There are specific requirements for proving that an oil and gas lease has survived past its primary term. Fail to hit them all when the lease is challenged at the courthouse, and disappointment will be order of the day.
The heart of the dispute in J&L Oil Company v. KM Oil Company was whether plaintiff J&L satisfied the requirements of a Pugh clause in a 1951 lease. J&L sued KM for impinging upon J&L’s lease on 55 acres in Caddo Parish, Louisiana. Summary judgment in favor of KM, the alleged impinger, was affirmed.
The case turned on whether J&L’s affidavits established facts sufficient to prove that wells on the lease had produced in paying quantities from the time they were drilled.
Five wells were drilled under the 1951 lease within a certain time period required by the Pugh clause (referred by the court as such. It looks more like a hybrid Pugh clause and continuous development obligation). KM owned a 2008 lease on the property covering 2,000 to 2,500 feet and had drilled wells under that lease.
The burden of proof
J&L invoked the Pugh clause. To prevail, J&L needed prima facie evidence that it satisfied the requirements of the Pugh clause, which was a resolutory condition. (If an obligation in a contract may be immediately enforced but will come to an end when an uncertain event occurs, the condition is resolutory.) When any of the five wells failed to produce in paying quantities, the condition was triggered, reducing the acreage held by the lease to five-acre squares around producing wells.
Doomed by lack of evidence
J&L submitted affidavits by its pumper Courtney to establish that the 1951 lease had been maintained by production. The affidavits were not sufficient to be the proof that J&L needed.
The Courtney affidavits didn’t state when the five wells were drilled and didn’t show constant production. Thus, J&L didn’t provide a material and essential fact that the required wells had constantly produced in paying quantities since 1951. The KM wells impinged on the 1951 lease only if the wells drilled under that lease had constantly produced in paying quantities. The Courtney affidavits did not establish that fact.
And other rulings on the evidence
Incidentally, the court noted that the acknowledgment by the lessors in the 2008 lease that the 1951 lease was in effect was insufficient proof that all the wells had constantly produced in paying quantities since being drilled. That acknowledgement appears to be an unsubstantiated conclusion.
And KM’s affidavit from McCormick summarizing conclusions from a review of Office of Conservation records was accepted. The court rejected J&L’s argument that the affidavit was not reliable because McCormick was not deemed an expert.
A Louisiana case deserves a full dose of the King of Zydeco.