Sword v. Rains

Charles Sword (plaintiff) executed an oil and gas lease that was later assigned to Wilson Rains (defendant). The lease contained a continuous-operations clause providing that if Rains commenced drilling operations on the land before the expiration of the primary term, continuous operations would extend the lease “for so long as such operations [were] prosecuted” or “if production result[ed] therefrom, then so long as such production may continue.” Rains drilled a well and discovered gas in paying quantities during the primary term on October 23, 1972, thereby extending the lease. The well was completed on November 8, 1972, at which point Rains was forced to shut down the well temporarily due to poor weather conditions. At that time, Rains started the process of finding a buyer for the discovered gas. Throughout this time, there had been a legal dispute over federal gas-price regulations issued by the Federal Power Commission. These regulations affected how much Rains could charge for the gas. On June 6, 1973, Rains executed a gas-sales contract with Panhandle Eastern Pipe Line Company (Panhandle). Delivery under the contract commenced on August 20, 1973. Sword brought suit against Rains to quiet title to the land, claiming that the lease had terminated under the continuous-operations clause. The district court disagreed and held in favor of Rains. Sword appealed.