Opinion ID: 878365
Heading Depth: 1
Heading Rank: 2

Heading: the judicial ascertainment clause

Text: The oil and gas lease held by Creek Oil Company contained a judicial ascertainment clause. Such clauses vary from lease to lease, and from jurisdiction to jurisdiction, according to the practice of those in the industry. In this case the judicial ascertainment clause was stated in paragraph 14: 14. This lease shall never be forfeited or cancelled for breach of implied covenant until it shall have been finally judicially determined that such breach exists and lessees shall have failed within a reasonable time of such final determination, to remedy such breach. Creek Oil Company and Biby contend that the obligation, if any, of lessees under the lease to cure the saltwater seepage problem was an implied covenant; that it was the duty of the lessors, before the lease could be terminated or cancelled, to proceed through court for a determination that a breach of covenant actually existed; and after such determination that Creek Oil Company and Biby were entitled to a reasonable time to remedy such breach. Since the lessors did repair to court proceedings in this case, Creek Oil Company and Biby contend that their oil and gas lease is still in effect because there has been no judicial ascertainment of a breach of an implied covenant. This particular oil and gas lease does not contain a notice provision for termination of the lease by lessors in the case of a breach of an implied covenant under the lease. Creek Oil Company and Biby, however, equate the judicial ascertainment clause with a notice clause and contend that we should apply the same rule with respect to the judicial ascertainment clause in this case that was applied in Christian v. A.A. Oil Company (1973), 161 Mont. 420, 506 P.2d 1369, relating to a failure to give notice. The District Court determined that the 90 day cessation of production clause was an express covenant and as such the judicial ascertainment clause did not apply to it. It is beyond cavil, from the plain language of the lease, that the judicial ascertainment clause applies only to breaches of implied covenants of the lease. See Eitel v. Alford (1953), 127 Colo. 341, 257 P.2d 955. For most purposes, courts construe oil and gas leases under the rules of contract interpretation. 2 Summers, The Law of Oil and Gas (1959), Ch. 12, § 371, at 484, et seq. This oil and gas lease had extended beyond its primary term of 5 years. Because a producing oil well had been completed by the lessees under their lease, leasehold rights vested in the lessees for a secondary term as long as (1) oil and gas or other minerals were produced (whether or not in paying quantities) from the lease premises; or (2) operations were conducted by lessees on the leased premises; or (3) there was a well or wells on the leased premises that, although capable of producing oil and gas or other minerals in paying quantities thereunder, is or were shut in for lack of a market or outlet. Paragraph 8(c) of the oil and gas lease provided a limitation on that leasehold estate and term, however. In the event of cessation of production and operations after the primary term of the lease, the lessee is given a period of 90 days in which to resume operations or production and, if resumed within the 90 days, the lease would continue in force as if there had never been any interruption in the operations or production. In their leasehold estate under the oil and gas lease, therefore, lessees had the contractual duty not to cease either production or operations for a period of more than 90 days. Their duty of production of minerals or the conduct of operations was an express condition for the continuance of the leasehold estate. When, as it clearly appears here, lessees allowed the production to cease and operations not to be conducted for a period of more than 90 days, their oil and gas lease terminated and ended by its own terms. McQueen v. Santa Oil Company (6th Cir.1954), 213 F.2d 889. In Hall v. McWilliams (Tex.Civ.App. 1966), 404 S.W.2d 606, where a producing well was shut down because the lessees' saltwater permit was suspended by governmental action, no production occurred, and no drilling or reworking operations were conducted for a period of more than 60 days the Texas court held that the lease had terminated under its own terms (that lease contained a 60 day provision). The court said it could not be held to be a temporary stoppage where the cessation of production lasted more than 60 days. We determine that under the facts of this case, the judicial ascertainment clause was not called into effect and that, because of the cessation of production and lack of conduct of operations by the lessees on the leased premises for a period of 90 days, the Creek Oil Company and Biby lease terminated by its own provisions. The lessees had no leasehold estate upon which to rely when they reentered the premises to produce oil in December 1980.