Gard v. Kaiser

• Citation: 582 P.2d 1311
• Decision Date: 19 July 1978
• Docket Number: No. 50186,50186
• Parties: Gene I. GARD and Don Allan Gard, Appellants, v. Herman George KAISER, Francis Oil and Gas Inc., Fell and Wolfe Oil Company, Jene Eichenberg, Mildred Sanditen, Renee Neuwald, Rose Schlanger, Adolph Neuwald, and Walter Kaiser, all general partners, d/b/a Kaiser-Francis Special Account "B", a general partnership, Appellees.
• Court: Supreme Court of Oklahoma

Page 1311

582 P.2d 1311

Gene I. GARD and Don Allan Gard, Appellants, v. Herman George KAISER, Francis Oil and Gas Inc., Fell and Wolfe Oil Company, Jene Eichenberg, Mildred Sanditen, Renee Neuwald, Rose Schlanger, Adolph Neuwald, and Walter Kaiser all general partners, d/b/a Kaiser-Francis Special Account "B", a general partnership, Appellees.

No. 50186.

Supreme Court of Oklahoma.

July 19, 1978.

As Corrected Aug. 8, 1978.

CERTIORARI GRANTED. COURT OF APPEALS OPINION VACATED, TRIAL COURT AFFIRMED.

C. D. Curtis, Curtis & McCune, Fairview, for appellants.

Holliman, Langholz, Runnels & Dorwart, by Frederic Dorwart, J. Michael Medina, Judith K. Pensabene, Tulsa, for appellees.

H. B. Watson, Jr., Gregory L. Mahaffey, Ruchard K. Brooks, of Watson, McKenzie & Moricoli, Oklahoma City, for Supron Energy Corporation, amicus curiae.

BERRY, Justice:

This action was brought by Gene I. Gard and Don Allan Gard, plaintiffs (appellants), lessors herein, to cancel oil and gas leases for failure of lessees, Herman George Kaiser, Francis Oil & Gas Inc., Fell and Wolfe Oil Company, Jene Eichenberg, Mildred Sanditen, Renee Neuwald, Rose Schlanger, Adolph Neuwald, and Walter Kaiser, all General Partners, d/b/a Kaiser-Francis Special Account "B", a General partnership, defendants (appellees) to pay shut-in gas royalty.

The question in this case is the effect of failure to pay shut-in royalty to lessors under shut-in gas provisions of three oil and gas leases. Two of the leases were dated March 25, 1967, with primary term of five years, and the other was dated February 17, 1970, with primary term of six months. These leases covered the same well location, upon which a well was completed and production commenced within the primary terms of all three leases.

Gas from this well was sold from 1970 until 1972, when gas pressure from the well became too low for gas to enter the pipeline for the market of gas.

After the well pressure had declined appellees (having failed to have the pipeline pressure reduced) applied to the Federal Power Commission to permit release from the gas sales contract so they could sell to another company. More than a year later the Federal Power Commission authorized the abandonment of the contract.

After further negotiations a new contract was entered between the lessees and the former purchaser at a much increased price. The new contract required the purchaser to install a compressor to enable gas from the well to enter the pipeline.

Gas was again marketed from this well from April 1975 to date of trial under the new contract.

There had been no shut-in royalty payments made to the lessors by the lessees during the period of time when the well was shut in from 1972 until 1975.

The primary terms of all three leases expired during production and prior to the time the leases were shut in.

Appellants argue only one proposition in their brief, that in the oil and gas leases under the express provisions of the shut-in royalty payments, the leases expired because lessees failed to timely pay the specified amounts.

Two of the oil and gas leases, on Form 88 Prod. Pooling Oklahoma 640 shut-in, contained the following provisions:

"It is agreed that this lease shall remain in force for a term of Five (5) years from date, and as long thereafter as oil or gas, or either of them, is produced from said land by the lessee.

"2nd. * * * Where gas from a well producing gas only is not sold or used, lessee may pay or tender a royalty of One Dollar ($1.00) per year per net royalty acre retained hereunder, such payment * * * made, on or before the anniversary date of this lease next ensuing after the expiration of ninety (90) days from the date such well shut in and thereafter on the anniversary date of this lease during the period such well is shut in, to the royalty owners * * * If such payment or tender is made it will be considered that gas is being produced within the meaning of the preceding paragraph."

The third oil and gas lease on Form 88 Prod. Pooling Shut In Paid Up, Revised 1963, contained the following provisions:

"It is agreed that this lease shall remain in force for a term of 6 months from March 22, 1970, (herein called primary term) and as long thereafter as oil and gas, or either of them, is produced from said land by the lessee.

"2nd. * * * During any period (whether before or after expiration of the primary term hereof) when gas is not being so sold or used and the well or wells are shut in and there is no current production of oil or operations * * * lessee shall pay * * * a royalty of One Dollar ($1.00) per year per net royalty acre retained * * * such payment * * * to be made, on or before the anniversary date of this lease * * * from the date such well is shut in and thereafter on the anniversary date of this lease during the period such well is shut in, to the royalty owners. * * * When such payment * * * is made it will be considered that gas is being produced within the meaning of the entire lease. * * *" In deciding this case we must ascertain if the language in the above clauses operates to set a specific termination date.

Lessors contend the clauses "so long as" and "as long as" impose a special limitation on the estate of the lessees and that as soon as production ceases a special limitation occurs and the lease "automatically terminates." They conclude that production will keep the lease alive but in substance say as soon as production ceases and the lease is shut in, the lease expired, citing Anthis v. Sullivan Oil & Gas Co., 83 Okl. 86, 203 P. 187.

Lessors also argue that the instrument is unambiguous and the intent of the parties can be determined from its language and that the lease should be construed against the lessee and in favor of the lessor, citing Carlisle v. United Producing Co., 278 F.2d 893 (10th Cir.); Lima Oil and Gas Co. v. Pritchard, 92 Okl. 113, 218 P. 863. Appellants also cite Greer v. Salmon, 82 N.M. 245, 479 P.2d 294.

Lessors cite Flag Oil Corp. v. King Resources, Okl., 494 P.2d 322, and distinguish it from the case at hand, pointing out in that case the original lease did not contain any provisions for shut-in royalty payments, and that toward the end of the primary term the parties amended the lease for an additional two years with provisions for shut-in royalty payments and that payments were made. Lessors concluded that the case is not in point because it did not involve the existence of a shut-in clause.

Lessees' (appellees) position on appeal is that these oil and gas leases remained in effect despite non-payment of shut-in royalties so long as the lessee diligently sought and found a market for the gas.

In discussing Greer v. Salmon, supra, lessees contend that New Mexico cases are contrary to the Oklahoma position in so far as oil and gas lease questions are involved. The Supreme Court of New Mexico has held that the word "produced" includes marketing. Oklahoma, however, has consistently taken the position that "produced" does not include marketing. McVicker v. Horn, Okl., 322 P.2d 410.

The Oklahoma rule is set forth clearly in 4 Kuntz, The Law of Oil and Gas § 46.3:

"In a jurisdiction where marketing is not required as a...