Western Oil Fields, Inc. v. Pennzoil United, Inc.

COLEMAN, Circuit Judge.

In 1961 Pennzoil and Western Oil Fields owned adjacent mineral leases. Pennzoil sought Western’s lease so that a contemplated secondary recovery operation could be carried out on a large scale. No outright purchase of Western’s lease could be arranged. However, Western did consider letting Pennzoil attempt secondary recovery over the whole tract in return for a share of the net profits.

The resulting net profits operating agreement provided that for a ten year term Pennzoil would guarantee Western the anticipated profits from primary recovery on its lease. Additionally,…