OAG v. DESERT GAS EXPLORATION CO (1997)

Plaintiffs commenced this action seeking compensatory damages for breach of an oil and gas lease covering their property in Chautauqua County, rescission of the lease and a declaration that the lease is null and void.   On June 21, 1990, defendant was assigned an interest in a portion of an oil and gas lease on plaintiffs' property known as “Oag units # 3A and # 6”.   Those units were originally part of a larger lease granting exclusive rights to drill for, produce, and market oil and gas upon the land.

 Supreme Court properly granted summary judgment in favor of defendant declaring, inter alia, that the subject oil and gas lease is in full force and effect.   The court properly applied the general rule prevailing in all oil and gas producing States except Louisiana that, in an oil and gas lease, “the habendum clause, and modifying clauses of the habendum clause such as the well completion, continuous drilling, shut-in royalty, and dry hole clauses, are treated as being indivisible” (Hemingway, Law of Oil and Gas § 9.10, at 642 [3d ed. 1991] ).   Where, as here, there is no provision to the contrary, “if the assignor obtains production on the part retained, such production will not only satisfy the habendum clause of the lease as to [the] part retained but also as to the part or parts assigned” (2 Kuntz, Law of Oil and Gas § 26.12, at 404;  see, Hemingway, Law of Oil and Gas, op cit., § 9:10 [A], at 643).   Thus, because it is uncontroverted that at least eight wells are producing on the original leased premises and plaintiffs have received royalties thereon, defendants were not contractually obligated to tender further shut-in royalties for Oag units # 3A and # 6.

We have considered the remaining contentions raised on appeal and conclude that they are without merit.

Judgment unanimously affirmed without costs.

MEMORANDUM: