Netahla v. Netahla

307 P.3d 269, 49 Kan. App. 2d 396
CourtCourt of Appeals of Kansas
DecidedSeptember 6, 2013
DocketNo. 109,297
StatusPublished
Cited by1 cases

This text of 307 P.3d 269 (Netahla v. Netahla) is published on Counsel Stack Legal Research, covering Court of Appeals of Kansas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Netahla v. Netahla, 307 P.3d 269, 49 Kan. App. 2d 396 (kanctapp 2013).

Opinion

Arnold-Burger, J.:

Landowners seek a that a determinable fee mineral interest scheduled to revert to them at such time as oil and/or gas is no longer produced from the land terminated under the deed provisions in 1985. However, the deed conveying the mineral interest incorporated a pre-existing oil and gas lease on tire land that deemed the payment of shut-in royalties to be constructive production. Although oil and/or gas was not being produced at the end of die term of the mineral deed, shut-in royalties have been continuously paid. The district court granted summary judgment to the holders of the determinable fee mineral interest on the basis that the definition of production contained in the lease was incorporated into the mineral deed. Landowners appeal. Because we find that the terms of the mineral deed control and the mineral deed was specifically subject to the terms of the lease, production included constructive production, which was defined as the payment of shut-in royalties. Accordingly, we affirm.

Factual and Procedural History

The necessaiy facts are undisputed.

Lariy Netahla and Janet Netahla Curtis are the sole heirs of Joe and Rose Netahla, now deceased (Grantor). Mike Netahla and Debra Francis are the sole heirs of Frank Netahla, now deceased (Grantee).

In 1969, Grantor, as surface landowner, entered into an oil and gas lease on his land where the payment of shut-in royalties extended the primary term of the lease as constructive production. The oil and gas lease covered the South Half of the Northeast Quarter (S/2 NE/4) and the Southeast Quarter (SE/4) in Section 6, Township 34 South, Range 4 West, in Sumner County, Kansas.

A few months later, Grantor entered into a Sale of Oil and Gas Royalty agreement (Mineral Deed) with Grantee covering the [398]*398above described land. The interest conveyed to Grantee was “an undivided one-half interest in and to all of the oil, gas and other minerals in and under, and that may be produced from the [above described land].” In addition, the conveyance contained tire following language:

“Said land being now under an oil and gas lease executed in favor of, as appears of record, it is understood and agreed that this sale is made subject to the terms of said lease, but covers and includes one-half of all the oil royalty, and gas rental or royalty due and to be paid under the terms of said lease.”

Grantee’s one-half interest was for a period of 15 years beginning on June 1,1970, and as long thereafter as oil and/or gas is produced from the land or the land is being developed or operated.

It is uncontroverted by the parties that a well capable of producing oil and/or gas was drilled on the property; however, as of June 1, 1985, the gas well drilled on the property was shut-in, and shut-in royalty payments were paid in order to extend the oil and gas lease beyond the primary term.

Grantor’s heirs filed a petition with the district court requesting declaratory relief and asserting that there was no actual production under the oil and gas lease before or after June 1, 1985—the date Grantee’s one-half interest was to cease. As such, Grantee’s one-half interest had terminated.

Grantee’s heirs filed a motion for summary judgment arguing that the one-half interest was subject to the oil and gas lease and because the oil and gas lease allowed for shut-in royalties in order to extend the lease beyond the primary term, the one-half interest had not terminated due to the payment of shut-in royalties. The district court granted the motion, and Grantor’s heirs appeal.

Analysis

Grantor’s heirs argue that because the interest in question is a determinable fee mineral interest and because there was no actual production occurring under the oil and gas lease and there was no development or operation on the oil and gas lease, the mineral interest terminated at the end of the 15-year term as set out in the Mineral Deed.

[399]*399Grantee’s heirs do not disagree that the interest is a determinable fee mineral interest; however, they assert that because the Mineral Deed was made subject to the already-in-place oil and gas lease, and the lease provided that shut-in royalty payments would extend the lease beyond the primary term through constructive production, then the determinable fee mineral interest was also extended through constructive production under the perpetuation requirements of the Mineral Deed.

Where there is no factual dispute, appellate review of an order regarding summary judgment is de novo. David v. Hett, 293 Kan. 679, 682, 270 P.3d 1102 (2011).

We are dealing with a determinable fee mineral interest.

“A deed or other instrument conveying oil and gas in place for a fixed term of years and so long thereafter as oil and/or gas is being produced from the property or the property is being developed or operated creates a base or determinable fee. [Citation omitted.]” Classen v. Federal Land Bank of Wichita, 228 Kan. 426, Syl. ¶ 3, 617 P.2d 1255 (1980). Because title to the estate so created vests immediately upon the execution and delivery of such an instrument but remains defeasible in the event of cessation of production, it is also referred to as defeasible fee. See Wilson v. Holm, 164 Kan. 229, 234-35, 188 P.2d 899 (1948); 1 Pierce, Kansas Oil and Gas Handbook § 4.03, p. 4-3 (1991) (determinable fee also referred to as defeasible fee).

Again, Grantee’s one-half interest was for a period of 15 years beginning on June 1, 1970, and as long thereafter as oil and/or gas was produced from the land or the land was being developed or operated. Therefore, there is no question that the interest in question is a determinable fee.

In the case of a determinable fee mineral interest, we must look to the instrument creating it to deteimine the event which perpetuates it.

“The event which perpetuates the term of the mineral interest must be found in the instrument creating it. [Citation omitted.]” Classen, 228 Kan. 426, Syl. ¶ 4. In this case, the Mineral Deéd [400]*400provides that the Grantee is assigned the rights to the property for “the next 15 years from June 1, 1970 and as long thereafter as oil and/or gas is produced from these premises or the property is being developed or operated.”

However, the interest was also made subject to the oil and gas lease already in place, through the following language:

“Said land being now under an oil and gas lease executed in favor of, as appears of record, it is understood and agreed that this sale is made subject to the terms of said lease, but covers and includes one-half of all the oil royalty, and gas rental or royalty due and to be paid under the terms of said lease.”

Under the terms of the oil and gas lease, the primary term of the lease can be extended where there is production. Production can either be actual production or constructive production, i.e., payment of shut-in royalties.

“If the grantee wants tire ability to perpetuate its interest through means other than production,’ this must be provided for in the grant.

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Related

Netahla v. Netahla
346 P.3d 1079 (Supreme Court of Kansas, 2015)

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Bluebook (online)
307 P.3d 269, 49 Kan. App. 2d 396, Counsel Stack Legal Research, https://law.counselstack.com/opinion/netahla-v-netahla-kanctapp-2013.