## Facts

- A 1990 Texas oil and gas lease provided a three-year primary term and continuation thereafter “subject to other provisions” if minerals were produced and royalties paid.
- The lease royalty clause required (1) an initial royalty payment within 120 days after a producing well was drilled on the leasehold or within a pooled unit, and (2) monthly royalty payments thereafter; it stated that failure to make either payment would terminate the lease.
- The lessor’s interest passed to Robert Hitzelberger; the lessee’s interest passed to Samedan Oil Corporation.
- At Samedan’s request, Hitzelberger signed a unit agreement for the South Kerens Unit only on the express condition that the lease’s royalty provisions would survive pooling; Samedan accepted and modified the unit agreement.
- A producing well was drilled within the unit but not on Hitzelberger’s tract; first sale occurred June 12, 1992.
- Samedan timely paid the initial royalty on October 10, 1992, and made two monthly royalty payments.
- Samedan failed to pay monthly royalties due in January and February 1993; it admitted an internal clerical error and a payment “hold” pending a division order, though the lease did not require a division order as a precondition to payment.
- Hitzelberger notified Samedan that the lease had terminated and sought declaratory and related relief after Samedan refused to release the lease.
- After a bench trial decided solely on documents, the trial court declared the lease remained in effect; Hitzelberger appealed.

## Issues

1. Whether an unambiguous royalty clause stating that failure to timely pay initial or monthly royalties “would terminate the lease” can end the lease during the primary term.
2. Whether the unit agreement superseded or negated the lease’s royalty-based termination provisions once the leasehold was pooled.

## Decision

- The court of appeals reversed the trial court’s declaration that the lease remained in effect.
- The court held the lease terminated under its terms when Samedan failed to make the required monthly royalty payments.
- The court held the unit agreement did not nullify or supersede the lease’s royalty provisions because the parties expressly agreed those provisions would survive pooling.
- The court reversed and rendered judgment in part declaring termination, and reversed and remanded in part for further proceedings on remaining claims and relief.

## Legal Principles

- An unambiguous oil and gas lease is construed as a contract according to its plain language, reading the instrument as a whole.
- A habendum clause made “subject to” other lease provisions allows those provisions to qualify or limit lease duration.
- A royalty clause may operate as an enforceable termination condition when it expressly states that nonpayment of specified royalties results in termination, including during the primary term once royalty obligations are triggered by production in a pooled unit.
- Pooling does not, by itself, displace lease termination provisions where the parties contract that the lease’s royalty terms survive the unit agreement.
- Lessee internal mistakes and attempts to condition payment on documents not required by the lease do not avoid termination when the lease makes timely payment a condition of continuation.

## Conclusion

Because the lease expressly conditioned continuation on timely monthly royalty payments after unit production began, and Samedan missed required monthly payments without a lease-based excuse, the lease terminated notwithstanding the unit agreement, and the appellate court rendered judgment to that effect while remanding remaining matters for further proceedings.


Hitzelberger v. Samedan Oil Corp., 948 S.W.2d 497 (Tex. App.—Waco 1997, writ denied)