Oelze v. Key Drilling, Inc.

PRESIDING JUSTICE JONES,

dissenting:

Oil field idiom has a phrase aimed at lessees holding leases with a soon-to-expire primary term that only drilling operations will save: “Dig or depart.” The plaintiff in this case did neither.

As a matter of fact, the catch phrase has relevance only for coffee shop banter; it does not express the law on the issue. The law is as the majority expressed it, and I take no issue with that aspect of the majority opinion. The quotation from Summers is a good expression of the law, and it has been widely quoted in the large number of cases that have considered the question of what may constitute a commencement of drilling operations.

My disagreement with the majority lies with their interpretation of the facts and of the law as it is applied to those facts. Because of this disagreement, I respectfully dissent.

A reading of cases and text commentary on the subject indicates-that, indeed, little is required to constitute the commencement of drilling operations that will serve to forestall the termination of a lease where “drilling operations” are required. However, there is a key ingredient in the formula, and that is that any commencement made must be with, as expressed in the quotation from Summers, “the bona fide intention to proceed thereafter with diligence.” It is that key ingredient that is missing from this case.

Admittedly, if the preliminary acts performed by plaintiff had been performed with a bona fide intention to start drilling a well, and had been continued, they would have, under the cases, constituted sufficient commencement to have fulfilled plaintiff’s obligation under the lease. But the evidence shows that such acts as were performed by plaintiff were not with a bona fide intention to proceed with diligence. In fact, the testimony of plaintiff himself, together with that of his employees, conclusively shows plaintiff’s shortcomings in performance.

His lease was dated May 8, 1982. He had the location surveyed and staked for a well in November 1982, six months before expiration of the primary term. He applied to the State Department of Mines and Minerals in December 1982 for a forced integration of his lease with one owned by defendant Key Drilling. A hearing was held in Springfield, the leases were ordered integrated and plaintiff was issued a permit to drill the well in question on January 26, 1983, about four months before the expiration of his lease’s primary term. Defendant owned his own drilling rig, and between January and May of 1983 he moved this rig from Mascoutah to Woodlawn and drilled a well, and then stacked his rig. In making the move plaintiff took his rig within one or two miles of the drillsite in question. Plaintiff testified that he could have stopped and drilled on the Struck lease: “[If] that’s what I wanted to do, I’m sure I could have.”

The survey and the permit do not constitute drilling operations but are admittedly a necessary prelude to drilling. However, since they had been obtained so far ahead of the events in question, they have little bearing upon the intent with which the plaintiff’s acts of May 1983 were performed.

On April 27, 1983, plaintiff sent his tool pusher (drilling superintendent) and his bulldozer operator to the lease for an inspection; it was too wet and muddy for operations. Following April 27 there was a lot of rain, so nothing further was attempted to be done at that time. On May 6, 1983, two days before the primary term expiration, he sent his tool pusher and bulldozer driver to the drillsite to “clear out a location for a drilling rig, dig the pits and we bring the rig in. And also a roadway which you have to have.” The bulldozer was on location four to five hours and did some clearing of trees and dug one pit 20 to 25 feet long, 8 feet wide and to 4 feet deep. Following this work on May 6, the men left the drillsite, taking the bulldozer with them, and never returned thereafter.

I think it must go as unquestioned that the foregoing acts do not show a bona fide intention to commence drilling operations and to proceed with diligence toward the completion of a well. The acts performed by plaintiff were symbolic only, a token and a makeshift. The only intent displayed by the plaintiff was an intent to hold the lease beyond its primary term, not to commence to drill a well. Strong affirmation of the lack of bona fides is found in the testimony of plaintiff and his employees. Plaintiff testified that, as paraphrased,

“we sometimes dig as many as three pits but never less than two. I would have to have a second pit to drill this well. My men did not construct a roadway into this lease site. You [an operator] have to have a roadway into the lease site and that was not done. I didn’t give any instructions for anyone to move on location or to do anything [following May 6].”

Plaintiff’s tool pusher testified that on May 6, 1983, he and Ray (the bulldozer driver), as paraphrased,

“went to the drillsite and cleared the brush, leveled the location and dug a pit. We had no difficulty digging a pit or clearing the location. We didn’t hang up. It wasn’t too bad pushing trees out. The site was level enough to put a rig on. It is not necessary to make a roadway to make a location [for a bulldozer], but it is necessary to have a roadway into the lease site and that was not done.”

In redirect testimony the tool pusher stated that “we would have had to do more clearing once we got the rig in there.”

Plaintiff’s bulldozer operator, called by defendants, testified that, again as paraphrased,

“for drilling a well I would dig three pits but I dug only one that day [May 6]. You [I] have to prepare a roadway in to a drillsite but we did not do it then.”

It is thus seen that even those components of a drilling operation that plaintiff claims to have prepared on that date were incomplete and inadequate, as the foregoing testimony from plaintiff’s side plainly indicates. The significant feature of plaintiff’s performance on May 6 is that after spending four to five hours on the lease, the employees left, taking with them the very piece of equipment that would be needed to “proceed with diligence toward the completion of the well,” and they never returned. If plaintiff had kept his men and bulldozer at work on the drillsite on and after May 6, then unquestionably he would have “commenced operations.” But he did not.

As a contrast, an officer of defendant Key Drilling testified that defendant moved on the drillsite on May 10 with three bulldozers and 16 men and worked for 2V2 days clearing location, digging the pits and building a road. Defendant had actually moved a rig onto the site and was in the process of upping derrick when stopped by plaintiff’s injunction.

The defendants’ actions show extraordinary diligence. Not nearly so much would have been required of plaintiff had he proceeded with what he had been doing. However, he did not proceed; he left, and took his bulldozer with him.

The cases relied upon by the majority do stand for the proposition for which they are cited. However, upon examination of the operations they describe, it will be seen that after the operators involved had performed a minimal amount of work, they proceeded in such a manner and to such an extent that a bona fide intent to complete the drilling of a well was shown. In short, once minimally commenced, the operations were ongoing.

An Illinois Supreme Court case dealing with the very issue involved in this case is not cited by the majority, Hughes v. Ford (1950), 406 Ill. 171, 92 N.E.2d 747. That case makes plain, as do cases from other jurisdictions, that the lessor’s interest is to be considered:

“It is the policy of the law of Illinois, in dealing with oil-and-gas leases, that the same be construed in such manner as to do equity to both the lessor and the lessee.” (406 Ill. 171, 178, 92 N.E.2d 747, 751.)

The facts of Hughes are on a parallel with those of this case, and its conclusion is relevant:

“[Fjrom his testimony it is apparent that nothing was attempted to be done by the defendant toward the actual drilling of the first well within the first two months’ period and that he was mainly interested in merely holding the lease.

* * *

*** [I]t appears that the action taken in bringing in the water-drilling rig was merely an effort to hold the lease on a technical basis, and that defendant did not really intend to use this work in his oil well.” (406 Ill. 171, 177-79, 92 N.E.2d 747, 751.)

Also see Illinois Mid-Continent Co. v. Tennis (Ind. 1951), 102 N.E.2d 390.

A good statement of the applicable rule is found in Geier-Jackson, Inc. v. James (E.D. Tex. 1958), 160 F. Supp. 524, 529:

“Although actual drilling is not necessary in order to constitute the commencement of a well, there can be no commencement of a well within the meaning of an oil and gas lease unless work incident to the drilling of an oil and gas well is being performed with the good faith intention to pursue with diligence the drilling of a well to such depth as an ordinarily prudent operator would drill under the same or similar circumstances in search for oil or gas in paying quantities.”

In the instance of this case, I believe the finding of the trial court was against the manifest weight of the evidence, and I would reverse.