ΒΆ30 Instead, our case law provides that, when an appellate court is reviewing whether "the period employed by the trial court to determine profitability was sufficient," "the appropriate time period is not measured in days, weeks or months, but by a time appropriate under all of the facts and circumstances of each case." Barby v. Singer, 1982 OK 49, ΒΆ 6, 648 P.2d 14, 16--17; accord Texaco, Inc. v. Fox, 618 P.2d 844 (Kan. 1980) (observing that "it is generally accepted that profitability on an oil and gas lease should be determined over a relatively long period of time in order to expose the operation to the leveling influences of time," discussing the downfalls of using time periods that are too short or too long, and holding that "[t]he better rule precludes the use of a rigid fixed term for determination of profitability and uses a reasonable time depending upon the circumstances of each case, taking into consideration sufficient time to reflect the current production status of the lease"); Clifton v. Koontz, 325 S.W.2d 684, 690 (Tex. 1959) (stating that "there can be no limit as to time, whether it be days, weeks, or months, to be taken into consideration in determining the question of whether paying production from the lease has ceased" and saying that "the trial court necessarily must take into considerati
ΒΆ 9 In the state of Oklahoma, when the term "produced" is used in a "thereafter" provision of an habendum clause, its meaning is that of "production in paying quantities." Stewart v. Amerada Hess Corp., 1979 OK 145, ΒΆ 5, 604 P.2d 854, 857; Barby v. Singer, 1982 OK 49, ΒΆ 4, 648 P.2d 14, 16; Pack v. Santa Fe Minerals, 1994 OK 23, ΒΆ 8, 869 P.2d 323, 326. "Production in paying quantities" is a term defined by Oklahoma case law to mean "production of quantities of oil and gas sufficient to yield a profit to the lessee over operating expenses, even though the drilling costs or equipping costs are never recovered, and even if the undertaking as a whole may result in a loss to the lessee." Hininger v. Kaiser, 1987 OK 26, ΒΆ 6, 738 P.2d 137, 140.
Lastly, this Court has repeatedly refused to inject any requirement of marketing into the definition of "produced."See, e.g. , Smith , 2004 OK 10, ΒΆ 9, 85 P.3d at 833 ; Pack , 1994 OK 23, ΒΆ 8, 869 P.2d at 328 ; Barby v. Singer , 1982 OK 49, ΒΆ 4, 648 P.2d 14, 16 ; State ex rel. Comm'rs of the Land Office v. Amoco Prod. Co. , 1982 OK 14, ΒΆ 6, 645 P.2d 468, 470 ; Mason v. Ladd Petroleum , 1981 OK 73, ΒΆ 3, 630 P.2d 1283, 1284 ; Stewart , 1979 OK 145, ΒΆ 5, 604 P.2d at 857 ; State ex rel. Comm'rs of the Land Office v. Carter Oil Co. of W. Va. , 1958 OK 289, ΒΆΒΆ 37-47, 336 P.2d 1086, 1094-96 ; McVicker v. Horn, Robinson & Nathan , 1958 OK 49, ΒΆΒΆ 5-6, 322 P.2d 410, 412-14 ; Henry , 1954 OK 170, ΒΆ 6, 274 P.2d at 546 ; Gypsy Oil Co. v. Marsh , 1926 OK 246, ΒΆ 18, 248 P. 329, 333, 121 Okla. 135, 248 P. 329. Our reason for defining "produced" in this way was to secure development of the property for the mutual benefit of both lessor and lessee, thereby giving effect to the purpose of a mineral-interest lease and to the mutual intent of its parties. Gypsy Oil Co. , 1926 OK 246, ΒΆ 18, 121 Okla. 135, 248 P. at 333 ; 2 Kuntz, supra note 59, Β§ 26.5, at 335.
Despite Blaser's argument, we hold that the district court properly interpreted Oklahoma law as allowing equitable considerations to prevent forfeitures in cases such as this. The Supreme Court of Oklahoma has stated clearly that lease clauses like paragraph 26, although traditionally construed as special limitations, do not automatically terminate leases when such terminations would cause harsh forfeitures. See Barby v. Singer, 648 P.2d 14, 17 (Okla. 1982); Stewart v. Amerada Hess Corp., 604 P.2d 854, 858 (Okla. 1979). In Stewart, the Supreme Court of Oklahoma considered the question of whether a so-called "thereafter" clause operated to terminate a lease when the well in question ceased to produce in paying quantities.
This burden includes showing all facts and circumstances material to the cause of action and relief sought. Stewart v. Amerada Hess Corp., 1979 OK 145, 604 P.2d 854, 858 (cancelling a lease may be based upon absence of production in paying quantities when there are no compelling equitable considerations to justify continuation of production from an unprofitable well operation); Pack v. Santa Fe Minerals, 1994 OK 23, ΒΆ30, 869 P.2d 323 (lessors seeking to cancel oil and gas leases failed to meet their burden); Barby v. Singer, 1982 OK 49, 648 P.2d 14, 16-17 ("all of the facts and circumstances of each case" must be considered); Durkee v. Hazan, 1968 OK 96, 452 P.2d 803, 814 (viability of a lease "must be viewed in the light of all the circumstances" in a quiet title controversy). ΒΆ3 The parties used a partial summary adjudication procedure for a decision by the trial court.
Jath Oil, 490 P.2d 1086. The Oklahoma Supreme Court later reiterated that the appropriate period is not measured in days, weeks, or months but by the time appropriate under all of the circumstances. Barby v. Singer, 648 P.2d 14, 16β17 (Okla.1982) (trier of fact could find reasonable a fourteen-month period of cessation or reduction in production so that well operated at a loss while operator awaited a decision on a new federal law regarding a pipeline). Notably, none of these decisions was rendered by way of summary judgment.
Jath Oil, 490 P.2d 1086. The Oklahoma Supreme Court later reiterated that the appropriate period is not measured in days, weeks, or months but by the time appropriate under all of the circumstances. Barby v. Singer, 648 P.2d 14, 16β17 (Okla.1982) (trier of fact could find reasonable a fourteen-month period of cessation or reduction in production so that well operated at a loss while operator awaited a decision on a new federal law regarding a pipeline). Notably, none of these decisions was rendered by way of summary judgment.
Southard v. MacDonald, 1961 OK 72, 360 P.2d 940, 945. See also Danne v. Texaco Exploration and Production Inc., 1994 OK CIV APP 138, 883 P.2d 210, 217, and Barby v. Singer, 1982 OK 49, 648 P.2d 14, 17. ΒΆ 4 An oil and gas lease may be terminated for breach of the implied covenant to market the product.
No distinction is made under Oklahoma law between temporary termination of production and reduction in production to the degree that the well ceases to be profitable. Barby v. Singer, 648 P.2d 14 (Okla. 1982). After the commencement of the Mills well in the primary term, the question then becomes one of the operator's diligence and whether the period of cessation of production is unreasonable.
See Flag Oil Corp. of Delaware v. King Resources Co., 494 P.2d 322, 325 (Okla. 1972) ("[I]n the absence of . . . an express requirement [to market the product], the lessee's duty to market is based on an implied covenant. . . . [T]he diligence of the lessee's efforts, and the reasonable probability of their [ sic] success, are factors to be taken into consideration in determining what constitutes a `reasonable time' under this rule.") An action for lease cancellation, brought for failure to market the product with due diligence, is an action of equitable cognizance, and we will affirm the judgment of the trial court unless it is clearly against the weight of the evidence. Barby v. Singer, 648 P.2d 14, 17 (Okla. 1982). Texaco operates a well that is capable of production, but was shut in for over four years. Texaco asserts that the well was shut in by mistake, but acknowledges that during the first two years of shut in, Phillips had a gas meter at the well and could have taken the gas at spot-market prices.