## Facts

- Mineral owners leased gas rights in the Glick Field in Kiowa and Comanche Counties, Kansas, to Gulf Oil Corporation in 1956–1957; Chevron U.S.A., Inc. later became the lessee as successor.
- In 1960, Gulf entered a 20-year gas-purchase contract with Kansas Gas Supply Corp. (KGS) containing take-or-pay commitments tied to reserves and deliverability; KGS owned the intrastate pipeline serving the field.
- In 1978, Gulf and KGS amended the contract to extend the term through December 31, 1990 and to provide higher gas prices over time; the lessors accepted royalties generated by those increased prices.
- In 1982, the contract price exceeded a statutory cap under the Kansas Natural Gas Price Protection Act; the parties treated the statute as limiting the payable price. The relevant provisions later expired effective January 1, 1985.
- Around 1985, market demand declined; KGS sought a lower contract price, Chevron refused to renegotiate, KGS stopped paying, and production from the twelve wells at issue ceased from September 1985 to October 1987.
- Chevron shut in the wells and tendered shut-in royalties during nonproduction; the record indicated no alternate purchaser existed in September 1985 given KGS’s control of the pipeline.
- Chevron resumed production and sales in October 1987.
- In 1988, the lessors sued to cancel the leases, alleging breach of the implied covenant to market based on (a) the 1978 contract extension and (b) failure to sell gas during the 1985–1987 shut-in period.
- The district court granted summary judgment for the lessors, cancelled the leases, and ordered an accounting for post–October 1, 1987 production.

## Issues

1. Whether the lessee breached the implied covenant to market by extending the gas-purchase contract in 1978 and by failing to sell gas during the 1985–1987 shut-in period.
2. Whether the lessee’s marketing conduct could be adjudicated as a matter of law on summary judgment under the prudent-operator standard.
3. Whether cancellation of the oil and gas leases was an appropriate remedy for any breach of the implied covenant to market.

## Decision

- The Kansas Supreme Court reversed the summary judgment and remanded.
- The court held that whether Chevron acted as a reasonably prudent operator in its marketing decisions presented genuine issues of material fact.
- The court held that lease cancellation for breach of an implied covenant is an extreme remedy and is generally improper where damages can be measured with reasonable certainty.
- The court directed further proceedings to assess prudence and any remedy through fact-specific findings, including individualized consideration of the wells and time periods involved.

## Legal Principles

- The implied covenant to market requires the lessee to act as an experienced operator of reasonable prudence under the same or similar circumstances, evaluated at the time of the decision and not by hindsight.
- Whether marketing decisions satisfy the prudent-operator standard is typically fact-intensive and may require evidence concerning market conditions, available outlets, and economic feasibility.
- For breach of implied covenants in oil and gas leases, damages are ordinarily the preferred remedy.
- Cancellation or forfeiture is disfavored and should be ordered only when damages cannot be determined with reasonable certainty or are otherwise inadequate.

## Conclusion

The Kansas Supreme Court held that disputed facts about the prudence of Chevron’s long-term marketing contract decisions and its shut-in response to the 1985 market collapse precluded summary judgment, and that cancellation was premature because monetary damages—such as lost royalties—would generally provide an adequate remedy if a breach were proven.


Robbins v. Chevron U.S.A., Inc., 785 P.2d 1010 (Kan. 1990)