Voiles v. Santa Fe Minerals, Inc.

911 P.2d 1205, 1996 WL 45001
CourtSupreme Court of Oklahoma
DecidedFebruary 21, 1996
Docket77971, 77973 to 77975, 77977, 77980 and 77981 to 77994
StatusPublished
Cited by71 cases

This text of 911 P.2d 1205 (Voiles v. Santa Fe Minerals, Inc.) is published on Counsel Stack Legal Research, covering Supreme Court of Oklahoma primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Voiles v. Santa Fe Minerals, Inc., 911 P.2d 1205, 1996 WL 45001 (Okla. 1996).

Opinion

SUMMERS, Justice.

Santa Fe Minerals, Inc. and other mineral lessees/working interest owners (collectively “Santa Fe” or “the defendants”) were enjoying production from the Guymon-Hugoton field under several virtually identical oil and gas leases executed between 1937 and 1950. In 1989 Oklahoma Hugoton Corporation (Hugoton) approached the lessors of the Santa Fe leases, or their successors, and paid each for what is known as a top lease, an oil and gas lease to take effect only if the pre-existing lease should expire or be terminated. In the process Hugoton obtained from each lessor his or her authority to take the necessary steps to bring suit, in the name of the lessor, but at the expense of Hugoton, *1208 to judicially terminate the earlier leases, called base leases.

As a result ten cases were filed in the District Court of Texas County by the mineral owners/lessors to quiet title to their mineral interests — and to cancel the base leases owned by Santa Fe. The gravamen of each suit was that Santa Fe had, from time to time, withheld production for a period of more than sixty days, and each lease contained a “cessation of production” clause providing for cancellation if production ceased for more than sixty days without commencement of drilling operations.

The defendants are successors in title to the rights in the base leases. One of the defendants, Santa Fe Minerals, Inc. is a defendant in each of the ten actions. Some of the defendants asserted counterclaims against the plaintiffs to quiet title to the base leases in favor of the defendants.

In each of the ten cases Santa Fe filed a third-party claim against third-party defendant Hugoton. Santa Fe’s claims were based upon allegations of tortious interference with contract, slander of title, champerty and maintenance. In two cases (C-90-16; C-90-20) Jake L. Hamon, Don 0. Chappell, and Hamon Operating Co. asserted a similar third party claim against Hugoton. In one case (C-90-19) defendants Helen K. Elrod and C.D. Long filed a like claim against Hugoton.

The ten cases were consolidated for a non-jury trial. The trial court rejected the plaintiffs’ argument that the cessation of production clause terminated the base leases, found the defendants’ base leases to be “presently existing”, and quieted title to them in the defendants. The court also rendered judgment cancelling and setting aside the top leases.

On the defendants’ (third-party plaintiffs’) claims for tortious interference with contract the trial court found in favor of the third-party plaintiffs. It awarded a judgment in the amount of $1.00 each in favor Santa Fe, Jake L. Hamon, Don 0. Chappell, Hamon Operating Company, C.D. Long and Helen K. Elrod against Hugoton. On the defendants’ claims against Hugoton alleging slander of title and champerty and maintenance judgment was rendered in favor of Hugoton.

The judgment in these ten cases resulted in twenty appeals. We consolidated the twenty appeals under surviving Supreme Court No. 77,971. 2 We granted a motion to retain the consolidated appeal. We deny the motions for oral argument.

THE CESSATION OF PRODUCTION CLAUSE

The primary issue in this appeal is the application of the sixty-day cessation of production clause, and whether it controls the habendum clause in the lease. The ha-bendum clause in the base leases provided for a primary lease term of ten years and as long thereafter as oil, gas, casinghead gas or any of them is produced. 3 The cessation of production clause in the base leases provided for cessation of the lease after the expiration of the primary term if production on leased premises failed, unless the lessee resumed operations for a well within sixty days of the cessation.

This precise issue was resolved in Pack v. Santa Fe Minerals, 869 P.2d 323 (Okla.1994). We held there that a lease does not terminate under the terms of a habendum clause when the well was at all times capable of producing in paying quantities. Id. 869 P.2d at 327. We then explained that a sixty-day cessation of production clause requires the well to be capable of producing in paying quantities, but that a lease capable of producing in paying quantities will not terminate under that clause for a failure to market gas for a sixty-day period. Rather it is the failure to comply with the implied covenant to market which could result in cancellation of the lease. Id. at 329.

Once Pack was resolved we requested briefs on the application of Pack to this appeal. The parties responded and reeog- *1209 nized the applicability of Pack, unless we wished to overrule it. We do not. We conclude that the judgment of the trial judge quieting title to the base leases in the defendants was correct. We affirm that part of the judgment.

CANCELLATION OF THE TOP LEASES

The trial court cancelled and set aside the top leases. A top lease is where the lease taken is subject to a pre-existing lease that has not expired when the second lease was taken. French Energy, Inc. v. Alexander, 818 P.2d 1234, 1238 n. 15 (Okla.1991); Sohio Petroleum Co. v. Grynberg, 757 P.2d 1125, 1126 (Colo.App.1988). The testimony included an opinion from one witness that top leases were a common and accepted industry practice: “... they are accepted, they are frequent, and they are simply considered to be a legitimate form of business competition in the oil business.” Testimony also showed that in the oil and gas industry there are people who take top leases and fund litigation attacking the base lease. In Nantt v. Puckett Energy Co., 382 N.W.2d 655 (N.D. 1986) that court stated that while top leasing was once considered to be “claim jumping” it “has become a useful and widespread business practice in the oil and gas industry in North Dakota, as well as in other regions.” Id. 382 N.W.2d at 659.

The top lease states that it vests in the top lessee the mineral owner’s reversionary interest under the base lease. It further states that possession under the top lease shall vest upon release of the base lease or upon a final an unappealable judgment that the base lease has terminated. The top lease also states that if this possession does not vest then the reversionary interest and top lease granted would terminate “within ten (10) years from the date of this Agreement.”

No party has argued that the top lease grants, or was intended to grant, a reversion-ary interest independent of the adjudication of the base leases in this proceeding. On appeal all parties, including Hugoton, have construed the validity and vesting of the top leases as dependent upon whether the base leases were held invalid in this proceeding. Hugoton states unequivocally that the “top leases have never taken affect [sic].” We are asked in this case to construe the validity of top leases where all parties have interpreted those leases as contingent upon a judicial determination in this suit on the validity of the base leases.

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Bluebook (online)
911 P.2d 1205, 1996 WL 45001, Counsel Stack Legal Research, https://law.counselstack.com/opinion/voiles-v-santa-fe-minerals-inc-okla-1996.