## Facts

- Franklin W. Baumgartner held a Nebraska state oil and gas lease on Section 16 in Banner County from June 13, 1960, until it lapsed on June 13, 1965.
- The relevant field had largely exhausted primary production, and working-interest and royalty owners pursued unitization to implement secondary recovery and prevent waste.
- The Nebraska Oil and Gas Conservation Commission approved the Kenmac “J” Sand Unit agreement on April 24, 1961, providing for secondary recovery by waterflooding and naming Gulf Oil Corporation as unit operator.
- All working-interest owners except Baumgartner signed the unit agreement; owners of more than 80% of royalty interests signed, including the State of Nebraska (through the Board of Educational Lands and Funds) as mineral owner of Section 16.
- Baumgartner refused to join the unit, and Section 16 was excluded from the unit; the State withdrew its royalty consent because of Baumgartner’s refusal.
- Gulf conducted waterflood operations within the unit, which adjoined Section 16 to the east and north.
- Baumgartner obtained a drilling permit for Section 16 but drilled no well; testimony indicated that without the unit waterflood there would have been no secondary recovery from Section 16 and that independent development would have been uneconomic.
- Baumgartner sued Gulf for willful trespass and conversion, alleging that injected water displaced and swept oil from beneath Section 16 into unit wells; the trial court awarded damages for the value of oil found to have been drained.

## Issues

1. Whether Commission-approved unitized waterflood operations constitute willful trespass and conversion of oil as to an adjacent leaseholder who refused a fair opportunity to join the unit.
2. Whether a nonconsenting leaseholder may recover the value of oil allegedly drained into unit wells when the unitization plan is structured on a fair and equitable basis to maximize recovery and prevent waste.

## Decision

- The Nebraska Supreme Court reversed the judgment for Baumgartner.
- Gulf was not liable for willful trespass or conversion for oil produced through the unit waterflood under the approved unitization plan.
- Because Baumgartner was offered a fair and equitable opportunity to participate and declined, he could not treat unit recovery as wrongful drainage.
- The State’s cross-appeal seeking royalty-related recovery failed in light of the reversal.

## Legal Principles

- When primary recoverable oil is exhausted, secondary recovery by unitization must offer all interested parties an opportunity to join on fair and equitable terms.
- A party who is offered fair entry into a Commission-approved unit and refuses cannot later recover in conversion or trespass for oil produced through unit secondary recovery conducted pursuant to that order.
- Conservation policy favoring prevention of waste and maximization of ultimate recovery supports limiting common-law conversion/trespass theories that would deter approved unitized secondary recovery.
- Correlative rights in a common reservoir may be adjusted through equitable unit allocation in secondary recovery, rather than through post hoc claims based on alleged drainage.

## Conclusion

The court held that a nonconsenting lessee who declines a fair opportunity to join a Commission-approved secondary recovery unit cannot recover damages for conversion or willful trespass based on oil produced by the unit’s waterflood operations.


Baumgartner v. Gulf Oil Corp., 168 N.W.2d 510 (Neb. 1969)