Tucker v. Hugoton Energy Corp.
Kansas Supreme Court
855 P.2d 929 (Kan. 1993)
Mary Tucker (plaintiff) was a lessor under an oil and gas lease that was assigned to Hugoton Energy Corporation (Hugoton) (defendant) as a lessee. The lease contained a shut-in royalty clause providing that if a well was able to produce gas but there was no market for the gas, the lessee could pay Tucker a shut-in royalty to maintain the lease. The primary term of the lease expired, but there were wells producing gas in payable quantities on the property, keeping the lease in effect. The wells produced massive amounts of water during production and were expensive to maintain as a result. When industrial-gas sales declined, Hugoton’s predecessor in interest lost significant sales revenue. While sales were still struggling due to the limited market for gas, the wells began having mechanical issues. Hugoton’s predecessor in interest decided to not repair the wells, but rather to stop production and invoke the shut-in royalty clause in the lease, paying monthly shut-in royalties. Tucker brought suit for a declaratory judgment that the lease had expired due to the wells’ failure to produce gas in paying quantities. The trial court held that the shut-in royalty payments had kept the lease in effect. Tucker appealed. Hugoton cross-appealed, arguing that Tucker’s acceptance of the shut-in royalty payments estopped Tucker from seeking to cancel the lease.
Rule of Law
Holding and Reasoning (Lockett, J.)
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