
    FOX PETROLEUM CO. et al. v. BOOKER et al.
    No. 16597
    Opinion Filed June 1, 1926.
    Rehearing Denied Feb. 22, 1927.
    1. Evidence — Oral ' Negotiations Presumed Merged in Oil and Gas Lease.
    The statutory rule that previous and .contemporaneous ciral ’negotiations are conclusively presumed to have been canbodied in the written contract between the parties, except for accident, fraud, or mistake of fact, is applicable to oil and gas leases.
    2. Olí and Gas — Implied1 Covenants to Develop — When, Operative Within Fixed Term.
    The implied ccivemamts in an oil and gas lease for further exploration and development after the discovery of oil or gas are operative within the fixed Term as well as when the leasa is held thereafter under the production clauses.
    3. Same — Diligence in Operation — Rule Stated!
    Neither party to an ofil and gas lease is the arbiter oC the extent to which, or the 'diligence with which, operation thereunder shall proceed; but both are bound by the standard of what, in the circumstances, would be reasonably axpected of an Operator of ordinary prudence, having! due regard for the interest of both.
    4. Samis — Duty to Test and) Develop — When Implied.
    The lessee is under .two duties — to test and to develop — which will toe implied unless the matter is expressly cohered by the contract.
    5. Same — Implied Covenant — Initial Well— Further Development — When ’Financial Result Considered.
    The financial return of the enterprise is not to ba considered where the implied covenant is to drill the initial well. It is only in the development of the land alre'ady te.st-e<l, and in eases involving protection against drainage, that the probable financial result, under implied covenant, becomes material.
    6. Same — Equity May Decree Cancellation Regardless of l orieiture Clause.
    Equity may decree the cancellation of an oil and gas lease in whole or 'in part where such cancellation will effectuate justice, withcn.' regard to whether the lease contains a forfeiture clause.
    7. Same — Implied Covenants — Breach by Lessee — Three Remedies of Lessor Stated.
    Where the implied covenants to test or furth.ir develop have been breached, the lessor may, according to the circumstances of the ease, invoke these remedies i'n equity; declare forfeiture and sue to quiet title treating ihe implied covenant as an implied condition; elect to treat the lease as still in forca and effect and sue to cancel same for inadequacy oí legal remedy; sue to cancel tilie lease as a cloud upon his title for abandonment itf the lease or of its purposes.
    8. Same — Implied Covenants Are Also Implied Conditions.
    Implied covenants aife also Implied conditions.for the violation of which oquity may decree eancellatich of the llease in whole or in pant.
    9. Same. — Lease—Abandonment of Enterprise Abandons Estate in Land.
    An oil and gas lease contemplates a mining enterprise, and the estate granted the lessee is for thsi purpose of effectuating and is incidental to the enterprise, so that the lessee cannot retain the estate after abandoning -thei enterprise.
    10. Same — Abandonment .of Purposes — Cancellation! 0
    
    Where an oil and gas lessee abandons the objects alnd purposes of the lease, equity will cancel thei lease as a cloud on lessor’s title.
    11. Same — Abandonment of Part of Producing Lease.
    The lessee may abandon the objects and purposes of part of a lease although he may be producing oil or gas from the remainder.
    12. Same — Abandonment—How Inferred.
    Intention to abandon may be inferred from the acts and conduct of the lessee as well as from his express declarations.
    13. Same — Actual Relinquishment of Property not Essential to Abandonment by Lessee.
    The rule that there must be a concurrence of intention to abandon and an actual relinquishment of the property in order to effectuate an abandonment as applied to physical property, has no- application to abandonment oe intangible rights created by an oil and gas lease where the lessee acquires no title to the minerals.
    14.Same — Judgment Canceling Lease not Sustained. ,
    Record examined, and held, that the judgment of the court is clearly against the weight of the evidence on the issues of breach of implied covenants to develop and on abandonment.
    ('Syllabus by Estes, O.)
    Commissioners’ Opinion, Division No. 2. •
    Error from District Court, Carter County; W. F. Freemiam, Judge.
    Action by D. E. Bookcir and J. M. Miller against Fox Petroleum Company and Humble Oil & Refining Company. Judgment for plaintiffs, and defendants .appeal.
    Reversed.
    Dolman & Dyer and Hefner & Johnson, for plaintiffs in error.
    Brett & Brett and R. A. Howard, for defendants in error.
   Opinion by

ESTES, C.

This action was instituted by the defendants in error against the plaintiffs in error to cancel an oil and gas lease as] to 100 acres of the origina)! 100 covered by the lease. The parties will be hereinafter referred to 'as they appeared in tibe court bellow.

The lease in question was executed January 31, 1919, and demised the land (for a term of five years “and as long thereafter as oil or -gas, or either of them, is produced from said land by the lessee”) “for the sole and only purpose) of mining and operating for oil and gas,” etc. This lease contained no “forfeiture Clause” and no “drilling clause.” At the time of its exenrion there was on the land a gas well which Fad been drilled under a former lease concerning which there seems to have been some controversy. The new leatee provided for one-eighth ctf the gas as royalty instead of $50 per year per well, as provided in the former -léase.

After the execution of the second lease, the lessees drilled four additional wells, none of which were on the 100 acres sough c to be canceled out. Thdse wells were all producers but the production was not great. The last of these wells was eompíéted in June, 1923. This action was commenced February 2, 1924, just two days after the expiration of the fixed term of five years. The journal entry recites:

“And freirn said special findings, rhe court finds that the defendants have not diligently developed and operated the 100 acres of land described in said special finding No. 14. And that by reason of the negligence and the breach of covenant' both expressed and implied, to diligently develop and op-erarte the 100 a orris of land for oil and gas, that the forfeiture 'and cancellation of the lease of the defendants, in so far as it affects said 100 acres, will effeietuate justice.”

Thereupon,' the court decreed cancellation of the lealse as to the undeveloped 100 acres, and left the lessees with. 60 acres around their wells. It is urged for reversal ihat the trial eortirt erred in admitting testimony concerning an alleged oral drilling agreement at the time of bha execution of the second lease, and that the decree is contrary ro the weight of the evidence.

1. The court, over the objection elf defendants, 'admitted testimony tending to show an express oral agreement, contemporaneous with the written lease, that defendants would diligently develop by drilling wells eta the 100 acres in controversy. From the findings of the court, we taka it that the judgment was, at least, in part based upon such testimony. This was error. That previous and contemporaneous oral negotiations are conclusively presumed, as provided by stature, to have been embodied in the written contract, in the absence of accident, mistake of fact, or fraud, is. applicable to an oil and gas lease. Ohi-Okla Oil & Gas Co. et al. v. Shertzer, 105 Okla. 111, 231 Pac. 877. The rights of the parties herein must he determined by the express terms and implied covenants ctf their written lease. The omuse being in equity, our duty is to consider and weigh the evidence to determine whether the judgment of cancellation is clearly against the weight thereof. If the implied covenants to diligently develop this lease have been breached, or if the evidence, under said rtilei, discloses an intent tc( abandon the! lease as to said 100 acres, the judgment should be affirmed.

2. Since this suit was brought just two days after the expiration of the fixed five-year term, it is obvious rttiat any breach of implied covenants must have occurred within the term, and it becomes necessary to determine whether the covenant for further development hais any application within the fixed term of the lease. That it does sc apply seems to have been recognized in Indiana Oil, Gas & Development Co. v. McCrory, 42 Okla. 136. 140 Pac. 610; Cotner v. Mundy, 92 Okla. 268, 219 Pac. 321; Donaldson v. Josey Oil Co., 106 Okla. 11, 232 Pac. 821; Howerton v. Kansas Nat. Gas. Co., 81 Kan. 553, 106 Pac. 47; 82 Kan. 367, 108 Pac. 813, 34 L. R. A. (N. S.) 34; Dinsmoor v. Combs, 177 Ky. 740, 198 S. W. 58. It is specifically so decided in Danghetee v. Ohio Oil Co., 263 Ill. 518, 105 N. E. 308; and it is a fair inference from Texas Co. v. Davis, 113 Tex. 321, 254 S. W. 304; Robinson v. Jacobs, 113 Tex. 231, 254 S. W. 309; Munsey v. Marnet Oil & Gas Co., 113 Tex. 212, 254 S. W. 311. The recent helpful work, Mills-Willingham on Oil and Gas, page 155, states:

“It has been contended that this covenant does not operarte during the fixed term of the lease; that upcln the drilling of a producing well,, the leissee is under no obligation, during the .fixed term, to further develop, because the parties have agreed upon the diligence to be exercised. It is not believed, however, that this is the true rule. The fixed term is intended as a period of exploration and determination of the capacity elf the land for producing; not as a period of development. Upon disedvery, the lease is automatically changed from one for years into one that shall endure as long as oil or gas is produced. The acceptance of rentals extends the lease for another year and defers thei drilling of the first well, net the development of the lease, after discovery of oil or gas. Upon both reason and authority, the implieid covenant for development operates both during and! after the fixed term, after discovery of oil or gas.”

See, also, the late case of Webb v. Croft et al. (Kan.) 244 Pac. 1033. In this particular lease, however, there was not drilling clause and a gas well was already on the property when the lease was made. In such case, it is difficult to assign 'any meaning to the five-ydar term which would exclude the operation of the implied covenant for exploration and development within the term. In our opinicln, the covenants were in operation.

3. While all eotaxes are agreed that the lessee is under certain implied obligations ■with reference to the development of the leased premises (aside from, protection against drainage), there is confusion as to the nature of these obligations. This court is committed to the doctrine that neither party is the arbiter of what is reasonable diligence. And it is sortnetimeis said that the lessee is bound to proceed if there is reasonable ground for supposing that tlie entire operation, including the cost of drilling, would he profitable. Indiana Oil, Gas & Development Co. v. McCrory, supra; Pelham Petrolelum Co. v. North, 78 Okla. 39, 188 Pac. 1069; Brewster v. Lanyon Zinc Co., 140 Fed. 801, 72 C. C. A. 213.

4, 5. It is to be observed, however, that the lessee is under two) duties, which will be implied unless tbe- matter is expressly covered by the contract, namely: to test and’ to develop. Those cases which have involved the implied covenant -to drill the initial well have not considered the probable financial return of the enterprise as having anything ito do with the obligation. Hitt v. Henderson et ux., 112 Okla. 194, 240 Pac. 745; Cole v. Butler, 103 Kan. 419, 173 Pac. 978; Tenn. Oil, Gas & Mineral Co. v. Brown, 131 Fed. 696, 65 C. C. A. 524; Calhoun v. Neely (Pa.) 50 Atl. 967, 21 M. R. 754; Mansfield Gas Co. v. Alexander, 97 Ark. 167, 133 S. W. 837. Probably it would be safe to say that the reason no such cest has ever been (applied is because. the lessee knew the character of the enterprise] when he took the lease and assumed the obligation. And those cases which have considered the obligation of tbe lessee where the initial well is dry, or where it has ceased to produce (excepr where affected by an express provisioh), have uniiormly considered that the lessee will have a reasonable time for further testing of the premises, and that, failing to do so, the .lease will be considered forfeited or abandoned. In these eases the probable financial return is not considered. Venture Oil Co. v. Fretts (Pa.) 25 Atl. 732, 17 M. R. 543; Steelsmith v. Gartlan, 45 W. Va. 27, 29 S. E. 978, 44 L. R. A. 107, 19 M. R. 315; Parish Fork Oil Co. v. Bridgewater Gas Co., 51 W. Va. 583, 42 S. E. 655, 59 L. R. A. 566; Grubb v. McAfee, 109 Tex. 527, 212 S. W. 464; Texas Co. v. Davis, supra; Robinson v. Jacobs, supra; Munsey v. Marnet Oil & Gas Co., supra; Chapman v. Ellis (Tex. Civ. App.) 254 S. W. 615; Aye v. Philadelphia Co., 193 Pa. 451, 44 Atl. 555, 74 A. S. R. 696, 20 M. R. 177. It is olnly in connection with the development of land already tested, and in eases involving protection against drainage, thait the probable financial result is of importance. Examples of this type are to be found in Pelham Petroleum Co. v. North, supra; Ind. Oil, Gas & Development Co. v. McCrory, supra; Brewster v. Lanyon Zinc Co., supra; Manhattan Oil Co. v. Carroll, 164 Ind. 526, 73 N. E. 1084. Now, when the lease covers two tracts of land some distance apart, asl in Alford v. Dennis, 102 Kan. 403, 170 Pac. 1005, or a' very large tract, as in Brown v. Union Oil Co., 114 Kan. 166. 217 Pac. 286. 114 Kan. 482, 218 Pac. 998, it would probably be true that drilling on one portion of the leased premises would have little bearing in testing or determining the productivity of other portions. On the other hand, where the Idaised tract is com-pacc and of small 'area, wells on one portion of the lease do, to some extent, operate as a test of the.entire airea for tbe depth drilled. The statement ihiat the implied covenant fo(r further operations is limited to cases where, there" is likelihood of profit tp. the lessee, must ba taken lin @i restricted sense, and is not of universal application. It will depend upon the facts and, circumstances of the particular case.

6. It is well established in, Oklahoma that a court of equity may cancel part of the leasa and leave the remainder in fclrce where such disposition of- the latter will promote justice. Pelham Petroleum Co. v. North, supra; Papoose Oil Co. v. Rainey, 89 Okla. 110, 213 Pac. 882; Carder v. Blackwell Oil & Gas Co., 83 Okla. 243, 201 Pac. 252.

7. When che implied covenant is breached by tbe lessee, tbe ultimate lobs of the lease to him comes 'in one of threei ways: First, the lessor may, in a .proper case, declare the lease forfeited and come into a court of aquity and have his title quieted. The application of this dotetrine depends upon the express reservation of a forfeiture clause, or the treating of the implied covenant as an implied condition. Brewster v. Danyon Zinc Co., supra. The second method of procedure recognizes the lease as still m force and asks that equity cancel all or a portion of the lease because there is no adequate remedy at law available to tbe lessor. Blackwell Oil & Gas Co. v. Whitesides, 71 Okla. 41, 174 Pac. 573. As a corollary of this doctrine we have certain courts, notably Kansas, entering what is known as the alternative decree for spacific performance of the implied covenalnt or forfeiture. In theory, this method of procedure is available in tbd absence of 'an express forfeiture clause, and without, considering the implied covenant as an implied condition. Alford v. Dennis, supra; Howerton v. Kansas Nat. Gas. Col., supra; Klepner v. Lenon, 176 Pa. 502, 35 Atl. 109, 198 Pa. 581, 48 Atl. 483. The third method of procedure is basad upon the theory of abandonment. When tbe lessee has abandoned' the purposes- of tha lease, equity will cancel the lease as a dloud on lessor’s title. Hirt v. Henderson, supra; Cotner v. Mundy, supra; New State Oil & Gas Co. v. Dunn, 75 Okla. 141, 182 Pac. 515; Highfield v. Kirk (Pa.) 93 Atl. 815.

8. It will be observed that the lease in questidn contains no forfeiture clause, and in this respect differs materially from the lease involved in Brewster v. lianyon Zinc Co., supra, where the forfeiture clause was co-nsmied to extend to the implied as well as to the express covenants. Were the question before us for the first time we might be inclined to bold that since no forfeiture clause was expressed, none would be implied. Otherwise stated, we might not regard the implied covenant as an implied condition. Thus, IVxas, West Virginia, and Tennsyl-vania do not consider the implied covenants as implied conditions, and, refusing cancellation, leave the lessor to his remedy in damages except in cases of abandonment. But in several cases, this count has apparently discounted the importance off an express forfeiture clause. In Indiana Oil & Development Co. v. McCrory, supra, there wias m> forfeiture clause. In Blackwell Oil & Gas Co. v. Whitesides, supra; Pelham Petroleum Co. v. North, supra; Papoose Oil Co. v. Rainey, supra; Wapa Oil & Development Co. v. McBride, 84 Okla. 184, 201 Pac. 984, there were either no forfeiture clauses, c-r they were not considered of sufficient importance to mention in the/ opinion. All these easels were based upon Brewster v. Lanyon Zinc Co., supra, but they apparently go further. So in Mills-Willingham, Law of Oil & Gas, page 167, it is toid:

“While those states, which hold that the lease may be forfeited for a breach off the implied covenants, apparently base their decision upon the proposition that the forfeiture clause in the lease applies to both .the express and implied covenants, it is, in effect, based upon the inherent power of equity to decree a cancellation. If it were based upon the condition of forfeiture specified in the lease, there would be a :orfeiturei, ipso facto, upon the breach of any off the implied eovcaianto, and the jurisdiction of a court o. equity, under such circumstances, could be invoked only fcfr the purpose of quieting title, or by the lessee, for the purpose of relieving himself from the forfeiture. The courts, however, have in noi manner restricted their jurisdiction to such purposes, and have generally exercised their eauitable power tc> effectuate justice, according to the equities of the particular ease. In Oklahoma at least, the rule has befen followed from the first, that equity will exercise it® right of forfeiture only in thel interest of justice.”

This seems to hava been the conclusion reached by this court in Cotner v. Mundy, supra. Our conclusion drawn from the cases is that this court has token the position that the implied covenants are also implied conditions, for breach of which a cdurt of equity may, in a proper case, decree cancellation of the lease in whole or/ in part.

The record presented in this case, so’ far as it pertains to the application of the implied covenant for further development, is not satisfactory. Does the evidence under the eqaiity rule as to quantum, establish breach of implied covenant to develop the 100 acres? The following plat shows the situation of the property:

The 'plaintiffs appear to have considered their case complete when they showed that fire wells had been drilled upon the property, all of which produced oil or gas; that no dry holes had been drilled; that no effort had hern made to develop the 100 acres, all the wells being on the 60 acres, and that six months had elapsed since the completion of the last well. On the other hand, the lessees seem to have considered that they made out a cotaplete defense by showing that they had expended $211,851.27 on the lease, and that the xweipt from the lease for oil and gas had been $120,353.24; that the cost of drilling wells in this Held was from $25,000 to $35,000, with an additional expense o. $6,000 o!r $7,000 for equipment, and that a dry hole had been drilled just .north of the northeast corner of this 100 aeres, and another dry hole to the scluth-east, and that it was considered that the 100 acres was condemned. In addition, the .defendants offered the opinion evidence of A. M. Hepler, who testified that he was the superintendent ctf the Humble Oil & Refining Company; was partially in charge of the lease in question; had been engaged in ■the oil and gas business for moro than 25 years, and bad had experience in the drilling and operation of oil and gas wells; who stated that in his olpinion a well 2,300 feet deep, costing $35,000, and producing 15 barrels a day, was not a paying well; and, in addition, that, in his opinion, there was no likelihood of production in paying quantities, and that the entire lease had not been paying.

There is a lack of testimony really calculated to advise the court concerning conditions. The conclusion given by the bookkeeper for the Fox Petroleum Ccknpany, that the lease shows a loss of $121,498.03. which is a difference between the amount expended! and che return, is of no value whatever without some explanation of how the figures were reached. On the contrary, one might reasonably assume that the $121,000 represents the capital invested in the lease, which had not yet been returned by the production. One might also assume that the capital is represented, 'among other things, by equipment having c-otasideratole salvage value, even if no further oil should be produced by the lease. Likewise', Hepler’s conclusion that the entire lease was not paying, is a conclusion based on facts not in evidence. and therefore of no value to the court. Moreover, his conclusion that a 2,300-foot well, costing $35.000 and producing 15 barrels per day, is not a paying well, is of very little value because, although evidently direeced at well No. 5, there is no testimony in the record as to the amount of oil produced from; No. 5; that at the time the suit was instituted, No. 5 was producing about 15 barrels per day, although on cross-examination it developed chat the initial production of No. 5 w'as about 40 barrels per day.

Neither side has favclred the court with any facts concerning the thickness and productivity of th-a various sands, or the probable lLe of the wells that have already been drilled, or i-he territory likely to be drained by a well, the cost ctf operating- these wells, and but little that would assist the court in determining whether a prudent operator, having in mind the interest of both the lessor and lessee would invest further capital in the developing of this prcJper.y. in fjet, the evidence tends to the conclusion that more wells to the east would have secured only negligible producción.

And if the obligation of the lessees be viewed as one for exploration, rather than development (and so, perhaps, not affec.ed by the possibility of financial return), the evidence still fails to establish want of rea-scitiabiei diligence in exploration. "When .his suit was filed, some six months had elapsed since the completion of the last well. Under the facts and circumstances presented by this record, considering the fact that the wells already drilled on the 6D r.irres were co a certain extent an exploration ctf the entire tract, it does not appear that the delay was unreasonable. The burden was cn plaintiffs to establish the breach of the implied covenants, and it was not sustained.

9, 10. It renjains rherefeta ior as to inquire whether the weight of the evidence sustains the judgment on any other theory. This brings us to the very serious question, whether the evidence shows an abandonment by the lessees of the object and purpetee of the leas», so far as the 100 acres are concerned. Although the implied covenants were not already breached by actual acts of 'commission or ctaission, yet there might have bean anticipatory breach by reason, of a disclaimer by the lessees of any intention to perform.

An c-il and gas lease contemplates a mining enterprise for the mutual benefit of lessor and lessee. In Mills-Willingham on Oil and Gas, p. 166, it is stated

“The question whether, in any -case, rhe lease has been abandoned depends upon the intention ctf the lessee. But this intent is to be determined toy his attitude towards the enterprise as a whole. He might intend to hold the land itself, without any intention of proceeding' to test the 'premises for ,ctil and gas¿.but having abandoned the purpose of the leaise, he will be held to' have abandoned the land which was granted as an incident of" i-hiei - ¡enterprise.” 1

In Brown v. Willmore Coal Co., 153 Fed. 143, 82 C. C. A. 295, it is said:

“While the question (of abandonment) is one of intention mainly, its decision does not depend upon an intention ■ to .abandon or retain the mineral right alone, divorced from the. obligations which .adhere to it under11 the contract, but the intention 'to abandon' the contemplated enterprise.” * •

In Robinson v. Jacobs, supra, it is said:

'“Thómpson granted nothing save for purpose of mineral exploration and production. *- * •* Abandonment of the enterprise, which it :was the "sole object and purpose1 of the grant to accomplish, would ’necessarily1 'end the estate created. by the ■ grant.” •

We think that the later decisictns of this court justify the1 conclusio-h that the1 lessee cannot abandon the purpose of prospecting the leased promises without also abandoning the ¡Lease.. Hitt v. Henderson; New State Oil & Gas Co. v. Dunn; Cotner v. Mundy, supra.

11, 12. In' considering " the question of abandonment, there is presented squarely the question whetlier the lessee having production on part of id] lease can continue to hold the entire leasq and at"the' same time disclaim any obligation to test or' develop the remainder of the land on the ground that it is' condemned property. This rule seems to be sustained 'in Donaldson v. Josey Oil Co., supra. Highfield v. Kirk, supra, and Dinsmoor v. Combs, supra, present facts for comparison with .the case, qt bar. In I-Iigh-field. v. Kirk, . the lessees had’ drilled- 16 years before, -and were.still pumping one , small well .on a ,45-aere tract. When sued fdr cancellation, they answerad that .further drilling' would be unprofitable.’ The ; court considered that the 16-year interval, taken in .connection with the declared intention of the lessees to -drill no more wells cto the tract, because. the amount of profitable pro-duciion would not justify -the expense, was ..conclusive evidence of ■ -the1. abandonment of the property except as to that- portion tributary to. the producing well. .. It was considered that the attitude of the lessees, , as disclosed i)y their answer and evidence, made a c'ase whiéh presented soimething"more than a mere difference of opinion between lessor land- lessee as1 to. ■ the reasonableness of further operation; - !'The' lessees'1 having abandoned the purposes ctf the teáse as to the undeveloped territory, retention of that territory could not . ha f or purposes of production, and the undeveloped, portion of the lease was ordered canceled as a cloud on the lessors’ title. It.has beam- repeatedly held, that when, by a.,dry hole.it is demonstrated that the premises are unproductive, the leasa is abandoned unless the 'lessee proceeds with further operations. Steelsmith v. Gartlan, supra; Parish Fork Oil Co. v. Bridgewater Gas Co., supra.

Our - conclusion, from a careful study of the cases1 on abandonment, is that there can be an abandonment of the whole lease by the lessee, based upon an intention to abandon, so there can also be an-abandonment of a portion of the-lease. Further, an unreasonable- d'.ilay on the part of the lessee in the further exploitation o£ the premises, plus the lessee’s declaraticto that, further drilling would be unprofitable, is evidence from which the intention to. abandon the operation and purpose of the lease'as to the undeveloped 'portion may be-inf errad, -Abandonment is largely ’a question of intention, hut the intention of the lessee may be inferred from ¡his acts and conduct as well as-frolm. expiviss ■declarations. Parish Fork Oil Co. v. Bridgewater Gas Co., supra. If this 100-.acres were to remain undeveloped and nnprospeeted, there was no object in retaining it under the lease. Alford v. Dennis, supra.

,' The.principle, .as we understand it, is that development of every part of the lease is an -implied condition. Therefore, whether the undeveloped portion be a single trapt remote from the rest, or a considerable por-ticta. of a very large tract, or a deeper stratum. the existence of which may be doubtful, or the east 100 acres of a tract of 1601, it is an implied condition- that the 'lessee will test every'part. When' he abandons <alTfur-ther testing, and disclaims any obligation ■to tefst, he may be required likewise toi surrender all' claim- to the- property.1 ■

It may be said, that .the lease is an entire .contract; but this, lease, like most leases, itself provides for a .subdivision. Moreover, the numerous .eases in which this court has sanetic'ned. cancellation .of , a part of the lease bear .witness to the severability of tfye nights and obligations created by the.instrjiment. .The 'Cases rest upon the proposition that a lease is a contract for production ip. which .both, lessor atod ¡Lessee are interested. The nights in - the land anei granted to the . lessee as incidental to the contract and to. effectuate its purposes. Consequently, where the.leiss.ee abandons all intention of going further,, the reason and purpose of tLe grant ceaises. Thus, an easement is extinguished where the reasons and purposes for which it is created have ceased. Weston v. Whittaker, 102 Okla. 95, 226 Pac. 1034.

13. The rule that there must be a relinquishment, as well as an intent, to abandon, obviously applies to physical property and has no application to abandonment of the intangible rights .created by an oil and gas .lease where the lessee acquires no title to the mineral. And whether the lease, is an incorporeal profit a prendre, as was said in Rich v. Doneghey, 71 Okla. 204, 177 Pac. 86, or (by reason of the wording of the granting clause) a corporate estate, as was suggested in Nicholson Corporation v. Ferguson. 114 Okla. 10. 243 Pac. 195, it is equally susceptible of abandonment. It is true thait in .the Blackwell Oil & Gas Co. v. Whited, 81 Okla. 45, 196 Pac. 688, it is said that:

“To constitute abandonment in respect to. property, there must be a concurrence of intention to abandon, and an actual relinquishment of the property, so* that it may be appropriated by the next comer.”

But we think this statement was broader than the circumstances of that case would warrant, and that it is inapplicable to oil and gas leases generally.

This brings us to the question whether the weight of the evidence in this case establishes such abandonment. The trial court made no specific finding- of abandonment. The lessee did, not as in Highfield v. Kirk, expressly plead that the undeveloped area was condemned. There are several bits of testimony which are very significant. Hep-ler stated that in his opinion there was no likelihood that a well on the 100 acr'es would produce in paying quantities. When that statement was made, counsel for plaintiff objected, and counsel for defendants said:

“Wbalt I seek to show here is the likelihood. They have testified there are no dry holes, and I am seeking to show we have carried that production to the east as far as we can, and that other production wchild be negligible quatatitids.”

On cross-examination, Hepler testified:

*‘0. Then, ap a matter of fact, you don’t know but what yon might drill one location from the Skelly well, and strike oil, do you? A. I know we are not geiing to spend $50,-000 to find out. Q. You don’t intend to do that? A. No, sir. Q. What do yota mean? A. I mean we are not going to. spend $50,000 to drill a well alongside of a dry hole. Q. Then, where drf you contemplate drilling on this 100 acres ? A. If the 100 acres looks as if it would justify it, we certainly would drill it. Q. How will you know if it will justify it until it is tried? A. There may be some undeveloped sands up in that country we know nothing of. Q. Then you are depending on others to find other sands before you go' down on the 100 acres, is that true? A. No-, not necessarily.”

After the defense h.ald rested and a night had intervened, the defense asked to reopen the ease, and thereupon introduced Roy M-Johnsota, an officer of the Eox Petroleum Company, who had previously been on the stand, and who at this time testified:

“Q. I will ask you to state to the court, if you know, the intemtlicta of the Eox Petroleum Company as to the future development of the property under litigaltion? A. When the price of oil justifies us, with the small productiota in that area of the field, w© will do St, as it is our intention to do further drilling. We have discussed that with onr partners, the Humble Oil & Refining Company, and they are willing to drill whenever the price of oil justifies.”

Perhaps counsel may hava reflected during the night thait they were in a seriotas situation — that an intention to abandon might be inferred from the evidence they had introduced. There Is nothing in the record to indicate that the lessees had planned, either themselves or in co-operatiota with owners of surrounding territory, to make further tests as to the possibilities of that territory, either ota this lease or in the immediate vicinity. There is nothing that would indicate that they were delaying to observe what might develop with the wells already drilled. On the other hand, the interval between the completion o-f well No. 5, and the cotameneement of the suit, was only about six months. During that interval, one of the other wells had been deepened. Standing alone, this would not appear to he an unreasonable delay. It is in this connectiota that the proposition of notice or demand becomes important. It is doubtless true! that there are cases in which demand and notice are vain things, and are not necessarily prerequisites to a suit for cancellation. Hitt v. Henderson, supra. In certain, instances, the commencement of suit might answer as demand. Alford v. Dennis, supra. But the nature of the notice or demand, the circumstances under which it was given, and the representative character of the parties to whom it was given, all have some bearing in this particular case upon the question whether there had been an unreasonable delay. In these particulars the reeded is barren except as to certain conversations with named individuals whose official connection with the defendants is not shown. These conversations seemed, to have related to lessor’s desire fo-t further development. It is chiefly in determining the reasonableness and the equity of the position of the respective .parties with reference1 to abandonment, that notice amd demand became important.

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There is almost expressed an intention to abandon the 100 acres as condemned — lessees have barely escaped abandonment. Thera is an attempt to explain (he delay as caused by market conditions. The delay does not appear to have been unreasonable, and the evidence of demand by the bissors does nor throw either light or shadow on the lessees’ position. We are therefore of the opinich that the plaintiffs have not sustained the burden, and that the evidence does not establish abandonment. In so1 far as the judgment of cancellation is based on said incompetent evidence of express oral agreement to further develop the 100 acres, same is erroneous. Such judgment is clearly against the weight of the evidence if based on the implied covenants further to develop and on abandonment or on either ground.

Let the judgment be reversed, and the cause remanded, with directions to enter judgment for defendants.

By the Court: It is so ordered.  