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Blair v. Natural Gas Anadarko Co.

Court of Appeals of Oklahoma, Division IV

December 21, 2016

EDWARD ARDEN BLAIR, JAMES THOMAS BLAIR, ROBERT PIERSON BLAIR, JAMES LOWDEN BROWN and FRANCES ELIZABETH CRAWFORD STROUD, Plaintiffs/Appellees,
v.
NATURAL GAS ANADARKO COMPANY; HW ALLEN CO., LLC; STEPHEN J. JATRAS and RICHARD WRIGHT, CO-TRUSTEES OF STEPHEN J. JATRAS PROPERTY TRUST DATED 8/17/1988; COVE PETROLEUM CORPORATION; L.H.H., INC.; ARI-MEX LAND COMPANY; PATRICIA W. WHEELER; ZENERGY, INC., F/K/A Zinke & Trumbo, LTD.; and NEIL A. KILBANE, Defendants/Appellants, and THE UNKNOWN HEIRS AND DEVISEES OF STEPHEN J. JATRAS, Deceased; AGATE PETROLEUM, INC.; and LEXINGTON ENERGY COMPANY, Defendants.

          Mandate Issued: 11/14/2017

         APPEAL FROM THE DISTRICT COURT OF BEAVER COUNTY, OKLAHOMA HONORABLE RYAN D. REDDICK, TRIAL JUDGE

          Brady L. Smith, MAHAFFEY & GORE, P.C., Oklahoma City, Oklahoma, for Plaintiffs/Appellees Edward Arden Blair, James Thomas Blair, Robert Pierson Blair, and James Lowden Brown.

          Michael E. Smith, HALL, ESTILL, HARDWICK GABLE, GOLDEN & NELSON, P.C., Oklahoma City, Oklahoma, for Defendants/Appellants Natural Gas Anadarko Company; HW Allen Co., LLC; Cove Petroleum Corporation; L.H.H., Inc.; Ari-Mex Land Company; Ameritrust Corporation, an Oklahoma Trust Company, Trustee of the Stephen J. Jatras Oil & Gas (F/K/A Stephen J. Jatras Property Trust Dated 8/17/1988); and Patricia Wheeler.

          James U. White, Jr., Tulsa, Oklahoma, and Jon E. Brightmire, DOERNER, SAUNDERS, DANIEL & ANDERSON, L.L.P., Tulsa, Oklahoma, for Defendants/Appellants Zenergy, Inc., f/k/a Zinke & Trumbo, LTD. and Neil Kilbane.

          JERRY L. GOODMAN, CHIEF JUDGE.

         ¶1 Natural Gas Anadarko Company, et al., (Defendants) appeal the trial court's May 12, 2014, order granting summary judgment to Plaintiffs Edward Arden Blair, James Thomas Blair, Robert Pierson Blair, James Lowden Brown, and Frances Elizabeth Crawford Stroud. [1] Plaintiffs sought cancellation of an oil and gas lease held by Defendants and an order quieting title to the well located within the lease. Defendants claimed the lease did not expire and denied Plaintiffs were entitled to summary judgment. The trial court, following an evidentiary hearing, held that by operation of the lease terms, the leasehold had expired. The trial court denied relief to Defendants and granted judgment to Plaintiffs. The appeal was assigned to the accelerated docket pursuant to Oklahoma Supreme Court Rule 1.36(a)(1), 12 O.S.2011, Supp. 2013, Ch. 15, App. 1 and In Re Amendments to Oklahoma Supreme Court Rules, 2013 OK 67. [2]

         ¶2 Based on our review of the facts and applicable law, we reverse and remand with directions.

         BACKGROUND

         ¶3 The parties dispute whether a Beaver County oil and gas lease terminated because, for three 90-day periods, it was unprofitable.

         ¶4 The lease was executed on June 12, 1981, filed of record June 18, 1981, and covers the E/2 of Section 33-1N-21ECM in Beaver County. The subject well, Blair No. 1-33, is located in this section. The primary term of the lease was three years from June 20, 1981. Plaintiffs own an undivided one-half interest in the lease. Defendants are assignees of the lease and operate the well.

         ¶5 The lease is represented [3] to contain the following language:

If, after the expiration of the primary term of this lease, ... production on the leased premises shall cease from any cause... this lease shall not terminate provided lessee resumes or commences operations for the drilling or reworking of a well within ninety (90) days from the date... cessation, and this lease shall remain in force and effect during the prosecution of such operations, and if production results therefrom, then as long as such production continues or the well or wells are capable of producing.

         ¶6 It is uncontested that the well was completed and producing during the initial three-year term of the lease, and Plaintiffs admit that "from July 1, 2012 through December 31, 2012, there was no period when the Blair No. 1-33 Well ceased to physically produce oil for 90 consecutive days." (Emphasis in original). [4] Plaintiffs contend, however, that following three chosen 90-day spans of time, the well did not cumulatively produce in paying quantities. [5] Therefore, Plaintiffs argue the 90-day cessation of production provision, set out above, operated to terminate the lease.

         ¶7 Plaintiffs did not allege, nor did the trial court address, any violations of any explicit or implied duties of Defendants to market the oil produced from Blair 1-33, nor that any other provision of the lease was violated.

         ¶8 Seeking summary judgment, Plaintiffs presented evidentiary material showing the cumulative lifting costs and income from the sale of oil from the well. Plaintiffs argue that during specific 90-day periods, the total lifting costs at the end of those 90 days exceeded the value of the oil sold, causing the cessation of production clause to operate and terminate the lease. Defendants filed a response and argued the evidentiary material reflects that there were several times during those periods in which the well did produce in paying quantities, which "interrupted the cessation of production" and therefore there was never any consecutive 90-day span in which production ceased completely. They then requested summary judgment in their favor.

         ¶9 A hearing on both summary judgment motions was held on March 25, 2014. All parties presented arguments and evidentiary material in support of their respective positions. The trial court entered an order, filed May 12, 2014, containing the following findings of fact.

4. During the ninety (90) day period from July 18, 2012 through October 15, 2012... lifting expenses for the [well] exceeded the value of the oil produced during such time period.
5. During the ninety (90) day period from August 1, 2012 through October 29, 2012... lifting expenses for the [well] exceeded the value of the oil ...

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