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(230 P.)

was marketable in the condition in which it | pipes in the tanks until the fluid was heated was pumped. Later salt water came into the sufficiently so as to separate water from the oil wells and gradually increased in volume, and to such an extent that the portion of the fluid during the last few years a large percentage above the pipe line connection would be of such of the fluid, produced by the wells, has been purity that the purchaser would accept it. Besalt water, amounting on many leases to more fore the purchaser would accept it, a sample of than 90 per cent. This is commingled with the the oil would be taken from near the pipe line oil, and has to be pumped out with it. The connection by means of an instrument called a mixed fluid thus pumped out is run into a tank. 'thief' and that sample tested by the use of Since the water is heavier than the oil, a con- what is called a 'centrifuge machine.' If the siderable portion of it settles by gravity into sample satisfied the purchaser, he would buy the bottom of the tank and is drawn off with- the oil. If it did not, he would require further out disturbing the oil. A large amount of wa- treatment. ter, however, remains mixed with the oil, and under ordinary temperature will not separate. It was found that by heating the mixture a still greater portion of the water, which has remained suspended in the oil, could be separated and precipitated to the bottom and again drawn off; but, even when the fluid was heated, the water descending carried with it considerable oil. This mixture, with such other impurities as are brought up by the pump, forms an emulsion at the bottom of the tank, which is called 'basic sediment' or most generally 'B. S.' This B. S. gradually thickens in the bottom of the tank, and much of it has to be scraped out and thrown away, and most operators deposit it in large artificial ponds upon the leases, where occasionally it is finally disposed of by burning.

"(8) Purchasing companies will not ordinarily accept oil having much more than 1 per cent. of water and other foreign matter.

"(9) (A finding as to the divisional order given by plaintiffs for the payment of oil.) "(10) The delivery of oil to the purchasing company was made in the following manner:

"A pipe line was connected with stock tanks on the leased premises somewhere from 12 to 20 inches above the bottom of the tank, and the oil was run through this pipe line. Before being run an agent of the purchasing company, called the gauger, carefully measured the depth of the fluid in the tank. Then the pipe line connection was opened and the oil allowed to pass into the pipe line from the tank and as much taken out as the purchaser was willing to accept. Then the pipe line was closed, and again the depth of the fluid in the tank was carefully measured and the number of barrels and fractions of barrels run was then determined by the purchasing company. Prior to this time each tank had been carefully measured, and a very elaborate table was prepared by an expert engineer at Tulsa, employed by practically all purchasing companies for this purpose. That table showed the number of barrels of 42 gallons each that would be contained in each portion of the height of the tank figured down to a quarter of an inch and an hundredth part of a barrel. From this table the purchasing company figures the number of barrels delivered, and remits at the market value, one-eighth to the royalty owner and seven-eighths to the producing company. The landowner could have an agent present to verify these measurements and keep a record of same when this was done.

"(11) The first method used by the defendant in removing water from the oil, so as to make it marketable, was by establishing upon each lease a steaming plant, and placing steam

"(12) By this method the heating of the oil caused some of the lighter vapors of the oil to escape, so that there was a distinct loss in volume before the oil was sold, and there was a distinct and important loss in the quality of the oil by reason of the fact that the lighter gasoline vapors were lost and the value of the oil was consequently lessened. There was another loss also in the amount of emulsion which settled below the pipe line connection, and which would not be accepted by the purchaser, and which was thrown away, with the possibility of reclaiming only a small portion. All of these losses were suffered by the lessor and the lessee in proportion to their interests of one-eighth and seven-eighths.

"(13) In addition to the above losses, the expense of this method of treatment was very substantial; the cost of constructing these separate steaming plants and maintaining and operating them was borne by the defendant, except that, as provided by the leases, and as was customary in the field, the fuel for this purpose was oil taken from the lease, and amounted to about 10 barrels a day.

"(14) Seeking to prevent the above losses and expenses, the defendant during the year 1918 undertook extensive experiments to devise a method of treating the oil in such a way and to reclaim from the B. S. the oil contained as to save the vapors which had been escaping, therein; also to recover from the B. S. ponds, where the waste matter had been deposited, the maximum amount of oil capable of reto construct what is known as the 'dehydrater.' covery therefrom, and it was finally determined

ing over $400,000 and is located about three "(15) The dehydrater is a large plant costmiles east of the Hamilton and Shriver lands, and on the main road to El Dorado. A system of pipe line was laid connecting the tanks of all of the wells upon plaintiffs' lands and upon nearly all other leases owned by the defendant in the El Dorado district at a further cost of about $250,000. The defendant operated at that time, and at the time of the trial of this action about 75 leases in that district with about 1,350 wells, all connected with the dehydrater. No other company owns nearly that number of leases in the district.

"(16) The dehydrater was built by the defendant. It is operated by the Empire Petroleum Company, but the defendant pays the Empire Petroleum Company the entire expense of operating the plant. The defendant also pays the Empire Petroleum Company for any loss due to any overpayment which the Empire Petroleum Company may make on account of its giving credit for more oil delivered from the leases than the actual runs from the dehydrater delivered, if any such there be.

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The pipe lines, receiving the oil from the leas-, line, less the proportion of water found to be es, are owned and operated by the Empire contained therein. Pipe Line Company.

"(16a) The Empire Gas & Fuel Company is the producing company. The Empire Pipe Line Company is the company that transports oil through its pipe lines. The Empire Petroleum Company is the buying company. The Empire Pipe Line Company lines connect with the dehydrater plant, and the oil from the dehydrater is turned into the connecting lines of the Empire Pipe Line Company. The treating of the oil at said dehydrater is done by the purchasing company. There is no treatment of the oil on the property of the plaintiffs. "(17) The method of conducting the dehydrater, briefly stated, is as follows:

"The oil, including water and other impurities, except such as have settled out by gravity, is collected through the pipe line from the various leases and run into large receiving tanks and there commingled. From these tanks it passes through entirely closed large pipes which are heated by steam, and passes into entirely closed reservoirs, where it is further treated with chemicals, and this treatment removes practically all water and other impurities, and the oil in good marketable condition is delivered into stock tanks or run into pipe lines for final shipment. In this treatment substantially all gasoline vapor is saved.

"(18) The dehydrater was completed about March, 1919, and all leases were connected as soon thereafter as practicable. The J. E. Hamilton lease, referred to herein, was connected with the dehydrater March 18, 1919; the Joshua Shriver lease was connected March 15, 1919; and the J. L. Shriver connected May 24, 1919, and since those respective dates all oil from these leases has been delivered to the dehydrater.

"(19) Ever since the connection with the dehydrater the same method of measuring the fluid at the tanks on the leases and the same method of estimating the number of barrels of fluid run from the tanks with the same strapping tables and the same method of payment therefor by the Empire Petroleum Company have continued as were used prior to the time that the dehydrater was connected.

"(20) Some time between March and the middle of the year 1919 the use of steaming plants upon the lease was discontinued for the purpose of preparing the oil for the market, and as a consequence the fluid run from the tank into the pipe line and to the dehydrater contained considerable water which had not been separated by gravity from the oil, and which amounted to from about 6 to about 12 per cent. or more of the total fluid content delivered from the tank; and in order to determine the amount of credit that should be given to the lessors and to the lessee respectively by the purchasing company a sample was taken of this fluid, and that sample tested for the purpose of determining the proportion of water contained in the sample; and, when that proportion of water in the sample was thus determined, then the same proportion was deducted from the total volume of fluid delivered into the pipe line, and credit was given to the lessor and the lessee for their respective portions of the remainder so that the lessor received full credit for his one-eighth of the total amount of fluid run from the tank into the pipe

"(21) The method of selecting the sample of the fluid in the tank for testing during all of the time from the date the steaming process was abandoned for making marketable oil and until January 19, 1921, was as follows:

"The instrument above referred to and called the thief' (which is a square can 1 foot deep and about 2 inches across, open at the top, also open at the bottom, when being submerged but with a sliding bottom, which is closed by a spring which can be released quickly when the thief is at the point at which it is desired to take the sample) was submerged into the fluid in the tank at the top of that fluid and filled and emptied into a can, then the thief was lowered half way down to the pipe line connection in the tank, and again filled and emptied into tue same can, and was again lowered down to just above the pipe line connection, and again filled and emptied into the same can. These three samples were thoroughly mixed by agitation, passed through a quartering device, and two portions separately tested in the centrifuge machine until about August, 1920, which was revolved rapidly by hand until the water carried by centrifugal force separated from the oil so far as this treatment would separate it, and the proportion only, represented by the water thus separated, was accepted as the proportion to be deducted from the amount of oil delivered from the tank, for which both lessor and lessee received credit and payment from the purchasing company.

"(22) This method of testing the samples of oil by the use of the centrifuge machine was continued upon all leases until August 19, 1920, and payments were made during that time on the basis of that test, when it was determined and claimed by the defendant that the lessor in each case was receiving credit for more than his one-eighth of actual oil delivered, which was claimed to be due to the fact that the centrifugal machine did not separate all of the water from the oil, this being largely the water contained in the emulsion or B. S. which formed a part of the sample.

"(23) Upon the 19th day of August, 1920, the defendant discontinued the use of the centrifugal machine for making the tests and adopted the method of distillation. By this method the samples taken from the tanks have been treated in the laboratory of the defendant first about 1 mile and later at Oil Hill about 6 miles from the leases by being measured, placed in a still, subjected to heating, and, the vapors of gasoline and of water being collected in an accurately graduated tube in which the water settles to the bottom with the gasoline on top and the amount of water thus extracted by distillation and this only, is deducted from the total cubic contents of the sample which is treated, and this proportion of water to the total volume of the entire sample is the proportion that is used and deducted by the Empire Petroleum Company in estimating the amount of actual oil delivered from the tank, and upon this estimate its payments have been made.

"(24) After further consideration, and after the commencement of this suit, the defendant upon January 19, 1921, in taking the samples to be tested, used what is called a 'continuous

(230 P.)

"(33) Under the steaming plant a very substantial portion of the oil was necessarily thrown away into the B. S. ponds. The abandonment of the steaming process and charging against the lessor only the water contained in the B. S. has saved to both parties substantially all of the oil contained in the B. S. About 30 per cent. of this B. S. is oil.

column method.' This is done as follows: A connected with the dehydrater, will at all times thief 2 feet long is attached to the pole used substantially exceed the cost of operating the in gauging the depth of the fluid in the tank dehydrater itself. at a point so that the top of the thief is level with the top of the fluid. This sample is taken out and deposited in the receiving can; then the thief is placed 2 feet lower on the pole, and is submerged, and the sample taken and deposited in the same can; and so on, until the thief has taken a continuous sample down to the pipe line connection, and these samples, being throughly mixed and treated by distillation, have formed the basis of estimating the amount of oil for which credit is given since January 19, 1921.

"(25) Each lessor receives payment for his royalty based upon the amount of fluid run from the tank upon his own land, after deducting the amount of water as so determined by the test of the samples, without regard to what happens to the oil after it passes from the tank into the pipe line, and without regard to what is done with it at the dehydrater.

"(26) The present method of gauging and measuring the tanks and fluid in the tanks is correct and proper.

"(27) The present continuous column method of taking the samples, to be tested and treated, gives a fair sample of the whole volume of fluid in the tank.

"(28) The present method of testing the samples by distillation to determine the per cent. of water contained therein is correct, and, if the work in the laboratory is accurately done, and this must be very accurate, since the sample is such a very small portion of the whole, and honestly reported, then the result is correct.

"(28a) This method of determining the amount of marketable oil delivered into the pipe line is not used by any other company in this midcontinent oil field, but all others steam the oil on the leases, before turning same into the pipe line, when necessary.

"(29) Comparisons have been made of the records of the dehydrater which show the total amount of oil actually recovered during definite periods, and the other records of the Empire Petroleum Company, showing the total amount of oil during the same periods, for which all lessors in the field have received payment for their one-eighth royalty. These comparisons show that during the time from March, 1919, when the dehydrater was completed, to August 1, 1920, during which time the centrifuge machine was used, there was an overpayment to all lessors.

"(30) The comparisons referred to in conclusion 29 also show that from August 1, 1920, to June 1, 1921 (shortly before the trial of this case), during which time the distillation test had been in operation, there was still a small overpayment to lessors, amounting to about 0.65 per cent.

"(31) The total number of barrels of oil produced by the defendant in the field during the year 1918 was 12,066,191.65, while the total number of barrels produced by the defendant in the field during the year 1919 was 7,837,284,17, showing a decrease in the amount of production for the 12 months next prior to January 1, 1920, to be 35 per cent.

"(32) The cost to the Empire Gas & Fuel Company of maintaining and operating the separate steaming plants upon all of the leases

"(34) By the use of the dehydrater the B. S., which had formerly been thrown into the ponds, has been reclaimed and run to the dehydrater, and there practically all of the oil has been extracted from it, and in each case the lessor has received payment for his oneeighth.

"(35) The maintenance of steaming plants upon the separate leases necessitated the use of a considerable quantity of oil per day, which expense was borne by both lessor and lessee, and the abandonment of the steaming plants has resulted in a saving to both lessor and lessee in this respect.

"(36) The plaintiffs have been offered the privilege of observing all tests made in the laboratory, and have at all times had the privilege of observing the gauging of the oil and the sampling of the same at the tanks upon the leases, but it is not practicable, if possible, for the lessors to visit the laboratory of the defendant at all times when the particular samples of fluid from their leases are being worked, and then only a chemist, or one reasonably familiar with this character of laboratory work, could check up the result, and the lessors have no control over the samples of fluid which are finally treated after they are taken from the tanks at the wells.

"(37) The returns in money to the plaintiffs for oil from their leases fell off suddenly and very materially about August, 1920."

The court stated the conclusions of law as follows:

"First. For the purpose of eliminating water and basic sediment and ascertaining quantity of marketable oil, the plaintiffs are entitled to have the fluid from their wells treated upon the leases so that they may ascertain and know for themselves the amount of oil that is delivered into the pipe line; or the defendant should inaugurate a plan in the use of its present system under and by which the plaintiffs may be afforded an opportunity to know that a correct sample of the fluid from their wells is treated, and properly treated, in ascertaining the amount of marketable oil run from their leases, and this without any greater expense to them than they would ordinarily incur for the services of a gauger to oversee and measure the quantity of marketable oil in their tanks prior to being turned into the pipe line, after being steamed or otherwise made marketable by the defendant upon the leases.

"Second. Unless the defendant afford the plaintiffs, without additional trouble and expense to them, reasonable means and opportunity of ascertaining and knowing that the proportion of the fluid turned into the pipe line from the tanks on their leases, and which is reported by defendant to be marketable oil, and for which they are paid, is correct, then it should be required to treat the fluid upon the

leases so that, when turned into the pipe line, it shall represent oil sold, one-eighth of which would represent the plaintifi's share of mar

ketable oil.

that the "thief test," or method used by defendant in determining the amount of oil produced and saved from the lease, was in"It is therefore ordered that, as a condition accurate, and resulted in loss to plaintiffs. precedent to the continued use of its present So thorough was this evidence that counsel method of ascertaining the amount of mar- for plaintiffs, while a witness was being exketable oil delivered to the pipe line from the amined in the trial, spoke up and said "Untanks on the leases of the plaintiffs, the de- derstand me, I think your distillation test is fendant shall pursue the following course: a splendid test. I am not attempting to at"First. Furnish to the gauger of the plaintiffs tack your test at all on that." And both in in a proper receptacle an equal part of the the oral argument and brief in this court it sample taken from the tanks for treatment is frankly conceded that the method of test"Second. Treat its sample at a time reason-ing the samples taken from the tanks by the ably convenient for the gauger of the plain- instrument called a "thief" is scientific and tiffs to be present and observe the work, and accurate, and correctly shows the percentage of which time the gauger shall be given notice of water to be deducted from the total quanby the defendant when the samples are taken tity of oil and water run from the tank. The from the tanks. allegation in the petition that the method of the defendant in testing the oil and in treating it so as to make it marketable resulted in loss and damage to plaintiffs also was thoroughly disproved.

at the laboratory.

"Third. Give to the gauger of the plaintiffs, at the time of treating the fluid in the laboratory, a record report of the result thereof. "Fourth. Treat the sample delivered to the gauger of the plaintiffs, when requested to do so, and give to said gauger a record report of On the other hand, the evidence and findsame for the purposes of comparison. ings show that the method used by defend"Fifth. Number all samples and reports of ant results in a substantial saving and bentreatment thereof, so as to insure correct com-efit to plaintiffs, as well as to defendant, parisons. by saving the most volatile and valuable "Sixth. Pay to plaintiffs the reasonable expense incurred by them in handling the samples portions of the oil that were lost by the and observing the work of the defendant in heating and steaming process, by saving treating the same, over and above the ordinary the basic sediment, 30 per cent. of which and reasonable cost of hiring a competent is oil, all of which was wasted under the gauger to measure the oil in the tanks upon heating and steaming process, and by not the leases after their being made ready for the having to use 10 barrels of oil per day to market and before being turned into the pipe operate the heating and steaming plants. line, and, if plaintiffs and defendant are not able to agree, then this court to ascertain and So the relief sought by plaintiffs in their pefix the amount which shall be paid by defend-titions-that defendant be enjoined from conant to the plaintiffs on this account.

"Seventh. File in these cases its consent and offer to comply with these suggestions within 40 days from this date.

In

tinuing to use the "thief test" in determining the amount of oil produced and saved from the leased premises, and for a decree "And it is further ordered and adjudged that requiring defendant to re-establish and operwhen, and as long as, the defendant complies ate the steam heating plants upon the leases with these requirements as hereinbefore sug--is no longer seriously contended for. gested, then it shall be permitted to continue its present method of marketing the oil from the leases of the plaintiffs, and the relief prayed for by them be denied; but, upon defendant's refusal to comply with these requirements, judgments should and will be rendered in favor of the plaintiffs in these actions."

Defendant moved for a modification of some of the findings of fact made, and for some additional findings. Reading the evidence, it would seem that this motion might have been sustained, in part at least, but we do not regard the overruling of this motion as material. The defendant objected to the conclusions of law and to the judgment rendered, and moved for judgment in its favor upon the findings made. This motion was overruled, as was also its motion for a new trial.

Defendant's motion for judgment in its favor on the finding of fact made by the trial court should have been sustained. Plaintiffs were defeated by the evidence, and the court

fact, they say, in substance, that this large, expensive, efficient dehydrating plant used by defendant should not be junked, and the former wasteful and more expensive method of steam heating the oil in the tanks on the leases re-established in its stead.

But plaintiffs contend that because of the clause in the lease which obligates the lessee "to deliver to the credit of the first party, his heirs or assigns, free of cost, in the pipe line to which it may connect its wells, the equal one-eighth of all oil produced and saved from the leased premises," and since defendant, with consent of plaintiffs, did establish and operate the steam heating plants upon the leases so as to treat the oil and make it marketable when turned into the pipe line from the tank, the parties to the lease have put an operative interpretation upon the lease which has become in effect a part of the lease, which plaintiffs are entitled to have enforced. Let us examine this contention for a moment. When the leases were

(230 P.)

El Dorado field where these lands are situat- | establish and operate the steam heating ed, hence whether oil, if found there, would plants on the leases as they prayed in their need treatment to make it marketable, or the petitions, but they want the defendant to be method of treatment, if that should be neces- compelled to perform the alternative judgsary, was not mentioned in the lease. The ment offered it by the trial court. It lease did provide that the lessor should have should be a sufficient answer to this contenone-eighth of the oil produced and saved tion to say that, when a plaintiff brings a from the leased premises; that is all it did suit and makes allegations which, if estab provide. The method of producing the oil and lished by proof, would entitle him to the resaving it was for the lessee to determine. It lief sought, or some similar relief, and then was contemplated, of course, that the lessee's in the trial his proof fails, and he does not methods of producing and saving the oil establish any of the material allegations upshould be fair, and that no fraud should be on which he relies, he is not ordinarily enpracticed upon the lessor; but plaintiffs do titled to any judgment in his favor. not charge fraud, and the court has found, and plaintiffs now admit, that the method is fair. For some time after the wells were drilled in 1917 the oil was sufficiently pure that it needed no treatment, the pipe lines took it as it came from the wells; hence during that period there was no mutual interpretation of the lease which required the treatment of the oil on the lease. Later, as the wells were pumped, water came into them and was pumped up with the oil, so much water that the purchasing company would not take the oil in that condition. The oil, of course, was worth nothing either to plain-ings, and is found and conceded to be correct. tiffs or to defendant unless it could be sold, so defendant began to treat the oil to free the water from it enough to make it marketable. There is no evidence that it consulted the plaintiffs about what method to use. went ahead to prepare the oil for market, and used the best and most practical method then known to its officers and employees, and the method then generally used in the El

It

Since the method now used in marketing the oil from plaintiffs' leases is not to treat the oil so it is marketable when turned from the tanks on the leases into the pipe lines of the purchaser, but to turn oil and water from the tanks into the pipe line leading to the dehydrater, where it is mingled with other oil, and all of it treated, it is important that fair samples be taken, and that these be accurately tested, for the oil is sold by sample, and the lessors are paid by what the sample shows. This method of taking and testing the sample is described in the find

By this method the lessors receive and are paid for one-eighth of all the oil produced and saved from the lease. This is all their lease provides that they shall receive.

was evidence that, aside from the practice of defendant, it was the universal custom in the mid-continent oil field that the lessor receive his royalty upon all oil turned from the stock tanks on the leases into the pipe lines without regard to what percentage of water it contained. From this it is argued that defendant has a right to be treated as all other lessors in the field are treated. While it is

The court found that the method used by defendant in determining the amount of marketable oil delivered into the pipe line is not used by any other lessee in the midcontinent oil field, but all others steam the oil Dorado field. It discovered that this method was expensive and wasteful, and it set about on the leases, when necessary, before turnto find a better one. Defendant had 75 leasing the same into the pipe lines. And there es in a compact territory upon which it had 1,350 producing wells. Its officers concluded it could well afford to spend $650,000 to build a central dehydrating plant which would take all the water and foreign elements from the oil and make it marketable and connect all its wells with it. Plaintiffs' wells were connected in March and May, 1919, and the steam heating plants on the leases were then discontinued. These suits were filed No-true that custom in the oil field determines vember 3, 1920, so at that time the use of the steam heating plants had been discontinued for a longer period than they had been used on the leases. Under this state of facts their use cannot be said to have been an operative interpretation of the lease by the parties so that the oil must be treated by the steam heating process upon the lease which the plaintiffs are entitled to have enforced, even if the clause in the lease were open to such an interpretation, which may well be doubted. What plaintiffs are really asking now is. not that defendant be enjoined from using its present method of treating the oil to render it marketable and of testing the quantity to be paid for, and that it be required to re230 P.-7

the rights of the parties in many particulars, here is a situation to which it cannot be applied. The defendant is the only company in the mid-continent oil field having sufficient production in a compact territory to justify it in expending the sum necessary to build a central dehydrating plant and connect its wells with it. The method is advantageous financially both to plaintiffs and to the defendant. It is a step forward in the method of treating the oil which conserves all of the production from the wells, a portion of which was under the old method wasted or lost. A court should not require the abandonment of a correct, efficient, beneficial method because it is advanced; and require the return to a

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