Thomas Well Service, Inc., Plaintiff-counterclaim-defendant-appellant,walter J. Trowbridge; Sandra S. Trowbridge; Jerry W.jantz; Martha J. Jantz; Lonnie Sedgwick; Melvinw. Rollins and Paula L. Rollins,plaintiffs-intervenors-appellants, v. Williams Natural Gas Company, Defendant-counter-claimaint-appellee, 64 F.3d 670 (10th Cir. 1995)

ORDER AND JUDGMENT¹ 

After examining the briefs and appellate record, this panel has determined unanimously that oral argument would not materially assist the determination of this appeal. See Fed. R. App. P. 34(a); 10th Cir. R. 34.1.9. The case is therefore ordered submitted without oral argument.

Plaintiff Thomas Well Service, Inc., (TWS) brought this declaratory judgment action seeking a determination of its rights as lessee of certain oil and gas properties in Jefferson County, Kansas. Defendant Williams Natural Gas Company (WNG) counterclaimed for a determination of its rights as lessee of the same properties, and the owners of the properties were allowed to intervene as plaintiffs. On cross-motions for summary judgment, the district court granted WNG's motion, and plaintiffs appeal. We have jurisdiction under 28 U.S.C. 1291. We review the grant or denial of summary judgment de novo. James v. Sears, Roebuck & Co., 21 F.3d 989, 997-98 (10th Cir. 1994).

The district court summarized the dispute as follows:

In 1948 and 1949, W.G. Rule entered into certain oil and gas leases with persons owning land in the McLouth Gas Storage Field. At approximately the same time that W.G. Rule entered into those oil and gas leases, Cities Service Gas Company entered into certain gas storage leases with those same persons. The individual plaintiffs are the successors in title to the property owners who entered into those agreements with W.G. Rule and Cities Service Gas Company. W.G. Rule subsequently assigned his interests in the oil and gas leases to Cities Service Gas Company. WNG is the successor to Cities Service Gas Company.

In 1992 and 1993, the [individual] plaintiffs executed certain oil and gas leases with TWS. According to the [individual] plaintiffs, they entered those leases with TWS based upon their belief that the oil and gas leases executed in 1948 and 1949 expired by their own terms in 1958 and 1959. The plaintiffs seek declaratory judgment that the leases executed in 1992 and 1993 are valid and that the oil and gas leases executed in 1948 and 1949 have expired and are therefore no longer binding.

In contrast, WNG contends that the oil and gas leases executed in 1948 and 1949, which were executed at the same time as the gas storage leases, are still valid and enforceable. In short, the oil and gas leases did not expire in 1958 and 1959, but instead, have remained valid under the terms of certain provisions of the gas storage leases. Because WNG has abided by the terms of the gas storage leases, including the continued making of timely payments, the oil and gas leases executed in 1948 and 1949 are still enforceable. Consequently, the leases between TWS and the individual plaintiffs are merely topleases.

Thomas Well Serv., Inc. v. Williams Natural Gas Co., 873 F. Supp. 474, 479 (D. Kan. 1994). Because the facts are not controverted, this case involves only interpreting the lease agreements. Interpretation of written documents is a question of law subject to de novo review. Reese Exploration, Inc. v. Williams Natural Gas Co., 983 F.2d 1514, 1518 (10th Cir. 1993).

The focus of the parties' dispute is on what action by WNG keeps the oil and gas leases alive. The leases contain the following habendum clause: "This lease shall remain in force for a term of ten years and as long thereafter as oil, gas, ... or any of the products covered by this lease is or can be produced." See, e.g., Appellant's App. at 152. WNG²  did not undertake exploration or drilling operations during the ten-year primary term of the leases. Thus, standing alone, the leases would have expired by their own terms in 1958 and 1959.

The gas storage leases are closely tied to the oil and gas leases, and the district court determined that the oil and gas and the gas storage leases should be construed together to determine the intent of the parties. (Plaintiffs do not contest this determination on appeal.) After acknowledging the existence of the oil and gas leases on the properties, the gas storage leases contain the following provisions:

14. It is mutually understood that production under an oil and gas lease and storage and extraction of storage gas under a storage lease cannot be successfully carried on from the same sands at the same time and it is agreed that at any time when this storage lease is in good standing by reason of rental payments any valid oil or gas lease now upon said lands shall not be subject to attack on the ground of lack of production or of proper development as to the sands and depths involved herein but that proper operations under this lease or under such oil and gas lease shall keep such oil and gas lease in good standing and prevent lapse, abandonment charge or forfeiture.

14A. It is mutually understood that payment of rentals under this lease shall relieve the Lessee of paying rentals under the oil and gas lease.

See, e.g., id. at 140. WNG paid all annual rental payments due under the gas storage leases and stored gas on the properties pursuant to the leases. The district court relied on these facts and the provisions of the gas storage leases in concluding that the 1948 and 1949 oil and gas leases were still valid.

Plaintiffs raise two arguments on appeal. They first contend that the oil and gas leases contained an implied covenant to develop and operate the leased premises as a prudent operator. See Rook v. James E. Russell Petroleum, Inc., 679 P.2d 158, 165 (Kan.1984). Because WNG failed to develop and operate the premises for oil and gas production purposes, plaintiffs contend that it breached the implied covenant and forfeited the leases. Plaintiffs' argument is based on Rook, which also involved properties subject to both oil and gas and gas storage leases that provided that oil and gas production rights continued in effect as long as gas was stored on the premises or the storage rentals were paid. Id. at 160. In Rook, the oil and gas production and the gas storage portions of the leases had been severed. Id. at 164. The Kansas Supreme Court agreed with the trial court that because the oil and gas production lessee had abandoned the leases--that is, intentionally and voluntarily relinquished its rights under the leases--the oil and gas production portion of the leases terminated despite the fact that the gas storage portion remained in effect. Id. at 166-67.

Rook is distinguishable from this case. Under Kansas law, oil and gas leases contain an implied covenant to develop and operate "absent any express provisions negativing such an implication." Ashland Oil & Ref. Co. v. Cities Serv. Gas Co., 462 F.2d 204, 213 n. 9 (10th Cir. 1972); see also Endicott v. De Barbieri, 369 P.2d 241, 243-44 (Kan.1962). Rook 's leases did not contain any express provisions negativing the implied covenant; the leases in this case do. Paragraph 14 of the gas storage leases specifically relieved WNG from the implied covenant by stating that production and storage in the same sands was not appropriate and that the oil and gas leases "shall not be subject to attack on the ground of lack of production or of proper development" if proper operations under the gas storage leases are conducted. Thus, the district court correctly held that under the express provisions of the leases, WNG's payment of gas storage rentals excuses its lack of development or production.

Plaintiffs' second argument is that the leases are ambiguous. They contend that the habendum clause of the oil and gas leases and paragraphs 14, 14A and 9 "create an ambiguity as to whether the gas storage leases excused performance under the oil and gas leases only during the primary term or whether the gas storage leases were meant to forever excuse all performance under the oil and gas leases." Appellants' Br. at 23. Paragraph 9 reserves all oil and most gas rights to the individual plaintiffs, but requires that in exercising these rights, they do whatever necessary to protect the gas storage rights.

"Ambiguity in a written contract does not appear until the application of pertinent rules of interpretation to the face of the instrument leaves it generally uncertain which one of two or more meanings is the proper meaning." Simon v. National Farmers Org., Inc., 829 P.2d 884, 888 (Kan.1992). We do not agree that the leases are susceptible to plaintiffs' proposed meaning. Paragraph 14 states that "at any time when this storage lease is in good standing by reason of rental payments" (emphasis added), performance under the oil and gas leases is excused. Nothing limits the effectiveness of proper operations under the gas storage leases to the primary term of the oil and gas leases.

The judgment of the United States District Court for the District of Kansas is AFFIRMED.