McVicker v. Horn, Robinson & Nathan
8 Oil & Gas Rep. 951, 322 P.2d 410, 71 A.L.R. 2d 1211 (1958)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Where an oil and gas lease is for a primary term and 'as long thereafter as oil or gas is produced,' the discovery of gas in paying quantities during the primary term extends the lease, provided the lessee exercises reasonable diligence to market the product within a reasonable time after the primary term ends.
Facts:
- In 1953, plaintiffs, owners of a 40-acre tract, executed a one-year oil and gas lease to J. W. Dutton, beginning October 31, 1953.
- Dutton subsequently assigned the lease to the defendants, a partnership named Horn, Robinson and Nathan.
- On or about May 1, 1954, within the one-year primary term, the defendants completed a gas well on the property capable of producing in paying quantities.
- No gas from the well was marketed or sold by the end of the primary term on October 31, 1954.
- From May 1954 through 1955, defendants made continuous efforts to find a purchaser for the gas, contacting multiple companies.
- Marketing efforts were complicated by the well's low gas pressure, which was insufficient to enter the primary local pipeline without the installation of expensive compressor equipment.
- Eventually, plaintiffs placed a padlock on the property's gate, preventing defendants from accessing the well to install a pipeline for a prospective buyer.
Procedural Posture:
- On October 24, 1955, plaintiffs filed an action to quiet title against defendants in an Oklahoma trial court.
- The trial court conducted a non-jury trial.
- The trial court entered a judgment in favor of the defendants, finding the plaintiffs' allegations were not supported by the evidence.
- The trial court overruled the plaintiffs' motion for a new trial.
- Plaintiffs appealed the trial court's judgment to the Supreme Court of Oklahoma.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does an oil and gas lease, which is to remain in force for a primary term 'and as long thereafter as oil or gas...is produced,' automatically terminate if gas discovered in paying quantities during the primary term is not actually marketed by the end of that term?
Opinions:
Majority - Justice Blackbird
No. An oil and gas lease does not automatically terminate if gas discovered in paying quantities during the primary term is not marketed by the end of that term. The court distinguished between the act of 'producing' and the act of 'marketing.' While the lease's habendum clause requires 'production' to extend beyond the primary term, the court holds that discovering gas and being able to bring it to the surface in paying quantities satisfies this requirement. The duty to market the gas is not an express condition for the continuation of the lease but rather an implied covenant. As the lease does not specify a time for performance of this implied duty, the law implies that the lessee must exercise reasonable diligence to market the product within a reasonable time. Here, the evidence showed defendants made continuous and diligent efforts to secure a purchaser despite significant technical and financial challenges. Therefore, their failure to market the gas by the primary term's expiration did not cause the lease to terminate ipso facto.
Analysis:
This decision clarifies Oklahoma law by distinguishing the express condition of 'production' in a lease's habendum clause from the implied covenant to 'market.' It establishes that for gas wells, discovery in paying quantities is sufficient to extend the lease into the secondary term, preventing automatic forfeiture. This grants lessees a crucial 'reasonable time' to overcome the practical difficulties of marketing natural gas, which, unlike oil, cannot be easily stored and often requires substantial infrastructure. The ruling sets a precedent that balances the lessor's interest in receiving royalties against the lessee's need for a fair opportunity to market a discovered resource, making the standard for termination a fact-intensive inquiry into the lessee's diligence.
