Berry v. Tide Water Associated Oil Co.
188 F.2d 820 (1951)
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Rule of Law:
Under Mississippi law, an "unless" oil, gas, and mineral lease is considered indivisible, meaning that production or the payment of shut-in royalties on any portion of the originally leased premises by the original lessee extends the entire lease, including assigned segregated portions, beyond its primary term without requiring separate drilling on each assigned tract.
Facts:
- Plaintiffs (lessors) entered into an "unless" oil, gas, and mineral lease for a tract of land.
- A portion of the leased land was subsequently assigned to the defendants.
- The primary term of the original lease was five years.
- The original lessee, Richardson, drilled a producing well on the part of the leased land he retained.
- Richardson made annual shut-in gas royalty payments because there was no market for the gas produced.
- Defendants did not drill any wells on their assigned portion of the leased land during the primary term.
- Plaintiffs claimed the lease as to defendants' assigned portion terminated due to their failure to drill.
- During the pendency of the litigation, defendants brought in a producing well on their assigned portion.
Procedural Posture:
- Plaintiffs brought suit in district court seeking to cancel and remove the cloud of an oil, gas, and mineral lease as to a portion of the land assigned to defendants.
- The district court found in favor of the defendants, ruling that the well drilled by the original lessee and the payment of shut-in gas royalty extended the lease beyond the primary term for all portions, including the assigned portions, and that there was no abandonment or breach of implied covenants for reasonable development.
- Plaintiffs, as appellants, appealed the district court's judgment to the U.S. Court of Appeals for the Fifth Circuit, with defendants as appellees.
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Issue:
Does an assignment of a segregated portion of an "unless" oil, gas, and mineral lease under Mississippi law render the lease divisible, thereby requiring the assignee to drill a well on their assigned portion to extend the lease beyond its primary term, or does a well drilled and held by production or shut-in payments on the retained portion by the original lessee suffice to maintain the entire lease?
Opinions:
Majority - Hutcheson, Chief Judge
No, an assignment of a segregated portion of an "unless" oil, gas, and mineral lease under Mississippi law does not create a separate drilling obligation for the assignee; rather, a well drilled and held by production or shut-in payments on the retained portion by the original lessee maintains the entire lease. The Fifth Circuit affirmed the district court's judgment, holding that Mississippi law, similar to Texas law and generally other states (excluding Louisiana), treats an "unless" lease as indivisible for the purpose of extending the lease beyond its primary term by production. The court rejected the plaintiffs' argument that White v. Hunt, a Mississippi Supreme Court case, established a rule of divisibility for drilling obligations, clarifying that White v. Hunt only addressed the divisibility of the obligation to pay rents on assigned portions. The court emphasized Mississippi's alignment with Texas law regarding oil and gas principles. Additionally, the court found no evidence to support the plaintiffs' alternative claims of abandonment or breach of implied covenants for reasonable development, especially considering the defendants later drilled a producing well.
Analysis:
This case clarifies and solidifies the principle of lease indivisibility in "unless" oil and gas leases under Mississippi law concerning the obligation to drill during the primary term. It establishes that a single producing well or the payment of shut-in royalties on any part of the original lease, even by a partial assignee, is sufficient to extend the entire lease, including all assigned portions. This ruling provides a clear precedent for landowners and assignees in Mississippi, reinforcing a legal framework consistent with most other major oil and gas producing states, thereby reducing uncertainty in leasehold interests following partial assignments.
