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Pack v. Santa Fe Minerals

Supreme Court of Oklahoma

February 22, 1994, Filed

NO. 74,605, NO. 74,606

Opinion

 [**325] SIMMS, J:

 [*P1] Appellants, Santa Fe Minerals and other oil and gas companies, (lessees) appeal the judgments entered by the district court in the quiet title actions instituted by appellees, Mary Lou Pack, Ann E. Watts, Robert E. Stevens, Jo E. Stevens, John V. Balzer, Jake F. Balzer, and Lydia Balzer (mineral rights owners/lessors). These separate actions instituted by Pack, Watts and Stevens [***4]  (No. 74,605), and by the Balzers (No. 74,606) were consolidated for trial, and are consolidated for purposes of this opinion. The trial court entered judgment in favor of the mineral rights owners, canceling oil and gas leases and quieting title in the lessors.

 [*P2] The Court of Appeals affirmed, holding the leases terminated of their own terms under the provisions of the "cessation of production" clause. Certiorari was granted to consider the first impression question of whether a lease, held by a gas well which is capable of producing in paying quantities but is shut-in for a period in excess of sixty (60) days but less than one year due to a marketing decision made by the producer, expires of its own terms under the "cessation of production" clause unless shut-in royalty payments are made. We find that under such circumstances, the lease does not expire of its own terms. The opinion of the Court of Appeals is vacated, the judgment of the district court is reversed, and this cause remanded with directions to enter judgment in favor of the lessees.

 [*P3] The stipulated facts disclose that in both cases the mineral owners or their predecessors in interest entered into oil and gas leases with [***5]  the lessees. Each of the leases contained similar provisions including a habendum clause, a shut-in or minimum royalty clause, and a 60-day cessation of production clause.

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1994 OK 23 *; 869 P.2d 323 **; 1994 Okla. LEXIS 28 ***; 65 O.B.A.J. 803; 128 Oil & Gas Rep. 550

MARY LOU PACK, ANN E. WATTS, ROBERT E. STEVENS and JO E. STEVENS, Husband and Wife, Appellees, v. SANTA FE MINERALS, a Division of SANTA FE INTERNATIONAL CORPORATION, SOUTHLAND ROYALTY COMPANY, a Delaware Corporation, and DECK OIL COMPANY, an Oklahoma corporation, Appellants, CONSOLIDATED WITH JOHN V. BALZER, an individual, JAKE F. BALZER and LYDIA BALZER, Husband and Wife, Appellees, v. SANTA FE MINERALS, a Division of SANTA FE INTERNATIONAL CORPORATION, a Delaware corporation, HAMON OPERATING COMPANY, a Texas corporation, FRONTIER FUELS, INC., a Delaware corporation, SOUTHLAND ROYALTY COMPANY, a Delaware Corporation, and DECK OIL COMPANY, an Oklahoma corporation, Appellants.

Prior History:  [***1]  CERTIORARI TO THE COURT OF APPEALS, DIVISION III. APPEAL FROM THE DISTRICT COURT OF TEXAS COUNTY, OKLAHOMA. HONORABLE FRANK OGDEN, TRIAL JUDGE

Disposition: CERTIORARI PREVIOUSLY GRANTED. COURT OF APPEALS OPINION VACATED. JUDGMENT OF THE DISTRICT COURT REVERSED AND REMANDED WITH DIRECTIONS.

CORE TERMS

lease, cessation, lessees, paying quantities, habendum clause, marketing, shut-in, oil, primary term, capable of producing, expiration, terminated, terms, provisions, lessors, mineral, circumstances, producing, oil and gas lease, royalty clause, temporary, drilling, lease termination, royalty payment, cease, quantities, purposes, cases, implied covenant, cancellation

Energy & Utilities Law, Leases & Licenses, Habendum Clauses, Natural Gas Industry, Distribution & Sale, General Overview, Marketing & Transportation, Marketability, Waste Prevention, Contracts Law, Types of Contracts, Lease Agreements, Real Property Law, Oil & Gas, Oil, Gas & Mineral Interests, Implied Covenants, Administration & Marketing, Forfeiture Clauses, Landlord & Tenant, Tenancies, Term Tenancies, Federal Oil & Gas Leases, Extensions & Terminations, Abandonment & Termination, Torts, Negligence, Gross Negligence, Contract Interpretation, Royalty Clauses, Savings Clauses, Shut In Royalty Clauses, Civil Procedure, Discovery & Disclosure, Discovery, Exploration & Recovery, Implied Duties, Royalties, Leasehold Royalty Clauses, Business & Corporate Compliance, Contracts Law, Covenants, Lease Cancellation, Financing, Grants & Reservations, Drilling Contracts, Reasonable Care & Diligence, Appeals, Standards of Review