Summary
The Kansas Supreme Court held that a mineral deed conveying an interest for 15 years and thereafter while oil or gas was produced, or the property was developed or operated, was not extended by a lease's shut-in royalty provision. The deed's "subject to" clause did not incorporate the lease provisions for purposes of extending the deed's term. Because there was no actual production after June 1, 1985, the mineral interest terminated at the end of its 15-year term.
Topics
Practice areas
Questions Presented
- Whether the mineral deed's "subject to" clause incorporated the existing oil and gas lease, including its shut-in royalty provision, so that constructive production under the lease extended the mineral deed's term.
- Whether payment of shut-in royalties under the lease was equivalent to actual production or development under the mineral deed.
- Whether the defendants' mineral interest terminated after the deed's original 15-year term when no actual production occurred.
Holdings
- The "subject to" clause did not incorporate the provisions of the existing oil and gas lease into the mineral deed. The clause was a limiting or qualifying provision and did not extend the duration of the mineral interest.
- Payment of shut-in royalties under the lease was not equivalent to actual production or development required to perpetuate the mineral deed.
- The defendants' mineral interest terminated at the end of its 15-year term because no actual production occurred as of June 1, 1985. Production that resumed in 2003 did not revive the terminated interest.
Key quotations
“On the facts of this case, a "subject to" clause in a mineral deed referring to a preexisting lease does not extend the term of the deed beyond its original 15 years.” (301 Kan. at 693)
“We therefore look only at the provisions of the mineral deed itself to determine whether defendants' mineral interest has terminated.” (301 Kan. at 704)
“Because it is undisputed that there was no actual production as of June 1, 1985, the defendants' mineral interest did not continue past its 15-year term.” (301 Kan. at 704)
Factual background
In 1969, Joe and Rose Netahla leased the property for oil and gas development. In 1970, they conveyed a one-half mineral interest to Frank Netahla by a mineral deed stating that the conveyance was subject to the existing lease and would last for 15 years and thereafter as long as oil or gas was produced or the property was developed or operated. A well was drilled and later shut in, but no oil or gas was actually produced from June 1, 1985, until 2003, when a subsequent operator resumed production. The issue was whether shut-in royalty payments under the lease preserved the mineral interest beyond the deed's 15-year term.
Procedural history
Larry Netahla and Janet Netahla Curtis filed a declaratory judgment petition seeking a declaration that the mineral interest conveyed to Mike Netahla and Debra Francis had terminated. The Sumner District Court granted defendants summary judgment. The Kansas Court of Appeals affirmed in a published opinion, 49 Kan. App. 2d 396, 307 P.3d 269 (2013). The Kansas Supreme Court reversed both the Court of Appeals and the district court.
Remand instructions
The judgment of the Court of Appeals affirming the district court was reversed, and the district court's judgment was reversed. The opinion does not state further specific remand instructions.