Lollygag: To fool around and waste time; dawdle.  As in, “I lollygagged for 15 years after filing my suit and obtained a less-than-optimal result.”

Gramwich Oil and Gas Corporation et al v. Meng addressed claims for lease termination, repudiation, laches, cessation of production, and failure to produce in paying quantities. The facts are dense and the savings clause at issue is sui generis, so I won’t go into lots of detail. The takeaway: If you have a claim, prosecute it.

The facts

Lessees Gramwich et al sued in 2001 alleging that lessor Meng engaged in “actions that were bizarre and numerous” that interfered with operations under a 1996 oil and gas lease on 2,000 acres in Throckmorton County. They did nothing to prosecute the suit until 2015, at which time they alleged that Meng continued to interfere over the preceding 15 years.

On the lease were three separate 40-acre units, Nos. 2, 4 and 7. Each had an unplugged well that had not been operated since 2015.

Repudiation

Repudiation of the lease by a lessor relieves the lessee of any obligation to conduct operations in order to maintain the lease in force pending a judicial resolution of the controversy over validity of the lease. The elements:

  • existence of a subsisting lease,
  • Lessor’s unqualified notice that the lease has been forfeited or terminated,
  • Lessee’s reliance on the repudiation.

Lessees asserted that Meng repudiated the lease in 2015 by saying “the lease is over, it’s finished, it’s terminated.”   After that, lessees made no attempt to produce the lease. Meng’s response was that there was no production in paying quantities for the requisite time before he said those words so there was no lease to repudiate.

In response, lessees asserted that he had previously repudiated the lease during the 15 year hiatus.  That evidence was based on portions of summary judgment affidavits that were rejected by the trial court because they were not on personal knowledge (which one can expect when time passes and the pumpers and rig hands have scattered to the four winds). Thus, the record was devoid of facts tending to prove that the other instances of interference constituted repudiation or that the lessees relied on them. Evidence showed that the lessees understood lease to be valid during the interim and therefore they did not rely on instances of repudiation before 2015.

 Laches

Meng argued that due to lessees’ delay, several witnesses who could have supported his case died. The court concluded there were fact issues on this claim.

Cessation of operations and failure to produce in PQ’s

To prove a lease has terminated due to cessation of production in paying quantities one must establish that production over a reasonable period of time does not yield a profit over operating expenses and if so, a prudent operator will not continue operating as well for the purpose of making a profit rather than merely for speculation.

A cessation of production clause applies to total cessation of production. Reliance on this savings clause is separate from a claim that at least terminated because of failure to produce in paying quantities. The cessation of production clause in this lease reflected both bases for terminating the lease.

Meng showed that for Units 2 and 7 the lease had terminated under the cessaton of producton clause before his repudiation. There were no drilling or reworking operations within 60 days of cessation.

Meng’s claim for termination of Unit 4 prevailed because the savings clause establish a definite 12 month period for calculating production in paying quantities (rather than a “reasonable” period). No production at all for 12 months meant there was no production in paying quantities.

All three units were declared terminated. Claims for laches, standing, injunctive relief and equipment forfeiture were remanded.

Trial lawyer issues

The court also ruled on objections to summary judgment affidavits and the burden of proof on dueling requests for declaratory judgment. Trial lawyers should read it.

Nanci Griffith, RIP.

This second one won’t cost you extra.