Cook v. El Paso Natural Gas Co.
United States Court of Appeals for the Tenth Circuit
560 F.2d 978 (10th Cir. 1977)
Cook (plaintiff) owned an oil and gas lease on a tract of land. Cook assigned the lease to Phillips Petroleum Company (Phillips) (defendant), reserving a five percent overriding royalty. Phillips subsequently assigned the lease to El Paso Natural Gas Company (El Paso) (defendant). El Paso also owned a lease on an adjoining property. El Paso completed a well on its adjoining property. The U.S. Geological Survey found that drilling on the Cook property would unduly waste potash and therefore prohibited drilling on that property. Cook brought suit in the State District Court for New Mexico, Eddy County, seeking a compensatory royalty from the defendants based on their breach of the implied covenant to protect against drainage. The defendants removed the case to the United States District Court for the District of New Mexico. The district court found in favor of Cook. The defendants appealed, arguing that (1) the government’s prohibition on drilling on Cook’s property relieved the defendants of their duty under the implied covenant, and (2) a royalty interest owner does not have standing to enforce a lease, generally, and thus does not have standing to assert a claim based on the covenants implied in the lease.
Rule of Law
Holding and Reasoning (Doyle, J.)
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