## Facts

- In 1941, O.F. Neal conveyed certain Beaver County, Oklahoma land to Elmer Hall, reserving an undivided one-fourth mineral interest for 15 years and “as long thereafter” as minerals were produced or the premises were developed or operated, provided production first occurred within the 15-year term.
- Neal’s reserved term mineral interest later became held by a trust; M.E. Isaacson, the surviving trustee, leased that reserved interest to Howard C. Johnson.
- Hall and later Hall’s heirs granted oil and gas leases covering their interests in the same general lands to Panhandle Eastern Pipe Line Co. and to The Texas Company.
- In 1953–1954, a gas well (the Kiser well) was drilled and completed within the relevant area but was shut in because it was not connected to a pipeline; shut-in royalties were paid.
- The Oklahoma Corporation Commission entered a drilling and spacing order creating 640-acre spacing units for Sections 21 and 22, placing the Kiser well within the Section 22 unit that included lands subject to Neal’s reservation.
- When the 15-year term ended in August 1956, the lessees of the Hall heirs asserted Neal’s reserved one-fourth mineral interest had expired for lack of qualifying production or operations on the described land.
- The district court quieted title in Isaacson and Johnson to the one-fourth mineral interest, and Panhandle, Texas Company, and the Hall heirs appealed in consolidated cases.

## Issues

1. Whether production from a well located off the described tract, but within a valid Corporation Commission spacing unit including the tract, could be treated as production “from said land” to extend a term mineral reservation beyond its primary term.
2. Whether a shut-in gas well capable of producing in paying quantities, with shut-in royalties paid, satisfies a deed clause requiring “production” or continued “development or operation.”
3. Whether any extension of the term mineral reservation applied to all lands described in the reservation, including acreage in a separate section, or only to lands directly associated with the producing spacing unit.

## Decision

- The Tenth Circuit affirmed the judgment quieting title in Isaacson (owner of the reserved interest) and Johnson (lessee).
- The court held the term mineral reservation continued beyond the 15-year primary term because production within the Commission-established spacing unit was legally attributable to the tract covered by the reservation.
- The court held the shut-in Kiser well constituted sufficient production or operations to satisfy the reservation’s continuation clause despite the lack of pipeline connection or marketing.
- The court held the continuation preserved the reserved one-fourth mineral interest across the lands described in the reservation, including both Section 21 and Section 22 acreage.

## Legal Principles

- A valid Oklahoma Corporation Commission drilling and spacing order can unitize a common source of supply so that production from a well anywhere within the unit is treated as production from each tract in the unit for purposes of maintaining term mineral interests.
- For continuation clauses tied to “production,” Oklahoma law may treat discovery and capability of production in paying quantities as sufficient even if gas is shut in and not marketed, particularly where shut-in royalties are paid.
- Where a deed reserves a single term mineral interest covering multiple described parcels, courts may construe qualifying unit production and operations as extending the reserved interest as a whole rather than allowing partial expiration by tract.

## Conclusion

The court upheld quiet title for the holder of a one-fourth term mineral reservation and its lessee, ruling that a shut-in gas well within a Commission spacing unit satisfied the reservation’s continuation clause and extended the reserved interest beyond its primary term across all described lands.


Panhandle E. Pipe Line Co. v. Isaacson, 255 F.2d 669 (10th Cir. 1958)