Opinion ID: 6108814
Heading Depth: 2
Heading Rank: 2

Heading: Termination of the 2007 Leases

Text: Anadarko urges that the different leases did not exist at the same time, and the 2011 Leases were not contingent on expiration or termination of the 2007 Leases because execution of the 2011 Leases terminated the 2007 Leases. Thus, the 2011 Leases were not top leases. TRO-X responds that under Texas law, predecessor existing leases, such as the 2007 Leases, remain effective absent discrete evidence of intent to terminate them.  As explained below, we agree with Anadarko. In Ridge Oil , we recognized that [e]ven if an oil and gas lease does not contain a surrender clause, the parties may mutually agree to a release, or they effectively terminate their lease by signing a new one . Ridge Oil , 148 S.W.3d at 152-53 (emphasis added) (citing Sasser , 906 S.W.2d at 603 ); Sasser , 906 S.W.2d at 603 (We ... hold that, by signing a new lease with the intent to terminate a prior lease, a lessor waives strict compliance with a surrender clause and effectively terminates or releases the prior lease.). In Ridge Oil , the lessee ceased production while operating under an existing lease, then entered into new leases with its lessors. Ridge Oil , 148 S.W.3d at 148 . The Court held that [w]hen the owners of the possibility of reverter of the mineral interest in the [land] executed new leases with [the lessee], they effectively terminated the [previous] lease as to that [land]. Production by [the lessee] was thereafter performed under the new ... leases, not the [previous] lease. Id. at 153 . Although in the discussion of background facts the Court mentioned extrinsic evidence indicating the parties intended the new leases to terminate the previous ones, it did not discuss this evidence in analyzing whether the execution of the subsequent leases terminated the previous leases. See id. at 148, 152-53 . Instead, the Court based its conclusion that the previous leases had been terminated solely on the fact that the parties executed new leases of the same mineral interests before production resumed. See id. at 152-53 . TRO-X observes that the Ridge Oil opinion cited Sasser , which TRO-X claims stands for the proposition that a subsequent lease cannot terminate a previous lease without evidence that the parties intended to do so: [B]y signing a new lease with the intent to terminate a prior lease , a lessor waives strict compliance with a surrender clause and effectively terminates or releases the prior lease. Id. at 153 n.34 (emphasis added) (quoting Sasser , 906 S.W.2d at 603 ). We disagree with TRO-X that in order for a new lease between the parties to an existing lease to terminate that lease, the new lease must contain specific language showing that the parties intended for execution of the new lease to terminate the prior lease. To clarify what we explained in Ridge Oil , if necessary, an existing lease between the parties as to an interest terminates when the parties enter into a new lease covering that interest unless the new lease objectively demonstrates that both parties intended for the new lease not to terminate the prior lease between them. See id. at 152-53 (stating that execution of the lease effected termination of the prior lease without basing that conclusion on evidence outside the lease that the parties intended to terminate the prior leases by entering into new ones). Such intent might be reflected, for example, by language making the new lease subject to the existing lease or limiting the grant to a different interest than was conveyed by the prior lease. TRO-X also relies on another passage of Sasser that Ridge Oil quotes: [T]he 1974 Lease terminated when Dantex and [the owner of the possibility of reverter] signed the 1990 Lease with the intent and understanding that, by doing so, they would effect a release of the 1974 Lease. Id. at 153 (second alteration in original) (quoting Sasser , 906 S.W.2d at 603 ). However, in Ridge Oil , the Court did not rely on this language in determining that the new lease terminated the old one. See id. Instead, this quote appeared in the Court's discussion of alleged 'washout[s]'  and [o]ther decisions [that] recognize, in the overriding  royalty context, that a lessee may terminate a lease and extinguish the overriding royalty interest, at least when the lease has an express surrender clause. See id. at 153-55. Moreover, the Court's decision in Ridge Oil did not turn on the Sasser court's having based its decision on affidavits concerning the parties' understanding that the new leases constituted a release of the old leases. See id. at 152-53 ; Sasser , 906 S.W.2d at 602, 604 . Both Anadarko and TRO-X are somewhat inconsistent in their positions regarding whose intent-that of the lessor, the lessee, or both-matters. This may result from the fact that in Ridge Oil we said parties, whereas in Sasser , the court of appeals appeared to, at times, devote more attention to the lessor's intent. Compare Ridge Oil , 148 S.W.3d at 152-53 (Even if an oil and gas lease does not contain a surrender clause, the parties may mutually agree to a release, or they can effectively terminate their lease by signing a new one. (emphasis added) ), and Sasser , 906 S.W.2d at 604 (basing its conclusion on evidence of intent of both the lessor and lessee), with Sasser , 906 S.W.2d at 603 ([B]y signing a new lease with the intent to terminate a prior lease, a lessor waives strict compliance with a surrender clause and effectively terminates or releases the prior lease. (emphasis added) ). To clarify, it is the intent of both parties, not just that of the lessor, that is relevant. See Shell Oil Co. v. Stansbury , 401 S.W.2d 623 (Tex. Civ. App.-Beaumont 1966), writ ref'd n.r.e., 410 S.W.2d 187 (Tex. 1966) (recognizing that a lessor and lessee can effect a limited release by mutual agreement). In sum, when a lessor and lessee under an existing lease execute a new lease of the same mineral interests subject to the existing lease, the existing lease is terminated unless the new lease objectively demonstrates both parties' intent otherwise-for example, by language in the new lease making it subject or subordinate to the prior lease, or restricting the new lease's grant or limiting the grant to a different interest from that conveyed by the prior lease. A party contending that a new lease did not terminate the previous one has the burden to prove and obtain a finding that the parties intended for the previous lease to survive execution of the new lease. The proof must be either specific language in the new lease objectively demonstrating that intent, or an ambiguity in the new lease as to termination of the previous lease together with evidence that the parties did not intend the new lease to terminate the prior lease.