Alamitos Land Co. v. Texas Co.

GOULD, J.,

pro

tem.

By the terms of an oil lease dated February 26, 1927, defendant corporation as lessee agreed to pay plaintiff corporation as lessor one-fifth royalty for oil and gas produced on the latter’s property. The lease also specifically provided that if gas produced on the premises “shall be sold by lessee, said lessee shall pay said lessor one-fifth of the amount . . . received therefor” and also that “in the event that said lessee shall have produced or caused to be produced and saved gasoline or other products from the gas taken from said premises, the lessor shall be entitled to one-fifth royalty of such gasoline or other products”. Production under the lease commenced in May, 1927, and on January 27, 1933, plaintiff filed the within action for an accounting for royalties under the lease. No question is raised as to the payment for oil produced. The only controversy relates to the royalties upon natural gas in so far as gasoline was manufactured from such gas.

Defendant delivered the “wet” gas from the property involved, as well as from numerous other leases, to an absorption plant owned and operated by General Petroleum Corporation, where the commingled total was treated for production of gasoline. Of the gasoline so produced apportionment was made to the various leases in proportion to their respective contributions to the total gas treated. Payment was made by General Petroleum Company to defendant herein under certain contracts, by which, in effect, defendant was to receive as the sale price of the natural gas delivered, 45 per cent of the gasoline manufactured or produced from such gas. Although the contract between defendant and General Petroleum provided that defendant, at its option, might take its 45 per cent royalty in kind—that is, 45 per cent of the gasoline extracted from the “wet” gas—such option was never exercised, and throughout the period of production in controversy defendant received its payment in cash. Of the cash so received from General Petroleum for the gasoline so produced by it from plaintiff’s leases, defendant made monthly remittances to plaintiff of one-fifth, transmitting with the

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remittances statements showing the number of gallons of gasoline credited to defendant by General Petroleum, the rate per gallon, the total credit and the computation of ‘ gasoline royalty—% ’ ’, with the figures for the number of gallons and the computed cash amount of the remittance. After August, 1928, these statements also showed the meter readings of the total amount of gas delivered, the total amount of gasoline recovered and the notation “Royalty of % of 45% on gasoline recovered”, with the appropriate computations in number of gallons and cash due plaintiff therefor.