Sword v. Rains
United States Court of Appeals for the Tenth Circuit
575 F.2d 810 (10th Cir. 1978)
Charles Sword (plaintiff) executed an oil and gas lease, later assigned to Wilson Rains (defendant), containing a continuous-operations clause extending the lease so long as drilling operations or resulting production continued; Rains discovered gas in paying quantities during the primary term on October 23, 1972, completed the well on November 8, 1972, and immediately began seeking a gas buyer despite a temporary weather-related shutdown. Ongoing federal gas-price regulation disputes affected how much Rains could charge, and he did not execute a gas-sales contract with Panhandle Eastern Pipe Line Company until June 6, 1973, with deliveries beginning August 20, 1973. Sword sued to quiet title, arguing the roughly eight-month gap between discovery and the sales contract meant the lease had lapsed under the continuous-operations clause; the district court ruled for Rains, and Sword appealed.
Whether a continuous-operations clause in an oil and gas lease extends the lease for so long as the lessee exercises due diligence in equipping the well and getting the oil or gas into production, including marketing the gas.