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FOR PUBLICATION

ATTORNEYS FOR APPELLANT: KEITH E. ROUNDER JULIA B. LANGERAK Bowers Harrison LLP Evansville, Indiana

ATTORNEY FOR APPELLEE GULL OIL: STEPHEN T. LINK Evansville, Indiana ATTORNEY FOR APPELLEE BARKER: WILLIAM C. ILLINGWORTH Rhine, Ernest & Vargo Evansville, Indiana

IN THE COURT OF APPEALS OF INDIANA
RONALD W. MEISLER and DONALD G. MEISLER, Appellants-Plaintiffs, vs. GULL OIL, INC., et al., Appellees-Defendants. ) ) ) ) ) ) ) ) ) )

No. 82A01-0512-CV-572

APPEAL FROM THE VANDERBURGH SUPERIOR COURT The Honorable Wayne S. Trockman, Judge Cause No. 82D03-9912-CP-3892

June 13, 2006 OPINION--FOR PUBLICATION

BAKER, Judge

Appellants-plaintiffs Ronald and Donald Meisler (collectively, the Meislers) appeal from the trial court's order entering final judgment in favor of appellee-defendant Gull Oil, Inc. 1 (Gull Oil). In particular, the Meislers contend that Gull Oil's actions with respect to a particular portion of property covered by an oil and gas lease breached a clause of the lease and the implied covenant of reasonable development. Finding no error, we affirm the judgment of the trial court. FACTS This dispute concerns a seventy-year-old oil and gas lease (the Lease) on land in Vanderburgh County. Thirty-three wells have been drilled on the land, and two

commercially productive zones have been discovered and developed. Over the life of the Lease, the land has produced 975,461 barrels of oil, and the total value of that production is over $58 million. The Lease covers approximately 221 acres, and over time, there have been numerous assignments and subdivisions of the lease. The Meislers acquired ownership of the 221 acres through two separate transactions. Additionally, there are four separate "division orders" under which oil was marketed to the refinery. The Meislers own the surface and part of the oil and gas--and accompanying royalty--under two of the division orders. They also own the surface, but none of the oil and gas, under a third division order. They own no interest under the fourth division order. At the time of the initiation of this action, the four division orders were operated by three different oil companies, including Gull Oil.
1

In 2002, Pioneer Oil purchased various portions of the oil and gas lease herein, leaving Gull Oil as a nominal defendant. Because Gull Oil is the name appearing in the caption, we will refer to the appellee by that name.

2

At issue in this appeal are fifty acres (the Acreage) of the land covered by the Lease. Specifically, they are fifty acres on which the Meislers own the surface and part of the oil and gas. When the Meislers purchased the property, they knew of the Lease and the wells, inasmuch as they received, along with the deed, a separate assignment of the royalty in the lease. During the fifteen years before trial, the Lease produced 28,462.92 barrels of oil, which was sold for the sum of $616,668.66. Furthermore, oil sales occurred frequently throughout each year. There was no evidence that a prudent operator would have drilled, developed, or operated the Lease differently than it had been. The Meislers offered evidence that the Acreage has produced minimal amounts of oil since they have been lessors. During the 1990s, there were a number of times when there was no oil production on the Acreage for periods of one to two years. And during the time when there was oil production, the production was minimal. On December 14, 1999, the Meislers filed a complaint against Gull Oil, seeking cancellation of the entire Lease and a declaration that the Meislers owned all of the oilfield equipment on the entire Lease. 2 The Meislers hoped to plug the three operating wells on the Acreage so that they could build houses on the land. In early 2005, the Meislers filed an amended complaint, seeking partial cancellation of the Lease. Specifically, the Meislers

Additionally, we observe that an appearance and appellee's brief were filed by Milton Bruce Barker, who owns a "minor royalty interest" in the Lease. Barker's Br. p. 1.
2

Neither the original nor the amended complaints are included in the record on appeal.

3

sought to cancel the lease with respect to the Acreage, and they also sought a declaration that they owned all of the oilfield equipment located on the Acreage. Although the matter was set for trial, the parties and the trial court agreed to dispense with the presentation of evidence. To that end, on September 7, 2005, the parties submitted an agreed stipulation of facts to the trial court.3 On October 7, 2005, the parties submitted their respective post-trial briefs to the trial court. On November 21, 2005, the trial court found in favor of Gull Oil, finding, among other things, that Gull Oil did not violate the covenant of reasonable development, that the Meislers did not provide the required notice and demand to Gull Oil that the Acreage had not been adequately developed, and that Indiana does not permit the partial cancellation of a lease. The trial court entered final judgment in favor of Gull Oil, and the Meislers now appeal. DISCUSSION AND DECISION The Meislers argue that the trial court erred in entering final judgment in favor of Gull Oil. Specifically, they contend that they are entitled to the relief they are seeking because Gull Oil breached an express clause in the Lease and the implied covenant of reasonable development. As we consider these arguments, we observe that the trial court did not conduct an evidentiary hearing and based its decision on the parties' briefs and the stipulated facts.

3

Included among the stipulated facts was a series of statements regarding an affidavit (the Meisler Affidavit), with the Meisler Affidavit attached as an exhibit. Although Gull Oil objected to this stipulation and the inclusion of the Meisler Affidavit based on relevancy, the trial court overruled the objection in its final order. Gull Oil's App. p. 26. The Meislers include a lengthy argument in their opening and reply briefs regarding the Meisler Affidavit and its relevancy to the matters at hand, but inasmuch as the trial court overruled Gull Oil's objection and considered the stipulation and the affidavit in arriving at its conclusion, we do not understand what point of error the Meislers are raising and, therefore, will not address this argument.

4

Under these circumstances, we owe the trial court no deference, and our review is de novo. Farmers Ins. Exch. v. Smith, 757 N.E.2d 145, 148 (Ind. Ct. App. 2001). I. The Habendum Clause The Meislers first contend that Gull Oil breached the Lease by failing to produce appropriate amounts of oil and gas from the Acreage. Oil and gas leases are contractual in nature and will be interpreted under contract law. Stahl v. Ill. Oil Co., 90 N.E. 632, 633-34 (Ind. Ct. App. 1910). To that end, when an oil and gas lease is unambiguous, it will be interpreted and enforced according to the plain meaning of its terms. Dittman v. Keller, 104 N.E. 40, 41 (Ind. Ct. App. 1914). In general, a habendum clause is the portion of a deed defining "the extent of the ownership in the thing granted to be held and enjoyed by the grantee." Black's Law Dictionary 710 (6th ed. 1990). More specifically, in the context of oil and gas law, the purpose, operation, and construction of the habendum clause in oil and gas leases has been described as follows: "The modern habendum clause, with its short primary term and its `thereafter' provision, is designed to measure the duration of the oil and gas lease by its primary objective, the production of oil or gas. The clause seeks to assure the lessor that the leased premises will be put in production, from which the lessor will be paid a royalty, within the primary term or the lease will terminate, either at the end of the primary term, or if there is then production, thereafter upon the cessation of production. The lessee is assured of a fixed time in which to obtain production and of keeping the lease as long as production continues." Gull Oil's Br. p. 6 (quoting 3 Williams, Howard R. and Meyers, Charles J., Oil and Gas Law

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