for want óf a market, the supply is being conserved on which, when a market becomes available, it will procure its allotted royalty, and in the meantime it will obtain its proportionate share of the $200 annual payment on each well. We think this modification is within the contemplation of the legislature as a necessary part of a practical pooling agreement.

The next asserted unauthorized modification is that relating to the right of the lessee to terminate the lease. The original leases gave to the lessee the right to terminate the leases at the end of any rental year by giving thirty days’ notice in writing. The consolidated lease is made terminable by the lessee at any time by paying $1. Under the consolidated lease the rentals are payable in advance. In practical effect, then, the two leases are the same in this respect, for each is terminable at any time.

The next modification complained of relates to delay drilling penalties. The original leases provided for extending drilling obligations from year to year, not exceeding ten years, upon the payment of such penalties, beginning with the third year, as the board may determine. The consolidated lease requires the commencement of a well within one year from the date of the last acknowledgment and requires completion with reasonable diligence. It provides that if the first well be a dry hole, the lessee at its option may cancel the consolidated agreement and reinstate the original leases or commence a second well in eighteen months from the date of the last acknowledgment. Since section 1882.2 specifically authorizes modification of leases with respect to delay drilling penalties, the proposed modification cannot be said to be unwarranted.

It is next contended that there has been a violation of section 1882.2 in the proposed consolidated agreement, in that there has been a change in the percentage of royalties to be paid. The original leases each provided for the payment of a royalty of 121/2, per cent, of the gas. The consolidated agreement pro vides for the landowners’ royalty of 12% per cent, of the gas, but apportions it according to acreage. In other words, the state is allowed 720/1920ths of 12% per cent., by reason of the fact that the state owns 720 of the 1920 acres. Section 1882.2 expréssly authorizes the apportionment of gas royalties on an acreage basis. The percentage of royalty within the meaning of section 1882.2 has not been altered, but only the apportionment of that royalty among those interested in the acreage embraced in the unit operation. This apportionment on an acreage basis is expressly authorized.

The general charge of plaintiff that the consolidated lease and agreement is not a modification of existing leases, but an entirely new lease, is of no importance. The intention of the parties is made plain. They sought a pooling agreement under section 1882.2. To do so, existing leases had to be modified or changed. Whether this was accomplished by interlineation or by rewriting the leases is immaterial.

The original leases covered both oil and gas. The landowners other than the state were pooling their oil rights as well as gas rights. As to the state, it merely pooled the gas rights, leaving the oil rights as they were in the original leases. That the state saw fit to incorporate the intention of the parties in a new agreement retaining many of the provisions of the original leases, and making the necessary changes to accomplish a pooling under section 1882.2, does not nullify its attempt to take advantage of the pooling plan.

Thus far, in considering the questions presented, we have assumed that under section 1882.2 the only substantial changes which may be made in an existing lease are those relating to delay rentals, delay drilling penalties and royalties. Under the broad powers granted to the board by section 1882.7, we think section 1882.2, so far as it enumerates the modifications which the board can make, was not intended to be exclusive. We think the board has the right to change or modify existing leases in any respect not inconsistent with the Enabling Act, the Constitution or statutes. This right exists by the express provision in section 1882.7 and is not denied by section 1882.2. (Com pare Rhoads Drilling Co. v. Allred, 123 Tex. 229, 70 S. W. (2d) 576, where a similar question was considered.)

This brings us to the question whether section 1882.2, which authorizes the proposed plan, is in conflict with the Constitution or Enabling Act.

It is contended by plaintiff that the Congress of the United States has never consented to the state entering into agreements for the pooling of the school lands with privately owned lands for unit operation for the production of gas and the apportionment of royalties, and that the only method provided by the Enabling Act or the Constitution for disposal of the school lands or interests therein is by sale or lease, and that neither of these methods authorizes the contemplated pooling agreement. He argues that the relationship between the federal government and the state of Montana in regard to the school lands is one of trust, and that the state of Montana is a trustee of the school lands. He then contends that under the law of trusts, the trustee must strictly conform to the directions contained in the trust instrument. Therefore, he asserts, there being no express authority for entering into these pooling agreements in the articles of trust (in this case the Enabling Act and the Constitution), that the state, being the trustee, cannot enter into such an agreement.

We agree with the primary contention that the state is a trustee in this instance (State ex rel. Bickford v. Cook, 17 Mont. 529, 43 Pac. 928; State ex rel. Dildine v. Collins, 21 Mont. 448, 53 Pac. 1114; State ex rel. Koch v. Barret, 26 Mont. 62, 66 Pac. 504; State ex rel. Gravely v. Stewart, 48 Mont. 347, 137 Pac. 854; Rider v. Cooney, 94 Mont. 295, 23 Pac. (2d) 261), and that a trustee must strictly conform to the directions of the trust agreement (Murphy v. Delano, 95 Me. 229, 49 Atl. 1053, 55 A. L. R. 727; 26 R. C. L. 1372; Pomeroy’s Equity Jurisprudence, 3d ed., vol. 3, sec. 1062), but we cannot agree with his conclusion that because a direction authorizing a pooling agreement is not included expressly in the Enabling Act or the Constitution the authority does not exist.

Section 11 of the Enabling Act provides that “the said lands may be leased under such regulations as the legislature may prescribe; but leases for grazing and agricultural purposes shall not be for a term longer than five (5) years; mineral leases, including leases for exploration for oil and gas and the extraction thereof, for a term not longer than twenty (20) years; and leases for development of hydro-electric power for a term not longer than fifty (50) years.” Section 2 of Article XYII of the Constitution grants authority to sell or lease lands “under such rules and regulations as may be prescribed by law.” From the Enabling Act, then,, we find a general authority to enter into agreements for the lease of land for the extraction of gas and oil. This grant was accepted by the legislature of Montana. (Chap. 84, Laws of 1933.) It is true that it does not say pooling agreements, but it does comprehend an agreement whereby the oil and gas possibilities may be exploited. The agreement here presented is one whereby the state leases its lands for the exploration for gas under an arrangement which is designated as a “Consolidated Lease and Operating Agreement.” It may amount to the sale of an interest in land — a point which we shall hereinafter discuss.

As has already been pointed out, the state of Montana is a trustee of those lands granted by the United States government to the states for common schools. The Enabling Act and the Constitution give the authority to the state to lease its lands. The Enabling Act provides that lands may be leased for the purpose of gas extraction. If the agreement in question here be treated as a lease of lands, there is ample authority in the Enabling Act and the Constitution for the legislature to prescribe the method and the terms by which the lease is to be made. But the plaintiff contends that the consolidated lease amounts to the sale of an estate or interest in land. There are cases supporting this view. (State ex rel. School Dist. No. 1 in Weston County v. Snyder, 29 Wyo. 163, 212 Pac. 758; State ex rel. Moody v. Hatcher, 115 Tex. 332, 281 S. W. 192; School Dist. No. 23 v. Commissioners of Land Office, 166 Okl. 226, 27 Pac. (2d) 149.) If we treat section 1882.2 as authorizing a sale of an estate or interest in land, we still think it is not at variance with the Enabling Act or the Constitution. Section 11 of the Enabling Act provides “that all lands granted by this Act shall be disposed of only at public sale after advertising” etc. “That none of such lands, nor any estate or interest therein, shall ever be disposed of except in pursuance of general laws providing for such disposition, nor unless the full market value of the estate or interest disposed of, to be ascertained in such manner as may be provided by law, has been paid or safely secured to the state.” The Constitution of Montana, section 1, Article XVII, accepts this grant in the following language: “And none of such land, nor any estate or interest therein, shall ever be disposed of except in pursuance of general laws providing for such disposition, nor unless the full market value of the estate or interest disposed of, to be ascertained in such manner as may be provided by law, be paid or safely secured to the state.” That section further provides that a state board of land commissioners shall act as the state’s agent in administering this trust and empowers this board to classify these lands for the various purposes.

Plaintiff contends that under section 11 of the Enabling Act an estate or interest in lands cannot be sold except at public sale after advertising. This contention cannot be sustained. That limitation has to do only with a situation where the whole interest in the land is sold. When only an estate or interest in the land is sold, section 11 provides that the full market value of the estate or interest disposed of shall be ascertained “in such manner as may be provided by law.” Such also is the provision' of section 1 of Article XVII of the Constitution. Hence, when an estate or interest in lands is sold, as distinguished from the land itself, there need not be a public sale and advertising unless the legislature so directs. In other words, when there is a sale of only an estate or interest in such lands, the legislature is given ample power to determine .the method by which to ascertain the full market value of the estate or interest. (Compare Leuthold v. Brandjord, 100 Mont. 96, 47 Pac. (2d) 41.)

Pursuant to this authority the state legislature has provided by law for the details of such disposal. Sections 1882.1 et seq. provide that the lease for oil and gas shall not cover more than 640 acres nor shall be for a royalty less than 12% per cent. These sections were amended in 1933, and it is there provided: “Nothing herein contained, or in Chapter 108 of the session laws of the state of Montana of 1927 (secs. 1882.1 to 1882.24) or elsewhere, shall prevent or be so construed as to prevent the state board of land commissioners from entering into agreements for the production of gas and the apportionment of gas royalties on an acreage or other equitable basis.” This section then exempts the consolidated lease agreement from the statutory provisions which may be in conflict with the particular lease.

The board then is confronted with the problem of insuring to the state the full market value of the estate disposed of and receiving the proceeds and providing that they remain intact, and on such determination this court will not substitute its opinion for the opinion of the board, nor will it control the discretion of the board unless it appears that the action of the board is arbitrarily and, in effect, fraudulent. (See State ex rel. Gravely v. Stewart, supra; Rhoads v. Allred, supra.)

It is presumed that the parties in interest believe that there is gas underlying the state lands and other lands in the proposed unit. The gas thereunder is considered ferae naturae and is capable of being reduced to the ownership of the party who captures it. The gas, as shown by geological experience, is highly fugitive in character; that is, a well may be drilled upon state land and drain gas from the surrounding land in the unit and even beyond the bounds of the unit, and vice versa. The state board of land commissioners, faced with this fact and the fact that the distributing facilities were entirely in one ownership, that the market was limited and that it would not of itself develop and produce gas, concluded that the state could be best protected by participation in this agreement. It concluded that the market value of the state’s interest in gas underlying this unit was 720/1920ths of 12% per cent. The board was acting according to what it thought was to the best interest of the state, and has consummated an agreement which we are not able to say is not beneficial to the state. It had the authority to enter into the agreement, and we are not concerned with its wisdom, it not appearing affirmatively that the interests of the state have not been fully protected.

The plaintiff contends that the state by becoming a joint owner of the gas relinquishes 1200/1920ths of the royalty in gas produced on state lands to other landowners in the unit, and thus barters an estate or interest in school lands to the owners of other lands. This contention overlooks the migratory character of gas. (Gas Products Co. v. Rankin, 63 Mont. 372, 207 Pac. 993, 24 A. L. R. 294; Thornton on Gas & Oil, sec. 51.) There is no actual ownership of gas in situ. (Summers on Oil & Gas, page 102.)

The gas underlying state lands may be brought to the surface on adjacent lands, and, conversely, gas brought to the surface on state lands may actually drain from adjoining lands. Each lándowner over a gas structure has co-equal rights to reduce the gas to his possession, but he who first reduces the gas to possession on his lands is the owner thereof. Hence, to avoid excessive drilling expenses in the drilling of off set wells, the plan of unit operation was devised. Under the plan here, the state will secure 720/1920ths of 12% per cent, of the gas brought to the surface on the unified area. In other words, it will share in all the gas brought to the surface on the unified area in proportion to the acreage owned by it in that area. At least theoretically, gas produced from any part of the area will drain from the entire area.

We cannot say that such an arrangement does not fully protect the rights in securing to it its full share of the gas underlying its lands.

The plaintiff urges “that under the consolidated lease and operating agreement, the state of Montana will donate to the lessee the gas produced on school lands and used by it on the other lands in the unit, and to the other lessors the gas produced from the school land and used by them for their domestic use,” and that such provision contravenes section 1 of Article XVIII of the Constitution which reads as follows: “Neither the state, nor any county, city, town, municipality, nor other subdivision of the state shall ever give or loan its credit in aid of, or make any donation or grant, by subsidy or otherwise, to any individual, association or corporation, or a joint owner with any person, company or corporation except as to such ownership as may accrue to the state by operation or provision of law.”

Plaintiff objects to the use of gas for domestic purposes produced on state lands by other landowners in the unit, and to the right to use gas produced on state lands for the purpose of development of gas on private lands in the unit. The objection is without merit. These provisions are not in conflict with either the Constitution or the Enabling Act or statutory provisions, and were rightly considered as factors in determining what the market value of the interest of the state was at the time the board agreed to enter into the contract. (See Greene v. Robison, 117 Tex. 516, 8 S. W. (2d) 655.)

Other contentions made by plaintiff have been considered and we find nothing in them which affects the validity of the proposed agreement.

The case of State ex rel. School Dist. No. 1 in Weston County v. Snyder, supra, announces principles which have application here. The court in that case said: “The final disposition of the oil or gas, or sale, if we please to call it so, does not take place— is not in any event consummated — until after the oil is taken from the earth, has become severed from the realty, and has become personal property. There is a peculiar difficulty, as pointed out in the Evans Case, of disposing at public auction of minerals contained in the land, the quantity of which is — nay, even the very existence of which may be — doubtful, and in the absence of more specific provision in our Constitution, we should not be inclined to hold that such leases are invalid unless let after public auction. Method and means should, necessarily, be of secondary moment. The matter of primary importance is the realization of the best price possible for the benefit of, and to preserve, the permanent fund.”

Finding no ground for condemning the proposed agreement, the relief sought is denied and the proceeding dismissed.

Associate Justices Stewart, Anderson and Morris concur.