Pack v. Santa Fe Minerals, a Division of Santa Fe International Corporation

869 P.2d 323 (1994)

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Pack v. Santa Fe Minerals, a Division of Santa Fe International Corporation

Supreme Court of Oklahoma
869 P.2d 323 (1994)

SC

Facts

Pack (plaintiff) signed an oil and gas lease, leasing oil and gas rights on his property to Santa Fe Minerals (SFM) (defendant). The lease provided that the lease would terminate after ten years, unless the wells were producing. Specifically, the lease also stated that the lease would terminate if, after the ten-year term, production ceased for more than 60 days. The lease contained a shut-in royalty requirement, to be paid to Pack if the wells were capable of producing, but did not produce. SFM’s well on the property was capable of producing gas. SFM over-produced gas during the winter months because demand and price for the gas was highest during those months. Oklahoma Corporation Commission regulations imposed a cap on the amount of gas a single well can produce in a year. To abide by this cap, SFM did not market or produce gas during the warmer months of the year. SFM did not pay Pack royalties during these warmer months. After the initial ten-year lease term expired, Pack brought suit, claiming that the lease terminated on account of SFM’s non-production and non-payment during the summer months. The trial court found in favor of Pack and canceled the lease. The court of appeals affirmed. Pack appealed.

Rule of Law

Issue

Holding and Reasoning (Simms, J.)

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