Oil and Gas Lease: Top Lease; Novation of Terminated Lease

摘要

Lessors grant a lease on 80 acres with a l/8th royalty. Lessor's heirs in 1990 discover that the lease may have terminated for nonproduction. In December 1990, the parties execute a lease that makes no mention of a 1966 lease pertaining to the same land and parties; this lease was for a l/5th royalty and contains a Pugh Clause. Later, the lessee finds records to establish that the 1966 lease was maintained by shut-in payments and asserts that the 1990 lease is a top lease that never became effective because the 1966 lease is still valid. Lessors file suit in 2006 demanding a declaration that the 1966 lease is invalid for nonpayment of royalties; and an award of all unpaid royalties; and in the alternative, an award of 1/5 royalties under the 1990 lease; and damages, penalties and attorney fees provided by the Mineral Code. By amended petition, they allege that the 1990 lease is a novation of the 1966 lease. The defendants reply that the 1990 lease is a "protection top lease" taken by the lessee until it could determine the status of the 1966 lease; further, the 1966 lease is maintained in full by payment of royalties, delay rentals or shut-in royalties. The district court is inclined to rule for the lessors but then concludes that the evidence does not show that the 1990 lease was a novation of the 1966 lease and so finds for the defendants. Lessors appeal. Held: affirmed. The 1990 lease is not a novation but instead a top lease that did not take effect as the lessee discovered that the lease was maintained by shut-in payments during a period of non-production.