Oil and Gas Leases: Habendum Clause Shut-in Royalty Clause: Capable of Production

摘要

Maw drilled numerous wells into coal seams on lands leased by Levin and others. Each oil and gas lease contained a habendum clause that would extend the lease so long as oil or gas was produced or so long as operations were being conducted which included drilling, reworking, or "dewatering" operations. Although Maw had drilled wells into the coal formation, dewatering had not commenced. The shut-in royalty clauses required that mere be a "gas well" that has been "shut in." In answer to the lessors' complaint the lessee admitted "that no pipe had been laid to deliver gas to a gathering system and mat the wells had neither produced nor led to sale of any natural gas." 234 P.3d at 812. The District Court found that "the wells required several improvements, including 'a dewatering system, pipelines to a gathering system, and a gathering system,' before they could produce natural gas." Id. Relying on two Texas cases, the District Court granted summary judgment to the lessors finding the wells were not capable of producing in paying quantities because they required additional equipment or work before they could produce. Held: Reversed and remanded.