cessation-of-production clause in Oklahoma

2023Stated more broadly, the issue concerns how to determine whether production that maintains a gas lease under the habendum clause has ceased, including whether the cessation-of-production clause plays any role in narrowing the window of time that should be considered in making such a determination. ¶24 Defendants/Petitioners contend that "whether a well remains capable of production and thus perpetuates the lease under the habendum clause is assessed over a reasonable look-back period of time sufficient to consider whether a prudent operator would continue or abandon operations." 117 They argue

2023Stated more broadly, the issue concerns how to determine whether production that maintains a gas lease under the habendum clause has ceased, including whether the cessation-of-production clause plays any role in narrowing the window of time that should be considered in making such a determination. ¶24 Defendants/Petitioners contend that "whether a well remains capable of production and thus perpetuates the lease under the habendum clause is assessed over a reasonable look-back period of time sufficient to consider whether a prudent operator would continue or abandon operations." 117 They argue

2023Thus, in order to avoid unwanted results, we must steer clear of using the cessation-of-production clause to define a specific accounting period for determining whether production has been in paying quantities. ¶30 Instead, our case law provides that, when an appellate court is reviewing whether "the period employed by the trial court to determine profitability was sufficient," "the appropriate time period is not measured in days, weeks or months, but by a time appropriate under all of the facts and circumstances of each case." Barby v. Singer , 1982 OK 49, ¶ 6 , 648 P.2d 14 , 16--17; accord T

2023Thus, in order to avoid unwanted results, we must steer clear of using the cessation-of-production clause to define a specific accounting period for determining whether production has been in paying quantities. ¶30 Instead, our case law provides that, when an appellate court is reviewing whether "the period employed by the trial court to determine profitability was sufficient," "the appropriate time period is not measured in days, weeks or months, but by a time appropriate under all of the facts and circumstances of each case." Barby v. Singer , 1982 OK 49, ¶ 6 , 648 P.2d 14 , 16--17; accord T

2023But Tres C argues in favor of utilizing the clause under very different circumstances, where the operator, Raker Resources, was still in the process of testing whether the Cowan Well's pressure and fluid build-up problems could be remedied by the installation of a compressor or by the downhole utilization of more soap. 129 Such a temporary interruption in profitable production should not trigger the 60-day time limit in the cessation-of-production clause--particularly insofar as that clause was really designed to provide a grace period for protecting Defendants/Petitioners' leasehold interests

2023But Tres C argues in favor of utilizing the clause under very different circumstances, where the operator, Raker Resources, was still in the process of testing whether the Cowan Well's pressure and fluid build-up problems could be remedied by the installation of a compressor or by the downhole utilization of more soap. 129 Such a temporary interruption in profitable production should not trigger the 60-day time limit in the cessation-of-production clause--particularly insofar as that clause was really designed to provide a grace period for protecting Defendants/Petitioners' leasehold interests

2018Estate of Jarboe , 1971 OK 63 , ¶ 15, 495 P.2d 108 , 113, for the proposition that we are bound to consider all the provisions of a contract in construing the terms of a contract and to use each provision to help interpret the others. 84 Pack , 1994 OK 23 , ¶¶ 14-21, 869 P.2d at 328-29 ; accord 4 Kuntz, supra note 79, § 47.3(b), at 105-06 ("[I]f the effect of the cessation of production clause is to modify the habendum clause under the circumstances, the 'production' required for the cessation of production clause should be the same as the production required to satisfy the habendum clause, an

2018Estate of Jarboe , 1971 OK 63 , ¶ 15, 495 P.2d 108 , 113, for the proposition that we are bound to consider all the provisions of a contract in construing the terms of a contract and to use each provision to help interpret the others. 84 Pack , 1994 OK 23 , ¶¶ 14-21, 869 P.2d at 328-29 ; accord 4 Kuntz, supra note 79, § 47.3(b), at 105-06 ("[I]f the effect of the cessation of production clause is to modify the habendum clause under the circumstances, the 'production' required for the cessation of production clause should be the same as the production required to satisfy the habendum clause, an

2018Va. , 1958 OK 289 , ¶ 44, 336 P.2d at 1095 ; Cotner , 1958 OK 208 , ¶ 5, 330 P.2d at 220 . 81 See French , 1986 OK 22 , ¶ 8, 725 P.2d at 277 ; Hoyt , 1980 OK 1 , ¶ 10, 606 P.2d at 563 (citing cases from other jurisdictions). 82 See Pack , 1994 OK 23 , ¶ 16, 869 P.2d at 328 . 83 Pack , 1994 OK 23 , ¶¶ 14-15, 869 P.2d at 328 ; accord Hoyt , 1980 OK 1 , ¶¶ 9-10, 606 P.2d at 563 (stating that, at least when one considers a cessation of production during the secondary term of the lease, the term "production" means "production in paying quantities" for purposes of both the habendum clause and the ce

2018Va. , 1958 OK 289 , ¶ 44, 336 P.2d at 1095 ; Cotner , 1958 OK 208 , ¶ 5, 330 P.2d at 220 . 81 See French , 1986 OK 22 , ¶ 8, 725 P.2d at 277 ; Hoyt , 1980 OK 1 , ¶ 10, 606 P.2d at 563 (citing cases from other jurisdictions). 82 See Pack , 1994 OK 23 , ¶ 16, 869 P.2d at 328 . 83 Pack , 1994 OK 23 , ¶¶ 14-15, 869 P.2d at 328 ; accord Hoyt , 1980 OK 1 , ¶¶ 9-10, 606 P.2d at 563 (stating that, at least when one considers a cessation of production during the secondary term of the lease, the term "production" means "production in paying quantities" for purposes of both the habendum clause and the ce

2018Since this Court's decision in Pack v. Santa Fe Minerals , 1994 OK 23 , 869 P.2d 323 , it has been clear that a well's capability to produce in paying quantities would satisfy both the habendum clause and the cessation-of-production clause and that the cessation-of-production clause is only triggered where a well has become incapable of paying production. 87 ¶38 Nevertheless, Hall argues for the opposite result, relying heavily upon the Oklahoma Court of Civil Appeals' opinion in Fisher v. Grace Petroleum Corp. , 1991 OK CIV APP 112 , 830 P.2d 1380 . 88 Citing Fisher , Hall voices concern that

2018Since this Court's decision in Pack v. Santa Fe Minerals , 1994 OK 23 , 869 P.2d 323 , it has been clear that a well's capability to produce in paying quantities would satisfy both the habendum clause and the cessation-of-production clause and that the cessation-of-production clause is only triggered where a well has become incapable of paying production. 87 ¶38 Nevertheless, Hall argues for the opposite result, relying heavily upon the Oklahoma Court of Civil Appeals' opinion in Fisher v. Grace Petroleum Corp. , 1991 OK CIV APP 112 , 830 P.2d 1380 . 88 Citing Fisher , Hall voices concern that

2018Therefore, the lease will continue as long as the well is capable of production in paying quantities subject, of course, to any violation of any other express provisions such as the shut-in royalty clause or implied covenants such as the covenant to market."); Hoyt , 1980 OK 1 , ¶ 10, 606 P.2d at 563 (stating the inverse: "If the lessee fails to resume operations within the 60-day period provided in this clause neither the cessation of production clause or the habendum clause is satisfied and the lease terminates upon the expiration of the given time period."). 86 Pack , 1994 OK 23 , ¶ 16, 8

2018Therefore, the lease will continue as long as the well is capable of production in paying quantities subject, of course, to any violation of any other express provisions such as the shut-in royalty clause or implied covenants such as the covenant to market."); Hoyt , 1980 OK 1 , ¶ 10, 606 P.2d at 563 (stating the inverse: "If the lessee fails to resume operations within the 60-day period provided in this clause neither the cessation of production clause or the habendum clause is satisfied and the lease terminates upon the expiration of the given time period."). 86 Pack , 1994 OK 23 , ¶ 16, 869

2018Va. , 1958 OK 289 , ¶ 44, 336 P.2d at 1095 ; Cotner , 1958 OK 208 , ¶ 5, 330 P.2d at 220 . 81 See French , 1986 OK 22 , ¶ 8, 725 P.2d at 277 ; Hoyt , 1980 OK 1 , ¶ 10, 606 P.2d at 563 (citing cases from other jurisdictions). 82 See Pack , 1994 OK 23 , ¶ 16, 869 P.2d at 328 . 83 Pack , 1994 OK 23 , ¶¶ 14-15, 869 P.2d at 328 ; accord Hoyt , 1980 OK 1 , ¶¶ 9-10, 606 P.2d at 563 (stating that, at least when one considers a cessation of production during the secondary term of the lease, the term "production" means "production in paying quantities" for purposes of both the habendum clause and the ce

2018Va. , 1958 OK 289 , ¶ 44, 336 P.2d at 1095 ; Cotner , 1958 OK 208 , ¶ 5, 330 P.2d at 220 . 81 See French , 1986 OK 22 , ¶ 8, 725 P.2d at 277 ; Hoyt , 1980 OK 1 , ¶ 10, 606 P.2d at 563 (citing cases from other jurisdictions). 82 See Pack , 1994 OK 23 , ¶ 16, 869 P.2d at 328 . 83 Pack , 1994 OK 23 , ¶¶ 14-15, 869 P.2d at 328 ; accord Hoyt , 1980 OK 1 , ¶¶ 9-10, 606 P.2d at 563 (stating that, at least when one considers a cessation of production during the secondary term of the lease, the term "production" means "production in paying quantities" for purposes of both the habendum clause and the ce

2018Rather, the lease will be subject to forfeiture if production is not reestablished during the grace-period specified in the cessation-of-production clause, see French v. Tenneco Oil Co. , 1986 OK 22 , ¶ 8, 725 P.2d 275 , 277 ; Hoyt , 1980 OK 1 , ¶ 10, 606 P.2d at 563 , or, where no such clause exists, the reasonable time period allowed by the temporary cessation doctrine, see Smith , 2004 OK 10 , ¶ 12, 85 P.3d at 834 ; Carter Oil Co. of W.

2018Rather, the lease will be subject to forfeiture if production is not reestablished during the grace-period specified in the cessation-of-production clause, see French v. Tenneco Oil Co. , 1986 OK 22 , ¶ 8, 725 P.2d 275 , 277 ; Hoyt , 1980 OK 1 , ¶ 10, 606 P.2d at 563 , or, where no such clause exists, the reasonable time period allowed by the temporary cessation doctrine, see Smith , 2004 OK 10 , ¶ 12, 85 P.3d at 834 ; Carter Oil Co. of W.

2018Va. , 1958 OK 289 , ¶ 44, 336 P.2d at 1095 ; Townsend v. Creekmore-Rooney Co. , 1958 OK 265 , ¶ 6, 332 P.2d 35 , 37 ; Cotner , 1958 OK 208 , ¶ 5, 330 P.2d at 220 . 71 E.g. , Appellant's Br. 24-25; Appellant's Reply Br. 10, 12-13. 72 See supra notes 69-70 and accompanying text.

2018Va. , 1958 OK 289 , ¶ 44, 336 P.2d at 1095 ; Townsend v. Creekmore-Rooney Co. , 1958 OK 265 , ¶ 6, 332 P.2d 35 , 37 ; Cotner , 1958 OK 208 , ¶ 5, 330 P.2d at 220 . 71 E.g. , Appellant's Br. 24-25; Appellant's Reply Br. 10, 12-13. 72 See supra notes 69-70 and accompanying text.

2023The Court of Civil Appeals conditionally affirmed the trial court's judgment, but remanded the matter with instructions to address the noncontractual defense of obstructions, which is set forth in Jones v. Moore , 1959 OK 23 338 P.2d 872 de novo review, we find that the trial court did err insofar as it relied upon the lease's cessation-of-production clause to define the time period for assessing profitability.

2023The Court of Civil Appeals conditionally affirmed the trial court's judgment, but remanded the matter with instructions to address the noncontractual defense of obstructions, which is set forth in Jones v. Moore , 1959 OK 23 338 P.2d 872 de novo review, we find that the trial court did err insofar as it relied upon the lease's cessation-of-production clause to define the time period for assessing profitability.

2023In the case of Henry v. Clay , 1954 OK 170 274 P.2d 545 see 2 Kuntz, supra note 121, § 26.7(u) & n.85--and found that a $46.15 deficit was no reason for "forfeit[ure] of his [i.e., the operator's] entire investment therein" simply because "the total cost of production at any particular time slightly exceed[ed] the actual returns to him." Henry , 1954 OK 170 ¶31 Tres C argues that language from the Hoyt , French , and Hall cases mandates the time period set forth in the cessation-of-production clause will override any common-law requirement to utilize a reasonable time period.

2023In the case of Henry v. Clay , 1954 OK 170 274 P.2d 545 see 2 Kuntz, supra note 121, § 26.7(u) & n.85--and found that a $46.15 deficit was no reason for "forfeit[ure] of his [i.e., the operator's] entire investment therein" simply because "the total cost of production at any particular time slightly exceed[ed] the actual returns to him." Henry , 1954 OK 170 ¶31 Tres C argues that language from the Hoyt , French , and Hall cases mandates the time period set forth in the cessation-of-production clause will override any common-law requirement to utilize a reasonable time period.

1994Likewise, our holding in Hamilton v. Amwar Petroleum Co., Inc., 769 P.2d 146 (Okla. 1989), terminating a gas lease pursuant to the terms of the cessation of production clause does not control here.

1980McQueen v. Sun Oil Co., 213 F.2d 889 , 3 O. & G.R. 1855 (6 Cir. 1954).

1980Roberts v. Corum, 236 Miss. 809 , 112 So.2d 550 , 10 O. & G.R. 779 (1959), Long v. Magnolia Pet.

1980Roberts v. Corum, 236 Miss. 809 , 112 So.2d 550 , 10 O. & G.R. 779 (1959), Long v. Magnolia Pet.