This summary was computer-generated without any editorial revision. It is not official, has not been checked for accuracy, and is NOT citable.
Facts
The case concerns the termination of a 1959 oil and gas lease in San Juan County, New Mexico. The lessee's gas well ceased production between December 1990 and March 1991. The lessors claimed the lease terminated due to the lessee's failure to pay shut-in royalties or resume operations within 60 days. The lessee argued that the cessation was due to external factors and that they complied with the lease's savings clauses (paras 1-3).
Procedural History
- District Court: Held that the lease terminated because the lessees failed to tender shut-in royalties or resume operations within 60 days after production ceased (para 1).
- Court of Appeals: Affirmed the district court's decision in a memorandum opinion (para 1).
Parties' Submissions
- Petitioners (Lessees): Argued that the lease did not terminate because they complied with the continuous operations clause, the shut-in royalty clause was not applicable, and the cessation of production was due to a force majeure event. They also claimed that the judicial ascertainment clause should apply (paras 5-6, 13, 27, 31).
- Respondents (Lessors): Asserted that the lease terminated under the habendum clause due to the cessation of production and the lessees' failure to comply with the shut-in royalty or continuous operations clauses. They also argued that the force majeure clause did not apply (paras 5-6, 13, 31).
Legal Issues
- Did the lease terminate under the habendum clause due to the cessation of production?
- Could the lessees rely on the shut-in royalty clause to preserve the lease?
- Did the lessees comply with the continuous operations clause?
- Was the cessation of production caused by a force majeure event?
Disposition
- The Supreme Court of New Mexico affirmed the district court's decision, holding that the lease terminated in 1991 due to the cessation of production and the lessees' failure to comply with the savings clauses (para 36).
Reasons
Per Petra Jimenez Maes, Chief Justice (Minzner, Serna, and Bosson JJ. concurring):
Shut-in Royalty Clause: The Court held that the shut-in royalty clause only applies to wells capable of producing gas. Since the well was incapable of production during the relevant period, the lessees could not rely on this clause to preserve the lease. The Court also noted that the lessees failed to tender shut-in royalties in a timely manner (paras 12-26).
Continuous Operations Clause: The lessees failed to preserve their arguments regarding compliance with the continuous operations clause. The Court found no evidence that the lessees commenced reworking operations within the required 60-day period (paras 27-30).
Force Majeure Clause: The Court determined that the cessation of production was not caused by an external force beyond the lessees' control, such as a failure of transportation. Instead, the cessation was due to insufficient pressure within the well, which was within the lessees' control (paras 31-34).
Counterclaims: Since the lease had terminated, the Court upheld the dismissal of the lessees' counterclaims, including tortious interference with contract and fraud (para 35).
The Court concluded that the lease terminated in 1991, and the lessors were entitled to execute new leases with the respondents (para 36).