Concorde Resources Corp. v. Kepco Energy, Inc.
2011 OK CIV APP 39
Okla. Civ. App.2011Background
- Concorde acquired the Original Lease and later New Leases in 1990 for Connors #1; the 1981-1982 well was shut-in and Concorde did not operate it from 1990–2008.
- From 1990 until July 2008, Concorde did not drill or perform operating/maintenance work or sell gas from Connors #1; no production occurred.
- A gas pipeline became available only in July 2008, after which Concorde sold gas from the well in July–September 2008 for about $24,000.
- In 2006–2007 Kepco, Williams, and Mahalo acquired leases to the same properties, leading Concorde to sue them for quiet title and damages; Kepco/Williams/Mahalo counterclaimed to have Concorde’s New Leases expire and to quiet title.
- The trial court granted summary judgment for the Appellees; Concorde appeals arguing issues related to expiration, production in paying quantities, and breach of the implied covenant to market; the appellate court analyzes these issues de novo.
- Disputes center on (i) whether a well drilled under the Old Lease can uphold the New Leases, (ii) whether the New Leases expired for not being capable of production in paying quantities, and (iii) whether the New Leases can be cancelled for breach of the implied covenant to market, including questions about demand and shut-in royalties.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Can the existing well from the Old Lease hold the New Leases? | Concorde argues the Old Lease well was capable of producing in paying quantities and thus keeps the New Leases alive. | Appellees contend the new leases depend on production capabilities and the continuous drilling clause does not validate an old-well hold. | Disputed; factual question prevents summary judgment on this theory. |
| Are the New Leases expired for not being capable of production in paying quantities? | production in paying quantities should be measured by potential capability, not actual long-ago production. | No production for 17 years shows lack of paying-quantities production; thus expiration should be found. | Questions of fact exist about capability to produce in paying quantities; summary judgment on expiration is not warranted. |
| Can the New Leases be cancelled for breach of the implied covenant to market? | Lessees did not have to market due to lack of pipeline; shut-in royalty payments were tendered; demand may be excused. | There was a long period with no meaningful marketing; demand and diligence standards apply; absence of pipeline is an equitable factor but not dispositive. | Issues of fact regarding diligence, demand, and excused demand preclude summary judgment on this theory; remand warranted. |
| Did shut-in royalty payments and demand affect the breach analysis? | Smith/others accepted shut-in royalties, estopping title defenses; demand possibly excused or ineffective. | Payments and demands are contested; no clear record of effective demand or acceptance barring title challenges. | Fact questions remain; estoppel and demand issues prevent summary judgment. |
Key Cases Cited
- Pack v. Santa Fe Minerals, 1994 OK 23 (Okla. 1994) (meaning of 'produced' as 'produced in paying quantities' in habendum clause)
- Smith v. Marshall Oil Corp., 2004 OK 10 (Okla. 2004) (defines 'produced' as 'produced in paying quantities' for lease continuity)
- Crain v. Hill Resources, Inc., 1998 OK CIV APP 193 (Okla. Civ. App. 1998) (equitable termination; demand and diligence standards for implied covenant to market)
- Danne v. Texaco Exploration and Production Inc., 1994 OK CIV APP 138 (Okla. Civ. App. 1994) (implied covenant to market; preclusion by equitable standards; diligence required)
- Geyer Brothers Equipment Co. v. Standard Resources, L.L.C., 2006 OK CIV APP 92 (Okla. Civ. App. 2006) (long failure to market despite capacity supports cancellation in equity)
- James Energy Co. v. HCG Energy Corp., 1992 OK 117 (Okla. 1992) (demand and time for compliance; reasonableness per case facts)
- Steinkuehler v. Hawkins Oil and Gas, Inc., 1986 OK CIV APP 9 (Okla. Civ. App. 1986) (continuous drilling clause; completing work already begun)