Sun Operating Ltd. Partnership v. Holt

• Decision Date: 29 October 1998
• Docket Number: No. 07-97-0010-CV,07-97-0010-CV
• Citation: 984 S.W.2d 277
• Parties: SUN OPERATING LIMITED PARTNERSHIP, Oryx Energy Company, Its General Partner, Faulconer Energy Joint Venture--1988, Global Natural Resources Corporation of Nevada, and Chevron U.S.A., Inc., Appellants, v. Elizabeth HOLT, Robert P. Holt, Comfort Holt Winders, Nick D. Holt, and Coy Miles Holt, Appellees.
• Court: Texas Court of Appeals

Page 277

984 S.W.2d 277

SUN OPERATING LIMITED PARTNERSHIP, Oryx Energy Company, Its General Partner, Faulconer Energy Joint Venture--1988, Global Natural Resources Corporation of Nevada, and Chevron U.S.A Inc., Appellants, v. Elizabeth HOLT, Robert P. Holt, Comfort Holt Winders, Nick D. Holt, and Coy Miles Holt, Appellees.

No. 07-97-0010-CV.

Court of Appeals of Texas Amarillo.

Oct. 29, 1998.

Opinion Denying Rehearing Dec. 3, 1998.

Rehearing Overruled Jan. 7, 1999.

Gibson, Ochsner & Adkins, L.L.P., S. Tom Morris, Amarillo, for appellants.

Templeton, Smithee, Hayes & Fields, Joe W. Hayes, John T. Smithee, Coleman Young, Amarillo, Law Offices of Bob Pearson, Bob Pearson, for appellees.

Before BOYD, C.J., and DODSON and QUINN, JJ.

QUINN, Justice.

Elizabeth Holt, Robert P. Holt, Comfort Holt Winders, Nick D. Holt, and Coy Miles Holt (collectively referred to as the Holts) sued Sun Operating Limited Partnership, Oryx Energy Company, its General Partner, Faulconer Energy Joint Venture--1988, Global Natural Resources Corporation of Nevada, and Chevron U.S.A., Inc. (collectively referred to as the Sun Parties) and others for a judgment declaring that two oil and gas leases had terminated and for damages arising from the acquisition of product from the lands after termination. The causes of action alleged sounded in equity and tort, that is, they included a demand for 1) an accounting and restitution and 2) damages for conversion and trespass. After conducting a bifurcated trial by jury, the court entered judgment declaring that the leases had terminated and awarding damages to Elizabeth and Robert Holt. Both the Sun Parties and Holts appealed. Though the Sun Parties alleged seven points of error, and the Holts nine, we need only address the first three uttered by the Sun Parties. They are dispositive and involve 1) whether the cessation of production was temporary which, in turn, afforded the Sun Parties a reasonable time to resume production and 2) whether the cessation of production was excused via the force majeure clauses contained in the leases. We reverse and remand.

Background

The dispute involved two oil and gas leases (referred to as leases number one and two) affecting interests in property located in Hansford County. The Sun Parties were either the original lessees or succeeded to the interest of the original lessees under each agreement, while the Holts succeeded to the interests of the original lessors under lease number one and Elizabeth and Robert Holt succeeded to the interests of the original lessors under lease two. Each document was executed in December of 1947 and contained several provisions pertinent to this appeal. The first dealt with the lease term:

Subject to other provisions herein contained, this lease shall remain in force for a term of ten years from this date, called primary term, and as long thereafter as oil, gas or other mineral is produced from said land, or as long thereafter as Lessee shall conduct drilling or re-working operations thereon with no cessation of more that sixty consecutive days until production results, and if production results, so long as any such mineral is produced.

The second pertained to possible interruptions in drilling and operations caused by various specified acts. Referred to by us as the force majeure clause, it provided that:

When drilling or other operations are delayed or interrupted by lack of water, labor or materials, or by fire, storm, flood, war, rebellion, insurrection, riot, strike, differences with workmen, or failure of carriers to transport or furnish facilities for transportation, or as a result of some order, requisition or necessity of the government, or as the result of any cause whatsoever beyond the control of the Lessee, the time of such delay or interruption shall not be counted against Lessee, anything in this lease to the contrary notwithstanding.

After execution of the leases, the lessee drilled wells and extracted gas from the land in paying quantities. This continued until April 11, 1983. At that time, the land encompassed by lease number one held five producing wells. That under lease two held five similar wells. Moreover, the gas obtained from each was being purchased by Panhandle Eastern Pipeline Company (Panhandle) and transported from the leases via Panhandle's transmission line 200. No other transmission line was connected to the wells.

As previously alluded to, the production of gas was interrupted on April 11th. Panhandle had begun major repairs and renovations upon line 200 which caused production from both leases to cease for more than 60 consecutive days. Production resumed, however, by September 23, 1983, the date on which the repairs were completed. All concede that the wells were capable of producing during the entire time.

From the foregoing interruption arose the present controversy. The Holts invoked that portion of the habendum clause directing that the lease remain in force as long as production does not stop for more than 60 consecutive days. Because it had so stopped, they argued that the leases automatically terminated. The Sun Parties disagreed with their opponents' interpretation of the events, and the results thereof, and raised various defenses. The two pertinent here concerned 1) whether they had a reasonable (as opposed to a specific) time within which to resume production, and 2) whether the cause of the interruption fell within the scope of the force majeure clause which, in turn, prevented the cessation from causing the leases to terminate.

Trial of the suit was bifurcated into separate proceedings involving liability and damages. During the former, the court submitted only one question to the jury which read:

Do you find that the failure to produce oil, gas and other minerals from the Lease Number 1 premises and the Lease Number 2 premises during the period of May 26, 1983, to August 1, 1983, was solely caused by "force majeure" as defined by paragraph 10 of Lease Number 1 and Lease Number 2?

Answer "Yes" or "No"

Answer: _____

In answering this question you should consider paragraph 10 of the leases in its entirety ...

* * *

In connection with Question No. 1 you are instructed as follows:

(a) Before such an occurrence can constitute "force majeure," the operators of the wells located on the Lease Number 1 and Lease Number 2 premises must have exercised due diligence and taken all reasonable steps to avoid, remove and overcome the effect of "force majeure".

(b) For "force majeure" to be the sole cause of the failure to produce oil, gas and other minerals from the Lease Number 1 and Lease Number 2 premises during the period of May 26, 1983, to August 1, 1983, the alleged "force majeure" must have been the only cause of said failure and said failure cannot have been caused in whole or in part by the negligence of the operators of the wells located thereon.

(c) "Negligence" shall mean the failure to act as a reasonably prudent operator under the same or similar circumstances.

To the only question posed, the jury answered "no." Based upon this finding, the court declared that the leases were terminated. Damages were eventually awarded to the Holts once the remaining portion of the bifurcated trial was completed.

Unsatisfied, both parties appealed from the final judgment and asserted a myriad of error. However, we find several raised errors in the Sun Parties' brief dispositive of the appeal and address them. Finally, in addressing them, we do not necessarily do so in numerical sequence but rather in their logical sequence.

Point of Error One

Through their first point, the Sun Parties invoke the rule of temporary cessation. That is, they argue that the interruption was temporary. Being temporary, it did not serve to end the leases. See Midwest Oil Corp. v. Winsauer, 159 Tex. 560, 563, 323 S.W.2d 944, 946 (Tex.1959) (holding that implied within an oil and gas lease is the provision that temporary interruptions in production of commercial quantities will not cause the lease to terminate). Yet, they also recognize that the foregoing rule does not apply when leases, like those here in question, contain a provision in the habendum clause which expresses a time limitation within which continued drilling or reworking operations must be conducted. ¹ Samano v. Sun Oil Co., 621 S.W.2d 580, 581-84 (Tex.1981); Judice v. Mewbourne Oil Co., 890 S.W.2d 180, 182 n. 4 (Tex.App.--Amarillo 1994), modified on other grounds, 939 S.W.2d 133 (Tex.1996). So, they encourage us to create an exception to Samano which "should be recognized when the cessation ... is NOT caused by depletion, mechanical problems or intentional conduct of the lessee." (emphasis in original, underlining omitted). We disagree and overrule the point.

The Sun Parties accurately note that in many of the cases wherein the temporary cessation rule was modified by the CPL clause, production had ended because the wells were incapable of producing. Thus, additional reworking, drilling, or mechanical operations may have been necessary to resume production in those circumstances. Yet, no case has been found which restricts application of a CPL clause to situations where production ceases solely because of mechanical breakdown, depletion, or the like. Nor do we care to be the first to so hold, given the purpose of the clause. As illustrated by the Texas Supreme Court in Samano, a CPL clause deals with prolonging the viability of the lease once production stops, not with the reasons why production stopped. Samano v. Sun Oil Co., 621 S.W.2d at 583-84. That is, once production stops, it provides the lessee a means of preventing the lease from terminating. Id. And, the means involve initiating those acts described in the clause (i.e., drilling or reworking) within and for the time specified. Id.

For example, if the habendum clause in mineral lease X specified a primary term of ten years, followed by a statement revealing the...