Pack v. Santa Fe Minerals, a Division of Santa Fe International Corporation
Supreme Court of Oklahoma
869 P.2d 323 (Okla. 1994)
Santa Fe Minerals (SFM) (defendant) held a gas lease from Pack (plaintiff) that would terminate if production ceased for more than 60 days after the ten-year term, with a shut-in royalty owed if the well was capable of producing but did not produce; to comply with a state production cap, SFM chose not to market gas during warmer months (when demand was lower) while still being capable of production, and did not pay shut-in royalties for those months. Pack sued to cancel the lease for non-production and non-payment, and the trial court and court of appeals ruled for Pack; SFM appealed.
Whether an unless lease held by a gas well capable of producing in paying quantities, but shut in for a period due to the producer's own marketing decision, expires under its own terms absent payment of shut-in royalties.