Hitzelberger v. Samedan Oil Corp.

Samedan Oil Corporation (Samedan) (defendant) was the lessee of an oil and gas lease to which Robert Hitzelberger (plaintiff) was the lessor. The habendum clause of the lease stated that, subject to other provisions in the lease, the lease would be for a primary term of three years and as long thereafter as minerals were produced and royalties were paid. The royalty clause of the lease provided that Hitzelberger was owed a royalty within 120 days of a producing well being drilled on the leasehold or within a unit with which the leasehold was pooled, and monthly royalty payments thereafter. The royalty clause also provided that a failure to pay either the initial or monthly royalty payments would terminate the lease. Hitzelberger agreed to allow Samedan to pool the leasehold in exchange for a commitment that his royalties would survive the pooling agreement. During the primary term of the lease, Samedan drilled a producing well within the pooled unit, but not on the Hitzelberger leasehold. Samedan paid an initial royalty to Hitzelberger 120 days after the well was drilled, but failed to make any monthly royalty payments thereafter during the primary term. Hitzelberger brought suit for a declaration that the lease was terminated due to Samedan’s nonpayment. Samedan claimed that only a habendum clause in a lease could determine the lease’s duration, and that the habendum clause in Samedan’s lease only explicitly required royalty payments during the secondary term of the lease. The trial court found in favor of Samedan. Hitzelberger appealed.