Stimson

This is a suit in equity for the cancellation of an oil and gas lease. The court declined to decree cancellation, and the lessors appeal. The problem presented is whether the lease automatically terminated upon the temporary cessation of production of oil for lack of market, pursuant to a clause providing that the lease is to continue for a period of five years and “as long thereafter as oil or gas, or either of them, is produced.”

The lease was made December 8, 1930. It provided for the payment of a royalty of one-eighth of the production, to be delivered to lessors in the pipeline. A producing oil well was brought in in May 1933, and production continued thereafter without interruption until January 1938, when pumping ceased for lack of market. Altogether seven wells were drilled, three of which were producers. After the market became nonexistent, 900 barrels of oil were pumped but the wells were shut down when existing storage space had been filled, no other storage facilities being available. 1 This condition persisted for about fourteen months. The court found that the lessee exercised reasonable diligence in attempting to find a market, but that he was unable to do so until…