## Facts

- Landowners owned mineral interests subject to an earlier oil and gas lease held by Amerada Hess Corporation (Amerada).
- Amerada assigned part of its leasehold to Union Texas Petroleum (Union), which drilled a producing well.
- The landowners later granted a second lease on the same premises to Rodman-related parties (Rodman), who also drilled a producing well.
- The landowners sued to terminate Amerada’s lease, alleging the lease had ceased producing oil and gas in paying quantities.
- Amerada sued Rodman to eject it from the leasehold and to recover the value of oil and gas Rodman allegedly removed.
- The actions were consolidated; the district court upheld Amerada’s superior lease rights and entered a money judgment against Rodman.
- The court of appeals reversed, holding as a matter of law that Amerada’s lease had expired because the Union well was not producing in paying quantities during a short, specified period.
- The Oklahoma Supreme Court granted certiorari to review the standard used to determine “paying quantities” and whether the lease had terminated.

## Issues

1. Whether production from the Amerada leasehold ceased to be in “paying quantities.”
2. If production ceased to be in paying quantities, whether that cessation terminated Amerada’s leasehold estate under the habendum clause.
3. What time frame and cost/expense considerations govern the “paying quantities” determination, and whether the issue may be resolved as a matter of law on limited financial data.

## Decision

- The Oklahoma Supreme Court vacated the court of appeals’ opinions.
- The Court rejected the court of appeals’ conclusion that the lease expired as a matter of law based on a narrow, short-term profitability snapshot.
- The Court reversed the district court’s judgments and remanded both consolidated cases for further proceedings under the correct standard for “paying quantities.”
- The Court held the record required a broader, fact-sensitive inquiry into profitability and prudent operation over a reasonable period, rather than an arbitrarily selected interval.

## Legal Principles

- “Production in paying quantities” is evaluated by asking whether a reasonably prudent operator would continue operations for profit (not mere speculation) under the same circumstances.
- Profitability cannot be determined solely from a brief or arbitrarily selected span of time; the proper inquiry examines production and expenses over a “reasonable period” that depends on the facts.
- Selection of the relevant “reasonable period,” and the significance of temporary downturns or operational changes, commonly presents fact questions for the trier of fact.
- Accounting conventions or short-term “paper” losses may be insufficient to establish nonproduction in paying quantities; the inquiry centers on actual economic return under the prudent-operator standard.
- Although a true cessation of production in paying quantities may terminate a lease under a habendum clause, termination cannot be declared as a matter of law without applying the correct standard to an adequate factual record.

## Conclusion

The Oklahoma Supreme Court held that whether an oil and gas lease is producing in paying quantities generally requires a prudent-operator assessment over a reasonable period and is not ordinarily resolved as a matter of law from limited short-term financial data; the case was remanded for proceedings applying that standard.


Stewart v. Amerada Hess Corp., 604 P.2d 854 (Okla. 1979)