Sunac Petroleum Corp. v. Parkes

O’Hern executed an oil and gas lease to Parkes (plaintiff). Parkes assigned his interest, reserving a royalty for himself. The interest was later assigned to Sunac Petroleum Corporation (Sunac) (defendant). The lease provided for extension beyond the primary term in two ways: (1) if the lessee drilled a dry hole or ceased production, the lease could be extended by additional drilling or reworking operations within 60 days; or (2) if the lessee was engaged in drilling operations without production at the expiration of the primary term, the lease could be extended by continued drilling or reworking operations so long as those operations did not cease for a period of more than 30 days. The lease also stated that the lessee could pool the leasehold with a larger unit, and that production within the larger unit would extend the lease beyond the primary term. Sunac pooled the lease pursuant to this provision, but for gas purposes only. There was not yet production at the expiration of the primary term, but a well was being drilled within the gas unit, although not on Sunac’s leasehold. This well produced oil in paying quantities when completed. Sunac then commenced drilling operations for a well on the leasehold. Under the theory that the original lease had expired, Sunac signed a new oil and gas lease with the lessors and stopped paying Parkes the royalty due under the original lease. Parkes brought suit against Sunac. The trial court ruled in favor of Parkes. The Texas Court of Civil Appeals affirmed. Sunac appealed.