{ "id": 5320680, "name": "HONDO OIL & GAS COMPANY, Western Development Company of Delaware, Yates Brothers and Yates Petroleum Corporation, Plaintiffs-Appellants, v. PAN AMERICAN PETROLEUM CORPORATION, Defendant-Appellee", "name_abbreviation": "Hondo Oil & Gas Co. v. Pan American Petroleum Corp.", "decision_date": "1963-11-25", "docket_number": "No. 7241", "first_page": "241", "last_page": "252", "citations": [ { "type": "official", "cite": "73 N.M. 241" }, { "type": "parallel", "cite": "387 P.2d 342" } ], "court": { "name_abbreviation": "N.M.", "id": 8835, "name": "Supreme Court of New Mexico" }, "jurisdiction": { "id": 52, "name_long": "New Mexico", "name": "N.M." }, "cites_to": [ { "cite": "266 S.W.2d 448", "category": "reporters:state_regional", "reporter": "S.W.2d", "case_ids": [ 10196011 ], "opinion_index": 0, "case_paths": [ "/sw2d/266/0448-01" ] }, { "cite": "136 A.L.R. 626", "category": "reporters:specialty", "reporter": "A.L.R.", "opinion_index": 0 }, { "cite": "153 S.W.2d 575", "category": "reporters:state_regional", "reporter": "S.W.2d", "case_ids": [ 2315024, 10222346 ], "opinion_index": 0, "case_paths": [ "/tex/137/0361-01", "/sw2d/153/0575-01" ] }, { "cite": "137 Tex. 361", "category": "reporters:state", "reporter": "Tex.", "case_ids": [ 2315024 ], "opinion_index": 0, "case_paths": [ "/tex/137/0361-01" ] }, { "cite": "69 N.M. 336", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 2787029 ], "weight": 2, "opinion_index": 0, "case_paths": [ "/nm/69/0336-01" ] }, { "cite": "137 P. 592", "category": "reporters:state_regional", "reporter": "P.", "opinion_index": 0 }, { "cite": "18 N.M. 340", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 4692961 ], "opinion_index": 0, "case_paths": [ "/nm/18/0340-01" ] }, { "cite": "163 F.2d 178", "category": "reporters:federal", "reporter": "F.2d", "case_ids": [ 1106178 ], "opinion_index": 0, "case_paths": [ "/f2d/163/0178-01" ] }, { "cite": "241 F.2d 920", "category": "reporters:federal", "reporter": "F.2d", "case_ids": [ 417480 ], "year": 1947, "opinion_index": 0, "case_paths": [ "/f2d/241/0920-01" ] }, { "cite": "355 S.W.2d 776", "category": "reporters:state_regional", "reporter": "S.W.2d", "case_ids": [ 10173026 ], "opinion_index": 0, "case_paths": [ "/sw2d/355/0776-01" ] }, { "cite": "64 N.M. 380", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 5346024 ], "weight": 3, "opinion_index": 0, "case_paths": [ "/nm/64/0380-01" ] }, { "cite": "308 S.W.2d 1", "category": "reporters:state_regional", "reporter": "S.W.2d", "case_ids": [ 10157161, 2255838 ], "opinion_index": 0, "case_paths": [ "/sw2d/308/0001-01", "/tex/158/0056-01" ] }, { "cite": "158 Tex. 56", "category": "reporters:state", "reporter": "Tex.", "case_ids": [ 2255838 ], "opinion_index": 0, "case_paths": [ "/tex/158/0056-01" ] }, { "cite": "301 S.W.2d 235", "category": "reporters:state_regional", "reporter": "S.W.2d", "case_ids": [ 10172300 ], "opinion_index": 0, "case_paths": [ "/sw2d/301/0235-01" ] }, { "cite": "258 S.W.2d 413", "category": "reporters:state_regional", "reporter": "S.W.2d", "case_ids": [ 10206635 ], "weight": 2, "opinion_index": 0, "case_paths": [ "/sw2d/258/0413-01" ] }, { "cite": "147 La. 272", "category": "reporters:state", "reporter": "La.", "case_ids": [ 578216 ], "weight": 4, "pin_cites": [ { "page": "654" } ], "opinion_index": 0, "case_paths": [ "/la/147/0271-01" ] }, { "cite": "63 So.2d 417", "category": "reporters:state_regional", "reporter": "So. 2d", "case_ids": [ 2897684 ], "opinion_index": 0, "case_paths": [ "/la/222/0661-01" ] }, { "cite": "222 La. 661", "category": "reporters:state", "reporter": "La.", "case_ids": [ 9915154, 2897684 ], "opinion_index": 0, "case_paths": [ "/so2d/63/0417-01", "/la/222/0661-01" ] }, { "cite": "228 S.W. 1004", "category": "reporters:state_regional", "reporter": "S.W.", "case_ids": [ 10336430 ], "opinion_index": 0, "case_paths": [ "/sw/228/1004-01" ] }, { "cite": "59 L.R.A. 566", "category": "reporters:federal", "reporter": "L.R.A.", "opinion_index": 0 }, { "cite": "42 S.E. 655", "category": "reporters:state_regional", "reporter": "S.E.", "opinion_index": 0 }, { "cite": "51 W.Va. 583", "category": "reporters:state", "reporter": "W. Va.", "case_ids": [ 8638672 ], "opinion_index": 0, "case_paths": [ "/w-va/51/0583-01" ] }, { "cite": "75 Kan. 69", "category": "reporters:state", "reporter": "Kan.", "case_ids": [ 8858994 ], "weight": 2, "opinion_index": 0, "case_paths": [ "/kan/75/0069-01" ] }, { "cite": "254 S.W. 615", "category": "reporters:state_regional", "reporter": "S.W.", "case_ids": [ 10314470 ], "opinion_index": 0, "case_paths": [ "/sw/254/0615-01" ] }, { "cite": "203 S.W. 72", "category": "reporters:state_regional", "reporter": "S.W.", "case_ids": [ 10309155 ], "weight": 2, "opinion_index": 0, "case_paths": [ "/sw/203/0072-01" ] }, { "cite": "228 S.W. 40", "category": "reporters:state_regional", "reporter": "S.W.", "opinion_index": 0 }, { "cite": "190 Ky. 596", "category": "reporters:state", "reporter": "Ky.", "case_ids": [ 4525733 ], "opinion_index": 0, "case_paths": [ "/ky/190/0596-01" ] }, { "cite": "84 N.E.2d 167", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "336 Ill.App. 372", "category": "reporters:state", "reporter": "Ill. App.", "case_ids": [ 2426118 ], "opinion_index": 0, "case_paths": [ "/ill-app/336/0372-01" ] }, { "cite": "44 N.M. 351", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 1566969 ], "weight": 2, "opinion_index": 0, "case_paths": [ "/nm/44/0351-01" ] }, { "cite": "34 N.M. 540", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 1556084 ], "weight": 2, "opinion_index": 0, "case_paths": [ "/nm/34/0540-01" ] }, { "cite": "95 Mont. 299", "category": "reporters:state", "reporter": "Mont.", "case_ids": [ 2421820 ], "weight": 2, "opinion_index": 0, "case_paths": [ "/mont/95/0299-01" ] }, { "cite": "73 Mont. 94", "category": "reporters:state", "reporter": "Mont.", "case_ids": [ 2404953 ], "weight": 2, "opinion_index": 0, "case_paths": [ "/mont/73/0094-01" ] }, { "cite": "98 Mont. 305", "category": "reporters:state", "reporter": "Mont.", "case_ids": [ 4984660 ], "weight": 2, "pin_cites": [ { "page": "173" } ], "opinion_index": 0, "case_paths": [ "/mont/98/0305-01" ] }, { "cite": "52 N.M. 115", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 1579499 ], "weight": 2, "opinion_index": 0, "case_paths": [ "/nm/52/0115-01" ] }, { "cite": "64 N.M. 51", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 5345744 ], "weight": 2, "opinion_index": 0, "case_paths": [ "/nm/64/0051-01" ] }, { "cite": "61 N.M. 138", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 5318953 ], "weight": 2, "opinion_index": 0, "case_paths": [ "/nm/61/0138-01" ] }, { "cite": "44 N.M. 499", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 1566830 ], "weight": 2, "opinion_index": 0, "case_paths": [ "/nm/44/0499-01" ] } ], "analysis": { "cardinality": 1160, "char_count": 28622, "ocr_confidence": 0.71, "pagerank": { "raw": 1.3897735870049213e-07, "percentile": 0.6424988483884582 }, "sha256": "9d913f9719c600f85143820e230eb4105bc922acc0ddbdbc8b29f9a88c54abbe", "simhash": "1:3d9a646c3f248de8", "word_count": 4843 }, "last_updated": "2023-07-14T20:56:36.975569+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [ "CARMODY and CHAVEZ, JJ., concur." ], "parties": [ "HONDO OIL & GAS COMPANY, Western Development Company of Delaware, Yates Brothers and Yates Petroleum Corporation, Plaintiffs-Appellants, v. PAN AMERICAN PETROLEUM CORPORATION, Defendant-Appellee." ], "opinions": [ { "text": "MOISE, Justice.\nOn May 22, 1952, the parties hereto entered into a master agreement whereby defendant-appellee was granted the exclusive right for a period of six months to conduct geophysical explorations on some 20,000 acres of leases owned by plair.tiffs-appellants. The master agreement provided that within 60 days after the expiration of the 6-month exploration period, the defendant had a right to select 3 blocks of acreage of 2560 acres each, and that plaintiffs would convey an undivided one-half working interest therein below a certain depth.\nThe exploratory work was done, the selections made, the conveyances executed, and on February 21, 1953, operating agreements were entered into by the parties. The operating agreement covering Block I, here involved, (hereinafter referred to as the \u201cagreement\u201d) provided for the drilling by defendant of a test well at its own expense at a location to be selected by it on the acreage. The agreement further provided that within 90 days after completion of the test well, defendant should drill a development well, and thereafter additional development wells should be commenced within 60 days after the completion of each well. The defendant had the right to recover its costs of the development wells out of 75% of plaintiffs\u2019 share of production. Defendant had the right to abandon the drilling program at any time without liability, but, subject to certain exceptions, upon doing so was required to reconvey the interests in the leases which had been transferred to it. Differences between the parties as to the proper interpretation of Article 6 of the agreement gives rise to the present litigation. This article is entitled, \u201cDrilling of Development Wells.\u201d We set it out in full for a better understanding of the problem:\n\u201cWithin ninety (90) days from and after.completion of the test well provided for in Article 2 hereof, Operator shall commence the actual drilling of an additional well on the lease acreage covered hereby at a location of Operator\u2019s selection, and thereafter, shall prosecute the drilling of said well diligently and in a workmanlike manner to a depth of Operator\u2019s selection. Thereafter, Operator shall conduct a continuous drilling program on the lease acreage covered hereby, with an interval of not more than sixty (60) days between the completion of one well and the commencement of an additional well. All such wells shall be drilled at locations of Operator\u2019s selection and shall be drilled to those depths selected by Operator on the lease acreage covered hereby. Unless a particular well (excluding the test well referred to in Article 2 hereof) to be drilled by Operator on the lease acreage is designated by Operator as being drilled under the provisions of this Article 6, such well shall be deemed to be drilled under the provisions of Article 12 hereof. If at any time during the existence of this agreement, Operator shall discontinue the drilling program provided for in this Article 6, then in that event, Operator shall in no manner be liable to Non-Operators, in damages or otherwise, by reason of such discontinuance; but the Operator shall execute and deliver to Non-Operators, in the proportions of their interests in the lease acreage covered hereby, a conveyance of all of Operator\u2019s right, title and interest in the lease acreage covered hereby, * * * such conveyance to be free and clear of all encumbrances not existng on the date hereof and not placed thereon by the mutual consent of the parties hereto; provided, however, that such conveyance shall not include a tract surrounding each well drilled on the lease acreage covered hereby equal to that area surrounding such well prescribed for one well by the spacing rule of State or Federal authority having jurisdiction, provided, that if there be no such established spacing rule, such conveyance shall not include a legal subdivision of forty (40) acres surrounding such well if it is an oil well, or a legal subdivision of one-hundred sixty (160) acres surrounding such well, if it is a gas well; and provided, further, that with respect to the area around each well to be excluded from such conveyance, as hereinabove provided, such exclusion shall cover and include only the depth sufficient to include the formation to which such well was drilled.\u201d\nWe continue with the facts about which there is no controversy. The test well was completed as a gas well on Block I, whereupon the New Mexico Oil Conservation Commission, on November 25, 1953, entered its order No. R-391 establishing the Empire-Pennsylvanian Gas Pool and providing for 320 acre spacing.\nThereafter, the parties agreed that the first development well should be drilled on the Ni/2 of Section 32, Township 17 South, Range 28 East, N.M.P.M., the NEj4 being included in Block I selected by defendant, and assigned by plaintiff, and further agreed that if it was drilled on the NW!4 of that section it would be considered as a development well under the agreement. Defendants were granted an extension of time for commencing the well since the NWi/4 was not included in the blocks in which an interest had been assigned to defendant, and was not owned by plaintiffs. Flowever, a unitization agreement between the owners of the leases on the NWJ4 an and that by its terms the unitization agreement remained in effect until April 14, 1956. For this reason the plaintiffs claim the original reservation was proper, and after April 14, 1956, their right to a reconveyance was overlooked.\nOn the other hand, defendant points out that the correspondence between the parties at the time the conveyance was made on April 1, 1955 described the same as including \u201call unearned rights in Block I,\u201d thereby clearly indicating the reserved interest was understood to have been \u201cearned\u201d when the reconveyance was made. Also, attention is called to the fact that in 1959 the property had suddenly acquired an increased value by virtue of a 1957 oil discovery in the Abo Reef, and that in 1959 and 1960 the field was moving in the direction of the NEJ4 of Section 32.\nAfter answer in which four defenses were raised, all parties filed motions for summary judgment, and defendant\u2019s motion was sustained by the trial court. Evidence was taken only on the defense of laches, and on this issue the court also found in favor of defendant.\nBy its ruling sustaining the motion for summary judgment, the trial court determined that Article 6 of the operating agreement quoted above did not require the defendant to reconvey to plaintiffs the NEj4 of Section 32, Township 17 South, Range 28 East, N.M.P.M. This is asserted to have been error in plaintiffs\u2019 first point on this appeal.\nAll parties, while putting different constructions on Article 6, maintain that it is unambiguous. It is well settled in New Mexico that where the language of a contract is clear and unambiguous, the intent of the parties must be ascertained from the language and terms of the agreement, Fuller v. Crocker, 44 N.M. 499, 105 P.2d 472; Hoge v. Farmers Market and Supply Company of Las Cruces, 61 N.M. 138, 296 P.2d 476; Ashley v. Fearn, 64 N.M. 51, 323 P.2d 1093, and in this connection all parts of the instrument shall be given effect so as to make all provisions of the document reasonable and harmonious. Maffett v. Emmons, 52 N.M. 115, 192 P.2d 557.\nSpecifically, the issue which we are called upon to determine is the meaning of the word \u201cwell\u201d as that word is used in Article 6. It is plaintiffs\u2019 position that the word means only \u201cproducing wells,\u201d whereas, defendant contends that a \u201ccompleted dry hole\u201d was also intended by the parties to be included in the term.\nPlaintiffs direct our attention to other language of the agreement which they assert throws light on the intention of the parties. Article 2 provides, \u201cAll costs and expenses incurred in connection with the drilling, completing, testing, equipping and, if a dry hole, the plugging and abandoning of said test well * * Article 7 provides \u201cOperator initially shall advance and pay all costs and expenses for the drilling, completing, equipping and, with respect to dry holes, the plugging and abandoning of all wells drilled on the lease acreage covered hereby,\u201d and further that the operator shall receive the proceeds from production \u201c * * * until such time as Operator has received from Non-Operator\u2019s interest in such zvells * * * a sum equal to 100 per cent of Non-Operator\u2019s proportionate share of the cost of drilling, completing, equipping, and with respect to dry holes, plugging and abandoning such wells, whereupon such zvells and the production therefrom shall be owned jointly by the parties hereto in the portions set out in Article I hereof.\u201d Article 12, dealing with \u201cAdditional Drilling\u201d speaks of completing a well as a \u201cproducing zvell.\u201d Article 13 states that \u201cNo well which is producing or has once produced shall be abandoned, * * * \u201d without reference to \u201cdry holes.\u201d It is argued that Article 13 is practically identical in language to Article 6, and since in this article only producing wells are referred to, it is here asserted that such must have been the intention when the term \u201cwell\u201d was used in Article 6.\nOur analysis of the various articles to which plaintiffs refer as supporting their interpretation, convinces us that the defendant\u2019s position is correct. Whereas in Article 6 the reference is to \u201cwells\u201d with no mention of \u201cdry holes\u201d or \u201cproducing wells,\u201d it seems significant to us that in the language quoted from Articles 2 and 7, \u201cdry holes\u201d are in each instance described as \u201cwells.\u201d To our minds, this usage of the term \u201cwells\u201d in these articles to include \u201cdry holes\u201d is conclusive of the argument in favor of defendants under the rules of contract interpretation set forth above. Articles 12 and 13 in no way detract from our conclusion, since these articles deal only with \u201cproducing wells\u201d or wells which have at one time been \u201cproducing wells,\u201d and the purpose of the articles was clearly stated without any need to make references to \u201cdry holes.\u201d\nWhether the articles of the agreement dealt with exploration or development is to our minds quite unimportant in resolving our problem here since we are doing nothing except interpreting the language used by the parties, and we have no reason to 'assume that they were not equally careful in their choice of words in Article 6 as elsewhere in the document.\nAlthough our attention has not been called to any case where an identical provision to the one here being examined was involved, and we have found none, we do note that under various circumstances \u201cdry holes\u201d have been recognized by the courts as \u201cwells.\u201d\nOne such case is Brown v. Homestake Exploration Corporation, 98 Mont. 305, 39 P.2d 168, 173. That case involved the interpretation of a contract wherein it was provided that \u201cthe party of the first part hereby binds itself to the exercise of reasonable diligence in the drilling of oil wells on such premises to such number and extent as said premises will admit of.\u201d The court had the following to say concerning the language:\n\u201c * * * It is argued that an \u2018oil well\u2019 means a well which produces oil, and that the drilling of a well seeking the discovery of oil is not an oil well; and hence the covenant is only operative after the discovery of oil.\n\u201cThe words of a contract are to be understood in their ordinary and popular sense, unless used in a technical sense. Section 7535, Rev.Codes 1921; Solberg v. Sunburst Oil & Gas Co., 73 Mont. 94, 235 P. 761. An \u2018oil well\u2019 is defined as a \u2018well or boring for petroleum.\u2019 Funk & Wagnalls Dictionary. \u2018A boring made for petroleum.\u2019 Century Dictionary. * * * \u201d\nThe quotation is followed by pointing out that the Montana mechanics\u2019 lien laws provide for liens in connection with furnishing labor and materials on \u201cany oil or gas well.\u201d If a dry hole were not considered to be within the term \u201coil or gas well,\u201d without discovery of oil or gas, there could be no lien. However, the court had already held otherwise in Cheadle v. Bardwell, 95 Mont. 299, 26 P.2d 336.\nThe situation in New Mexico is closely similar. See \u00a7 65-5-1, N.M.S.A.1953. Decisions under our general mechanics\u2019 lien law indicate that we would probably reach the same result. Albuquerque Foundry & Machine Works v. Stone, 34 N.M. 540, 286 P. 157; Dysart v. Youngblood, 44 N.M. 351, 102 P.2d 664.\nMinerva Oil Company v. Sohio Petroleum Company, 336 Ill.App. 372, 84 N.E.2d 167, involved the interpretation of an oil lease to determine if the term \u201cwells drilled\u201d included both dry holes and producers for the purpose of determining the amount of production required before a change of royalty payment should become effective. In holding that all wells, whether producing or not, should be included, the court said:\n\u201c * * * It seems clear to us that the designation \u2018wells drilled\u2019 as used in the first and second sections includes and means any well that has been drilled to the proper depth be it producing or not. The phrase characterizes what was done by the lessee and has no reference to productivity. * * * \u201d\nSupporting the conclusion that \u201cwell,\u201d when used in a lease, means a hole drilled to the depth at which production is to be expected, whether actually encountered or not, are the following: Kies v. Williams, 190 Ky. 596, 228 S.W. 40; Frost v. Martin (Tex.Civ.App.1918) 203 S.W. 72; Chapman et al. v. Ellis (Tex.Civ.App.1923) 254 S.W. 615; Federal Betterment Co. v. Blaes, 75 Kan. 69, 88 P. 555; Parish Fork Oil Co. v. Bridgewater Gas Co., 51 W.Va. 583, 42 S.E. 655, 59 L.R.A. 566; Hall et al. v. Mc-Clesky (Tex.Civ.App.1921) 228 S.W. 1004.\nIn Frost v. Martin, supra, a case involving construction of language in a lease, we find the following which we consider pertinent:\n\u201c * * * We think that in the sense the word \u2018completed\u2019 is used in this contract it means finished, or sunk to the depth necessary to find oil or gas in paying quantities, or to such a depth as in the absence of such oil or gas would reasonably preclude the probability of finding oil or gas at a further depth. It should not be construed to mean that the lessee bound himself, under the penalty of a forfeiture, to sink a well or oil or gas in paying quantities, or, in the absence of oil or gas, to bore through to China. It therefore became a material question as to whether the hole drilled to the depth of 2,103 feet was a \u2018completed\u2019 well, as that word was used and understood by the parties.\u201d\nIn Esso Standard Oil Co. v. Nesbitt, 222 La. 661, 63 So.2d 417, the court was called upon to construe whether or not dual completion of a well constituted one or two wells under the language of a mineral lease assignment. We find the following language used by the court:\n\u201cInasmuch as the parties were uninformed as to dual completions at the time they contracted, it is obvious that this method of recovery was not within their contemplation. Hence, it is to be presumed that, when they spoke of an oil well, they used the term in its common and usual signification. Article 1946 of the LSA-Civil Code. A well is generally understood to be \u2018A shaft or hole sunk to obtain oil, brine, gas, etc. * * *\u2019 Webster\u2019s New International Dictionary, 2nd Ed. 1950, and, as applied to oil, has been defined by this court to be a hole \u2018 * * * to be drilled into the earth with the hope that it may become a well through which oil and gas may be produced * * * \u2019. Knight Bros. v. Standard Oil Co., 147 La. 272, 84 So. 653, 654.\u201d\nKnight Bros. v. Standard Oil Co., 147 La. 272, 84 So. 653, cited in the quotation above, is relied on by plaintiffs as Stating that a \u201cproducer\u201d is a \u201cwell\u201d but that a \u201cdry hole\u201d is not. True, the case so held insofar as those terms were used in the oil leases there being construed. The net effect was that whereas a \u201cproducer\u201d would hold a lease without the necessity of commencing a new \u201cwell,\u201d a \u201cdry hole\u201d would not. With this conclusion under the facts of that case, we find no fault. However, the meaning as determined in Esso Standard Oil Co. v. Nesbitt, supra, is here applicable.\nPlaintiffs put particular faith and reliance on Struss v. Stoddard (Tex.Civ.App.1953) 258 S.W.2d 413, wherein it was held that \u201ca dry hole will * * * never be considered a well of any kind or character with respect to a contract for drilling of a \u2018well\u2019 for oil or gas, unless by express wording; of the contract, or by necessary implication from the general intent and leading purpose to be accomplished thereby, it must be so considered.\u201d We are satisfied that the conclusion reached by us is not in conflict with the rule as stated. However, if it is, we-prefer the reasoning of other decisions cited and relied on by us.\nDefendant asserts that because of subsequent decisions (See Kothmann v. Boley (Tex.Civ.App.1957) 301 S.W.2d 235, reversed in Kothmann v. Boley, 158 Tex. 56, 308 S.W.2d 1) Struss v. Stoddard, supra, is. of questionable force today. In the view we-take of the case, as set forth, we need not. consider whether or not this is true.\nIn our case of Totah Drilling Company v. Abraham, 64 N.M. 380, 328 P.2d 1083, we-clearly held in construing a \u201cturn-key\u201d' drilling contract that a \u201cwell\u201d was completed under the terms of the agreement, when the acts contemplated therein had been performed, and whether or not the-well was a producer. We there held that: under this type of contract the parties intended the testing of a formation and \u201ccompletion of a producing well or aban\u2022donment as a dry hole\u201d for the consideration provided, and that unless expressed otherwise the driller would not be held to llave guaranteed production, citing 4 Summers Oil and Gas, \u00a7 687 (Perm. Ed. 1938).\nTo like effect is Cannon v. Wingard (Tex.Civ.App.1962) 355 S.W.2d 776, holding that a lease providing for the drilling of a well does not contemplate that a \u201cproducing well\u201d is guaranteed. This case further held that an agreement to complete the well within a given time did not constitute an obligation to complete it as a producer, citing Totah Drilling Company v. Abraham, supra.\nThe plaintiffs argue that these cases are not of assistance in resolving our problem because the '\u201cturn-key\u201d contract is one requiring payment upon completion of the drilling and provides the drilling contractor with his only compensation; whereas here, although having an interest in the leasehold, the defendants were not to be paid for drilling except out of production. We do not agree that the cases can be distinguished on this basis. In both situations, the driller is expending his efforts for compensation\u2014 in the turn-key situation it is generally for return of costs plus a profit in money; here it is for return of costs out of production if oil or gas are encountered and, in addition, the operator is entitled to an interest in the well drilled by it. Compare contract in Texas Pacific Coal and Oil Company v. Honolulu Oil Corporation (C.A. 5, 1957) 241 F.2d 920. Also compare contract in Yates v. American Republics Corporation (C.A. 10, 1947) 163 F.2d 178.\nThere still remains the question of the amount of acreage defendants had the right to reserve under the provisions of Article 6. The language reads:\n\u201c * * * that such conveyance shall not include a tract surrounding each well drilled on the lease acreage covered hereby equal to that area surrounding such well prescribed for one well by the spacing rule of State or Federal authority having jurisdiction, provided, that if there be no such established spacing rule, such conveyance shall not include a legal subdivision of forty (40) acres surrounding such well if it is an oil well, or a legal subdivision of one hundred sixty (160) acres surrounding such well, if it is a gas well; * * *.\u201d\nAs already noted, the Oil Conservation Commission had promulgated Order No. R-391 providing against drilling to the Empire-Pennsylvanian Gas Pool, unless the well \u201cbe located on a designated drilling unit of not less than 320 acres of land, * * * and on which no other well is completed, or approved for completion in the pool.\u201d It is quite clear in the language of the order that the spacing attaches not as of the date of completion, but as of the time of approval of a drilling permit following filing of a Notice of Intention to Drill. In the inst\u00e1nt case the Notice of Intention covered a well projected to the Empire-Pennsylvanian Gas Pool and 320 acres spacing attached.\nWe have already discussed the effect of failure to obtain production. Plaintiffs assert that the provision for reservation of 40 acres surrounding an \u201coil well\u201d and 160 acres surrounding a \u201cgas well,\u201d in the situation where no spacing has been established, demonstrates that no retention of acreage was contemplated if the efforts resulted in a dry hole, as distinguished from an oil or gas well. Again we must disagree with plaintiffs\u2019 position.\nThe clear language of Article 6 provides for retention of acreage in the amount required by the spacing rule of the State. As already noted, in the instant case this was 320 acres, fixed by order at the time of approval of Notice of Intention. If a well had been completed as an .oil well, or as a gas well, in a zone other than the Empire-Pennsylvanian Gas Pool,- and no spacing order or rule had- been established, then the 40 and 160 acre provision of the Article would come into play. However, that is not \u00f3ur situation. Spacing of 320 'acres had been required and complied with through a unitization agreement. The well was drilled in good faith to the depth required to-demonstrate an absence of gas at that level. By what reasoning is it now claimed that the agreed spacing was not applicable?\nPlaintiffs suggest that if defendant is entitled to anything, it is 40 acres surrounding the well because this is the spacing approved for an oil well in the Wolfcamp formation. Plaintiffs point out that t\u00f3 allow defendant an interest in 320 acres bfecause of the Empire-Pennsylvanian Gas Pool spacing when in fact the well is a Wolfcamp oil well works an injustice to plaintiffs, whereas in slightly different situations set forth in their brief the result would be otherwise. Be this as it may, as already stated several times we are confined to the language used by the parties. We would agree that if the well had been projected to the Empire-Pennsylvanian Gas Pool, and upon encountering oil in the Wolfcamp formation before reaching the gas pool, and completion of the well at that time as an oil well, the 40 acre spacing applicable in such a situation would apply. However, the situation is materially different under the facts of this case where the well was sunk to the originally projected depth and formation, but without success, and this was followed by the completion in the shallower Wolfcamp oil formation. The same would be true if gas had been encountered at a lesser depth and the well completed as a gas well at that point. Absent a spacing order, only 160 acres could be retained. We are satisfied that under the facts here present the trial court correctly construed the contract, and our discussion of hypothetical possibilities is intended merely to demonstrate the application of the quoted language.\nWe are fortified in our conclusion, if indeed bolstering were needed, by the fact that the parties themselves so construed the contract for more than four years, and until the value of the property was much increased because of new discoveries in the neighborhood.\nIn Fraser v. State Savings Bank, 18 N.M. 340, 137 P. 592, we stated:\n-'Counsel for appellant next insists that the agreement, entered into by the parties, did not constitute a partnership contract, but was at most a brokerage agreement. Had the parties to the contract not treated it as constituting a partnership agreement, we would be inclined to agree with counsel; but all th\u00e9 acts of the parties, and circumstances in evidence, from the time of making the contract in December, until the conclusion of the sale to Martin, plainly show that Fraser, and Bidwell and Probert, recognized that a partnership existed between them by virtue of said contract, and treated each other accordingly. Having placed a construction upon the contract, and acted thereunder, the court will not, at this time, and after all the rights have accrued, give to the contract a different construction, which would plainly be at variance with the understanding of the parties to it. 30 Cyc. 360.\u201d\n. It is clear from the quotation that absent recognition of the agreement as creating a partnership, the court might have been disposed to determine otherwise. How much more convincing is the treatment given by the parties when it conforms generally to what appears to us to be the clear intention expressed in the language used. Compare Jernigan v. New Amsterdam Casualty Company, 69 N.M. 336, 367 P.2d 519.\nIt is evident that the fact that defendant had retained an undivided working interest in the NE 14 of Section 32 \u201cfrom a depth of 3500 feet below the top of the San Andres formation down to the base of the Pennsylvanian formation,\u201d was not overlooked by plaintiffs since the conveyance signed by \u201call\u201d the parties shows that as drawn it provided for retention of all rights therein, and this was changed by interlining the words \u201can undivided Y2 interest in\u201d and initialling the same. Also we note that the interest retained included \u201cthe depth sufficient to include the formation to which such well was drilled\u201d in strict accordance with the provisions of Article 6. In the light of these facts we are not impressed with plaintiffs\u2019 statement that it was not until August 25, 1959, that plaintiffs first realized that defendant was still claiming an interest in the 160 acres here involved. The situation here present is not comparable to that ruled on in Texas Pacific Coal and Oil Company v. Honolulu Oil Corporation, supra, since the conveyance accorded with the agreement calling therefor. It more nearly coincides with situations present in Greene v. White, 137 Tex. 361, 153 S.W.2d 575, 136 A.L.R. 626, and in Klein v. First National Bank (Tex.Civ.App.1953) 266 S.W.2d 448, where grantees were held bound by the terms of deeds even though not signed by them.\nNeither are we convinced that the fact that the NE|4 had been unitized with the NWJ4, and that the unitization agreement was still in force on April 1, 1955, made any difference. It would have been a simple matter to so state in the conveyance. Also, the unitization agreement had expired by its terms long before August 25, 1959.\nIn view of the conclusions which we have reached, there is no need for us to discuss the question of whether or not plaintiffs should have been barred by their laches.\nThe trial court ruled correctly and the judgment appealed from should be affirmed.\nIt is so ordered.\nCARMODY and CHAVEZ, JJ., concur.", "type": "majority", "author": "MOISE, Justice." } ], "attorneys": [ "Losee & Stewart, Artesia, James T. Jennings, Roger L. Copple, Roswell, for appellants.", "Atwood & Malone, Roswell, for appellee." ], "corrections": "", "head_matter": "387 P.2d 342\nHONDO OIL & GAS COMPANY, Western Development Company of Delaware, Yates Brothers and Yates Petroleum Corporation, Plaintiffs-Appellants, v. PAN AMERICAN PETROLEUM CORPORATION, Defendant-Appellee.\nNo. 7241.\nSupreme Court of New Mexico.\nNov. 25, 1963.\nLosee & Stewart, Artesia, James T. Jennings, Roger L. Copple, Roswell, for appellants.\nAtwood & Malone, Roswell, for appellee." }, "file_name": "0241-01", "first_page_order": 273, "last_page_order": 284 }