## Facts

- A lessor executed an oil and gas lease covering 160 acres with a ten-year primary term, continuous-operations provisions, and a pooling clause.
- The lease was assigned to Sunac’s predecessors; the assignor reserved an overriding royalty of “1/16 of 7/8,” limited to “as long as the lease or any renewal or extension thereof remained in force.”
- The assignment also stated the assignee had no obligation to drill or to keep the lease in force.
- The lessee pooled the 160 acres into a unit designated for gas purposes only; a well was drilled on other unit acreage and was being drilled at the end of the primary term.
- The unit well was later completed as a producer, but it produced oil rather than gas.
- Drilling on the 160-acre tract itself began only after the primary term ended; a producing well was later completed on the tract.
- Believing the original lease had terminated, Sunac later obtained a new lease from the lessors covering the same acreage; the new lease materially differed from the original (including no primary term and no delay rentals).
- Sunac stopped paying the overriding royalty; the overriding royalty owner sued to establish the override continued under the new lease and to recover unpaid royalties.
- The trial court and court of civil appeals ruled for the overriding royalty owner; the Texas Supreme Court reversed and rendered that the plaintiff take nothing.

## Issues

1. Whether the original lease continued beyond its primary term based on drilling/operations on the pooled unit or later operations on the tract.
2. If the original lease terminated, whether Sunac’s later lease from the lessors was a “renewal or extension” so the overriding royalty burden carried forward.
3. Whether Sunac owed a fiduciary or similar duty to preserve the overriding royalty interest by maintaining the original lease or by treating the new lease as burdened.

## Decision

- The original lease terminated at the end of the primary term because the lease’s extension provisions were not satisfied.
- The pooled-unit activity did not maintain the lease where there was no qualifying production at the primary-term deadline and the unit designation was for gas while the well ultimately produced oil.
- Operations on the 160-acre tract commenced only after termination and could not revive the expired lease.
- The later lease was a separate, independently negotiated contract with materially different terms and was not a “renewal or extension” of the original lease.
- No fiduciary or confidential relationship required Sunac to protect the overriding royalty interest; the parties’ relationship was contractual, and the assignment disclaimed any duty to drill or maintain the lease.
- Judgment below was reversed and rendered; the overriding royalty owner took nothing.

## Legal Principles

- An overriding royalty limited to the life of a lease (and any “renewal or extension”) ends when the underlying lease terminates unless a later lease is truly a renewal or extension.
- A subsequent lease on the same land is not a renewal or extension when it is executed after expiration and reflects a materially different bargain rather than a continuation of substantially similar terms.
- Absent fraud, a confidential relationship, or an express contractual undertaking to preserve the burden, a lessee/assignee may allow a lease to expire and later acquire a new lease free of the overriding royalty.

## Conclusion

The Texas Supreme Court held that the underlying lease expired under its own terms, that the later lease was not a renewal or extension, and that the assignee owed no special duty to preserve the overriding royalty; therefore, the overriding royalty did not attach to the new lease and the plaintiff recovered nothing.


Sunac Petroleum Corp. v. Parkes, 416 S.W.2d 798 (Tex. 1967)