Sieker v. Stephens Trust

309 P.3d 1, 49 Kan. App. 2d 183
CourtCourt of Appeals of Kansas
DecidedJuly 19, 2013
DocketNo. 108,488
StatusPublished
Cited by1 cases

This text of 309 P.3d 1 (Sieker v. Stephens Trust) 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
Sieker v. Stephens Trust, 309 P.3d 1, 49 Kan. App. 2d 183 (kanctapp 2013).

Opinion

McAnany, J.:

The Faye M. Stephens Trust appeals the termination of its oil and gas lease covering 150 acres owned by Wanda Sieker for failure to develop the lease. One hundred and sixty acres was originally leased by Sieker’s predecessor, Emma Vogelsang, in 1950. A producing well was drilled in 1951 and occupied 10 acres of the tract. The remaining 150 acres remained undeveloped.

The Facts

The parties are well acquainted with the facts, which are set forth in the district court’s well drafted and comprehensive memorandum decision. For our purposes, the following brief summary will suffice.

The Faye M. Stephens Trust became the majority working interest owner in 2009. At that time, Sieker, either individually or acting through her son, Kenny, advised the Trust that she wanted it to release the undeveloped portion of the lease. This was followed by written demands in July and October 2009.

The Trust determined that further development would require 3D seismic testing on the lease. 3D seismic testing has been employed on about 90% of the wells currently drilled in Kansas. Because seismic testing could not be performed successfully without including testing of adjoining tracts, and because Credo Petroleum, the lessee on adjoining tracts, would not agree to participate, the Trust decided that further development of the lease was not possible at the time.

In February 2010, Sieker sued the Trust to cancel the lease on the undeveloped 150 acres. Sieker claimed the Trust breached the [186]*186implied covenant to develop the lease as a reasonably prudent operator should. Following a bench trial, the district court cancelled the lease on the 150 acres, leaving the lease in place for the 10 acres where production was ongoing. On considering the Trust’s motion to alter or amend the judgment, the court determined that the proper relief was to immediately cancel the lease on the undeveloped 150 acres and not to grant a conditional decree of cancellation to be effective if the Trust failed to exercise reasonable efforts to explore and develop tire 150 acres within a reasonable time.

Implied Covenant of Reasonable Exploration and Development

In this appeal, the Trust argues that the district court erred when it found that it breached the implied covenant for reasonable exploration and development. To the contrary, the Trust contends it was willing to participate in a 3D seismic study but Credo Petroleum, probably in cahoots with Sieker, blocked its efforts to do so.

On appeal, we review the trial court’s findings of fact to determine if they are supported by substantial competent evidence and are sufficient to support the trial court’s conclusions of law. Hodges v. Johnson, 288 Kan. 56, 65, 199 P.3d 1251 (2009). In doing so, we do not reweigh conflicting evidence, evaluate witnesses’ credibility, or redetermine questions of fact. In re Adoption of Baby Girl P., 291 Kan. 424, 430-31, 242 P.3d 1168 (2010). We have unlimited review over the district court’s conclusions of law. American Special Risk Management Corp. v. Cahow, 286 Kan. 1134, 1141, 192 P.3d 614 (2008).

Every oil and gas lease in Kansas contains by implication a covenant to develop the leased property. Berry v. Wondra, 173 Kan. 273, 281, 246 P.2d 282 (1952); Greenwood v. Texas-Interstate P. L. Co., 143 Kan. 686, Syl. ¶ 1, 56 P.2d 431 (1936); Alford v. Dennis, 102 Kan. 403, Syl. ¶ 3, 170 Pac. 1005 (1918). The Kansas Deep Horizons Act, K.S.A. 55-223 et seq., codified this common-law principle. The Act implies in all oil and gas leases a covenant “to reasonably explore and to develop the minerals which are the subject of such lease.” K.S.A. 55-223.

[187]*187An owner whose lands are burdened with an oil and gas lease is entitled to have those lands prospected for oil and gas within a reasonable period of time. 102 Kan. at 404. A lessee is required to act as a reasonably prudent operator in developing the leased property. Kansas Baptist Convention v. Mesa Operating Limited Partnership, 253 Kan. 717, 732, 864 P.2d 204 (1993); Sanders v. Birmingham, 214 Kan. 769, 776, 522 P.2d 959 (1974).

“Whether a lessee has performed his duties under the expressed or implied covenants is a question of fact. In the absence of a controlling stipulation, neither the lessor nor the lessee is the sole arbiter of the extent, or the diligence with which, tire operations and development shall proceed. The standard by which both are bound is what an experienced operator of ordinary prudence would do under the same or similar circumstances, having due regard to the interest of both.” Adolph v. Stearns, 235 Kan. 622, Syl. ¶ 1, 684 P.2d 372 (1984).

The Adolph court advanced the general principle that

“[t]his court, when speaking of these covenants, places great emphasis on the individual property rights and construes oil and gas leases to promote development and prevent delay upon the theoiy that the lessor has a right to have his land developed as rapidly as possible. To insure that end when a lease itself does not contain specific expressions regarding production or development, the law determines the intention of the parties and the court has imposed such duties upon the lessees. The legislature as a matter of public policy has by statute included the implied covenant to explore and develop all oil and gas leases when such covenants are not contained in the lease K.S.A. 55-223.” 235 Kan. at 626.

In determining whether an operator has exercised reasonable diligence in its efforts to develop the land, the court must consider a variety of circumstances such as

“ ‘the quantity of oil and gas capable of being produced from the premises, as indicated by prior exploration and development, the local market or demand therefor or the means of transporting them to market, the extent and results of tire operations, if any, on adjacent lands, the character of the natural reservoir'— whether such as to permit the drainage of a large area by each well—and the usages of the business.’ [Citation omitted.]” Fischer v. Magnolia Petroleum Co., 156 Kan. 367, 374, 133 P.2d 95 (1943).

Here, the district court based its decision in part on the fact that lessees on nearby properties had successfully undertaken efforts to drill additional wells and to pursue further development.

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Cite This Page — Counsel Stack

Bluebook (online)
309 P.3d 1, 49 Kan. App. 2d 183, Counsel Stack Legal Research, https://law.counselstack.com/opinion/sieker-v-stephens-trust-kanctapp-2013.