Southern Pacific Land Co. v. Westlake Farms, Inc.

This proceeding arises out of a controversy among the parties with regard to the interpretation of an oil and gas lease and related disputes. The lease was entered into on September 15, 1980, between West-lake Farms, Inc., Ceil W. Howe and Edwin H. Howe, Jr., as lessors, and American Quasar Petroleum Co. of New Mexico as lessee. American Quasar subsequently assigned the lease to Southern Pacific Land Company. The central dispute is over whether the lease expired.

Under the lease, the primary term expired September 15, 1983. The “habendum” clause of the lease states that “Except as otherwise herein provided,” the duration of the lease shall be “... for a term of three (3) years ... and so long thereafter as oil, gas ... or either ... of them ... is produced from said land in paying quantities ....” On September 13, 1983, Southern Pacific started drilling its first well. On September 14, the day before the end of the primary term of three years, Southern Pacific completed drilling its first well on the leased property to a depth of 1,300 feet. The well was plugged and abandoned as a dry hole without establishing commercial production. Lessee contends, and alleges in its…