## Facts

- A lessor executed an oil and gas lease covering 160 acres in Hutchinson County, Texas.
- The lease provided a five-year primary term and continuation thereafter only “as long thereafter as oil or gas, or either of them, is produced in paying quantities” by the lessee.
- The lessee began drilling during the primary term and completed a well that discovered sour gas.
- During the primary term, there was no market for the sour gas, and the well did not produce gas in paying quantities.
- After the primary term ended, changed conditions created a potential outlet, and the lessee entered a contract to sell gas.
- The lessor asserted the lease terminated at the end of the five-year primary term for failure to produce in paying quantities within that term.
- The lessee sued to establish that the lease remained valid; the trial court ruled for the lessor, and the lessee appealed.

## Issues

1. Whether discovery of gas during the primary term extends a lease beyond the primary term when the habendum clause requires production in paying quantities.
2. Whether the absence of a market during the primary term excuses the failure to produce in paying quantities and prevents termination at the end of the primary term.

## Decision

- The appellate court affirmed judgment for the lessor.
- The court held the lease expired at the end of the primary term because oil or gas was not produced in paying quantities within that term.
- The court rejected the argument that lack of a market suspended or extended the lease where the lease contained no such provision.
- Post-term market development and later sales arrangements could not revive a lease that had already terminated by its own terms.

## Legal Principles

- An oil and gas lease with a fixed primary term and a habendum clause continuing the lease only while oil or gas is “produced in paying quantities” requires actual production in paying quantities to extend the lease beyond the primary term.
- Mere discovery of oil or gas, without production in paying quantities, does not satisfy a habendum clause conditioned on paying-quantities production.
- Absent express contractual language, the lack of a market during the primary term does not excuse nonproduction in paying quantities or prevent termination at the end of the primary term.
- A lease structured as a determinable estate terminates automatically upon failure of the condition (production in paying quantities) and does not continue based on later-arising opportunities.

## Conclusion

The court enforced the lease’s habendum clause as written and held that discovery of sour gas without production in paying quantities during the primary term did not extend the lease; the lease terminated automatically at the end of the five-year term despite later development of a market.


Stanolind Oil & Gas Co. v. Barnhill, 107 S.W.2d 746 (Tex. Civ. App. 1937)