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Smith v. McGill

Circuit Court of Appeals, Eighth Circuit

April 2, 1926

No. 7048


 [*33]  Before SANBORN, Circuit Judge, and MUNGER and JOHNSON, District Judges.

MUNGER, District Judge, delivered the opinion of the court. This suit was brought to cancel an oil and gas lease. There was a decree for the defendants and the plaintiff J. T. Smith has appealed. The parties will be referred to as they were designated in the court below. The plaintiffs alleged that they had acquired the title of the original lessor, and claimed that the original lessee had failed to comply with the conditions of the lease by finding gas or oil in paying quantities within the term of the lease, and that they had declared a forfeiture of it. The lessee claimed that it found gas in paying quantities, and had complied with the provisions of the lease. The lease granted to the lessee the oil deposits and natural gas in or under the land, with the right to extract and remove it, and incidental rights connected with such operations. The term stated was "ten years, and as much longer as oil or gas is found in paying quantities." The lessee agreed to [**2]  pay the lessor, as royalty, 12 1/2 per cent. of the gross proceeds of all crude oil extracted from the land. The lease contained provisions with reference to gas wells, as follows:

"The lessee shall pay as royalty on each gas producing well $300 per annum in advance, to be calculated from the date of commencement of utilization: Provided, however, in the case of gas wells of small volume, when the rock pressure is 100 pounds or less, the parties hereto may, subject to the approval of the Secretary of the Interior, agree upon a royalty, which will become effective as a part of this lease: Provided, further, that in cases of gas wells of small volume, or where the wells produce both oil and gas, or oil and gas and salt water, to such an extent that the gas is unfit for ordinary domestic purposes, or where the gas from any well is desired for temporary use in connection with drilling and pumping operations on adjacent or nearby tracts, the lessee shall have the option of paying royalties upon such gas wells of the same percentage of the gross proceeds from the sale of gas from such wells as is paid under this lease for royalty on oil. The lessor shall have the free use of gas for domestic [**3]  purposes in his residence on the lease premises, provided there be surplus gas, produced on said premises over and above enough to fully operate the same. Failure on the part of the lessee to use a gas-producing well, which cannot profitably be utilized at the rate herein prescribed, shall not work a forfeiture of this lease so far as the same relates to mining oil; but, if the lessee desires to retain gas-producing provileges, the lessee shall pay a rental of $100 per annum, in advance, calculated from date of discovery of gas, on each gas-producing well, gas from which is not marketed, or not utilized otherwise than for operations under this lease. Payments of annual gas royalties shall be made within 25 days from the date such royalties become due; other royalty payments to be made monthly on or before the 25th day of the month succeeding that for which such payment is to be made, supported by sworn statements."

"Upon the violation of any of the substantial terms and conditions of this lease, the Secretary of the Interior (or lessor, in event restrictions are removed as provided in paragraph 12 hereof) shall have the right, at any time after 30 days' notice to the lessee, specifying [**4]  the terms or conditions violated, to declare this lease null and void, and the lessor shall then be entitled and authorized to take immediate possession of the land."

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12 F.2d 32 *; 1926 U.S. App. LEXIS 3152 **

SMITH v. McGILL et al.

Prior History:  [**1]  Appeal from the District Court of the United States for the Eastern District of Oklahoma; Robert L. Williams, Judge.


lessee, lease, oil, paying quantities, gas well, drilling, lessor, royalty, paying, sand, transport, rental, feet, producing, utilized, pipeline, quantities, deeper, terms of the lease, expiration, discovery, marketed, premises, upper, domestic purposes, good faith, gas-producing, forfeiture, rights, vested