Oxy United States v. Red Wing Oil, Kansas Court of Appeals
October 16, 2015, 2015 Kan. LEXIS 69

The court held that a reservation in a deed of ½ of minerals for 20 years and so long thereafter as there is production in paying quantities required actual production on the property at issue and could not be held by production on a unit that included the acreage.

In a 1945 deed, Luther sold a 160 acre tract but reserved ½ of the minerals for 20 years “or so long thereafter as oil, gas or other minerals is produced therefrom.” No production was obtained from the tract itself but it was included in a unit that was producing. In 2009, Oxy completed a well on the tract itself and filed this action to have it determined who owned the mineral interest. The court discussed two Kansas Supreme Court cases: Smith v Home Royalty Association, a 1972 decision and Classen v Federal Land Bank of Wichita, a 1980 decision.

Smith held that production on a unit would not be considered production from a tract within the unit unless the production was from the subject property. Claussen overturned this ruling. However, the Supreme Court ruled that Claussen would not be given retroactive effect and that interests that vested before Claussen would still be governed by the rule announced in Smith.

In addition, the court held that a reversionary interest is a vested interest and was not subject to the statute of limitations.