Oil and Gas Leases: Termination; Cessation of Production Oil and Gas Leases: Estoppel; Acceptance of Royalty Payments

摘要

In 1995, predecessors to L & L drill and complete a natural gas well that produces through May 2000. L & L purchases the lease in a Chapter 7 bankruptcy action. In May 2000, production from the only well on the lease ceases and the well is deemed to be incapable of producing in paying quantities. No drilling or other operations are conducted on the lease within the sixty days allowed under a leasehold savings provision. Royalties are tendered to a number of the lessors following the expiration of the primary term. The trial court concludes that the shut-in gas royalty clause is not applicable under the circumstances since the well is incapable of producing in paying quantities. The trial court grants Chesapeake's request for a declaratory judgment that the lease owned by L & L has terminated. Held: affirmed. L & L's principal theory as to why their lease did not terminate is that the lessors,should be estopped from asserting a lease termination through their acceptance of certain royalty payments. The court follows the general rule that acceptance of royalty payments in the secondary term does not estop the lessor from asserting that the lease has terminated. Likewise, since the lease automatically terminates, acceptance of royalties cannot ratify the lease. Thus, the trial court's finding that the L & L lease has terminated is upheld.