Potlatch Oil & Refining Co. v. Ohio Oil Co.

Appellants, plaintiffs below, brought this action to procure an accounting of amounts alleged to be due them from the appelleedefendant under the terms of a so-called “Operating Agreement”. This agreement was executed June 15, 1922 by the trustees of a “common law trust” known as TroySweetgrass Oil Syndicate, and the defendant Ohio Oil Company. On the same date the Syndicate assigned to Ohio Oil Company, here called Ohio, a 55 percent interest in certain oil and gas leases covering lands in Toole County, Montana. By the Operating Agreement Ohio undertook to develop the leased lands for oil and gas purposes. Ohio was to market all oil and gas produced and account to Syndicate for the latter’s 45 percent of the proceeds remaining after deduction of royalty oil and gas.

The agreement contained the following provision, the meaning of which was the primary question raised by the complaint: “[Ohio] will pay all costs and expenses of developing and operating said lands for oil and gas purposes, as herein provided, and shall charge the said party of the first part Forty-five (45%) percent thereof.” Included in the “costs”, a share of which were charged by Ohio under the quoted clause,,…