Opinion ID: 2449056
Heading Depth: 1
Heading Rank: 1

Heading: The Questions To Be Decided

Text: One of the principal questions for decision is: Does the owner of the executive rights have the power to execute a lease which would be binding upon the owners of non-participating royalty interests after the expiration of the primary term even though no drilling operations were begun and no production was obtained from the only tract in which they own an interest? The second question is: Are those plaintiffs who owned non-participating royalty interests in Section 4, which interests were never conveyed to the owner of the executive rights, estopped to assert their right to have the oil and gas lease terminated merely because of the warranty provision in the leave which was executed by the owner of the executive rights only? In other words: Are such non-participating royalty owners estopped from claiming that paying production from Section 13 does not continue the lease in full force and effect after the expiration of the primary term as to Section 4? The third question is : Does the evidence show as a matter of law that the oil and gas lease was executed by Mathews, the holder of executive rights, and accepted by Kerr-McGee, the original lessee, in violation of a fiduciary duty owed to the non-participating royalty owners, and, if so, is Kerr-McGee entitled to the defense of estoppel as against the holder of the executive rights so far as his interest in Section 4 is concerned? In other words: Will the non-participating royalty interest owners be able to obtain full relief if the lease is declared terminated only as to their interest and left in effect as between Mathews and Kerr-McGee? The fourth question is : Does the evidence show as a matter of law that Kerr-McGee knowingly participated in the execution of an oil and gas lease which by its terms violated the duty owed the non-participating royalty owners by the holder of the executive rights to perform his duties and exercise his power and authority as the holder of the executive rights in a manner reflecting the utmost fair dealing? These are the controlling questions relating to the legal effect of the action of Mathews and Kerr-McGee in executing an oil and gas lease in such a manner as to burden indefinitely the interest of the Scott Trust et al. solely as a result of production secured upon lands in which the Scott Trust et al. had no title, and therefore, would not be entitled to share in such production. The legal consequences of combining two separate titles in one lease is not to be determined by Mathews' actions alone, but by the actions of both Mathews, the holder of the executive rights, and Kerr-McGee, the original lessee. It is my position that this record shows as a matter of law that Mathews has violated the duty owed the Scott Trust et al. to use utmost fair dealing in the exercise of the executive power with which he has been invested, and that Kerr-McGee knowingly participated in such violation of duty. Kerr-McGee was just as much a party to the breach of the duty of utmost fair dealing as was Mathews. As I will point out later, the oil and gas lease so far as Section 4 is concerned contains provisions which support an action for termination of the lease, whether the action is brought before or after the expiration of the primary term. It has been said that the law on the subject of executive rights in connection with non-executive interests is still in the formative stage and that it will be some time before it is fully developed. See Jones, 15th Oil & Gas Inst. 35 (Sw. Legal Fdn. 1964). This Court, in my opinion, has an opportunity to declare the law which shall govern the disposition to be made of the controlling issues presented in this case.