## Facts

- Multiple landowners executed oil and gas leases to Maw Oil & Gas, LLC with a six-month primary term and a secondary term lasting “as long thereafter as” hydrocarbons were produced.
- The leases included shut-in royalty clauses stating that, under specified conditions, paying shut-in royalties would cause the lease to be deemed producing gas in paying quantities, but the leases did not define “shut in.”
- Maw assigned the leases to Clary Energy, LLC, which completed wells and then paid shut-in royalties to keep the leases in force beyond the primary term.
- The landowners contended the primary terms expired without commercial production or sales and alleged no meaningful attempt had been made to place the wells into production for delivery and sale.
- The district court determined the wells were not capable of producing in paying quantities without additional equipment or operations.
- The landowners executed affidavits asserting there were no producing gas wells and granted new leases to Kansas Gas Exploration, LLC (KGE).
- The landowners and KGE filed consolidated quiet-title actions seeking declarations that the prior leases terminated and that KGE held the exclusive right to develop.
- Before discovery, the district court granted summary judgment for the landowners and KGE and dismissed the lessees’ counterclaims.

## Issues

1. Whether the wells were “shut in” within the meaning of the shut-in royalty clauses such that payment of shut-in royalties extended the leases beyond the primary term despite no actual production and sale.
2. Whether summary judgment was proper or whether genuine issues of material fact existed concerning the wells’ capability to produce in paying quantities and the application of the shut-in clauses.

## Decision

- The Kansas Supreme Court affirmed summary judgment for the landowners and KGE.
- The Court held the shut-in royalty clauses did not extend the leases because the wells were not “shut in” as that term is used in oil-and-gas leasing.
- The Court concluded the clauses presuppose a completed well capable of producing in paying quantities that is not producing due to market or similar constraints; a well needing additional significant work or equipment to produce does not qualify.
- Because the primary terms expired and neither actual production nor a properly triggered shut-in clause maintained the leases, the leases terminated and the lessees had no continuing interest.
- The Court found no genuine dispute of material fact on the record presented and treated interpretation of the lease provisions as a question of law suitable for summary judgment.

## Legal Principles

- Kansas oil-and-gas disputes are resolved primarily through contract interpretation, with lease terms controlling the parties’ rights and duties.
- A shut-in royalty clause operates as a contractual substitute for production only when there is a completed gas well currently capable of producing in paying quantities that is temporarily not producing for market-related or comparable reasons.
- Payment of shut-in royalties cannot preserve a lease past the primary term where the well is not capable of producing in paying quantities without additional substantial operations or equipment.
- Summary judgment is appropriate when no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law; appellate review applies the same standard.

## Conclusion

The court held that shut-in payments do not maintain an oil and gas lease beyond the primary term unless the well is already capable of producing in paying quantities and is merely closed in for market-related reasons, and it affirmed summary judgment terminating the leases and quieting title in favor of the landowners and their new lessee.


Levin v. Maw Oil & Gas, LLC, 290 Kan. 928, 234 P.3d 805 (Kan. 2010)