The opinion
Disney, J., dissenting: The question is whether there was an outright conveyance of land in fee, with retention of a royalty interest and a special and limited arrangement for the production of oil or gas from the premises, or whether such production arrangement was such as to justify a holding that it was equivalent to an oil and gas lease; in other words, whether, despite the language of the instrument conveying all oil, gas, and other minerals produced from the land (except a royalty interest retained specifically), the petitioner nevertheless retained all of the oil and gas mineral rights so as to be entitled to a royalty upon the production thereof. I am unable to persuade myself that the conveyance and the contract amounts to such reservation of mineral rights in the land. There is no lease in form. Can it be found in substance?
In the first place, the conveyance is one of the title to land:
Also all oil, gas and other minerals produced from the land affected by this deed and produced subsequent to seven o’clock, A. M., December 28, 1938; subject, however, to the royalties hereinabove and hereinafter more specifically referred to * * *
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The Grantors jointly except from this conveyance and retain unto themselves, their heirs, successors and assigns, those certain royalties on oil, gas and other minerals which may he produced and saved from the lands hereby conveyed * * * [described in the contract], and such royalties so excepted and retained are not herein conveyed * * *
The majority opinion stresses the fact that reference is made to the minerals “produced subsequent to seven o’clock, A. M., December 28, 1938,” as indicative that the mineral rights in general were not conveyed. There were already producing wells on the property and in my opinion the phrase used was merely the usual one to indicate the effective date of the conveyance and that oil produced prior thereto would not pass thereunder. If this be true, we find a general conveyance of all oil, gas, and mineral rights, subject only to a specific retention of royalties upon production. Such language in a deed of general warranty, admittedly conveying all other rights in the land, may not, with logic, be read, without great difficulty, as a retention of all oil, gas, and mineral rights merely because reference is also made to a supplemental contract which in connection with a royalty interest reserved does set forth some, but by no means all, of the usual provisions of an oil and gas lease. The reference to the supplemental contract is made “for more specific description of the royalties excepted herefrom and retained by the Grantors herein and of the rights, obligations, duties and agreements of the parties hereto with respect to such rojralties.” Had the intent been to retain the oil, gas, and mineral rights and to grant a lease therefor, entailing royalty, it seems apparent that it could have been accomplished simply and in the usual manner by a mere retention thereof and the execution of such lease.
In Danciger Oil & Refining Co. of Texas v. Powell, 154 S. W. (2d) 632 , the Supreme Court of Texas considered a situation very similar to that here involved and in one respect altogether parallel, as hereinafter noted; and the court concluded that there was conveyance of minerals and not a mere lease — and this in spite of the fact that the conveyance was not, as here, of all oil, gas, and other minerals (except a royalty), but merely of oil, gas. and casinghead gas; and despite also the fact that the conveyance was not made as an integral part of the conveyance of the fee. The fee had already been transferred by the grantor. As herein, there was a reservation from the conveyance, with an agreement therein set forth that if oil or gas be produced one-eighth thereof should belong to the grantors. There was no provision requiring development of the property for oil or gas purposes except specific provision for the drilling of offset wells, and as in the instant case there was no provision for forfeiture for failure to develop. The action filed was for damages for failure to develop after the discovery of oil. The majority opinion herein states that there was no provision for forfeiture and that the “Petitioners relied upon their contractual right to recover damages for failure of Humble to perform its drilling and other obligations,” referring also to an agreement to arbitrate any dispute. The court in the cited case held that under such conveyance of the minerals there was no implied covenant for development. It noted that a lease is usually for a limited time, with provision for termination thereafter upon cessation of production; whereas the conveyance made was unlimited as to time; also that there was (as herein) substantial consideration, $100.000; and that the only circumstance in favor of an implied contract was the retention of the overriding one-eighth interest in the minerals. The situation in the instant case can be distinguished from that in the Danciger case only by the fact that there was some considerable agreement for the development of the property, in substance, that the grantee would maintain two drilling rigs in each of two known oil fields covered by the lands conveyed until that part of the land had been reasonably developed to the extent of one well to each 20 acres, unless drilling of greater density was necessary; also that it would drill certain deep tests after five years; also that it would drill offset wells. However, offsets were to be drilled only as promptly as practicable with the drilling rigs the grantee obligated itself to operate, that is, two rigs to each field. Manifestly, considering the fact that more than 22,000 acres of land are here involved, such provision altogether fails to meet the usual-implied covenant for development of the property — even during the life of the oil fields known at the time of the conveyance.
What will be the situation after the exhaustion of such known fields? If we were to assume that the contract provides such reasonable provision for the development of the known fields as to meet the admittedly prime object of the lease, to wit, to secure the exploitation and development of the property, we find in the situation after the complete development of such pools, a complete parallel to the situation described in the Danciger case, that is that there is no implied covenant at all to develop. It will be noted that particular provision is made that Humble shall in no event be required to drill below 10,-000 feet; and further that “At any lime hereafter, should oil, gas, or other mineral in paying quantities be discovered in any sand under any portion of the land affected by said deed” (and not included in the two known fields). Humble obligated itself to reasonably develop such sands to the extent of one well to each 20 acres unless greater density of drilling is required “by reason of the fact that such sand under lands other than the lands affected by this contract and by said deed * * * have been drilled to a greater density * * In other words, one can not find any requirement that the grantee itself shall explore the land conveyed except to continue the development of the known fields and to drill certain deep tests to not more than 10,000 feet. The grantee can only be forced to develop the land if offsets on other lands require drilling and then with only two rigs within each of the two known fields. There seems not even that much requirement as to any land outside of the two known fields. Such provisions are believed to be altogether insufficient to demonstrate an implied covenant to carry out “The predominant purpose of a lease * * * to secure the exploitation and development of the property * * Bearing in mind that this contract is in perpetuity, we seem required to conclude that the grantee was not under any obligation throughout the long future to develop the real estate conveyed, consistent with the ordinary obligations of an oil and gas lease. After exhausting the known fields and drilling the certain test wells not deeper than 10,000 feet it could, without the payment of the delay rentals almost universally incidental to oil and gas leases, hold the property forever, except to use perhaps not more than four drilling rigs to drill offsets, despite the fact that drilling operations are well known to be carried ever deeper and beyond 10,000 feet. At no time after the complete development of the present fields, and the drilling of the certain deep tests to 10,000 feet, can there be found any contractual arrangement involving any duty on the grantee to prospect or develop the property except only a very limited duty to drill offsets if others find oil or gas on adjoining tracts. Such a situation is believed to be contrary to all common ideas of oil and gas leases. Existing perpetually, it seems to be consistent only with a complete conveyance in fee, which it can hardly be gainsaid is the general character of the deed involved here.
Being of the opinion that the essential elements of an oil and gas lease, to wit, the ownership of oil, gas, and mineral rights and the contractual development, thereof for a share, is not shown in the facts here, but that there is a general conveyance in fee, subject only to the specific reservation of a share, with provisions for development limited both in character and in time, I respectfully dissent.