HIROC PROGRAMS, INC., for itself and as MANAGING GENERAL PARTNER FOR DELSTAR GAS DEVELOPMENT PROGRAM NO. 931, LTD. and DELSTAR GAS SYSTEMS, INC.; C. LESTER PAUL and MARGARET S. PAUL; TIMOTHY C. PAUL; MICHAEL W. PAUL; THE HIROC GROUP INC.; DELTA GAS CORPORATION, D/B/A DELTA PROGRAMS INC.; MITEE ENTERPRISES VIKING PRODUCERS, INC.; VIKING PETROLEUM PROPERTIES; KAINTUK PETRO PRODUCERS, INC.; BLUEGRASS DRILLING CORPORATION; SHALE GAS TRANSMISSION CORP.; NORTHSTAR GAS SYSTEMS, INC.; v. WILHELMINA CULLEN ROBERTSON; WILHELMINA CULLEN ROBERTSON; WILHELMINA ROBERTSON MORIAN ALSION ROBERTSON BAUMANN CARROLL ROBERTSON HOCHNER; LILLIE T. ROBERTSON; THE 1991 MANAGEMENT TRUST FOR CORBIN J. ROBERTSON III, CORBIN J. ROBERTSON, Jr. FOR FRANCIS CHRISTINE ROBERTSON, CORBIN J. ROBERTSON JR., AS TRUSTEE; and WILLIAM KEEN ROBERTSON, MINOR, CORBIN J. ROBERTSON JR. as CUSTODIAN (THE ROBERTSON FAMILY)
Annotate this Case
Download PDF
RENDERED: May 5, 2000; 2:00 p.m.
TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO. 1998-CA-002130-MR
HIROC PROGRAMS, INC., for itself and as
MANAGING GENERAL PARTNER FOR
DELSTAR GAS DEVELOPMENT
PROGRAM NO. 931, LTD. and
DELSTAR GAS SYSTEMS, INC.; C. LESTER
PAUL and MARGARET S. PAUL; TIMOTHY
C. PAUL; MICHAEL W. PAUL; THE
HIROC GROUP INC.; DELTA GAS
CORPORATION, D/B/A DELTA
PROGRAMS INC.; MITEE ENTERPRISES
(a partnership);MITEE ENTERPRISES, INC.;
VIKING PRODUCERS, INC.; VIKING
PETROLEUM PROPERTIES; KAINTUK PETRO
PRODUCERS, INC.; BLUEGRASS DRILLING
CORPORATION; SHALE GAS TRANSMISSION
CORP.; NORTHSTAR GAS SYSTEMS, INC.;
and BUDDY BEAR ENTERPRISES, INC.
(THE PAUL ENTITIES)
v.
APPEAL FROM LAWRENCE CIRCUIT COURT
HONORABLE JAMES A. KNIGHT, JUDGE
CIVIL ACTION NO. 94-CI-00031
WILHELMINA CULLEN ROBERTSON;
the ESTATE OF CORBIN J. ROBERTSON, SR.,
acting through its Administrator,
WILHELMINA CULLEN ROBERTSON;
WILHELMINA ROBERTSON MORIAN
and her husband REED MORIAN;
ALSION ROBERTSON BAUMANN
and her husband PETER BAUMANN;
CARROLL ROBERTSON HOCHNER;
LILLIE T. ROBERTSON; THE 1991
MANAGEMENT TRUST FOR CORBIN J.
ROBERTSON III, CORBIN J. ROBERTSON, Jr.
AS TRUSTEE; THE 1992 MANAGEMENT TRUST
FOR FRANCIS CHRISTINE ROBERTSON,
CORBIN J. ROBERTSON JR., AS TRUSTEE;
APPELLANTS
and WILLIAM KEEN ROBERTSON, MINOR,
CORBIN J. ROBERTSON JR. as CUSTODIAN
(THE ROBERTSON FAMILY)
APPELLEES
OPINION
AFFIRMING IN PART,
REVERSING IN PART AND REMANDING
** ** ** ** **
BEFORE:
BARBER, HUDDLESTON and JOHNSON, Judges.
HUDDLESTON, Judge. This is an appeal from a Lawrence Circuit Court
judgment that adopted a special master commissioner’s proposed
findings of fact and conclusions of law1 and awarded the appellees,
the Robertson Family, unpaid royalties owed pursuant to an oil and
gas lease and damages for the conversion of gas after the lease had
terminated.
We affirm in part, reverse in part and remand with
directions to recalculate damages.
In November 1930, the Lightfoot Land Company granted an
oil and gas lease, known as the Lightfoot lease, to E.J. Evans.
According to the lease, Evans agreed to start and diligently
prosecute the drilling of a well within sixty days.
If the well
was dry, Evans could elect within the next twelve months to
continue leasing the property and drill another well.
If he chose
to continue leasing the property, he was required to pay rent at a
1
After receiving a report from a special master
commissioner and affording the parties time to object to it, the
circuit court may, after conducting a hearing to consider any
objections, adopt the report in whole or in part, reject it,
receive further evidence, or recommit it to the commissioner with
instructions. Ky. R. Civ.Proc. (CR) 53.06(2). The findings of a
commissioner, to the extent that court adopts them, shall be
considered as the findings of the court. CR 52.01.
-2-
rate of $1.00 per acre per annum, payable quarterly, for an
additional four years.
In the event that oil or gas was produced
in paying quantities, the annual rent was to be reduced and the
Lightfoot Land Company would be entitled to royalty payments.
If
gas was produced in paying quantities, the lease was to be extended
for "as long as oil and gas is marketed from the property hereby
leased."
On April 8, 1994, the successors-in-interest to Evans,
Hiroc Programs, Inc. and Delstar Gas Development Program No. 931,
Ltd., filed a declaratory judgment action seeking to establish
their rights in and to the Lightfoot lease against the Corbin J.
Robertson III 1970 Trust, the Frances Christine Robertson Trust,
and the William Keen Robertson 1975 Trust, successors-in-interest
to the Lightfoot Land Company.
While the litigation was pending,
the defendants conveyed their interest in the Lightfoot lease to
William "Bill" Poland and GasBusters Limited Partnership I. The
defendants then moved the circuit court to dismiss the claims
against them and substitute GasBusters and the Robertson Family in
their stead.
The motion was granted.
GasBusters and the Robertson Family each filed an answer
and
counterclaim
against
the
plaintiffs
asserting
Lightfoot lease had terminated by its own terms.
that
the
The Robertson
Family then filed a third-party complaint against C. Lester Paul
and several entities (collectively the Paul Entities) alleging that
the Paul Entities produced and sold gas on the property from 1977
to 1986 without paying royalties to the Robertson Family, that the
Lightfoot lease had terminated by its own terms in 1979, and that
-3-
the
Paul
Entities
terminated.
wrongfully
converted
gas
after
the
lease
On May 15, 1996, the Robertson Family moved for
summary judgment on its counterclaim and third-party complaint.
On September 13, 1996, Commissioner J. Thomas Hardin
concluded that the Lightfoot lease had terminated by its own terms
on July 17, 1980, and, as a result, recommended an award of
$99,461.06 to the Robertson Family for unpaid royalties and the
value of converted gas.
adopted
Commissioner
On October 17, 1996, the circuit court
Hardin’s
recommended
conclusions of law, order and judgment.
findings
of
fact,
The appellants and the
Robertson Family each filed motions to alter, amend or vacate the
judgment.
The court granted the motions and appointed a new
commissioner to make supplemental recommendations.
On April 6, 1998, Commissioner Thomas Smith determined
that the Lightfoot lease had terminated on July 1, 1984, and that
the Robertson Family was entitled to an award of $134,430.86 for
unpaid royalties and the value of converted gas.
the
circuit
court
recommendations.
adopted
Commissioner
On June 19, 1998,
Smith’s
supplemental
Appellants moved to alter, amend or vacate the
order and judgment, but the motion was denied on July 10, 1998.
This appeal followed.
On appeal, appellants argue that the Robertson Family
lacks standing to seek a forfeiture of the lease and that the
Lightfoot lease is still valid.
In this vein, appellants first
argue that the Robertson Family is precluded from suing for breach
of the lease because it transferred its interest in the lease prior
to filing its third-party complaint.
-4-
Appellants’ argument is
without merit.
When the Robertson Family transferred its interest
in the lease, it specifically reserved in the closing agreement all
of its rights for past-due royalties and claims for the conversion
of any oil or gas.
The Robertson Family’s third-party complaint
was filed to assert these reserved claims.
Second, the appellants argue that the Robertson Family is
precluded from seeking forfeiture of the lease because it failed to
give notice or make demand for due diligence prior to filing its
third-party complaint.
Commissioner Smith specifically found that
the appellants did not receive any notice or demand for due
diligence from the Robertson Family.
However, he also concluded
that notice was not required to be given in this instance.
In Kentucky, there are three distinct grounds pursuant to
which an oil and gas lessee may lose his interest in a lease.2
first ground is forfeiture.
The
"With respect to an oil and gas lease,
the ground of forfeiture is the breach of an express or implied
covenant, condition or obligation of the lease."3
The second
ground
and
is
abandonment,
which
is
the
relinquishment of the leased premises.4
intentional
actual
The third and final ground
occurs when the lease terminates by its own terms.
Where the
primary term of an oil and gas lease has run and the lease provides
for an extension for so long as oil or gas is produced in paying
2
Wheeler and LeMaster Oil and Gas Co. v. Henley, Ky.,
398 S.W.2d 475 (1966).
3
Cameron v. LeBow, Ky., 338 S.W.2d 399, 406 (1960)
(citations omitted).
4
Fuqua v. Chester Oil Co., Ky., 246 S.W.2d 1007 (1952).
-5-
quantities, the lease will ipso facto terminate whenever production
or development ceases for an unreasonable period of time.5
The requirement of giving notice prior to filing suit for
cancellation is relevant only in conjunction with the first ground,
forfeiture.
Whenever an action is based on forfeiture for breach
of express or implied obligations in a lease, the lessor must
provide notice and demand due diligence prior to filing suit.6
In
actions where the lessor seeks cancellation of a lease on grounds
of abandonment, notice is not required.7
If [the lessee] has abandoned [the lease], he knows that
fact and is entitled to no notice; while if lessee is
only remiss or dilatory in the manner in which he is
developing or operating the property, he is entitled to
notice that he must improve his operations, and should he
fail to heed the notice, suit will be brought to cancel
the lease.8
After reviewing the Robertson Family’s counterclaim, third-party
complaint and motion for summary judgment, it is clear that it has
not alleged forfeiture or abandonment, but rather, has proceeded
under the contention that the Lightfoot lease terminated by its own
5
Wheeler and LeMaster Oil and Gas Co., supra, n. 2, at
476 (citing Lamb v. Vansyckle, 205 Ky. 597, 266 S.W. 253, 254
(1924)).
6
Carrs Fork Corp. v. Kodak Min. Co., Ky., 809 S.W.2d
699, 702 (1991).
7
B & B Oil Co. v. Lane, Ky., 249 S.W.2d 705, 706
(1952)(citing American Wholesale Corp. v. F. & S. Oil and Gas Co.,
242 Ky. 356, 46 S.W.2d 498 (1932)).
8
Id.
-6-
terms.
Thus, we agree with the commissioner’s finding that no
notice was required.
Turning to the Lightfoot lease itself, appellants next
argue
that
the
commissioner
erred
"marketed" in the habendum clause.
in
interpreting
the
term
Because we are well beyond the
definite term of the lease, our query into the lease’s current
validity requires us to focus on the habendum clause and determine
whether gas continues to be "marketed" from the property.
habendum clause provides:
The
"The life of this lease shall extend as
long as oil or gas is marketed from the property hereby leased."
The Commissioner interpreted the term "marketed" as requiring the
production and sale of gas from the property in paying quantities.
While we agree with the commissioner’s interpretation, we note that
the
actual
consummation
of
a
sale
is
not
necessarily
the
determinating factor of whether the lessee has marketed the gas.
In oil and gas leases, the duty to market requires the
lessee to use due diligence and good faith to market the gas.9
To
determine whether the lessee exercised due diligence in marketing
the oil or gas, courts should take into account all of the
circumstances, such as
the absence of a market and the diligence of a lessee in
seeking a market, the failure of the lessor to make a
demand, the acceptance by a lessor of other benefits
under
9
the
lease,
whether
it
was
necessary
to
make
See generally 58 CJS Mines and Minerals § 266 (1998).
-7-
abnormal expenditures to market the product, and whether
the delay was to gain better marketing terms.10
The Robertson Family has alleged that the Lightfoot lease
terminated because the Paul Entities failed to market gas from the
property as required by the habendum clause of the lease.
In order
for the Lightfoot lease to ipso facto terminate, the lessee must
cease marketing oil or gas from the property for an unreasonable
time.
What constitutes an unreasonable time depends on the facts
and circumstances in each case.11
In Wheeler and LeMaster Oil and Gas Co. v. Henley,12 the
issue facing Kentucky’s highest court, was whether a two year, four
month
delay
in
production
was
sufficiently
unreasonable
to
terminate a lease that contained a habendum clause which provided
that the lease would remain in force as long as oil or gas was
produced from the property.
The Court took notice of the fact that
the lessor had not received any royalty payments in ten years, that
it was no longer profitable to operate the lease using primary
recovery efforts, and that the lessee had refused two offers to
have the property "water flooded."
In finding that the delay was
unreasonable, the Court recognized "a strong policy against a
lessee holding land for an unreasonable length of time simply for
speculative purposes, or because of a lack of due diligence, where
10
Davis v. Cramer, 837 P.2d 218, 222 (Colo. Ct. App.
1992) (citing 5 E. Kuntz, Oil & Gas § 60.3 (D. Dunn ed. 1989)).
11
Wheeler and LeMaster Oil and Gas Co., supra, n.2.
12
Id.
-8-
the lessor’s only revenue results from royalty payments received
from continued production."13
Gas was produced from the property and sold to Kentucky
West Virginia Gas Company pursuant to a contract executed in March
1957.
The
Paul
Entities,
which
purchased
one-fourth
of
the
lessee’s interest in 1977 and the remaining three-quarters in 1979,
continued selling gas to Kentucky West Virginia Gas Company until
January 1979.
From January 1979 to April 1981, the Paul Entities
did not market or sell any gas from the property.
During this
time, the Robertson Family apparently sent a letter to the Paul
Entities requesting a release from the Lightfoot lease for lack of
production. However, for reasons not apparent from the record, the
Robertson Family never followed up on the letter and did not
receive a release.
sell
gas
from
Corporation.
Then, in April 1981, the Paul Entities began to
the
property
to
Colombia
Gas
Transmission
Even though the Paul Entities sold gas to Colombia
Gas Transmission Corporation from April 1981 until July 1984, the
Robertson Family never received royalty payments.
all commercial sales of gas ceased.
In July 1984,
For the next ten years that
the Robertson Family held the lessor’s interest in the Lightfoot
lease, the only gas produced from the property went to various farm
taps set up by the Paul Entities.
These farm taps included two
taps for the Paul Entities’ office and garage and several taps set
up for third parties as compensation for the granting of easements
for transmission lines.
Such production is not, as appellants
suggest, considered production in paying quantities.
13
Id. at 477.
-9-
Under these
circumstances, the commissioner did not err in finding that the
Lightfoot lease terminated by its own terms.
Appellants next argue that the circuit court erred in
adopting
the
commissioner’s
recommendations
regarding
the
calculation of damages owed the Robertson Family. The commissioner
found that the Robertson Family was entitled to unpaid royalties
owed pursuant to the Lightfoot lease for gas sold prior to July
1984, and for the full value of gas converted after July 1984.
As
for the commissioner’s calculations, he simply adopted the damage
calculations submitted by the Robertson Family.
While we agree
with the commissioner’s finding as to the elements of damages, we
take issue with the actual calculations.
First, under the summary of damages and interest, it is
clear that the Robertson Family incorrectly included within its
calculations the value of gas used by the Paul Entities for two
farm taps connected to its office and garage.
As the appellants
point out, the commissioner specifically found that the Lightfoot
lease granted the Paul Entities the right to utilize free gas for
the actual operation in development of the property.
Therefore,
the Robertson Family should not be compensated for past royalties
or for the value of gas used by the Paul Entities in these two taps
during the life of the lease.
However, the Paul Entities are
liable to the Robertson Family for gas used in the two farm taps
after the lease terminated in July 1984.
Second, with regard to
the remaining farm taps, the Robertson Family should be awarded
royalties for gas used prior to July 1, 1984, and for the full
value of the gas after July 1, 1984.
-10-
Finally, we agree with the
appellants that they were innocent rather than willful trespassers
on the property after the lease terminated by its own terms.
As
such, damages for the conversion of gas should be calculated
according to the principles set forth in Swiss Oil Corp. v. Hupp.14
For these reasons, we affirm the judgment in part,
reverse in part and remand this case to Lawrence Circuit Court with
instructions to recalculate damages owed the Robertson Family.
ALL CONCUR.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Steven D. Combs
J. Scott Kreutzer
COMBS & COMBS, PSC
Pikeville, Kentucky
C. Thomas Ezzell
GETTY, KEYSER & MAYO, LLP
Lexington, Kentucky
14
253 Ky. 552, 69 S.W.2d 1037 (1934).
-11-
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.