Levin v. Maw Oil & Gas LLC

Michael and Diane Levin (plaintiffs) entered an oil-and-gas lease with Maw Oil & Gas LLC (Maw) (defendant). The lease provided for a six-month primary term that could be extended as long as gas or other hydrocarbons were being produced on the land. The lease also contained a shut-in royalty clause providing that if (1) any gas well on the property was shut in and (2) the lease was not otherwise continued in force by some other lease provision or a well had been completed, the leased premises would be deemed to be producing gas in paying quantities if Maw paid the Levins a shut-in royalty. The lease did not define shut in. Other landowners (plaintiffs) entered similar leases with Maw, and Maw subsequently assigned all leases to Clary Energy, LLC (Clary) (defendant) (collectively with Maw, the lessees). Clary paid shut-in royalties to all the landowners. However, the landowners all subsequently signed affidavits that there were no producing gas wells on their land and leased their land to Kansas Gas Exploration, LLC (KGE). KGE and the landowners then sued the lessees, seeking declarations that (1) the lessees had no interest in the landowners’ land, (2) the landowners had vested title in their land, and (3) KGE had the sole right to develop natural-gas wells on the landowners’ land. The landowners alleged that the leases’ primary terms had expired and that no attempt had been made to allow the wells on the land to produce and deliver natural gas for commercial sale. Before pretrial discovery, the trial court determined that the leases had terminated and granted summary judgment for the landowners. The lessees appealed, arguing that the shut-in royalty clauses had extended the leases past their primary terms. The appellate court transferred the case to the Kansas Supreme Court, which considered whether the wells on the landowners’ land qualified as shut in for purposes of the shut-in royalty clauses.