## Facts

- In 1952, grantors conveyed Custer County, Oklahoma land by warranty deed to grantees, reserving an undivided 1/4 mineral interest for 30 years.
- The deed provided the reservation would continue beyond 30 years only if oil, gas, or other minerals “are being produced … in paying quantities” at the end of the 30-year term, and would last as long as such production continued.
- In 1979, the reserving owners leased their reserved mineral interest to a lessee, which later arranged for an operator.
- In September 1981, a gas well on the land was completed and tested and was capable of producing gas in paying quantities.
- In December 1981, the operator executed a gas purchase contract and began building a pipeline connection.
- The 30-year term expired on January 22, 1982.
- Pipeline construction was completed in April 1982; gas was first produced and marketed on May 5, 1982.
- The surface owners/grantees filed a quiet title action claiming the term mineral reservation expired because there was no production in paying quantities as of January 22, 1982.
- The case reached the Oklahoma Supreme Court on a certified question from the Tenth Circuit regarding the meaning of “being produced … in paying quantities” in the deed’s extension clause.

## Issues

1. Whether a term mineral reservation requiring that minerals “are being produced … in paying quantities” at the end of the primary term is extended by a well that is completed, tested, capable of such production, under contract for sale, and undergoing pipeline-connection construction, but not yet actually marketed.
2. Whether “production in paying quantities” in this deed context requires actual marketing and receipt of financial benefits by the end-date of the term.

## Decision

- The court answered the certified question in the negative.
- The extension condition was not met by capability of production, well testing, a gas purchase contract, or commencement of pipeline construction.
- Under the deed language, the reservation would extend only if gas was actually produced and marketed in paying quantities at the term’s expiration.
- Because gas was first marketed after the term expired, the term mineral reservation was not extended.

## Legal Principles

- For a term mineral reservation that continues only if minerals “are being produced … in paying quantities” at term expiration, “production” requires actual production and marketing, not mere capability or preparatory acts.
- “Production in paying quantities” is not satisfied until the minerals are reduced to possession and sold so that the parties receive financial benefits from production.
- Doctrines from oil-and-gas lease habendum clauses recognizing “capable of production” in some settings do not control a deed-based term mineral reservation when the instrument requires minerals to be “being produced” at the critical date.
- The extension condition in a term mineral reservation is tested at the end of the stated term; if actual marketing has not begun by that date, the reservation lapses.

## Conclusion

The Oklahoma Supreme Court construed the deed’s extension clause to require actual production and marketing in paying quantities at the end of the 30-year term, so a well merely capable of production with sales arrangements and incomplete connection work did not extend the reserved term mineral interest.


Fransen v. Eckhardt, 711 P.2d 926 (Okla. 1985)