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Clifton v. Koontz

Supreme Court of Texas

June 24, 1959, Decided

No. A-6555

Opinion

 [*84]   [**687]  This suit brought by petitioners, Lillie M. Clifton, individually and as executrix of the estate of her husband, J. H. Clifton, deceased, et al., seeks the cancellation of an oil, gas, and mineral lease on the theory that after the expiration of its ten-year primary term, the lease terminated due to cessation of production.

In the alternative, and only in the event the [***6]  Court should find that production had not ceased, petitioners sought cancellation of the lease (other than for 40 acres around the existing well) on the theory that the owners of the lease (the working interest) breached an implied covenant to reasonably develop the property and to "reasonably explore the same for the production of minerals therefrom * * *." It was their contention that the owners of the working interest, in the event of the alternative plea should be sustained, would forfeit all rights under the lease (except as to 40 acres around the producing well) upon failure within a reasonable time, to commence and continue the drilling of wells to a depth sufficient to test all known horizons in the general area. Petitioners also sought damages because of breaches of express and implied covenants of the lease.

The lease was executed in 1940. It covers two tracts of land encompassing  [**688]  350 acres owned by the Cliftons, in Wise County, Texas. In 1949, during the primary term, a well was drilled which produced both oil and gas but very little oil. The Railroad Commission classified the well as an "associated" (with oil) gas well. Other than its acidization in 1950,  [***7]  no other drilling or reworking operations were carried on during the intervening years until September 12, 1956, when it was successfully reworked by "sandfracting." This date was subsequent to the filing of the present case.

The judgment of the trial court, entered after a trial before the court, without the aid of a jury, contains the court's findings  [*85]  of fact upon the basic questions. The courts found that the existing gas well had at all material times continuously produced gas in paying quantities. Accordingly, the oil and gas lease was held to be in full force and effect, thus denying petitioners' prayer for judgment that the lease had terminated. The judgment recites a finding to the effect that petitioners were damaged by the failure of respondents to rework the existing well and to drill, but that such damages were speculative and could not be ascertained with any degree of certainty. Judgment for damages was therefore denied.

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160 Tex. 82 *; 325 S.W.2d 684 **; 1959 Tex. LEXIS 624 ***; 2 Tex. Sup. J. 348; 79 A.L.R.2d 774; 10 Oil & Gas Rep. 1109

Lillie M. Clifton Et Al v. R. W. Koontz Et Al.

Subsequent History:  [***1]  Rehearing Overruled July 29, 1959.

Prior History: Error to the Court of Civil Appeals for the Second District, in an appeal from Wise County.

Disposition: The judgment of the Court of Civil Appeals is affirmed.

CORE TERMS

lease, drill, paying quantities, implied covenant, reworking, oil, lessee, formations, terminated, trial court, depreciation, working interest, damages, existing well, cessation, ceased, lessor, producing, covenant, additional wells, oil production, period of time, mineral, overriding royalty, exploration, obligated, premises, prudent, tract, operating expenses

Civil Procedure, Appeals, Standards of Review, General Overview, Contracts Law, Types of Contracts, Lease Agreements, Energy & Utilities Law, Federal Oil & Gas Leases, Extensions & Terminations, Abandonment & Termination, Leases & Licenses, Forfeiture Clauses, Oil, Gas & Mineral Interests, Implied Covenants, Administration & Marketing, Real Property Law, Mining, Reasonable Development