Gulf Oil Corp. v. Prevost

538 S.W.2d 876, 54 Oil & Gas Rep. 522, 1976 Tex. App. LEXIS 2994
CourtCourt of Appeals of Texas
DecidedJuly 14, 1976
DocketNo. 15491
StatusPublished

This text of 538 S.W.2d 876 (Gulf Oil Corp. v. Prevost) is published on Counsel Stack Legal Research, covering Court of Appeals of Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Gulf Oil Corp. v. Prevost, 538 S.W.2d 876, 54 Oil & Gas Rep. 522, 1976 Tex. App. LEXIS 2994 (Tex. Ct. App. 1976).

Opinion

CADENA, Justice.

Defendant, Gulf Oil Corporation, appeals from an order of the district court denying its motion for summary judgment and granting summary judgment in favor of plaintiffs declaring a certain oil and gas lease terminated as to a portion of the leased premises because of defendant’s failure to commence drilling operations or pay delay rentals on such land on or before May 30, 1974.

Plaintiffs are (1) Paul B. Prevost, individually and as trustee for Marie Helen Pre-vost, Adriane Prevost, and Phillipe Prevost; (2) Paul E. Prevost; (3) Olga J. Prevost; and (4) Christelle Prevost de Riva Palacio.

The question to be decided is whether the timely commencement of drilling operations by an assignee on his geographical portion of land covered by an oil and gas lease excuses the payment of delay rentals by the owner of the mineral estate in the remaining geographical portions of the leased premises. We conclude that the question must be answered in the affirmative and, consequently, reverse the judgment of the trial court and here render judgment in favor of defendant.

On May 30, 1968, plaintiffs, as lessors, executed an oil and gas lease to James A. Mayo, lessee, covering 570.7 acres of land in Webb County. Part of the leased premises, consisting of 505.3 acres, lies west of U.S. Highway 83, while the remaining 65.4 acres, the land involved in this litigation, are located east of such highway. On October 7, 1968, the original lessee assigned all of his interest to defendant. On April 9, 1973, defendant, by means of a “farmout” agreement, assigned certain of its rights to the 505.3 acres lying west of the highway to Rameo, Inc. According to the agreement, Rameo was required to drill a well to a depth of 10,000 feet “or to production at a depth below 8,000 feet, whichever is the lesser,” on the 505.3-acre tract within a specified time. The agreement gave Rameo the right to take minerals down to, but not below, 100 feet beneath the depth of such first well. On July 5,1973, Rameo assigned its rights under the farmout agreement to Consolidated Oil & Gas, Inc. Defendant has not assigned its rights to the 65.4 acres lying east of the highway.

The lease is for a term of 10 years from May 30, 1968, “and as long thereafter as oil, gas or other minerals is [sic] produced from said land hereunder in paying quantities.” It is well settled that such language creates in the lessee a determinable fee simple estate in the minerals in place. Stephens County v. Mid-Kansas Oil & Gas Co., 113 Tex. 160, 254 S.W. 290 (1923).

The lease contains a drill/rental clause, which is in the usual “unless” form and which reads as follows:

If operations for drilling are not commenced on said land on or before one year from this date [May 30, 1968], this lease shall then terminate as to both parties, unless on or before such anniversary date Lessee shall pay or tender to Lessor * * * the sum' of $570.70 (being $1.00 per acre), herein called rental, which shall cover the privilege of deferring commencement of drilling operations for a period of twelve (12) months. In like manner and upon like payments or tenders annually the commencement of drilling operations may be further deferred for successive periods of twelve (12) months each during the primary term.

The “assignment” clause of the lease provides:

[878]*878The rights of either party hereunder may be assigned in whole or in part * * * but no change or division in ownership of the land, rentals or royalties, however accomplished, shall operate to enlarge the obligations or diminish the rights of Lessee. * * * In event of assignment of this lease as to a segregated portion of said land, the rentals payable hereunder shall be apportionable as between the several leasehold owners ratably according to the surface area of each, and default in rental payment by one shall not affect the rights of other leasehold owners hereunder.

The delay rentals were timely paid for the years 1969-1973, both inclusive. According to the terms of the lease, the lease thus remained in effect until May 30, 1974, on which date it would terminate unless drilling operations had been commenced “on said land” or the specified delay rental was paid.

In March 1974, Consolidated began drilling operations, under the farmout agreement which had been assigned to it, on the 505.3-acre tract lying west of the highway, and such drilling operations were in progress on May 30,1974, the date on which the next delay rental would be payable in the absence of commencement of drilling operations. The well was completed in June 1974, and is now producing gas in paying quantities.

Plaintiffs recognize that the lease remains in full force and effect as to the 505.3 acres on which the well is located, but claim that defendant’s failure to either commence drilling operations within the tract consisting of 65.4 acres or to pay $65.40 as its proportionate share of the total delay rental before May 30,1974, resulted in the expiration of the lease as to the 65.4 acres.

Assignment clauses such as that found in the lease before us are generally included in oil and gas leases in order to permit an assignee of only a geographical portion of the leased premises to continue the lease in effect as to his portion by paying his pro rata share of the rental, irrespective of the failure of the owners of other geographical portions of the premises to drill or pay rental. Such clauses make the interests of partial assignees of the lessee separate insofar as the payment of delay rental is concerned. But provisions of that type give no clues as to the effect of commencement of drilling operations on segregated portions of the leased premises following one or more partial assignments of the lessee’s interest.

It is clear that, in the absence of any assignment of any portion of the lessee’s interest, the commencement of drilling operations on any portion of the leased premises has the effect of continuing the lease in effect as to all of the leased premises without payment of delay rental. Thus, if defendant, without assigning any portion of its interest, had commenced drilling operations on the 505.3 acres, such operations would have kept the lease in effect as to the entire 570.7 acres without payment of rental. Tennant v. Matthews, 19 S.W.2d 1115 (Tex.Civ.App., Eastland 1929, writ ref’d).

There is no sound basis for applying a different rule where there has been a partial assignment of lessee’s interest. “On principle, where there has been a partial assignment, compliance with the drilling clause by a well on any part of the leased premises should relieve the owners of the other portions from the obligation [sic] to pay delay rental just as the lessee would have been released from that obligation [sic] as to the entire tract had he kept it intact.” Merrill, The Partial Assignee— Done In Oil, 20 Texas L.Rev. 298, 306 (1942).

In Wilson v. Texas Co., 147 Kan. 449, 76 P.2d 779, 782 (1938), the court, after commenting that the partial assignment should not effect an increase of lessor’s revenue, said:

The lease did not provide nor contemplate that in the event of an assignment of ■ one-half of the lease the lessors should be entitled to receive $160 rental [the total amount of the specified rental] from the [879]

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Bluebook (online)
538 S.W.2d 876, 54 Oil & Gas Rep. 522, 1976 Tex. App. LEXIS 2994, Counsel Stack Legal Research, https://law.counselstack.com/opinion/gulf-oil-corp-v-prevost-texapp-1976.