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Netahla v. Netahla

Supreme Court of Kansas

April 10, 2015

LARRY NETAHLA and JANET NETAHLA CURTIS, Appellants,
v.
MIKE NETAHLA and DEBRA FRANCIS, Appellees

Review of the judgment of the Court of Appeals in 49 Kan.App.2d 396, 307 P.3d 269 (2013) . Appeal from Sumner District Court; WILLIAM R.MOTT, judge.

SYLLABUS

BY THE COURT

On the facts of this case, a " subject to" clause in a mineral deed referring to a preexisting lease does not extend the term of the deed beyond its original 15 years. The payment of shut-in royalties pursuant to the lease was not the equivalent of actual production or development necessary to perpetuate the deed.

Tyson R. Eisenhauer, of Johnston Eisenhauer & Eisenhauer, LLC, of Pratt, argued the cause and Robert R. Eisenhauer, of the same firm, was on the briefs for appellants.

Gordon B. Stull, of Stull & Beverlin, LLC, of Pratt, argued the cause, and Josh V.C. Nicolay, of the same firm, was with him on the briefs for appellees.

BEIER, J. JOHNSON, J., not participating. MICHAEL J.MALONE, Senior Judge, assigned.[1]

OPINION

Page 1080

Beier, J.:

This appeal arises out of a dispute over whether the mineral interest conveyed by a 1970 mineral deed terminated after 15 years, despite its recitation that it was " subject to" a continuing oil and gas lease covering the same property. We hold that the mineral deed terminated and thus reverse the district court and the Court of Appeals.

Factual and Procedural Background

Plaintiffs-appellants Larry Netahla and Janet Netahla Curtis are the sole heirs of Joe and Rose Netahla, the grantors. Defendants-appellees Mike Netahla and Debra Francis are the sole heirs of Frank Netahla, the grantee.

On November 24, 1969, grantors and Mack Oil Company entered into an oil and gas lease covering the property. The lease stated, in pertinent part:

[301 Kan. 694] " 2. Subject to the provisions herein contained, this lease shall remain in force for a term of five (5) years from this date (called 'primary term') and as long thereafter as oil, liquid hydrocarbons, gas or other respective constituent products, or any of them, is produced from said land or land with which said land is pooled.
" 3. . . . [A]t any time either before or after the expiration of the primary term of this lease, if there is a gas well or wells on the above land . . . and such well or wells are shut in before or after production therefrom, lessee or any assignee hereunder may pay or tender annually at the end of each yearly period during which such gas well or gas wells are shut in, as substitute gas royalty, a sum equal to the amount of delay rentals provided for in this lease for the acreage then held under this lease by the party making such payments or tenders, and if such payments or tenders are made it shall be considered under all provisions of this lease that gas is being produced from the leased premises in paying quantities."

Less than 7 months later, grantors entered into a " Sale of Oil and Gas Royalty," i.e., a mineral deed, covering the same property. They conveyed to grantee:

" an undivided one-half interest in and to all of the oil gas and other minerals in and under, and that may be produced from [description of land], together with the right of ingress and egress at all times for the purpose of mining, drilling and exploring said lands for oil, gas, and other minerals and removing the same therefrom, with the right at any time to remove any or all equipment in connection therewith."

The document also contained the following clause, which addressed the existing lease agreement.

" Said land being now under an oil and gas lease executed in favor of, as appears of record, it is understood and agreed that this sale is made subject to the terms of said lease, but covers and includes one-half of all the oil royalty, and gas rental or royalty due and to be paid under the terms of said lease.
" It is understood and agreed that one-half of the money rentals which may be paid to extend the term within which a well may be begun under the terms of said lease is to be paid to the said Grantee and in the event that the above described lease

Page 1081

for any reason becomes cancelled or forfeited then and in the event an undivided one-half of the lease interests and all future rentals and bonuses on said land for oil, gas and other mineral privileges shall be owned by the said Grantee Frank Netahla owning one-half of all oil, gas, and other minerals in and [301 Kan. 695] under said lands, together with one-half interest in all future events." (Emphasis added.)

The mineral deed concluded with the following limitation on the conveyance:

" TO HAVE AND TO HOLD the above described property, together with all and singular the rights, appurtenance thereto in anywise belonging unto the said Grantee, herein, his heirs and assigns for a period of the next 15 years from June 1, 1970 and as long thereafter as oil and /or gas is produced from these premises or the property is being developed or operated and grantors do hereby bind themselves, their heirs, executors and administrators to warrant and forever defend all and singular the said property unto said Grantee herein, his heirs and assigns, against every person whomsoever lawfully claiming or to claim the same or any part thereof, and agree that the Grantee shall have the right at any time to redeem for Grantors by payment, any mortgage, taxes or other items on the above described lands, in the event of default of payment by Grantors, and be subrogated to the rights of the holder thereof." (Emphasis added.)

An affidavit of production was executed on December 3, 1970, stating that a well capable of producing oil or gas had been drilled on the property. The well was later declared a shut-in gas well, and no oil or gas was produced from it from June 1, 1985, until 2003. In 2003, Vess Oil Corporation took ...


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