Wolff v. Belco Development Corp.

736 P.2d 730, 96 Oil & Gas Rep. 534, 1987 Wyo. LEXIS 439

• Court: Wyoming Supreme Court
• Decided: May 6, 1987
• Docket: 86-201
• Status: Published

Opinions

CARDINE, Justice.

This is a quiet title action in which appellant, who owns two-thirds of the mineral estate underlying a tract of land in Campbell County, Wyoming, sought a judicial declaration that appellees’ oil and gas leasehold interests in a portion of those lands had expired. The district court found that, under the terms of the oil and gas lease and a subsequent communitization agreement, production on a communitized area which included part of the leased area kept the entire lease in force. The single issue before us on appeal is whether the district court erred in reaching this conclusion and granting summary judgment for appellees.

We affirm.

Appellant is the owner of the mineral estate underlying approximately 803 acres of Campbell County land. By an oil and gas lease executed January 5, 1967, appellant’s predecessor in interest leased the lands to appellees’ predecessor in interest. The lease contained a standard habendum clause which provided that “[i]t is agreed that this lease shall remain in force for a term of Ten years from date, and as long thereafter as oil or gas, or either of them, is produced from said land by the lessee, its successors and assigns.” A pooling clause was stricken from the lease.

On November 12, 1971, appellant and his predecessor in interest executed a commu-nitization agreement which committed 40 acres of the leased land to an 80-acre com-munitized area.¹ The remaining 40 acres of the communitized area consisted of federal mineral acreage. The communitization agreement contained the following provisions:

“WHEREAS, the Act of February 25, 1920, 41 Stat. 437, as amended by the Act of August 8, 1946, 60 Stat. 950, 30 U.S.C. Secs. 181 et seq., authorizes communiti-zation or drilling agreements communi-tizing or pooling a Federal oil and gas lease, or any portion thereof, with other lands, whether or not owned by the United States, when separate tracts under such Federal lease cannot be independently developed and operated in conformity with an established well-spaced program for the field or area and such communitization or pooling is determined to be in the public interest; and

“WHEREAS, the parties hereto own working, royalty or other leasehold interests, or operating rights under the oil and gas leases and lands subject to this agreement which cannot be independently developed and operated in conformity with the well-spacing program established for the field or area in which said lands are located; and

“WHEREAS, the parties hereto desire to communitize and pool their respective mineral interests in lands subject to this agreement for the purpose of developing and producing communitized substances in accordance with the terms and conditions of this agreement:

“NOW, THEREFORE, in consideration of the premises and the mutual advantages to the parties hereto, it is mutually covenanted and agreed by and between the parties hereto as follows:

“1. The lands covered by this agreement (hereinafter referred to as ‘commu-nitized area’) are described as follows: W ½ SE ¼ of Section 6, Township 54 North, Range 73 West, Campbell County, Wyoming

“Containing 80.00 acres, more or less, and this agreement shall include only the Muddy formation underlying said lands and the crude oil and associated gaseous hydrocarbons, hereinafter referred to as ‘communitized substances’ * * *.

“2. Attached hereto, and made a part of this agreement for all purposes, is Exhibit A designating the operator of the com-munitized area and showing the acreage, percentage and ownership of oil and gas interests in all lands within the communi-tized area, and the authorization if any, for communitizing or pooling any patented or fee lands within the communitized area.”

The communitization agreement further provided:

“6.(a) The royalties payable on commu-nitized substances allocated to the individual leases comprising the committed area and the rentals provided for in said leases shall be determined and paid on the basis prescribed in each of the individual leases. Payment of rentals under the terms of leases subject to this agreement shall not be affected by this agreement except as provided for under the terms and provisions of said leases or as may herein be otherwise provided. Except as herein modified and changed, the oil and gas leases subject to this agreement shall remain in full force and effect as originally made and issued.

* * * * * *

“8. The commencement, completion, continued operation or production of a well or wells for communitized substances on the communitized area shall be construed and considered as the commencement, completion, continued operation or production on each and all of the lands within and comprising said commu-nitized area, and operations or production pursuant to this agreement shall be deemed to be operations or production as to each lease committed hereto.”

After this communitization agreement had been executed, commercial production was obtained from a well located on the 40 acres of federal mineral acreage committed to the agreement. Appellant received royalties as a result of production from that well.

In March, 1986, appellant initiated the present action seeking to quiet title to that portion of his lands included in the lease but not committed to the communitization agreement. Appellant contended that production on the communitized area should not be considered to be production on the remainder of the leased acreage and therefore, with respect to that remaining acreage, the lease had expired. The district court rejected appellant’s contentions and granted summary judgment in favor of ap-pellees.

The parties agree that the disposition of this case is governed by principles of contract law.

“ ‘Our basic purpose in construing or interpreting a contract is to determine the intention and understanding of the parties. If the contract is in writing and the language is clear and unambiguous, the intention is to be secured from the words of the contract.’ ” (Citations omitted.) Rouse v. Munroe, Wyo., 658 P.2d 74, 77 (1983) (quoting Amoco Production Company v. Stauffer Chemical Company of Wyoming, Wyo., 612 P.2d 463 (1980)).

Appellant presents two alternative theories. The first is that the lease and unitization agreement form a contractual scheme that is clear and unambiguous and that “principles of common sense and good faith require a finding that only forty acres * * * included in the Oil and Gas Lease are held by production under the Communitization Agreement.” Appellant’s second theory is that if the contractual scheme is ambiguous, any ambiguity must be resolved against appellees, the drafters of the com-munitization agreement.

We agree with the proposition that both documents must be read together as forming the contract between the parties. See Busch Development, Inc. v. City of Cheyenne, Wyo., 645 P.2d 65, 68, 70 (1982). According to appellant, ambiguity arises from the fact that the pooling clause was stricken from the 1967 lease. Appellant suggests that the striking of that clause indicates “that the Lessors would not take great pains to strike the Pooling Clause in the Lease only to completely reverse their position approximately four years later.” The clear terms of the communitization agreement, however, demonstrate that the lessors did reverse their position. Paragraph 6(a) provides that "[ejxcept as herein modified and changed, the oil and gas leases subject to this agreement shall remain in full force and effect as originally made and issued.” (Emphasis added.) Paragraph 8 of the agreement states that production on the communitized area “shall be construed and considered as * * * production on each and all of the lands within and comprising said communitized area” and that “production pursuant to this agreement shall be deemed to be * * * production as to each lease committed hereto.” (Emphasis added.) Attached to the communitization agreement is “Exhibit A” which is entitled “Description of Leases Committed.” This document identifies the 1967 lease as a lease committed to the agreement.

Once the communitization agreement was executed, the striking of the pooling clause in the 1967 lease became irrelevant. The written terms of the contract and specifically paragraph 8 constitute a clear and unambiguous expression of the parties’ intent that production on the communitized area would hold the entire leased acreage.

Appellant further contends that since the communitization agreement describes only the 40-acre tract of appellant’s land, only those 40 acres are affected by the agreement. In support of this argument, appellant cites Hartman v. Potter, Utah, 596 P.2d 653 (1979), a case which addresses the problem of ascertaining the intent of the grantor of a deed. In that case, the court said: “[t]he description of the property in a deed is prima facie an expression of the intention of the grantor.” Id. at 656. In this case, however, the communitization agreement, by its terms, affects both the lands described as being committed to the communitization area and each lease committed to the agreement.

This case was presented to both the trial court and this court upon the parties’ agreement that upon undisputed facts the only issue was one of interpretation of the parties’ contract. There was no claim that the leased area might be drained by production from the communitized area. If such claim is ever made, appellant is amply protected by the implied covenant of reasonable development and the implied covenant against drainage. See Clovis v. Pacific Northwest Pipeline Corporation, 140 Colo. 552, 345 P.2d 729, 731 (1959). The fact that in two cases cited the party claiming drainage did not prevail is of no import. In all cases one party prevails, the other loses, usually because they simply did not satisfy the burden of persuasion.

Affirmed.

URBIGKIT, J., filed a dissenting opinion in which MACY, J., joined.

1 . Rocky Mountain Mineral Law Foundation, Law of Federal Oil and Gas Leases (1986), defines "communitization” as:

"Communitization, or pooling as it is usually called where nonfederal lands are involved, is the agreement to combine small tracts for the purpose of committing enough acreage to form the spacing and proration unit necessary to comply with the applicable state conservation requirements." Id. at § 18.01[2].