Robbins v. Chevron U.S.A., Inc.

Edward Robbins (plaintiff) was the lessor under an oil and gas lease to which Chevron U.S.A., Inc. (Chevron) (defendant) acquired the rights by 1985. In 1960, Chevron’s predecessor in interest, Gulf Oil Corporation (Gulf), had drilled producing wells and signed a 20-year gas-purchase contract with Kansas Gas Supply Corporation (KGS). In 1978, Gulf agreed to extend the term of the contract for 10 years in exchange for an increased sales price. In 1982, the price for the gas as determined under the contract was higher than the price permitted by the Kansas Natural Gas Price Protection Act (Act). Gulf and KGS agreed that the Act capped the price at which Gulf could sell the gas, notwithstanding the purchase contract. In 1985, the demand for gas decreased. KGS attempted to renegotiate the contract with Chevron for a lower price, but Chevron refused. KGS refused to continue paying for gas under the contract. As there was no alternative purchaser available, Chevron shut in the wells and began paying shut-in royalties to Robbins. In 1987, Chevron reopened the wells and began selling gas again. Robbins brought suit against Chevron to cancel the gas lease. Robbins alleged that Gulf and Chevron had breached the implied covenant to market by executing the 10-year extension of the contract with KGS and by failing to make sales while the wells were shut in. The trial court granted Robbins’s motion for summary judgment, cancelled the lease, and awarded Robbins damages for gas sold after the wells were reopened in 1987. Chevron appealed.