Ridge Oil Co., Inc. v. Guinn Investments, Inc.
161 Oil & Gas Rep. 1135, 47 Tex. Sup. Ct. J. 1080, 148 S.W.3d 143 (2004)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
When a single oil and gas lease is held by separate partial assignees for different tracts, one assignee may terminate the base lease as to its tract by ceasing production and entering into a new lease with its mineral owners. If that tract was the sole source of production, the entire base lease terminates unless the other assignee is conducting operations sufficient to maintain the lease on its own tract.
Facts:
- A 1937 oil and gas lease covered two adjoining 160-acre tracts, the 'Guinn tract' and the 'Ridge tract'.
- Through assignments, Guinn Investments, Inc. (Guinn) became the lessee of the Guinn tract, and Ridge Oil Company, Inc. (Ridge) became the lessee of the Ridge tract.
- The lease's habendum clause stated it would remain in force as long as oil or gas was produced 'from said land by the lessee, or as long as operations are being carried on.'
- Two producing wells on the Ridge tract were the sole source of production sustaining the entire 1937 lease for both tracts; the Guinn tract had not produced since 1950.
- On December 1, 1997, Ridge intentionally shut in the two producing wells on its tract with the goal of terminating the 1937 lease.
- In January 1998, Ridge offered its mineral owners new leases, explaining this would terminate the 1937 lease.
- Effective March 3, 1998, the mineral owners of the Ridge tract executed new leases with Ridge, and Ridge resumed production on its wells under these new leases.
- Between the shutdown and the new leases, Guinn obtained a drilling permit and drove a wooden stake into the ground to mark a proposed well site on its tract.
Procedural Posture:
- Guinn Investments, Inc. sued Ridge Oil Company, Inc. and its vice president in a state trial court, seeking to quiet title and a declaration that the 1937 lease was valid.
- The trial court granted summary judgment in favor of Ridge, ruling that Guinn take nothing and that the 1937 lease had terminated.
- Guinn, as appellant, appealed to the intermediate court of appeals.
- An en banc panel of the court of appeals reversed the trial court's judgment and rendered judgment for Guinn, holding that the lease had not terminated.
- Ridge, as petitioner, sought and was granted review by the Supreme Court of Texas.
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 a partial assignee of an oil and gas lease terminate the entire lease by ceasing production on its tract and entering into a new lease with its mineral owners, when that tract was the sole source of production for the entire lease and the other partial assignee was not conducting sufficient operations?
Opinions:
Majority - Justice Owen
Yes, the partial assignee's actions terminated the entire lease. When Ridge and the mineral owners of the Ridge tract executed new leases effective March 3, 1998, they effectively terminated the 1937 lease as to the Ridge tract. This action made the cessation of production under the 1937 lease permanent, because any subsequent production by Ridge was attributable to the new leases, not the old one. The 1937 lease's habendum clause required production 'by the lessee.' Once Ridge executed the new leases, it was no longer a lessee under the 1937 lease, and Guinn, the only remaining lessee, had no production. As partial assignees, Ridge owed no fiduciary or contractual duty to Guinn to perpetuate the 1937 lease. Guinn's minimal preparatory activities, such as obtaining a permit and staking a well location, did not constitute 'operations' sufficient to maintain the lease after production under the 1937 lease had permanently ceased.
Analysis:
This decision clarifies that partial assignees of an oil and gas lease do not owe a duty to each other to maintain the lease. It establishes that one assignee can unilaterally act with its own lessors to terminate its portion of the lease, which can cause the entire lease to terminate if that assignee's tract was the sole source of production. The ruling creates a significant risk for non-producing assignees, compelling them to either secure production on their own acreage or risk losing their interest due to the actions of a co-lessee. The case underscores the critical importance of the specific language in a lease's habendum clause, particularly phrases like 'by the lessee,' in determining how and when a lease terminates.
Unlock the full brief for Ridge Oil Co., Inc. v. Guinn Investments, Inc.