## Facts

- In 1929, the landowner conveyed by royalty deed an undivided one-half interest in oil and gas royalty from specified land “for the full term of fifteen (15) years … or so long as oil or gas shall be produced … in commercially paying quantities.”
- The grantee’s successors (including Archer County and others) claimed the continued existence of this term royalty interest.
- The landowner’s successors (trustees for an estate and charitable beneficiaries) later executed a 1940 oil and gas lease covering part of the land.
- The 1940 lease included a shut-in royalty clause providing that if gas was capable of production but not sold, payment of a shut-in royalty would cause gas to be “considered produced” for purposes of the lease’s habendum clause.
- No actual production in commercially paying quantities existed by the end of the royalty deed’s 15-year term (expiring in 1944), though shut-in royalties were paid under the lease in periods of nonproduction.
- Two suits tried together sought declarations that (1) the term royalty continued and (2) the lease remained effective; the trial court upheld both.
- The intermediate appellate court held the lease remained effective but ruled the term royalty had terminated and reverted to the landowner’s successors.

## Issues

1. Whether shut-in gas royalty payments made under a later oil and gas lease constitute “production … in commercially paying quantities” under an earlier term royalty deed, extending the term royalty beyond its 15-year term.
2. Whether a lease clause treating shut-in payments as “production” for lease purposes can alter the duration limitation stated in a previously executed royalty deed.

## Decision

- The Supreme Court of Texas affirmed the intermediate court’s judgment.
- The term royalty interest terminated at the end of its 15-year term because there was no actual production in commercially paying quantities as required by the royalty deed.
- Shut-in royalty payments under the later lease did not satisfy the royalty deed’s “produced” requirement and therefore did not extend the term royalty.
- The oil and gas lease itself remained in force under its own terms because the lease expressly treated shut-in payments as sufficient to maintain the lease.

## Legal Principles

- A term royalty deed granting an interest for a fixed period “or so long as oil or gas shall be produced … in commercially paying quantities” creates a determinable interest that ends automatically when the stated condition fails.
- In a royalty deed, “produced … in commercially paying quantities” refers to actual physical production from the land in paying quantities, absent clear deed language to the contrary.
- A shut-in royalty clause generally defines “production” only for the internal operation of the lease (typically the habendum clause) and does not, by itself, modify independently created property interests in prior deeds.
- References in a royalty deed to royalties under leases “outstanding or to be hereinafter outstanding” do not incorporate future lease drafting choices as a mechanism to extend the deed’s duration limitation.

## Conclusion

The court held that shut-in royalty payments made under a later lease cannot substitute for actual production required by an earlier term royalty deed; therefore, the term royalty expired at the end of its fixed term and reverted to the landowner’s successors, even though the lease remained effective under its own shut-in provisions.


Archer County v. Webb, 338 S.W.2d 435 (Tex. 1960)