Hall v. JFW, Inc.

In August 1990, John Hall (plaintiff) leased land to JFW, Inc. (JFW) (defendant) under an oil-and-gas lease. The lease provided that if no oil well was constructed on the property on or before August 3, 1991, the lease would terminate. However, the lease further provided that if JFW “shall commence to drill a well” before the August 3, 1991, termination date, JFW would have the right to complete the well. The termination date was later changed to August 13, 1991. In October 1990, JFW obtained a title opinion for the property. JFW subsequently measured and staked a location for the well and surveyed the proposed site. JFW received state regulatory approval to drill in June 1991, spoke with a geologist in June and July 1991, and on July 21, 1991, reached a verbal agreement with Duke Drilling (Duke) to drill the well. JFW signed a contract with Duke on August 10, 1991, and a Duke agent dug drilling pits and leveled the drilling location that same day. Further preparatory work for the well-drilling project was completed on August 11 and 12, 1991, but Duke did not actually move the drilling rig onto the leased property and start digging the well until August 14, 1991. Following digging and cement curing, JFW was ready to move the completion rig onto the property on September 3, 1991. However, Hall filed an action against JFW in Kansas state court before the well was completed, seeking a determination that the lease had terminated. The trial court found that JFW had commenced the well before the lease’s termination date because JFW had a firm commitment from Duke before that time. The court thus entered summary judgment in JFW’s favor. Hall appealed to the Kansas Court of Appeals, arguing that preliminary steps taken in anticipation of eventual drilling did not constitute commencement of the well for purposes of the lease.