Opinion ID: 2639078
Heading Depth: 1
Heading Rank: 3

Heading: impact of language in habendum clause

Text: ¶ 9 In the state of Oklahoma, when the term produced is used in a thereafter provision of an habendum clause, its meaning is that of production in paying quantities. Stewart v. Amerada Hess Corp., 1979 OK 145, ¶ 5, 604 P.2d 854, 857; Barby v. Singer, 1982 OK 49, ¶ 4, 648 P.2d 14, 16; Pack v. Santa Fe Minerals, 1994 OK 23, ¶ 8, 869 P.2d 323, 326. Production in paying quantities is a term defined by Oklahoma case law to mean production of quantities of oil and gas sufficient to yield a profit to the lessee over operating expenses, even though the drilling costs or equipping costs are never recovered, and even if the undertaking as a whole may result in a loss to the lessee. Hininger v. Kaiser, 1987 OK 26, ¶ 6, 738 P.2d 137, 140. The phrase denotes a return in excess of lifting expenses, costs associated with lifting the oil from the ground after the well has been drilled. Stewart v. Amerada Hess Corp., 1979 OK 145, ¶ 6, 604 P.2d 854, 857. [5] The record in this case establishes that during the secondary term of the Stacy-Paige lease, the subject wells ceased production at some times, while at other times, they produced, but not in paying quantities. ¶ 10 Smith, in his reply brief, contends that Danne v. Texaco Exploration and Production, Inc., 1994 OK CIV APP 138, 883 P.2d 210, (holding Texaco forfeited its lease for breach of the implied covenant to market, during its secondary term,) controls the instant matter and should result in an opinion in his favor. We disagree. Danne is distinguishable on its facts as well as one of its legal theoriesa claim that the lessee breached the implied covenant to market the product with due diligence. The instant matter is not a claim for breach of the implied covenant to market the product. It is a claim to quiet title under the theory that Smith's leases expired under their own terms, contained in the habendum clause. If the evidence herein demonstrates that the subject wells were not producing in paying quantities and that Smith failed to present compelling equitable considerations to justify this failure to produce in paying quantities, then a decree of lease cancellation may be rendered. See, e.g., Pack v. Santa Fe Minerals, 1994 OK 23, ¶ 9, 869 P.2d 323, 326-327, quoting Stewart v. Amerada Hess Corp., 1979 OK 145, ¶ 12, 604 P.2d 854, 858. [6]