Anglim

Section Seven Corporation was organized in 1937 for the purpose of acquiring the interest of tenants in common to certain land situated in Fresno County, California. It acquired the property and issued its stock therefor to the tenants in common. Thereafter, on June 3, 1938, it entered into a lease with Seaboard Oil Company of Delaware whereby the latter was granted *156 the exclusive right to explore, drill for, produce, treat, sell, etc., all oil and gas, asphaltum and other hydrocarbons therein for the period of twenty years and for so long thereafter as oil, gas, etc., continued to be produced. The lessee agreed to pay a royalty on all oil produced equal to l/6th of its value," and a l/6th part of the net proceeds of all gas produced and sold. It was also provided in the lease that the lessor was to have the option of receiving the royalty not in cash, but delivered in tanks on the leased premises provided 60 days’ notice of the exercise of the option was given. The option could be exercised once during the year, and in the absence of such election, the lessee would pay the royalties in cash.

The lessee drilled the premises -and brought in oil in September, 1938, and the…