Court Opinion

ID: 9533372
Source: CourtListenerOpinion
Date Created: 2023-08-07 04:31:06.3768+00
Date Added: 2024-06-11T13:29:02.180631
License: Public Domain

CORN, Vice Chief Justice
(dissenting).
I cannot agree with the conclusions expressed in the majority opinion.
The holding therein amounts to an amendment of the lease by the court. Its effect is to change the “as long thereafter” clause to read “It is agreed that this lease shall remain in force for a term of one year from date, and as long thereafter as oil or gas, or either of them, can be produced from said land by the lessee;” as distinguished from “is produced”.
It must be borne in mind that the primary consideration is the development of the lease by the drilling of wells thereon and, in the event of the discovery of oil or gas, the production and sale thereof. It is only by the production and sale of oil and/or gas that the lessor can realize anything therefrom, the basic consideration for the execution thereof.
In line therewith this court has heretofore, without exception, held that where an oil and gas lease provides that it shall remain in force for a specific term, and as long thereafter as oil or gas or either of them is produced, the term “produced” means produced in paying quantities to the lessee as determined by its judgment in the exercise of good faith. Gypsy Oil Co. v. Marsh, 121 Okl. 135, 248 P. 329, 48 A.L.R. 876; Woodruff v. Brady, 181 Okl. 105, 72 P.2d 709, 113 A.L.R. 391; Denker v. Mid-Continent Pet. Corp., 10 Cir., 56 F.2d 725, 84 A.L.R. 756; Henry v. Clay, Old., 274 P.2d 545. In order to protect the lessor we have also, without exception, held that he may controvert lessee’s determination that it is producing in paying quantities as applied in the extending of the lease beyond the primary term, and it becomes a question for judicial determination. Okmulgee Supply Corp. v. Anthis, 189 Okl. 139, 114 P.2d 451; Gallaspy v. Warner, Old., 324 P.2d 848.
It follows that after discovery of oil or gas during the initial term of the lease the lessee may continue to produce same until it can no longer be produced in paying quantities. Hudson v. Lyons, 199 Okl. 348, 186 P.2d 309. Consistent therewith we have held that such well or wells may be temporarily shut down and the production stopped for the purpose of re-working of said well or wells in a bona fide attempt to increase the production or for further exploration at a greater depth, and with the intent to return and produce the oil or gas discovered during the initial term if other oil or gas is not discovered at a greater depth. Western States Oil & Land Co. v. Helms, 143 Okl. 206, 288 P. 964, 72 A.L.R. 357; Woodruff v. Brady, supra.
In this connection we have held that in such a case “production in paying quantities” means not only discovery and ability to produce oil and gas or either of them, but the taking out of such oil or gas in *221pursuance of the covenants and purposes of the lease in such quantities as -will pay a profit to the lessee over the operating expenses. Walden v. Potts, 194 Okl. 453, 152 P.2d 923.
The requirement of continuous production and marketing of oil and gas therefrom is tempered by the foregoing rules permitting the temporary shutdown for a reasonable period of time required by loss of market or for the purpose of making a bona fide attempt to increase production or seek production at a greater depth with the intent to return to the original production in the event of failure. This is not only consistent with the rights of the lessee but is consistent with the basic consideration for which the lessor executed the lease.
The facts in this case demonstrate none of those contingencies. The shutting down of the well was the result of a disagreement between the partner lessees. There appears no reason under the record here, which would have prevented the operating partner from continuing the production during the period he was settling his differences with the other partners. The runs could have been impounded. Thereby the lessor, as well as the lessees, could have been protected. In this connection the record shows that plaintiff, as the pumper, followed the orders of his employer, the lessee operator and shut down the well.
The rule announced in the case of Lamb v. Vansyckle, 205 Ky. 597, 266 S.W. 253, adopted by the majority opinion is consistent with the rules adopted by this court. However, in my opinion it does not sustain the conclusion reached in the majority opinion.
The result in that case was predicated upon the fact that a major consideration, in the nature of a lease bonus, was paid for the lease and that at all times during the period from the date of the expiration of the initial term of said lease and the date of sale to the assignee, less than 2 months (56 days) the lessee was making every effort to raise funds with which to continue operation.
Under the facts in the case at bar, there is nothing which justifies a one way application in favor of a lessee to the exclusion of the rights of the lessor and the provisions of the lease contract, the moving consideration for the execution of the lease. The primary term of the lease had long expired before the cessation of production. There was no production thereafter for approximately six months. The equitable considerations in the Lamb v. Vansyckle, supra, case are not present.
Equitable considerations should always be before us. Yet I cannot acquiese in an opinion that in the guise thereof we change the settled interpretations of this court and the provisions of the contract between the parties made in the light thereof. If as under the circumstances demonstrated in this case the well can be shut down without cause for six months, there appears no logical reason why such shut down period could not be extended to a year or even two years, if the lessee suggested such shut down was merely temporary.
The true and equitable rule which in my opinion should be applied in this case is that under an oil and gas lease for a specific term “and as long thereafter as oil or gas, or either of them, is produced from said land by the lessee”, a lessee after having discovered oil and/or gas in paying quantities during the initial term of the lease must continue to produce oil or gas until the economic exhaustion of the oil or gas discovered during the initial term, producing and marketing the same in pursuance of the covenants and purposes of the lease in such quantities as will pay a profit to the lessee over the operating expenses, with the privilege, however, of temporarily stopping production thereof for a reasonable period of time required by loss of market or for the purpose of the re-working of the well in a bona .fide attempt to increase the production, or for the purpose of further exploration at a greater depth, with the intent to return and produce the oil or gas discovered during the initial term if other oil and/or gas is not discovered at a greater depth. A prop*222er application of this rule would require the reversal of the judgment of the trial court.
I respectfully dissent.
I am authorized to state that HALLEY and WILLIAMS, JJ., concur in the views expressed herein.