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Gulf Oil Corp. v. Reid

Supreme Court of Texas

March 23, 1960, Decided

No. A-7343

Opinion

 [*53]   [**268]  The chief question presented here is whether the so-called "shut-in" royalty payment, tendered after a well capable of producing gas only in paying quantities had been capped, was so timely made as to extend the term of an oil and gas lease after the expiration of the primary term.

On December 9, 1943 E. L. Reid, who owned an undivided 1/8th mineral interest, executed to Gulf Oil Corporation an oil and gas lease for a primary term of five years. Gulf began the drilling of a well a few days before expiration of the primary term and continued drilling operations up to and including January 18, 1949, subsequent to the end of the primary term when the well in question was completed. This well, which was capable of production in paying quantities, was capped on that date due to the lack of market facilities. On February 19, 1949, Gulf tendered the "shut-in" gas royalty payment to Reid, which was rejected by him. On June 7, 1949, Gulf contracted with a pipe line company for the sale and purchase of the gas. On November 22, 1949, the gathering lines had been laid and connected, and thereafter until the date of the trial [***5]  of this case the well has continued to produce in paying quantities.

This suit was filed by E. L. Reid seeking to have the Court decree that the lease terminated under its own provisions and for the recovery of title to and possession of his undivided 1/8th interest in the minerals, and for an accounting. The trial court denied the relief sought, and held the mineral lease to be in full force and effect. The Court of Civil Appeals reversed and remanded. 323 S.W. 2d 107. The applications for writ of error of both parties are before us. We will direct our attention first to that of Gulf Oil Corporation.

Petitioner asserts: (1) That it had a reasonable time to obtain a market for its gas from and after the completion of the well, (2) that inasmuch as no time was expressly provided within which the royalty must be paid, the only stated condition being  [**269]  that $ 50.00 be paid per well per year, by implication the lessee could pay the royalty at any time within the year following the "shut-in" of the well; (3) that there was actual production of gas within the terms of the lease; (4) that there was thereafter a cessation of production within the meaning of paragraph 5 of [***6]  the lease so as to bring into play the 60-day cessation-of-production and thus keep the lease alive for a period of 60 days after the well was capped and production ceased: (5) that the lessee had the privilege of paying the "shut-in" royalty at any time so long as the lease was kept alive under any of its provisions.  [*54]  We think the Court of Civil Appeals correctly resolved these issues against petitioner's contentions. The lease followed substantially the usual "unless" form. 1 

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161 Tex. 51 *; 337 S.W.2d 267 **; 1960 Tex. LEXIS 551 ***; 3 Tex. Sup. J. 248; 12 Oil & Gas Rep. 1159

Gulf Oil Corporation v. E. L. Reid

Subsequent History:  [***1]  Rehearing Overruled July 20, 1960.

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

Disposition: The judgment of the Court of Civil Appeals is modified and as so modified is affirmed.

CORE TERMS

lease, royalty, shut-in, reasonable time, primary term, lessee, oil, drilling, parties, discovery, terminated, pipeline, cessation, diligence, paying quantities, drilling operations, gas well, expiration, marketing, temporary, oil and gas lease, provisions, tendered, mineral, habendum clause, present case, cases, completion, contracts, lessor

Contracts Law, Types of Contracts, Lease Agreements, General Overview, Energy & Utilities Law, Leases & Licenses, Habendum Clauses, Real Property Law, Oil & Gas, Federal Oil & Gas Leases, Extensions & Terminations, Abandonment & Termination, Assignment, Release & Surrender, Forfeiture Clauses, Estates, Present Estates, Fee Simple Estates