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Vernon v. Union Oil Co.

United States Court of Appeals for the Fifth Circuit

September 18, 1959

No. 17502

Opinion

 [*442]  This is an action to try title to certain land located in the State of Texas, brought by the appellants (hereinafter referred to as the lessors) against the appellee (hereinafter referred to as the lessee) to obtain a judicial declaration of the termination of an oil, gas and mineral lease between the parties. The lease in question was entered into on December 5, 1951, and provided, inter alia:

'Subject to the other provisions herein contained, this lease shall be for a term of five years from this date (called 'primary term') and as long thereafter as oil, gas or other minerals is produced from said land hereunder.

'* * * where gas from a well producing gas only is not sold or used, Lessee may pay as royalty $ 50.00 per well per year, and upon such payment it will be considered  [**2]  that gas is being produced within the meaning of Paragraph 2 hereof * * *.'

Pursuant to this lease, on May 31, 1956, the lessee commenced the drilling of a well. The drilling operation ended successfully on July 6, 1956, and the completed well was tested a few days later on July 23. The results of that test indicated that the well had a potential yield of 25,000,000 cubic feet of gas and approximately 312.5 barrels of liquid condensate per day. After this test, the well was shut in and was not actually put into production until March 5, 1957. It is undisputed that the continued vitality of the lease is wholly dependent upon this one well, for no other attempt was made to exploit the land covered by the lease during the relevant period.

The lessors' position is that the lease terminated for nonproduction on December 5, 1956, the expiration date of the primary term. In support of this position, they contend that the effect of the absence of actual production at that time cannot be avoided by reliance upon the provision permitting constructive production of wells 'producing gas only' on the grounds, first, that the well was not a well 'producing gas only' within the  [**3]  meaning of the lease, and, secondly, that, even if the well was 'producing gas only,' the lessee failed to perfect constructive production by a proper tender of the specified royalty payments.

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270 F.2d 441 *; 1959 U.S. App. LEXIS 5166 **; 11 Oil & Gas Rep. 688

Mary Ellen Francis VERNON and husband, H. J. Vernon, Appellants, v. UNION OIL COMPANY OF CALIFORNIA et al., Appellees

CORE TERMS

lease, lessee, lessors, producing, tenders, special issue, condensate, liquid, royalties, oil, primary term, shut-in, termination, contends

Contracts Law, Types of Contracts, Lease Agreements, General Overview, Energy & Utilities Law, Leases & Licenses, Habendum Clauses, Real Property Law, Estates, Present Estates, Fee Simple Estates, Federal Oil & Gas Leases, Extensions & Terminations, Forfeiture Clauses, Granting Clauses, Oil, Gas & Mineral Interests, Implied Covenants, Administration & Marketing, Torts, Negligence, Defenses, Acts of God