Johnson v. Statoil Oil & Gas LP

Robert Johnson and A.V.M., Inc. (plaintiffs) entered into separate oil-and-gas leases with Missouri Basin Well Service, Inc. The leases collectively applied to mineral interests in and under eight units of land. Each lease contained a habendum clause and a continuous-drilling-operations clause that were from a form oil-and-gas lease. The habendum clause provided that the lease would remain in force for a three-year primary term and as long thereafter as production continued from the leased premises or on acreage pooled with the leased premises. The continuous-drilling-operations clause provided that if oil or gas was not being produced on the leased premises or on acreage pooled with the leased premises at the end of the primary term, the lease would still continue in force as long as drilling or reworking operations were being continuously performed on the land. Additionally, the parties added a Pugh clause to each lease, providing that once the primary term expired, the lease would terminate as to any part of the property that was not included within a well unit from which oil or gas was being produced in paying quantities. At the end of the three-year primary lease term, production was occurring on three of the eight units covered by the leases. Johnson and A.V.M. brought an action against entities including Statoil Oil & Gas LP (Statoil) (defendant), asserting that under the leases’ Pugh clauses, the leases had terminated with respect to the five remaining units because oil or gas was not being produced from those units in paying quantities. Statoil argued that under the leases’ continuous-drilling-operations clauses, the drilling operations occurring at the end of the primary term were sufficient to extend the leases for all eight units. The trial court granted summary judgment in Statoil’s favor. Johnson and A.V.M. appealed.