Natural Gas Pipeline Co. of America v. Pool

Lessors under three oil and gas leases contend that the leases terminated because intermittently over the years there were periods of time ranging from 30 to 153 days when there was no actual production. The court does not decide whether the leases terminated because even assuming they did, the lessees thereafter acquired by adverse possession fee simple determinable interests in the mineral estates that are identical to those the lessees held under the leases.

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Energy Law Click here for the full text of this decision Lessors under three oil and gas leases contend that the leases terminated because intermittently over the years there were periods of time ranging from 30 to 153 days when there was no actual production. The court does not decide whether the leases terminated because even assuming they did, the lessees thereafter acquired by adverse possession fee simple determinable interests in the mineral estates that are identical to those the lessees held under the leases. FACTS:In two cases involving three oil and gas leases, the lessors, successors in interest to the lease signatories, argued that the leases terminated when, for periods of 30 to 153 days from August 1941 to July 1984, the wells on each of the covered property did not produce. New wells were drilled in the mid-1990s, and production has been continuous since then. The lessors, Joseph H. Pool and others, brought suit against the lessees -� Natural Gas Pipeline Co. of America, MidCon Gas Services Corp. and Chesapeake Panhandle Ltd. Partnership �- saying that the leases terminated during those periods of cessation. They sought to quiet title, and alleged causes of action for trespass, conversation and fraud. The lessors contended the leases did not terminate because they were still producing in paying quantities at all time. Further, the argued they had acquired a fee simple determinable in each of the mineral estates by adverse possession. The trial court entered judgment for Pool in both cases, and the 7th Court of Appeals affirmed. HOLDING:Reversed and rendered. Without deciding whether or not the leases terminated from cessation of production, the Supreme Court rules the lessors acquired by adverse possession fee simple determinable interests in the mineral estates, under the three-, five- and 10-year statutes of limitations, that are identical to those Pool held under the leases. The court notes that Pool has only a nonpossessory, royalty interest in the leases, which would typically mean the lessees have 100 percent of the mineral interest that Pool owns, and Pool owns no further interest in the minerals in place. Even assuming the lease had terminated, Pool waited from 14 to 29 years to bring a claim against the lessees. Further, the act of drilling the new wells in the mid-1990s was an act hostile to Pool’s exclusive right to explore for and remove minerals, as well as to make decisions about whether the continue drilling. “[T]he fact that the lessors were claiming the right and title to all of the production and the right to drill and explore for oil and gas, subject only to the royalty obligation, was open and notorious and was hostile to the lessors’ claim that all title and interest reverted to the lessors and that the lessees ceased to own any interest in the minerals.” OPINION:Owen, J. Enoch and O’Neill, JJ., did not participate. DISSENT:Jefferson, J. The dissent complains that the Supreme Court ducked an important issue that is sure to recur in circumstances where adverse possession is not a viable defense: whether the leases terminated due to cessation of production. The dissent advocates modification of the “temporary cessation of production” (TCOP) doctrine, which presumes that parties understand that mechanical problems, reworking operation or other similar events will inevitably interrupt production occasionally and will not terminate the lease; parties have a reasonable time to fix the defect and resume production. The dissent would include market-induced interruptions to the TCOP doctrine. In this case, there was evidence that the lessors were halting production in the summer months when market prices were low, only to redouble efforts in the winter when prices were high, which was beneficial to the parties. The dissent would reversed and remand for reconsideration of these issues.

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