Opinion ID: 1226422
Heading Depth: 1
Heading Rank: 4

Heading: Abandonment of the Wells and Termination of the Lease

Text: The defendants argue that the question of abandonment of a lease by a lessee requires an examination of the intent of the lessee. The defendants take the position that an intent to abandon must be determined by looking to a lessee's conduct and declarations. The evidence in this case, the defendants contend, creates a question of material fact regarding whether the defendants intended to abandon the Howell lease or the Tomes lease. Under a typical oil and gas lease, the lessee must either develop the land, and produce and sell oil and gas, or be deemed to have abandoned the lease. This rule is designed to compel the lessee to develop the land and make the lease beneficial to both the lessee (through the use or sale of oil and gas) and the lessor (through the payment of royalties); the lessee cannot refuse to develop the land, and thereby tie up the land for speculative purposes to the detriment of the lessor. In Syllabus Point 1 of McCullough Oil, Inc. v. Rezek, 176 W.Va. 638, 346 S.E.2d 788 (1986) we made clear that an oil and gas lease is intended to be mutually beneficial to both the lessor and the lessee: An oil and gas lease (or other mineral lease) is both a conveyance and a contract. It is designed to accomplish the main purpose of the owner of the land and of the lessee (or its assignee) as operator of the oil and gas interests: securing production of oil or gas or both in paying quantities, quickly and for as long as production in paying quantities is obtainable. We similarly stated the principle in Syllabus Point 3 of Parish Fork Oil Co. v. Bridgewater Gas Co., 51 W.Va. 583, 42 S.E. 655 (1902) where we held that [w]hen its terms will permit it under the rules of law, an oil lease will be so construed as to promote development and prevent delay and unproductiveness. In Parish Fork Oil, this Court explained that an oil and gas lease is intended to be mutually beneficial to both the lessor and the lessee, and the lessee cannot enter into such a lease solely to tie up the land, and prevent its development by other individuals. We said: Until oil is discovered in paying quantities, the lessee acquires no title under such [an oil and gas] lease. It simply gives a right of exploration. After the discovery of oil in paying quantities, it is held that title does vest in the lessee, but there is no case which goes so far as to announce that after mere discovery of oil the lessee, upon the assumption of a vested interest or title, may cease operation, refuse to develop the property, tie up the oil by his lease, and simply hold it for speculative purposes, or to await his own pleasure as to the time of development. A well-settled principle of law is that a contract shall be construed as a whole, and in the light of the purposes and objects for the accomplishment of which it was made. Oil leases are no exception to the rule, and, as the subject-matter of the lease is peculiar in its nature, the courts have given this principle great latitude in their construction. They are executed by the lessor in the hope and with an expressed or implied condition that the land shall be developed and oil produced. When production takes place, the lease is mutually beneficial. The royalty which it is stipulated in all these leases that the landowner shall receive is generally the moving cause of the execution of the lease. If there is one principle that is asserted in Steelsmith v. Gartlan [,45 W.Va. 27, 29 S.E. 978 (1898)] more vigorously and with more emphasis than any other it is that the lessee shall proceed to make the lease profitable to both parties, and that he shall not be permitted to tie up the land. 51 W.Va. at 591-92, 42 S.E. at 658 (citations omitted). We have previously made it clear that if a lessee fails to diligently pursue operations pursuant to an oil and gas lease, the lessee's inaction may trigger the termination of the lease. We held in Syllabus Point 4 of Eastern Oil Co. v. Coulehan, 65 W.Va. 531, 64 S.E. 836 (1909) that: The discovery of oil or gas under a lease giving right of exploration and production, unless there is something in the lease manifesting a contrary intention, is sufficient to create vested estate in the lessee in the exclusive right to produce oil or gas provided for thereina right, however, which may be lost by abandonment, by failure to produce oil or gas, or pursue the work of production, or development of the property. In other words, the lessee under an oil and gas lease may lose all rights under the lease if the lessee fails to operate the wells, and essentially abandons the leased premises. The general question of whether a lessee has abandoned a lease involves a determination of whether the lessee intended to abandon the lease. In Syllabus Point 3 of Lowther v. Miller-Sibley Oil Co., 53 W.Va. 501, 44 S.E. 433 (1903), we stated that [t]o constitute abandonment by the lessee of a lease for oil there must be both an intention to abandon and actual relinquishment of the leased premises. See also, Smith v. Root, 66 W.Va. 633, 639, 66 S.E. 1005, 1007 (1910); Sult v. A. Hochstetter Oil Co., 63 W.Va. 317, 329-32, 61 S.E. 307, 313-14 (1908). We held in Berry Energy Consultants and Managers, Inc. v. Bennett, 175 W.Va. 92, 95, 331 S.E.2d 823, 826 (1985) that in the context of an oil and gas lease [t]he determination of such intent has been facilitated in West Virginia by statute. That statute is W.Va. Code, 36-4-9a [1994]. W.Va.Code, 36-4-9a creates a rebuttable legal presumption of an intent to abandon an oil and gas lease where a lessee fails to produce and sell oil and/or gas from the leased premises for a period in excess of 2 years. The statute states, in pertinent part: There is a rebuttable legal presumption that the failure of a person, firm, corporation, partnership or association to produce and sell or produce and use for its own purpose for a period of greater than twenty-four months, subsequent to the first day of July, one thousand nine hundred seventy-nine, oil and/or gas produced from such leased premises constitutes an intention to abandon any oil and/or gas well and oil and/or gas well equipment situate on said leased premises, including casing, rods, tubing, pumps, motors, lines, tanks, separators and any other equipment, or both, used in the production of any oil and/or gas from any well or wells on said leasehold estate. This statute gives practical effect to leases for the production of oil and gas in this State[.] Berry, 175 W.Va. at 95, 331 S.E.2d at 826. W.Va.Code, 36-4-9a makes clear that a lessee under an oil and gas lease cannot tie up land for more than 2 years without producing oil or gas from a well, and implicitly requires the lessee to either make the lease mutually beneficial to the lessee and lessor, or be rebuttably presumed to have abandoned the lease. The defendant-lessees in this case concede that they failed to sell or produce gas from the wells on the plaintiffs' properties for at least the 4 years preceding the filing of the instant cases. However, the defendants argue that, while W.Va.Code, 36-4-9a creates a rebuttable presumption that the leases in this case were abandoned, that presumption can be rebutted by examining the evidence of the intent of the defendants. The defendants state that because their records were in disarray after years of litigation, they were unable to determine the oil and gas wells in which they had an interest essentially arguing that had the defendants known of the wells' existence, they would have operated the wells. Furthermore, before, during and after that time of lease confusion, the defendants continued to keep expensive equipment to operate the wells on the leased premises. Unfortunately, the defendants allege that the only customer for the gas from the wells had, at an undetermined time and unknown to the defendants, disconnected the wells from its main pipeline and stopped buying the gas, thereby precluding the defendants from producing oil and gas from the wells. Furthermore, before filing the instant actions, each plaintiff wrote a letter to the defendants declaring that the wells had been abandoned due to lack of production for a period in excess of 2 years, and asking the defendants to either produce gas from the wells or remove their equipment from the properties. The defendants responded to each letter with a check designated as a payment of shut-in royaltieseven though neither lease provided for shut-in royalties and an apology indicating that the defendants were attempting to procure a customer to buy gas from the wells. The plaintiffs refused the checks and filed the instant actions. [4] The defendants contend that the aforementioned conduct and declarations are evidence of an intent not to abandon the Howell lease and the Tomes leaseand further, that such evidence creates a question of material fact precluding summary judgment. We disagree. W.Va.Code, 36-4-9a creates a rebuttable legal presumption that if a lessee fails to produce and sell (or produce and use for the lessee's own purposes) oil or gas from the leased premises, pursuant to an oil and gas lease, for a period greater than 24 months, then the lessee shall be deemed to have intended to abandon any oil or gas well situated on the premises. W.Va.Code, 36-4-9a also sets forth four different situations where that legal presumption of an intent to abandon may be rebutted. That Code section states, in pertinent part: This rebuttable presumption shall not be created in instances (i) of leases for gas storage purposes, or (ii) where any shut-in royalty, flat rate well rental, delay rental or other similar payment designed to keep an oil or gas lease in effect or to extend its term has been paid or tendered, or (iii) where the failure to produce and sell is the direct result of the interference or action of the owner of such oil and/or gas or his subsequent lessee or assignee. Additionally, no such presumption is created when a delay in excess of twenty-four months occurs because of any inability to sell any oil and/or gas produced or because of any inability to deliver or otherwise tender such oil and/or gas produced to any person, firm, corporation, partnership or association. We find ambiguity in W.Va.Code, 36-4-9a in the phrase this rebuttable presumption shall not be created. [5] The parties in this case do not discuss whether there is a difference between a rebuttable presumption not being created, and a presumption being created and then rebutted. We also have not located any authority discussing this semantic question. When this Court is called upon to construe a statute, our primary goal is to give effect to the intent of the Legislature. Syllabus Point 1, Smith v. State Workmen's Compensation Comm'r, 159 W.Va. 108, 219 S.E.2d 361 (1975). A statute must be construed in accord with the Legislature's intent, and in a manner that will uphold the law and further justice. The Court must disregard a construction, though apparently warranted by the literal sense of the words in a statute, when such construction would lead to injustice and absurdity. Syllabus Point 2, Click v. Click, 98 W.Va. 419, 127 S.E. 194 (1925). It appears that the Legislature intended the four situations listed above in W.Va.Code, 36-4-9a to constitute the exclusive means by which a lessee may rebut the previously created rebuttable legal presumption that an oil or gas well (or, as discussed in section III.B, equipment used in the production of oil or gas from any such well) has been abandoned. Such a construction would further the statute's goal of protecting landowners from an irresponsible lessee, and encouraging lessees under an oil and gas lease to put wells into productionwhile simultaneously providing protection to a responsible lessee. We therefore conclude that the legal presumption that a lessee has abandoned an oil or gas well, or abandoned any equipment used in the production of any oil or gas from such a well, set forth in W.Va.Code, 36-4-9a [1994], may only be rebutted in instances where the lessee demonstrates: (1) that the lease is for gas storage purposes; (2) that a shut-in royalty, flat rate well rental, delay rental or other similar payment, agreed to by the lessor and lessee and designed to keep the oil or gas lease in effect or extend its term, has been paid or tendered; (3) that the failure to produce or sell gas or oil from the leased premises is the direct result of interference or other actions of the owner of the oil or gas or his subsequent lessee or assignee; or (4) an inability to sell the oil or gas produced from the leased premises, or an inability to deliver or otherwise tender the oil or gas produced to any person, firm, corporation, partnership or association. After examining the language of the statute, we reject the defendants' argument that questions of fact remain over whether there was an intent to abandon the wells on the plaintiffs' properties. We believe that the circuit court correctly concluded that no genuine issue as to any material fact remained for jury resolution, and therefore properly granted summary judgment. The plaintiffs presented the circuit court with unrebutted evidence that the wells on their properties had been inactive for over 8 years. Applying the language of W.Va.Code, 36-4-9a, the circuit court correctly concluded that the defendant-lessees failed to produce and sell, or produce and use for their own purposes, oil or gas from the leased premises for a period greater than 24 monthsand therefore the defendants were presumed to have intended to abandon the wells situated on the plaintiffs' premises. The defendants introduced no evidence to rebut this presumption. The defendants' primary response is that the defendants did not know they had an interest in the subject wells because their lease records were in disarray. We do not understand how a record-keeping error by the defendants alleviates their failure to make the wells productive and beneficial to the plaintiffs for 8 years. Another contention of the defendants is that they were unable to sell any gas produced by the wells because the sole customer disconnected the wells from its main gas pipeline and refused to purchase any additional gas. We agree that the presumption of abandonment created under W.Va.Code, 36-4-9a is rebutted when there is a showing that the delay is the result of an inability to sell any oil and/or gas produced or because of any inability to deliver or otherwise tender such oil and/or gas. However, in this case, the defendants presented no evidence that the reason for the failure to produce from the wells, for the entire 8-year period, was the result of an inability to sell or deliver the gas. Aside from a conclusory statement, the defendants presented no evidence of its unsuccessful efforts to sell gas from the wells, nor any evidence that the inability to sell or deliver gas was ever contemporaneously communicated to the plaintiffs. The defendants communicated with the plaintiffs only after the plaintiffs wrote letters to the defendants stating that the plaintiffs wanted to terminate the leases due to abandonment and after the wells had been silent for upwards of 8 years. We therefore conclude that the circuit court properly presumed that the defendants intended to abandon the wells located on the plaintiffs' properties, and thereby abandoned any interest in the oil and gas on the property under the Howell and Tomes leases. [6] The circuit court's granting of summary judgment on this question is therefore affirmed. B.