Opinion ID: 1859617
Heading Depth: 1
Heading Rank: 4

Heading: Period of Time in Calculation of Operating Costs

Text: Ross asserts that the trial court used too short a period of time for determining profitability. Ross also argues that periods after assignment of the lease to Ross should have been considered. Other courts which have faced this issue clearly disfavor an inflexible period in all cases. Instead, the determinations depend upon the facts of the particular case and the specific reasons production waned or ended. The trial court used Ross's Exhibit N-10, which covered the twenty-four months prior to Sonat's shut-in of the well on April 30, 1996. Under the facts of the instant case, we hold that period of time to have been reasonable. In Fisher v. Grace Petroleum, Inc., 830 P.2d 1380 (Okla.Ct.App.1992), [2] the Oklahoma Court of Appeals dealt with a habendum clause that provided as long as gas is or can be produced. In discussing the proper period for determining profitability, the Court stated, The appropriate period for determining profitability is a time appropriate under all the facts and circumstances of each case. The court then cited Kuntz, The Law of Oil and Gas, § 26.7 (1990), which states: The better rule precludes the use of a rigid fixed term for determination of profitability and uses a reasonable time depending upon the circumstances of each case, taking into consideration sufficient time to reflect the current production status of the lease and thus to provide the information with which a prudent operator would take into account in whether to continue or abandon operation. The Fisher court found a thirteen-month time period to be adequate. [3] It also cannot be ignored that Ross's predecessor in interest voluntarily ceased all production on April 30, 1996, due to the well's low production and it being uneconomic. Voluntary cessation is a factor that some courts consider in determining whether a lease has been terminated. Hunter v. Clarkson, 428 P.2d 210 (Okla.1967). At the time Ross acquired the rights, if any, that Sonat had, the well was shut-in for lack of production. It had a tag on it that indicated temporary abandonment. A handwritten memo dated March 14, 1996, noted looks like the leases are probably gone anyway, with only 10MCF/D production. Under the facts presented here, we find no error in the trial court's use of the twenty-four-month period immediately preceding the well's shut-in by Sonat. Nor are we persuaded by appellant that the court should have considered production data for the well after Ross resumed production in September 1996. If the leases terminated at any time prior to that time, under their own terms subsequent production would be irrelevant.