Judice v. Mewbourne Oil Co.

• Decision Date: 07 December 1994
• Docket Number: No. 07-93-0080-CV,07-93-0080-CV
• Citation: 890 S.W.2d 180
• Parties: Samuel Joe JUDICE and Kathryn Tandy Thompson, Appellants, v. MEWBOURNE OIL COMPANY, et al., Appellees.
• Court: Texas Court of Appeals

Page 180

890 S.W.2d 180

Samuel Joe JUDICE and Kathryn Tandy Thompson, Appellants, v. MEWBOURNE OIL COMPANY, et al., Appellees.

No. 07-93-0080-CV.

Court of Appeals of Texas,

Amarillo.

Dec. 7, 1994.

Rehearing Overruled Jan. 11, 1995.

Patton, Boggs & Blow, D. Patrick Long, Dallas, for appellants.

Underwood Law Firm, Thomas R. Dixon, Kevin P. Parker, Gregory M. Bednarz, Amarillo, for appellees.

Before REYNOLDS, C.J., and BOYD and POFF, JJ.

ON MOTION FOR REHEARING

POFF, Justice.

We overrule Samuel Joe Judice and Kathryn Tandy Thompson's motion for rehearing as well as Mewbourne Oil Company's motion for rehearing; however, in light of the motions for rehearing, we withdraw our opinion of April 29, 1994 and vacate the judgment of that date. We substitute this opinion in lieu of our former opinion.

This appeal involves the construction and interpretation of an oil and gas lease. Appellants Samuel Joe Judice and Kathryn Tandy Thompson appeal from that portion of a judgment declaring that the oil and gas lease in question had not terminated as to a certain formation. Appellees advance three cross-points. We will affirm.

On July 1, 1978, Kathryn A. Judice entered into an oil and gas lease with Mewbourne Oil Company, appellee, ¹ in which Judice granted and leased unto Mewbourne the right to prospect and drill for oil and gas and the right to produce oil and gas. The property subject to the lease was described as "All of the East Half of the Northwest Quarter (E/2 of NW/4) of Section 79, Block 13, T. & N.O. RR. Co. Survey," in Ochiltree County, Texas. Appellants are the successors in interest to Kathryn A. Judice.

The lease's habendum clause provided for a primary term of three years and a secondary term for "as long thereafter as oil and gas, or either of them, is produced in paying quantities from the land hereby leased." The lease also contained a termination clause, found in paragraph 32 of the lease, that reads as follows:

Notwithstanding anything in this lease agreement to the contrary, and within six (6) years from the date of this lease, Lessee shall, by instrument in recordable form, release, relinquish and surrender unto Lessor all its right, title and interest in all zones and formations except those that are then producing in paying quantities.

The combination of the habendum clause and the termination clause creates a primary term of three years, a subsequent three-year period wherein production in paying quantities in any formation will hold the entire leased premises, and then a period of time beginning six years after the date of the lease wherein only production in paying quantities in a particular formation will hold that formation.

Appellants contend that under the undisputed facts of this case, the lease terminated as to a formation known as the Morrow formation on July 1, 1984--six years after the date the lease was signed. In their first point of error, appellants charge that the trial court erred in failing to hold, as a matter of law, that the lease terminated as to the Morrow formation. In their second point of error, appellants contend that the trial court erred in overruling their motion to disregard findings on questions submitted to the jury because the evidence established as a matter of law that the lease terminated as to the Morrow formation. In response to both points, Mewbourne maintains that the trial court correctly determined, as a matter of law, that the lease did not terminate as to the Morrow formation. ²

The record shows that in 1981, Mewbourne drilled a well on the subject property and began producing and selling gas from the Morrow formation. The production and sale of gas from the Morrow formation continued through May 5, 1984. On that day, Mewbourne installed a retrievable bridge plug in the well which prevented production from the Morrow formation while Mewbourne reworked the well to develop production from the shallower Cleveland formation. Mewbourne was required to install the bridge plug by a Texas Railroad Commission rule prohibiting the commingling of gas streams from two different geological formations without Railroad Commission approval. On July 11, 1984, Mewbourne received approval from the Railroad Commission to commingle gas streams from the Morrow and Cleveland formations so Mewbourne removed the retrievable bridge plug and the profitable production of gas from the Morrow formation continued. There was no physical production from the Morrow formation for a little over two months--from May 5, 1984 to July 11, 1984.

Appellants find it very significant that there was no physical production from the Morrow formation on July 1, 1984. Appellants contend that under the termination clause, actual physical production was required from a particular zone or formation on July 1, 1984 in order for Mewbourne to keep its lease from terminating as to that zone or formation. Because there was no physical production from the Morrow formation on July 1, 1984, appellants argue that Mewbourne's lease terminated on that date as to the Morrow formation.

Appellants argue that the use of the word "then" refers solely to the date six years after the date of the lease, i.e., July 1, 1984. Mewbourne contends that the word "then" should not be construed to refer to the one date at the end of the six-year period. Rather, Mewbourne argues, it should be construed to refer to the entire six-year time period referenced in paragraph 32. We agree with appellants that the word "then" refers to July 1, 1984. ³ However, we disagree with appellants' contention that actual, physical production was required from the Morrow formation on that date in order to prevent a termination of Mewbourne's lease as to that formation.

When physical production from the Morrow formation came to a halt on May 5, 1984, the lease was in its secondary term. This interruption in physical production constituted a temporary cessation of production, thereby bringing the lease's savings provision into play. The savings provision, found in paragraph 6 of the lease, gives Mewbourne ninety days to commence drilling or reworking following a cessation of production in order to keep the lease in effect. In pertinent part, paragraph 6 reads as follows:

It is further provided that if production, having once been obtained, shall cease for any cause and the lease is not otherwise maintained in force and effect, this lease shall not terminate if the Lessee commences additional drilling or reworking within ninety (90) days thereafter, and such lease shall remain in full force and effect so long as such operations continue in good faith and workmanlike manner without interruptions totaling more than ninety (90) days during any one such operation; and if such drilling or reworking operation result in the production of oil or gas, such lease shall remain in full force and effect so long as oil or gas is produced therefrom in paying quantities.

Under the express terms of the savings clause, Mewbourne was given ninety days to begin reworking operations if production should cease "for any cause." ⁴ Thus, Mewbourne had ninety days from May 5, 1984 to commence reworking operations to restore production from the Morrow formation. It is unquestioned that Mewbourne did so because the Morrow formation was producing again on July 11, 1994. While Mewbourne's lease would have terminated as to the Morrow formation had it not commenced reworking operations within ninety days of the cessation of physical production, see Bachler v. Rosenthal, 798 S.W.2d 646, 649-50 (Tex.App.--Austin 1990, writ denied), the fact is that Mewbourne did commence reworking operations within ninety days of May 5, 1984. Accordingly,...