Nature of the Case
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Facts
Victory Petroleum Corporation (D) entered into a 'Farmout Contract' with D whereby Victory (D) agreed to drill a test well on Section 3, BS&F Survey, Wheeler County, Texas, and D agreed to assign to Victory (D) certain leases covering land located near Section 3. D reserved an overriding royalty interest in the leases assigned. After the test well was completed as a gas well, Victory (D) filed a gas unit declaration forming a 688.02-acre gas operating production unit designated as the Victory Petroleum Company et al, Circle Dot Ranch Gas Unit No. 1. This unit perpetuated beyond the primary term eight different oil, gas, and mineral leases containing 2,252.03 acres of land. L. T. Underwood and wife, Ora Lee Underwood, and Circle Dot Ranch, Inc., (Ps) sued Ds seeking, among other relief, cancellation of the Circle Dot Ranch Gas Unit No. 1. The jury found it was the judgment of Ds that it was necessary or advisable to designate the gas unit in the manner set out and described in order to properly develop and operate the eight (8) oil, gas and mineral leases in question. The jury found that the designation of the Circle Dot Ranch Gas Unit by Ds 'was not made in good faith.' The Unit was canceled and the cloud upon Ps' title to the oil, gas, and other minerals was removed. The gas purchase contract was canceled. Ds appealed. The leases assigned to Victory (D) each contained a pooling clause which, in part, provides as follows: 'Lessee, at its option, is hereby given the right and power to pool or combine the land covered by this lease, or any portion thereof, as to oil and gas, or either of them, with any other land, lease or leases when in Lessee's judgment it is necessary or advisable to do so in order to properly develop and operate said premises, such pooling to be into a well unit or units not exceeding forty (40) acres, plus an acreage tolerance of ten percent (10%) of forty (40) acres, for oil, and not exceeding six hundred and forty (640) acres, plus an acreage tolerance of ten percent (10%) of six hundred and forty (640) acres, for gas, except that larger units may be created to conform to any spacing or well unit pattern that may be prescribed by governmental authorities . . .'
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