Opinion ID: 521553
Heading Depth: 2
Heading Rank: 3

Heading: Surrender of Lease

Text: 22 In asserting a breach of contract claim against Phillips, Fuller also relies on Article 23 of the operating agreement which requires the consent of all parties before the surrender, in whole or in part, of any lease affecting the Unit Area or, in the absence of such consent, the assignment of such leases to the nonconsenting parties. Specifically, Fuller maintains that Phillips' actions in allowing its leases to terminate due to the cessation of production on the Holliday well constituted an affirmative surrender of its leases requiring the consent of all parties to the operating agreement. 23 The argument of Fuller in this regard, however, is belied by the legal difference between the terms surrender and termination of a lease. In the oil and gas industry, the term surrender refers to the contractual right of a lessee to voluntarily relinquish to the lessor all or part of the leased premises, thereby allowing the lessee to retain the most profitable portion of a lease while at the same time releasing the least profitable portion of the lease. William & Meyers, 8 Oil and Gas Law Sec. 966 (1985). Moreover, while a lease may be terminated by the act of one party by surrendering its rights under the lease, such a surrender may only occur while the lease is in effect. In contrast, termination of a lease as applied to the facts of the instant case refers to the expiration of a lease by its own terms for the failure of the operator (Phillips) to maintain operations on the leased premises. 24 Here, the Phillips' leases expired by virtue of the express terms of the leases which provide for the termination of the leases in the event of cessation of operations on the leased premises. Thus, the surrender clause in the operating agreement is inapplicable to the instant dispute. We therefore affirm the conclusion of the district court that Article 23 did not impose a duty on Phillips to notify Fuller of the impending termination of its leases. Because we affirm the conclusion of the district court that Phillips did not breach the operating agreement, we need not address the further contentions of Fuller regarding the damages issue. 3 25 AFFIRMED.